decision maker preferences for international legal cooperation why do some decision makers prefer big multilateral agreements while others prefer cooperation in small clubs does enforcement encourage or deter institutional cooperation we use experiments drawn from behavioral economics and cognitive psychology along with a substantive survey focused on international trade to illustrate how two behavioral traits patience and strategic reasoning of individuals who play key roles in negotiating and ratifying an international treaty shape their preferences for how treaties are designed and whether they are ratified patient subjects were more likely to prefer treaties with larger numbers of countries and larger long term benefits as were subjects with the skill to anticipate how others will respond over multiple iterations of strategic games the presence of an enforcement mechanism increased subjects willingness to ratify treaties however strategic reasoning had double the effect of adding enforcement to a trade agreement more strategic subjects were particularly likely to favor ratifying the agreement we report these results for a sample of 509 university students and also show how similar patterns are revealed in a unique sample of ninety two actual us policy elites under some conditions certain types of university student convenience samples can be useful for revealing elite dominated policy preferences different types of people in the same situation may prefer to approach decision making tasks and reason through trade offs in materially different ways

an experimental study of finitely and infinitely repeated linear public goods games abstract a growing literature in experimental economics examines the conditions under which cooperation can be sustained in social dilemma settings in particular several recent studies contrast cooperation levels in games in which the number of decision rounds is probabilistic to games in which the number of decision rounds is finite we contribute to this literature by contrasting the evolution of cooperation in probabilistically and finitely repeated linear voluntary contribution public goods games vcm consistent with past results ceteris paribus cooperation is found to increase in the marginal value of the public good additionally as the number of decision sequences increases there is a pronounced decrease in cooperation in the final round of finite sequences compared to those with a probabilistic end round we do not however find consistent evidence that overall cooperation rates are affected by whether the number of decision rounds is finite or determined probabilistically

group reputations stereotypes and cooperation in a repeated labor market reputation effects and other regarding preferences have both been used to predict cooperative outcomes in markets with inefficient equilibria existing reputation building models require either infinite time horizons or publicly observed identities but cooperative outcomes have been observed in several moral hazard experiments with finite horizons and anonymous interactions this paper introduces a full reputation equilibrium fre with stereotyping perceived type correlation in which cooperation is predicted in early periods of a finitely repeated market with anonymous interactions new experiments generate results in line with the fre prediction including final period reversions to stage game equilibrium and non cooperative play under unfavorable payoff parameters

dynamic decisions in a laboratory setting many economic models involve a trade off between current and future rewards for example in neoclassical one sector growth models there is a trade off between immediate consumption and investment for future consumption in sequential job search models of labor economics workers must decide between continuing their job search at a cost or accepting the best wage offered so far in oligopoly models of tacit collusion firms decide whether or not to defect from collusive behavior and the defection leads to short term benefit but future punishment these models are all dynamic in the sense that an action at one stage influences the available actions or rewards at a future stage many such examples fall into the class of dynamic programming problems and for large classes of such problems techniques for finding optima are well understood less well understood however are the decisions which individuals actually make in such dynamic settings this is an empirical issue which lends itself to the methodology of laboratory investigation there have already been a number of experiments in which subjects face a sequence of related decisions examples include the asset market studies of camerer and weigelt 3 and smith suchanek and williams 13 the predictions of dynamic game theory have been tested extensively for example in the contexts of the centipede game by mckelvey and palfrey 9 of the repeated prisoner s dilemma by selten and stoecker 11 and andreoni and miller 1 and of bargaining by ochs and roth 10 dynamic job search has been studied by cox and oaxaca 4 and two armed bandits have been studied by banks olson and porter 2 in the market and game theory studies the decisions made by subjects are complicated by the strategic aspects of the games subjects decisions must take into account the strategies they expect the other players to use in asset markets subjects seem to have difficulty making decisions and speculative bubbles frequently result as noted by mccabe rassenti and smith 8 the robust tendency of laboratory stock markets to produce bubbles is attributable to the myopic trading behavior of subjects in effect subjects fail to act according to the backward induction

conditional cooperation with negative externalities an experiment abstract empirically the commons are not as tragic as standard theory predicts the predominant explanation for this finding is conditional cooperation yet many real life situations involve insiders who are directly affected by a dilemma and outsiders who may be harmed if the insiders overcome the dilemma the quintessential illustration is oligopoly if insiders overcome their dilemma and collude this inflicts harm on the opposite market side in our experiment harm on outsiders significantly reduces conditional cooperation of insiders we can exclude that this result is driven by inequity aversion reciprocity or efficiency seeking only guilt aversion can rationalize our findings with guilt being most pronounced if the active insiders not only inflict harm on the outsider but increase their own payoff at the expense of the outsider

