income inequality capitalism and ethno linguistic fractionalization we examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism our results suggest that there is no robust relationship between economic freedom and gini coefficients based on gross income subsequently we analyze the relationship between income redistribution and ethno linguistic fractionalization we find that the impact of ethno linguistic fractionalization on income redistribution is conditional on the level of economic freedom countries that have a high degree of fractionalization redistribute income less while capitalist countries that have a low degree of fractionalization redistribute income more

reputation in dynamic games abstract we analyze reputation in a game between a large player and a continuum of long lived small players in which state variables affect players payoffs the large player s type is private information we give conditions under which in every nash equilibrium a very patient large player will get almost the largest payoff consistent with the small players choosing a best response in a large finite truncation of the game while our results apply to the time inconsistency problem of optimal government policy we show that for the durable goods monopoly reputation may fail to improve the monopolist s payoff journal of economic literatureclassification numbers c72 c73

evidence on growth increasing returns and the extent of the market if economic growth relies upon the extent of the market then openness will decrease the connection between initial income and later growth alternatively learning by doing models suggest that wealth will be more positively correlated with growth in open economies because trade causes advanced economies to specialize in products with more opportunities for learning we examine twentieth century less developed countries and nineteenth century u s states in both data sets there is a much stronger correlation between growth and initial wealth among closed economies these findings support the importance of the extent of the market and aggregate demand in fostering growth

analyst reputation communication and information acquisition earlier studies have shown that reputational concerns tend to reduce agents opportunistic behavior however a recent study by morris argued that analysts experts reputational concerns may discourage truthful communication when they try to avoid being perceived as being misaligned with investors in this paper i examine the effect of reputational concerns on communication in a setting where analysts can choose their precision endogenously because both misaligned and aligned analysts want investors to trust their reports in the future both will aim to build a reputation for being aligned in equilibrium aligned analysts will acquire more information than misaligned analysts as a result investors may favorably update their beliefs about the analysts type when the report is proven to be accurate therefore both types of analysts will have reputational incentives to communicate truthfully the paper also derives conditions under which the analysts reputational concerns have a nonmonotonic impact on aligned analysts equilibrium precision choices and investors welfare

reputation and impermanent types i consider a version of the chain store game where the incumbent firm s type evolves according to a markov process with two states a tough type who always fights entry and a weak type who prefers to accommodate there exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough above that level as the number of markets t increases in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence when t is infinite then regardless of the discount factor there exists a sequential equilibrium in which the incumbent s payoff is bounded below her stackelberg payoff both results are in contrast to the outcome when the incumbent s type is fixed one interpretation is that reputation is not permanent but must be renewed occasionally

the political economy of linguistic cleavages article i nfo this paper uses a linguistic tree describing the genealogical relationship between all 6912 world languages to compute measures of diversity at different levels of linguistic aggregation by doing so we let the data inform us on which linguistic cleavages are most relevant for a range of political economy outcomes rather than making ad hoc choices we find that deep cleavages originating thousands of years ago lead to better predictors of civil conflict and redistribution the opposite pattern emerges when it comes to the impact of linguistic diversity on growth and public goods provision where finer distinctions between languages matter 2011 elsevier b v all rights reserved

material interests moral reputation and crowding out species protection on private land we consider how the reputation of being socially responsible works as an effective source of motivation in protecting a public good such as endangered species this paper investigates the mechanism design for endangered species protection on private land under asymmetric information about reputation and land quality we examine optimal monetary transfer by designing an efficient mechanism which takes into account the crowding out effect of monetary rewards on socially responsible behavior we find landowners who have good reputation contribute more than the optimum level landowners with poor reputation sacrifices information rent rather they buy reputation

