definition consistent measurement of exchange market pressure currencies can be under severe pressure but in a managed exchange rate regime that is not fully visible via the change in the exchange rate the literature has proposed a way to measure such exchange market pressure emp indirectly by adding interest rate changes and forex interventions to the exchange rate change we demonstrate that this measure is not consistent with the definition of emp and develop a new measure that is consistent this is first derived within the commonly used monetary exchange rate model then we generalize the analysis by avoiding the use of an exchange rate model we find that the interest rate should not be taken in the first difference form used so far but rather in level form and relative to the interest rate chosen if the country had no exchange rate objective applications on the european monetary system and east asian crises confirm that this improvement is highly relevant in practice

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

expanding demand through price advertisement abstract retail stores frequently advertise prices when consumer search is costly advertising low prices expands the number of consumers who visit and buy we show that this demand enhancement may offset a retailer s loss in margins from the low price making advertisement desirable we further show that a multi product monopolist may choose to advertise low prices only for select products even when advertised and non advertised products are substitutes for duopolist retailers at a common location an equilibrium exists in which for some range of advertising costs one store advertises and the other free rides on its competitor

competition and the number of firms in a market are duopolies more competitive than atomistic markets this paper uses a variant of the standard search model to examine market equilibrium and the consequences for market equilibrium of an increase in the number of firms if marginal search costs increase with the number of searches then the demand curve facing any firm will be kinked with the elasticity of demand with respect to price decreases being less than with respect to price increases prices may not change in response to changes in marginal costs as the number of firms increases the maximum price that is consistent with equilibrium increases to the monopoly price but the minimum price decreases on the other hand if marginal search costs decrease with the number of searches equilibrium if it exists is characterized by a

nonstationarity in job search theory generally structural job search models are taken to be stationary in this paper models are examined in which every exogenous variable can cause nonstationarity for instance because its value is dependent on unemployment duration a general differential equation that describes the evolution of the reservation wage over time is derived as an empirical illustration a nonstationary structural model is estimated that focuses on the consequences of a downward shift in the level of benefits it appears that the elasticity of duration with respect to the level of benefits after the shift is much larger than the elasticity with respect to the level before the shift this paper examines the movement of a job seeking individual s reservation wage over time in a general nonstationary job search model also results concerning comparative dynamics of the reservation wage and the distribution of the duration of unemployment are derived as an empirical illustration a nonstationary structural model is estimated the nonstationarity originates from the decrease in the level of benefits when unemployment duration equals two years from the results some detailed policy recommendations can be deduced as one is able to distinguish the effect of a change in the level of benefits in the first two years of unemployment from the effect of a change in the level after that period recently the use of job search models for the analysis of unemployment duration has become widespread the reduced form approach in empirical studies see e g lancaster 1979 in which only the hazard of the duration distribution is estimated is gradually being replaced by a more structural approach the latter way of modelling is characterized by the explicit use in empirical analysis of the reservation wage equation as stated by the theory e g yoon 1981 lancaster and chesher 1983 lynch 1983 narendranathan and nickell 1985 and van den berg 1988 use the complete theoretical framework of job search theory to make inferences about search behaviour however the structural models used in these studies are stationary this implies that variables like unemployment benefits or the rate of arrival of job offers are assumed to be constant over the spell of unemployment which is often at variance with reality what is more various reduced form empirical studies indicate a significant durationdependence of the re employment probability which is generally interpreted as evidence in favour of the presence of nonstationarity see e g blau and robins 1986 kooreman and ridder 1983 lancaster 1979 and narendranathan nickell and stern 1985 consequently there is a need to model reservation wage movements over time based on a nonstationary theoretical framework

improving the labor market trade off between inflation and unemployment the work on the phillips curve has been predominantly empirical but policy intervention designed to decrease both inflation and unemployment requires a better theoretical understanding of the determinants of this relation this paper attempts to sketch out the basic labor market relationships that appear to the author to account largely for the phillips relation2 and then to consider the kinds of policy measures that this analysis suggests are relevant for moving the phillips curve the basic issue involved in the stability or instability of the phillips curve when the inflation rate is constant is explored with a simple model in the appendix the emphasis in this paper is on the atomistic operation of the labor market because it appears sufficient to generate the phillips relation but we do not deny that union bargaining and price dynamics may also be involved to some degree this paper concentrates on conceptual issues continuing research will be devoted to the statistical measurement of relationships

