efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

reciprocal relationships and mechanism design we study an incomplete information game in which players can coordinate their actions by contracting among themselves we model this relationship as a reciprocal contracting procedure where each player has the ability to make commitments contingent on the other players commitments we differ from the rest of the literature on reciprocal contracting by assuming that punishments cannot be enforced in the event that cooperation breaks down we fully characterize the outcomes that can be supported as perfect bayesian equilibrium outcomes in such an environment we use our characterization to show that the set of supportable outcomes with reciprocal contracting is larger than the set of outcomes available in a centralized mechanism design environment in which the mechanism designer is constrained by his inability to enforce punishments against non participants the difference stems from the players ability in our contracting game to convey partial information about their types at the time they offer contracts we discuss the implications of our analysis for modelling collusion between multiple agents interacting with the same principal

robust trading mechanisms we consider the problem of designing a trading institution for a single buyer and seller when their valuation of the good is private information it is shown that posted price mechanisms are essentially the only mechanisms such that each trader has a dominant strategy a posted price mechanism is one where a price is posted in advance and trade occurs if and only if all traders agree to trade

split award auctions for supplier retention to stay abreast of current supply market pricing it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers the supply base sole awards can alienate losing suppliers and cause them to defect from the supply base to maintain the supply base and thereby control the high costs of finding and qualifying new suppliers buyers often employ split awards which in turn inflate purchase costs this results in a trade off that we investigate in an infinite horizon stationary setting in which the relative cost position of each supplier is randomly drawn in every period we characterize the optimal split award that minimizes long run costs purchasing and qualification and show that maintaining a constant supply base size using a qualify up to policy is optimal for the buyer we find that neither the extent of multisourcing nor the buyer s value of split awards compared with winner take all auctions are monotonic in the qualification cost and that split award auctions can increase ex ante system buyer and supplier benefits simultaneously to our knowledge this is the first paper studying split award auctions for supply base maintenance and it will hopefully galvanize further research on this important topic this paper was accepted by yossi aviv operations management

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

global diversification growth and welfare with imperfectly integrated markets for goods in this article we examine the effect of the imperfect mobility of goods on international risk sharing and through that on the investment in risky projects welfare and growth our main result is that the welfare gain from integration of financial markets is not greatly reduced by the presence of goods market imperfections modeled as a cost of transferring goods from one country to the other we also find that the gain is nonmonotonic with respect to investors risk aversion and the aggregate volatility of output growth the policy implication to be drawn is that financial market integration is a worthwhile goal to pursue even when full goods mobility has not been achieved article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

simple mechanisms and preferences for honesty we consider full implementation in complete information environments when agents have an arbitrarily small preference for honesty we offer a condition called separable punishment and show that when it holds and there are at least two agents any social choice function can be implemented by a simple mechanism in two rounds of iterated deletion of strictly dominated strategies

ageing and unused capacity in europe is there an early retirement trap we address the issue of how early retirement may interact with limited use of financial markets in producing financial hardship later in life when some risks such as long term care are not insured we argue that the presence of financially attractive early retirement schemes in a world of imperfect financial and insurance markets can lead to an early retirement trap indeed europe witnesses many early retired individuals in financial distress in our analysis we use data on 10 european countries which differ in their pension and welfare systems in prevailing retirement age and in households access to financial markets we find evidence that an early retirement trap exists particularly in some southern and central european countries people who retired early in life are more likely to be in financial hardship in the long run our analysis implies that governments should stop making early retirement attractive let retirees go back to work improve access to financial markets and make sure long term care problems are adequately insured viola angelini agar brugiavini and guglielmo weber

mechanism design with incomplete information a solution to the implementation problem the main result of this paper is that the multiple equilibrium problem in mechanism design can be avoided in private value models if agents do not use weakly dominated strategies in equilibrium we show that in such settings any incentive compatible allocation can be made the unique equilibrium outcome to a mechanism we derive a general necessary condition for unique implementation which implies that the positive result for private value models applies with considerably less generality to common value settings and to situations in which an agent s information does not index the agent s preferences

