labor market regulation and the winner s curse i introduction in march 1992 the government of british columbia b c canada introduced the skill development and fair wage policy sdfwp which mandated the payment of fair wages on provincial public construction projects and promulgated the wage scales for construction crafts in 1994 sdfwp was enacted as legislation similar laws have been enacted in england and the united states in the past and as allen s 1983 survey shows their impact is a subject of controversy opponents argue that regulated wages distort the labor market reduce competition and increase construction costs proponents of the law on the other hand not only emphasize its long term positive effects on the living and working conditions of workers training and the consequent productivity increases but also claim that the alleged inflationary effect is counterbalanced by the improved labor and product quality in this paper i focus on another consequence of wage regulation namely its impact on bidding for public construction contracts i propose that the wage regulation will affect the construction market not only by changing the costs and quality of inputs but also through the transformation of the nature of the uncertainty that the contractors face during the bidding process the auction theory predicts that the optimal bid is responsive to the type of uncertainty under the so called common values cv model bidders face some common source of uncertainty regarding the construction cost and the winner is prone to underestimate the true cost rational and experienced bidders avoid this winner s curse by adding a surcharge to their estimated cost as uncertainty assumes a less collective and more private nature however the winner s curse becomes less of a problem and the rational bidder does not need to resort to the additional surcharge as a protection from underbidding the sdfwp may result in such a transformation in the bidding environment by reducing the uncertainty over labor costs that are common to all nonunion contractors elimination of the surcharge in turn may even offset the possibly higher labor cost in this paper i will test indirectly the hypothesis that the sdfwp influenced the bidding environment in b c in this fashion under the working assumption that contractors follow optimal rules in determining bids for this purpose i will use data from 54 public school construction projects tendered between 1989 and 1995 and compare the pre and post sdfwp unit bid prices the paper is organized as follows in section ii i discuss the relevant auction literature and the hypotheses i state the main hypotheses of the paper concerning the sdfwp and bidding behavior in section iii section iv describes the data an empirical model of bid price determination is presented and estimated in sections v vi and vii the final section concludes ii bidding and the winner s curse bidders for public school construction projects in b c submit sealed bids at a specified date and the lowest bidder wins the contract 1 many of the early sealed bid first price optimal bidding models presented in economics civil engineering and operations research literatures follow friedman 1956 according to these models bidders are risk neutral non colluding expected profit maximizers competing over a single project friedman suggests that the probability of being the lowest competitor is equal to the product of the probabilities of underbidding each competitor probability distributions of the competitors bids are to be obtained from the data on previous tenders this approach lays bare critical elements in competitive bidding first the contractor faces a trade off between profitability and the probability of winning the contract the bid must be high enough to yield a positive profit and low enough to win over other bids second superior cost efficiency enables the contractor to change the parameters of this trade off in his or her favor

designing monetary policy when unemployment persists this paper investigates how unemployment persistence affects the optimal delegation of monetary policy to an independent central banker cb two opposing forces are shown to be at work with more persistence the government s incentive to stabilize the economy is greater but if the cb is forward looking its incentive to create inflation surprises is also greater we show that owing to the second effect the government may wish not to delegate at all unlike the case where there is no persistence in the event that the government does delegate the paper identifies conditions under which either effect dominates in the government s choice of conservatism of the cb we compare delegation to discretion and precommitment using a diagrammatic approach that may be of independent interest we also present some preliminary empirical evidence on the cross country relationship between unemployment persistence and inflation that appears consistent with the model s predictions

winner s curse without overbidding abstract we report the results of a series of second price auction experiments where each bidder s signal is given by a normally distributed value plus a normally distributed error while bidders values differ in one treatment they are the same in another which allows for a direct test of the winner s curse irrespective of confounding factors bidders may also fall prey to a news curse when they do not sufficiently take into account that signals and errors are correlated we find that the effects of the winner s curse are mitigated by a news curse and loss or risk aversion

