endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

bidding behavior in descending and ascending auctions this research examines how individual differences and institutional practices influence consumer bidding in auctions bidders may be motivated by different goals e g thrill of winning the item with minimal attention to what they pay for it versus prudence winning the item at a price at or below its perceived value also innate or auctioneer induced differences may exist in the precision and salience of bidder cognitions about the item s value we report two studies on how these motivational and cognitive factors influence bids in descending and ascending auctions respectively each study also manipulated a situational variable wait time at each price step the two auctions realized different average prices for the same item set average bids were higher in the descending versus ascending auction in several study conditions in both auction formats bidders primed with thrill versus prudence bid higher but more precise and or salient values attenuated this goal effect among other results in the descending auction longer wait times elicited higher bids from bidders primed with thrill but not prudence in the ascending auction longer wait times produced lower bids for bidders primed with prudence but not thrill these findings on consumer bidding behavior have practical implications for auction design

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

war of attrition evidence from a laboratory experiment on market exit i introduction young industries often undergo a process of shakeout gort and klepper 1982 and klepper 1996 attracting excess firms and gradually shedding them over time more mature industries are likewise often forced to contract in the face of recession or product specific negative demand shocks when an overcrowded industry is forced to shrink which firms exit and which ones survive the conventional answer in economics is that overcrowded industries tend to shed inefficient firms and retain efficient ones we might call this survival of the most efficient a process analogous to natural selection that can adaptively improve the efficiency of industries over time nelson and winter 1982 fudenberg and tirole 1986 model firms exit decisions in overcrowded duopoly markets as wars of attrition and show that the intuition of survival of the most efficient has merit even if firms have little information regarding their costs relative to their competitors however the equilibrium of their game is complex involving a solution to a system of differential equations since neither fortune 500 chief executive officers in the naturally occurring markets nor undergraduate participants in laboratory markets deliberately solve differential equations when deciding whether or not to exit a declining market it is an open question as to how well fudenberg and tirole s rational reconstruction of the exit decision corresponds to the facts of how people make such decisions we report the results of a laboratory experiment designed to answer this question nearly 200 subjects in 16 sessions participated in a total of 3 800 wars of attrition based on fudenberg and tirole s model at the beginning of each period subjects were randomly paired and given a private cost draw that usually induced negative net per second payoffs in a shared market and positive net payoffs per second in monopoly subjects then decided in real time whether and when to exit the market never to return monotonic equilibrium strategy functions predict higher cost inefficient participant exit at an earlier time than their lower cost competitor that is the relatively efficient competitor survives in the market we find that fudenberg and tirole s model organizes our data surprisingly well especially considering its complexity we observe exit by the higher cost firm in 76 of cases when differences between the costs faced by firms are substantial the rate of efficient exit rises to nearly 100 the data on exit times are likewise quite close to the point predictions particularly in the crucial higher portion of the cost distribution that generally governs exit times the median deviation from equilibrium exit times falls to zero by the end and on average subjects earn payouts identical to those predicted in equilibrium our design permits tests of two other conjectures in fudenberg and tirole first our data supports fudenberg and tirole s core comparative static prediction that a decrease in the ex ante likelihood of actually being in a war of attrition leads to an increase in the speed of exit 1 second half of our sessions use costs framed as fixed costs suffered while in the market and half use costs framed as opportunity costs earned by exiting the market there is no evidence that this treatment variable affects exit behavior this isomorphism between gains and losses predicted by standard theory stands in stark contrast to evidence from previous individual decision making experiments suggesting asymmetries in how people react to potential losses and potential gains although wars of attrition have an important place in the game theoretic literature there are surprisingly few experimental studies directly relating to them 2 3 bilodeau childs and mestelman 2004 study a three player full information war of attrition framed as a volunteer game and report widespread failure of equilibrium predictions the predicted volunteer in a subgame perfect nash equilibrium only volunteers 41 of the time

liberalising the movement of natural persons a lost decade liberalisation of international trade in services through the movement of natural persons mode 4 remains one of the least negotiated issues of trade policy among the 144 members of the world trade organisation economists believe that there is a basic convergence of economic interest between the developed and the developing world for liberalising mode 4 yet the multilateral trading system has not facilitated greater worker mobility between the labour surplus and labour scarce countries is there any economic logic as to why cross border movements of workers have not followed the pattern predicted by international trade theory or are there strong socio political barriers that have come in the way of liberalising mode 4 these are some of the questions the paper attempts to answer the paper shows that the economic arguments against the free movement of natural persons are based on the narrow perspective of the welfare of domestic workers while ignoring the benefit it brings to the economy as a whole further non economic arguments miss the point that the movement of workers under mode 4 of gats is temporary in nature and so unlikely to have any lasting social and cultural spillovers the paper gives specific illustrations from the recent past where temporary import of workers from labour surplus countries has enabled both developed and developing countries sustain their economic growth it concludes by arguing that the environment for renegotiating wto commitments under this important sector of international trade in services is better than ever before even though the current world economic slowdown may delay actual negotiations for a while copyright 2004 blackwell publishing ltd