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

evolution of repeated prisoner s dilemma play under logit dynamics in an evolutionary set up we append an ecology of iterated prisoner s dilemma ipd game strategies consisting of unconditional cooperators allc unconditional defectors alld and reactive players tft with two repeated strategies that have received less attention in the evolutionary ipd game literature the error proof generous tit for tat gtft which with a certain probability re establishes cooperation after a possibly by mistake defection of the opponent and the penitent stimulus response wsls strategy that resets cooperation after the opponent punished for defection an abundance of rock paper scissors like patterns is discovered in the 3x3 ecologies comprising pavlovian and generous gtft players interestingly the evolutionary success of pavlov seems to depend on the absence of unconditional allc cooperators in the ecologies investigated

is more information always better a case in credit markets this paper studies the impact of behavioral and non behavioral information contained in consumer credit reports on the credit market a repeated game of incomplete information between a borrower and a sequence of lenders is considered lenders beliefs regarding the borrower s type depend on the borrower s historical loan performance and other informative signals it is established that for low beliefs strategic defaults occur in equilibrium as the borrower defaults on his loans despite having the ability to repay them further as the ancillary signals become increasingly informative of the borrower s type the range of beliefs over which strategic defaults occur expands this increase in strategic defaults highlights an unintended negative effect of allowing informative signals to influence beliefs on the upside the informative signals allow lenders to learn the borrower s type more quickly

choice between international capital and labor mobility for diversified economies abstract this paper ranks two international economic regimes free trade plus free international capital mobility and free trade plus free international labor mobility from the viewpoint of two countries which are under diversified production in a two factor two good general equilibrium model in which production technologies are internationally different it shows that a country s preference toward the two regimes is determined by relative factor endowments relative factor intensities and inter country difference in labor productivity and that under some circumstances both countries unanimously prefer the same regime but under other circumstances they prefer different regimes

institutions and behavior experimental evidence on the effects of democracy a novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed in contrast to the previous literature our experimental design allows us to control for selection effects e g those who choose the policy may be affected differently by it our finding implies that democratic institutions may affect behavior directly in addition to having effects through the choice of policies our findings have implications for the generalizability of the results of randomized policy interventions

a dispositional theory of reputation costs politicians frequently turn to reputational arguments to bolster support for their proposed foreign policies yet despite the prevailing belief that domestic audiences care about reputation there is very little direct evidence that publics care about reputation costs and very little understanding of how we propose a dispositional theory of reputation costs in which citizens facing ill defined strategic situations turn to their core predispositions about foreign affairs in order to weigh competing reputational dimensions employing a diverse array of methodological tools from vignette based survey experiments to automated text analysis we show that the mass public has a taste for reputation but understands it in fundamentally different ways with hawks concerned about the negative reputational consequences of inconsistency and doves equally concerned with the negative reputational consequences of belligerence and interventionism in illustrating how reputation costs are in our heads our findings offer both good and bad news for theories of reputation in ir

financial deepening inequality and growth a model based quantitative evaluation we propose a coherent unified approach to the study of the linkages among economic growth financial structure and inequality bringing together disparate theoretical and empirical literature that is we show how to conduct model based quantitative research on transitional paths with analytical and numerical methods we calibrate and make tractable a prototype canonical model and take it to an application namely thailand 1976 96 an emerging market economy in a phase of economic expansion with uneven financial deepening and increasing inequality we look at the expected path generated by the model and conduct robustness experiments because the actual path of the thai economy is imagined here to be just one realization of many possible histories of the model economy we construct a covariance normalized squared error metric of closeness and find the best fit simulation we also construct a confidence region from a set of simulations and formally test the model we broadly replicate the actual data and identify anomalies robert m townsend is a professor at the university of chicago and a consultant at the federal reserve bank of chicago kenichi ueda is an economist at the international monetary fund the views expressed in this paper are those of authors and do not necessarily represent those of the frb chicago the federal reserve system or the imf we thank the national statistics office of thailand for permission to use the ses data we received helpful comments from robin brooks fabio canova marco cagetti larry christiano angus deaton paul evans jess gaspar hyeok jeong ashok mody tomoyuki nakajima hajime takizawa chris udry annette vissing jorgensen and the participants of the nber general equilibrium conference at new york university the conference honoring rolf r mantel in argentina seminars at cornell university grips hitotsubashi university ohio state university oxford university and the imf as well as the imf conference on macroeconomic policy and poverty reduction we are especially indebted to the editors and referees townsend acknowledges financial support from the nsf and nichd we thank natalia ramondo for excellent research assistance

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

revisiting reputation how past actions matter in international politics policy makers and political scientists have long believed that states must make policy with an eye to maintaining a good reputation especially a good reputation for resolve recent work however has argued that reputations for resolve do not form and hence that past actions do not influence observers behavior in subsequent interactions this conclusion is theoretically problematic and unsupported by the evidence offered by reputation critics in particular juxtaposing reputation for resolve to power and interests is misleading when past actions influence observers beliefs about interests while the common approach of looking at crisis decision making misses the impact of reputation on general deterrence we thus derive hypotheses about conflict onset from both the arguments of reputation critics and the logic of more standard reputation arguments which we put to statistical test we find that past action is closely connected to subsequent dispute initiation and that the effects of reputation generalize beyond the immediate circumstances of the past dispute although reputation is not all important leaders are well advised to consider the reputational implications of policy decisions in international conflict