monetary policy rules in theory and in practice evidence from the uk and the us given the large amount of interaction between research on monetary policy and its practice this article examines whether some simple monetary policy rules that have been proposed in the academic literature part of which has originated from within central banks provide a reasonable characterization of actual policy in the united kingdom and the united states the article finds the simple rule that describes best the actual us monetary policy is a speed limit rule with dynamics whilst for the uk it is a forward looking rule the simpler dynamics in the uk s monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

optimal inflation targets conservative central banks and linear inflation contracts comment inflation targeting regimes like those of new zealand canada the united kingdom and sweden are interpreted as having explicit inflation targets and implicit employment targets without employment persistence an inflation target conservative central bank eliminates the inflation bias mimics an optimal inflation contract and dominates a rogoff weight conservative central bank with employment persistence a state contingent inflation bias and a stabilization bias also arise a constant inflation target and a constant inflation contract are still equivalent a state contingent inflation target combined with a weight conservative central bank can achieve the equilibrium corresponding to an optimal rule under commitment copyright 1997 by american economic association

the non optimality of proposed monetary policy rules under timeless perspective commitment abstract in a near canonical forward looking model the timeless perspective form of commitment typically provides outcomes that are on average superior to those resulting from discretion the specific condition that appears in the literature is however not optimal from the relevant perspective

creating modern art the changing careers of painters in france from impressionism to cubism paul cezanne died in october 1906 at the age of 67 in time he would be generally regarded as the most influential painter who had worked in the nineteenth century e g clive bell 1982 clement greenberg 1993 art historians and critics would also agree that his greatest achievement was the work he did late in his life in the judgment of historian meyer schapiro for example the years from 1890 to his death in 1906 are a period of magnificent growth meyer schapiro 1952 theodore reff 1977 roger fry 1989 in the spring of 1907 25 year old pablo picasso showed a few friends a large new painting that would be given the title les demoiselles d avignon this would become the most important painting of the twentieth century as the forerunner of cubism the most complete and radical artistic revolution since the renaissance which picasso and his friend georges braque went on to create in the next few years john golding 1988 galenson 2001 picasso would paint for another 66 years until his death in 1973 at the age of 92 during this enormously productive career he would become by far the most celebrated artist of the twentieth century yet he would never again execute a painting as important as the demoiselles nor produce another body of work as significant as that he made in the years between 1907 and the outbreak of world war i the dramatic contrast between the careers of cezanne and picasso raises intriguing questions about artists productivity art historians have not systematically addressed the question of when in their careers modem artists have typically done their best work and previous research consequently affords no basis for judging whether it is simply a matter of chance that cezanne and picasso made their greatest contributions so close in time in spite of the difference of more than 40 years in their ages but research by psychologists on the ages at which successful practitioners in other disciplines have done their best work is suggestive mathematicians theoretical physicists and poets typically make their most important contributions at younger ages than do astronomers biologists and novelists psychologists have argued that this is because creative ideations can be produced and elaborated more rapidly in disciplines that deal with abstract conceptual entities than in those whose central ideas are more complex and concrete harvey c lehman 1953 dean keith simonton 1988 1994 economists have also identified a number of factors that can change the relationship between age and productivity within a given activity yoram ben porath 1967 anne p bartel and nachum sicherman 1993 1995 in view of these results for other disciplines and the potential for change considered by economists we argue that it was not a matter of chance that cezanne and picasso made their greatest contributions at such different ages but rather that this was a result of the process that gave rise to the creation and early development of modem painting under the influence of the increased demand for innovation that had prompted the beginning of modern painting new generations of artists made painting an increasingly conceptual activity in which young practitioners could make important advances we will use evidence drawn from the twentieth century auction market to examine the relationship between artists ages and the value of their paintings for a group of artists including cezanne and picasso who dominated that early development this will allow a test of the hypothesis that this relationship changed systematically during the first century of that art galenson department of economics university of chicago chicago il 60637 and national bureau of economic research weinberg department of economics ohio state university columbus oh 43210 we thank gary becker britt salvesen tom sargent and two anonymous referees for comments and thomas walker for research assistance