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

street crime and street culture a model shows how reputation concerns can support widespread street crime a street culture where the direct incentives for such behavior are weak there are social benefits to street reputations but those benefits are dominated when reputation concerns draw into crime those who obtain no direct gain from it the model matches facts about violent crime that a standard model cannot easily explain including low monetary returns disproportionate victimization of the young and poor and high variance in rates across small distances the model generates novel implications for policy and social science including a negative effect of social capital

predation firm specific assets and diversification this study examines the relationship between diversification and predation focusing on the firm s investments in sunk cost assets unlike the single product firm the diversified firm may employ assets that are not sunk to a product the ability to transfer these assets among uses or locations may lower the costs of predation the long purse and multimarket reputation may be viewed as special cases of this phenomenon the likelihood of predation may be reduced when the diversified firm is the target since it may be able to transfer assets back into an industry when the predator raises the price copyright 1989 by blackwell publishing ltd

the geography of linguistic diversity and the provision of public goods abstract this paper analyzes the importance of local interaction between individuals of different ethnolinguistic groups for the provision of public goods at the national level the conceptual framework we develop suggests that a country s public goods i decrease in its overall ethnolinguistic fractionalization and ii either increase or decrease in its local global ethnolinguistic complementarity a measure of how local interaction affects antagonism towards other groups in the society at large after constructing a 5 km by 5 km dataset on language use for 223 countries we empirically explore these theoretical predictions while overall fractionalization worsens public goods outcomes local interaction mitigates this negative association conditional on a country s overall diversity public goods outcomes are maximized when there are a few large sized groups and the diversity of each location mirrors that of the country as a whole

conjecture uncertainty and cooperation in prisoner s dilemma games some experimental evidence abstract this paper presents experimental tests of two models of cooperation in finitely repeated prisoner s dilemma games kreps milgrom roberts and wilson 1982 the models suggest that either a perception that the other party may use the tit for tat strategy or mutual uncertainty concerning dominant noncooperative strategies can lead to rational cooperation the experiment independently manipulated both types of uncertainty and allowed for inferences concerning the players prior homemade preferences for cooperation only in relatively restricted situations did either type of uncertainty promote cooperation instead players cooperated much more than was predicted they also cooperated more when they were certain of their opponents payoffs

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

reputation and exogenous private learning abstract short run competitors in the chain store game receive noisy signals of the long run incumbent firm s type the history of signals which in the limit is fully revealing is observable to the competitors but possibly not to the incumbent as long as there is sufficient noise in the signals then in any equilibrium a patient weak incumbent obtains a payoff strictly higher than her minmax payoff

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

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

the openness equality trade off in global redistribution the gulf cooperation council gcc countries accept massive numbers of migrants from poor countries and pay wages that dramatically improve over outside options but are meagre by the standards of natives as such they do dramatically more per capita to reduce global inequality than do the fortress welfare states of the organisation for economic cooperation and development oecd countries if oecd countries were to imitate the gcc it would reduce global inequality by more than full equalisation within the oecd would such examples suggest a philosophically disturbing trade off between openness to global inequality reducing migration and internal equality

extending the concept of the resource curse natural resources and public spending on health this paper extends the concept of the resource curse by studying whether and through which transmission channels natural resource wealth affects social spending even though the availability of vast natural capital reserves has commonly been linked to the neglect of human development most of the literature has continued to focus on economic performance this paper is the first to empirically investigate the link between natural resource wealth and public health expenditures in light of the hypothesis that resource wealth as a source of unearned state income enhances state autonomy and increases volatility which leads to policies that fail to prioritize human development using a large panel dataset of world countries covering the period from 1995 to 2009 we find a robust significant inverse relationship between natural resource dependence and even abundance and public health spending over time the effect remains significant after controlling for state autonomy volatility and other factors these findings have implications for national authorities as well as the extractive industry governments should be made accountable for natural resource wealth and correct taxation could provide additional resources earmarked for health the extractive industry could increase their investments in sustainable corporate social responsibility operations specifically in the health sector

the impact of ethnic diversity on microenterprise start ups until recently factors determining the decisions made by microfinance institutions mfis to extend loans to business start ups had not been explored recent evidence shows that mfi performance wi

