causality between fdi and financial market development evidence from emerging markets this paper studies the causal relationship between foreign direct investment fdi and financial market development fmd using panel data from emerging markets most studies of the relationship between fdi and fmd have focused on the role of fmd in the link between fdi and economic growth with no deep understanding of direct causality between fdi and fmd especially in emerging markets where financial markets are in the development stage we document bidirectional causality between fdi and stock market development indicators for banking sector development indicators the relationship is ambiguous and inconclusive care is therefore needed when analysing the relationship between fmd and fdi as results may depend on whether the fmd variables used to evaluate causality are stock market or banking sector development indicators

off floor trading disintegration and the bid ask spread in experimental markets this article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid ask spread in double auction trading the opportunity to trade off floor is then introduced off floor trading is greater in the environment with a wider bid ask spread increases with block trading and increases still more with increasing subject experience finally the authors find that the preponderance of off floor trades are inside the bid ask spread supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid ask spread without revealing publicly a willingness to make price concessions coauthors are shawn lamaster vernon l smith and mark van boening copyright 1991 by university of chicago press

incorporating process based crop simulation models into global economic analyses climate change will significantly affect agricultural production significantly economic models that include the agricultural sector must capture two major effects from climate change first there is the impact on plant growth secondly there are the resulting behavioral responses of producers such as changes in input baskets crop and cultivar selection planting dates and management technologies such production changes will take place in the context of consumers responding to available production as well as their own evolving preferences this article examines the use of crop modeling techniques to assess the physical consequences of climate change and how these effects can be combined with economic models looking into the future

experimental tests of core theory and the coase theorem inefficiency and cycling abstract we examine experimentally the bargaining process and the final allocation of payoffs in games that differ in terms of whether the core exists and in the initial allocation of property rights among the players this paper highlights the interaction among property rights transaction costs and the empty core our experimental results indicate that the existence of the core is an important determinant of bargaining generally and the coase theorem in particular they confirm our conjecture that when the core is empty and property rights are ill defined coasean efficiency breaks down among other results our experiments show that the number of inefficient non pareto optimal agreements and bargaining rounds with cycling are significantly greater when the core is empty than when the core exists especially when property rights are ill defined our results suggest an economic role for specific property right arrangements to resolve the empty core

equilibrium selection in an experimental macroeconomy author affiliation vivian lei department of economics university of wisconsin milwaukee milwaukee wi 53201 usa vlei uwm edu corresponding authorcharles n noussair department of economics faculty of economics and business tilburg university p o box 90153 5000 le tilburg the netherlands c n noussair uvt nl acknowledgment we are grateful to the college of letters and science and center for research on international economics at the university of wisconsin milwaukee for financial support we thank colin camerer katarina kellar lutz hendricks nazrul islam tomomi tanaka filip vesely and two anonymous referees for helpful comments 1 introductionone of the most influential literatures in economics is the theory of growth for surveys see azariadis 1993 barro and sala i martin 1995 romer 1996 sala i martin 2002 the basis of much of the literature is the ramsey 1928 cass 1965 koopmans 1965 growth model in this model the economy is assumed to behave like a benevolent social planner who chooses capital stock and consumption levels over an infinite time horizon with the goal of maximizing the discounted utility of the consumption stream the principal result of the model is that consumption and capital stock converge to unique optimal steady state levels that are independent of the initial endowment and the utility function of the social planner an implication of the model therefore is that different countries would converge toward a common income level even if their initial endowment of capital differed provided that they have access to the same production technology relatively poor countries would exhibit higher growth rates than richer ones these two predictions are testable with field data however field studies have generally failed to support the hypothesis of convergence toward a common income level see durlauf and quah 1999 temple 1999 and islam 2003 for surveys rather the data are more consistent with the alternative hypothesis of club convergence baumol 1986 which postulates that a small number of steady states exist and that each country has a tendency to converge toward one of them 1 such a framework can explain the observed pattern over time of an increase in income differences between the organisation for economic cooperation and development countries and the developing world as well as a decrease in the differences within each of the two groups the empirical support for club convergence has encouraged the development of theoretical models with multiple equilibria while some countries may reach optimal equilibria unfortunate countries might find themselves in low income equilibria which are often labeled as poverty traps these countries are unable to reach a better equilibrium without coordination originally due to rosenstein rodan 1943 the insight that the existence of multiple equilibria might provide an explanation of international income differences has led to a literature that considers a variety of growth models with multiple equilibria for example azariadis and drazen 1990 construct an overlapping generations model with two stable pareto rankable equilibria in the inferior equilibrium no agent trades with members of other generations murphy shleifer and vishny 1989 build a model with synergies between industries each industry is profitable only if other industries are operating and there are equilibria where all of the industries operate and other pareto dominated equilibria where none operate galor and zeira 1993 and banerjee et al 2001 show that inequality and differential access to credit can keep an economy in a pareto dominated equilibrium recognizing whether or not an economy has multiple equilibria is important because policy prescriptions differ depending on whether an economy is in an inferior equilibrium or whether it is in an equilibrium that is unique

