improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

market efficiency and insider trading new evidence that corporate insiders earn profits from stock trading does not surprise most financial economists but that outsiders can earn abnormal returns by using pub licly available insider trading data constitutes a serious exception to stock market efficiency the authors show that this anomaly conti nues to exist despite the publication of studies attesting to its exi stence they suggest that the anomalous profits to outsiders are a ma nifestation of the size and earnings price ratio effects controlling for these factors reduces outsider profits by half the additional a ssumption of a 2 percent transactions cost makes outsider profits zer o or negative insider profits after an assumed 2 percent transactio ns cost are a moderate 3 percent per annum for annual holding period s copyright 1988 by the university of chicago

campaign contributions and congressional voting a simultaneous probit tobit model m any citizens and scholars have been troubled by the influence that special interest groups appear to exert over policymaking as a result of their roles in the financing of political campaigns these concerns inspired the enactment of a number of election law reforms in the 1970s and have led to increasing popular support for public financing of electoral campaigns despite the public attention these issues have attracted few social scientists have attempted to analyze the financial relationships between interest groups and policymakers empirically 1 one such study was reported by durden and silberman 1976 who included contributions from the afl cio political action committee as an independent variable in an equation explaining congressional voting on minimum wage legislation their results indicated that campaign contributions significantly affected voting on that issue the work i have done differs substantially from that of durden and silberman in two ways first i have chosen to examine issues which were of considerably narrower concern than the minimum wage issue in the interest of simplicity i examine issues of concern to just one or a few groups i have also used a different econometric technique if campaign contributions are actually endogenous as seems plausible the single equation estimation technique employed by durden and silberman is subject to a possible simultaneous equations bias for each issue studied i have therefore jointly estimated a two equation system explaining both votes on the bill and contributions from an associated interest group the simultaneous probit tobit model which i use takes into account the dichotomous nature of the variable indicating a congressman s vote the non negativity constraint imposed on the contribution variable and the possibility of correlation between the error terms for the equations explaining these two variables 2 full information maximum likelihood fiml estimates for the model are consistent and asymptotically efficient

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

how do prior gains and losses affect subsequent risk taking new evidence from individual level horse race bets many empirical studies focusing on how prior outcomes affect subsequent risk taking report conclusions that appear mutually contradictory while some studies document increased risk taking after gains and risk aversion after losses others report the opposite this paper contributes to this literature by investigating horse race bettors sequential risky decisions using individual level data a horse race betting market is a laboratory like environment and can be used to analyze behavioral patterns associated with decision making under risk we find evidence for i the house money effect as bettors take riskier wagers after gains and mostly spend the money they have won ii risk aversion after prior losses which we label a playing safe effect and iii a preference for breakeven contrary to the widely held conception in the empirical literature our findings suggest that the break even effect does not necessarily imply an increased preference for riskier bets because bettors may seek to break

tests of the efficiency of racetrack betting using bookmaker odds the objective of this study is to evaluate the informational efficiency of the market for betting on horse races whereas the price data used in previous studies have been drawn largely from totalizator parimutuel odds the data used in this study are derived from bookmaker odds the availability of a series of prices throughout betting facilitates the use of filter tests to evaluate market efficiency we conclude that this gambling market is efficient in the use of information supplied via both the movements in odds during the course of betting and the selections of newspaper tipsters however there is evidence to suggest that those with access to private information can earn positive returns from gambling

the ordinal efficiency of betting markets an exploded logit approach this article offers a new perspective on efficiency in betting markets by examining the degree to which finishing order in horse races corresponds to probabilities inherent in odds across different categories of horse race the application of an exploded logit procedure reveals a significantly greater degree of ordinal efficiency in higher relative to lower class races explanations for the phenomenon include differences in prize related incentives cross market distinctions in information markets and differential opportunity incentive for market manipulation

product line expansion and resource cannibalization abstract diversification research argues that new products are more successful when they leverage a firm s intangible resources which may support multiple activities without engendering rivalry for their use however numerous complementary resources may also be needed to exploit a firm s intangibles if these resources are in limited supply or if it takes time to acquire and assimilate additional resource capacity then new products may impose costs on existing products by cannibalizing the services of firm resources our analysis of product introductions within the pharmaceutical industry provides evidence of resource cannibalization and suggests that product market experience helps offset some of these costs

bargaining with imperfect commitment abstract we study the effect of imperfect commitment in noncooperative two person bargaining games by establishing the reputation for being stubborn a player sometimes commits to her initial demand becoming unable to change her demands or to accept an inferior offer from her opponent when the probability of being stubborn is small the set of equilibria is shown to be small and agreement may be reached immediately despite the possibility of stubbornness a player has greater bargaining power when she is more patient and or is more likely to be stubborn journal of economic literature classification number c78

re examining the betting market on major league baseball games is there a reverse favourite longshot bias a recent study of the fixed odds betting market on baseball games while finding that the betting market is generally efficient also found evidence of an underbetting on underdog teams this article examines the evidence for this new anomaly it corrects woodland and woodland s estimates of the commission subjective win probabilities and test statistics the efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period however like them it was found that slight underdogs are underbet it is also shown that their bias is not simply a bias involving favourites and underdogs whether underdogs are playing at home or away also seems to matter in their sample period as well a positive relationship between returns and subjective probabilities was found for underdogs and favourites a relationship suggestive of a favourite longshot bias rather than its reverse it is concluded that there is insufficient evidence to claim that this

