education poverty and terrorism is there a causal connection the paper investigates whether there is a connection between poverty or low education and terrorism we review evidence on hate crimes which are closely related to terrorism the occurrence of hate crimes is largely independent of economic conditions we analyze data on support for attacks against israeli targets from public opinion polls conducted in the west bank and gaza strip support for violent attacks does not decrease among those with higher education and higher living standards the core contribution of the paper is a statistical analysis of the determinants of participation in hezbollah militant activities having a living standard above the poverty line or a secondary or higher education is positively associated with participation in hezbollah we also find that israeli jewish settlers who attacked palestinians in the west bank in the early 1980s were overwhelmingly from high paying occupations although our results are tentative and exploratory they suggest that neither poverty nor education has a direct causal impact on terrorism

organizational design decision rights and incentive contracts where should decision rights be lodged in organizations michael c jensen and william h meckling 1992 argue that moving a decision away from the inherently best informed party involves costs in communication and garbling but may lodge it with someone who has better incentives to make good decisions generally however we expect that incentives are part of the organizational design why not just provide incentives to those with the best information so that they make the right decisions one reason is that the available incentive instruments must serve multiple purposes and designing them to induce better decisions worsens performance against other organizational objectives our experience suggests that this is a common situation in actual organizations the means available to affect one sort of behavior or decision inevitably affect the incentives governing other choices then the design of incentive schemes and the allocation of decision rights become interlinked this paper looks at this idea in the specific context of a principal s problem of inducing agents to provide unobservable effort while also motivating the efficient selection of investments each of these problems has been extensively studied in isolation on inducing effort see e g bengt holmstrom 1979 and holmstrom and paul milgrom 1991 on decisions see e g eugene f fama and jensen 1983 milgrom and roberts 1990a b philippe aghion and jean tirole 1997 matthias dewatripont and tirole 1999 we thus know that motivating effort is done best by rewarding agents on precise measures of their effort not necessarily on the total value created in the firm at the same time it is clear that getting the right investment choices may require that the decision makers rewards be tied to total value created the difficulty is that the available measures do not allow doing both the only available performance measures are aggregates whose component pieces cannot be disentangled while contracts must be written in advance of learning about investment possibilities including many contingencies in the contracts ex ante is impossible and ongoing renegotiation in every ex post eventuality is prohibitively costly more formally we assume that it is not possible to contract on investment projects nor can the principal bargain with the agents over the adoption of these projects once they are identified instead returns to projects are reflected in the performance measures available for use in the effort incentive contracting then the incentives for effort and for decisions are inextricably tied together in this framework we explore the interactions among the design of jobs and assignment of individuals to tasks the shape and intensity of effort incentives and the allocation of authority over project selection we argue that it may indeed be optimal to assign decisions rights to someone other than the best informed party an authority based hierarchy then emerges endogenously with some agents being given the right to make organizational decisions over projects that others discovered moreover as in herbert simon 1951 those in authority will make the decisions in a self interested way simon emphasized that this discussants michael riordan columbia university bengt holmstrom massachusetts institute of technology w bentley macleod university of southern california

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

an experiment on learning with limited information nonconvergence experimentation cascades and the advantage of being slow abstract we present the results of an experiment on learning in a continuous time low information setting for a dominance solvable version of a cournot oligopoly with differentiated products we find little evidence of convergence to the nash equilibrium in an asynchronous setting characterized by players updating their strategies at different frequencies play tends toward the stackelberg outcome which favors the slower player convergence is significantly more robust for a serial cost sharing game which satisfies a stronger solution concept of overwhelmed solvability as the number of players grows this improved convergence tends to diminish seemingly driven by frequent and highly structured experimentation by players leading to a cascading effect in which experimentation by one player induces experimentation by others these results have implications both for traditional oligopoly competition and for a wide variety of strategic situations arising on the internet

delegation and incentives this article analyzes the relation between authority and incentives it extends the standard principal agent model by a project selection stage in which the principal can either delegate the choice of project to the agent or keep the authority the agent s subsequent choice of effort depends both on monetary incentives and the selected project we find that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent in fact if the agent is protected by limited liability delegation is never optimal