ethnicity neighborhoods and human capital externalities the socioeconomic performance of today s workers depends not only on parental skills but also on the average skills of the ethnic group in the parents generation or ethnic capital this paper investigates the link between the ethnic externality and ethnic neighborhoods the evidence indicates that residential segregation and the external effect of ethnicity are linked partly because ethnic capital summarizes the socioeconomic background of the neighborhood where the children were raised ethnicity has an external effect even among persons who grow up in the same neighborhood when children are exposed frequently to persons who share the same ethnic background copyright 1995 by american economic association

a search cost model of obfuscation this article develops models in which obfuscation is individually rational for oligopolistic firms firms sell a homogeneous good to rational consumers who incur search costs to learn prices search costs are endogenized by allowing obfuscation firms have an unobservable action that increases the time needed to learn their price one model involves search costs convex in shopping time we show that slight convexity can dramatically alter the equilibrium price distribution a second model examines an informational linkage between current and future search costs consumers are uncertain about a component of search costs here a signal jamming mechanism can lead to equilibrium obfuscation

the stability of price dispersion under seller and consumer learning in many markets it is possible to find rival sellers charging different prices for the same good earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices we ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions with consumer behavior fixed convergence to a dispersed price equilibrium is possible in some cases however once consumer learning is introduced the monopoly outcome first found by diamond journal of economic theory3 1971 156 68 is the only stable equilibrium

price directed consumer search abstract we extend stahl s 1989 model to a setting with differentiated products to study the effects of price directed consumer search consumers engage in costly search to find out whether products meet their needs consumer search is directed by prices when they are observable before search in contrast to the case in which prices are discovered only after search where search is naturally random the equilibrium under price directed search differs substantially from that under random search despite certain similarities we show that as search costs decrease sales become more likely and firms earn higher expected profits under price directed search whereas the opposite holds under random search moreover compared with random search under price directed search firms expected profits are always lower but consumer surplus and total welfare are higher provided that the search cost is sufficiently small

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

facing the quadrilemma taylor rules intervention policy and capital controls in large emerging markets abstract this paper investigates extended taylor rules and foreign exchange intervention functions in large emerging markets em measuring the extent to which policies are designed to stabilize output inflation exchange rates and accumulate international reserves we focus on two large emerging markets india and brazil we also consider the impact of greater capital account openness and which rules dominate when policy conflicts arise we find that output stabilization is a dominant characteristic of interest rate policy in india as is inflation targeting in brazil both countries actively use intervention policy to achieve exchange rate stabilization and at times stabilizing reserves around a target level tied to observable economic fundamentals large unpredicted intervention purchases sales accommodate low high interest rates suggesting that external operations are subordinate to domestic policy objectives we extend the work to chile and china for purposes of comparison chile s policy functions are similar to brazil while china pursues policies that substantially diverge from other ems

how effective are fiscal incentives for r d a review of the evidence this paper surveys the econometric evidence on the effectiveness of fiscal incentives for r d we describe the effects of tax systems in oecd countries on the user cost of r d the current position changes over time and across different firms in different countries we describe and criticize the methodologies used to evaluate the effect of the tax system on

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

costly buyer search in laboratory markets with seller advertising in this experiment sellers simultaneously choose prices and advertising strategies buyers either purchase at an advertised price or search sequentially for other prices in the unique symmetric equilibrium sellers charge a high unadvertised price or advertise a price chosen from a lower interval increases in search or advertising costs raise equilibrium prices and affect equilibrium advertising intensity empirical results are consistent with most comparative static predictions sellers however price much lower and advertise more intensely than predicted consequently market outcomes more closely resemble a perfect information bertrand like equilibrium than the imperfect information mixed strategy equilibrium with significant seller market power

an experimental study of price dispersion in an optimal search model with advertising abstract this paper reports a laboratory experiment to study pricing and advertising behavior with costly buyer search sellers simultaneously post prices and may incur a cost to advertise this price in the unique symmetric equilibrium sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices increases in search or advertising costs raise equilibrium prices and equilibrium advertising intensity decreases with lower search costs and higher advertising costs our experimental results support these comparative static predictions and sellers also post high unadvertised prices as predicted in all treatments however sellers advertise more intensely than in equilibrium