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

trade policy with several goods and market linkages abstract in this paper we demonstrate a substantial role for trade policy in a competitive model finding that a an export subsidy may benefit the exporting country b a voluntary export restraint may benefit the importing country and c a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good these results are in sharp contrast to the conventional wisdom from two good or partial equilibrium models and are derived in a framework of several goods the pattern of substitution and complementarity across goods or market linkages determines the role for trade policy

an experimental study of the repeated trust game with incomplete information in the trust game first player 1 decides between non cooperation or trust in reciprocity only in the latter case player 2 chooses between exploiting or rewarding player 1 in our computerized experiment player 2 can be always rewarding implemented as a robot strategy or decide opportunistically to allow for reputation formation this base game is played repeatedly learning can be analyzed since participants play successively several repeated games with changing partners participants can explicitly rely on mixed strategies which allows testing the qualitative and quantitative aspects of reputation equilibria also at an individual level

the excise tax effects of the property tax abstract this paper constructs a theory of how differences across regions in property tax rates affect product prices and factor prices for a model where labor and capital are perfectly mobile between regions it is shown that consumers residing in different regions face the same nontraded good prices even when property tax rates differ across regions

from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

squealer dealers the market for information in federal drug trafficking prosecutions never rat on your friends and always keep your mouth shut jimmy conway goodfellas citing his invaluable aid in the war against the mafia a federal judge yesterday rewarded a once powerful mob figure who became a major government informer by sentencing him to just five years in prison despite his admitted involvement in 19 murders the new york times september 27 19941 i introduction since the seminal theoretical work of becker 1968 the economics of crime has developed an extensive empirical literature 2 this article adds to that literature by studying markets for information in federal prosecutions of drug trafficking conspiracies in these markets law enforcement demands information that can help prosecute and imprison suspected drug traffickers while other drug traffickers supply the information 3 the price over which demanders and suppliers higgle is the size of an informer s sentence reduction 4 mustard 2001 using federal sentencing data found that different demographic groups have different rates relative quantities of providing substantial assistance the federal legal term meaning information against other defendants 5 this article adds to mustard 2001 by using federal sentencing of convicted drug traffickers to uncover whether different demographic groups have different relative prices for their information i e whether different groups receive larger sentence reductions higher prices or smaller sentence reductions lower prices when providing substantial assistance then in a simple manner similar to well known examinations of the returns to education in the 1970s and 1980s levy and mumane 1992 murphy and welch 1989 price and quantity determine whether certain groups experience different relative demand or relative supply for their testimony groups experiencing high relative demand have their information highly sought by law enforcement and therefore have high rates quantities of providing substantial assistance and large sentence reductions prices when doing so those with low relative demand have low quantities and low prices groups with high relative supply of substantial assistance have high quantities but low prices while those with low relative supply have low quantities and high prices this article further adds to the literature by going beyond demographic factors and examining what criminality related factors e g criminal history role in a criminal conspiracy and type of drug dealt affect supply and demand for information and by examining supply and demand conditional on expected prison sentence results show that women and better educated defendants experience high relative demand for information while blacks hispanics and non u s citizens experience low relative demand groups facing long prison sentences dealers of harder drugs those with long criminal histories and high level dealers have high relative supply while those facing short sentences primarily low level dealers have low relative supply when controlling for expected sentence crack dealers high level dealers and dealers with long criminal histories experience low demand race specific estimations show that women of all races experience high relative demand for information the rest of this article is organized as follows section ii discusses the federal criminal justice system emphasizing reforms established by the sentencing reform act of 1984 and the anti drug abuse act of 1986 section iii discusses the data and provides summary statistics section iv discusses my empirical methodology section v shows results and section vi attempts to explain them section vii discusses results from race specific estimations and section viii concludes ii federal criminal sentencing through most of the 1980s and before federal judges possessed near total discretion in determining sentences for criminals convicted of violating federal statutes e

strategic entry deterrence and terrorism theory and experimental evidence using a two stage rent seeking framework we present a simple model of strategic entry terrorism deterrence and test the model using laboratory experiments our contest success function highlights the potential for strategic spillovers the theory illustrates that relative to a cooperative outcome negative externalities lead to over spending on deterrence and positive externalities lead to under spending on deterrence our experimental results are broadly consistent subjects in the negative externality treatment had higher expenditures in contrast to theoretical predictions participation decisions while primarily driven by the probability of winning a contest were influenced by a subject s ability to participate in multiple contests

extortion in the laboratory in a laboratory experiment we study a finitely repeated game t 15 under complete information in each round p demands tribute cash transfer from a a complies or refuses and after refusals p may punish a in equilibrium payoff maximization p does not punish and a refuses any positive demand in the experiment p punishes increasingly often and increasingly severely as she gains experience most as comply with p s demands the observations are compatible with linear spite in a finite mixture model the types of p and a in the subject pool are characterized an a that is resistant to extortion declines all demands is very rare and hence the threat of punishment in general is effective but all as either ignore actual punishment or react negatively to it they accept to pay tribute but they are resistant to piecemeal expropriation

cooperation among strangers with limited information about reputation abstract the amount of institutional intervention necessary to secure efficiency enhancing cooperation in markets and organizations in circumstances where interactions take place among essentially strangers depends critically on the amount of information informal reputation mechanisms need transmit models based on subgame perfection find that the information necessary to support cooperation is recursive in nature and thus information generating and processing requirements are quite demanding models that do not rely on subgame perfection on the other hand suggest that the information demands may be quite modest the experiment we present indicates that even without any reputation information there is a non negligible amount of cooperation that is however quite sensitive to the cooperation costs for high costs providing information about a partner s immediate past action increases cooperation recursive information about the partners previous partners reputation further promotes cooperation regardless of the cooperation costs

rationality in extensive form games let us adopt the classical point of view that a theory of games is a description of rational behavior consequently equipped with a book entitled theory of games any individual in any strategic situation need only consult the book to make a rational decision one of the questions to address in this context is indeed whether or not strategies other than those provided by backward induction can ever appear in such a book in offering an answer we shall also explore the logical limits within which any theory of games must operate