alternating offer bargaining with two sided incomplete information i study alternating offer bargaining games with two sided incomplete information about the players discount rates for both perfect bayesian equilibrium and a rationalizability style notion i characterize the set of expected payoffs which may arise in the game i also construct bounds on agreements that may be made the set of expected payoffs is easy to compute and incorporate into applied models my main result is a full characterization of the set of perfect bayesian equilibrium payoffs for games in which the distribution over the players discount rates is of wide support yet is in a weak sense close to a point mass distribution i prove a lopsided convergence result each player cannot gain from a slight chance that she is a strong type but the player can suffer greatly if there is a slight chance that she is a weak type

political influence and regulatory policy the 1984 drug legislation i introduction in the late 1970s and early 1980s dissatisfaction with the length complexity and cost of the drug approval process combined with rising prescription drug prices led to congressional attempts at reform these focused on two issues to compensate the developers of new drugs for the increasing costs and delays associated with fda approval and to increase the availability of generic drugs until 1984 these reform attempts failed i use the structure induced equilibrium sie theory of shepsle and weingast 1981 to examine why regulatory reforms prior to 1984 were stalemated and why the 1984 drug legislation was ultimately enacted my results show that prior to 1984 the preferences of the members of the key congressional committees were such that the proposed bills could not beat the status quo however changes in both membership and turnover on the house subcommittee on health and the environment combined with a change in the majority party in the senate led to a situation in which the 1984 drug legislation could defeat the status quo in both the house and the senate the drug price competition act facilitated the market entry of generic drugs following patent expiration by allowing generic versions of brand name drugs patented after 1962 to use an abbreviated new drug application anda 1 the patent term restoration act extended the patent lives of brand name drugs for up to five years to compensate for patent life lost during the fda approval process initial unsuccessful legislative reforms were introduced into congress in 1978 79 and 1981 82 but no legislative reforms were passed until 1984 these earlier unsuccessful reform efforts raise the following questions first why did the status quo prevail until 1984 as the legislative equilibrium second what endogenous changes occurred to produce the new legislative equilibrium in 1984 while much of the previous literature about the pharmaceutical industry has focused on the efficiency and distributive effects of public policy i focus on the theory of regulatory policy 2 the sequence of legislative actions leading to the 1984 drug legislation shows how competing interest groups representing brand name and generic drug firms forced legislators to face trade offs in accommodating their interests i look most closely at the members of the house and senate committees with jurisdiction over pharmaceutical regulation issues data representing brand name and generic firm or consumer interests are used to construct estimates of legislative preferences ideal points 3 then the sie theory is used to generate predictions about legislative behavior and outcomes to help explain the initial failure of regulatory reform in 1979 and its ultimate success in 1984 the results from the analysis explain both why the status quo prevailed in 1979 and why it was overturned in 1984 the analysis also illustrates how the industry and consumer groups represented on the relevant committees can protect their interests this occurred in both 1979 when the senate passed legislation favorable to the generic drug industry and 1981 when legislation supported by the brand name drug firms was passed in each case representatives of the unfavored interest group were able to block legislation in the house legislation was possible only when the majorities on the house and senate committees could agree on a single policy which could defeat the status quo in both committees moreover this policy provided benefits to both sets of industry interests represented by committee members the paper is organized as follows in sections ii and iii i describe the theory of political outcomes used in this analysis and provide some background on pharmaceutical regulation prior to the reforms the estimation of congressional ideal points is discussed in section iv sections v and vi examine congressional responses to the 1979 drug reforms and interest group activity in the 1980s

time is money costing the impact of duration misperception in market prices abstract we explore whether and to what extent traders in a real world financial market where participants judgements are reportedly well calibrated are subject to duration misperception to achieve this we examine duration misperception in the horserace betting market we develop a two stage algorithm to predict horses winning probabilities that account for a duration related factor that is known to affect horses winning prospects the algorithm adapts survival analysis and combines it with the conditional logit model using a dataset of 4736 horseraces and the lifetime career statistics of the 53 295 horses running in these races we demonstrate that prices fail to discount fully information related to duration since a horse s last win we show that this failure is extremely costly since a betting strategy based on the predictions arising from the model shows substantial profits 932 5 percent and 16 27 percent with and without reinvestment of winnings respectively we discuss the important implications of duration neglect in the wider economy

yes one day international cricket in play trading strategies can be profitable abstract in this study we employ a monte carlo simulation technique for estimating the conditional probability of victory at any stage in the first or second innings of a one day international odi cricket match this model is then used to test market efficiency in the betfair in play market for large sample of odi matches we find strong evidence of overreaction in the first innings a trading strategy of betting on the batting team after the fall of a wicket produces a significant profit of 20 we also find some evidence of underreaction in the second innings although it is less economically and statistically significant than the first innings overreaction we also implement trades when the discrepancy between the probability of victory implied by current market odds differs substantially from the odds estimated by our monte carlo simulation model we document a number of trading strategies that yield large statistically significant positive returns in both the first and second innings