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

implementing just and efficient decision making in an economy with one public good one private good and quasi linear utilities we explore decision making mechanisms to non cooperatively implement an efficient outcome by auctioning the leadership role among agents one implements egalitarianism namely the efficient outcome that distributes equally the surplus available from an a priori given status quo a refinement of this mechanism so called autioning the leadership with differentiated buds allows us to implement an efficient anonymous and neutral outcome it achieves egalitarianism above the vickrey clarke groves decision

undominated nash implementation with collusion and renegotiation abstract this article looks at implementation in economic environments when agents have perfect information about the state of the world but cannot commit not to renegotiate bad outcomes or to collude against each other if renegotiation satisfies a weak condition of disagreement point monotonicity then any pareto efficient social choice function can be implemented if there are at least three agents who play undominated nash equilibria the mechanism does not use modulo or integer games has no bad mixed strategy equilibria and is bounded journal of economic literature classification number d71

level k mechanism design non equilibrium models of choice e g level k reasoning have significantly different sometimes more accurate predictions in games than does nash equilibrium when it comes to the maximal set of functions that are implementable in mechanism design however they turn out to have similar implications focusing on single valued rules we discuss the role and implications of different behavioural anchors arbitrary level 0 play and prove a level k revelation principle if a function is level k implementable given any level 0 play it must obey a slight weakening of standard strict incentive constraints further the same condition is also sufficient for level k implementability although the role of specific level 0 anchors is more controversial for the sufficiency argument nonetheless our results provide tight characterizations of level k implementable functions under a variety of level 0 play including truthful uniform and atomless anchors

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

who pays for the minimum wage this paper analyzes the eects of a large 60 and persistent increase in the minimum wage instituted in hungary in 2001 we propose a new approach to estimating the employment eects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change we infer the number of jobs destroyed by comparing the number of pre reform jobs below the new minimum wage to the excess number of jobs paying at and above the new minimum wage our estimates imply that the higher minimum wage had at most a small negative eect on employment and so the main eect was pushing up wages we then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase contrary to theoretical models that attribute the small employment eects of minimum wage changes to monopsonistic wage setting we find no evidence that the rise in the minimum wage led to lower profitability among low wage employers instead we find that the costs of the minimum wage were largely passed through to consumers

optimal public sector wages i build a dynamic stochastic general equilibrium model with search and matching frictions to determine the optimal public sector wage policy public sector wages are crucial in achieving efficient allocation of jobs high wages induce too many unemployed to queue for public sector jobs in turn raising unemployment the optimal wage depends on the frictions in the two sectors following technology shocks public sector wages should be pro cyclical and deviations from the optimal policy significantly increase the volatility of unemployment

efficiency and voluntary implementation in markets with repeated pairwise bargaining we examine a simple bargaining setting where heterogeneous buyers and sellers are repeatedly matched with each other we begin by characterizing efficiency in such a dynamic setting and discuss how it differs from efficiency in a centralized static setting we then study the allocations which can result in equilibrium when the matched buyers and sellers bargain through some extensive game form we take an implementation approach characterizing the possible allocation rules which result as the extensive game form is varied we are particularly concerned with the impact of making trade voluntary imposing individual rationality on and off the equilibrium path no buyer or seller consummates an agreement which leaves them worse off than the discounted expected value of their future rematching in the market finally we compare and contrast the efficient allocations with those that could ever arise as the equilibria of some voluntary negotiation procedure

international good market segmentation and financial innovation abstract while international capital flows are now well liberalized markets for goods remain segmented to investigate how financial innovation may relieve the effects of this segmentation on risk sharing we examine a series of two country economies with internationally segmented good markets distinguished by the available financial securities sufficient conditions for efficiency include complete international financial markets together with liberalized international financial flows under these conditions heterogeneous agents from the same country may use securities as a substitute for the international shipment of goods this allows them to partially circumvent the segmentation allowing for efficient risk sharing