language group differences in time preferences evidence from primary school children in a bilingual city abstract we study differences in intertemporal choices across language groups in an incentivized experiment with 1154 children in a bilingual city the sample consists of 86 of all primary school kids in meran merano where about half of the 38 000 inhabitants speak german and the other half italian while both language groups live very close to each other we find that german speaking primary school children are about 16 percentage points more likely than italian speaking children to delay gratification in an intertemporal choice experiment the difference remains significant in several robustness checks and when controlling for a broad range of factors including risk attitudes iq family background or residential area hence we are able to show that language group affiliation which is often used as a proxy for culture plays an important role in shaping economic preferences already early in life

holding on ethnic divisions political institutions and the duration of economic declines abstract we analyze the duration of large economic declines and provide a theory of delayed recovery we show theoretically that uncertain post recovery incomes lead to a commitment problem which limits the possibility of cooperation in ethnically heterogeneous countries strong constraints on the executive solve this problem by reducing the uncertainty associated with cooperative behavior we test the model using standard data on linguistic heterogeneity and detailed data on ethnic power configurations our findings support the central theoretical prediction countries with more constrained political executives experience shorter economic declines the effect is large in ethnically heterogeneous countries but virtually non existent in homogeneous societies our main results are robust to a variety of perturbations regarding the estimation method the estimation sample measures of heterogeneity and measures of institutions

predation by public enterprises abstract this paper demonstrates that in addition to the usual niskanen type losses generated by excess production by public firms there is an unrecognized second type of loss in order to sell their excess production public firms have to price their output below the competitive price and thereby cause more efficient firms at the margin to be eliminated the discussion is then extended to include the case where public enterprises finance additional expansions of output by price discriminating against inframarginal customers but then face the threat of competition for these inframarginal customers from new potential entry public enterprises are further shown to provide more credible threats to potential entrants since unlike private firms they value the increased output associated with predation and not merely the higher future benefits produced by it

ethnic diversity social sanctions and public goods in kenya abstract this paper examines ethnic diversity and local public goods in rural western kenya the identification strategy relies on the stable historically determined patterns of ethnic land settlement ethnic diversity is associated with lower primary school funding and worse school facilities and there is suggestive evidence that it leads to poor water well maintenance the theoretical model illustrates how inability to impose social sanctions in diverse communities leads to collective action failures and we find that school committees in diverse areas do impose fewer sanctions on defaulting parents we relate these results to the literature on social capital and economic development and discuss implications for decentralization in less developed countries

history social divisions and public goods in rural india we examine the influence of three historically important sources of social divisions on the availability of public goods in rural india colonial power landowner peasant relations as determined by the land tenure system and social fragmentation based on the hindu caste system and the presence of sizable religious minorities using data on public goods from 1991 we find that regions that were under british colonial power in the pre independence period and those where agrarian power was concentrated in the hands of landlords have lower access to these goods as do areas with high levels of social fragmentation jel h41 p16

community composition and collective action analyzing initial mail response to the 2000 census this paper analyzes how community heterogeneity influences resident decisions to undertake actions generating public benefits the decision in question is completing and returning the 2000 census questionnaire an action which secures a significant amount of federal grants for the community the model developed to explain this action allows members of societal groups to differentially value public benefits that accrue to other group members racial generational and socioeconomic class heterogeneity all predict significantly lower response rates at the county level the potential for endogenous sorting into heterogeneous counties implies that the magnitude of true behavioral effects exceeds these estimates

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

fractionalization entrepreneurship and the institutional environment for entrepreneurship the vast majority of the literature on ethnicity and entrepreneurship focuses on the construct of ethnic entrepreneurship however very little is known about how ethnic heterogeneity affects entrepreneurship and the institutional arrangements affecting entrepreneurship this study attempts to fill the gap and thus examines the effect of ethnic heterogeneity on various outcomes associated with entrepreneurship and the institutional environment for entrepreneurship using indices of ethnic and linguistic fractionalization we show that ethnic heterogeneity negatively influences entrepreneurship we argue that potential channels that can explain the negative effect of fractionalization on entrepreneurship include trust social network and innovation among others this study provides a new perspective on the existing debate that seeks to understand why the levels of entrepreneurial success vary across countries