selling to biased believers strategies of online lottery ticket vendors i introduction do sellers in the marketplace take advantage of the belief biases of their consumers models of markets typically assume that sellers are profit maximizing consumers are utility maximizing and both sides of the market have accurate unbiased beliefs however an increasing collection of evidence shows that the presence of cognitive and strategic heterogeneity can account for many stylized facts in the marketplace which appear puzzling when confined to the framework of classical models we examine the behavior of sellers in a popular online market which provides an unusual opportunity to identify seller exploitation of biased beliefs held by buyers the chinese collective lottery betting market in this market shares of ticket portfolios for china s national lottery are sold commissions are charged by the sellers and the success rates of sellers are made public as in most state run lotteries success is completely random with known probabilities that are independent of previous outcomes these objective probabilities allow us to cleanly detect deviations from rational beliefs among buyers and assess the corresponding responses by sellers in the market to these demand shocks of buyers we find evidence that sellers cater to the biased beliefs of lottery ticket buyers by tailoring certain features of their portfolio product specifically collective lottery portfolio sellers adjust their sales strategies in response to demand fluctuations that are driven by buyers biased beliefs about the correlation of past and future lottery outcomes lottery ticket buyers tend to purchase tickets with numbers which have not recently won in accordance with previous evidence of the gambler s fallacy in lottery sales clotfelter and cook 1993 terrell 1994 ticket buyers also tend to purchase tickets from those ticket sellers who have recently experienced an exogenous increase in their win rates in accordance with previous evidence of the hot hand fallacy croson and sundali 2005 guryan and kearney 2008 1 we find combined evidence that lottery portfolio sellers take advantage of buyers belief in the hot hand fallacy in the following ways 1 directly following a previous win in their portfolio sellers increase their commission rate charged to the buyers to be collected as a percentage of the lottery winnings sellers are thus able to collect more commission money from the buyers conditional on winning 2 sellers offer portfolios of larger value and more ticket coverage directly following a large win in their portfolio using this strategy sellers increase their chances of holding a winning ticket in the current round as well as being able to collect more commission money conditional on winning 3 sellers self invest less in their own portfolios after a large win when their popularity among buyers in the market is high by purchasing a lower share of their portfolios on their own sellers are able to obtain a larger expected return without investing their personal money we also find some evidence consistent with lottery ticket sellers adapting to buyers belief in the gambler s fallacy first sellers generally tend to offer lottery number portfolios which are numerically dissimilar to recent winning tickets thus appealing to buyers with gambler s fallacy beliefs although the more numerically dissimilar the portfolio is to the previous winning ticket the less the seller himself invests in it sellers who have proposed very similar numbers compared to the previous winning ticket on the other hand self invest more thus entering the lottery with higher expected returns under the pari mutuel prize structure this self investment pattern is not consistent with the alternative story that sellers themselves subscribe equally to the gambler s fallacy compared to buyers our paper is unique to the existing evidence in this area in that we are the first to our knowledge to study sellers responses to consumers probabilistic belief biases specifically the gambler s fallacy and hot hand fallacy

the pricing of japanese equity warrants discrepancies between the black scholes value of japanese equity warrants and their observed prices are explained in part by the stochastic volatility of changes in prices of the underlying stocks we fit garch and egarch models to the stochastic volatility and briefly compare their performance to the cev model a hopscotch algorithm is used to value the warrants in the presence of the stochastic stock price volatility the stochastic volatility hopscotch warrant values still differ substantially from corresponding prices in contrast away from the money short term nikkei 225 options valued with the same stochastic volatility models are close to observed prices a regression model is used to fit the differences between warrant values and prices as a function of proxies for market impediments

the favourite longshot bias in parimutuel betting a clarification of the explanation that bettors like to bet longshots abstract one explanation of the favourite longshot bias in parimutuel betting is that bettors derive utility from betting longshots the purpose of this paper is to explore the conditions where such an explanation makes sense we posit a simple two horse race where there are two groups of bettors one group always bets the longshot the other bets on the basis of expected value the model yields two results in the absence of transactions costs track take there is no favourite longshot bias however if the track take is positive we would expect to observe the bias the primary reason is that there is no short selling mechanism in parimutuel betting markets hence the explanation that bettors like to bet longshots also requires transactions costs and no short selling

reciprocity and cooperation in repeated coordination games the principled player approach abstract two long lived players play a repeated coordination game i show the restrictions on players beliefs which imply that cooperation is optimal play journal of economic literature classification number d83

capture and ideology in the economic theory of politics the economic theory of regulation long ago put public interest theories of politics to rest these theories have correctly been viewed as normative wishings rather than explanations of real world phenomena they have been replaced by models of political behavior that are consistent with the rest of microeconomics anthony downs 1957 james buchanan and gordon tullock 1965 george stigler 1971 sam peltzman 1976 recently however debate has arisen over whether some version of a public interest theory of regulation will have to be readmitted to our thinking about actions and results in the political arena what is at issue is the empirical importance of the altruistic publicly interested goals of rational actors in determining legislative and regulatory outcomes james kau and paul rubin 1979 kalt 1981 peltzman 1982 this study assesses the nature and significance of publicly interested objectives in a particular instance of economic policymaking u s senate voting on coal strip mining regulations the existence of such objectives is of course no contradiction of the economic view of human behavior kenneth arrow 1972 gary becker 1974 and may well be rooted in genetic biological history becker 1976 jack hirshleifer 1978 generally however individuals altruistic publicly interested goals have been given little attention this reflects the judgment that such goals are so empirically unimportant as to allow the use of occam s razor in positive models or well founded apprehensions that these goals are unusually difficult to identify measure and analyze notwithstanding the latter problem we find that approaches which confine themselves to a view of political actors as narrowly egocentric maximizers explain and predict legislative outcomes poorly the tracking and dissecting of the determinants of voting on coal strip mining policy suggest that the economic theory of politics has been prematurely closed to a broader conception of political behavior

