the limits of market oriented regulatory techniques the case of automotive fuel economy the search for more efficient market oriented regulatory techniques has produced significant recent advances in several areas among these would appear to be the corporate average fuel economy cafe approach to reducing gasoline consumption by the domestic automobile fleet the 1975 energy policy and conservation act required manufacturers to sell fleets with a sales weighted average of 18 miles per gallon in the 1978 model year 19 mpg in 1979 20 mpg in 1980 and 27 5 mpg in 1985 1 the standards for the four intervening years were subsequently set by the national highway traffic safety administration at 22 24 26 and 27 miles per gallon the advantages of the averaging approach over uniform vehicle standards or a gas guzzler tax are two fold first cafe permits each firm to increase its overall fuel efficiency in the cheapest manner since the costs of mileage improvements for different vehicles may be rather different 2 and second it permits the continuation of a diverse product mix to the consumer since a uniform standard would probably result in the demise of certain models these arguments for averaging are now so widely accepted that the principle is being proposed inter alia for automotive emissions standards as well that is instead of maximum allowable emissions for each and every model manufacturers could produce models with various levels of pollutants

the consequences of minimum wage laws some new theoretical ideas economists generally agree that the effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers however this prediction of worker displacement depends critically on the assumption that the productivity of firms labor is not dependent on the wage in this paper we show that in a conventional efficiency wage model a minimum wage may increase the level of employment in low wage jobs the formal logic of our model is similar to the case of labor demand under monopsony but arises in a model with a large number of employers

incentives pay and performance a study of australian employees the paper analyses the determinants of self reported work effort using a 1988 survery of australian employees while controlling for the endogeneity of the firm s choice of incentives and pay it is found that direct incentive schemes have predicted effects and the efficiency wage hypothesis is supported pay and work effort are positively correlated two efficiency wage models are tested akerlof s gift exchange model and work discipline arguments regarding monitoring difficulties and threats of dismissal the latter argument is broadly consistent with the data

impacts of long range increases in the fuel economy cafe standard i introduction and background in 1975 the u s government enacted legislation regulating the fuel efficiency of new motor vehicles the apparent objective of this law is to reduce american dependence on foreign oil after large increases in the price of petroleum in the late 1990s and with continued conflict in the middle east corporate average fuel economy cafe standards once again became a topic of interest a number of proposals for changing the cafe standards were discussed in congress in early 2002 culminating in a defeat in the senate of an amendment that would have required a 50 increase in the relevant cafe standards in place of that increase the senate voted to require the executive branch to examine the impact of further increases in the cafe standard this work evaluates the long term economic implications of raising the standard by 3 0 miles per gallon mpg above current levels in industry parlance this approach is sometimes referred to as technology forcing i choose 3 0 mpg because it reflects the focus of a may 2001 report by the vice president s task force on energy policy and because it reflects several legislative proposals in congress 1 the long term refers to a length of time such that manufacturers can adjust vehicle technologies and powertrain designs to reduce the amount of fuel required to move a given amount of mass or to achieve a given amount of performance or acceleration per gallon of fuel consumed previous work on cafe standards such as kleit 1990 and thorpe 1997 focused on short term responses to higher cafe standards where technology forcing was not an option for manufacturers the analysis is conducted under two different scenarios the first scenario is that cafe standards are not binding in the current marketplace the second scenario takes account of the current impact of cafe standards and then analyzes the costs and benefits of increasing the standards the costs of cafe standards are broken down into two areas the changes in consumer and producer surplus and the increase in externalities caused by the increased driving that higher cafe standards induce the plan of this article is as follows section ii reviews the history of cafe standards and briefly discusses the rationale for the regulation section iii develops a model in which the current cafe standard is assumed to be nonbinding section iv provides estimates of the impacts for a long term 3 0 mpg cafe increase under the assumption that the current standard is not binding section v then revises the model to take into account the arguably more realistic assumption that the existing cafe standard was in fact binding it then reports estimates for a long term 3 0 mpg increase section vi provides a brief cost benefit analysis of cafe increases and section vii provides a summary and conclusion ii background on automobile fuel economy standards a brief history of the cafe program the cafe program as enacted in 1975 called for all manufacturers selling more than 10 000 autos per year in the united states to reach the mandated cafe levels cafe levels rose from 19 0 mpg in 1978 to 27 5 mpg in 1985 and later years a manufacturer s domestic and foreign cars are placed in separate cafe categories based on the domestic context of the vehicle if a car has over 75 american context it is considered domestic and placed in the domestic pool otherwise it is placed in the foreign car pool see kleit 1990 for a discussion light trucks pickup trucks sport utility vehicles suvs and minivans were placed in a different cafe pool than cars when cafe standards were originally passed these vehicles represented a small fraction of the relevant market by 2001 however such vehicles made up approximately one half of the sales of personal vehicles in 2001 light trucks were required to reach 20 7 mpg there is no domestic and foreign division in the cafe regulation for light trucks