the design of transnational public good mechanisms for developing countries we analyze the design of incentive mechanisms for the provision of transnational public goods under asymmetric information transnational public goods are infrastructures that no single country can afford to build for itself we show that the external constraints imposed by this mechanism may affect consumption pricing and the true redistributive concerns of local governments we characterize the corresponding distortions we also discuss the impact of the preferences for redistribution of the international agency in charge of designing the mechanism and the role of its ability to enforce that mechanism

incentive mechanism design for production economies with both private and public ownerships in this paper we dealwith the probl em of incentive mechanism design which yields efficient allocations for general mixed ownership economies when preferences individual endowments and coalition patterns among individuals are unknown to the planner we do so by doubly implementing the proportional solution for economies with any number of private sector and public sector commodities and any number of individuals as well as the coexistence of privately and publicly owned firms with general convex production possibility sets furthermore the mechanisms work not only for three or more agents but also for two agent economies journal of economic literature classification numbers c72 d61 d71 d82 2000 academic press

undominated nash implementation in bounded mechanisms we study implementation in undominated nash equilibrium by bounded mechanisms an undominated nash equilibrium is a nash equilibrium in which no agent uses a weakly dominated strategy a mechanism is bounded if every dominated strategy is dominated by some undominated strategy we identify necessary conditions and sufficient conditions for such implementation these conditions are satisfied in virtually all economic environments and are also satisfied by interesting correspondences from the social choice literature for economic settings we provide a particularly simple implementing mechanism for which the undominated equilibrium outcomes coincide with those obtained from the iterative elimination of weakly dominated strategies

knightian analysis of the vickrey mechanism we analyze the vickrey mechanism for auctions of multiple identical goods when the players have both knightian uncertainty over their own valuations and incomplete preferences in this model the vickrey mechanism is no longer dominant strategy and we prove that all dominant strategy mechanisms are inadequate however we also prove that in undominated strategies the social welfare produced by the vickrey mechanism in the worst case is not only very good but also essentially optimal

disease and development the effect of life expectancy on economic growth we exploit the major international health improvements from the 1940s to estimate the effect of life expectancy on economic performance we construct predicted mortality using preintervention mortality rates from various diseases and dates of global interventions predicted mortality has a large impact on changes in life expectancy starting in 1940 but no effect before 1940 using predicted mortality as an instrument we find that a 1 percent increase in life expectancy leads to a 1 7 2 percent increase in population life expectancy has a much smaller effect on total gdp however consequently there is no evidence that the large increase in life expectancy raised income per capita

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

a theory of bureaucratization based on reciprocity and collusive behavior this paper addresses how an organization becomes a bureaucracy bureaucratization emerges from a self enforced norm of reciprocity between agents in an organization who exchange favors and promote subgoals which differ from the objective of the firm such collusive behavior becomes harder and harder to prevent over time as a result incentive schemes lose their flexibility and bureaucratization becomes a necessary equilibrium phenomenon in the long run the distribution of agents private information their preferences for the future and the force of the social norm of reciprocity are analyzed in terms of their effects on the long run behavior of the organization and on the speed of the bureaucratization process i introduction any theory of bureaucracy concerned with the analysis of the public sector or designed to understand the behavior of private organizations2 must find out why states and firms end up being more and more inefficient over time why organizations become routinized as they grow older and why unflexible rules unavoidably emerge in the long run in other words any theory of bureaucracy should also be accompanied by a theory of bureaucratization which could help us to understand organizations from a dynamic point of view following weber 1978 we hereafter define the bureaucratization of an organization as the process by which it adopts less flexible rules over time the aim of this paper is to explain this process in the case of the theory of the firm the formation of a dynamic theory of organizations has been on the research agenda at least since marshall who was the first to point out that old organizations and firms tend to decline over time first such

untruthful dominant strategies for the deferred acceptance algorithm abstract we examine all dominant strategies for the deferred acceptance algorithm under substitutable and quota filling choice functions we show how untruthful dominant strategies look like our finding leads to the uniqueness of equilibrium outcome despite the possibility of multiple equilibria