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

lottery choice incentives complexity and decision time this paper reports the results of an experiment on lottery choice in which decision cost is measured as decision making time a simple decision cost model motivates this measurement and the experiment and predicts relationships between incentive mechanism manipulations and decision making time which are borne out in the experiment the decision cost model also suggests that decisions will change in the face of the incentive manipulations in the experiment this suggestion is borne out in a complex decision making environment but not in a simple one specification tests demonstrate that observed changes in subjects behavior are not merely due to changes in subject specific error variance one may conclude from this that the payoff dominance problem is a real issue in complex decision making experiments copyright 1993 by royal economic society

environmental drag evidence from norway abstract economic growth affects the environment negatively a polluted environment and other environmental constraints reduce economic output and the well being of consumers the cost to society of environmental constraints may be called the environmental drag the traditional economic analysis of growth neglects the environmental drag while this paper attempts to measure it empirically we employ a dynamic general equilibrium model of the norwegian economy extended to include some important environmental linkages which feed back to the productivity of labor and capital from damages to health materials and nature the environment also directly affects the consumers well being using this model we are able to estimate the environmental drag measured as reduced welfare from consumption and environmental services we present macroeconomic effects in terms of reduced production and consumption and calculate the overall welfare effects we find that the environmental constraints incorporated in the model probably have a modest effect on production over the next century the direct welfare loss from a degraded environmental quality however is significant a lower rate of technological growth and a lower discount rate both increase the drag

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

does resorting to online dispute resolution promote agreements experimental evidence abstract this paper presents an experiment performed to test the properties of an innovative bargaining mechanism called automated negotiation used to resolve disputes arising from internet based transactions the main result shows that the settlement rule tends to chill bargaining as it creates incentives for individuals to misrepresent their true valuations which implies that automated negotiation is not able to promote agreements however this perverse effect depends strongly on the conflict situation when the threat that a disagreement occurs is more credible the strategic effect is reduced since defendants are more interested in maximizing the efficiency of a settlement than their own expected profit the implications of these results are then used to discuss the potential role of public regulation and reputation mechanisms in cyberspace

a comparison of buyer determined and price based multiattribute mechanisms reverse auctions are fast becoming the standard for many procurement activities in the past the majority of such auctions have been solely price based but increasingly attributes other than price affect the auction outcome specifically the buyer uses a scoring function to compare bids and the bid with the highest score wins we investigate two mechanisms commonly used for procurement in business to business markets in a setting in which buyers welfare is affected by exogenous nonprice attributes such as the quality service and past relationships under both mechanisms bidders bid based on price but in the buyer determined mechanism the buyer is free to select the bid that maximizes her surplus while in the price based mechanism the buyer commits to awarding the contract to the low price bidder we find both in theory and in the laboratory that the buyer determined mechanism increases the buyer s welfare only as long as enough suppliers compete if the number of suppliers is small and the correlation between cost and quality is low the buyer is better off with the price based mechanism these findings are intended to help procurement managers make better decisions in designing procurement mechanisms for a variety of settings

comparative study of one bid versus two bid auctions abstract the paper focuses on a comparative investigation of the standard one bid first price auction and a corresponding two bid auction where each buyer may place two bids a high bid and a low one and the winner pays his low bid if this was higher than all other bids we characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues for the symmetric case we show that subjects in an experiment prefer the two bid over the one bid auction when given the possibility of choosing between the two and compare the observed behavior to the theoretical predictions

testing for risk aversion a stochastic dominance approach we conduct an experiment based on the stochastic dominance framework in order to investigate risk aversion in isolation of other effects such as subjective probability distortion the certainty effect and framing effects the result is striking most individuals are not risk averse 2001 elsevier science b v all rights reserved

international trade agreements and international migration despite large potential economic gains bilateral and multilateral negotiations focusing on liberalisation of migration have not shared the high profile of international trade negotiations and agreements migration and trade have been traditionally viewed rather separately and the relevance of the many and complex interdependencies has been given remarkably little attention in the literature to date in this article we focus on the two way interaction between international migration and agreements designed to enhance cross border trade and investment liberalisation of international trade in services and in the movement of people potentially offers much greater economic gains than liberalisation of remaining barriers to goods trade however progress within multilateral frameworks is fraught with difficulty the world trade organization s general agreement on trade in services gats has yielded little real progress so far and negotiations within more flexible unilateral and bilateral frameworks are likely to be more successful in liberalising the movement of labour we discuss a range of specific examples focusing particularly on the interesting case of new zealand we find that trade agreements are increasingly including agreements on migration though typically favouring temporary migration and involving numerically modest quotas we conclude that migration regulatory frameworks are likely to be further and more strongly linked to trade and investment agreements in the future particularly given changing economic and demographic forces the primary focus of migration policies may nonetheless remain different from that of trade policies while further migration liberalisation is likely to be through bilateral and regional agreements it will be important to try to lock in the gains of such agreements while simultaneously working to consolidating these in a way that will help to facilitate future multilateral agreement

