increasing the capital income tax may lead to faster growth this paper shows that under rather mild conditions higher capital income taxes lead to faster growth in an overlapping generations economy with endogenous growth government expenditures are financed with labor income taxes as well as capital income taxes since capital income accrues to the old taxing it reliefs the tax burden on the young and leaves them with more income out of which to save we argue that savings are sufficiently interest inelastic so that higher savings and therefore higher growth result the basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well the reasoning is similar to feldstein 1978 auerbach 1979 and in particular jones and manuelli 1992 but in contrast to the conventional wisdom about the effect of capital income taxation as say in lucas 1990

the design of ambiguous mechanisms this paper considers a mechanism design framework that is standard except for the agents preferences which exhibit ambiguity aversion in the sense of gilboa and schmeidler 1989 we show that in this framework the optimal strategic form mechanism is an ambiguous mechanism an ambiguous mechanism specifies a message space and a set of outcome functions after showing that a version of the revelation principle holds in our environment we give an exact characterization of the smallest optimal ambiguous mechanism for the single agent case if the type set is composed of n finite elements then the smallest optimal ambiguous mechanism contains n 1 outcome functions we show how the extra revenue that the designer obtains by employing an ambiguous mechanism as opposed to a standard non ambiguous mechanism depends on the parameters of the model in particular we prove that the share of the surplus that the designer can extract from the agent increases as the type set becomes larger and the probability of each single type decreases in the limiting case where the agent s type is drawn from a nonatomic distribution on an interval the optimal ambiguous mechanism extracts all the rent from the agent

balanced ranking mechanisms abstract in the private values single object auction model we construct a satisfactory mechanism a symmetric dominant strategy incentive compatible and budget balanced mechanism the mechanism converges to efficiency at an exponential rate it allocates the object to the highest valued agent with more than 99 probability provided there are at least 14 agents it is also ex post individually rational we show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms since achieving efficiency through a dominant strategy incentive compatible and budget balanced mechanism is impossible in this model our results illustrate the limits of this impossibility

voting and optimal provision of a public good in this paper we study the optimal provision of a costly public good using an average efficiency criterion for every fixed cost we identify a quota mechanism as the optimal mechanism among those that are dominant incentive compatible deficit free and kind moreover we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms in particular this mechanism dominates all vcg pivotal mechanisms

demographics productivity growth and the macroeconomic equilibrium i introduction the demographics in the united states are as in other industrial countries experiencing drastic changes the birth rate is falling while life expectancy is rising as a consequence the ratio of the elderly to the working age population is projected to rise sharply in the next fifty years the aging of the population imposes both real and imagined burdens on the economy aaron 1990 most importantly it is predicted to cause substantial increases in the tax rates needed to sustain existing social security benefits thereby bringing about an increase in conflict between the working and the elderly generations wildasin 1991 von weizsacker 1990 and verbon 1988 population aging also means it is more likely that the pay as you go system of financing social security will be dynamically inefficient hu 1993 in this case the economy is better served by switching to another financing system indeed a number of countries most notably chile have chosen to privatize their state pension systems more broadly there is evidence that the changing age distribution in the u s population has significantly affected consumption housing investment money demand and the labor force participation rate fair and dominguez 1991 and is potentially very important for explaining the u s rate of national saving for the next fifty years auerbach and kotlikoff 1990 it also affects capital accumulation by causing changes in family insurance and intergenerational trade ehrlich and lui 1991 existing studies of the economic effects of demographics assume either that both work hours and retirement behavior are exogenous or that work hours are endogenous but retirement behavior is exogenous for example cutler poterba sheiner and summers 1990 model the labor market effects of population aging by imposing the projected age distributions on the current labor force participation rates across age cohorts rather than on those corresponding to the projected demographics as such they implicitly assume exogenous work hours and concentrate on the age distribution effect of population aging auerbach and kotlikoff 1990 set an exogenous retirement age of sixty five although they allow endogenous determination of work hours feldstein 1980 provides evidence that incorporation of induced retirement improves the prediction of how social security affects capital accumulation likewise studies of the effects of demographic changes and their interactions with social security will be more fruitful if retirement decisions are explicitly recognized this is particularly true since the 1983 amendment to the social security act would gradually relax the retirement test thus removing the distortions that prevent retirement decisions from adjusting to changing demographics this paper provides a computational study of the effects of demographics on the macroeconomic equilibrium and welfare within the framework of an intertemporal optimizing model with age heterogeneity and endogenous productivity growth the model extends tobin 1967 and cass and yaari 1967 to allow for endogenous retirement decisions it differs from hu 1978 1993 in that it incorporates endogenous productivity growth a key feature that differentiates this analysis from previous studies is that retirement decisions are characterized by a binary choice of whether to work or not to work but work hours are exogenous during working years 1 to facilitate comparisons we also provide a simulation which shows what would happen if social security provisions were such as to prevent the retirement age from adjusting to the demographic changes to study the effects of demographics on the macroeconomic equilibrium involves explaining their effects on the labor force participation rate and aggregate consumption their interactions with social security and their implications for the welfare of the economy