the effects of nonstationarities on performance in call markets abstract this experiment investigates the responsiveness of laboratory call markets to repetitive systematic shocks in underlying demand or supply conditions results of nine call markets conducted under three treatment conditions are compared with nine previously reported double auctions the informationally sparse call auctions perform no worse than the double auctions allocative efficiency is similar across institutions and call markets appear to track underlying equilibrium price movements more accurately than double auctions

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

the global supply and demand for agricultural land in 2050 a perfect storm in the making the number of people which the world must feed is expected to increase by another 2 billion people by 2050 when coupled with significant nutritional improvements for the 2 1 billion people currently living on less than 2 day this translates into a very substantial rise in the demand for agricultural production most past growth in the demand for food has been met by improvements in productivity but there is evidence of declining growth rates for agricultural yields climate change is likely to have important impacts on productivity through changes in temperature and precipitation land based climate mitigation policies are also projected to lead to increasing pressure on agricultural lands meanwhile supplies of water for irrigation are under pressure urban land use is on the rise and demands for setting aside land for environmental purposes continue to increase clearly an enormous amount of additional research on ways to deal with this potential perfect storm is needed this paper highlights the explores the roles of biophysical and economic uncertainty in these projections of long run land use change using this to suggest a future research agenda

the spatial interdependence of fdi in latin america summary using a sample of 17 latin american countries with observations during 1986 2006 two forms of spatial interdependence of foreign direct investment fdi are explored 1 surrounding market potential and 2 spatial autocorrelation we find that surrounding market potential has a positive significant effect on net fdi but there is no evidence that fdi is spatially autocorrelated other factors that show a significant positive effect on fdi include control of corruption and exports of raw materials when considering only fdi inflows from the us we find that fdi is spatially autocorrelated and that surrounding market potential is not significant

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

natural resources and economic development new panel evidence the question as to whether natural resources are a curse on economic growth and development is subject to considerable debates and remains controversial using heterogeneous panel cointegration techniques this paper provides a fresh re examination of the resource curse while allowing for cross section heterogeneity and commonalities in the nexus between natural resource abundance and economic development it finds in a sample of developing countries that economies endowed with abundant natural resources tend to develop more slowly than countries with scarce resources natural resources are on average a curse however there is considerable heterogeneity in the effects of resource abundance on economic development across countries perhaps because of differences in the extent of government intervention access to sound money legal structures and the security of property rights the degree of globalization and or corruption

democracy political risks and stock market performance this study examines the impacts of democracy and political risk on stock market using annualized panel data for 49 emerging markets for 2000 2012 we find evidence that democracy and political risk do have impact on stock market returns and the relationship between democracy and political risk is parabolic i e there is a threshold level of democracy after which political risk begins to decline also our results suggest that decreases in political risk lead to higher returns

price bubbles and crashes in experimental call markets abstract price bubbles relative to intrinsic dividend value are observed using a call market trading institution market prices tend to track intrinsic value only when the same group of highly experienced traders participate in three consecutive 15 round markets

