off the cliff and back credit conditions and international trade during the global financial crisis abstract we study the collapse of international trade flows during the global financial crisis using detailed data on monthly us imports we show that credit conditions were an important channel through which the crisis affected trade volumes by exploiting the variation in the cost of capital across countries and over time as well as the variation in financial vulnerability across sectors countries with higher interbank rates and thus tighter credit markets exported less to the us during the peak of the crisis this effect was especially pronounced in sectors that require extensive external financing have limited access to trade credit or have few collateralizable assets exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries and this sensitivity rose during the financial crisis the quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention

multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

political risk and export promotion evidence from germany political risk represents an important hidden transaction cost that reduces international trade this paper investigates the claim that german public export credit guarantees hermes guarantees mitigate this friction to trade flows and hence promote exports we employ an empirical trade gravity model where we explicitly control for political risk in the importing country in order to evaluate the effect of export guarantees the idea behind export promotion through public export credit agencies ecas is that the private market is unable to provide adequate insurance for all risks associated with exports as a consequence firms export activities are limited in the absence of insurance provision using a novel data set on guarantees we estimate the effect of guarantees in a static and dynamic panel model we find a statistically and economically significant positive effect of public export guarantees on exports which indicates that export promotion is indeed effective furthermore political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade

eliciting welfare preferences from behavioural data sets an individual displays various preference orderings in different payoff irrelevant circumstances it is assumed that the variation in the observed preference orderings is the outcome of some cognitive process that distorts the underlying preferences of the individual we introduce a framework for eliciting the individual s underlying preferences in such cases and then demonstrate it for two cognitive processes satisficing and small assessment errors

repeated games with frequent signals we study repeated games with frequent actions and frequent imperfect public signals where the signals are the aggregate of many discrete events such as sales or tasks the high frequency limit of the equilibrium set depends on both the probability law governing the discrete events and on how many events are aggregated into a single signal when the underlying events have a binomial distribution the limit equilibria correspond to the equilibria of the associated continuous time game with diffusion signals but other event processes that aggregate to a diffusion limit can have a different set of limit equilibria thus the continuous time game need not be a good approximation of the high frequency limit whenever the underlying events have three or more possible values

finance firm size and growth the authors examine whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth they define an industry s technological firm size as the firm size implied by industrial specific production technologies including capital intensities and scale economies using cross industry cross country data the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms this suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications

firm reputation and horizontal integration author s cai hongbin abstract we study effects of horizontal integration on firm reputation in an environment where customers observe only imperfect signals about firms effort quality choices firms cannot maintain reputations of high quality and earn quality premium forever even when firms are choosing high quality effort there is always a possibility that a bad signal is observed in this case firms must give up their quality premium at least temporarily as punishment a firm s integration decision is based on the extent to which integration attenuates this necessary cost of maintaining a good reputation horizontal integration leads to a larger market base for the merged firm and may allow better monitoring of the firm s choices hence improving the punishment scheme for deviations on the other hand it gives the merged firm more room for sophisticated derivations we characterize the optimal level of integration and provide sufficient conditions under which nonintegration dominates integration we show that the optimal size of the firm is smaller when 1 trades are more frequent and information is disseminated more rapidly or 2 the deviation gain is smaller than the honesty benefit or 3 customer information about firm choices is more precise

perfect public equilibrium when players are patient we provide a characterization of the limit set of perfect public equilibrium payoffs of repeated games with imperfect public monitoring as the discount factor goes to one our result covers general stage games including those that fail a full dimensionality condition that had been imposed in past work it also provides a characterization of the limit set when the strategies are restricted in a way that endogenously makes the full dimensionality condition fail as in the strongly symmetric equilibrium studied by abreu abreu d 1986 extremal equilibria of oligopolistic supergames j econ theory 39 191 228 and abreu et al abreu d pearce d stacchetti e 1986 optimal cartel equilibria with imperfect monitoring j econ theory 39 251 269 finally we use our characterization to give a sufficient condition for the exact achievability of first best outcomes equilibria of this type for which all continuation payoffs lie on the pareto frontier have a strong renegotiation proofness property regardless of the history players can never unanimously prefer another equilibrium