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

willingness to pay and the cost of commitment an empirical specification and test in a static setting willingness to pay for an environmental improvement is equal to compensating variation in a dynamic setting however willingness to pay may also contain a commitment cost in this paper we incorporate the dynamic nature of the value formation process into a stated preference study designed to test whether there is an important dynamic component commitment cost in stated preference values the results clearly indicate that stated preference values can contain commitment costs and that these can be quite large respondents offered the opportunity to delay their purchasing decisions until more information became available were willing to pay significantly less for improved water quality than those facing a now or never decision these results have important consequences for the design and interpretation of stated preference data

testing commitment cost theory in choice experiments in choice experiments it is commonly assumed that individuals make choices in static and certainty decision making conditions real world choices however are usually made in a dynamic setting committing a purchase decision under conditions of uncertainty might have a commitment cost cc in this study we test cc theory using a nonhypothetical choice experiment specifically we test whether choice behavior and willingness to pay estimates differ when individuals have the option to gain present or delayed information or reverse the transaction our results suggest that the construction of a dynamic decision context can be relevant in the design of choice experiments

are you risk averse over other people s money decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences whenever an individual is delegated to make decisions that affect others such as in the typical corporate structure does the individual make decisions that reflect the risk preferences of the party bearing the consequences we examine this question in two simple settings lottery choices and sealed bid auctions using controlled laboratory experiments we find that when an individual makes a decision for an anonymous stranger there is a tendency to exhibit less risk aversion this reduction in risk aversion is relative to his or her own preferences and it is also relative to his or her belief about the preferences of others this result has significant implications for the design of contracts between principals and agents

regulated price and stock policies abstract setting administered domestic prices according to just c i f of f o b border price is advisable only if the direction of trade is certain and all groups interests are weighted equally if the good randomly may be imported of exported prices and stocks should be determined simultaneously on the basis of domestic demand and supply conditions as well as border prices a framework is proposed for testing which optimizing model an ldc government employs when administering price and stock levels the framework suggests zimbabwe policy makers have treated maize as an export crop weighting consumers interests moderately below those of producers and government

an experimental test of the commitment cost theory are used in making public policy recommendations carrying out cost benefit analysis and formulating marketing and pricing strategies unlike traded goods individuals are not likely familiar with valuing and pricing nonmarket goods as such a key characteristic among almost all nonmarket goods is uncertainty regarding value that individuals have uncertainty regarding the value they have for nonmarket goods is supported by a number of recent empirical findings e g johannesson et al loomis and ekstrand van kooten krcmar and bulte among other things uncertainty may be a result of unfamiliarity with the good in question for example a poll of scottish individuals found that over 70 were unfamiliar with

english auctions with resale an experimental study i design and test a simple english auction and two english auctions with resale but with different informational backgrounds all three treatments theoretically have the same equilibrium i find however that the possibility of resale alters behavior significantly in the two treatments with resale subjects deviated from both the nash prediction and the common results about bidding behavior in english auctions subjects tend to overbid when they are certain they can reap the whole surplus in the resale market i employ different models like qre and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants that is as rational decision making when anticipating others to make errors when the outcome of the resale market is not certain there is significant signaling behavior and auction prices tend to be lower than the nash prediction

eliciting subjective probabilities with binary lotteries abstract we evaluate a binary lottery procedure for inducing risk neutral behavior in a subjective belief elicitation task prior research has shown this procedure to robustly induce risk neutrality when subjects are given a single risk task defined over objective probabilities drawing a sample from the same subject population we find evidence that the binary lottery procedure also induces linear utility in a subjective probability elicitation task using the quadratic scoring rule we also show that the binary lottery procedure can induce direct revelation of subjective probabilities in subjects with popular non expected utility preference representations that satisfy weak conditions

learning to bid the design of auctions under uncertainty and adaptation we examine auction design in a context where symmetrically informed adaptive agents with common valuations learn to bid for a good despite the absence of private valuations asymmetric information or risk aversion bidder strategies do not converge to the bertrand nash equilibrium strategies even in the long run deviations from equilibrium strategies depend on uncertainty regarding the value of the good auction structure the agents learning model and the number of bidders although individual agents learn nash bidding strategies in isolation the learning of each agent by flattening the best reply correspondence of other agents blocks common learning these negative externalities are more severe in second price auctions auctions with many bidders and auctions where the good has an uncertain value ex post

collusion in uniform price auctions experimental evidence and implications for treasury auctions in uniform price auctions of shares there exist collusive equilibria in which bidders capture the entire surplus from the auction as well as competitive equilibria in which the auctioneer captures the entire surplus from the auction we provide experimental evidence that in uniform price auctions non binding pre play communication facilitates convergence to collusive equilibrium outcomes on the other hand regardless of the opportunities for communication in discriminatory auction experiments subject strategies conform closely with the unique equilibrium in undominated strategies in which bidders gains are equal to the smallest tick size in the bidding schedule this evidence suggests that uniform price auctions of treasury securities may result in lower revenues than the currently employed discriminatory procedure

auctions with toeholds an experimental study of company takeovers we run experiments on english auctions where the bidders already own a part toehold of the good for sale the theory predicts a very strong explosive effect of even small toeholds while asymmetric toeholds do have an effect on bids and revenues in the lab which gets stronger the larger the asymmetry it is not nearly as strong as predicted we explain this by analyzing the flatness of the payoff functions which leads to large deviations from the equilibrium strategies being relatively costless this is a general fundamental weakness of this type of explosive equilibria which makes them fail when human players are involved our analysis shows that a levels of reasoning model explains the results better where this equilibrium fails moreover we find that although big toeholds can be effective in a takeover battle the cost to acquire them might be higher than the strategic benefit they bring