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

robust auctions for revenue via enhanced competition in robust auctions for revenue via enhanced competition t roughgarden i talgam cohen and q yan revisit the classic bulow klemperer result this result compares the revenues of two well know

herding and the winner s curse in markets with sequential bids abstract we present a model of social learning in an environment with common values where informational cascades and herding arise in combination with the winner s curse a seller of an object sequentially obtains bids from potential buyers we characterize three classes of equilibria that differ widely in their information aggregation properties and in the size of the rent the seller captures from the buyers we compare the procedure of sequentially soliciting bids from the buyers to conducting an english auction for the object in terms of maximization of seller s revenue and demonstrate the superiority of the former journal of economic literature classification numbers d82 d83

the shill bidding effect versus the linkage principle abstract the analysis of second price auctions with externalities is utterly modified if the seller is unable to commit not to participate in the mechanism for the general symmetric model introduced by milgrom and weber p milgrom r weber a theory of auctions and competitive bidding econometrica 50 1982 1089 1122 we characterize the full set of separating equilibria that are symmetric among buyers and with a strategic seller being able to bid in the same way as any buyer through a so called shill bidding activity the revenue ranking between first and second price auctions is different from the one arising in milgrom and weber the benefits from the highlighted linkage principle are counterbalanced by the shill bidding effect

sound taxation on the use of self declared value abstract in the 16th century foreign ships passing through the sound had to pay ad valorem taxes known as the sound dues to give skippers an incentive to declare the true value of their cargo the danish crown reserved the right to purchase it at the declared value we show that this rule does not induce truth telling but does allow the authorities to effectively implement a given tax rate

robustly ranking mechanisms for a mechanism designer with an objective such as welfare we propose a method for robustly ranking mechanisms the method is based on eliminating weakly dominated strategies only and thus does not require any assumptions about agents beliefs about each other except full support we illustrate the usefulness of this method in two examples in both examples we show that there are mechanisms that are ranked by our method above dominant strategy mechanisms these examples question the liter ature s focus on dominant strategy mechanisms in cases when such mechanisms yield undesir able outcomes i informal examples

quasi robust multiagent contracts a criticism of mechanism design theory is that the optimal mechanism designed for one environment can produce drastically different actions outcomes and payoffs in a second even slightly different environment in this sense the theoretically optimal mechanisms usually studied are not robust to study robust mechanisms while maintaining an expected utility maximization approach we study a multiagent model in which the mechanism must be designed before the environment is as well understood as is usually assumed the particular model is of an auction setting with binary private values our main result is that if the prior belief about the correlation in the agents values is diffuse enough the optimal bayesian nash auction must also satisfy dominant strategy incentive constraints furthermore when the optimal auction does provide dominant strategy incentives it takes one of two forms i if perfect correlation and negative correlation are excluded as possibilities the auction incorporates all information about the prior belief over the possible correlations and ii if either perfect correlation or negative correlation is a possibility the auction does not incorporate any correlation information and can be described as a modified vickrey auction

rising longevity education savings and growth this paper examines the impact of declines in adult mortality on growth in an overlapping generations model with public education and imperfect annuity markets a decline in mortality affects growth through three channels first it raises the saving rate and thereby increases the rate of physical capital accumulation second it reduces accidental bequests lowers investment and thereby lowers the rate of physical capital accumulation third it may lead the median voter to increase the tax rate for public education initially but lower the tax rate in a later stage starting from a high mortality rate as found in many third world populations the net effect of a decline in mortality is to raise the growth rate however starting from a low mortality rate such as is found in most industrial populations the net effect of a further decline in mortality is to reduce the growth rate the findings appear consistent with recent empirical evidence

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

optimal allocation of an indivisible good abstract in this paper we consider the problem of allocating an indivisible good efficiently between two agents with monetary transfers we focus on allocation mechanisms that are dominant strategy incentive compatible when agents types are private information inefficiency of an allocation mechanism may come from two sources misallocation of the indivisible good and an imbalanced budget unfortunately as green and laffont 1979 demonstrate no allocation mechanism can always overcome both kinds of inefficiency we identify allocation mechanisms that maximize the expected total utilities of agents and characterize optimal mechanisms for a large class of agents type distributions for strongly regular type distributions we show that the optimal mechanisms must be budget balanced they are either fixed price mechanisms or option mechanisms the result may not hold for other type distributions for certain type distributions we show that optimal mechanisms are hybrids of vickrey clarke groves mechanisms and budget balanced mechanisms

endogenous destruction in conflict theory and extensions this article develops a general equilibrium model of conflict to characterize the implications of endogenous destruction for bargaining and fighting specifically we consider the scenario where two contending parties engage in bargaining to avoid fighting when there are direct costs e g arms buildups and indirect costs e g destruction to consumable resources of conflict without imposing specific functional form restrictions on conflict production and destruction technologies we show their interactions in determining an optimal decision between fighting and bargaining we find that under the shadow of conflict bargaining is costly as the contending parties always allocate more resources to arming for guarding settlement through bargaining than in the event of fighting in contrast to conventional thinking that bargaining is pareto superior over fighting we show conditions under which fighting dominates bargaining as the nash equilibrium choice the positive analysis may help explain the general causes of fighting without resorting to the assumption of incomplete information or misperceptions jel d74 h56 c7