experimental evidence of a sunk cost paradox a study of pricing behavior in bertrand edgeworth duopoly a well known implication of microeconomic theory is that sunk costs should have no effect on decision making we test this hypothesis with a human subjects experiment students recruited from graduate business courses with an average of over six years of work experience played the role of firms in a repeated price setting duopoly game in which both firms had identical capacity constraints and costs including a sunk cost that varied across experimental sessions over six different values we find contrary to the prediction of microeconomic theory that subjects pricing decisions show sizable differences across treatments the effect of the sunk cost is non monotonic as it increases from low to medium levels average prices decrease but as it increases from medium to high levels average prices increase these effects are not apparent initially but develop quickly and persist throughout the game cachon and camerer s 1996 loss avoidance is consistent with both effects while cost based pricing predicts only the latter effect and is inconsistent with the former

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

democracy and growth in africa implications of increasing electoral competitiveness abstract estimating a 1975 2004 decadal panel data in an augmented production function framework the paper finds that indexes of electoral competitiveness exhibit u shape relationships with gdp growth implying quite different intermediate and advanced level effects of reforms in africa

a limit of bilateral contracting institutions i introduction the double auction da institution has a solid and deserved reputation as the archetypal efficient market institution beginning with smith 1962 30 years of experimental research shows that the da achieves very high and stable efficiency for a wide variety of underlying market structures davis and holt 1993 the da resembles many naturally occurring market institutions including some of the world s largest financial exchanges in the da any agent may at any time unilaterally make a price quantity quote to other agents revise his or her quote or accept an outstanding quote made by another agent these actions occur publicly at some central location whether spatial or electronic so all traders may continuously view quote and contract activity in both the field and the laboratory these basic rules are often augmented with bid ask improvement rules variations on the display of bid ask queues or books limit orders and so on many of these augmentations improve the da s price stability and trading efficiency smith and williams 1982 but more recent studies e g banks et al 1989 van boening and wilcox 1996 show that the da has its limits in particular it fails to produce stable and efficient allocations when market structures contain nonstandard preferences and or technological features particularly when markets are relatively thin in our own previous work the nonconvexity of batch production was the source of the difficulty walrasian equilibria do not always exist in this case and the da is inefficient in those situations this article describes our attempt to generalize the da institution so that it might encourage efficient nonuniform pricing in such situations taken at face value this attempt must be judged a failure and other past attempts to solve this problem durham et al 1996 archibald et al 2002 have not been wholly satisfying either yet examination of these results and the process of elimination strongly suggest that an implicit restriction to bilateral contracting is an essential part of the received da s limitations as we have briefly described it the da may initially appear to be the very essence of free contracting but it does not provide a mechanism whereby three or more agents may simultaneously negotiate and then enter into a mutually agreeable multiagent contract all contracts are necessarily bilateral ones under the da and in fact under almost all conventional marketlike institutions in market structures where preferences and technologies are convex the restriction to bilateral contracts is generally unimportant but when nonconvexities are severe it may be impossible to reliably achieve efficiency under the constraint of bilateral contracting telser 1987 in this article we show this is true even if the da is modified so that bilateral negotiation and contracting possibilities are made particularly rich we believe these results have important policy implications privatization and deregulation initiatives have gained momentum around the globe over the past 20 years and many economists including us have little doubt of their potential for good nonetheless poorly articulated calls for regulation by the market carry an unnecessary potential for harm although the possible institutional rules governing negotiation and contracting under private property come in nearly infinite varieties regulation by the market typically means the adoption of traditional bilateral contracting institutions like the da yet there are good theoretical reasons to doubt that these are always the best choice telser 1987 and accumulating experimental evidence supports these doubts moreover there are now promising alternatives to traditional bilateral contracting institutions that outperform the da in several nonstandard structural situations bossaerts et al 2002 bykowski et al 2000 ishikida et al 2001 we conclude that calls for regulation by the market are sometimes too vague to unambiguously serve the public interest