on trees and logs abstract in this paper we contrast the main workhorse model in asset pricing theory the lucas 1978 tree model lt model to a benchmark model in financial equilibrium theory the real assets model ra model it is commonly believed that the two models entail similar conclusions since the lt model is a special case of the ra model but this is simply wrong implications of these models can be strikingly at odds indeed under the widely used log linear specification of households preferences we show that for a large set of initial endowments the lt model even with potentially complete financial markets admits only peculiar financial equilibria in which the stock market is completely degenerate in that all stocks offer the same investment opportunity and yet allocation is pareto optimal we investigate why the lt model is so much at variance with the ra model and uncover new results on uniqueness of financial equilibria and introduction of portfolio constraints obtaining in the lt model but not in the ra model

mixed bundling auctions we study multi object auctions where agents have private and additive valuations for heterogeneous objects we focus on the revenue properties of a class of dominant strategy mechanisms where a weight is assigned to each partition of objects the weights influence the probability with which partitions are chosen in the mechanism this class contains efficient auctions pure bundling auctions mixed bundling auctions auctions with reserve prices and auctions with pre packaged bundles for any number of objects and bidders both the pure bundling auction and separate efficient auctions for the single objects are revenue inferior to an auction that involves mixed bundling

timing is everything short run population impacts of immigration in us cities abstract we provide the first analysis of the short run causal impact of immigrant inflows on native populations at the local labor market level using published statistics from the american community surveys of 2000 2010 we examine how immigrant inflow shocks to a metropolitan area affect native populations we find that immigrant inflows are associated with increases in local native populations on an annual basis but that these ols estimates are generally upward biased our iv results are purged of this bias but we still find that an additional immigrant increases the low skill native population by 0 4 0 7 in the concurrent period to explain this result we show that immigrant inflows lead to declines in outflows of low skill natives from affected msas this is most pronounced in msas from which relocation is arguably more costly which may disproportionately affect the low skilled we find short run responses among high skill natives that are consistent with displacement the decline in high skilled native populations is driven by high skilled immigrant inflows and high skilled outflows increase from affected msas we show that these short run changes are obscured in specifications using longer run population changes and conclude that the short run impact of immigrants on native populations differs markedly from their longer run impact

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

can the theory of incentives explain decentralization this survey presents within a single model three theories of decentralization of decision making within organizations based on private information and incentives renegotiation collusion and limits on communication are three sufficient conditions for decentralization to be optimal cet article presente dans un cadre unifie un survol de trois theories de la decentralisation de la prise de decision dans les organisations ces theories reposent sur la presence d information privee et des incitations qui en decoulent la renegociation la collusion et les limites a la communication representent trois conditions suffisantes pouvant expliquer l optimalite de la decentralisation this abstract was borrowed from another version of this item

a nonparametric efficient public good decision mechanism undominated bayesian implementation abstract it is known that with incomplete information there are bayesian mechanisms that undertake public projects achieving ex post efficiency and budget balance however there are two shortcomings in these mechanisms first the mechanism designer is required to know the agents prior beliefs which is quite demanding second the mechanism may possess multiple equilibria including undesirable ones this paper presents a bayesian mechanism that is nonparametric in that the mechanism designer cannot incorporate any information other than that received from the agents moreover at all undominated bayesian equilibria of the mechanism the public project is undertaken efficiently and budget is balanced journal of economic literature classification numbers c72 d78 d82

optimal contracts for teams in a team subject to both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed optimal contracts are under certain conditions linear in the team s output the outcome is the same whether the principal observes just the total output or each individual s contribution thus monitoring is not needed to prevent shirking by team members instead the role of monitoring is to discipline the monitor production is a collective enterprise by workers in a firm or firms in a joint venture the synergy that is the reason for the team s existence may mean that an individual s contribution to the team s output is not distinguishable so that it is impossible to pay him according to his own productivity how should the principal remunerate the team members so as to maximize his own profit in this paper we analyze incentives in teams with asymmetric information both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed directly holmstrom 1982 showed that in a team model with moral hazard the principal can ensure an outcome arbitrarily close to the full information ideal by using a contract that punishes each team member arbitrarily severely whenever team output falls below some target however this seems to be an unrealistically drastic way of solving the moral hazard problem in our model we in effect prevent the principal from using such a contract by introducing adverse selection in addition to moral hazard and by assuming that ability and effort interact in such a way that the principal is unable to disentangle an agent s effort from his ability under the assumption that the principal and the team members are risk neutral we shall show that the principal can implement his information constrained optimum simply by offering each agent a payment linear in the team s output although the essential feature of our analysis is the interaction between adverse selection and moral hazard this result can be understood by first considering the special case in which the agents abilities are common knowledge in this case the moral hazard problem can be completely solved the principal can do as well as he