efficiency in auctions with private and common values an experimental study this discussion has resulted in a publication in the american economic review 2002 92 3 625 43 auctions are generally not efficient when the object s expected value depends on private and common value information we report a series of first price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders while some subjects fall prey to the winner s curse they weigh their private and common value information in roughly the same manner as rational bidders with observed efficiencies close to predicted levels increased competition and reduced uncertainty about the common value positively affect revenues and efficiency the public release of information about the common value also raises efficiency although less than predicted

price level targeting vs inflation targeting a free lunch price level targeting without base drift and inflation targeting with base drift are compared under commitment and discretion with persistence in unemployment price level targeting is often said to imply more short run inflation variability and thereby more employment variability than inflation targeting counter to this conventional wisdom under discretion a price level target results in lower inflation variability than an inflation target if unemployment is at least moderately persistent a price level target also eliminates the inflation bias under discretion and as is well known reduces long term price variability society may be better off assigning a price level target to the central bank even if its preferences correspond to inflation targeting a price level target thus appears to have more advantages than commonly acknowledged

age and great invention great achievements in knowledge are produced by older innovators today than they were a century ago using data on nobel prize winners and great inventors i find that the age at which noted innovations are produced has increased by approximately 6 years over the 20th century this trend is consistent with a shift in the life cycle productivity of great minds it is also consistent with an aging workforce the paper employs a semi parametric maximum likelihood model to 1 test between these competing explanations and 2 locate any specifi cs hifts in life cycle productivity the productivity explanation receives considerable support i find that innovators are much less productive at younger ages beginning to produce major ideas 8 years later at the end of the 20th century than they did at the beginning furthermore the later start to the career is not compensated for by increasing productivity beyond early middle age i show that these distinct shifts for knowledge based careers are consistent with a knowledgebased theory where the accumulation of knowledge across generations leads innovators to seek more education over time more generally the results show that individual innovators are productive over a narrowing span of their life cycle a trend that reduces other things equal the aggregate output of innovators this drop in productivity is particularly acute if innovators raw ability is greatest when young

in search of the winner s curse earlier papers on the winner s curse have provided theoretical arguments that winning bidders in an auction will incur ex post losses even when all bidders use reasonable ex ante bidding strategies this paper demonstrates that these arguments are erroneous optimal ex ante bidders will never suffer from a winner s curse in an auction where only the winning bid is announced furthermore such bidders will on the average not suffer from a winner s curse in an auction where all bids are announced thus if a winner s curse is a behavioral reality then bidders are not generally using ex ante optimal strategies

super experienced bidders in first price common value auctions rules of thumb nash equilibrium bidding and the winner s curse super experienced bidders have learned to overcome the winner s curse but still earn less than 50 of nash equilibrium profits subjects deviate from the complicated nash strategy employing piecew

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

solution and estimation of re macromodels with optimal policy macro models of monetary policy typically involve forward looking behavior except in rare circumstances we have to apply some numerical method to find the optimal policy and the rational expectations equilibrium this paper summarizes a few useful methods and shows how they can be combined with a kalman filter to estimate the deep model parameters with maximum likelihood simulations of a macro model with staggered price setting interest rate elastic output and optimal monetary policy illustrate the properties of this estimation approach

quantitative goals for monetary policy a quantile regression approach a recent paper by fatas et al 2006 indicates that formal monetary policy targets exchange rate money supply or inflation targets palpably decrease inflation in a sample of 40 countries the authors employ various least squares estimations which pick up the conditional average effect however there is wide inflation variability in the authors sample thus formal targets could have very different effects in high and low inflation countries accordingly we utilize the technique of quantile regression a method frequently used in labour economics we find in a sample of low and moderate inflation countries that formal targets exert no significant impact on low inflation nations this result is important for debates over formal targets such as whether the united states should adopt an inflation target there are costs and benefits in having formal targets and finding that targets do not decrease inflation when it is already moderate is an important piece of information to consider