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

the disposition effect and investor experience we examine whether investing experience can dampen the disposition effect that is the fact that investors seem to hold on to their losing stocks to a greater extent than they hold on to their winning stocks to do so we devise a computer program that simulates the stock market we use the program in an experiment with two groups of subjects namely experienced investors and undergraduate students the inexperienced investors as a control procedure we consider random trade decisions made by robot subjects we find that though both human subjects show the disposition effect the more experienced investors are less affected

dealing with uncertainty in agent based simulation farm level modeling of adaptation to climate change in southwest germany climate change will most likely confront agricultural producers with natural economic and political conditions that have not previously been observed and are largely uncertain as a consequence extrapolation from past data reaches its limits and a process based analysis of farmer adaptation is required simulation of changes in crop yields using crop growth models is a first step in that direction however changes in crop yields are only one pathway through which climate change affects agricultural production a meaningful process based analysis of farmer adaptation requires a whole farm analysis at the farm level we use a highly disaggregated mathematical programming model to analyze farm level climate change adaptation for a mountainous area in southwest germany regional level results are obtained by simulating each full time farm holding in the study area we address parameter uncertainty and model underdetermination using a cautious calibration approach and a comprehensive uncertainty analysis we deal with the resulting computational burden using efficient experimental designs and high performance computing we show that in our study area shifted crop management time slots can have potentially significant effects on agricultural supply incomes and various policy objectives promoted under german and european environmental policy schemes the simulated effects are robust against model uncertainty and underline the importance of a comprehensive assessment of climate change impacts beyond merely looking at crop yield changes our simulations demonstrate how farm level models can contribute to a process based analysis of climate change adaptation if they are embedded into a systematic framework for treating inherent model uncertainty

determinants of firms investment behaviour a multilevel approach this article investigates the determinants of firms investment behaviour using firm data from 101 developing and emerging economies a substantial number of firms does not invest in fixed capital or invests little relative to sales revenue using a multilevel probit model we study what factors trigger investment and using a multilevel heckman selection model we study what factors influence a firm s investment to sales ratio we find that firms investment behaviour has relatively little dependency on a country s macroeconomic setting additionally we find that on average firms that are completely foreign owned have a relatively lower investment to sales ratio finally we find evidence which suggests that the probability of investing is higher for firms located in countries with more control of corruption and we find some evidence which suggests that partially foreign owned firms located in countries with relatively less corruption have a relatively higher investment to sales ratio

competitivity in auction markets an experimental and theoretical investigation the authors report successive rounds of theory and laboratory experiments investigating price taking behavior and market efficiency they focus on the impact of structural parameters as well as trading institution the structural parameters involve noncompetitive supply and demand and a new odd lot trading procedure for divisible goods the trading institutions include the continuous double auction and the one shot clearinghouse as well as a new quantities only clearinghouse institution the authors present and justify an as if complete information theory that explains the competitive outcomes and that correctly predicts highly noncompetitive outcomes in quantities only clearinghouse markets copyright 1995 by royal economic society

political governance civil liberties and human capital evaluating their effect on foreign direct investment in emerging and developing economies we study the influence of a country s political governance on its attractiveness to foreign direct investors we argue that democracy is not a unidimensional concept and that the effect of host country political governance on incoming foreign direct investment fdi differs depending on whether fdi originates from a democratic or an autocratic country we also hypothesize that the effect of civil liberties depends on the motivations of investing multinational enterprises mnes and that human capital moderates this relationship we test our hypotheses on a sample of 35 000 investments in emerging and developing countries between 2003 and 2013

explaining deviations from equilibrium in auctions with avoidable fixed costs abstract bidders often face avoidable fixed costs or other synergies that can make bidding decisions complex and risky and market outcomes volatile if bidders deviate from risk neutral best responses either due to faulty optimization or a preference to avoid volatility then equilibrium predictions can perform poorly in this paper we confront laboratory bidders with three auction formats that make bidding difficult in different ways we find that measures of difficulty provide a consistent explanation of deviations from best response bidding across the three formats