risk aversion in a dynamic asset allocation experiment we conduct a controlled laboratory experiment in the spirit of merton 1971 in which subjects dynamically choose their portfolio allocation between a risk free and risky asset using the optimal allocation of an investor with hyperbolic absolute risk aversion hara utility we fit the experimental choices to characterize the risk profile of our participants despite substantial heterogeneity decreasing absolute risk aversion and increasing relative risk aversion are the predominant types we also find some evidence of increased risk taking after a gain finally the session level risk attitudes show a different profile than the individual descriptions of risk attitudes

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

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

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

continuous time repeated games in this paper the authors develop a model of strategic behavior in continuous time games of complete information which includes conventional repeated games in discrete time as a special case the model developed here admits a very large class of strategies that allows one to extend the repeated game model to continuous time the set of equilibria in this game may be large in many cases equal to the feasible individually rational set of payoff s the authors also study the restriction of renegotiation proofness in this framework and apply these results to a cournot duopoly example copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

offsetting behavior effects of the corporate average fuel economy standards john m yun 1 introduction consumers value many attributes of an automobile the problem for regulators is that many features are highly interrelated such as safety and fuel economy improvements both features are highly correlated with vehicle weight greater weight increases the level of safety in terms of crashworthiness but decreases the fuel economy therefore regulatory attempts to improve fuel economy such as the corporate average fuel economy cafe standards 1 are likely to alter average vehicle weight which will alter the safety of a vehicle crandall and graham 1989 find the reduction in weight attributable to cafe results in a 14 28 increase in occupant fatality risk this article seeks to determine whether drivers are changing their behavior to mitigate the detrimental safety effects of cafe which is essentially another application of peltzman s 1975 offsetting behavior hypothesis cafe through a reduction in passenger car weight will increase the ex ante cost of risky driving 2 relative to its expected benefit the reason is that once an accident occurs the probability of serious injury or death has increased the offsetting behavior hypothesis is that consumers aware of the increased vulnerability will exercise greater due care and reduce the amount of risky driving on the road as a result of cafe however cafe has not just affected the average passenger car weight godek 1997 and yun 1999 indicate that cafe has positively affected the relative sales of light trucks 3 to passenger cars if we assume that light trucks are basically heavy cars with greater visibility the same arguments made for offsetting behavior on the part of passenger car drivers can be applied here 4 the main difference is that truck drivers will be more aggressive and risky because trucks are heavier which lowers the cost of risky driving thus if cafe induces more trucks to be on the road according to the offsetting behavior hypothesis cafe will increase the amount of aggressive truck driving while simultaneously decreasing the amount of aggressive car driving although the article will focus on the offsetting behavior from changes in passenger car weight it is just as relevant for changes in relative truck miles driven section ii reviews the recent research linking automobile weight changes with cafe and recent empirical studies that apply offsetting behavior to automobile regulations 5 section iii details the methodology used to test the offsetting behavior hypothesis section iv contains a discussion of the data the results are reported in section v and section vi concludes the article ii background the cafe standards were initially set at 18 0 mpg for passenger cars and between 15 8 to 17 2 mpg for various light trucks these standards have steadily increased to the current levels of 27 5 mpg for passenger cars and 20 7 mpg for light trucks 6 the key impact of cafe on consumer safety is a reduction in the average passenger car weight figure 1 illustrates the fall in weight since cafe s passage in 1975 crandall and graham 1989 attribute 14 of the fall in weight to cafe 7 using single car accident data they estimate the elasticity of highway occupant fatality rates with respect to average car weight is between 1 22 and 2 30 which implies a 17 32 2 increase in the fatality rate due to cafe using the upper and lower bounds crandall and graham 1989 estimate that cafe is responsible for 2 200 3 900 more deaths over the life span of the cars from a given model year 8 however there is no attempt to explicitly measure possible offsetting behavior effects not all studies find a positive relationship between weight and safety the general accounting office gao 1991 acknowledges a theoretical link between automobile size and safety however they find no direct empirical link between the two