the urban informal sector in uruguay its internal structure characteristics and effects abstract the literature on third world urbanization has focused increasingly on the informal sector as a mechanism to explain first the survival strategies of the poor excluded from regular employment and second the strategies of formal firms to bypass regulatory constraints and reduce costs this paper pursues these lines of research in a special context namely that of uruguay a small country which followed a protective labor policy for many years but reversed it during the 1970s and early 1980s data come from a sample of 700 households in montevideo which are representative of the low income neighborhoods that comprise approximately two thirds of the city s population interviews were held in 1983 1984 the analysis focuses on the following issues 1 the proportion of individuals and households who participate in the informal economy 2 the types of informality that exist in both principal and secondary occupations 3 the effects of informal employment on income 4 differences in age sex and education between different types of workers 5 changes in informal employment over time implications of findings for general definitions and hypotheses about the informal sector are examined the relationship of results to the neoliberal experiments attempted in uruguay between 1973 and 1984 is discussed

persistence of gender inequality the role of ethnic divisions gender inequality remains a fundamental challenge for global policymakers given that it has detrimental implications for growth and human capital formation however studies examining the roots of

economic integration and political disintegration in a world of trade restrictions large countries enjoy economic benefits because political boundaries determine the size of the market under free trade and global markets even relatively small cultural linguistic or ethnic groups can benefit from forming small homogeneous political jurisdictions this paper provides a formal model of the relationship between openness and the equilibrium number and size of countries and successfully tests two implications of the model firstly the economic benefits of country size are mediated by the degree of openness to trade secondly the history of nation state creations and secessions is influenced by the trade regime

ethnicity and conflict an empirical study this paper examines the impact of ethnic divisions on conict the empirical specication is informed by a theoretical model of conict esteban and ray 2011 in which equilibrium conict is related to just three distributional indices of diversity ethnic polarization ethnic fractionalization and a greenberg gini index constructed across ethnic groups our empirical ndings verify that these distributional measures are signicant correlates of conict the underlying theory permits us to use these results to make inferences about the relative importance of public goods in conict as well as the extent of within group cohesion in conictual activity these eects are further strengthened as we introduce country specic measures of group cohesion and the relative importance of public goods and combine them with the distributional measures exactly as specied by the theory

market place trading and the transformation of retail space in the expanding latin american city the global spread of the supermarket and the planned shopping centre is transforming retail space in the latin american city nevertheless market place trading has continued to flourish in most cities and is itself a key element of retail change a case study of quito shows how new periodic markets have been established and that as demand density grows these are consolidated into daily markets much of the dynamism in market place trading is associated with government intervention with principal policies being the creation of markets in poorly served urban areas and a reduction in the concentration of market place trading in the historic centre speculations about competition and complementarity between supermarket and market underline the need for further research and an understanding of the consumption patterns which support the continued heterogeneity of retail forms in the latin american city

gambling reputation repeated bargaining with outside options we study the role of incomplete information and outside options in determining bargaining postures and surplus division in repeated bargaining between a long run player and a sequence of short run players the outside option is not only a disagreement point but reveals information privately held by the long run player in equilibrium the uninformed short run players offers do not always respond to changes in reputation and the informed long run player s payoffs are discontinuous the long run player invokes inefficient random outside options repeatedly to build reputation to a level where the subsequent short run players succumb to his extraction of a larger payoff but he also runs the risk of losing reputation and relinquishing bargaining power we investigate equilibrium properties when the discount factor goes to 1 and when the informativeness of outside options diffuses in both cases bargaining outcomes become more inefficient and the limit reputation building probabilities are interior publication abstract