information asymmetry and international strategic alliances abstract this paper examines how information asymmetry affects cross border strategic alliance formation by us firms over the period 2000 2008 we construct a measure information costs based on both geographical distance and the proportion of worldwide gdp the partner s home country represents consistent with our expectations we find an inverse association between information costs and cross border strategic alliances when considering the proportion of alliances formed with publicly quoted overseas partners we find this is unaffected by the level of information costs but rather the level of stock market development tax rate and general economic conditions information costs are however significantly negatively related to alliances with overseas private organizations our results offer clear support for the on going importance of information asymmetry in corporate decision making

does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment abstract we construct a model of fdi risk and aid where a country loses access to fdi and aid if the country expropriates fdi we show that i the threat of expropriation leads to under investment ii the optimal level of fdi decreases as the risk of expropriation rises and iii aid mitigates the adverse effect of expropriation risk on fdi the empirical analysis employs data for 35 low income countries and 28 countries in sub saharan africa over the period 1983 2004 we find that risk has a negative effect on fdi and that aid mitigates but cannot eliminate the adverse effect of risk

price formation in double auction markets abstract this paper reports 14 laboratory experiments that examine existing theories of the price formation process in the continuous double auction the experiments feature random values and costs and therefore a new price formation observation each period we find that efficiency is high and rises with experience in this environment we also find that trades with greater exchange surplus tend to occur earlier in the period that increased trader experience reduces an anomalous intertemporal arbitrage opportunity observed previously and that only when traders are very experienced does exchange surplus accrue disproportionately to the side of the market with a smaller number of traders

the effect of transaction costs on double auction markets abstract the ability of the continuous double auction to attain the competitive equilibrium outcome is one of the most robust results in experimental economics in this paper we study the sensitivity of the behavior of the double auction to the imposition of a monetary cost on the submission of offers to buy and sell we find that even with the transaction cost prices converge toward the competitive equilibrium level however the presence of the transaction cost leads to lower quantity exchanged and market efficiency than in the competitive equilibrium

allocating uncertain and unresponsive resources an experimental approach we identify an important class of economic problems that arise naturally in several applications the allocation of multiple resources when there are uncertainties in demand or supply unresponsive supplies no inventories and fixed capacities and significant demand indivisibilities rigidities examples of such problems include scheduling job shops airports or supercomputers zero inventory planning and the allocation and pricing of nasa s planned space station using experimental methods we show that the two most common organizations used to deal with this problem markets and administrative procedures can perform at very low efficiencies 60 65 efficiency in a seemingly robust example thus there is a need to design new mechanisms that more efficiently allocate resources in these environments we develop and analyze two mechanisms that arise naturally from auctions used to allocate single dimensional goods these new mechanisms involve computer assisted coordination made possible by the existence of networked computers both mechanisms significantly improve on the performance of administrative and market procedures

capital controls and foreign direct investment abstract this paper examines the effect of three types of capital control policies on fdi a the existence of multiple exchange rates b restrictions on capital account and c restrictions on the repatriation of export proceeds we find that the impact of capital controls on fdi varies by region and has changed over time in the 1970s and 1980s none of the policies had a significant impact on fdi in the 1990s all three were significant furthermore capital controls have no effect on fdi to sub saharan africa and the middle east but affects fdi to east asia and latin america adversely

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

nonspeculative bubbles in experimental asset markets lack of common knowledge of rationality vs actual irrationality we report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets in a setting in which speculation is not possible bubbles and crashes are observed the results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation but rather by behavior that itself exhibits elements of irrationality much of the trading activity that accompanies bubble formation in markets where speculation is possible is due to the fact that there is no other activity available for participants in the experiment

democracy stability and dichotomies an early debate in the empirical study of political democracy concerned the measurement of democracy initial work employed dichotomous indicators and incorporated stability into political democracy measures evidence accumulated showing that this approach could adversely affect analyses particularly in the study of income inequality despite this some recent studies have renewed the flawed practices we draw upon recent work to highlight the confusion that can result when democracy and stability are confounded and the problems with dichotomous indicators we propose that stability is analytically distinct from political democracy and should be treated as such empirically and we suggest ways to estimate incremental effects of political democracy we further argue that political democracy is continuous and that measures of it should reflect this it is important that the measurement history of this construct not repeat itself