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

market contestability in the presence of sunk entry costs this article extends previous laboratory experimental research to examine the competitive discipline of contested markets with a natural monopoly type cost structure where sunk costs are neither zero nor infinite several alternative conjectures as to how or whether sunk costs can weaken the discipline of contested markets are presented and interpreted in the context of the experimental design sunk costs are found to weaken the support for strong interpretations of the contestable markets hypothesis and thus yield a wide diversity of dynamic patterns of market performance yet the disciplining power of contestability remains impressive with no indications of sustained monopoly pricing

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

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

a laboratory study of advertising and price competition abstract we use a laboratory experiment to study advertising and pricing behavior in a market where consumers differ in price sensitivity equilibrium in this market entails variation in the number of firms advertising and price dispersion in advertised prices we vary the cost to advertise as well as varying the number of competing firms theory predicts that advertising costs act as a facilitating device higher costs increase firm profits at the expense of consumers we find that higher advertising costs decrease demand for advertising and raise advertised prices as predicted further this comes at the expense of consumers however advertising strategies are more aggressive than theory predicts with the result that firm profits do not increase

toward a theory of vacancies we attempt to further characterize the search strategies of the employer in the article we discuss how characteristics of the employer or conditions that the employer faces affect the optimal search strategies and the probability of filling a vacancy in each period semiparametric and parametric methods are used to estimate hazard rates of filling vacancies the results suggest that for the given sample of vacancies the general form of the hazard function is nonmonotonic additionally the results suggest that those employers who have advance notice of the vacancy may search longer than those employers who do not

job search stigma effect and escape rate from unemployment this article formulates job search models incorporating certain types of the stigma effect of unemployment it is assumed that the probability of getting a job offer given the unemployment individual contacts the firm is influenced by the duration of unemployment and is justified in a signaling context the optimal search is analyzed for one sector as well as across several independent labor market segments it is shown that there are reasonably general conditions on the search environments for which both the individual reservation wage and escape rate are negative duration dependent a fact observed in empirical studies

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

are optimal search rules reasonable and vice versa and does it matter anyway abstract the economics of search has made rapid progress in recent years and its results have contributed siginificantly to economic knowledge recent work has been particularly marked for the steadily increasing realism of the assumptions describing the environment surrounding the searcher however concomitant with this improvement has been a steady growth in the technical complexity of the problem supposedly solved by the searcher indeed many of the recent models are so complicated that their solutions are beyond the capacity of even modern day computers after elaborating on this impracticability of optimal search rules the paper goes on to consider two more realistic and practical alternatives the adoption of either suboptimal or reasonable rules paradoxically reasonable rules may in some circumstances be better than optimal rules the paper contains a preliminary discussion of what might be meant by reasonable behaviour and shows that a minimal set of criteria for reasonableness leads to the major qualitative conclusions at a market level of optimal search theory