impossibility of collusion under imperfect monitoring with flexible production we show that it is impossible to achieve collusion in a duopoly when 1 goods are homogenous and firms compete in quantities 2 new imperfect information arrives continuously without sudden events and 3 firms are able to respond to this new information quickly the result holds even if we allow for asymmetric equilibria or monetary transfers the intuition is that the flexibility to respond to new information quickly unravels any collusive scheme and that signals about the aggregate behavior only cannot be used effectively to provide individual incentives via transfers our result applies both to a simple stationary model and a more complicated one with prices following a mean reverting markov process

time inconsistency and alcohol sales restrictions restrictions on alcohol sales hours or days are commonly used tools in order to reduce alcohol consumption however a forward looking consumer can buy in advance thereby mostly undo the impact of the restriction i study whether time inconsistent consumer preferences can provide a justification for restrictions on alcohol sales time i estimate a demand model which allows a fraction of consumers to be time inconsistent using scanner data of beer purchases and other shopping behavior according to the estimation results 20 of consumers are time inconsistent and they account for 64 of beer consumption i find that sunday sales restriction decreases weekend consumption by the same amount as a sales tax increase by 21 percentage points in terms of consumer welfare the sales restriction is preferable to the tax increase

life cycle prices and production we use scanner data and time diaries to document how households substitute time for money through shopping and home production we document substantial heterogeneity in prices paid for identical goods for the same area and time with older households shopping the most and paying the lowest prices doubling shopping frequency lowers a good s price by 7 to 10 percent we estimate the shopper s price of time and use this series to estimate an elasticity of substitution between time and goods in home production of roughly 1 8 the observed life cycle time allocation implies a consumption series that differs markedly from expenditures

measuring rationality with the minimum cost of revealed preference violations abstract we introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large balanced panel of household level consumption data this new measure the minimum cost index is the minimum cost of breaking all revealed preference cycles found in choices from budget sets unlike existing measures of rationality it responds to both the number and severity of revealed preference violations

how demanding is the revealed preference approach to demand a well known problem with revealed preference methods is that when data are found to satisfy their restrictions it is hard to know whether this should be viewed as a triumph for economic theory or a warning that these conditions are so undemanding that almost anything goes this paper allows researchers to make this distinction our approach uses an axiomatic characterization of a measure of predictive success due to selten 1991 we illustrate the idea using a panel dataset the results show that this approach can lead us to radically reassess our view of the empirical performance of economic theory

who is more rational we report on the results of a large scale field experiment that enables us to test for consistency with utility maximizing behavior and to investigate the correlation between individual behavior and demographic and economic characteristics we conducted the experiment with the centerpanel a representative sample of over 2 000 dutch households using procedures similar to those used by choi et al 2007b in a setting with risk we find a high level of consistency in the individual level decisions there is also considerable heterogeneity in subjects consistency scores high income and high education subjects display greater levels of consistency men are more consistent than women and young subjects are more consistent than those who

optimal collusion under imperfect monitoring in multimarket contact abstract we investigate optimal collusion in repeated multimarket contact under imperfect public monitoring where two firms operate in m markets and in each market each firm s decision and public signals are binary we show that in an optimal pure strategy strongly symmetric perfect public equilibrium the size of efficiency loss is equal to that in the market with the most tempting deviation under single market contact furthermore we show a sufficient condition under which the symmetric equilibrium is optimal for joint payoff maximization among any perfect public equilibrium

export credit guarantees and export performance an empirical analysis for germany recent literature finds that exporters are particularly vulnerable to financial market frictions as a consequence exports may be lower than their efficient levels for this reason many countries support exporters by underwriting export credit guarantees the empirical evidence on the effects of those policies is however very limited in this paper we use sectoral data on export credit guarantees issued by the german government we investigate whether those guarantees indeed do increase exports and whether they remedy the export restricting effect of credit market imperfections both on the sectoral and on the export market levels exploiting the sectoral structure of a rich three way panel data set of german exports we control for unobserved heterogeneity on the country year sector year and country sector dimensions we document a robust export increasing effect of guarantees there is some evidence that the effect is larger for export markets with poor financial institutions and in sectors that rely more on external finance