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

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

the effect of taxes on labour in efficiency wage models abstract this paper analyses the effects of labour taxation on wage and employment in a moral hazard efficiency wage model where effort is a continuous variable and workers are risk averse in the model examined ad valorem and specific taxes on labour do not have the same consequences on the real wage both taxes have a negative effect on employment but the imposition of a specific tax causes an increase in the net real wage including firms to raise the quality of their workers these results are compared with those obtained in other versions of the shirking efficiency wage model

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

unemployment long term employment relations and productivity growth using an effort regulation type of efficiency wage model it is demonstrated that a firm may respond to slackening labor markets by acting to increase the intensity with which workers work the magnitude of this work intensity effect depends on the structure of employment relations where long term employment relations are prevalent the effect of labor market slack on work intensity may be diminished these propositions are tested empirically by estimating the effects unemployment and long term employment have on productivity growth in two digit manufacturing industries copyright 1987 by mit press

sustainable management of renewable resources an experimental investigation in continuous time abstractthis study addresses one of the most basic questions in renewable resource management the ability of economic agents to exploit a renewable resource in an efficient and sustainable manner in a laboratory experiment subjects are presented with renewable resource extraction problems where optimal management will lead to a stable steady state a test of sustainability of the extraction practices shows that extraction behaviour results in steady states only 56 of the time the mode of the steady state distribution coincides with the optimal steady state extraction the trade off between accruing a higher payoff in the present and sustaining the resource for future exploitation leads to suboptimal behaviours such as initial overextraction of the resource compared to the optimal extraction policy costly downward adjustment of the extraction later in time and settling down for lower long run resource and extraction the suboptimal behaviours lead to 17 loss in efficiency on average in terms of th

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

forward looking behavior in hawk dove games in endogenous networks experimental evidence abstract we conduct an experiment in continuous time every subject can change her links to others and her action in a hawk dove game which she plays bilaterally with each of her linked partners at any time we hypothesize that norms exist regarding who establishes and thus pays for links and that players take these norms into account when deciding on their strategy for such limitedly forward looking players who consider others linking reactions we introduce a strategy adaptation rule anticipatory better reply rule abr and a related stability criterion reaction anticipatingly stable ras our data support our assumption on linking reactions subjects seem to take these reactions into account when deciding to switch from hawk to dove abr behavior however better reply behavior is prevalent when short term profits allure ras configurations occur more often than nash equilibria of the base game however with respect to stability they perform similar

that s how we roll an experiment on rollover risk abstract we design a continuous time experiment to study how different short term credit maturities interact with the state of the economy we find that when the economy is in a boom long maturities stabilize the credit market yet when in a downturn such maturities increase the likelihood of credit freezes this result has important regulatory implications as it suggests that a policy aimed at reducing maturity mismatch in short term credit markets might backfire during a recession

do firms pay efficiency wages evidence with data at the firm level this study tests the efficiency wage hypothesis by estimating wage and quit equations with data from the employment opportunity pilot project survey of firms an efficiency wage model is derived that predicts effects of turnover costs and unemployment on wages as functions of first and second derivatives from the quit equation the model is tested by examining the relationships between the coefficients in the wage and quit equations the results are generally favorable to efficiency wage theory other important findings are that firm characteristics raising workers productivity tend to raise wages and that a rise in turnover costs reduces quits