present at the biotechnological revolution transformation of technological identity for a large incumbent pharmaceutical firm abstract management of successful incumbent firms experience difficulty in recognizing the need for and effecting change in the firm s technological identity after an externally generated shift in the industry s technological trajectory nonetheless some large pharmaceutical firms have transformed their technological identity in drug discovery from a chemical random screening to biological drug design model we report how one of the world s most successful incumbents transformed technically sophisticated senior management championed the transformation it was achieved primarily through hiring many new scientists embodying biotechnology existing personnel acquired the expertise or left continual self transformation is part of the corporate ethos some differences in incumbent and entrant technology remain incumbents use a wider range of techniques consistent with their complementary assets publication and incentive compensation policies are driven by the need to attract and retain the best scientists professor firm collaborations are ubiquitous often non public and best identified in quantitative analyses by co publishing collaborations with new biotechnology firms are used primarily to substitute for developing internal expertise judged of marginal value no drug discovery collaborations exist with other major incumbents we identify another seven or eight incumbents similarly transforming as indicated by top scientific talent and patenting success

discontinuities and senior management assessing the role of recognition in pharmaceutical firm response to biotechnology despite an increasing emphasis on the role of senior management cognition in shaping organizational action there have been few attempts to link top management mental models to strategic choice in the face of discontinuous innovation this paper uses 23 years of data covering 15 major pharmaceutical firms to explore the degree to which each firm s response to the revolution in biotechnology was shaped by the senior team s recognition of biotechnology s importance controlling for a number of important alternative explanations we show that recognition may be an important predictor of action suggesting that cognition at the most senior level can play a critical role in shaping established firms response to discontinuities copyright 2003 oxford university press

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

reputational bargaining with minimal knowledge of rationality two players announce bargaining postures to which they may become committed and then bargain over the division of a surplus the share of the surplus that a player can guarantee herself under first order knowledge of rationality is determined as a function of her probability of becoming committed as is the bargaining posture that she must announce in order to guarantee herself this much this maxmin share of the surplus is large relative to the probability of becoming committed e g it equals 30 if the commitment probability is 1 in 10 and equals 13 if the commitment probability is 1 in 1000 and the corresponding bargaining posture simply demands this share plus compensation for any delay in reaching agreement

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

sequential parimutuel games abstract in a parimutuel betting system a successful player s return depends on the number of other players who choose the same action this paper examines a general solution for two action sequential parimutuel games and shows how the unique equilibrium of such games leads to a simple pattern of behavior in particular we show that there is an advantage to being an early mover that early players might choose actions with an ex ante low probability of success and that player action choices can flip with small changes in the parameters of the game

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

betting bias in exotic bets abstract the evidence from racetrack betting is that the subjective probabilities to win expressed through the public s bets are good approximations to the objective probabilities on the whole but that a betting bias exists in that favorites are underbet and long shots overbet we examine these questions for exactas and trifectas which the aid of a new database the approximation of subjective to objective probabilities is good for exactas and no betting bias is evident for trifectas the findings are more ambiguous and suggest that a taste for long shots or a misperception of true probabilities may play a role

the degree of inefficiency in the football betting market statistical tests abstract this paper tests the hypothesis that the football betting market is efficient our statistical tests are stronger than those in previous studies and we examine both nfl and college data over a sample period of fifteen years our statistical tests detect two specific biases in the nfl market and an unspecified bias in the college market we examine the year to year consistency and magnitudes of the biases and find that the nfl bias against home teams has been nearly eliminated while the bias against underdogs has increased profitable exploitation of the biases depends upon transaction costs

searching for positive returns at the track a multinomial logic model for handicapping horse races this paper investigates fundamental investment strategies to detect and exploit the public s systematic errors in horse race wager markets a handicapping model is developed and applied to win betting in the pari mutuel system a multinomial logit model of the horse racing process is posited and estimated on a data base of 200 races a recently developed procedure for exploiting the information content of rank ordered choice sets is employed to obtain more efficient parameter estimates the variables in this discrete choice probability model include horse and jockey characteristics plus several race specific features hold out sampling procedures are employed to evaluate wagering strategies a wagering strategy that involves unobtrusive bets with a side constraint eliminating long shot betting appears to offer the promise of positive expected returns even in the presence of the typically large track take encountered at thoroughbred racing events

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

the measurement of intellectual property rights protection this research improves upon empirical studies that examine the measurement of intellectual property rights ipr protection prior measures examine only one type of law or lack a component that addresses the actual enforcement of these laws the measure presented here uses three types of ipr laws and enforcement components for them

deviations dynamics and equilibrium refinements existing equilibrium refinements rule out nash equilibria susceptible to deviations we propose a framework for considering not only equilibria impervious to deviations but also equilibria likely to recur in the long run because they are repeatedly deviated to we explore which equilibria are recurrent with respect to the deviations underlying some existing signaling refinements we show that the set of recurrent equilibria based on cho and kreps s 1987 intuitive criterion is equivalent to their solution concept but that applying our framework to existing cheap talk refinements make those solution concepts more realistic and guarantee existence where their current formulations do not journal of economic literatureclassification numbers b49 c72 c73

do horses like vodka and sponging on market manipulation and the favourite longshot bias one of the most striking empirical patterns of horse race betting markets is the favourite longshot bias bets on favourites have dramatically higher expected returns than bets on longshots the literature offers a couple of different though not mutually exclusive explanations based on risk preferences and probability perceptions this article adds a new possible explanation the favourite longshot bias may be the rational answer of an honest audience to a simple but highly lucrative cheating opportunity of insiders we provide anecdotal evidence that the type of cheating we model here really takes place what is more by employing a large scale german data set we are able to demonstrate that the pattern of the favourite longshot bias changes as the opportunity of cheating vanishes the changes we observe are in accord with the cheating model we suggest