the economic impact of medical migration an overview of the literature this paper provides an overview of the evidence and applied literature on medical migration the economic impacts of medical migration have been little researched causing a polarisation in the debate between its critics and its proponents the paucity of quantitative studies may be explained by the lack of comprehensive and consistent data investments in statistical resources on medical migration are therefore a major priority the available evidence suggests that particularly english speaking countries in sub saharan african countries and the caribbean with relatively few health workers and a high disease burden suffer most from the medical brain drain however the exodus of health workers is not the main cause of the health status crisis but rather a symptom of deeper underlying problems which often extend beyond the health sector towards the broader economic and political environment in such situations medical brain drain does pose challenges for human resource management and health service delivery the only effective and long term sustainable policy is one that addresses the underlying push and pull factors reforms have to be country led but may be supported via temporary migration schemes remittances enhancement of diaspora networks and financial aid for which a strong moral case exists

alternative approaches for incorporating respondent uncertainty when estimating willingness to pay the case of the mexican spotted owl abstract this paper explores the sources and patterns of respondents uncertainty regarding their willingness to pay wtp and presents alternative approaches for incorporating this uncertainty into estimation of the logit model recently proposed approaches are compared to methods proposed in this paper which allows for incorporation of uncertainty regarding both yes and no responses these approaches are evaluated by comparing the goodness of fit and variability of mean wtp extreme recoding of uncertain yes responses as no responses reduces the logit goodness of fit and the precision of the wtp estimate incorporating the degree of uncertainty of yes responses results in the highest goodness of fit and the smallest variability of mean wtp among the various models addressing uncertainty a regression model is used to determine the significant determinants of respondent uncertainty

the economic costs to international labor restrictions revisiting the empirical discussion summary in a 1984 article hamilton and whalley calculated the annual efficiency gains from free international migration we update that study to compare developments over time with the aim of producing more reasonable and politically relevant scenarios our results suggest that the estimated gains from the liberalization of global immigration controls have increased substantially indeed we find that even a small liberalization of international migration restrictions can still yield substantial gains in particular we estimate that a 10 increase in international migration corresponds to an efficiency gain of about us 774 billion 1998 dollars

present bias quasi hyperbolic discounting and fixed costs in this paper we elicit preferences for money time pairs via experimental techniques we estimate a general specification of discounting that nests exponential and hyperbolic discounting as well as various forms of present bias including quasi hyperbolic discounting our experimental data do not appear peculiar in any dimension in particular we find clear evidence for present bias as most of the previous literature however no evidence for quasi hyperbolic discounting is found and the data strongly favor instead a specification with a small present bias in the form of a fixed cost of the order of 4 on average across subjects with such a fixed cost the curvature of discounting is imprecisely estimated and exponential discounting is hardly rejected in this specification the present bias tends to vanish for economically relevant monetary rewards

efficiency and distributional implications of global restrictions on labour mobility calculations and policy implications abstract in this paper a procedure for calculating the annual efficiency gains from various alternative changes in existing global immigration restrictions is presented along with an evaluation of impacts of wage rate changes on non migrating labour a simple methodology uses data on u s dollar gnp capita across countries to infer differences in the marginal productivity of labour both between countries and across major world trading areas two key assumptions used are that the worldwide labour supply is fixed and full employment occurs in all regions differences occuring in labour s marginal product across regions are assumed to arise because of barriers to inward mobility of labour in high wage countries when these are removed labour reallocates and efficiency gains occur while the calculations are based on contentious assumptions a striking feature is the size of the annual worldwide gains in some cases annual gains can easily exceed existing worldwide gnp generated in the presence of labour mobility restrictions while all gains do not accrue to ldc s the size of the gains nonetheless suggests that this issue may be much more important to these countries than other issues raised thus far in the north south debate the losses to labour already employed in high wage countries dramatize the incentives for labour unions in the developed world to oppose liberalization

can remittances compensate for manpower outflows the case of philippine physicians abstract this paper addresses questions about the desirability of skilled migration which generates remittance flows focusing on filipino physicians the paper explores under what conditions remittances from filipino doctors practicing overseas might be sizeable enough to compensate the nation for the losses associated with doctor emigration while data limitations and questions about the correct social welfare function preclude definitive empirical results the analysis does indicate in the philippine case that it may pay to train doctors for export

overbidding and overspreading in rent seeking experiments cost structure and prize allocation rules we study experimentally the effects of cost structure and prize allocation rules on the performance of rent seeking contests most previous studies use a lottery prize rule and linear cost and find both overbidding relative to the nash equilibrium prediction and significant variation of efforts which we term overspreading we investigate the effects of allocating the prize by a lottery versus sharing it proportionally and of convex versus linear costs of effort while holding fixed the nash equilibrium prediction for effort we find the share rule results in average effort closer to the nash prediction and lower variation of effort combining the share rule with a convex cost function further enhances these results we can explain a significant amount of non equilibrium behavior by features of the experimental design these results contribute towards design guidelines for contests based on behavioral principles that take into account implementation features of a contest