on the detection of collusion and predation abstract this lecture not only shows how game theory can contribute to the detection of collusion and predation but also how experts for the defense can use game theoretic arguments to make such detection difficult a few important european anti trust cases are discussed to illustrate

strategizing niceness in co opetition the case of knowledge exchange in supply chain innovation projects abstract in this paper we take a novel approach to address the dilemma of innovation sharing versus protection among supply chain partners the paper conducts an exploratory study that introduces factors affecting a firm s optimum supply chain innovation strategy we go beyond the conventional prisoners dilemma with its limiting assumptions of players preferences and symmetry to explore a larger pool of 2 2 games that may effectively model the problem after classifying firm types according to collaboration motive and relative power we use simulation to explore the effects of firm type opponent type and payoff structure on repeated innovation interactions or equivalently long term relations and optimality of niceness surprisingly we find that opponent type is essentially irrelevant in long term innovation interactions and focal firm type is only conditionally relevant the paper contributes further by introducing reciprocation of strategy type nice versus mean showing that reciprocation is recommended while identifying and explaining the exceptions to this conclusion

scaling for economists lessons from the non adherence problem in the medical literature economists often conduct experiments that demonstrate the benefits to individuals of modifying their behavior such as using a new production process at work or investing in energy saving technologies a common occurrence is for the success of the intervention in these small scale studies to diminish substantially when applied at a larger scale severely undermining the optimism advertised in the original research studies one key contributor to the lack of general success is that the change that has been demonstrated to be beneficial is not adopted to the extent that would be optimal this problem is isomorphic to the problem of patient non adherence to medications that are known to be effective the large medical literature on countermeasures furnishes economists with potential remedies to this manifestation of the scaling problem

the benefits of commitment to a currency peg aggregate lessons from the regional effects of the 1896 u s presidential election we develop a method to use the one time cross sectional impact of a cleanly identified shock to identify its aggregate impact through the use of a factor model we apply this methodology to evaluat

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

on private charity and altruism if well off persons were to voluntarily engage in significant transfers of income to the poor the rationale and need for recourse to state measures to redistribute income and impose taxes would weaken it is thus not surprising that a good many social scientists have been fascinated by private charity which they usually explain is motivated by altruism this note looks further into the role of altruism in private charity demonstrating first that altruism can be consistent with no transfers from the altruists to the poor and second that a special form of altruism a dose of mutual altruism amongst the altruists suffices to ensure charitable transfers reference to means designed to bring about mutual altruism and their role in a number of empirical contexts concludes this note prior to proceeding along these lines a brief remark seems appropriate a recurrent and appropriate reference is made to the act of transferring as such for example roberts 1984 points out that if altruists receive utility from the act of transferring then private charity would be positive in equilibrium emphasis added this may but need not be the case two well off altruists can exchange some given income rather than transfer income to the poor unless we admit that the act of receipt of income creates suffering which is highly unrealistic such reciprocal transfers imply that the altruists end up with exactly the same income plus the satisfaction derived from having engaged in an enjoyable act this pareto dominates transfers to the poor that people indeed derive joy from such exchanges can be readily observed my inviting you to lunch this week your inviting me to lunch next week is more enjoyable than both of us sharing the bill at each of the two lunches or my sending you a bouquet for your birthday your sending me one for mine is more gratifying than each of us buying flowers for his own birthday 2

strategic behavior in public good games when partners drift apart abstract in a public good experiment one group member is replaced by another after a prespecified number of periods evidence of both strategic forward looking and adaptive backward looking behavior is observed

signalling and adaptive learning in an entry limit pricing game in an experimental investigation of milgrom and roberts 1992 model play consistently converges to a unique equilibrium providing evidence of sophisticated strategic behavior that the theory predicts play starts with monopolists at their myopic maxima followed by an attempt to pool and then if no pooling equilibrium exists separation suggesting myopia rather than a forward looking process when both pure strategy equilibria and separating equilibria exist equilibrium selection is a function of the past history of play an adaptive learning model characterizes the major features of the data and provides predictions of intermediate term behavior that is otherwise lacking in the theory

market power and mergers in laboratory markets with posted prices in this article we use laboratory methods to evaluate determinants of supracompetitive pricing the experiment involves three treatments each with the same market supply demand and competitive price in the baseline treatment capacity is divided among five sellers so that the competitive price is a nash equilibrium market power is created in a second treatment by reallocating capacity among the sellers this market power raises observed prices in all sessions in a third treatment the three smallest sellers are merged in a way that holds market power constant the consolidation has little residual effect on prices

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

seller reputation from word of mouth to centralized feedback abstract reputation is one of the most important incentives for trade and cooperation using the complete selling history of 125 135 sellers on eachnet com an ebay equivalent in china we show that sellers with a longer successful selling record enjoyed more repeat business reached more buyer regions sold in more product categories and had a higher completion rate even before eachnet introduced a centralized feedback system since the centralized feedback system the difference between reputable and non reputable sellers has decreased in terms of repeat business but enlarged in terms of market expansion these findings suggest that while reputation can facilitate trade through buyer experience and word of mouth it is not as effective as centralized feedback our study also shows that although completion rate and transaction price are the two outcomes most often examined in the literature seller reputation is important for buyer clientele market reach business scope and market survival

learning to trust in indefinitely repeated games abstract although it is well known that trust and trustworthiness i e the fulfillment of trust are important behaviors for the fulfillment of incomplete contracts less is known about how the economic environment influences them in this paper we design an experiment to examine how exogenously determined stochastic past relationship lengths affect trust and trustworthiness in new relationships we find that shorter lasting relationships have an immediate negative impact on both behaviors in the relationships that immediately follow while longer lasting relationships have the opposite effect the effect of stochastic end points declines for trustworthiness but not for trust as subjects gain experience indicating that trust is able to rebound when longer lasting relationships follow shorter lasting ones