joint bidding in the name your own price channel a strategic analysis in this paper we study the name your own price nyop channel we examine theoretically and empirically whether asking consumers to place a joint bid for multiple items rather than bid one item at a time as practiced today can increase nyop retailers profits relatedly we also examine whether allowing consumers to self select whether to place a joint bid or itemwise bids increases retailers profits and consumers surplus we construct a dynamic model that incorporates both demand uncertainty and supply uncertainty to address these issues our theoretical analysis identifies the conditions under which joint bidding can increase both nyop retailers profits and consumers surplus we find that some consumers might bid more for the very same items when they place joint bids the increase in bid amount is related to the fact that joint bidding reduces the chance of mismatch between nyop retailers costs and consumer bids we conducted a laboratory study to assess the descriptive validity of some of the

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

institutional arrangements for monetary policy when output is persistent a discretionary monetary policy gives rise to a constant average inflation bias a state contingent inflation bias and a stabilization bias when output is persistent the paper considers institutional arrangements contracts for central banks that remove these policy imperfections the average and state contingent inflation biases can be removed by directing the central bank to target the growth of nominal income and appoint a central banker with a specific relative weight attached to output stabilization an alternative to this institutional solution is to direct central banks to aim for a feasible output target although this would remove the inflationary biases the government must appoint a liberal as opposed to conservative central banker in order to implement optimal stabilization

speed limit policies the output gap and optimal monetary policy in a standard new keynesian model a myopic central bank concerned with stabilizing inflation and changes in the output gap will implement a policy under discretion that replicates the optimal timeless perspective precommitment policy by stabilizing output gap changes the central bank imparts inertia into output and inflation that is absent under pure discretion even a fully optimizing i e non myopic central bank operating in a discretionary policy environment achieves better social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting this abstract was borrowed from another version of this item

maintaining price stability how long is the medium term using a small estimated forward looking model of the euro area economy this paper analyses the determinants of the optimal monetary policy horizon for maintaining price stability first the optimal policy horizon for a price level objective is generally longer than that for an inflation objective second the policy horizon becomes longer the greater the weight on other objectives like minimising output gap and interest rate variability third the optimal policy horizon is shorter the higher the degree of forward lookingness in the economy and the greater the slope of the phillips curve finally even if society cares only about inflation stabilisation it often pays to give the central bank a price level objective provided the horizon is optimally chosen to be somewhat longer

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

optimal monetary policy and the role of hybrid inflation price level targets this study investigates the role of hybrid inflation price level targets as a solution to the well known stabilization bias problem that arises under discretionary policies the analysis shows that social welfare will be improved by employing a weighted average of inflation and price level as one of the central bank s target variables in addition to the output gap growth target the reason is that imposing the optimal hybrid target will reduce inflation variability in a highly efficient way in particular the optimal hybrid regime outperforms other previously suggested regimes when the degree of inflation persistence is moderate

learning in common value auctions some initial observations abstract inexperienced bidders in first price common value auctions suffer from a winner s curse losing money on average with experience bidders approximate the nash equilibrium the mechanisms underlying this adjustment are 1 a market selection effect as the most aggressive bidders are less likely to return for subsequent sessions and 2 players who lose money bid less experiential learning and those who would have lost money had they won the auction with the high bidder s signal bid less observational learning

hybrid inflation and price level targeting in this paper we investigate the properties of monetary regimes that combine price level and inflation targeting we look both at an optimal control and at a simple rule characterisation of these regimes we derive numerical results by modelling the economy as a small scale open economy re model calibrated on uk data we conclude that 1 the relative merits of price level and inflation targeting as well as of mixes of these two depend on particular modelling and policy assumptions and 2 these merits do not always change gradually and or monotonically as we move from one regime to another