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

eliciting and utilizing willingness to pay evidence from field trials in northern ghana we utilize the becker degroot marschak 1964 mechanism to estimate the willingness to pay for clean drinking water technology in northern ghana the bdm mechanism has attractive properties for empirical research allowing us to directly estimate demand compute heterogeneous treatment effects and study the screening and causal effects of prices with minor modifications to a standard field experiment setting we demonstrate the implementation of bdm along these three dimensions compare it to the standard take it or leave it method for eliciting willingness to pay and discuss practical issues for implementing the mechanism in true field settings jel classifications c93 d12 d82 l11 l31

is the experimental auction a dynamic market experimental auctions are generally thought of as static markets this paper presents the results of an experimental auction designed to test whether participants perceptions regarding the relative difficulty of delaying or reversing a transaction outside the experimental market systematically affect their willingness to pay bids the results show that auction participants perceptions significantly impact their bids in a manner that is consistent with real option theory these results suggest that economists must be careful to consider the existence of outside markets when designing experimental auctions

price formation in single call markets this paper reports a laboratory experiment designed to examine the price formation process in a simple market institution the single call market the experiment features random values and costs each period so each period generates a new price formation observation other design features are intended to enhance the predictive power of the bayesian nash equilibrium bne theory developed recently for this trading institution we find that the data support several qualitative implications of the bne but that subjects bid and ask behavior is not as responsive to changes in the pricing rule as the bne predictions bids and asks tend to reveal more of the underlying values and costs than predicted particularly when subjects are experienced nevertheless observed trading efficiency falls below the bne prediction the results offer more support for the bne when subjects compete against nash robot opponents a simple learning model accounts for several of the deviations from bne

a comparison of multiple unit all pay and winner pay auctions under incomplete information this article examines the properties of independent private value all pay and winner pay auctions when there are multiple units sold we study bidding behavior efficiency and revenue in a set of 23 experimental sessions our data show that the all pay auction and the winner pay auction are empirically revenue equivalent though both yield higher revenue than the risk neutral bayesian equilibrium our evidence also suggests that the winner pay auction is more likely to lead to a pareto efficient allocation than the all pay auction

bidding behavior and decision costs in field experiments i introduction positive opportunity costs of mental effort may invalidate the predictions of traditional models of rational or hyperrational agents conlisk 1996 uses deliberation costs as a recurring theme when discussing four important reasons for incorporating bounded rationality in economic models smith and walker 1993 and smith and szidarovszky 1999 present effort models that predict individual behavior will more closely match the predictions of rational behavior theories as 1 the stakes of the decision increase and 2 the decision costs decrease smith and walker 1993 find evidence of these two effects in a comprehensive review of 31 published laboratory experiments camerer and hogarth 1999 extend smith and walker s survey by examining 74 experimental papers and find evidence in favor of the cognitive effort theory noting that higher levels of incentives have the largest effects in judgment and decision tasks p 34 although the laboratory evidence is compelling there has been little verificati on of these predictions outside the laboratory 1 the present article fills this gap by examining field data from 214 multiunit sports card auctions carried out in an active marketplace on the floor of a sports card show we auctioned four types of trading cards with book values ranging from 3 to 70 providing significant variation in the stakes of the auction our auctions also included two distinct types of subjects some auctions had sports card dealers bidding against each other whereas others had individual card collectors as the participants this variation allows us to explore the second dimension of decision cost theory do dealers who commonly participate in sports card auctions and therefore likely require less effort to bid optimally bid more rationally than nondealers our measure of rational bidding comes from multiunit auction theory which predicts strategic demand reduction in uniform price auctions 2 for each type of bidder and each type of card we measure this demand reduction behavior in the uniform price auction relative to a control the multiunit vickrey 1961 auction where bidders are predicted to fully reveal their demands our sports card data generated from sales of 428 cards with a combined book value of nearly 10 000 provide two major insights first we find that the predicted strategic behavior is considerably greater when the auctioned cards have higher values second dealers exhibit more of the predicted strategic behavior than do nondealers for both lower and higher priced cards one conjecture to explain this finding is that nondealers may find that the cognitive effort required to bid strategically exceeds the benefits especially for low valued cards by contrast dealers have more experience with auctions and make their living by buying selling trading cards so their cognitive costs are likely much lower than those of nondealers these two findings are consistent with recent theoretical models of monetary rewards and decision costs and extend previous experimental evidence from the laboratory into the field ii experimental design as mentioned recent theoretical literature has suggested that demand reduction inherent in uniform price auctions with multiunit demand can induce inefficient allocations and possible reductions in auction revenue to avoid the inefficiencies associated with the uniform price auction theorists have identified an alternative mechanism the generalized vickrey auction which gives bidders a dominant strategy of revealing their true valuations for all units of the good in this multiunit vickrey auction as in the uniform price auction each bidder can submit up to n different sealed bids on individual units and the highest n bids are declared winners if a bidder submits one or more of the winning bids his or her price for the first unit equals the highest rejected bid submitted by someone else and his or her price for the kth unit equals the kth highest of the rejected bids submitted by others

inducing risk neutral preferences with binary lotteries a reconsideration abstract we evaluate the binary lottery procedure for inducing risk neutral behavior we strip the experimental implementation down to bare bones taking care to avoid any potentially confounding assumptions about behavior having to be made in particular our evaluation does not rely on the assumed validity of any strategic equilibrium behavior or even the customary independence axiom we show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality this striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment

assessing the macroeconomic impact of a healthcare problem the application of computable general equilibrium analysis to antimicrobial resistance there is a positive relationship between the health of a nation and its economic prosperity however in evaluating health care economists typically concentrate on the economic impact only to the health care sector which may mis specify the social costs and benefits of a disease or intervention this paper demonstrates the value of using a macroeconomic approach to modelling a major health problem using the context of antimicrobial resistance and the application of the computable general equilibrium technique this approach is described in detail and its added value demonstrated in the case of amr

information feedback in first price auctions i apply the notion of a self confirming equilibrium sce to study how feedback in first price auctions influences bidders perceptions about their strategic environment and consequently their bidding behavior in a private values setting revealing the two highest bids at the end of each auction is sufficient for bidders to have correct beliefs justifying the assumption of nash equilibrium in contrast in every symmetric sce of a symmetric affiliated private values model bidding strategies and revenue are weakly higher if only the highest bid is revealed i also consider interdependent valuations and discuss implications for the empirical auction literature