optimality and robustness of the english auction abstract in milgrom and weber s 1982 econometrica 50 1089 1122 general symmetric model under a few additional regularity conditions the english auction maximizes the seller s expected profit within the class of all posterior implementable trading procedures and fails to do so among all interim incentive compatible procedures in which losers do not pay these results suggest that appropriate notions of robustness and simplicity which imply the optimality of the english auction for a risk neutral seller must impose bargaining like features on the set of feasible trading mechanisms journal of economic literature classification numbers d44 d82

are ols estimates of the return to schooling biased downward another look the authors examine evidence on bias in ols estimates of the economic return to schooling to study omitted ability bias they use test scores available in the national longitudinal survey of youth as proxies for ability allowing for measurement error in these test scores the authors also explore biases from the endogeneity of schooling or experience or measurement error in these variables in their data ols estimation including test scores appears to be appropriate and indicates an upward bias of roughly 40 percent in the ols estimate ignoring ability this contrasts with evidence from other recent research using different statistical experiments to purge schooling of its correlation with the wage equation error copyright 1995 by mit press

split sample instrumental variables estimates of the return to schooling this article reevaluates recent instrumental variables iv estimates of the returns to schooling in light of the fact that two stage least squares is biased in the same direction as ordinary least squares ols even in very large samples we propose a split sample instrumental variables ssiv estimator that is not biased toward ols ssiv uses one half of a sample to estimate parameters of the first stage equation estimated first stage parameters are then used to construct fitted values and second stage parameter estimates in the other half sample ssiv is biased toward 0 but this bias can be corrected the splt sample estimators confirm and reinforce some previous findings on the returns to schooling but fail to confirm others

external threat and collective action i introduction individuals with common interests usually attempt to further their welfare by acting collectively examples of collective action include the provision of a public good or collective good the establishment of clubs and the formation of alliances or political parties in his seminal work the logic of collective action olson 1965 uses the provision of collective goods as an example to discuss collective action problem or coordination failure in particular he analyzes how group size and the distribution of individual benefits of a collective good may affect the provision level of the good two of the most celebrated propositions from his book are the suboptimality proposition the larger the group the farther it will fall short of providing an optimal amount of a collective good p 35 and the exploitation proposition there is a systematic tendency for exploitation of the great by the small p 29 these propositions have generated a broad research effort in collective action problems in economics and political science many scholars have examined the validity of these propositions 1 a limitation of olson s theory is that he analyzed collective action problems as phenomena within a single group while assuming that external threat to a group either does not exist or is treated as a constant in many cases however two or more groups compete against each other in these situations a group s provision of collective goods might be affected by the configurations of its own group and the competing groups and relative strength of the groups to illustrate assume that two alliances of states say a and b are competing for supremacy an increase in a s military spending poses a greater threat to b s security in response to the heightened threat members of b might feel the need to increase their military spending which in turn could affect the military spending decisions of members of a bruce 1990 develops a model that endogenizes external threat in a three country model with two allies and one adversary interest group lobbying is another example to understand a group s lobbying behavior scholars often focus on the number and size of firms within the group and their geographical distribution however the configuration of a competing interest group and the two groups relative strengths should also figure into an individual firm s decision concerning the appropriate contribution to its group s lobbying efforts other examples include party discipline voter turnout ledyard 1981 1984 palfrey and rosenthal 1983 electoral coalitional politics tsebelis 1990 hausken 1995a b negative campaigning in primary elections newman and niou 2000 factional rivalry in civil wars and joint ventures for research and development in industrial organizations all these examples point to the importance of external threat in explaining the logic of collective action in this article to study simultaneously the way intergroup competition and intragroup collective action interact we develop a collective good model that endogenizes external threat in the context of competition between two groups a group can be either defensive or offensive in nature we define a group as defensive if its fighting capacity can be used only to defend its own resources a group is offensive if its fighting capacity can be used to expropriate resources from its rivals as well as protect its own resources we realize that empirically it is difficult to determine whether a group is offensive or defensive but theoretically it is useful to know how the offensive or defensive nature of a group can affect the collective action problem we analyze collective action problems when 1 one of the groups is offensive whereas the other is defensive and 2 both groups are offensive respectively also in group competition if conquests are economically profitable the way spoils of victory are divided among group members can also affect collective action

implementation in weakly undominated strategies optimality of second price auction and posted price mechanism we study the mechanism design problem of guaranteeing desirable performances whenever agents are rational in the sense of not playing weakly dominated strategies we first provide an upper bound for the best performance we can guarantee among all feasible mechanisms the bound is represented as the maximized value of the designer s objective subject to the inequality version of the standard envelope incentive conditions we then prove the bound to be tight under certain conditions on the designer s prior over the agents pay off types in auction and bilateral trade applications in private value auction and bilateral trade the optimal mechanisms a second price auction and posted price mechanism respectively satisfy dominant strategy incentive compatibility the classical notion of robust mechanisms in an interdependent value auction we find that a second price auction is optimal in revenue with interdependent values which is neither dominant strategy nor ex post incentive compatible but satisfies the novel incentive compatibility introduced in this analysis