optimal minimum wage legislation a comment when firms in one sector do not know the ability of individual workers and there is a positive relation between ability and alternative earnings then firms will tend to pay the same wage to all workers and the average ability of those employed will be positively related to the wage in such an environment weiss i980 has demonstrated that the profit maximising wage may exceed the wage which clears the labour market causing equilibrium unemployment in a recent paper in this journal drazen i986 extends the weiss model by varying two assumptions first weiss assumes that a worker would attempt to maximise his wage drazen assumes that a worker is interested in his expected income the wage times the probability of being employed second drazen considers a world in which labour quality at each firm is not a function of the wage offered by that firm but instead depends on the average wage in the market drazen argues that with his assumptions the average market wage preferred by firms may exceed the wage which clears the labour market but that each firm has an incentive to lower the wage to the market clearing level in order to prevent free riding a minimum wage should be imposed the purpose of this note is to suggest that the first of the two assumptions mentioned above results in a market clearing wage in the weiss model thus free riding will not be a problem and there is no basis for imposing a minimum wage the difference between my results and those in drazen s paper can be easily explained consider the first of the two assumptions considered above workers are interested in their expected income and ignore the second assumption hence average labour quality at a firm is a function of the firm s wage there is no free rider problem in this case firms have two choice variables the wage w and fraction hired h of those who apply when workers are interested in their expected income wh it can be demonstrated see the next section that a firm will be at a corner solution for h h will be set as high as possible h i so all who apply are hired no firm wants to set the wage above the market clearing level thus the second assumption that the average market wage affects labour quality does not affect the equilibrium although each firm would like to free ride when firms try to lower the wage excess demand for labour results the desired wage will clear the labour market and there is no role for a

are wages too low empirical implications of efficiency wage models firms may pay efficiency wages to enhance productivity the conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high government policies that lower wages raise output using a simple and general efficiency wage model this paper finds a necessary and sufficient condition for the opposite conclusion if the condition holds wages are inefficiently low leading to productivity that is also inefficiently low it is the high wage policies that raise output even if they also lower employment published empirical results support the condition no evidence is found for the conventional presumption

short run pricing strategies to increase corporate average fuel economy short run pricing strategies to increase corporate average fuel economy i introduction in 1974 the average fuel efficiency of new automobiles sold in the united states reached a low of 14 2 miles per gallon mpg close on the heels of the arab opec oil embargo of 1973 74 and the ensuing petroleum price shocks congress passed the 1975 energy policy and conservation act the act required each manufacturer to meet sales weighted corporate average fuel economy cafe standards beginning with 18 mpg in 1978 and gradually increasing each year to 27 5 mpg in 1985 figure 1 the expressed purpose of the cafe standards was to stimulate the development of technology to improve fuel efficiency the possibility of raising the relative prices of the least energy efficient models as a strategy to meet the standards was considered but only as a last resort 1 although there continues to be intense debate as to whether fuel price increases or the cafe regulations drove the fuel economy improvements of the 1970s and 80s several studies agree that improvements in automotive engineering and design rather than pricing strategies played an overwhelmingly dominant role 2 no empirical evidence supports the effectiveness of using pricing strategies to increase the overall level of automotive fuel economy every year since 1985 automobile manufacturers have successfully petitioned the national highway traffic safety administration which determines the level of the cafe standard to reduce the target from 27 5 to 26 mpg in 1986 88 and 26 5 mpg in 1989 in each case at least one manufacturer argued that it would be unable to meet the original target with its planned product offerings and would have to resort to other strategies that would result in unacceptable economic costs this paper explores a method of estimating the costs of achieving fuel economy goals when pricing strategies are used to alter the distribution of sales the method employs the closed form equation for consumers surplus derived from the multinational logit model of discrete choice discussed by mcfadden 1973 and assumes that manufacturers must bear the full cost of meeting the fuel economy target the estimated cost represents an upper bound on the losses firms would incur by setting prices to minimize loss of profit using econometric estimates of the sensitivity of vehicle choice to vehicle price together with market shares and fuel efficiencies for 1986 i estimate the costs of short term improvements in average fuel economy using pricing strategies for general motors ford and chrysler minor adjustments of up to 1 mpg cost 1 2 percent of the price of a 10 000 car for improvements of 2 mpg or more however pricing strategies become a costly way to improve fuel economy the technique also estimates the market shares for each car line that correspond to the pricing solution it thereby identifies which car lines would be most affected the technique produces precise price changes and market shares for each car line readers should not place too much weight on the apparent precision but should consider the estimates as an approximation the usefulness of which lies in measuring the difficulty of meeting fuel economy targets via pricing strategies alone one can compare the size of these estimates to the fines for failing to meet the standards 50 per mpg per car or to typical manufacturer rebates to stimulate sales often 100 to 2 000 per car ii a formulation of the pricing problem faced with the cafe requirements a firm can respond with engineering and design improvements or by raising the prices of less efficient models and lowering the prices of those that exceed the standard technological improvements generally require a lead time of three to five years very large fluctuations in fuel prices have occurred in far shorter perids figure 1 creating the risk that a manufacturer s product offering could be out of step with the market