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

consumer search costs and market performance i introduction one of the seminal developments leading to the information economics revolution in the 1970s and 19c0s was diamond s 1971 theoretical result that in the absence of publicly posted price information the existence of even a small search cost could lead to monopoly pricing the intuition is straightforward no buyer with one price quote would want to search for a second unless it is likely that the buyer would encounter a price reduction that covers the search cost thus each seller has an incentive to price slightly above any common price and the noncooperative equilibrium in a single stage game yields a monopoly price this result is viewed as a paradox since a small search cost produces high prices but a zero search cost would produce the usual bertrand incentives that drive prices to competitive levels in the absence of capacity constraints and other imperfections 1 recent theoretical work has focused on finding a resolution to the paradox stahl 1989 for example generates a smooth transition between competitive and monopoly outcomes as the fraction of consumers with zero search costs increases from zero to one interestingly stahl finds that increasing the number of sellers makes pricing more monopolistic holding the number of informed buyers constant bagwell and ramey 1992 propose an alternative resolution that applies to an infinitely repeated market game where sellers who raise prices can develop a reputation that can affect sales in future periods bagwell and ramey show that buyers can obtain lower equilibrium prices by following a loyalty boycott search rule where low pricing sellers are rewarded with repeated purchases and high pricing sellers are punished with switching the price predictions vary continuously between monopoly and competitive levels depending on the size of the consumer search cost the policy relevance of the diamond paradox depends on whether there are realistic market environments in which small reductions in the availability of price information can cause large price increases 2 due to the difficulty of controlling and measuring information flows in natural markets the laboratory represents an ideal place to evaluate the diamond paradox and proposed resolutions the only experimental analysis of these issues is reported by grether schwartz and wilde 1988 who observed monopoly pricing in three of four predicted cases these results are suggestive but not definitive for reasons discussed below in particular as grether schwartz and wilde 1988 328 observe all four cases involved the same group of subjects to the extent possible this paper reports an experiment consisting of twelve market sessions designed to assess the effects of public price information the markets are conducted as normal posted offer markets except that buyers must pay a small cost each time they approach a different seller in baseline posted offer treatments all prices are publicly displayed to buyers while in search treatments prices are not publicly displayed in brief we find that prices approach competitive levels under the posted offer treatment and prices are significantly higher under the search treatment nevertheless the diamond prediction of monopoly pricing under search is not observed although increases in search costs do raise prices these results indicate that economists should take a more careful look at attempts to resolve the diamond paradox by introducing other factors that may impede monopoly pricing in markets with consumer search the paper is organized as follows our two primary treatments are outlined in section ii and results are presented in section iii the failure to observe the diamond monopoly price prediction motivated additional research on the effects of reputations and search costs which is presented in section iv the final section contains a conclusion ii

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

human capital pricing equations with an application to estimating the effect of schooling quality on earnings this paper formulates and estimates alternative models for the pricing of labor services we present economic models that rationalize empirical specifications in the literature and we offer evidence on the validity of those specifications widely used efficiency units models of labor services are inconsistent with evidence from the u s labor market a model of heterogeneous skills provides a more accurate description of earnings data we present evidence that the pursuit of comparative advantage and selective migration are important features of the u s labor market when these features are included in the model the only support for an effect of schooling quality on earnings is through the return to college education three interactions are empirically important in explaining log wage equations a between schooling quality and education b between regional labor market shocks and education and c between region of residence and regionof birth because of this third interaction which can arise from comparative advantage in the labor market no unique quality effect on returns to education can be defined independently of the market in which it is used

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

the advertising mix for a search good we extend the persuasion game to bring it squarely into the economics of advertising we model advertising as exciting consumer interest into learning more about the product and determine a firm s equilibrium choice of advertising content over quality information price information and horizontal match information equilibrium is unique whenever advertising is necessary the outcome is a separating equilibrium with quality unravelling lower quality firms need to provide more information for a given quality level as a function of consumer visit costs first quality information is disclosed then price information and then horizontal product information are added to the advertising mix some suggestive evidence is provided from airline ads in newspapers this paper was accepted by j miguel villas boas marketing

oligopolistic pricing with heterogeneous consumer search abstract a finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement consumers search rules are optimal with respect to the stores pricing strategies and consumers must visit a store to obtain information about its actual price a symmetric nash equilibrium sne always exists the model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal cost pricing the competitiveness of a market depends crucially on the shape of the search cost distribution moreso than on the number of competing firms

taxation and on the job training decisions this paper is an econometric analysis of the on the job training ojt decisions of a group of white american males during 1975 the data are obtained from the panel study of income dynamics which asked a very careful series of questions concerning the individual s ojt status each individual s internal rate of return is estimated and used as an explanatory variable to predict the probability of taking ojt the individual s marginal tax rate is also entered in the equation the results suggest that income taxation has tended to increase the probability of being involved in ojt i conjecture that this is because income taxation makes investment in physical capital a less desirable vehicle for carrying consumption into the future and hence increases the attractiveness of human capital this abstract was borrowed from another version of this item