robustness and linear contracts abstract we consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do she knows some actions available to the agent but other unknown actions may also exist the principal demands robustness evaluating possible contracts by their worst case performance over unknown actions the agent might potentially take the model assumes risk neutrality and limited liability and no other functional form assumptions very generally the optimal contract is linear the model thus offers a new explanation for linear contracts in practice it also introduces a flexible modeling approach for moral hazard under nonquantifiable uncertainty jel d81 d82 d86

death and taxes their implications for endogenous growth abstract blanchard s explanation of consumption dynamics when combined with a technology that does not exhibit diminishing returns delivers a model consistent with many of the regularities in cross country growth regressions longer life expectancies generate faster economic growth by affecting households willingness to smooth intertemporally greater government expenditure or taxation lowers growth but the effect of higher government debt is ambiguous

auctions in which losers set the price we study auctions of a single asset among symmetric bidders with affiliated values we show that the second price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays and the price only depends on the losers bids in particular we show that the k th price auction generates higher revenue than the second price auction for all k 2 if rationing is allowed with shares of the asset rationed among the t highest bidders then the t 1 st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losers bids finally we compute bidding functions and revenue of the k th price auction with and without rationing for an illustrative example much used in the experimental literature to study first price second price and english auctions

life cycles oil cycles or financial reforms the growth in private savings rates in indonesia what goes steady with private savings this paper investigates reasons for the sustained growth in private savings in indonesia since 1970 in a period characterized by economic growth demographic

robustness of simple menus of contracts in cost based procurement abstract we consider a model of cost based procurement in which the principal faces knightian uncertainty about the agent s preferences for cost reduction we show that a particularly simple incentive scheme a menu comprising a fixed price contract and a cost reimbursement contract minimizes the maximum expected payment where this maximum is taken over the set of possible agent preferences for some parameters of the problem a range of alternative incentive schemes also satisfy this criterion we show that the simple incentive scheme is not weakly dominated by any of the alternatives there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent s preferences and strictly lower for some realization

optimal robust bilateral trade risk neutrality a risk neutral seller and buyer with private information bargain over an indivisible item we prove that optimal robust bilateral trade mechanisms are payoff equivalent to non wasteful randomized posted prices

ex post renegotiation proof mechanism design we study what kind of equilibria of which mechanisms are ex post renegotiation proof eprp i e robust against the possibility of ex post renegotiation under a variety of renegotiation procedures and which social choice functions are eprp implementable in complete information environments with two agents only budget balanced groves allocations are eprp implementable while with three or more agents all ex post efficient allocations are in environments with independent private values essentially only the budget balanced groves in expectations allocations are eprp implementable while with three or more agents and correlated beliefs all ex post efficient allocations are

anarchy and its breakdown anarchy defined as a system in which participants can seize and defend resources without regulation from above is not chaos but rather a spontaneous order however anarchy is fragile and may dissolve either into formless amorphy or into a more organized system such as hierarchy under anarchy each contestant balances between productive exploitation of the current resource base and fighting to acquire or defend resources anarchy is sustainable only when there are strongly diminishing returns to fighting effort the decisiveness parameter is sufficiently low and incomes exceed the viability minimum these considerations explain many features of animal and human conflict

guns butter and anarchy a state in the international system implicit in realism must allocate its limited resources between satisfying its intrinsically valued ends and the means of military power i formalize this guns versus butter problem in a simple infinite horizon model in which two states must continually decide how to allocate their resources and whether to attack the other state the analysis establishes sufficient conditions to ensure the existence of an equilibrium in which neither state attacks shows that there is a strictly pareto dominant pair of peaceful equilibrium payoffs characterizes the unique peaceful markov perfect equilibrium that yields them and describes the comparative statics of the equilibrium allocations more broadly the analysis also suggests that the notion of anarchy has little if any substantive significance distinctively related to international politics and that the problem of absolute and relative gains is superfluous

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

auction choice for ambiguity averse sellers facing strategic uncertainty abstract the robustness of the bayes nash equilibrium prediction for seller revenue in auctions is investigated in a framework of interdependent valuations generated from independent signals seller expected revenue may fall well below the equilibrium prediction even though the individual payoff consequences of suboptimal bidding may be small for each individual bidder this possibility would be relevant to a seller who models strategic uncertainty as ambiguity and who is ambiguity averse in the sense of gilboa and schmeidler it is shown that the second price auction is more exposed than the first price auction to lost revenue from the introduction of bidder behavior with small payoff errors