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

arbitrage strategies for cross track betting on major horse races cross track betting permits bettors to place their local tracks on a race being run at another track since each track operates a separate betting pool the odds can vary across the tracks the data suggest that the odds vary and they often vary dramatically allowing arbitrage opportunities this article employs a risk free arbitrage model to demonstrate the cross track inefficiency and recommends an optimal capital growth model for exploiting it a simple method is proposed for a single bettor at a single cross track the results indicate that these methods would have worked well in practice on a number of recent triple crown races copyright 1990 by the university of chicago

merging reputation and repeated games with incomplete information we relate and unify several results that appeared in the following domains merging of probabilities perturbed games and reputation phenomena and repeated games with incomplete information journal of economic literature classification numbers c72 d83

a reputation refinement without equilibrium the economic literature concerning agents reputations has grown steadily since the seminal work of kreps milgrom roberts and wilson 2 early work focused on how incomplete information leads to equilibria that are vastly different but more intuitive than those possible in the complete information game recently however game theorists have been studying how incomplete information might refine the set of equilibria 3 one important class of games is that in which a single long run agent plays a simultaneous move stage game with a sequence of opponents each of whom plays only once yet observes all previous play fudenberg and levine 1989 study the reputation of the long run player in this type of game they argue that the most reasonable equilibrium is the one which the long run player most prefers their intuition is sustained when one perturbs the game with the stackelberg strategy fudenberg and levine show that in the perturbed game the equilibrium payoffs of the long run player are bounded below by a number that converges to the stackelberg payoff

an examination of the determinants of biased behaviour in a market for state contingent claims we develop a model to explain the differential incidence of the favourite longshot bias in parallel sectors of the pari mutuel horserace betting market hypotheses are derived from the model and these are tested using uk data to explore the origins of the bias significant variations in the bias are discovered between market sectors on and off racetrack these results shed light on competing demand side explanations for the favourite longshot bias and suggest that it is affected by a combination of behavioural and operational features of the markets and the types of bettors informed and leisure which they attract

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

insider trading herding behaviour and market plungers in the british horse race betting market crafts n f r crafts 1985 economica 52 295 304 suggested that a pronounced shortening of bookmaker odds in horse race betting markets could indicate the presence of insider traders this paper uses the shin h s shin 1993 economic journal 103 1141 53 measure of the incidence of insider trading at the beginning of the betting period opening prices and at the end of it starting prices to distinguish the shortening of odds caused by insider trading from that caused by herding behaviour it turns out that significant positive betting returns are achieved when shortening odds are accompanied by a rise in the shin measure when they are accompanied by a fall returns are negative suggesting herd behaviour

searching for the favourite longshot bias down under an examination of the new zealand pari mutuel betting market this paper tests for the presence of the favourite longshot bias in a new setting this bias 150 the tendency for bettors to underbet favourites and overbet longshots 150 has been found in most studies of pari mutuel and bookmaking betting markets in the usa the uk and australia however there is growing evidence that in at least some pari mutuel betting markets there is no favourite longshot bias this paper examines the previously unexplored new zealand pari mutuel betting market on horse races for evidence of this bias utilizing a large sample of recent new zealand thoroughbred horse races it is found that while early off track bettors price this bias into odds late on and off track bettors eliminate much of the bias by the close of betting that is the results reinforce the view that not all pari mutuel betting markets are characterized by a favourite longshot bias at the close of betting evidence is also found that late bettors in this market are smart bettors

efficiency in the nfl betting market modifying and consolidating research methods modifying and consolidating previous research methods to generate more reliable estimates some fairly weak evidence is found of inefficiency in the nfl betting market resulting from a bias favouring home underdog against away favourite teams in contrast to previous research no evidence is found that momentum strategies generate significant returns in this market

assessing bettors ability to process dynamic information policy implications regulation is often employed to encourage the provision of readily interpretable explicit information to betting markets in an effort to promote their efficiency this approach is supported by a considerable volume of laboratory based research which suggests that individuals make poor judgments in the face of implicit dynamic information this article investigates to what extent horserace bettors who have strong incentives to make good probability judgments require the regulator s protection from such hostile information environments in particular we examine the accuracy of the subjective probabilities of bettors concerning 16 344 horses in 1671 races we find that bettors are skilled in adopting effective heuristics to simplify their dynamic information environment and even in the face of restricted information develop well calibrated judgments using outcome feedback a number of factors that help bettors to achieve good calibration are identified and the implications for market regulation are discussed

the dynamics of technological innovation the sector of antibacterial medicines abstract this is an empirical and historical study of the dynamics of technological innovation in antibacterial medicines a key sector of the pharmaceutical industry it is based on an analysis of all the innovations that were introduced over the period 1935 1987 from prontosil the first sulphonamide through penicillin and the semisynthetic antibiotics to the monobactams and the quinolones of the mid 1980s in the historical section we describe the influence that antibacterial medicines have had on the structure and research intensity of the innovating companies and through them on the pharmaceutical industry and its geography we also describe the catalytic role played by government agencies and universities in the empirical section the innovations are evaluated in terms of originality and market performance and are classified into four technological trajectories their distribution over time and among technological trajectories companies and countries the relation between originality and market performance of individual innovations the interplay between social needs market demand and technological innovation the role of market successful radical innovations in the launching of technological trajectories the orientation of subsequent academic and industrial research and the establishment of corporate technology traditions provide insights in both innovation theory and the dynamics of technological innovation

everyone s a winner the market impact of technologically advantaged agents using betting data we show that a market with agents having heterogeneous utility can include a net transfer of wealth to technologically advantaged agents taas from non taas with the transaction proving beneficial to both in terms of their realized utility