inequality aversion and efficiency with ordinal and cardinal social preferences an experimental study abstract in this paper we report on a series of free form bargaining experiments in which two players have to distribute four indivisible goods among themselves in one treatment players are informed about the monetary payoffs associated with each bundle of goods in a second treatment only the ordinal ranking of the bundles is given we find that in both cases inequality aversion plays a prominent role in the ordinal treatment individuals apparently use the ranks in the respective preference orderings over bundles of goods as a substitute for the unknown monetary value allocations that distribute the value money or ranks respectively most equally serve as natural reference points for the bargaining processes frequently such equal split allocations are chosen by our subjects even though they are pareto dominated whether a pareto optimal allocation is chosen or not depends on whether or not it is a pareto improvement relative to the equal split reference allocation we find less pareto damaging behavior due to inequality aversion in the ordinal than in the cardinal treatment

communication and coordination in a two stage game we study the impact of communication on behavior in a two stage coordination game with asymmetric payoffs we test experimentally whether individuals can avoid a head to head confrontation by means of coordinated strategies in particular we analyze whether and how quickly a conflict avoidance take turn strategy can emerge first our results show that players learn to solve the conflict by choosing opposite options at both stages of the game second many adopt a take turn strategy to sustain coordination over time and alleviate the inequality induced by the asymmetry of payoffs third communication increases the likelihood of conflict resolution even when a single pair member has the right to communicate

authority versus persuasion this paper studies a principal s trade off between using persuasion versus using interpersonal authority to get the agent to do the right thing from the principal s perspective when the principal and agent openly disagree on the right course of action it shows that persuasion and authority are complements at low levels of effectiveness but substitutes at high levels furthermore the principal will rely more on persuasion when agent motivation is more important for the execution of the project when the agent has strong intrinsic or extrinsic incentives and for a wide range of settings when the principal is more confident about the right course of action this abstract was borrowed from another version of this item

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

efficiency equality and labeling an experimental investigation of focal points in explicit bargaining we investigate schelling s hypothesis that payoff irrelevant labels cues can influence the outcomes of bargaining games with communication in our experimental games players negotiate over the division of a surplus by claiming valuable objects that have payoff irrelevant spatial locations negotiation occurs in continuous time constrained by a deadline in some games spatial cues are opposed to principles of equality or efficiency we find a strong tendency for players to agree on efficient and minimally unequal payoff divisions even if spatial cues suggest otherwise but if there are two such divisions cues are often used to select between them inducing distributional effects jel c78 d63 d83 in the strategy of conflict thomas c schelling 1960 pp 53 67 74 proposes the hypothesis that the outcomes of bargaining problems can be systematically influenced by incidental details or as they would now be called properties of framing or labeling these labeling properties or cues have no direct relationship to payoffs and are not represented in standard game theoretic models but they nevertheless provide a means by which players can coordinate their expectations although much of his theoretical analysis and all of his informal experiments are concerned with simultaneous move games without communication schelling claims that this hypothesis applies to explicit bargaining with full communication and enforcement he acknowledges that communication provides mechanisms for coordination that are not present in his simple experiments but still argues that framing properties can remain significant in explicit bargaining most subsequent bargaining theory has not used this idea but if real world bargaining is substantially affected by payoff irrelevant cues a satisfactory theory of bargaining needs to take account

interpersonal authority in a theory of the firm this paper develops a theory of the flrm in which a flrm s centralized asset ownership and low powered incentives give a manager interpersonal authority over employees in a world with difiering priors the paper derives such interpersonal authority as an equilibrium phenomenon one key result is that a manager s control over critical assets through its efiect on the level of outside options allows the manager to order employees what to do the paper thus provides microfoundations for the idea that bringing a project inside a flrm gives the manager authority over that project while in the process explaining concentrated asset ownership low powered incentives and centralized authority as typical characteristics of flrms it also leads to a new perspective on the flrm as a legal entity and building on the insights of a parallel paper to a new theory for flrm boundaries based on the idea of break up a key feature of the latter theory is that flrm boundaries matter even though both ex ante investments and ex post actions are perfectly contractible