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

risk aversion and the winner s curse this article analyzes an auction in which bidders see independent components of a common prize value the nash equilibrium for two rational bidders is shown to be independent of risk attitudes the information structure allows explicit calculation of an alternative equilibrium in which naive bidders do not correctly discount the value of the prize contingent on winning and thus they suffer the winner s curse subjects in a laboratory experiment clearly fall prey to the winner s curse the data conform most closely to the predictions of the naive model moreover the level of risk aversion implied by fitting the naive model is similar to an independent risk aversion measure obtained in a separate private value bidding exercise

wealthier is healthier we estimate the effect of income on health using cross country timeseries data on health infant and child mortality and life expectancy and income per capita we use instrumental variables estimates using exogenous determinants of income growth to identify the pure income effect on health isolated from reverse causation or incidental association the long run income elasticity of infant and child mortality in developing countries lies between 0 2 and 0 4 using these estimates we calculate that over a half a million child deaths in the developing world in 1990 alone can be attributed to the poor economic performance in the 1980s

theory and misbehavior of first price auctions comment glenn harrison s recent 1989 article in this review has provoked the loudest debate yet heard among experimental economists his critique of the james cox vernon smith and james walker 1983a b 1985a b 1988 henceforth csw laboratory studies of first price sealed bid auctions with independent and private values in my view raises a fundamental methodological issue that is well worth debating and the csw research program deserves further discussion in this short comment i confine myself to what i see as the most important issues and do not try to address all evidence relevant to the ongoing debate first i summarize harrison s central argument very briefly after pointing out two shortcomings in harrison s specific analysis of csw i propose a methodological reconciliation finally and with some trepidation since my own experience with the auction data is relatively slight i suggest an alternative approach to understanding the anomalies discovered by csw

second best agricultural policy abstract since full economic liberalization is not generally feasible getting the prices of selected agricultural markets right involves optimal price distortions a methodology is developed for calculating the second best output price in a particular market by incorporating externalities government revenue constraints and distortions in other markets into the marginal social cost and benefit schedules for that market in the illustrative application to thailand tax friction consumption externalities and the optimal tariff argument are seen to support an export tax on rice even though import tariffs already discriminate against agricultural exports

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

a new explanation for the wtp wta disparity abstract we propose a new explanation for the wtp wta disparity in experiments and surveys uncertainty irreversibility and limited learning opportunities can generate commitment costs driving a wedge between wtp and wta we present experimental evidence that supports our hypothesis

liberalising temporary movement of natural persons an agenda for the development round we discuss liberalising the temporary mobility of workers under mode 4 of the gats particularly the movement of medium and low skilled service providers between developing and developed countries such mobility potentially offers huge returns a flow equivalent to three per cent of developed countries skilled and unskilled work forces would generate an estimated increase in world welfare of over us 150 billion shared fairly equally between developing and developed countries the larger part of this emanates from the less skilled essentially because losing higher skilled workers cuts output in developing countries severely the mass migration of less skilled workers raises fears in developed countries for cultural identity problems of assimilation and the drain on the public purse these fears are hardly relevant to temporary movement however the biggest economic concern from temporary mobility is its competitive challenge to local less skilled workers but as populations age and the average levels of training and education rise developed countries will face an increasing scarcity of less skilled labour temporary mobility thus actually offers a strong communality of interest between developing and developed countries the remainder of the paper looks at the gats provisions on mode 4 and the commitments that have been made under it the paper reviews several official proposals for the doha talks including the very detailed one from india and considers several countries existing schemes for the temporary movement of foreign workers many countries have long had bilateral foreign worker programmes and some regional agreements provide for liberal and flexible movement these show what is feasible and how concerns can be overcome we caution that to be useful any wto agreement must increase mobility not just bureaucratise it the paper concludes with some modest and practical proposals we suggest inter alia that licensing firms to arrange the movement of labour is the most promising short term approach to increasing temporary mobility

the long term impact of health on economic growth in latin america abstract growth regressions adapted as granger type causality tests give strong evidence of 30 year causality from health to income in 18 latin american countries the health indicator is probability of survival by age and gender groups for 1950 90 a permanent increment of between 0 8 and 1 5 annual income is associated with typical adult and surprisingly old age health improvements the channels of causation from health to income are diverse and need to be identified in microeconomic studies that should however include a wide variety long term phenomena to account for the economic effects of health

preference reversal real world lotteries and lottery interested subjects prefer lce reversal or choice reservation price inconsistency has been documented experimentally for zrtain types of lotteries we argue that the relevance of these findings for realworld markets is uncertain because the type of objects used cannot exist on a market and because the extent to which the subjects had any real interest in the objects is unknown using reai world lotteries we have tested choice price consistency on subjects who prefer lotteries ta cash preference reversal was observed but the frequency was much lower than in earlier experiments there were no differences between subjects who qualified as lottery interested and those who did not 1 intmduction