ex post information in auctions assumptions maskin and riley 1984 show that when the amount a buyer is willing to pay for the auctioned object is not independent of his wealth expected revenue tends to be lower under open bidding in contrast milgrom and weber 1982 relax the assumption that valuations are independent and assume instead that buyers private estimates of the item s value are affiliated a buyer with a high estimate then tends to believe that other buyers will have higher estimates as well maintaining the other assumptions milgrom and weber show that expected revenue is higher in the open ascending bid auction the intuition behind this result is that in sealed high bid auctions a buyer s bid is determined not only by his own beliefs but via their bids by the beliefs of those with lower estimates a buyer with a low estimate believes that others are more likely to have low estimates as well he therefore bids less aggressively it follows that a buyer can beat all opponents who have lower estimates with a bid which is lower than it would be if beliefs were independent 2 milgrom and weber also show that if the seller purchases and then publicly reveals information which is positively linked to buyers valuations this also raises expected gross revenue from an auction the intuition here is that this helps to reduce the difference in bidders willingness to pay 3 that such a reduction should raise expected revenue is easily understood for the limiting case in which the seller s information includes all the buyers private information for then all buyer asymmetry is eliminated and so expected buyer profit is bid away to zero the seller therefore reaps the entire surplus in the following pages the implications of correlated signals are further explored while milgrom and weber emphasized the potential gains to a seller who reveals information ex ante the focus here is on ex post information in section 2 it is shown that under weak assumptions the sealed high bid auction is dominated by any auction

robust contracting with additive noise abstract we investigate the idea that linear contracts are reliable because they give the same incentives for effort at every point along the contract we ask whether this reliability leads to a microfoundation for linear contracts when the principal is profit maximizing we consider a principal agent model with risk neutrality and limited liability in which the agent observes the realization of a mean zero shock to output before choosing how much effort to exert we show that such a model can indeed provide a foundation for reliable contracts and illustrate what elements are required in particular we must assume that the principal knows a lower bound but not an upper bound on the shocks

correlated information and mechanism design in models of asymmetric information possession of private information leads to rents for the possessors this induces mechanism designers to distort away from efficiency the authors show that this is an artifact of the presumption that information is independently distributed rent extraction in a large class of mechanism design games is analyzed and a necessary and sufficient condition for arbitrarily small rents to private information is provided additionally the two person bargaining game is shown to have an efficient solution under first order stochastic dominance and a hazard rate condition similar conditions allow full rent extraction in milgrom weber auctions

optimal pricing mechanisms with unknown demand the standard profit maximizing multi unit auction intersects the submitted demand curve with a preset reservation supply curve which is determined using the distribution from which the buyers valuations are drawn however when this distribution is unknown a preset supply curve cannot maximize monopoly profits the optimal pricing mechanism in this situation sets a price to each buyer on the basis of the demand distribution inferred statistically from other buyers bids the resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity and convergence can be substantially faster than with sequential price experimentation

auction design with endogenously correlated buyer types abstract this paper studies optimal auction design when the seller can affect the buyers valuations through an unobservable ex ante investment the key insight is that the optimal mechanism may have the seller play a mixed investment strategy so as to create correlation between the buyers otherwise conditionally independent valuations assuming that the seller announces the mechanism before investing the paper establishes conditions on the investment technology so that a mechanism exists which leaves buyers no information rent and leaves the seller indifferent between his investments under these conditions the seller can in fact extract the first best surplus almost fully

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

life expectancy schooling time retirement and growth i analyze how changes in life expectancy affect retirement age education time and growth rates of economies i set up a continuous time overlapping generations model of endogenous growth with externalities in human capital production i find that increases in life expectancy give rise to first higher retirement ages and second higher education spans a threshold level for life expectancy exists such that per capita growth rates follow an inverted u pattern i introduction in this article i analyze how changes in life expectancy may affect optimal education time retirement age and the growth rates of economies to this end i set up a continuous time overlapping generations growth model with human capital accumulation that i solve numerically the issue of the effects of the reduction in mortality rates and the resulting increases in life expectancy on economic growth rates has been recently addressed in the literature through both empirical and theoretical studies along these lines i focus on human capital acquisition and its transmission across generations as the force driving the growth rate concerning empirical studies the hypothesis that the reduction in mortality rates has caused higher levels of investment in human capital and therefore augmented growth rates is partially supported for various economies thus kalemli ozcan et al 2000 show an increase in life expectancy at birth along with an increase in average numbers of years of schooling in england they claim that after averaging across lower income countries there is apparently a connection between increases in life expectancy at birth and increases in gross secondary school enrollment that is positively connected with higher growth rates observed preliminary data from latin american and caribbean countries show that gross domestic product gdp growth is statistically associated with life expectancy for instance estimates based on data from mexico suggest that for any additional year of life expectancy there will be an additional 1 increase in gdp 15 years later see world health organization 1999 box 1 2 9 along the same lines rodriguez and sachs 1999 also find a positive effect of life expectancy on gdp growth for the case of venezuela barro and sala i martin 1995 estimate for a sample of 97 countries that a 13 year increment in life expectancy would increase the per capita growth rate by 1 4 per year they also find however some exceptions where increments in life expectancy have not resulted in higher growth even though all of them exhibited higher schooling levels in the period 1960 85 malmberg 1994 gives another exception higher growth was achieved when middle aged persons were numerous whereas increases in dependent age groups led to lower per capita growth in sweden finally some other studies find mixed evidence so that increments in life expectancy result in higher growth rates for low levels of life expectancy but in lower growth rates for high levels of life expectancy see zhang et al 2003 and references therein a common result in most theoretical studies that include some sort of human capital is that an increase in life expectancy lengthens the period needed to recover investment in human capital which translates into higher returns to individual education or human capital investment this augmented return will give rise to higher levels of investment in human capital which in turn will raise growth rates ehrlich and lui 1991 show in a three overlapping generations model how improvements in longevity lower fertility thus raising educational investment and long term growth meltzer 1995 finds that mortality reductions may favor economic growth by increasing educational investment kalemli ozcan et al 2000 show in an overlapping generations model a la blanchard that if mortality drops life expectancy increases so that an augmented life horizon to enjoy the return to human capital investment gives rise to higher schooling human capital investment although growth is not affected because the growth rate in their model is identically equal to zero