oligopoly competition in fixed cost environments abstract many industries with avoidable fixed costs face competitive price instability problems in an attempt to maintain profitability we designed an experimental environment where profitability is eroded by the addition of sunk and avoidable fixed costs while we cannot reject the hypothesis that sunk fixed costs have no effect on prices we observe a pattern of price signaling and responses which maintain above normal profits this success implies that a firm does not have to exit such an industry in order to avoid loses and may help to explain why some competitive industries appear to maintain an inefficient number of firms

from education to democracy the conventional wisdom views high levels of education as a prerequisite for democracy this paper shows that existing evidence for this view is based on crosssectional correlations which disappear once we look at within country variation in other words there is no evidence that countries that increase their education are more likely to become democratic

spatial interdependence in us outward fdi into africa latin america and the caribbean the existing literature on spatial interdependence in fdi flows has primarily focused on developed economies as hosts with these hosts economically tied together via good infrastructure and historically strong significant trade flows in contrast we explicitly test for the presence of spatial interdependence in developing hosts africa latin american and the caribbean where such ties are not as strong for us outbound fdi between 1995 and 2007 our empirical results confirm third country effects do matter even when controlling for spatial and time period fixed effects based on the signs of the market potential and spatial lag coefficients we find us fdi strategies into these regions as consistent with complex vertical specialisation

don t let your robots grow up to be traders artificial intelligence human intelligence and asset market bubbles abstract researchers who have examined markets populated by robot traders have claimed that the high level of allocative efficiency observed in experimental markets is driven largely by the intelligence implicit in the rules of the market furthermore they view the ability of agents artificial or human to process information and make rational decisions as unnecessary for the efficient operation of markets this paper presents a new series of market experiments that show that markets populated with standard robot traders are no longer efficient if time is a meaningful element as it is in all asset markets while simple two season markets with human subjects reliably converge to an efficient equilibrium markets with minimally intelligent robot traders fail to attain this equilibrium instead these markets overshoot the equilibrium and then crash below it in addition to firmly establishing the role of trader intelligence in asset market equilibrium these experiments also provide insights into why bubbles and crashes are consistently observed in many asset market laboratory experiments using human subjects

momentum and overreaction in experimental asset markets abstract price volatility and investor overreactions are commonplace in experimental asset markets understanding the price dynamics in these markets is crucial for designing successful new trading institutions we report on a series of experiments to test the predictions of a new momentum model using a dynamical systems approach this model is then pitted against several standard models to predict prices as well as against expert human forecasters the comparative results suggest that each model has its advantages and regions of best performance overall the best predictive methods are the momentum model and expert human forecasters

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

the exposure problem and market design markets have an exposure problem when getting to the optimal allocation requires a sequence of transactions which if started but not completed leaves at least one trader with losses we use laboratory experiments to evaluate the effect of the exposure problem on alternative market mechanisms the continuous double auction performs poorly efficiency is only 20 when exposure is high and 55 when it is low a package market effectively eliminates the exposure problem in low and high exposure treatments efficiency is 82 and 89 respectively building on stability notions from matching theory we introduce the concept of mechanism stability a model of trade that combines mechanism stability with noisy best responses and imperfect foresight explains the difference in market performance finally decentralized bargaining with contingent contracts performs well with perfect information and communication but not in the more realistic case when traders preferences are privately known

avoidable cost ride a double auction roller coaster the double auction trading institution has been highly efficient across diverse marginal cost market structures whether human subjects or zero intelligence robots populated those markets accordingly many researchers suspect that double auction performance transcends market structure and agent strategy but the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero intelligence efficiencies their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies copyright 1996 by american economic association