international capital markets and redundant securities abstract in this paper we propose a general equilibrium model of a two country two good complete dynamic financial market we fully characterize the equilibrium and show that under time additively separable preferences there exist redundant securities in international capital markets for example using the foreign bond and domestic securities investors are able to replicate foreign equity however unlike zapatero 1995 equilibrium asset prices and exchange rates journal of economic dynamics and control 19 787 811 and pavlova and rigobon 2003 asset prices and exchange rate nber working paper 9834 the perfect correlation between equity markets obtained under the restrictive assumption of logarithmic preferences does not hold under more general specifications of utility even though the pricing kernels in the two countries are perfectly linked through the exchange rate

subgame perfect implementation of bargaining solutions abstract this paper provides simple four stage game forms that fully implement a large class of two person bargaining solutions in subgame perfect equilibrium the solutions that can be implemented by our game forms are those that maximize a monotonic and quasi concave function of utilities after normalizing each agent s utility function so that the maximum utility is 1 and the utility of the disagreement outcome is 0 this class of solutions includes the nash kalai smorodinsky and relative utilitarian solutions the game forms have a structure of alternating offers and contain no integer device

characterizing natural implementability the fair and walrasian correspondences abstract we characterize natural implementability in exchange economies when a social choice correspondence possibly recommends a pareto efficient allocation where the common marginal rate of substitution is not determined uniquely we find that the no envy and efficient or fair correspondence cannot be implemented by any natural mechanism with a price and a quantity announcement but can be implemented by a natural mechanism with a price and two quantity announcement on the other hand the constrained walrasian correspondence can be implemented by a natural price quantity mechanism with budget balance journal of economic literature classification numbers c72 d51 d63 d78

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

the retirement consumption puzzle evidence from a regression discontinuity approach in this paper we investigate the size of the consumption drop at retirement in italy we use micro data on food and total non durable household spending covering the period 1993 2004 and evaluate the change in consumption that accompanies retirement by exploiting the exogenous variability in pension eligibility to correct for the endogenous nature of the retirement decision we take a regression discontinuity design approach and make the identifying assumption that consumption would be the same around the threshold for pension eligibility if individuals would not retire we check in our data that a non negligible fraction of individuals retire as soon as they become eligible and estimate at 9 8 the part of the non durable consumption drop that is associated with retirement induced by eligibility we show that such fall is not driven by liquidity problems for the less well off in the population and can be accounted for by drops in goods that are work related expenses or leisure substitutes however we also show that retirement induces a significant drop in the number of grown children living with their parents and this can account for most of the retirement consumption drop

dominant strategy implementation in economic environments abstract we study dominant strategy implementation especially in economic environments we first show that in general environments strategy proofness and quasi strong non bossiness together are necessary and sufficient for dominant strategy implementation via the associated direct revelation mechanism we next prove that in weak separable environments strategy proofness is sufficient for dominant strategy implementation by using an augmented revelation mechanism similar to the one devised by jackson palfrey and srivastava jackson m o palfrey t r srivastava s 1994 undominated nash implementation in bounded mechanisms games econ behav 6 474 501 moreover we focus on pure exchange economies without free disposal and try to construct another augmented revelation mechanism that satisfies balancedness in and out of equilibrium and which implements all strategy proof social choice functions in dominant strategy equilibria