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

sticks and carrots two incentive mechanisms supporting intra group cooperation abstract in this note we introduce two distinct incentive mechanisms that support dynamic intra group cooperation in the context of prisoner s dilemma payoffs rewards for cooperating and punishments for defection where the rewarding or punishing party may be outside the relationship

in search of predatory pricing can predatory pricing be reproduced in a laboratory environment we report research motivated by this objective we began with conditions that based on the literature appeared to combine the features this literature has suggested are favorable to the emergence of predation next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories of 10 experiments none evidenced predatory behavior most supported the dominant firm theory the second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency

on the existence of predatory pricing an experimental study of reputation and entry deterrence in the chain store game a single monopolist plays a sequence of eight periods against a series of different entrants there are two types of monopolists weak monopolists whose single period best response is to acquiesce after entry and strong monopolists whose dominant strategy is to fight entry data show high levels of predatory pricing defined as weak monopolists fighting all entrants in early periods both with and without experimenter induced strong monopolists we reject a number of predictions of the asymmetric information sequential equilibrium model of kreps and wilson 1982 and find important deviations from more general sequential equilibrium models as well

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

towards a renaissance of economic theory in his penetrating essay theory and experiment vernon smith observes that subject behavior often diverges from game theoretic predictions and asserts that minor fudging with theory is unlikely to solve our problems because circumstances unknown to us are responsible for the explanatory failures of neoclassical economic theory i deal precisely with these issues in thebounds of reason 2009a my remarksheredrawupon several themes fromthis book relevant to specifying a refocused research agenda for the study of human strategic interaction the core of economic theory is the rational actor model which holds that individuals have preferences over outcomes beliefs called subjectivepriors linking choices to the relativeprobability of alternativeoutcomes and theymaximize their expected payoffs given these preferences and beliefs subject towhatevermaterial informational and other constraints they face many observers consider the experimental work of daniel kahneman and others kahneman et al 1982 gigerenzer and todd 1999 as destructive of the rational actormodel in fact however their research has considerably strengthened the rational actor model s explanatory power albeit at the expense of increasing its complexity gintis 2009a chs 1 and 12 most important these studies have shown the value of modeling using heuristics that conserve on information processing and of including the current state physiological temporal and ownership of the individual as an argument of the preference ordering in the 1980s the core of economic theory was extended to include game theory viewed as the theory of the strategic interaction of bayesian rational actors game theory has become a centerpiece of microeconomic theory alongside the traditional walrasian model of general market equilibrium it is important to note however that this exalted position is quite recent the textbooks that expound the received wisdom of today s practicing economists were written in the early years of the game theory revival between 1988 and 1995 these textbooks include misconceptions promulgated in the 1980s that have been transmitted to the current generation of economists as i shall show some of these misconceptions have been repaired in more recent contributions to game theory contemporary experimentalists however generally rely on the more traditional body of outdated theory i here rely on more recent theoretical contributions especially those of robert aumann and adam brandenburger and their coworkers to bring game theory up to date i then argue that despite their analytical power game theory and the rational actor model provide only part of the theoretical toolkit needed to explain human strategic interaction moreover because individuals bring much of the complexity of society into the controlled conditions of the laboratory game theory and the rational actor model are insufficient to explain experimental results concretely i suggest that a these analytical tools must be supplemented by what i term the psycho social theory of norms b the correlated equilibrium should replace

the demand for bad policy when voters underappreciate equilibrium effects most of the political economy literature blames inefficient policies on institutions or politicians motives to supply bad policy but voters may themselves be partially responsible by demanding bad policy in this article we posit that voters may systematically err when assessing potential changes in policy by underappreciating how new policies lead to new equilibrium behaviour this biases voters towards policy changes that create direct benefits welfare would rise if behaviour were held constant even if those reforms ultimately reduce welfare because people adjust behaviour conversely voters are biased against policies that impose direct costs even if they induce larger indirect benefits using a lab experiment we find that a majority of subjects vote against policies that while inflicting direct costs would help them to overcome social dilemmas and thereby increase welfare subjects also support policies that while producing direct benefits create social dilemmas and ultimately hurt welfare both mistakes arise because subjects fail to fully anticipate the equilibrium effects of new policies more precisely we establish that subjects systematically underappreciate the extent to which policy changes will affect the behaviour of other people and that these mistaken beliefs exert a causal effect on the demand for bad policy

peer induced fairness in games people exhibit peer induced fairness concerns when they look to their peers as a reference to evaluate their endowments we analyze two independent ulti matum games played sequentially by a leader and two followers with peer induced fairness the second follower is averse to receiving less than the first follower using laboratory experimental data we estimate that peer induced fairness between followers is two times stronger than distributional fairness between leader and follower allowing for heterogeneity we find that 50 per cent of subjects are fairness minded we discuss how peer induced fairness might limit price discrimination account for low variability in ceo compensa tion and explain pattern bargaining