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

just another niche in the wall how specialization is changing the face of mainstream economics there is considerable discussion on so called mainstream pluralism that is on the co presence of a variety of research programmes in today s mainstream economics that 1 significantly deviate from the neoclassical core 2 are pursued by different often separate communities of researchers and 3 have their origins outside economics the literature tends to regard mainstream pluralism as a transitory state towards a new post neoclassical mainstream this paper advances a new interpretation it suggests that the changing and fragmented state of mainstream economics is likely to persist over time under the impact of specialization as a self reinforcing mechanism and the creation of new specialties and approaches also through collaboration with researchers from other disciplines

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

monetary politics and unemployment persistence abstract this paper develops a positive model of monetary policy that allows for persistent unemployment and electoral uncertainty the common credibility problem associated with low inflation monetary policy results in both a more severe inflation bias and a stabilization bias however a simple state contingent performance contract eliminates both biases monetary policy is also subject to two different strategic political considerations it is used to influence future policy decisions as well as to increase the incumbent party s probability of re election this results in a political business cycle which however is fundamentally different for left wing and right wing governments

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

monetary targets real exchange rates and macroeconomic stability abstract in this paper i develop a model to determine the optimal degree of flexibility in attaining monetary targets in an economy that is affected by shocks in the labor and financial markets i then simulate the model to assess the optimal degree of monetary policy flexibility in spain a country that has adopted monetary targets rigidly since 1978 i show that the model supports the policy choice of that country i also show that the monetary authorities should attribute more importance to real exchange rate movements in choosing their policies if the spanish economy becomes more open to international trade or if the labor market becomes more flexible

services inflation dynamics and persistence puzzle in brazil a time varying parameter approach this article analyses services inflation dynamics in brazil focusing on the services inflation persistence puzzle for monthly data from january 2004 to february 2016 we apply a time varying para

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

output persistence from monetary shocks with staggered prices or wages under a taylor rule we analytically examine output persistence from monetary shocks in a dsge model with staggered prices or wages under a taylor rule surprisingly while taylor style staggering never yields persistence calvo style staggering of wages does generate persistence under decreasing returns to labour c 2009 elsevier b v all rights reserved

developing science scientific performance and brain drains in the developing world abstract establishing a strong scientific community is important as countries develop and requires both producing and retaining of important scientists we show that developing countries produce a sizeable number of important scientists but that they experience a tremendous brain drain education levels population and per capita gdp are positively related to the number of important scientists born in and staying in a country our analysis indicates that democracy and urbanization are associated with the production of more important scientists although democracy is associated with more out migration

staggering the optimal monetary rule and persistence abstract the purpose of this paper is to show that persistence is not an attribute that derives from the characteristics of wage and price setting alone the structure of demand the monetary rule and the welfare loss function are also crucial determinants of the time series characteristics of the model

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

experience innovation and productivity empirical evidence from italy s slowdown the authors investigate whether the level of employee experience is good or bad for innovation and productivity using a sample of italian manufacturing firms during the early 2000s the authors find different results for managers versus workers experience the effect of managerial experience proxied by age on firm performance appears to depend on the type of firm in innovative firms having older managers and board members has a negative effect on innovation and productivity while in non innovative firms the costs and benefits of having older managers appear to cancel each other out for workers the effect of having a high share of inexperienced temporary workers is unambiguously associated with low innovation and low productivity these results also hold when endogenous regime switching is taken into consideration

targeting nominal income growth or inflation within a simple new keynesian model emphasizing forward looking behavior of private agents i evaluate optimal nominal income growth targeting versus optimal inflation targeting when the economy is mainly subject to shocks that do not involve monetary policy trade offs for society inflation targeting is preferable otherwise nominal income growth targeting may be superior because it induces inertial policy making which improves the inflation output gap trade off somewhat paradoxically inflation targeting may be relatively less favorable the more society dislikes inflation and the more persistent are the effects of inflation generating shocks jel e42 e52 f58