local multipliers and human capital in the united states and sweden we show that every time a local economy generates a new job by attracting a new business in the traded sector a significant number of additional jobs are created in the non traded sector this multiplier effect is particularly large for jobs with high levels of human capital and for high technology industries these findings are important for local development policies as they suggest that to increase local employment levels municipalities should target high technology employers with high levels of human capital

equilibrium asset prices and exchange rates abstract in a two country two good world we construct an intertemporal international general equilibrium for two logarithmic representative agents financial markets are fully integrated and independently incomplete the equilibrium expected rate of change of the exchange rate increases with the differential of interest rates and the volatility of the domestic equity markets and decreases with the covariance between domestic and foreign equity markets the equilibrium volatility of the exchange rate is the sum of the volatilities due to idiosyncratic factors in the financial markets and a term that represents the difference of weights in the common international factor

distance to retirement and older workers employment the case for delaying the retirement age this paper presents empirical evidence and a theoretical foundation in favor of the view that the retirement age decision affects older workers employment prior to retirement to the extent that there are search frictions on the labor market the return on jobs is determined by their expected duration the time to retirement is then key to understanding older workers employment countries with a retirement age of 60 are indeed characterized by lower employment rates for workers aged 55 59 based on the french labor force survey we show that the likelihood of employment is significantly affected by the distance to retirement in addition to age and other relevant variables we then extend mccall s job search model by explicitly integrating life cycle features with the retirement decision using simulations we show that the distance effect in interaction with the generosity of unemployment benefits and the depressed demand for older workers explains the low rate of employment just before the eligibility age for the social security pension finally we show that implementing actuarially fair schemes not only extends the retirement age but also encourages a more intensive job search by older unemployed workers jel j22 j26 h55

asymmetric information incentives and intrafirm resource allocation this paper considers the question how should a firm allocate a resource among divisions when the productivity of the resource in each division is known only to the division manager obviously if the divisions as represented by their managers are indifferent among various allocations of the resource the headquarters can simply request the division managers to reveal their private information on productivity knowing that the managers have no incentive to lie the resource allocation problem can then be solved under complete or at least symmetric information this aspect is a flaw in much of the recent literature on this topic i e there is nothing in the models considered which makes divisions prefer one allocation over another thus although in some cases elaborate allocation schemes are proposed and analyzed they are really unnecessary in the model we develop a division can produce the same output with less managerial effort if it is allocated more resources and effort is costly to the manager we further assume that this effort is unobservable by the headquarters so that it cannot infer divisional productivity from data on divisional output and managerial effort given these assumptions we seek an optimal resource allocation process our results show that certain types of transfer pricing schemes are optimal in particular if there are no potentially binding capacity constraints on production of the resource then an optimal process is for each division to choose a transfer price from a schedule announced by the headquarters division managers receive a fixed compensation minus the cost of the resource allocated to them at the chosen transfer price resources are allocated on the basis of the chosen transfer prices if there is a potentially binding constraint on resource production a somewhat more complicated but similar scheme is required

efficient repeated implementation this paper examines repeated implementation of a social choice function scf with innitely lived agents whose preferences are determined randomly in each period an scf is repeated implementable in nash equilibrium if there exists a sequence of possibly history dependent mechanisms such that i its nash equilibrium set is non empty and ii every nash equilibrium outcome corresponds to the desired social choice at every possible history of past play and realizations of uncertainty we show with minor qualications that in the complete information environment an scf is repeated implementable in nash equilibrium if and only if it is ecient we also discuss several extensions of our analysis including constructions employing only nite mechanisms

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

collusive dominant strategy truthfulness abstract we show that collusion and wrong beliefs may cause a dramatic efficiency loss in the vickrey mechanism for auctioning a single good in limited supply we thus put forward a new mechanism guaranteeing efficiency in a very adversarial collusion model where the players can partition themselves into arbitrarily many coalitions exchange money with each other and perfectly coordinate their actions our mechanism bypasses classic impossibility results such as those of green and laffont and of schummer by providing the players with a richer set of strategies making it dominant for every coalition c to instruct each of its members to report truthfully not only his own valuation but also his belonging to c our mechanism is coalitionally rational which implies being individually rational for independent players