corporate compliance with debt covenants in this paper i present and test a model of corporate compliance with the debt covenant requiring payment of a current obligation this study adds to the empirical literature on forecasting financial distress by showing conditions under which debt default may be a rational economic decision by the firm s shareholders this analysis departs from empirical financial distress studies which are often not linked to an underlying economic theory the focus on covenant default also extends the literature which has modeled bankruptcy bulow and shoven 1978 and liquidation decisions titman 1984 but which has not considered a common first symptom of financial distress covenant default briefly the model examines the costs that influence shareholders decision to comply with or violate a particular debt covenant payment of a current obligation these costs include those associated with bondholders reaction to possible default the model predicts that shareholders will default when holding other factors constant i interest rates have declined relative to coupon rates stated in the debt issue ii the probability of paying future obligations is high and iii the cost of obtaining funds to pay the obligation is high the model also predicts when stockholders and bondholders will renegotiate the debt contract and the amount of wealth transferred in the renegotiation finally the

action characteristics as predictors of competitive responses a central question in competitive dynamics is whether a competitive response can be predicted this study links various characteristics of actions with the total number and the time lag of competitors responses the hypothesized relationships were tested with a sample of competitive moves among u s airlines the results suggested that responses are influenced by the characteristics of the actions that evoked them specifically the total number of competitors affected by an action and the importance to these competitors of the markets under attack by the action increase the number of competitive responses strategic as opposed to tactical actions or actions which require substantial implementation efforts reduce the number and delay the timing of rivals counteractions finally contrary to prediction competitors who have a high stake in the markets under attack by a competitive move react slowly

language and the theory of the firm we characterize efficient technical languages and study their interaction with the scope and structure of organizations efficient languages use precise words for frequent events and vague words for unusual ones a broader organizational scope allows for more synergies to be captured but reduces within unit efficiency since it requires a more generic language a manager working as specialized translator may also be used to achieve between unit coordination while maintaining separate languages our theory reconciles two recent well documented phenomena within organizations the recent increase in information centralization and the reduction in hierarchical centralization

disagreement and learning about reforms when it comes to economic reforms in developing countries many economists agree on broad objectives broad objectives however can be pursued in different ways and policy experimentation is often indispensable for learning which alternative works locally we propose a theoretical model to study this societal learning process the model explores the role of disagreeing beliefs about what works it suggests that such disagreement can stall the societal learning process and cause economic stagnation although everyone knows that growth promoting reforms do exist our analysis is motivated by the observation of a negative relationship between disagreement and economic growth among poorer countries

sacrifice tests for predation in a dynamic pricing model ordover and willig 1981 and cabral and riordan 1997 meet ericson and pakes 1995 abstract to detect the presence of predatory pricing antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival because predatory pricing is an inherently dynamic phenomenon we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry dynamics framework along the lines of ericson and pakes 1995 in particular we adapt the definitions of predation due to ordover and willig 1981 and cabral and riordan 1997 to this setting and construct the corresponding sacrifice tests

unions and cooperative behavior the effect of discounting using union contract and industry wage survey data this article examines the effect of discounting on cooperative bargaining behavior by unions and firms game theory predicts that higher discount rates raise the temptation to defect from cooperation measures of cooperative behavior included the presence of merit pay incentive pay wage employment guarantees or labor management study committees discount rates were proxied by the relevant industry s failure rate failure rates generally had negative effects on cooperation industry wage survey results showed larger effects for union than non union establishments providing support for the union bargaining framework

reputation and the flow of information in repeated games this paper derives payoff bounds from reputation effects akin to those of fudenberg and levine 1992 for repeated moral hazard games in which a long run player interacts frequently with a population of short run players and the monitoring technology varies with the length of the period of interaction the bounds depend on the monitoring technology through the flow of information a measure of signal informativeness per unit of time based on the relative entropy examples are shown where under complete informatione the set of equilibrium payoffs of the long run player converges as the period length tends to zero to the set of static equilibrium payoffs whereas when the game is perturbed by a small ex ante probability on commitment types reputation effects remain powerful in the frequent interaction limit