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

nonparametric engel curves and revealed preference this paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand knowledge of expansion paths is shown to improve the power of nonparametric tests of revealed preference the tightest bounds on indifference surfaces and welfare measures are derived using an algorithm for which revealed preference conditions are shown to guarantee convergence nonparametric engel curves are used to estimate expansion paths and provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory an application is made to a long time series of repeated cross sections from the family expenditure survey for britain the consistency of these data with revealed preference theory is examined for periods of consistency with revealed preference tight bounds are placed on true cost of living indices

the welfare economics of default options in 401 k plans default contribution rates for 401 k pension plans powerfully influence choices potential causes include opt out costs procrastination inattention and psychological anchoring using realistically parameterized models we show how the optimal default the magnitude of the welfare effects and the degree of normative ambiguity depend on the behavioral model the scope of the choice domain deemed welfare relevant the use of penalties for passive choice and other 401 k plan features while results are theory specific our analysis provides reasonably robust justifications for setting the default either at the highest contribution rate matched by the employer or contrary to common wisdom at zero jel d14 d91 j26 j32

beyond revealed preference choice theoretic foundations for behavioral welfare economics we propose a broad generalization of standard choice theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models our approach exploits the coherent aspects of choice that those positive models typically attempt to capture it replaces the standard revealed preference relation with an unambiguous choice relation roughly x is strictly unambiguously chosen over y written xp y iff y is never chosen when x is available under weak assumptions p is acyclic and therefore suitable for welfare analysis it is also the most discerning welfare criterion that never overrules choice the resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories with novel implications though not universally discerning it lends itself to principled refinements

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

optimal contracting with subjective evaluation this paper extends the standard principal agent model to allow for subjective evaluation the optimal contract results in more compressed pay relative to the case with verifiable performance measures moreover discrimination against an individual implies lower pay and performance suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination finally the optimal contract entails the use of bonus pay rather than the threat of dismissal hence neither efficiency wages nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract

a measure of rationality and welfare evidence showing that individual behavior often deviates from the classical principle of preference maximization has raised at least two important questions 1 how serious are the deviations 2 what is the best way to analyze choice behavior in order to extract information for the purpose of welfare analysis this paper addresses these questions by proposing a new way to identify the preference relation that is closest in terms of welfare loss to the revealed choice

choice and individual welfare we propose an abstract method of systematically assigning a rational ranking to non rationalizable choice data our main idea is that any method of ascribing welfare to an individual as a function of choice is subjective and depends on the economist undertaking the analysis we provide a simple example of the type of exercise we propose namely we define an individual welfare functional as a mapping from stochastic choice functions into weak orders a stochastic choice function or choice distribution gives the empirical frequency of choices for any possible opportunity set framing factors may also be incorporated into the model we require that for any two alternatives x and y if our individual welfare functional recommends x over y given two distinct choice distributions then it also recommends x over y for any mixture of the two choice distributions together with some mild technical requirements such an individual welfare functional must weight every opportunity set and assign a utility to each alternative x which is the sum across all opportunity sets of the weighted probability of x being chosen from the set it therefore requires us to have a prior view about how important or representative a choice of x at a given situation is