the effects of payoff magnitude and heterogeneity on behavior in 2 2 games with unique mixed strategy equilibria the logit version of quantal response equilibrium predicts that equilibrium behavior in games will vary systematically with payoff magnitudes if all other factors are held constant including the nash equilibria of the game we explore this in the context of a set of asymmetric 2x2 games with unique totally mixed strategy equilibria the data provide little support for the payoff magnitude predictions of the logit equilibrium model we extend the theoretical quantal response equilibrium model to allow for heterogeneity and find that the data fit the heterogeneous version of the theory significantly better

bidding in private value auctions with uncertain values abstract auctions are often used to sell idiosyncratic goods difficult for potential bidders to value ex ante laboratory auctions with uncertainty over final values in this experiment resulted in 18 and 27 of bids above the expected value of the item in private value first price and english auctions respectively risk seeking preferences as measured on an individual decision task cannot explain overbidding and the first price auction results suggest that risk aversion may not be a good explanation for bidding behavior observed with certain values several candidate explanations fail to explain overbidding rather it appears to stem from some bidders who are prone to overbidding relative to first price auctions the size and frequency of overbids are significantly larger in english auctions while more english auctions are won by overbidders differences between the formats appear to be driven by the dynamic nature of english auctions which is consistent with popular notions of auction fever

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

welfare effects of an export tax thailand s rice premium an empirically based applied general equilibrium model is used to study the welfare and distributional effects of an export tax when the implementing country possesses some monopoly power in the world market a method is demonstrated through which a general equilibrium model can be used to find the optimal value of a tax or subsidy the approach makes it possible to conduct the welfare analysis of a particular intervention in an explicit second best context to study its income distributional implications and to explore the sensitivity of the results to variations in key behavioral parameters structural assumptions and the government s distributional objectives copyright 2001 oxford university press

the effect of health on economic growth a production function approach abstract we estimate a production function model of aggregate economic growth including two variables that microeconomists have identified as fundamental components of human capital work experience and health our main result is that good health has a positive sizable and statistically significant effect on aggregate output even when we control for experience of the workforce we argue that the life expectancy effect in growth regressions appears to be a real labor productivity effect and is not the result of life expectancy acting as a proxy for worker experience

opportunity cost inattention and the bidder s curse abstract auction winners sometimes suffer a bidder s curse paying more for an item at auction than the fixed price charged for an identical item by other sellers this seemingly irrational behavior is puzzling because the information necessary to avoid overpaying would appear to be readily available to bidders yet they seem to ignore it to understand this behavior we consider the bidders decisions whether to acquire information about the fixed price before bidding in the presence of opportunity costs our theory introduces costly information acquisition into an auction model with a fixed price aftermarket selling an identical good when information about the fixed price is costly bidders sometimes remain rationally ignorant and overbid in the auction generating the bidder s curse to assess the empirical validity of our proposed explanation we study the model s predictions in an experiment where subjects have an opportunity cost of looking up a fixed price and bid in an auction we find that information acquisition decreases and overbidding increases with opportunity cost as predicted most observed lookup behavior is rationalizable and rational ignorance reliably generates the bidder s curse

combinatorial clock auctions price direction and performance abstract the lack of price guidance towards efficiency relevant packages in ascending combinatorial clock auctions acca can lead to a low efficiency allocation of goods we propose a descending price combinatorial clock auction dcca with a newly devised pricing strategy to improve on this problem using agent based simulations we document that the dcca provides significant improvements over the acca and we are able to understand in which environments these improvements are likely to be the strongest we test these predictions in the laboratory with human subjects and find evidence that the dcca generates improvements in auction efficiency and revenue

an experimental investigation of the seller incentives in the epas emission trading auction the clean air act requires the epa to conduct annual auctions of emission allowances under the discriminative auction rules sellers with the lowest asking prices receive the highest bids this paper studies an inverted version of this auction in which buyers face the same incentives as sellers in the epa auction consistent with theoretical predictions buyers bid above their valuation auction outcomes are inefficient and increasing the number of buyers increases bids buyers facing human opponents compete more aggressively than the risk neutral prediction but bids do not differ systematically from this prediction when buyers face computerized nash robots copyright 1995 by american economic association

governance and contract choice theory and evidence from groundwater irrigation markets abstract this paper examines the role governance institutions play in the adoption of contracts we develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in bangladesh a distinguishing feature of this market is the variety of village level institutions which impose different degrees of punishment for contract violation consistent with the model we find households adopt contracts that rely on unverifiable outcomes which are not formally contractible when punishment for contract violation is weak conversely households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe this evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible

using laboratory experimental auctions in marketing research a case study of new packaging for fresh beef this paper illustrates the use of laboratory experimental auctions in a pretest market research program for new products we review the experimental auctions literature discuss the range of auction mechanisms available and present the advantages and disadvantages of using a particular mechanism for a laboratory pretest market we then present a step by step example of how a theoretically incentive compatible auction mechanism fifth price sealed bid was used in a laboratory pretest market for vacuum packaged beef based on the illustration we discuss the potential for using laboratory experimental auctions in pretest market research we present the limitations that may be encountered in such applications and outline research aimed at improving the behavioral properties of the technique

rationalizable bidding in first price auctions abstract we analyze the consequences of strategically sophisticated bidding without assuming equilibrium behavior in particular we characterize interim rationalizable bids in symmetric first price auctions with interdependent values and affiliated signals we show that 1 every nonzero bid below the equilibrium is rationalizable 2 some bids above the equilibrium are rationalizable 3 the upper bound on rationalizable bids of a given player is a nondecreasing function of her signal in the special case of independent signals and quasi linear valuation functions i the least upper bound on rationalizable bids is concave hence ii rationalizability implies substantial proportional shading for high valuations but is consistent with negligible proportional shading for low valuations we argue that our theoretical analysis may shed some light on experimental findings about deviations from the risk neutral nash equilibrium

