multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

financial illiteracy and pension contributions a field experiment on compound interest in china i conduct a field experiment to study the relationship between peoples misunderstanding of compound interest and their pension contributions in rural china i find that explaining the concept of compound interest to subjects increased pension contributions by roughly 40 the treatment effect is larger for those who underestimate compound interest than for those who overestimate compound interest moreover financial education enables households to partially correct their misunderstanding of compound interest i structurally estimate the level of misunderstanding of compound interest and conduct a counterfactual welfare analysis lifetime utility increases by about 10 if subjects misunderstanding of compound interest is eliminated authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

prices or knowledge what drives demand for financial services in emerging markets this brief summarizes the results of a gender impact evaluation study entitled prices or knowledge what drives demand for financial services in emerging markets conducted in 2008 in indonesia the study observed that financial development is critical for growth but its micro determinants are not well understood financial literacy training has no impact on the probability of opening a bank account although it does have an impact among those with low levels of education and financial literacy a change from 3 to 14 led to a 7 6 percent increase in the probability of owning a bank account the results hold two years after a study funding for the study derived from world bank hbs division of research and faculty development

child labor and schooling responses to anticipated income in south africa abstract forward looking unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities the timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income however this study documents large increases in schooling attendance and declines in total hours worked when black south african families become eligible for fully anticipatable social pension income as an explanation the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint perhaps because of schooling costs

salary arbitration and pre arbitration negotiation in major league baseball two assumptions in this analysis of baseball salary arbitration are that 1 players and clubs to serve their interests in pre arbitration negotiation submit final offers to maximize and minimize

learning to cope voluntary financial education and loan performance during a housing crisis as we write this paper at the end of 2009 delinquency and default rates on individual home mortgages have reached unprecedented levels this wave of defaults reflects a vicious combination of a deep recession a burst housing bubble and ill advised financial choices by home borrowers these effects are particularly pronounced among the least creditworthy borrowers many of whom became first time homeowners in the heady days of the bubble this experience prompted calls for increased government intervention in mortgage markets the ensuing policy discussion has centered on two key and not mutually exclusive approaches i tighter oversight of mortgage lenders and products and ii concerted efforts to educate prospective homebuyers to ensure sustainability of their financial commitments the importance of the latter approach has been buoyed by a growing body of research that showed gross inadequacies in financial literacy and the consequential nature of resulting mistakes michelle white 2007 annamaria lusardi 2008 lusardi and olivia mitchell 2008 lusardi and peter tufano 2009 sumit agarwal et al 2010 among others learning to cope voluntary financial education and loan performance during a housing crisis

what will my account really be worth experimental evidence on how retirement income projections affect saving abstract many investment companies have begun providing their defined contribution pension participants with individualized retirement income projections the u s congress is currently considering whether to require them all to do so evidence on the potential impact is scant though a large body of economic research suggests that individuals are not currently making optimal retirement saving decisions through a field experiment we measure how provision of retirement income projections along with enrollment information affects individuals contributions to employer sponsored retirement accounts we find that the intervention boosted annual contributions to employer retirement accounts by 85 equivalent to 3 6 of the average contribution level or 0 15 of average salary relative to those who received no intervention in addition randomly assigned assumptions regarding retirement age investment returns and hypothetical contribution amounts were used to generate the projections and were found to have significant impacts on saving behavior this finding suggests that care is warranted in the design and communication of projections

the baseball players labor market reconsidered the owners wanted as few players as possible to become free agents i wasn t entirely opposed to this i didn t want as many free agent players as to flood the market what would likely produce the optimal mix of supply and demand with no history offree agent movement to study it was impossible to know which requirement would be best my gut feeling and i stress feeling was thatfive years would be better and if the choice lay between four and six years i would choose the latter the owners committee proposed six years i suggested five

patterns of rainfall insurance participation in rural india take up of an innovative rainfall insurance policy offered to smallholder farmers in rural india decreases with basis risk between insurance payouts and income fluctuations increases with household wealth and decreases with binding credit constraints these results are consistent with the predictions of a simple neoclassical model with borrowing constraints other patterns are less consistent with the benchmark model for example participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take up decisions and risk averse households are less not more likely to purchase insurance these results may reflect household uncertainty about the product given their limited experience with it

a theoretical and empirical comparison of free agent and arbitration eligible salaries negotiated in major league baseball this paper presents a theoretical and empirical comparison of determination of negotiated salaries in baseball s free agent market to that in its final offer arbitration foa system the theoretical bargaining model of each system is based on nash 1950 it is argued that farber s 1980 model of foa is not fully applicable in explaining baseball s foa process the free agent market and the arbitration system each determine negotiated salaries that are dependent on the different disagreement outcomes of the negotiators in the respective systems it is thus concluded theoretically that the two systems will determine salaries differently the theoretical analysis also suggests that there may be selection bias present when one empirically analyzes only negotiated settlements using a straightforward regression model that controls for productivity playing experience and the potential selection bias the empirical analysis substantiates the theory s results a method is then developed to estimate the effect that free agent salaries have on salaries for arbitration eligible players it is found that there is a significant positive relationship between them but the systems do not determine equal salaries for comparable players