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

games of perfect information predatory pricing and the chain store paradox the thesis of this paper is that finite noncooperative games possessing both complete and perfect information ought to be treated like one player decision problems that is players ought to assign at every move subjective probabilities to every subsequent choice in the game and ought to make decisions via backward induction this view is in contrast with the gametheoretic approach of nash equilibrium after expanding on this view for games in the abstract in sections 2 and 3 attention is turned in section 4 to an example due to reinhard selten called the chain store paradox which possesses the flavor of a situation involving a predatory pricing monopolist it is argued that for the chain store game the decision analytic approach leads under certain assumptions to more realistic outcomes than the standard nash equilibrium approach

cultural diversity and economic growth evidence from the us during the age of mass migration we exploit the large inflow of immigrants to the us during the 1870 1920 period to examine the effects that within county changes in the cultural composition of the us population had on output growth we construct measures of fractionalization and polarization to distinguish between the different effects of cultural diversity our main finding is that increases in cultural fractionalization significantly increased output while increases in cultural polarization significantly decreased output we address the issue of identifying the causal effects of cultural diversity by using the supply push component of immigrant inflows as an instrumental variable

imperfect public monitoring with costly punishment an experimental study this paper experimentally investigates the effects of a costly punishment option on cooperation and social welfare in long finitely repeated public good contribution games in a perfect monitoring environment increasing the severity of the potential punishment monotonically increases average net payoffs in a more realistic imperfect monitoring environment we find a u shaped relationship access to a standard punishment technology in this setting significantly decreases net payoffs even in the long run access to a severe punishment technology leads to roughly the same payoffs as with no punishment option as the benefits of increased cooperation offset the social costs of punishing jel c92 h41 k42

value diversity and regional economic development we investigate the link between culture and regional economic development within european countries considering a variety of cultural values we provide evidence that it is the degree of diversity in these values at the regional level that strongly correlates with economic performance rather than the prevalence of specific values in particular we show that greater value diversity is negatively associated with regional economic performance within countries which also relates to lower institutional quality and poorer public goods provision these patterns are robust even when diversity is measured based on values expressed by emigrants residing outside of their region of origin this article is protected by copyright all rights reserved

on the determinants of political polarization in this article we aim to identify the main determinants of political polarization using bayesian model averaging to overcome the problem of model uncertainty we find that the level of trust within a country and the degree of income inequality are the most robust determinants of political polarization

collusion under financial constraints collusion or predation when the discount factor is near one abstract this paper considers the possibility of collusion between financially constrained firms it is found that they cannot collude when the discount factor is sufficiently close to one while collusion emerges at lower discount factors

corporate and industry effects on business unit competitive position we partition the variances of market shares which we use as surrogates for competitive position of the business units of all public manufacturing companies available in the trinet data base into industry factors corporate parent specific factors and business unit specific factors our results differ somewhat from rumelt s 1991 which decomposed variances in profitability we find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly when small business units are included and when firms are medium sized our results suggest that the relative importance of corporate industry and business unit effects depends on the types of criteria such as the level of industry aggregation whether small business units are included and firm size that are used to construct samples copyright 2000 john wiley sons ltd

fulfilled expectations of entry i develop a two period model of entry deterrence with endogenous market demands such that the consumer s expectation about the future market structure is fulfilled in equilibrium i find that both expectations duopoly and monopoly are fulfilled in the incumbent s price setting game while there is a unique equilibrium in the quantity setting game i also find that quantity is more entry deterring than price in the sense that the maximum value of the entry cost that allows entry in the price setting game is higher than or equal to that of the quantity setting game