returns to capital in microenterprises evidence from a field experiment small and informal firms account for a large share of employment in developing countries the rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity however measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks which are likely to be correlated with capital stock the authors use a randomized experiment to overcome this problem and to measure the return to capital for the average microenterprise in their sample regardless of whether they apply for credit they accomplish this by providing cash and equipment grants to small firms in sri lanka and measuring the increase in profits arising from this exogenous positive shock to capital stock after controlling for possible spillover effects the authors find the average real return to capital to be 5 7 percent a month substantially higher than the market interest rate they then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household but not to vary with risk aversion or uncertainty

a behavioural foundation for models of evolutionary drift abstract binmore and samuelson binmore k samuelson l 1999 evolutionary drift and equilibrium selection review of economic studies 66 363 393 have shown that perturbations drift are crucial to study the stability properties of nash equilibria we contribute to this literature by providing a behavioural foundation for models of evolutionary drift based on the similarity theory introduced by tversky tversky a 1977 features of similarity psychological review 84 327 352 the innovation is that we derive the similarity relations from the perception that each agent has about how well he is playing the game we obtain different models of drift depending on how we model that perception and show the conditions for each model to stabilize elements in components of nash equilibria that are not subgame perfect

rising power on the mind a prominent explanation of war claims that international conflict can result when shifts in bargaining power induce the declining power to behave aggressively today because the rising power cannot credibly commit to not behave aggressively tomorrow this paper asks whether individuals respond to shifting power in ways assumed by these models rather than use abstract laboratory based bargaining games as in other work i use vignettes describing the united states in an international bargaining situation to explore the microfoundations of power transitions models empirically the vignettes vary whether the individual is a member of a declining or a rising power and whether there are previous public commitments to the status quo division of territory subjects propose a response the united states should make and then explain their decision in their own words i apply new methods for analyzing these open ended responses consistent with predictions from the behavioral literature i find important asymmetries in behavior across these conditions as well as substantial heterogeneities in individuals motivations for their decisions the results of the experiments suggest potential ways that power transition models should be refined to have a firmer behavioral basis

predation asymmetric information and strategic behavior in the classroom an experimental approach to the teaching of industrial organization abstract classroom market experiments can complement the theoretical orientation of standard industrial organization courses this paper describes various experiments designed for such courses and presents details of a multi market game with entry and exit in this experiment incumbents have a cost advantage in their home markets and mobile firms decide which market to enter after entry decisions are made firms choose prices and quantities to offer for sale predatory pricing is possible with this setup and the experiment can be used to motivate discussions of monopoly competition entry and efficiency other classroom experiments with an industrial organization focus are surveyed

the effect of repeated play on reputation building an experimental approach what effect does repeated play have on reputation building the liter ature on international relations remains divided on whether when and how reputa tion matters in both interstate and intrastate conflict we examine reputation building through a series of incentivized laboratory experiments using comparative statics from a repeated entry deterrence game we isolate how incentives for reputation build ing should change as the number of entrants changes we find that subjects in our experiments generally build reputations and that those investments pay off but we also find that some subjects did not react to incentives to build reputation in ways our model had predicted in order to explain this we focus on the heterogeneity of preferences and cognitive abilities that may exist in any population our research suggests that rational choice scholars of international relations and those using more psychologically based explanations have more common ground than previously articulated

slack and cyclically sensitive inflation we investigate the flattening phillips relation by making two departures from standard specifications first we measure slack using real activity variables that are bandpass filtered or year over year changes in activity these are similar instead of gaps second we study the components of inflation instead of the standard aggregates we find that some inflation components have strong and stable correlations with the cyclical component of real activity these components tend to be relatively well measured and domestically determined other components typically prices that are poorly measured or internationally determined have weak and or unstable correlations with cyclical activity we construct a new inflation index cyclically sensitive inflation that weights the components by their joint cyclical covariation with real activity the index has strong and stable correlations with cyclical activity and provides a real time measure of cyclical movements in inflation

international capital mobility and commercial policy in an economic region abstract if two small countries are linked by capital movements then at low tariff levels any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country while at low levels of international investment a tariff increase always harms the country levying the tariff nevertheless an increase in one country s tariff could benefit both countries by alleviating regional distortions in factor allocation if the countries liberalize factor movements within a customs union then conflicts must arise in choosing the level of the common external tariff

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

are international trade and factor mobility substitutes abstract this paper analyzes whether factor flows and commodity trade are substitutes or complements i e whether increasing the level of one impacts adversely or favorably on the volume of the other it derives with the aid of a new general equilibrium framework of the world which allows possible differences in factor endowments tastes and technologies across the two trading countries the necessary and sufficient condition for substitutability and complementarity the results are then further examined in two special cases a survey of different concepts of substitutability and complementarity which have appeared in the literature is also given

do rural banks matter evidence from the indian social banking experiment lack of access to finance is often cited as a key reason why poor people remain poor this paper uses data on the indian rural branch expansion program to provide empirial evidence on this issue between 1977 and 1990 the indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches we show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in indian states with lower initial financial development the reverse is true outside this period we exploit this fact to identify the impact of opening a rural bank on poverty and output our estimates suggest that the indian rural branch expansion program significantly lowered rural poverty and increased non agricultural output