bias in salary arbitration the case of major league baseball this study analyses all baseball arbitration cases from 1985 90 to determine if decisions differ among ethnic groups unlike earlier arbitration analyses extensive controls for individual and team performance are used holding performance constant the results indicate that latin american players have 33 less chance and blacks 19 less chance than does a white player of winning a case these differences are not reflected by more risky salary demands by minority players and only marginally reflected by market salary practices toward minority players therefore bias appears to emanate from arbitrator utility functions

can prior offers and arbitration outcomes be used to predict the winners of subsequent final offer arbitration cases preferences is past outcomes given its goal of driving negotiated settlements an effective foa process requires bargainers to infer useful information about arbitrator preferences from past outcomes using data from major league baseball this article provides evidence that past foa decisions are positively correlated with the outcomes of future foa cases

optimal collusion under imperfect monitoring in multimarket contact abstract we investigate optimal collusion in repeated multimarket contact under imperfect public monitoring where two firms operate in m markets and in each market each firm s decision and public signals are binary we show that in an optimal pure strategy strongly symmetric perfect public equilibrium the size of efficiency loss is equal to that in the market with the most tempting deviation under single market contact furthermore we show a sufficient condition under which the symmetric equilibrium is optimal for joint payoff maximization among any perfect public equilibrium

do negotiated and arbitrated salaries differ under final offer arbitration the authors investigate whether negotiated settlements differ from arbitrated ones under final offer arbitration examining the salaries of all major league baseball players eligible to participate in final offer arbitration between 1986 and 1991 they find that arbitration awards won by players are higher and those won by management are lower than negotiated settlements for players of comparable value this evidence suggests that arbitrated settlements are of low quality relative to negotiated ones in the sense that they tend to fall outside the bounds of potential negotiated settlements another implication of these findings however is that the bargaining agents retain substantial freedom to negotiate salaries that are not determined solely by arbitrator preferences

arbitrator compromise in final offer arbitration evidence from major league baseball i introduction the purpose of interest arbitration is to encourage two bargainers to reach a mutually agreeable settlement in the event of impasse an independent arbitrator determines the settlement in conventional arbitration ca each of the bargainers submits an offer the arbitrator may select one of the two offers or one of his or her own choosing as the settlement critics have argued that arbitrators split the difference between the offers to enhance their chances of being rehired in future cases this gives each bargainer an incentive to submit an extreme offer to increase its expected gains from arbitration as a result ca chills rather than encourages productive negotiation final offer arbitration foa was created by stevens 1966 to remedy the chilling effect he proposed that arbitrators select one of the two submitted offers as the award unable to compromise between the offers the arbitrator will presumably choose the most reasonable offer as the award ironically arbitrator compromise may exist even in foa according to theory foa arbitrators maximize their chances of being rehired by formulating a notion of the ideal settlement the preferred award and selecting the nearest offer importantly bazerman and farber 1985 farber and bazerman 1986 and gibbons 1988 noted that the preferred award is not exogenous but reflects the perspectives of the bargainers consequently although foa arbitrators may not compromise by splitting the difference between the offers they may formulate preferred awards that compromise between the bargainers perspectives because farber 1980 and gibbons 1988 showed that submitted offers should be strategically aligned around the arbitrator s preferred award an empirical analysis of final offers should reveal any compromises implicit in the preferred award to test the compromised preferred award hypothesis this study examines foa offers in major league baseball unique characteristics in baseball foa allow for a test of the compromised preferred award baseball players become eligible for foa after completing roughly three years of major league service during these first three years the players bargain in a purely monopsonistic environment the players may not freely negotiate with other clubs until they have completed six years of service the coexisting monopsonistic and oligopsonistic free agency markets have led to extraordinary differentials in player salaries that have been well documented in economic literature as in kahn 1993 although players with three to six years of experience continue to be bound to one club they may unilaterally opt for foa consequently the arbitrator must determine the appropriate payscale for an eligible player because the clubs prefer to extend monopsony salaries into the arbitration eligibility years they are likely to stress the importance of the player s prior salary i e the size of the raise a player is entitled to receive whereas the players would rather have the arbitrators rely on free agent salaries to determine the proper wage although the arbitrators could side with one of the positions theory predicts the preferred award will reflect a compromise between the two perspectives the results strongly support the existence of compromised preferred award the submitted final offers are a weighted average between the mean free agent salary and the player s salary in the previous season the notion that the preferred award represents a compromise between the two perspectives is strengthened when one examines the weights of losing offers specifically for both hitters and pitchers the losing player offer does not differ significantly from the mean free agent salary for a comparable player winning player offers on the other hand are less than the comparable free agent salary perhaps the most intriguing finding is that by compromising between the perspectives of players and clubs baseball foa has generated its own unique labor market through which player salaries lie between the monopsony and free agent levels