equilibria in open common value auctions abstract a sufficient condition for uniqueness of nash equilibrium in second price common value auctions is identified we establish that there exists a continuum of equilibria in irrevocable exit common value auctions for the case of two bidders we provide plausible sufficient conditions under which the expected seller revenue is maximized at the symmetric equilibrium an example in which the auctioneer s revenue at the symmetric equilibrium in a second price auction is strictly greater than the revenue at many asymmetric equilibria in the corresponding irrevocable exit auction is provided

intergenerational trade longevity and economic growth we develop an overlapping generations model of endogenous growth in which human capital is the engine of growth and the generations are linked through material and emotional interdependencies within the family parents invest in their children to achieve both old age support care and emotional gratification and material support from children is determined through self enforcing implicit contracts we show that optimal intergenerational trade can then lead to maximization of growth opportunities our model produces a theory of the demographic transition linking longevity fertility and economic growth we also show that while population aging may raise the growth rate an increase in young age longevity is likely to produce a greater increase in the growth rate and a reduction in the fertility rate in a growth equilibrium these predictions and the model s implications concerning the behavior of private savings during the takeoff period appear consistent with empirical evidence

the theory of collective action and burden sharing in nato mancur olson s theory of collective action could account for much of the variance in the defense burdens of the allied nations of the north atlantic treaty organization nato in the early years of the cold war but the association between economic size gross domestic product or gdp and defense burden the ratio of military expenditures to gdp has declined to insignificant levels two influences are shown to be important in producing this change the increased pursuit of private goods by greece turkey and portugal and the growing cooperation among the other european allies since cooperation in the military realm has not provided the europeans with credible means of self defense it appears to be a consequence of the general growth of interdependence in europe during the postwar period nato is still essentially a uniquely privileged group producing a relatively pure public good accordingly the theory of collective action continues to provide valuable insights into the operation of the alliance

collective action and the group size paradox according to the olson paradox larger groups may be less successful than smaller groups in furthering their interests we address the issue in a model with three distinctive features explicit intergroup interaction collective prizes with a varying mix of public and private characteristics and nonlinear lobbying costs the interplay of these features leads to new results when the cost of lobbying has the elasticity of a quadratic function or higher larger groups are more effective no matter how private the prize with smaller elasticities a threshold degree of publicness is enough to overturn the olson argument and this threshold tends to zero as the elasticity approaches the value for a quadratic function we also demonstrate that these results are true irrespective of whether we examine group sizes over the cross section in some given equilibrium or changes in the size of a given group over different equilibria

mortality decline human capital investment and economic growth abstract we examine the role of increased life expectancy in raising human capital investment during the process of economic growth we develop a continuous time overlapping generations model in which individuals make optimal schooling investment choices in the face of a constant probability of death we present analytic results followed by results from a calibrated version of the model using realistic estimates of the return to schooling mortality decline produces economically significant increases in schooling and consumption allowing schooling to vary endogenously produces a much larger response of consumption and capital to mortality decline than is observed when schooling is held fixed

correlated information mechanism design and informational rents abstract cremer and mclean econometrica 56 1988 1247 1258 obtain a sufficient and necessary condition for full surplus extraction in bayesian nash equilibrium the rank condition which mcafee and reny econometrica 60 2 1992 395 421 later generalize for continuous type spaces this paper shows that if the principal does not know how noisy is the agent s signal or equivalently when signals available to an agent can be ranked by blackwell s informativeness and an agent s informativeness is independent of others information the rank condition fails to hold conversely when rank condition fails and informational rents are left to an agent the model can be interpreted as if the principal were uncertain about the informativeness of the agent s signal

on the formation of alliances in conflict and contests this paper examines the problem of the formation of alliances in conflict and more generally in contests with three players each player possesses an exogenous strategic endowment e g arms efforts rent seeking activity the outcome of contests including those between any alliances of players is governed by a contest success function csf in the three person one cake problem an alliance between two players against the third one will form if and only if the csf has an increasing returns characteristic when an alliance forms there is a tendency to be formed by the weaker players against the strongest player similar tendencies exist in other three person problems that i examine