first price common value auctions bidder behavior and the winner s curse first price common value auctions bidder behavior and the winners curse john h kagel dan levin raymond c battalio and donald j meyer experimental auction markets are characterized by a strong winner s curse in early auction periods as high bidders consistently lose money failing to account for the adverse selection problem inherent in winning the auction with experience and bankruptcy on the part of the worst offenders subjects earn positive average profits but these are far below nash equilibrium predictions as a sizable minority of bids exceed the expected value of the item conditional on having the highest estimate of value individual bidding behavior is explored to identify the mechanism whereby market outcomes no longer display the worst effects of the winner s curse i introduction numerous occurrences of the winner s curse have been reported in bidding for items of uncertain value resulting in below normal or even negative average profits for bidders the winner s curse results from bidders failure to account for the adverse selection problem inherent in winning auctions for items of uncertain value capen clapp and campbell 1971 claim that the winner s curse resulted in low profits for oil companies in the 1960s in bidding on offshore oil and gas leases regarding corporate takeovers and mergers roll 1986 proposes a hubris hypothesis acquiring firms generally fall prey to the winner s curse paying too much on average for their targets he claims that from the samples he has observed the hubris hypothesis explains merger data as well as tax factors synergy or inefficient target management cassing and douglas 1980 find that many baseball players in the free agency market have been overpaid on account of the winner s curse and dessauer 1981 reports a similar finding of overbidding in auctions for the book publishing rights based on these occurrences it appears that many agents are not fully cognizant of the intricacies involved with bidding on alternatives that have uncertain worth the winner s curse results from the fact that although bidders may hold unbiased estimates of the auctioned item s value this estimate can be overly optimistic given that participants bids are influenced by their estimates of value in other words the winner s curse results from an adverse selection problem that bidders fail to account for fully in submitting their bids the existence of a winner s curse implies a breakdown of rational expectations on the bidder s part as discussed by milgrom 1981 and identifies a market that is out of equilibrium a winner s curse need not result from bidding on items with uncertain value provided proper adjustments are made one adjustment to the adverse selection problem is to deflate the expected value of the item and hence the bid before any action is taken for example cox and isaac 1984 show that agents who maximize expected utility will revise their expectations downward and submit bids that are strictly less than the expected value conditional on the event of winning when agents behave in this fashion a winner s curse does not result in the sense of bidders paying more on average than the items are worth this paper focuses on sealed bid auctions for objects of uncertain value a market institution for which theoretical predictions and empirical evidence concerning a winner s curse are mixed current theoretical development excludes the possibility of bidders paying more on average than the items are worth yet some empirical evidence in the sale of oil tracts as seen in capen clapp and campbell 1971 lohrenz and dougherty 1983 and mead moseidjord and sorenson 1983 suggests that the winner s curse may be present a series of experiments is designed and conducted in order to answer the following empirical research questions does the winner s curse exist in this auction framework and if it does what is its duration its relation to agent experience in the market and its breadth of impact across agents

surprise party estimating the consequences of unexpected presidential election results alesina s quarterly journal of economics 102 651 678 1987 influential model of presidential elections with ideologically motivated parties attributes higher growth and lower unemployment under democratic presidents to the surprise inflation a democratic victory entails in contrast to the published literature we test this hypothesis using calcula tions of presidential election surprises consistent with the assumption of rational economic actors we confront the econometric complications attending a time series approach tak ing into account economic growth dynamics we ultimately fail to confirm the hypothesis that the level of uncertainty associated with presidential election results has an effect on economic outcomes

how the european central bank decided its early monetary policy the main goal of this paper is to detect the mechanisms that should rationally stimulate the decision making policies of the european central bank ecb this is carried out under the framework of theoretical principles of interest rate rules firstly we deduce a set of logically advisable guidelines for the strategy actually developed by this central bank then we contrast a wide set of hypotheses with reference to those variables the ecb takes into account on deciding its monetary policy with a flexible treatment regarding the number of months of advance or delay in the explanatory variables the results lead us to the conclusion that the ecb besides adopting a smooth strategy especially bears in mind the expected core inflation rate with a reaction coefficient adjusted to that initially proposed by taylor the economic growth rate though it has a significant positive coefficient matters relatively little and is backward looking finally we evaluate up to what point the behaviour of the ecb is a

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33