bayesian and dominant strategy implementation in the independent private values model we prove in the standard independent private values model that the outcome in terms of interim expected probabilities of trade and interim expected transfers of any bayesian mechanism can also be obtained with a dominant strategy mechanism

implementing coordinated team play abstract this note studies a moral hazard model of joint production in which there are strong gains to coordination the mechanism we propose for resolving the tacit collusion problem that arises in our setting makes use of at will contracts which provide the agents with the option to quit at any time journal of economic literature classification numbers c72 d82

implementation in undominated strategies a look at bounded mechanisms this paper examines the impact of placing natural restrictions on the mechanisms considered for implementation problems it is shown that if all mechanisms are considered and preferences satisfy a basic condition then any social choice correspondence can be implemented in undominated strategies an example points out that the strength of this result derives from the use of mechanisms with questionable features in part of the message space the agent who announces the highest integer is rewarded this sort of tail chasing construction common in the constructive proofs of the literature is used to assure that undesired strategy combinations do not form an equilibrium if such mechanisms are ruled out then the social choice correspondences which can be implemented in undominated strategies satisfy an incentive compatibility type condition called strategy resistence for social choice functions this is equivalent to strategy proofness this contrast suggests that this issue should be examined as it applies to other solution concepts used in implementation theory the last portion of the paper begins to explore the issue as it relates to nash implementation and undominated nash implementation

does postponing minimum retirement age improve healthy behaviors before retirement evidence from middle aged italian workers abstract by increasing the residual working horizon of employed individuals pension reforms that rise minimum retirement age can affect individual investment in health promoting behaviors before retirement using the expected increase in minimum retirement age induced by a 2004 italian pension reform and a difference in differences research design we show that middle aged italian males affected by the reform reacted to the longer working horizon by increasing regular exercise with positive consequences for obesity and self reported satisfaction with health

complexity and repeated implementation this paper examines the problem of repeatedly implementing an ecient social choice function when the agents preferences evolve randomly we show that the freedom to set dierent mechanisms at dierent histories can give the planner an additional leverage to deter undesirable behavior even if the mechanisms are restricted to be simple and nite specically we construct a history dependent sequence of simple mechanisms such that with minor qualications every pure subgame perfect equilibrium delivers the correct social choice at every history while every mixed equilibrium is strictly pareto dominated more importantly when faced with agents with a preference for less complex strategies at the margin the ecient social choice function can be repeatedly implemented in subgame perfect equilibrium in pure or mixed strategies our results demonstrate a positive role for complexity considerations in mechanism design

implementation of stable solutions to marriage problems abstract this note analyzes the possibility of implementing stable outcomes for marriage markets our first result shows a contradiction between the use of stable mechanisms and the hypothesis of agents behavior considered in the nash equilibrium concept we analyze the possibility of implementing two sets of stable allocations by employing two types of mechanisms the first mechanism is a now or never choice process that permits us to implement in undominated nash equilibria the set of all the stable allocations the second choice process is the classic algorithm in matching theory the gale shapley mechanism a reversal property is observed in such a mechanism when agents act strategically the use of a mechanism which selects the best solution for one side of the market in the absence of strategic behavior yields the best stable solution for the agents on the other side under dominance solvability journal of economic literatureclassification numbers c72 d78 j41

regulating complementary products a comparative institutional analysis optimal regulation subject to informational constraints is analyzed for industries for which production requires complementary inputs an issue for regulatory policy is whether supply in these industries should be bundled or unbundled bundled supply calls for regulation of an integrated industry unbundled supply has each component regulated separately a main result is that unbundling introduces into regulation an additional component of information cost that is similar to double marginalization in the monopoly pricing of complementary products unbundling may be advantageous if it allows sufficient competition in nonmonopoly services but the information cost can exceed the benefits of competition