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

a continuous dilemma we study prisoners dilemmas played in continuous time with flow payoffs accumulated over 60 seconds in most cases the median rate of mutual cooperation is about 90 percent control sessions with repeated matchings over eight subperiods achieve less than half as much cooperation and cooperation rates approach zero in one shot sessions in follow up sessions with a variable number of subperiods cooperation rates increase nearly linearly as the grid size decreases and with one second subperiods they approach continuous levels our data support a strand of theory that explains how capacity to respond rapidly stabilizes cooperation and destabilizes defection in the prisoner s dilemma jel c72 c78 c91

separating the hawks from the doves evidence from continuous time laboratory games human players in our laboratory experiment received ow payos over 120 seconds each period from a standard hawk dove bimatrix game played in continuous time play converged closely to the symmetric mixed nash equilibrium under a one population matching protocol when the same players were matched in a two population protocol with the same bimatrix they showed clear movement towards an asymmetric and very inequitable pure nash equilibrium of the game these ndings support distinctive predictions of evolutionary game theory

torture in counterterrorism agency incentives and slippery slopes abstract we develop a counterterrorism model to analyze the effects of allowing a government agency to torture suspects when evidence of terrorist involvement is strong we find that legalizing torture in strong evidence cases has offsetting effects on agency incentives to counter terrorism by means other than torture it lowers these incentives because the agency may come to rely on torture to avert attacks however it also increases these incentives because other efforts may increase the probability of having strong enough evidence to warrant the use of torture legalizing torture in strong evidence cases is more likely to reduce non torture efforts if these efforts are more effective at stopping attacks and less effective at turning up strong evidence when the suspect is guilty if it reduces non torture efforts it can reduce security and is more likely to do so if the attack threat is higher moreover if torture is used in strong evidence cases even if torture is banned legalizing torture in strong evidence cases necessarily reduces security if it reduces non torture efforts lastly it can increase incentives to torture even in weak evidence cases a slippery slope

gifts as economic signals and social symbols gift giving has often puzzled economists especially because efficient gifts like cash or giving exactly what a person asks for seem crass or inappropriate it is shown in a formal game theoretic model that gifts serve as signals of a person s intentions about future investment in a relationship and inefficient gifts can be better signals other explanations for the inefficiency of gift giving are advanced and some stylized facts about gift giving practices are described many of which are consistent with the signaling view of gifts

investing in capabilities the dynamics of resource allocation in this research we examine the dynamic capability of resource allocation to invest in operational capabilities using a computer simulation we model a process of firms competing in factor markets for opportunities to invest in existing capabilities and acquire new ones based on the simulation results we derive a set of propositions about the conditions under which there are and are not performance benefits from possessing a superior ability to search for new capabilities because the definition of what constitutes a new capability is based on a firm s preexisting capabilities we also incorporate differences in initial endowments into the analysis we find that endowment and search ability both matter and that in many circumstances the effects of possessing a superior endowment dominate the effects of superior search ability

club goods and group identity evidence from islamic resurgence during the indonesian financial crisis this paper tests a model in which group identity in the form of religious intensity functions as ex post insurance i exploit relative price shocks induced by the indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity koran study and islamic school attendance that is weaker for other forms of group identity consistent with ex post insurance credit availability reduces the effect of economic distress on religious intensity religious intensity alleviates credit constraints and religious institutions smooth consumption shocks across households and within households particularly for those who were less religious before the crisis

human capital and the productivity of suicide bombers the authors empirical analysis suggests that older and more educated suicide bombers are being assigned by their terror organization to more important targets they find that more educated and older suicide bombers are less likely to fail in their mission and are more likely to cause increased casualties when they attack