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

the determinants and effects of health expenditure in developed countries previous studies of international differences in health spending have been restricted to the use of relatively small samples of cross sectional data our objective here is to re examine the results of previous work using a sample of 560 pooled time series and cross section observations results confirm the importance of gdp as a determinant of health spending with an estimated income elasticity at or around unity but also suggest that oecd countries should not be regarded as a single homogeneous group the importance of some non income variables is also confirmed although the direct effect of these factors appears to be small

modeling the effects of health on economic growth abstract this paper investigates the effects of health indicators such as adult survival rates asr on gdp growth rates at 5 year intervals in several countries panel data were analyzed on gdp series based on purchasing power adjustments and on exchange rates first we developed a framework for modeling the inter relationships between gdp growth rates and explanatory variables by re examining the life expectancy income relationship second models for growth rates were estimated taking into account the interaction between asr and lagged gdp level issues of endogeneity and reverse causality were addressed lastly we computed confidence intervals for the effect of asr on growth rate and applied a test for parameter stability the results showed positive effects of asr on gdp growth rates in low income countries

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

multi dimensional reference dependent preferences in sealed bid auctions how most laboratory experiments differ from the field abstract we study bidding behavior in first and second price sealed bid auctions with loss averse agents our model predicts overbidding in first price induced value auctions consistent with evidence from most laboratory experiments substantially different bidding behavior could result in commodity auctions where money and auction item are consumed along different dimensions of the consumption space differences also result in second price auctions our study thereby indicates that transferring qualitative behavioral findings from induced value laboratory experiments to the field may be problematic if subjects are loss averse

payoff dominance vs cognitive transparency in decision making i introduction there is a general question about how well laboratory markets work in eliciting true preferences given the low opportunity costs of making errors as in harrison 1989 vernon smith 1982 set out a series of conditions that must be adhered to if a laboratory market investigation is to provide insight into economic behavior in naturally occurring markets the opportunity cost question posed above is covered under smith s payoff dominance and reward saliency precepts for laboratory market experiments if the experimental setting is to elicit true preferences from the subjects the monetary payoffs in the experiment must be salient and dominate potential extraneous influences on subject behavior this paper reports on three series of experiments which employ the becker degroot marshak bdm mechanism to investigate the interaction between payoff dominance reward saliency and cognitive effort in the decision task the bdm mechanism is well suited to this task because it involves only individual choice is theoretically incentive compatible and offers a high degree of experimenter control over payoffs initial information and feedback on the results of decisions becker degroot and marschak 1964 introduced the following preference elicitation mechanism individuals state the most they would be willing to pay wtp 1 for a good then a random price is drawn from a distribution known to the individuals if the stated value is greater than or equal to the random price the individual buys the good at the randomly determined price otherwise the individual does not buy the good the bdm bidding mechanism can be shown to be incentive compatible the intuition is straightforward it is not in the individual s interest to understate true wtp if the random buying price falls between the stated wtp and the true wtp the individual has foregone a beneficial trade it is also not in an individual s interest to overstate true wtp if the random buying price is greater than the true value but less than the stated value the individual will be required to buy the good at a price greater than true wtp a more formal proof is easy to construct 2 let v the true value of one unit of the auction good b the bid submitted to purchase one unit of the good r the price randomly determined to be paid if the good is purchased p r probability that price r is randomly selected y sup o initial income u y utility a function of money income and the value of the good and e initial monetary balance provided in an experiment in the wtp version of the bdm auction the good is purchased if b greater than or equal to r with the subject paying only r and not purchased if b less than r in experiments using the bdm the subject cannot bid more than the experimental balance e so it must be that v less than e if the experiment is to be demand revealing assuming that subjects maximize expected utility they will submit bid b that maximizes eu integral of p r u y sup o e v r dr between limits b and 0 integral of p r u y sup o e dr between limits e and b the first integral describes the expected payoff for random prices r below the bid b and the second integral describes the expected payoff for random prices between the bid b and the maximum possible bid as limited by the balance e the maximum over b occurs when the derivative of eu with respect to b is zero in other words when deu db p b u y e v b u y e 0 so long as p b greater than 0 i e there is some probability the offered bid will be the price the above implies that the maximum occurs when b v in other words it is individually optimal to submit a bid b equal to one s true value v for the commodity although the bdm is incentive compatible in theory it is an empirical question whether it has this property in practice

preference uncertainty in non market valuation a fuzzy approach in this article we consider uncertain preferences for non market goods but we move away from a probabilistic representation of uncertainty and propose the use of fuzzy contingent valuation we assume that a decision maker never fully knows her own utility function and we treat utility as a fuzzy number the methodology is illustrated using data on forest valuation in sweden fuzzy contingent valuation provides estimates of resource value in the form of a fuzzy number and includes estimates obtained using a standard probabilistic approach