a response to glazer and rosenthal we are most grateful to glazer and rosenthal for the attention they have paid to our work abreu and matsushima 1992a b c in the process of criticizing our mechanism they have provided an elegant exposition of it which usefully supplements our own efforts the criticisms themselves we feel are misplaced and based on a close reading but narrow interpretation of our results glazer and rosenthal seek to show that in our mechanisms the iterative removal of strictly dominated strategies is or indeed ought to be controversial in terms of conventional decision theory the iterative logic is impeccable when iterative deletion leads to a unique profile that profile is the unique rationalizable profile the unique nash equilibrium and so on of course the logic of iterative dominance entails common knowledge of rationality the theoretical coherence of this assumption has been questioned in the context of backward programming in extensive form games see luce and raiffa 1957 pp 80 81 rosenthal 1981 basu 1988 reny 1992a 1992b bonanno 1991 binmore 1987a 1987b and gul 1989 among others these paradoxes of common knowledge of rationality have been highlighted in stylized examples such as the finitely repeated prisoners dilemma and rosenthal s centipede game which in fact has been a seminal inspiration for this recent literature 2 but our mechanisms are simultaneous there is no opportunity to demonstrate irrationality strategic or otherwise and therefore no scope to rationalize iteratively dominated behavior from a decision theory perspective the glazer and rosenthal critique might therefore be viewed as an elaborate revival of the indefensible claim that players in a one short prisoners dilemma will choose not to confess because they are both better off doing so than by both playing their dominant strategies within the standard game theory paradigm there is really nothing more to be said before turning to issues of bounded rationality we note that the glazer and rosenthal critique is essentially premised on the existence of a countervailing focal point but what is a focal point the notion is notoriously vague and we are aware of no widely accepted definition 3 this is not to deny that in very simple and particular games certain behavior may be focal frequently focalness is identified with a pareto dominating equilibrium and this is the point of view glazer and rosenthal seem to adopt 4 this is implicit in their acknowledgement that when the social choice function does satisfy pareto optimality our objection loses much of its immediate

the effect of language training on immigrants economic integration empirical evidence from france abstract we examine the impact of language training on the economic integration of immigrants in france the assignment to this training offered by the french ministry of the interior depends mainly on a precise rule the training is provided if the test score of an initial language exam is below a certain threshold this eligibility rule creates a discontinuity in the relation between the test result and the variables of interest which is used to estimate the causal effect of language training through the method of regression discontinuity design we find that the number of assigned hours of training significantly increases labor force participation of the treated individuals the language classes appear to have a larger effect for individuals with higher levels of education while there is no robust differential effect by type of migration gender or age our estimated coefficients are remarkably similar when we rely on local linear regressions using the optimal bandwidth with few observations around the threshold and when we control parametrically for a polynomial of the forcing variable and use the whole estimation sample we conclude with a discussion of the candidate mechanisms for the improved labor market participation of immigrants

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

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

do weak institutions prolong crises on the identification characteristics and duration of declines during economic slumps this paper studies periods of prolonged contractions in output per capita in a sample of 145 countries from 1950 to 2014 economic slumps are defined as abrupt interruptions of a period of growth by several regime switches slumps start with a sharp contraction along with a trend break which is followed by another switch when growth stabilizes again the paper then analyzes the correlates of these slumps focusing on the length and depth of the contraction from the beginning of the slump to its trough the results establish three new stylized facts i weak political institutions predate crises whereas political reforms tend to follow them ii the length and depth of economic declines are robustly correlated with executive constraints and ethnic heterogeneity and iii there is a robust interaction between these two variables suggesting that institutions constraining leaders are important for stabilizing growth this is particularly relevant for sub saharan africa where politics are often ethnic and decision makers are comparatively unconstrained

the changing structure of petty production in ecuador abstract this article deals with the extent to which the economic activities of the urban poor in third world cities will disappear stagnate or increase as capitalism develops first it seeks to develop a theoretical framework which allows us to make sense of the economic changes which are taking place in the cities of the developing world this is followed by an empirical analysis which shows that while the number of petty manufacturing workshops in key areas of quito remained remarkably constant over a seven year period of rapid economic growth this stagnation was the net result of gross changes in the structure of production whereby production of the means of subsistence declined and production of the means of production increased in addition the nature of the latter was modified in terms of the type of work undertaken the changes which took place varied across the city and were inadvertently affected by government housing policy

genetic diversity and the origins of cultural fragmentation despite the importance attributed to the effects of diversity on the stability and prosperity of nations the origins of the uneven distribution of ethnic and cultural fragmentation across countries have been underexplored building on the role of deeply rooted biogeographical forces in comparative development this research empirically demonstrates that genetic diversity predominantly determined during the prehistoric out of africa migration of humans is an underlying cause of various existing manifestations of ethnolinguistic heterogeneity further exploration of this uncharted territory may revolutionize the understanding of the effects of deeply rooted factors on economic development and the composition of human capital across the globe