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

is more competition always better an experimental study of extortionary corruption using a laboratory experiment we assess whether increasing competition among public officials reduces extortionary corruption we find that increasing the number of providers has no effect on bribe demands when citizens search costs are high but it increases corruption when search costs are low the effect is absent in a parallel setting framed as a standard market which we attribute to citizens using a nonsequential search strategy as opposed to sequential search in the corruption setting we conclude that efforts to reduce search costs such as infrastructure investments are preferable to anti corruption policies aimed at increasing the number of providers jel d73 d49 c91

uncertainty and shopping behaviour an experimental analysis this paper reports experimental tests of three search equilibrium models these models which differ only in the search strategies available to the buyers have qualitatively different predictions that is equilibria price distributions single price equilibria at the competitive price and at the monopoly price and two price equilibria the experimental outcomes generally were consistent with the models predictions this suggests that debate on the utility of this class of models should shift to the realism of the models assumptions rather than focus on their ability to characterize market outcomes also since the basic models have been validated the project of analyzing experimentally the results of relaxing some of their assumptions seems worthwhile

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

explanations of unemployment economists commonly distinguish between two sorts of unemployment roughly speak ing the involuntarily unemployed workers are unwillingly out of work i e they feel that they would be better off with jobs on the other hand the voluntarily unemployed workers prefer to be out of work for any of a wide variety of reasons e g because they are searching or training for a job or because they choose leisure over work

a search model where consumers choose quantity based on expected price i describe a price game in which consumers face search costs and base their quantity decision on the expected price because of search costs the choice of the firm they will buy from is described by a random process i show that the expected equilibrium price is above the monopoly price this result does not change if demand comes from a small share of perfectly informed consumers with zero search costs

declining reservation wages and learning empirical studies of job search strongly suggest that the reservation wages of unemployed job seeking individuals decline with the length of their respective unemployment spells previous explanations of this behaviour based on age effects liquidity constraints and limited unemployment benefits are not adequate we provide a new answer to this question based on the reasonable assumption that workers do not have precise knowledge of the distribution of the prevailing wages an individual model of job search and learning is formulated it is shown that the declining trend of reservation wages naturally arises due to the selection process when search costs are not too small the example of a normal wage offer distribution is analysed and the implications are discussed

the critical wage unemployment duration and wage expectations the case of chile this study tests the relevance of the job search model to understanding unemployment in developing countries by utilizing a 1982 data set describing unemployed men in chile the findings indicate t

exchange market pressure in oecd and emerging economies domestic vs external factors and capital flows in the old and new normal abstract we study the ways domestic and external global factors such as risk appetite global liquidity u s monetary policy and commodity prices affected the exchange market pressure before and after the global financial crisis as well as the role of these factors during the federal reserve s tapering episode utilizing a comprehensive database on capital controls we investigate whether control measures have a significant impact on mitigating exchange market pressure associated with capital flows net and gross using quarterly data over the 2000 2014 period and a dynamic panel model estimation we find that external factors played a significant role in driving exchange market pressure for both oecd countries and emerging market countries with a larger impact on the latter while the effect of net capital flows on exchange market pressure is muted short term gross portfolio inflows and outflows comprise important factors that account for exchange market pressure short term portfolio flows and long term foreign direct investment flows have a significant impact on exchange market pressure for emerging market economies and no significant effect for oecd countries capital controls seem to significantly reduce the exchange market pressure although the economic size of this impact is highly dependent on the institutional quality

on availability discrimination under rent control statistical discrimination and search theory approaches are used to consider the behavior of a landlord with a vacant rental unit often and especially under rent control rents cannot be differentiated by tenant type although the expected maintenance and removal costs of observationally separable tenant groups may differ assuming that prospective tenants appear according to a random process when sought we solve the landlord s decision problems i whether he should search for a tenant or keep the rental unit unoccupied and ii if search is undertaken how long he should wait for a good tenant

education and the duration of job search and unemployment in urban india an empirical analysis based on a survey of delhi jobseekers abstract this paper investigates why educated jobseekers tend to experience longer search and unemployment durations than their less educated counterparts the empirical analysis based upon a survey of delhi jobseekers indicates that while the duration of search is mainly determined by educational level the duration of unemployment is more closely related to personal and family characteristics normally associated with education earnings function results are consistent with the proposition that the educated search longer because their returns are higher