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

from malthus to modern growth can epidemics explain the three regimes we model demographic and economic long run development in a setting where mortality is endogenous and subject to epidemic shocks the model replicates the full transition from malthusian stagnation to modern growth consistent with the historical facts the economy also passes an intermediate post malthusian phase where growth rates of both population and per capita income increase simultaneously as mortality rates fall and become less volatile the escape from the malthusian trap is the result of a series of mild epidemic shocks making it inevitable at some stage but its timing random calibrations show that it can differ by thousands of generations absent differences in exogenous parameters

on public good provision mechanisms with dominant strategies and balanced budget abstract consider a mechanism for the binary public good provision problem that is dominant strategy incentive compatible dsic ex post individually rational epir and ex post budget balanced epbb it is well known that if there are only two agents then any such mechanism must have a threshold or fixed cost sharing form providing the public good if and only if both agents have values that are at least their respective thresholds when there are more than two agents there are mechanisms that are dsic epir and epbb that are not of the threshold form any dsic epir and epbb mechanism that additionally satisfies that the lowest types expect zero net utility from participating are again of the threshold form this additional condition arises endogenously when maximizing expected welfare subject to dsic epir and epbb

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

economic growth technical change biases and the elasticity of substitution a test of the de la grandville hypothesis a recent development in microeconomic theory suggests that the size of the elasticity of substitution between factors is relevant to economic growth this study undertakes an empirical investigation of this proposition comparing two economies the united states and south korea the authors test results support the de la grandville hypothesis that the elasticity of substitution is a potent explanatory variable of economic growth this inquiry also provides a clue to the puzzle that the u s elasticity of substitution between labor and capital is well below unity whereas that of south korea is close to unity nonetheless the u s factor shares have tended to remain fairly stable whereas the distributive shares of south korea seem to have changed in favor of capital their findings indicate that a high elasticity of substitution is a bad signal for the distribution of income under the paradigm of modern technology copyright 1991 by mit press

the relevance of private information in mechanism design abstract recent results in mechanism design show that as long as agents have correlated private information and are sufficiently risk neutral it is possible to design mechanisms that leave agents with arbitrarily small information rents we show that these full rent extraction results hinge on the implicit assumption that the agents beliefs uniquely determine their preferences we present an example of the voluntary provision of a public good in which this assumption is relaxed and consequently even in highly correlated environments if agents beliefs do not uniquely determine their preferences then the extraction of the agents entire information rents is impossible

no trade and yes trade theorems for heterogeneous priors abstract we show that contrary to currently widely held misperceptions the classical no trade theorem obtains even under heterogeneous priors that is when priors are not common speculative trade is still impossible under common knowledge of rationality however trade becomes mutually acceptable if at least one party to the trade puts at least some slight probability on the other party being irrational we also derive bounds on disagreements in the case of heterogeneous priors and common p beliefs

human capital formation and macroeconomic performance in an ageing small open economy abstract we study the effects of stylized demographic and fiscal shocks on the macroeconomic performance of an industrialized small open economy we construct an overlapping generations model which incorporates a realistic description of the mortality process agents engage in educational activities at the start of life and thus create human capital to be used later on in life for production purposes simple and intuitive expressions are derived which demonstrate the key economic and demographic mechanisms that are operating in the model the engine of growth during the demographic transition is an intergenerational externality in the production of human capital in a calibrated version of our model we find that the effects of increased longevity on human capital formation are small whereas the reduction in fertility has a rather strong effect

education lifetime labor supply and longevity improvements this paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so called ben porath mechanism we set up a life cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation this paper makes two important contributions first we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age second those conditions are decomposed into a ben porath mechanism and a lifetime human wealth effect vs the years to consume effect finally using us and swedish data for cohorts born between 1890 and 2000 we show that our model can match the empirical evidence

on the robustness of laissez faire abstract this paper considers a model economy in which agents are privately informed about their type their endowments of various goods and their preferences over these goods while preference orderings over observable choices are allowed to be correlated with an agent s private type we assume that the planner government is both uncertain about the nature of this joint distribution and unable to choose among multiple equilibria of any given social mechanism we model the planner government as having a maxmin objective in the face of this uncertainty our main theorem is as follows once we allow for this kind of uncertainty and assume no wealth effects in preferences the uniquely optimal social contract is laissez faire in which agents trade in unfettered markets with no government intervention of any kind

informationally robust trade and limits to contagion abstract two agents can each accept or reject a proposed deal whose value for each agent depends on an unknown state and may be positive or negative the deal takes place only if both accept each agent can be imperfectly informed in an arbitrary way about both her own value and the other agent s in such environments contagious adverse selection may prevent the deal from being reached even when it is mutually beneficial ex post we give an upper bound on the ex ante expected welfare loss in equilibrium due to such contagion valid for any information structure the welfare loss is small if negative values are unlikely ex ante and under an assumption of known aggregate gains from the deal our bound is sharp the bound has a succinct description even though the equilibrium itself in any given information structure may be hard to describe explicitly

life expectancy and endogenous growth we consider an overlapping generations model with uncertain lifetime and endogenous growth individuals have to choose the length of time devoted to schooling before starting to work we show that it depends positively on life expectancy but that the positive effect of a longer life on growth could be offset by a decrease in the participation rate dynamics are characterized by a delay differential equation and human capital converges with oscillations to a balanced growth path