market segmentation by price quality schedules some evidence from automobiles discrimination among heterogeneous buyers of a product is possible through the use of multiple quality variants this article quantifies various implications of the standard mussa rosen model of price quality discrimination as applied to the u s automobile industry it demonstrates that the price quality variants of a major manufacturer indeed segment the market as predicted by the model distortions in the range and nature of products offered in their prices and in the resulting consumer surplus in the automobile market are measured and shown to be significant copyright 1992 by university of chicago press

the effects of the corporate average fuel efficiency standards in the us this paper examines the effects of the corporate average fuel economy standards cafe on automobile sales prices and fuel consumption first a discrete choice model of automobile demand and a continuous model of vehicle utilization are estimated using micro data from the consumer expenditure survey for 1984 1990 next the demand side model is combined with a model of oligopoly and product differentiation on the supply side with these elements in place the effects of the cafe regulation are assessed through simulations and compared to the effects of alternative policy instruments such as an increase in gasoline tax

collusion as public monitoring becomes noisy experimental evidence this paper uses laboratory experiments to test the implications of the theory of repeated games on equilibrium payoffs and estimate strategies in an infinitely repeated prisoners dilemma game with imperfect public monitoring we find that subjects payoffs i decrease as noise increases and ii are lower than the theoretical maximum for low noise but exceed it for high noise under the assumption that the subjects strategy uses thresholds on the public signal for transition between cooperation and punishment states we find that the best fitting strategy simply compares the most recent public signal against a single threshold

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

optimal minimum wage legislation in this paper we present a model in which minimum wage legislation may be pareto optimal this arises because a higher wage would be preferred to the market clearing wage by demanders for and suppliers of labour even though unemployment is induced and minimum wage legislation is needed to support the preferred equilibrium consider a labour market where the quality of labour depends positively on the wage offered if labour quality is highly sensitive to wage increases effective unit labour cost will fall as the wage rises this would lead the representative firm to prefer paying an above market clearing wage and to ration job slots such an effect has been studied when quality depends on an individual firm s wage offer see for example weiss i980 or stiglitz i974 suppose however that labour quality depended not on any individual firm s wage offer but on the average market wage if firms were atomistic each invidual firm would have an incentive to undercut the optimal above marketclearing wage trying to get the quality benefits of high average wages while paying lower wages itself the high wage solution would not be viable legislation fixing minimum wages might be required to support the preferred equilibrium quality might depend on average market wages when workers must decide whether or not to enter a labour market before they can sample and obtain specific job offers migration into labour markets for example rural to urban migration in less developed countries provides one example as the decision to migrate and therefore the quality of the labour pool will depend on some average of expected wage offers the decision over which profession to enter at the beginning of the educational process provides another example of course imperfect information plays a key role here it is assumed that both firms and workers have imperfect information about the suitability of individual workers for jobs both before and to a lesser extent after employment has begun this lack of information will rule out both profitable selfselection mechanisms and wages strictly proportional to output so that firms will care about the quality of the labour pool the non optimality of market clearing prices which will be demonstrated makes this paper similar to a number of papers on the implications of adverse selection in labour and product markets one may mention two excellent papers on screening in labour markets by guasch and weiss i980 i98i this paper builds on some of the results in those papers stiglitz and weiss i98i show how credit rationing may arise from a similar type of argument wilson