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

should a team be homogeneous abstract should an organization hire people with similar backgrounds or with different backgrounds we formulate this question within the framework of team theory the team is formed by n agents the type of each agent is endogenous and determines his information structure and his cost for the team we show that the sign of complementarity between jobs determines workforce homogeneity with positive complementarities the team should be composed of agents of the same type while with negative complementarities workforce heterogeneity is optimal these results do not rely on the restrictions on the way uncertainty is modeled or on the feasible set of agent types they can be explained in terms of correlation between errors committed by different agents

credit bureau policy and sustainable reputation effects in credit markets welfare increasing reputation effects arise in credit markets when adverse selection gives rise to borrower reputation formation incentives that mitigate moral hazard problems this paper shows that welfare stemming from reputation effects will diminish over time as the private information of borrowers is revealed to lenders in the form of lengthening credit histories aggregate borrower welfare may therefore decrease over time unless reputation effects can be sustained restricting a lender s access to a borrower s credit history via credit bureau policy is shown to be one method of sustaining reputation effects and preventing a decline in welfare copyright 1995 by the london school of economics and political science

growth constraints on small scale manufacturing in developing countries a critical review abstract the question raised in this review is whether small scale producers in developing countries can expand or whether they are up against constraints which stunt their growth most of the literature has been optimistic on this score while internal constraints e g lack of managerial ability or external constraints e g discrimination from government are identified expansion is seen as an open ended process in other contributions this view has been severely criticized some allege that the small producers are exploited through various mechanisms others suggest that their road to expansion is blocked as a result of factors such as the pre existence of very advanced technology the control of large firms over product markets or difficulties in access to raw materials in discussing the arguments put forward in the debate an attempt is made to assess their theoretical bases and examine the extent to which they are supported empirically while most studies express explicitly or implicitly a definite view on the growth potential of small producers such judgement is rarely based on a comprehensive examination of the context which determines this potential

switching costs in the wholesale distribution of cigarettes recent theories of price wars triggered by entry assign a critical role to switching costs in explaining price and output changes earlier elzinga and mills 1998 showed that actual switching patterns following an episode of new entry in an industry are driven by the fact that buyers have different switching costs the current paper draws on transaction specific price and shipments data surrounding the 1984 1985 price war in generic cigarettes to explore the size and determinants of switching costs among wholesale cigarette distributors results show that switching costs vary across firms and are nontrivial in magnitude several implications of the findings are discussed

goliath s curse coercive threats and asymmetric power states typically issue compellent threats against considerably weaker adversaries yet their threats often fail why expanding on a standard model of inter national crisis bargaining i argue that a theory of reputation building can help shed light on this puzzle the model casts reputation as a strategic problem showing that challengers issuing compellent threats have incentives to anticipate the reputation costs that target states incur when appeasing aggressors if challengers can recognize these costs and offset them with side payments or smaller demands then even reputation conscious targets will acquiesce i argue however that military strength contributes to information problems that make challengers more likely to underesti mate their targets reputation costs and insufficiently compensate them in this way military power can undermine the effectiveness of compellent threats the logic is illustrated by the 1939 russo finnish crisis and the argument s implications for the study of coercive diplomacy are explored

culture ethnicity and diversity we investigate the empirical relationship between ethnicity and culture defined as a vector of traits reflecting norms attitudes and preferences using surveys of individual values in 76 countries we find that ethnic identity is a significant predictor of cultural values yet that within group variation in culture trumps between group variation thus in contrast to a commonly held view ethnic and cultural diversity are unrelated we explore the correlates of cultural diversity and of the overlap between culture and ethnicity finding that the level of economic development is positively associated with cultural diversity and negatively associated with the overlap between culture and ethnicity finally although only a small portion of a country s overall cultural heterogeneity occurs between groups this does not imply that cultural differences between groups are irrelevant indeed we find that civil conflict becomes more likely when there is greater overlap between ethnicity and culture