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

evidence on the determinants of credit terms used in interfirm trade trade credit is created whenever a supplier offers terms that allow the buyer to delay payment in this paper we document the rich variation in interfirm credit terms and credit policies across industries we examine empirically the firm s basic credit policy choices whether to extend credit or to require cash payment and if credit is extended whether to adopt simple net terms or terms with discounts for prompt payment we also examine determinants of variations in two part terms results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness trade credit has important economic significance from both micro and macroeconomic perspectives during the 1990s vendor financing has accounted for an average 1 5 trillion of the book value of all assets of u s corporations and has represented approximately 2 5 times the combined value of all new public debt and primary equity issues during a given year as a component of the money supply trade credit in the form of accounts payable exceeds the primary money supply mi by a factor of 1 5 on average 1 clearly efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade credit financing several recent empirical studies examine determinants of firm reliance on trade credit 2 these studies model supply and demand for trade credit using financial statement data accounts receivable and payable 3 however many aspects of trade credit practice are unexplored most notably little is known about the types of credit terms e g net 30 2 10 net 30 and credit policies that are observed across firms and industries the only comprehensive doc

bargaining and reputation an experiment on bargaining in the presence of behavioural types we conduct a series of laboratory experiments to understand what role commitment and reputation play in bargaining the experiments implement the abreu and gul 2000 bargaining model that demonstrates how introducing behavioral types which are obstinate in their demands creates incentives for all players to build reputations for being hard bargainers the data are qualitatively consistent with the theory as subjects mimic induced types furthermore we find evidence for the presence of complementary types whose initial demands acquiesce to induced behavioural demands however there are quantitative deviations from the theory subjects make aggressive demands too often and participate in longer conflicts before reaching agreements overall the results suggest that the abreu and gul 2000 model can be used to gain insights to bargaining behavior particularly in environments where the process underlying obstinate play is well established

migration and foreign aid when it comes to linkages between migration and the global allocation of foreign development assistance the size of the immigrant population from a recipient country residing in a donor country is an important determinant of dyadic aid commitments two complementary hypotheses probe this relationship first donors use foreign aid to achieve their broader immigration goals targeting migrant sending areas to increase development and decrease the demand for entry into the donor country second migrants already residing in the donor country mobilize to lobby for additional aid for their homeland empirical tests on a large sample of country pairs made up of twenty two donors and more than 150 recipients over the period 1993 to 2008 show robust support for these hypotheses

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

honor and war southern us presidents and the effects of concern for reputation reputation has long been considered central to international relations but unobservability strategic selection and endogeneity have handicapped quantitative research a rare source of haphazard variation in the cultural origins of leaders the fact that one third of us presidents were raised in the american south a well studied example of a culture of honor provides an opportunity to identify the effects of heightened concern for reputation for resolve a formal theory that yields several testable predictions while accounting for unobserved selection into disputes is offered the theory is illustrated through a comparison of presidents john f kennedy and lyndon b johnson and systematically tested using matching permutation inference and the nonparametric combination of tests interstate conflicts under southern presidents are shown to be twice as likely to involve uses of force last on average twice as long and are three times more likely to end in victory for the united states than disputes under non southern presidents other characteristics of southern presidencies do not seem able to account for this pattern of results the results provide evidence that concern for reputation is an important cause of interstate conflict behavior

promises or policies an experimental analysis of international agreements and audience reactions a key assumption of audience costs theories of crisis bargaining and international cooperation is that audience members have strong preferences for consistency between their leader s commitments and actual policy choices however audiences also have strong preferences over the policy choices themselves regardless of their consistency with past commitments i conducted a randomized survey experiment to evaluate the magnitude of consistency and policy effects in the context of international agreements over trade policy respondents with expressed policy preferences whether supporting or opposing free trade have muted reactions to learning that their leader has broken an agreement only respondents with no opinion on trade policy are affected by learning that their leader s policy is inconsistent with prior commitments this suggests that constituents underlying preferences limit the degree to which audience costs influence policymakers calculations

factor ownership taxes and specialization this paper examines the incentives of regions to levy source based capital taxes when the tax revenue is not needed to finance the regional public sector it is assumed that capital is completely mobile among regions but that labour is completely immobile since each region can produce the same two tradable goods using the same technology then differences in tax rates on capital will lead to some specialization if residents of one region own more of the nation s capital per person then these tax differences may be an equilibrium phenomenon regions with below average capital endowment per person will levy capital taxes to lower the cost of the capital they import even though these taxes lead to capital flight and specialization in the labour intensive good

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the regional consequences of international trade with interregional capital mobility abstract this paper examines the resource allocation and welfare effects of international trade when a nation is composed of distinct regions and capital is mobile interregionally the introduction of capital mobility significantly alters the regional consequences of free trade it is shown for example that it is possible that the source of the nation s export expansion is the region that is at a technological disadvantage in the production of the export good also that region whose comparative advantage coincides with that of the nation as a whole may see its welfare decrease with free trade