exponential growth bias and household finance exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively we show that exponential growth bias can explain two stylized facts in household finance the tendency to underestimate an interest rate given other loan terms and the tendency to underestimate a future value given other investment terms bias matters empirically more biased households borrow more save less favor shorter maturities and use and benefit more from financial advice conditional on a rich set of household characteristics there is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication what drives household financial decisions the canonical economic model assumes that consumers choose to consume borrow or save based on their preferences their expectations and the costs and benefits of borrowing and saving a growing body of work applies insights from psychology to enrich specifications of three of the model s key pieces preferences expectations and problem solving conditional on parameter values 1 in this paper we bring psychological evidence to bear on a fourth specification issue how consumers perceive the costs and benefits of borrowing and saving we begin by tying together existing and new evidence on these cost perceptions to show that most consumers err systematically when given information commonly available in the market on the saving side consumers display future value bias a systematic tendency to underestimate a future value given

misunderstanding savings growth implications for retirement savings behavior abstract people systematically underestimate exponential growth this article illustrates this phenomenon its implications and some potential interventions in the context of saving for retirement where savings grow exponentially over long periods of time experiment 1 shows that a majority of participants expect savings over 40 years to grow linearly rather than exponentially leading them to grossly underestimate their account balance at retirement experiment 2 demonstrates that this misunderstanding leads to underestimates of the cost of waiting to save which makes putting off saving more attractive than it should be finally experiments 3 5 show that highlighting the exponential growth of savings motivates both college students and employees to save more for retirement making clear to employees the exponential growth of savings before they make crucial decisions about how much to save may be a simple and effective means of increasing retirement savings

multimarket contact in continuous time games abstract this paper investigates whether multimarket contact is effective in increasing the value of collusion we show that for any discount rate the set of equilibrium payoffs average per market expands through multimarket contact in continuous time games

active vs passive decisions and crowd out in retirement savings accounts evidence from denmark using 41 million observations on savings for the population of denmark we show that the effects of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice subsidies for retirement accounts which rely on individuals to take an action to raise savings primarily induce individuals to shift assets from taxable accounts to retirement accounts we estimate that each 1 of government expenditure on subsidies increases total saving by only 1 cent in contrast policies that raise retirement contributions if individuals take no action such as automatic employer contributions to retirement accounts increase wealth accumulation substantially we estimate that approximately 15 of individuals are active savers who respond to tax subsidies primarily by shifting assets across accounts 85 of individuals are passive savers who are unresponsive to subsidies but are instead heavily influenced by automatic contributions made on their behalf active savers tend to be wealthier and more financially sophisticated we conclude that automatic contributions are more effective at increasing savings rates than subsidies for three reasons i subsidies induce relatively few individuals to respond ii they generate substantial crowd out conditional on response and iii they do not increase the savings of passive individuals who are least prepared for retirement jel codes h2 h3

compulsory arbitration arbitral risk and negotiated settlements a case study in bargaining under imperfect information the effect of conventional and final offer compulsory arbitration on negotiated settlements is characterized using nash s variable threats bargaining solution with particular attention to the interaction between arbitral risk and bargainers risk preferences when there is no arbitral risk both schemes are shown to have the same effect on negotiated settlements under very general conditions even when bargaining is over several issues whether or not there is arbitral risk negotiated settlements favour a bargainer more if his opponent is more risk averse on the other hand increases in arbitral risk need not improve the position of the less risk averse bargainer as a by product of the analysis kihlstrom roth and schmeidler s risk sensitivity results for the nash and raiffa kalai smorodinsky solutions are generalized from fixed threats to variable threats bargaining

the effects of financial education in the workplace evidence from a survey of employers we examine the effects of education on financial decision making skills by identifying an interesting source of variation in pertinent training during the 1990s an increasing number of individuals were exposed to programs of financial education provided by their employers if as some have argued low saving frequently results from a failure to appreciate economic vulnerabilities then education of this form could prove to have a powerful effect on behavior the current paper undertakes an analysis of these programs using a previously unexploited survey of employers we find that both participation in and contributions to voluntary savings plans are significantly higher when employers offer retirement seminars the effect is typically much stronger for non highly compensated employees than for highly compensated employees the frequency of seminars emerges as a particularly important correlate of behavior we are unable to detect any effects of written materials such as newsletters and summary plan descriptions regardless of frequency we also present evidence on other determinants of plan activity