pioneers imitators and generics a simulation model of schumpeterian competition a computer simulation model in the tradition of evolutionary models of technical change is developed in this paper it focuses on r d competition in new product introductions and is based on data for the u s pharmaceutical industry during the 1970s the sensitivity of innovation levels to the rate of generic competition regulatory review time and patent life is examined in the computer simulation experiments these factors are found to have significant long run effects on industry structure and innovation levels

the effects of risk aversion on wagering point spread versus odds currently casinos and bookies use the point spread method for betting on football games since an odds system is used in various other sports what factors explain the current structure of the betting market as the bookie s profits are a percentage of the total money wagered the existence of point spread betting indicates that the total money wagered under this betting scheme is greater than that generated by odds betting this paper suggets that the current market structure is a consequence of risk averse attitudes of bettors

parimutuel contests with strategic risk sensitive bettors abstractexisting models in the parimutuel betting literature typically explain betting data by either assuming a single representative bettor with certain risk preferences or by assuming that a number of risk neutral bettors compete strategically within a game theoretic framework we construct a theoretical framework of parimutuel markets in which we model both strategic interaction and individual bettor risk preferences distinguishing between sophisticated insiders and recreational outsiders we solve this model analytically for the optimal insider betting amount in a static symmetric nash equilibrium a new data set of 126 million individual horse race bets in new zealand from 2006 to 2014 allows us to calibrate the model we find that insiders those betting 100 or more outperform outsiders by 7 5 in terms of realized returns the best fit of the model to the data is obtained when insiders are assumed to be risk neutral and to have an information advantage of 0 08 in probability terms this findin

marginal risk aversion and preferences in a betting market an individual s behavioural attitudes toward variance and non symmetry in the payoff distributions of pari mutuel gambles are empirically examined using the von neumann morgenstern expected utility of wealth paradigm preferences over payoff distributions for a representative bettor are estimated from observed payoffs at a greyhound racetrack the results indicate that the representative bettor exhibits increasing absolute risk aversion and given that the representative bettor is locally non satiated with regard to wealth exhibits preference for variance and aversion to positive skewness in the payoff distributions of the gambles examined

advertising and competition in the ethical pharmaceutical industry the case of antihypertensive drugs abstract this paper uses data on the majority of name brand antihypertensive drugs marketed in the united states during 1988 93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry this is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry we find strong evidence of an advertising effect in particular detailing efforts the salient means for product promotion in this industry systematically lower price sensitivity given the inverse relationship between elasticity of demand and price it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry our findings are thus consistent with hurwitz and caves who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

pricing profits and technological progress in the pharmaceutical industry the decades old debate over pharmaceutical industry prices profits and innovation has again intensified a number of events coalesced to refocus public interest on pharmaceuticals contributing to public concern were bureau of labor statistics price index increases for pharmaceuticals far outpacing those for the products of other industries another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability this article examines the phenomena that precipitated the current pharmaceuticals debate their historical antecedents and the principal questions at issue in the author s considered judgment a pell mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry s incentives for investment in new products

efficiency and profitability in exotic bets the efficiency and profitability of exotic racetrack bets such as exactas and daily doubles are examined efficiency is understood to mean that above average returns cannot be made in the long run once risk is appropriately controlled for the markets in question are found not to be efficient the inefficiencies however are insufficient to permit simple strategies to show a consistent profit some evidence of smart money exists in that holders of inside information may bet on exactas rather than equivalent standard bets in order to avoid signaling their actions to the betting public copyright 1987 by the review of economic studies limited

the relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry this paper estimates the effects of actual and potential rivalry on profitability of firms in the u s pharmaceutical industry during the 20 year period 1963 82 the results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability the results also show that potential competition significantly reduced drug firms profitability during the entire 20 year period copyright 1999 john wiley sons ltd

the optimal organization of research evidence from eight case studies of pharmaceutical firms abstract in this paper we examine the results of interviews of scientists and executives in eight pharmaceutical companies on the issue of how best to organize the rd when the firm is playing catch up in an area of science where it is weak and when governmental policies force firms to carry out r d in particular locations

revealing weak form inefficiency in a market for state contingent claims the importance of market ecology modelling procedures and investment strategies this paper examines the degree to which current prices discount historical prices in a market for state contingent claims conditional logit analysis is employed to predict winning probabilities based on market prices in a betting market these are used together with various wagering strategies to yield substantial abnormal returns consequently in contrast to the existing literature the results suggest that the market is not weak form efficient the disparity with previous efficiency studies highlights the importance of considering market ecology and of adopting an appropriate modelling procedure and investment strategy to fully exploit information contained in market prices

is timing everything in horse betting bet amount timing and bettors returns in pari mutuel wagering markets abstract noise trader models suggest that smart money profits from uninformed speculators this paper investigates how rates of return are associated with the timing of a bet and the amount staked in a pari mutuel horse betting market we employ a novel data set measured at the level of individual bettors on the finnish monopoly operator s online platform our findings suggest that relative to other bets late high stakes wagers are more profitable this implies that along with timing bet sizes should be accounted for when analysing market efficiency

racetrack betting and informed behavior abstract horse racing data permit interesting tests of attitudes toward risk the present paper studies a new sample of racetrack results from atlantic city new jersey the questions examined are 1 are the market odds the best data for predicting the order of finish 2 do horses go off at odds that reflect their true probability of winning 3 is there any evidence that late bettors have better information than early bettors it is found that market odds predict the order of finish well but that favorites are good bets and long shots are poor ones the data suggest that there does exist an informed class of bettors and that bettors are on the whole neither risk neutral nor risk averse