group contests with internal conflict and power asymmetry we investigate simultaneous inter and intra group conflict in the shadow of within group power asymmetry and complementarity in members group conflict efforts a more symmetric group faces a higher degree of internal conflict and might expend more effort in external conflict when the group conflict effort technology is highly complementary depending on the degree of complementarity the stronger player s relative contribution to external conflict might be higher in a more asymmetric group and as a result it is possible for the weaker player to earn a higher payoff in the absence of any complementarity the rent dissipation is non monotonic with the within group power asymmetry

the sub optimality of the majority rule abstract we consider collective choice from two alternatives ex ante each agent is uncertain about which alternative she prefers and may be uncertain about the intensity of her preferences an environment is given by a probability distribution over utility vectors that is symmetric across agents and neutral across alternatives in many environments the majority voting rule maximizes agents ex ante expected utilities among all anonymous and dominant strategy implementable choice rules but in some environments where the agents utilities are stochastically correlated other dominant strategy choice rules are better for all agents if utilities are stochastically independent across agents majority voting is ex ante optimal among all anonymous and incentive compatible rules we also compare rules from an interim viewpoint

robustly optimal auctions with unknown resale opportunities the standard revenue maximizing auction discriminates against a priori stronger bidders so as to reduce their information rents we show that such discrimination is no longer optimal when the auction s winner may resell to another bidder and the auctioneer has non bayesian uncertainty about such resale opportunities we identify a worst case resale scenario in which bidders values become publicly known after the auction and losing bidders compete bertrand style to buy the object from the winner with this form of resale misallocation no longer reduces the information rents of the high value bidder as he could still secure the same rents by buying the object in resale under regularity assumptions we show that revenue is maximized by a version of the vickrey auction with bidder specific reserve prices first proposed by ausubel and cramton 2004 the proof of optimality involves constructing lagrange multipliers on a double continuum of binding non local incentive constraints

a comparison of rent seeking models and economic models of conflict this paper provides a comparative analysis of the basic rent seeking model and a simple economic model of conflict each model is concerned with a game in which players invest resources in pursuit of a prize the purpose of the analysis is to elucidate structural differences between the two models and to analyse the consequent behavioral differences and equilibrium outcomes in the two cases a key finding is that where such comparisons are possible the conflict model tends to involve greater relative expenditure on wealth redistribution activities than does the rent seeking model

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

omitted ability bias and the increase in the return to schooling over the 1980s there were sharp increases in the return to schooling estimated with conventional wage regressions we explore whether the relationship between ability and schooling changed over this period in ways that would have increased the schooling coefficient in these regressions our empirical results reject the hypothesis that an increase in the bias of the schooling coefficient due to a change in the relationship between ability and schooling has contributed to observed increases in the return to schooling we also find that the increase in the schooling return has occurred for workers with relatively high levels of academic ability

life expectancy human capital social security and growth we analyze the effects of changes in the mortality rate upon life expectancy education retirement age human capital and growth in the presence of social security we build a vintage growth overlapping generations model in which individuals choose the length of education and the age of retirement and where unfunded social security pensions depend on workers past contributions social security has a positive effect on education but pension benefits favor reductions in retirement age the net effect is that starting from a benchmark case higher life expectancies give rise to lower per capita gdp growth in the presence of social security as the share of the active population is reduced in addition higher social security contribution rates reduce the growth rate of per capita gdp

vintage human capital demographic trends and endogenous growth we study how economic growth is affected by demographics in an overlapping generations model with a realistic survival law individuals optimally chose the dates at which they leave school to enter the labor market and at which they retire endogenous growth arises thanks to the accumulation of generation specific human capital favorable shifts in the survival probabilities always induce longer schooling and later retirement but have an ambiguous effect on growth the relationship between the growth of population and per capita growth is hump shaped increases in longevity can be responsible for a switch from a no growth regime to a sustained growth regime and for a positive relationship between fertility and growth to vanish

calibrated incentive contracts this paper studies a dynamic agency problem which includes limited liability moral hazard and adverse selection the paper develops a robust approach to dynamic contracting based on calibrating the incentive properties of simple benchmark contracts that are attractive but infeasible due to limited liability constraints the resulting dynamic contracts are detail free and satisfy robust performance bounds independently of the underlying process for returns which need not be i i d or even ergodic publication abstract

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

saving determinants in colombia 1925 1994 abstract this paper analyzes the determinants of saving in colombia using the framework of an intertemporal model national saving partially responds to temporary changes in output according to the permanent income hypothesis higher government expenditures in relation to their permanent level are associated with lower national saving refuting the existence of ricardian equivalence the paper tests other common hypotheses in regard to saving behavior in particular we find that changes in national savings and changes in investment are perfectly correlated and that savings cause growth in the granger sense the results also indicate that increases in urbanization and age dependency have had a significantly negative effect on private saving in colombia finally we find that much of the recent reduction in private savings can be accounted by the effects of higher taxation

equilibrium structure in an economic model of conflict four different types of equilibrium are possible within a two player model of society where only armed self enforcement of property rights is possible the main underlying parameters are the total resource endowment and the initial distribution of this endowment between the players the parameter space is partitioned into regions in which the respective types of equilibrium occur the equilibrium types involve positive arms expenditure by respectively neither player the richer player and both players the latter case involves a sub type in which the poorer player s entire endowment is expended on arms jel d30 d72 d74