public export credit guarantees and foreign trade structure evidence from austria foreign trade is usually not based on cash transactions but rather sales on credit are the rule the resulting monitoring costs for lenders and the risk of default on accounts receivable are part of the costs associated with cross border goods transactions relative to domestic trade credit cross border credit creates trade barriers due to differences in language business practice jurisdiction and payment enforceability between trading partners export credit insurance has long been a domain of public export credit agencies only since the early 1980s private insurance is gaining ground using disaggregated panel data for goods exports from austria over the period 1996 to 2002 we show that public export credit guarantees have a less than proportional positive effect on international trade volume they predominantly affect the country structure of foreign trade but leave the industry specialisation almost unchanged

predictive power in behavioral welfare economics when choices appear inconsistent duet obehavioral biases there is a theoretical debate about whether or not it is necessary to impose the structure of a model in order to provide meaning ful welfare guidance based on such choices to address this question empirically we evaluate the predictive power of the model free and non parametric approach to welfare analysis proposed by bernheim and rangel 2009 in two standard choice settings we show that for most hypothetical demands this approach does not offer clear welfare guidance however we find that for most observed demands this approach can be used to make tight predictions even though these demand functions exhibit inconsistencies for the experimental choices of manzini and mariotti 2010 we show that the welfare guidance provided by these predictions is consistent with delaya version eventhough the guidance provided by revealed preferences is more ambiguous

on interdependent supergames multimarket contact concavity and collusion abstract following bernheim and whinston 1990 this paper addresses the effects of multimarket contact on firms ability to collude real world imperfections tend to make firms objective function strictly concave and market supergames interdependent firms payoffs in each market depend on how they are doing in others then multimarket contact always facilitates collusion it may even make collusion sustainable in all markets when otherwise it would not be sustainable in any the effects of conglomeration are discussed multigame contact is shown to facilitate cooperation in supergames other than oligopolies as long as agents objective function is submodular in material payoffs journal of economic literature classification numbers c72 d43 l13 l21

an example of a repeated partnership game with discounting and with uniformly inefficient equilibria in this note we present an example of a repeated partnership game with imperfect monitoring in which all supergame equilibria with positive discount rates are bounded away from full efficiency uniformly in the discount rate provided the latter is strictly positive on the other hand if the players do not discount the future then every efficient one period payoff vector that dominates the one period equilibrium payoff vector can be attained by an equilibrium of the repeated game thus the correspondence that maps the players discount rate into the corresponding set of repeated game equilibrium payoff vectors is discontinuous at the point at which the discount rate is zero

consistency and heterogeneity of individual behavior under uncertainty by using graphical representations of simple portfolio choice problems we generate a very rich dataset to study behavior under uncertainty at the level of the individual subject we test the data for consistency with the maximization hypothesis and we estimate preferences using a two parameter utility function based on faruk gul 1991 this specification provides a good interpretation of the data at the individual level and can account for the highly heterogeneous behaviors observed in the laboratory the parameter estimates jointly describe attitudes toward risk and allow us to characterize the distribution of risk preferences in the population

multimarket contact in continuous time games abstract this paper investigates whether multimarket contact is effective in increasing the value of collusion we show that for any discount rate the set of equilibrium payoffs average per market expands through multimarket contact in continuous time games

living by the golden rule multimarket contact in the u s airline industry this paper examines empirically the effects of multimarket contact on pricing in the u s airline industry the analysis of the time series and cross sectional variability of airline fares in the 1000 largest domestic city pair routes reveals the presence of statistically significant and quantitatively important multimarket effects fares are higher in city pair markets served by carriers with extensive interroute contacts these findings are consistent with the claims of industry experts that airlines live by the golden rule i e that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes during his testimony mr steven b elkins senior director of marketing systems development for northwest airlines cited an example in which northwest lowered fares on night flights that were flying with empty seats in a number of routes from minneapolis and upper midwest cities to various west coast cities he said that continental airlines swiftly responded by cutting prices in important northwest markets mr elkins s memo advises northwest pricing analysts we will live by the golden rule in his testimony he explained that the golden rule in that context was that i did not want my pricing analyst initiating actions in another carrier s market like chicago for fear of what that other carrier might do to retaliate wall street journal october 9 1990 p b1