estimating the impact of the r d tax credit on strategic groups in the pharmaceutical industry abstract the economic recovery and tax act of 1981 provided a 25 percent tax credit for increases in research and experimentation expenditures previous studies have shown considerable controversy about the effectiveness of various tax credits this study focuses on the response of the strategic groups in the pharmaceutical industry to the credit four strategic groups were formed using different levels of research intensity research sales and relative cash flow margin cash flow sales the change in research intensity following enactment of the tax credit was estimated the analysis found that the tax credit caused an increase in r d expenditures in addition the r d tax credit appears to have contributed to increased competitive r d spending among the firms in the pharmaceutical industry

reputation with analogical reasoning we consider a repeated interaction between a long run player and a sequence of short run players in which the long run player may either be rational or may be a mechanical type who plays the same possibly mixed action in every stage game we depart from the classical model in assuming that the short run players make inferences by analogical reasoning meaning that they correctly identify the average strategy of each type of long run player but do not recognize how this play varies across histories concentrating on 2 2 games we provide a characterization of equilibrium payoffs establishing a payoff bound for the rational long run player that can be strictly larger than the familiar stackelberg bound we also provide a characterization of equilibrium behavior showing that play begins with either a reputation building or a reputation spending stage depending on parameters followed by a reputation manipulation stage

market efficiency and the favorite longshot bias the baseball betting market this paper examines the efficiency of the legal gambling market for major league baseball weak form tests of market efficiency within and across odds lines are performed surprisingly the consistently observed favorite longshot bias in racetrack betting is shown to exist in reverse for baseball bettors however these and other deviations from efficiency are shown to be insufficient to allow for profitable betting strategies when commissions are considered

testing risklove in an experimental racetrack abstract this paper tests the asch quandt betting hypothesis which accounts for the ubiquitous underbetting overbetting favourite longshot phenomenon found at most racetracks by postulating that horserace wagering is a consumption activity an experimental racetrack was designed with only off track betting permissible thereby eliminating much or all of the consumption involved but the basic anomaly remained and in a somewhat stronger form it is hypothesized that the observed betting behaviour of our subjects is consistent with prospect theory and its two outcome equivalent rank dependent expected utility theory

recreational versus professional bettors performance differences and efficiency implications using a novel dataset which allows comparisons across heterogeneous sub groups of pari mutuel bettors we demonstrate significant behaviour and performance distinctions between recreational and professional investors professionals ability to earn abnormal returns on short odds horses in high volume markets challenges the existing empirical consensus which offers very limited evidence of betting market inefficiency the results offer important lessons for betting operators and regulators and highlight the potential for similar avenues of investigation in other speculative markets

exploring decision makers use of price information in a speculative market we explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements the horse race betting market is an ideal environment to explore these issues a conditional logit model is constructed to determine winning probabilities based on bookmakers closing prices and the time indexed movement of prices to the market close we incorporate a technique for extracting predictors from price odds curves using orthogonal polynomials the results indicate that closing prices do not fully incorporate market price information particularly information that is less readily discernable by market participants

testing the efficiency of the national football league betting market this study presents three tests of efficiency of the nfl betting market for the years 1994 2000 first it tests for weak form informational efficiency of the betting market then it examines whether the market incorporates objective information such as power scores and stadium characteristics that might be useful for predicting game outcomes finally it determines whether alternative betting strategies would have yielded a profit although there is some indication that differences in the playing surfaces of home and visiting teams were not fully reflected in the betting lines it is found that there is no conclusive evidence to suggest that the market was inefficient over the period examined

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

repeated games with long run and short run players this paper studies the set of equilibrium payoffs in repeated games with long and short run players and little discounting because the short run players are unconcerned about the future each equilibrium outcome is constrained to lie on their static reaction best response curves the natural extension of the folk theorem to games of this sort would simply include this constraint in the definitions of the feasible payoffs and minmax values in fact this extension does obtain under the assumption that each player s choice of a mixed strategy for the stage game is publicly observable but in contrast to standard repeated games the set of equilibrium payoffs is different if players can observe only their opponents realized actions

efficiency characteristics of a market for state contingent claims this paper concludes that a market for state contingent claims uk horserace betting displays evidence of pervasive but heterogeneous forms of inefficiency in significant contrast to earlier investigations using hitherto unavailable data comparison of notional returns implicit in parallel sets of bookmaker and parimutuel odds identifies inefficiency in terms of zones of distinct but contrasting forms of cross market returns differential the inefficiency is rationalized in terms of both buyer and supplier behaviour its durability is explained in terms of limited arbitrage opportunities