religion terrorism and public goods testing the club model abstract can rational models once theological explanations are discredited explain why certain radical religious rebels are so successful in perpetrating suicide attacks the fundamental barrier to success turns out not to be recruiting suicide attackers there is a rational basis for volunteering rather the barrier is the danger of other operatives defecting a club model portraying voluntary religious organizations as efficient providers of local public goods explains how they weed out potential defectors by requiring sacrifices as signals of commitment they are thereby able to succeed in risky terrorist attacks the model has testable implications for tactic choice and damage achieved by clubs and other rebel organizations data spanning a half century on both terrorists and civil war insurgents much from middle east sources and israel palestine reveal that a missions organized by radical religious clubs that provide benign local public goods are both more lethal and are more likely to be suicide attacks than missions organized by other terrorist groups with similar aims and theologies and b suicide attacks are chosen when targets are hard i e difficult to destroy our results suggest benign tactics to counter radical religious terrorism and insurgency

when does coordination require centralization this paper compares centralized and decentralized coordination when manag ers are privately informed and communicate strategically we consider a multi divisional organization in which decisions must be adapted to local conditions but also coordinated with each other information about local conditions is dispersed and held by self interested division managers who communicate via cheap talk the only available formal mechanism is the allocation of decision rights we show that a higher need for coordination improves horizontal com

egalitarianism and efficiency in repeated symmetric games abstract we analyze the symmetric equilibria of repeated symmetric games where there is a conflict of interests over equilibria the battle of the sexes or the hawk dove game are key examples if one restricts attention to symmetric equilibria efficient equilibria must be egalitarian for finitely repeated games and generic discount factors there is a unique outcome path which ensures efficiency within the class of symmetric equilibria this is also true for the infinitely repeated games if the players are sufficiently impatient journal of economic literature classification numbers c72 c73

the strategy of manipulating conflict two decision makers choose hawkish or dovish actions in a con ict game with incomplete information the decision making can be manipulated by extremists who send publicly observed cheaptalk messages the power of extremists depends on the nature of the underlying con ict game if actions are strategic complements a hawkish extremist provocateur can increase the likelihood of con ict by sending messages which trigger a fear spiral of hawkish actions this reduces the welfare of both decision makers if actions are strategic substitutes a dovish extremist paci st can send messages which cause one decision maker to back down and become more dovish this reduces his welfare but bene ts the other decision maker the hawkish extremist is unable to manipulate the decision makers if actions are strategic substitutes and the paci st is equally powerless if actions are strategic complements

real time tacit bargaining payoff focality and coordination complexity experimental evidence we conduct a bargaining experiment where interaction is tacit and payoffs are earned and cumulated in real time we test hypotheses about the interaction between the focal properties of payoffs and the complexity of coordinating on an intertemporal behavior that achieves them the general finding is that when a payoff focal outcome requires a complicated coordination scheme bargainers tend to settle on a simpler and sometimes inefficient behavior

the economics of counterterrorism a survey we provide a review of theoretical and empirical contributions on the economic analysis of terrorism and counterterrorism we argue that simple rational choice models of terrorist behavior in the form of cost benefit models already provide a well founded theoretical framework for the study of terrorism and counterterrorism we also hint at their limitations which relate to the failure of accounting for the dynamics between terrorism and counterterrorism that may produce unintended second order effects as well as for the costs associated with counterterrorism and its international dimension we reevaluate previously proposed counterterrorism strategies accordingly finally in the light of our findings we discuss interesting areas of future research

insurgent compensation evidence from iraq participating in insurgency is physically risky why do people do so using new data on 3 799 payments to insurgent fighters by al qa ida iraq we find that i wages were extremely low relative to outside options even compared to unskilled labor ii the estimated risk premium is negative and iii the wage schedule favors equalization and provides additional compensation for larger families these results challenge the notion that fighters are paid their marginal product or the opportunity cost of their time they may be consistent with a lemons model in which fighters signal commitment by accepting low wages

focal points in tacit bargaining problems experimental evidence we use a new experimental design to test schelling s hypotheses about the nature and effectiveness of focal points in tacit bargaining problems in our design as in many real world bargaining problems each player s strategies are framed as proposals about what part of a stock of valuable objects she is to take and there are payoff irrelevant cues which define relations between players and objects in line with schelling s hypotheses we find that such cues serve as powerful focal points their presence increases efficiency even in games where there is no efficient and equal division and induces systematically unequal payoff distributions