decisions among defaults and the effect of the option to do nothing prior reviews have focused on if leadership literature pays homage to levels of analysis our purpose is to take stock of how well and in what ways levels issues are implemented in theory and hypotheses formulation construct conceptualization measurement and data analysis to illustrate these notions we provide an in depth review of 163 multi level empirical leader member exchange lmx and vertical dyad linkage vdl studies published between 1972 and 2012 our findings indicate that the volume of multi level studies in lmx has drastically increased recently and the majority of these studies cast theory and hypotheses at the same level with regard to alignment of levels of theory hypotheses with measurement and with data analyses however roughly one out of two published studies suffers from misalignment of levels most of this misalignment occurs in studies where the dyad level of analysis a key component of lmx is an explicit or implicit focus we conclude with a discussion of the implications for the lmx literature and present recommendations to guide multi level leadership research

how do we know that real wages are too high it is common belief that the wages that we observe are above the level that would prevail in a competitive labour market and also it is common to believe that wage moderation should be encouraged as a way to keep unemployment down this paper considers whether we can have confidence in these beliefs it presents a number of models designed to cast doubt on the conventional wisdom first we show that in an efficiency wage model in which there is involuntary unemployment a binding minimum wage may increase employment we then present a general equilibrium matching model in which there is involuntary unemployment but wages are below market clearing levels and raising wages can reduce unemployment we then consider the empirical evidence on employment and wage determination to argue that it is just as consistent with this model as with models in which wages are at or above market clearing levels

on allocative distortions in problems of self selection this article considers the general structure of self selection models by imposing conditions which permit the ordering of agents by their preferences we provide a characterization of the distortions inherent in the sorting process

cooperation in the finitely repeated prisoner s dilemma more than half a century after the first experiment on the finitely repeated prisoner s dilemma evidence on whether cooperation decreases with experience as suggested by backward induction remains inconclusive this paper provides a meta analysis of prior experimental research and reports the results of a new experiment to elucidate how cooperation varies with the environment in this canonical game we describe forces that affect initial play formation of cooperation and unraveling breakdown of cooperation first contrary to the backward induction prediction the parameters of the repeated game have a significant effect on initial cooperation we identify how these parameters impact the value of cooperation as captured by the size of the basin of attraction of always defect to account for an important part of this effect second despite these initial differences the evolution of behavior is consistent with the unraveling logic of backward induction for all parameter combinations importantly despite the seemingly contradictory results across studies this paper establishes a systematic pattern of behavior subjects converge to use threshold strategies that conditionally cooperate until a threshold round and conditional on establishing cooperation the first defection round moves earlier with experience simulation results generated from a learning model estimated at the subject level provide insights into the long term dynamics and the forces that slow down the unraveling of cooperation

a representation theorem for guilt aversion guilt aversion has been shown to play an important role in economic decision making in this paper we take an axiomatic approach to guilt by deducing a utility representation from a list of easily interpretable assumptions on an agent s preferences it turns out that our logarithmic representation can mitigate the problem of multiplicity of equilibria to which psychological games are prone we apply the model in three well known games and show that its predictions are consistent with experimental observations

testing dynamic models of worker effort this article derives three dynamic models of worker effort determination based on a shirking efficiency wage model a compensating differentials model and a union firm bargaining model it shows that all of these three models have the same long run comparative statics but differ in their short run dynamics we use these different predictions about the dynamics as a basis for testing the models euler equations for each model are estimated using panel data on 486 u k companies the evidence supports the shirking model in firms with low levels of unionization but the bargaining model in highly unionized industries

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

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

efficiency wages employment versus welfare this paper analyzes the effects of government policies in an efficiency wage model in such a model wages exceed market clearing rates firms may pay high wages for many reasons levine gives thirteen motivations for efficiency wages 12 in the model used here high wages prevent shirking by workers the model is similar to those of shapiro and stiglitz sparks fairris and alston and others 15 17 7 efficiency wage models are often viewed as providing the microeconomic foundations of involuntary unemployment and keynesian economics 1 2 unemployment is also emphasized in many discussions of government policies 3 4 11 a major example is that of johnson and layard 9 they find that a per capita employment subsidy financed by an ad valorem wage rate tax would reduce unemployment they conclude that this policy would benefit a country because of the employment effect 2 yet this paper shows that the employment effect is misleading here a policy that causes employment to rise fall also must cause income net of effort to fall rise so total welfare falls rises the policy implications discussed by johnson and layard and others are therefore reversed