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

information aggregation and belief elicitation in experimental parimutuel betting markets this paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets in one treatment groups of eight participants who possess a private signal about the eventual outcome play a sequential betting game the second treatment is identical except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome in the third treatment the same individuals make bets and assess the winning probabilities of the outcomes market probabilities more accurately reflect objective probabilities in the third than in the other two treatments submitting beliefs reduces the favorite longshot bias and making bets improves the accuracy of elicited beliefs a level k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information

on reputation refinements with heterogeneous beliefs consider a repeated game with incomplete information in which a patient long run player whose type is unknown faces a sequence of short run opponents as in fudenberg and levine 1989 the standard reputation result is that the patient long run player can obtain an average long payoff almost equal to the stackelberg payoff of the stage game by consistently playing as a stackelberg leader in the analysis one generally takes as fundamental an assumption that the players have common prior beliefs on the states of the world and that behavior is consistent with the concept of bayesian nash equilibrium however these related suppositions have been called into question as unrealistic and too stringent cf gul 1991 in many games of incomplete information a player s prior probabilities on types or states of the world are best regarded as purely subjective psychological parameters unknown to the modeler and to this player s opponents therefore it is important to understand whether the standard reputation results among others are implied by weaker assumptions on the knowledge and behavior of the players in fact as watson 1993 demonstrates the reputation result does not require equilibrium it is implied by a weak notion of rationalizability with some restrictions on the beliefs of the players here we qualify watson s 1993 study and extend the line of inquiry of watson 1993 and battigalli 1994 concerning settings in which reputations are effective as watson shows two main conditions on the beliefs of the players along with weak rationalizability imply the reputation result first there must be a strictly positive and uniform lower bound on the subjective probability that players assign to the stackelberg type second the conditional beliefs of the short run players must not be too dispersed watson 1993 does not explicitly indicate on what the updated beliefs of the short run players are conditioned we make this explicit and show that it is necessary to assume that the conditional beliefs of the short run players satisfy a stochastic independence property cf battigalli 1996 we also comment on the dispensability of equilibrium regarding the reputation result in games with two long run players

the dynamics of technological innovation the case of the pharmaceutical industry abstract this paper examines the mechanisms and dynamics of the process of innovation in companies and sectors of the chemical industry it is based on analysis of science and technology output indicators namely patents and innovations evaluated in terms of originality and in the case of innovations in terms of market success as well radical innovation ri is identified as the kingpin for the evolution of technologies in both the micro and macro economic context not only because it provides a model for imitation but also because it turns out to be more profitable for the innovating companies than incremental innovation at the micro economic level this paper examines the significance of diverse driving forces which lead a company to the launching of projects aiming at ri measures the length of commitment to such projects and describes the dynamic effects generated by the introduction of a successful ri and how they affect the company s subsequent r d and market orientation at the macro economic level this paper identifies the stages of youth growth maturity and decline of the subsectors of the chemical industry examines the distribution of ri and market successful innovations over the development of a sector describes the influence of market demand and capital investment on technological advance and compares the development of national chemical industries the paper concludes with an account of the dynamics of technological innovation in the chemical industry over the period 1930 1985 which is based on the empirical findings of the previous sections

the tylenol incident ensuing regulation and stock prices the much publicized tylenol incident in 1982 led to stringent packaging regulations for over the counter pharmaceutical drugs the sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations the market value of common stock of johnson johnson makers of tylenol declined by approximately 29 percent amounting to 2 31 billion although other firms in the industry also suffered significantly their share price decline did not occur around the tylenol incident but occurred around the subsequent packaging reg ulation proceedings on average 28 other pharmaceutical firms analyzed in this study experienced a decline of 310 million per firm or a total of about 8 68 billion the results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

stationarity rationalizability and bargaining strategies for the seller and the buyer which are weakly stationary we demonstrate that any initial offer from the seller induced by a strategy rationalized by a weakly stationary acceptance rule for the buyer must entail the coase property our result does not presume the selection of a particular equilibrium and follows directly from the weak stationarity assumption of the buyer s acceptance rule and the rational behaviour of the players

the relationship between two indicators of insider trading in british racetrack betting this paper examines whether a measure of insider trading in betting markets derived from the shin 1993 model is significantly related in samples of horse and greyhound races to an alternative independently derived indicator of insider activity suggested by crafts 1985 namely plunges in the odds offered against a particular competitor on the day of a race the analysis suggests that there is a significant relationship

leading for the long term abstract how do leaders build credibility and what happens if they can t or don t existing economic models of leadership consider static settings only and thus are not well suited for addressing such issues moreover an important phenomenon of leadership is its persistence to allow for credibility and other behaviors that make sense only in repeated games such as the followers paying the leader tribute this paper considers a repeated game version of hermalin b e 1998 toward an economic theory of leadership leading by example american economic review 88 1188 1206 leadership model

the political economy of the pharmaceutical industry e conomicsis a practical science since its inception as an independent discipline it has probed the major policy issues of the day the topics that aroused the interests of its practitioners have generally been those that presented government officials with critical choices the modern literature on the economics of the pharmaceutical industry is no exception this body of material originated with the investigations of the kefauver committee in late 1959 public interest was aroused by the spectacle of confrontation between committee and industry the record made by this committee and its successors grew to tens of thousands of pages as claims and counterclaims were offered regarding industry conduct and performance the primary line of attack concerned pharmaceutical prices and profits the committee demonstrated that prices generally exceeded direct costs of manufacturing for 22 major pharmaceutical firms in 1958 costs of goods sold were merely 32 percent of total sales u s senate report 1961 p 31 the committee argued that this fact alone demonstrated the presence of monopoly power while the substantial difference between revenues and production costs permitted high expenditures on research and development it also paid for even higher selling outlays moreover reported rates of return after taxes during this period on the order of 21 to 22 percent exceeded twice the average for all manufacturing the industry replied that on the contrary prices were low relative to the value afforded consumers and high returns on successful products were required to balance the losses from the large numbers of unsuccessful ones the relevant concept of marginal costs according to the industry position must include the costs of developing and marketing new products and therefore prices were not excessive at all although it admitted earning substantial profits the industry argued that without these returns research outlays would be limited and the number of new drugs reduced the committee countered that little of social value arose from industry research molecules were manipulated and the new drugs that resulted were therapeutically similar to those already on the market indeed it suggested that much