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

dodging bullets the heterogeneous effect of political violence on greenfield fdi the relationship between political violence and greenfield foreign direct investment is contingent on the type of violence characteristics of the investment receiving sector and extent to which the investing firm is geographically diversified this paper presents an analysis with a dynamic fixed effects model for a panel of 90 developing countries from 2003 to 2012 the analysis shows that nationwide political conflict is negatively associated with total and non resource related greenfield foreign direct investment but not with resource related greenfield foreign direct investment the insensitivity to political conflict of multinational firms in the resource sector is associated with the high profitability of natural resource extraction and the companies geographic constraints on location choice during the period of estimation in the non resource sector the less geographically diversified firms are most sensitive to the risk of conflict

foreign direct investment inflows and the industrialization of african countries summary this paper examines the relationship between inward foreign direct investment fdi and the industrialization process in africa it uses panel data from 49 countries over the period of 1980 2009 the results indicate that fdi did not have a significant impact on the industrialization of these countries while other variables such as the size of the market the financial sector and international trade were important this study concludes that the role of fdi in the transformation agenda which is currently being discussed in africa should be carefully analyzed to maximize the impact of these capital inflows

a simple testable model of double auction markets abstract we propose a model of price formation in double auction markets which employs the strong simplifying assumption that agents neglect strategic feedback effects and regard themselves as playing a game against nature agents otherwise are strict expected utility maximizers employing bayesian updating procedures we prove the optimality of simple aggressive reservation price strategies in our general model and propose a parametric form that yields very detailed and computable predictions of market behavior

democracy foreign direct investment and natural resources abstract empirical studies that examine the impact of democracy on foreign direct investment fdi assume that the relationship between democracy and fdi is the same for resource exporting and non resource exporting countries this paper examines whether natural resources in host countries alter this relationship we estimate a linear dynamic panel data model using data from 112 developing countries over the period 1982 2007 we find that democracy promotes fdi if and only if the value of the share of minerals and oil in total exports is less than some critical value we identify 90 countries where an expansion of democracy may enhance fdi and 22 countries where an increase in democratization may reduce fdi we also find that the effect of democracy on fdi depends on the size and not the type of natural resources

resilience weather and dynamic adjustments in agroecosystems the case of wheat yield in england the paper presents an investigation of agroecosystem dynamics with an application to wheat yield data in england over the period 1885 2012 the analysis relies on a threshold quantile autoregressive model the model allows for lag effects to vary across quantiles of the distribution as well as with the values taken by the lagged variables the analysis documents the dynamics and persistence of yield adjustments to shocks the estimates indicate the presence of dynamic instability in the lower quantile of the distribution the analysis shows that after controlling for the role of technological trend wheat yield exhibits resilience to adverse weather shocks

do civil and political repression really boost foreign direct investments multinational enterprises are often accused of having a preference for investing in countries in which the working populations civil and political rights are largely disregarded this article presents an empirical investigation of the popular political repression boosts fdi hypothesis and arrives at the conclusion that the hypothesis is not supported on the contrary multinational enterprises rather appear to be attracted by countries in which civil and political freedom is respected

financing growth through foreign aid and private foreign loans nonlinearities and complementarities abstract are the growth consequences of foreign aid and foreign private loans different for the recipient nations in this study we analyze in a unified way how these two instruments affect economic growth of 131 developing nations over the period 1996 2010 we find that there are diminishing returns to foreign aid while there are increasing returns to foreign loans using these estimated non linearities we find a critical level of international financial transfer where the marginal effect of foreign aid is larger than that of loans if and only if the transfer loans or foreign aid is below this critical level in addition we analyze the interaction between these two types of transfers and find evidence of complementarity disaggregation of aid into grants and concessional loans suggests that it is in fact the former that exhibits concave relationship with growth

income and democracy existing studies establish a strong cross country correlation between income and democracy but do not control for factors that simultaneously affect both variables we show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari ous measures of democracy we present instrumental variables estimates that also show no causal effect of income on democracy the cross country corre lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years this pattern is con sistent with the idea that societies embarked on divergent political economic development paths at certain critical junctures jel d7 e 1

market power in oral double auctions this paper reports the results of a series of oral double auction experiments in which some traders possess market power a market is set up in which the configuration of the supply and demand curves leads to an asymmetry between buyers and sellers in their abilities to influence transactions prices this market structure does not always lead to convergence to the competitive equilibrium price despite the competitive nature of the oral double auction institution the nonconvergence occurs most frequently in the experiments involving experienced subjects