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

multistage capital budgeting for shared investments this paper studies the performance of delegated decision making schemes in a two stage multidivision capital budgeting problem for a shared investment with an inherent abandonment option applying both robust goal congruence and sequential adverse selection frameworks we show that the optimal capital budgeting mechanism entails a capital charge rate above the firm s cost of capital in the first stage but below the cost of capital in the second stage further the first stage asset cost sharing rule depends only on the relative divisional growth profiles and equal cost sharing can be optimal even when the divisions receive significantly different benefits from the shared investment project in the presence of an adverse selection problem all agency costs are incorporated into the second stage budgeting mechanism leaving the first stage capital charge rate and asset sharing rule unaffected even though the agency problem induces capital rationing at both stages this paper was accepted by mary barth ac

the conditional auction mechanism for sharing a surplus a first bid auction to allocate the leadership role is used to choose a public decision and a balanced set of transfers the mechanism is shown to implement an equal sharing of the surplus above the average utility level at the equilibrium an agent s message reveals the other agent s utility when only two players are involved and the exact value of the joint surplus a variety of other contexts allow for the construction of similar auction like mechanisms displaying the same mirror image effect

sequential communication with ex post participation constraints abstract this paper examines an informed principal agent game with ex post participation constraints for the agent it shows that the players do not lose by communicating in turn among themselves rather than simultaneously if and only if the principal communicates first it then considers every bayesian incentive compatible allocation rules that assign non negative payoffs for one player in a bilateral asymmetric information framework it provides necessary and sufficient conditions for sequential communication to be as efficient as simultaneous communication in implementing these allocation rules when the player with unbounded payoffs moves first

a theory of socialistic internal capital markets abstract we develop a model of a two division firm in which the strong division has on average higher quality investment opportunities than the weak division we show that in the presence of agency and information problems optimal effort incentives are less powerful and thus managerial effort is lower in the strong division this leads the firm to bias its project selection policy against the strong division the selection bias is more severe when there is a larger spread in the average quality of investment opportunities between the two divisions

amicable divorce dissolving a partnership with simple mechanisms abstract this paper considers mechanisms for allocating the assets of a dissolving partnership that can be specified without information on the distribution of valuations of the asset or the level of risk aversion of the participants for the case of a single asset and risk averse agents three simple mechanisms are considered these mechanisms can be ranked in terms of ex post efficiency and partially ranked in terms of interim expected utility the efficiency of the alternating selection mechanism is considered for environments when there are many items to be allocated agents are risk neutral and transfers are prohibited conditions are given when a myopic strategy of picking the most preferred abailable item forms an equilibrium and these conditions are satisfied under independence under the further assumption of identical distributions of valuations it is shown that the total expected efficiency loss is at most 1 2 of the maximal value of a single item regardless of how many items are to be allocated

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

assessing inherent model bias an application to native displacement in response to immigration abstract there is a long standing debate among academics about the effect of immigration on native internal migration decisions if immigrants displace natives this may indicate a direct cost of immigration in the form of decreased employment opportunity for native workers moreover displacement would also imply that cross region analyses of wage effects systematically underestimate the consequences of immigration the widespread use of such area studies for the us and other countries makes it especially important to know whether a native internal response to immigration truly occurs this paper introduces a microsimulation methodology to test for inherent bias in regression models that have been used in the literature we show that some specifications have built biases into their models thereby casting doubt on the validity of their results we then provide a brief empirical analysis with a panel of observed us state by skill data together our evidence argues against the existence of native displacement this implies that cross region analyses of immigration s effect on wages are still informative

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

implementation in minimax regret equilibrium this note studies the problem of implementing social choice correspondences in environments where individuals have doubts about the rationality of their opponents we postulate the concept of minimax regret as our solution concept and show that social choice correspondences that are maskin monotonic and satisfy the no veto power condition are implementable in minimax regret equilibrium for all 0 1

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement

on some recent results in incomplete information implementation this paper provides a review of some recent results on implementation in incomplete information environments this literature is concerned with characterizing the class of social choice functions that can be implemented as equilibrium outcomes of appropriately constructed games different game forms normal and extensive forms and different equilibrium concepts nash equilibrium sequential equilibrium etc lead to different characterizations the discussion focuses on the key difficulties that arise in implementing social choice functions in incomplete information environments and describes some of the alternative characterizations