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

conditional cooperation and voluntary contributions to public goods we compare a partners condition where the same small group of subjects plays a repeated publi c good game to a strangers condition where subjects play this game in changing group formations subjects in the partners conditi on contribute from t he first period on significantly more to the publi c good than subjects in the strangers conditi on in the strangers conditi on contributions show a continual decay whil e in the partners conditi on contributions fluctuate on a high level until t hey decrease in the final periods we interpret subjects behavior in terms of conditional cooperation which is characterized by both future oriented and reactive behavior

international trade and capital mobility between diversified economies abstract this paper reconsiders and simplifies the theory of international trade with foreign investment while concentrating on significant gaps in the analysis of the globally diversified case where both countries of the two commodity two factor model remain incompletely specialized the analysis goes beyond previous literature by 1 deriving an important condition for stability of equilibrium 2 investigating the effects of import tariffs and foreign investment taxes on the international allocation of capital 3 examining the actual signs of optimal first best and other tariffs and taxes and 4 developing new and plausible conditions for existence of global diversification

how important are banks for development national banks in the united states 1870 1900 abstract do banks matter for growth and if so how this paper examines the effects of national banks in the united states from 1870 to 1900 i use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking for the counties on the margin between getting a bank and not gaining a bank increased production per person by 10 national banks in rural areas improved agriculture over manufacturing moving counties toward geographic comparative advantage since these banks made few long term loans the evidence suggests that the provision of working capital and liquidity matters for growth

learning in common value auctions some initial observations abstract inexperienced bidders in first price common value auctions suffer from a winner s curse losing money on average with experience bidders approximate the nash equilibrium the mechanisms underlying this adjustment are 1 a market selection effect as the most aggressive bidders are less likely to return for subsequent sessions and 2 players who lose money bid less experiential learning and those who would have lost money had they won the auction with the high bidder s signal bid less observational learning

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

a referendum on trade theory voting on free trade in costa rica research on mass opinion in international political economy overwhelmingly relies on survey data this poses problems of external validity especially for a frequently low salience issue such as trade policy to examine whether survey findings about attitudes toward economic openness apply outside of surveys this note considers patterns of voting in the 2007 costa rican plebiscite about joining the central american free trade area several extant theories appear to explain voting patterns but the results are less in line with traditional economic models based on locally important economic sectors

predatory pricing in a multiple market experiment a note abstract isaac and smith 1985a b present a strong behavioral case that predatory pricing is not an observable laboratory phenomenon we propose several modifications of their design resulting in a multiple market experiment in which predatory pricing is present the primary modification involves conducting several markets concurrently providing an active escape opportunity for any prey and a potential reward to a reputation for predation these results provide a behavioral existence proof for the predatory pricing phenomenon they do not address the issue of the phenomenon s behavioral robustness

on the shape of the world production possibility frontier with three goods and two primary factors with and without capital mobility recently there have been many articles discussing whether it is possible for two trading countries to specialize only incompletely when labor is immobile while capital is perfectly mobile between two countries kemp 1966 pioneered this topic followed by jones 1967 and inada kemp 1969 chipman 1971 showed that based on classical assumptions two traded goods two primary factors with labor immobile but capital freely mobile neoclassical technologies and perfect competition the world production possibility frontier i e the efficient set of world production with complete diversification contains a flat segment under certain conditions uekawa 1972 furthered his results by investigating some sufficient conditions for the existence of such a flat segment of the world production possibility frontier p p f with complete diversification the aim of this paper is to investigate the shape of the world p p f when there are three goods instead of two and two primary factors with labor immobile and under alternative assumptions concerning capital mobility the other assumptions remain classical neoclassical production functions fixed factor supply and perfect competition in product markets as well as in factor markets we first show that when production technologies are different and without capital mobility if the world p p f with complete diversification exists then in general it is flat next we investigate some sufficient conditions for the existence as well as non existence of such a world p p f then assuming that capital is mobile we show that if there is a good whose technology is the same between countries and is produced by both countries then the wage rate as well as rental price of capital is equalized between countries further assuming that capital is mobile if the technology of at least one good is different then the world p p f with complete diversification does not exist in general lastly we show that assuming the technologies of all goods are different 1 if three goods are produced in the home country and two goods are in the foreign country the world p p f is a part of a tangent developable surface without capital mobility 2 the world p p f is flat with capital mobility 3 if each country produces two goods such that the world as a whole produces three distinct goods then the world p p f is strictly concave toward the origin without capital mobility and 4 the world p p f is a part of a tangent developable surface with capital mobility

the effects of financial development in the short and long run theory and evidence from india abstract although many view financial access as a means of reducing poverty or increasing growth empirical studies have produced contradictory results one problem is that most studies cover only a short time frame and do not consider dynamic effects i show that introducing credit in a general model of intertemporal consumption creates a boom in consumption and reduces poverty initially but eventually reduces mean consumption because credit substitutes for precautionary wealth using new consistent consumption data that cover a much longer time period than most studies my empirical findings show that increased access to bank branches in rural india increased consumption initially and reduced poverty but consumption later fell and poverty rose the long term effect is still positive however suggesting that credit may have a beneficial role beyond consumption smoothing

what motivates common pool resource users experimental evidence from the field this paper develops and tests several models of pure nash strategies of individuals who extract from a common pool resource when they are motivated by a combination of self interest and other motivations such as altruism reciprocity inequity aversion and conformism we test whether an econometric summary of subjects strategies is consistent with one of these motivations using data from a series of common pool resource experiments conducted in three regions of colombia as expected average extraction levels are less than that predicted by a model of pure self interest but are nevertheless sub optimal moreover we find that a model of conformism with monotonically increasing best response functions best describes average strategies our empirical results are inconsistent with models of altruism reciprocity and inequity aversion

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

second best policy for international trade and investment abstract this paper investigates second best commercial policy for an open economy within the two commodity two factor model of a two country world where the first best strategy is known to require taxes subsidies on both international trade in commodities and foreign investment via capital movements as the analysis shows when either of these policy instruments is prohibited the other instrument generally must be complemented by a tax subsidy in consumption or production if a second best rather than third best equilibrium is desired the paper derives moreover precise conditions for determining the second best package of policies