minimum wage laws what does an employment increase imply about output and welfare abstract card and krueger find empirically that minimum wage laws may increase employment the current paper seeks the analytical implications of employment increasing minimum wages for output and welfare the standard supply and demand model cannot be used for this purpose one needs a model in which employment increasing minimum wages are at least possible such as this paper s efficiency wage model here an employment increase is neither necessary nor sufficient for expected welfare gains for either employed or unemployed workers an employment increasing minimum wage raises output but unambiguously lowers labor force participation and hurts those who remain unemployed

monopoly and quality distortion effects and remedies a monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale we examine the positive and normative impacts of remedies used to counteract such distortions for the case of a price ceiling the monopolist improves quality at the low quality end of the market offsetting the distortion induced by the unregulated exercise of monopoly power social welfare can be shown to increase for a sufficiently slight degree of price regulation for minimum quality standards the social welfare implications are ambiguous because the standards may exclude some consumers from the market

automobile quality choice under pollution control regulation in this paper we develop a modified quality choice model to study the effects of various mobile source air pollution control regulations we have a single producer that supplies a fixed number of car types two but faces a spectrum of consumers differing in their valuation of car quality the car manufacturer chooses the quality levels of the two car types as well as the sales mix between the two types and the size of the market it wishes to supply by endogenizing both the sales mix and the market size while still allowing quality to be a choice variable we are able to more completely analyze the impact of any car pollution control regulation existing studies of this impact either focus on the model line adjustment response shifts in the quality array or on the price adjustment response changes in the sales mix and market size in allowing for both the model line and the price adjustment options we find that the corporate average fuel efficiency cafe standard is unambiguously welfare superior to the low emission vehicle quantity constraint lev and zero emission vehicle zev programs we also show that the effects of the cafe standard are not equivalent to those of a fuel tax as previously found and that for a given car pollution target the former is preferred to the latter

quality distortion by a discriminating monopolist the standard model of monopolistic imperfect quality discrimination involving consumer self selection has shown that no distortion occurs at the highest quality level while all lower quality levels are degraded in order to maintain profitable market segmentation this result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality the paper develops a reasonable model in which the standard assumption is not satisfied and this alternative model yields vastly different conclusions regarding the form of quality distortion in particular quality may be enhanced not degraded to maintain profitable market segmentation copyright 1989 by american economic association

the evolution of cooperation in infinitely repeated games experimental evidence 1 for example in infinitely repeated prisoner s dilemma games with patient agents both cooperate and defect may be played in equilibrium even though the theory of infinitely repeated games has been used to explain cooperation in a variety of environments no definitive solution has been provided to the problem of equilibrium selection when both cooperation and defection are possible equilibrium outcomes which one should we expect to prevail previous experimental evidence has shown that subjects often fail to coordinate on a specific equilibrium when they play a small number of infinitely repeated games some subjects attempt to establish cooperative agreements while others defect but how would behavior evolve as subjects learn from previous repeated games would cooperation prevail when it can be supported in equilibrium or will subjects learn

the worker discipline effect a disaggregative analysis the authors test for the presence of a worker discipline effect wherein macroeconomic conditions influence worker effort and examine interindustry variation in its strength an employment function analysis is first used to find evidence of a worker discipline effect in the majority of u s three digit manufacturing industries a factor analysis of industry firm and labor market characteristics is then used to identify several underlying factors by which industries can be distinguished the authors find that the strength of the worker discipline effect is positively and significantly correlated with the degree to which industries have secondary characteristics copyright 1990 by mit press

the dynamics of coalition formation a multilateral bargaining experiment with free timing of moves abstract we experimentally investigate behavior in a finitely repeated coalition formation game played in continuous time subjects interact in groups of three bargaining over the distribution of payments which occur at regular time intervals during a given interval payments occur if and only if a majority is in agreement about their allocation aside from these rules we purposefully impose little structure on the bargaining process we investigate the frequency and stability of different types of agreements as well as transitions between them two thirds of payments involve divisions where one player receives nothing almost half of which are equal splits of the entire surplus between two players the most stable division is the three way equal split transitions between agreements are frequent and are generally consistent with myopic payoff maximization in the sense that subjects do not accept short term losses we also find that transitions between coalitions are not markovian in particular players more often forgo short term gains in order to remain in a coalition if it has proven stable in the past