non reservation price equilibrium and search without priors we analyse a model of oligopolistic competition in which consumers search without priors consumers do not have prior beliefs about the distribution of prices charged by firms and thus try to use a robust search procedure we show that the optimal stopping rule is stochastic and that for any distribution of search costs there is a unique market equilibrium which is characterised by price dispersion although listed prices approach the monopoly price as the number of firms increases the effective price paid by consumers does not depend on the number of firms

price setting and competition in a simple duopoly model the paper studies a market in which there are two sellers and one buyer each agent wants to trade at most one unit of an indivisible commodity the sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time this model induces competitive and monopolistic outcomes for particular parameter values but other things being equal as the buyer becomes very patient the equilibrium price converges to the competitive one

systematic and random search a synthesis this paper synthesizes two models of search in the labor market systematic and random we construct and test a theoretical model in which the searcher is endowed with information on some possibly zero or all individual firms in the labor market as well as the overall wage offer distribution we test the model using a special wave of the 1976 current population survey the major theoretical results of our model are as follows searchers with lower stocks of knowledge about individual firms higher discount rates or having lower coverage by unemployment insurance are more likely to engage in random search activities

the external returns to education evidence from chinese cities abstract following rauch s seminal study there has been a growing interest among economists in estimating human capital externalities at the individual level j rauch productivity gains from geographic concentration of human capital evidence from the cities journal of urban economics 34 1993 380 400 in this paper we provide a first set of estimates of the external returns to education in chinese cities we find that the external returns are at least as high as the private returns to education ols estimates of the external returns range from a low of 4 9 to a high of 6 7 two stage least squares estimates indicate that a one year increase in city average education could increase individual earnings by between 11 and 13 we also examine the impact of economic reforms on the external returns to education and find suggestive evidence that economic reforms have raised the external returns to education in chinese cities

human capital and economic development abstract this paper develops a general equilibrium model of fertility and human capital investment with young adult mortality because young adult mortality is negatively related to average young adult human capital human capital accumulation lowers mortality inducing demographic transition and industrial revolution data confirm that young adult mortality is related negatively to schooling and the rate of return to schooling and positively to fertility the data indicate a negative relationship between tfp growth and schooling accumulation the model fits the data on country populations per capita incomes human capital total fertility rates infant mortality life expectancy and conditional life expectancy

on the job search in a developing country an analysis based on indian data on migrants job search by those who are employed has received increasing attention in recent years in both the theoretical and the empirical literature on labor markets in developed countries much of the interest stems from the observation that job changes often take place without an intervening period of unemployment and that there is a close relationship between searching for a job and quitting the current job also on the job search affects the rate of unemployment during the period between jobs a major preoccupation of the empirical research has been to estimate the returns to on the job search and to test the determinants of job search the bulk of this work uses data for the united states and the united kingdom 2 job search theory has not been empirically tested in the context of a developing country on the job search particularly in the so called informal sector of the urban labor market is an important feature of probabilistic models of migration in developing countries in the vein of michael p todaro and of john r harris and todaro 3 such models hypothesize that individuals migrate to urban centers with the aim of obtaining employment in the formal sector and that informal sector employment is a transitional phase during which migrants are searching for formal sector jobs recent work by gary s fields has formalized the theoretical aspects of this job search process within the framework of a multisector model 4 thus it would be of interest to find out if there are significant differences between developed and developing countries with respect to the determinants of on the job search

a simple model of price dispersion abstract this article considers a simple stock flow matching model with fully informed market participants unlike the standard matching literature prices are assumed to be set ex ante when sellers pre commit themselves to sell their products at an advertised price the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs in a marketplace with full information this provides new insights into the price dispersion literature which instead commonly assumes that buyers are not perfectly informed and engage in a costly search

on modelling the informal sector abstract a recent plea by robert hackenberg to develop new conceptual models in order to take full account of the new realities of the urban informal sector and rid the field from divergent connotations is questioned it seems that existing models easily lend themselves to analysis of the formal informal sector interactions and that divergent conditions necessarily lead to contradictions thus the existing arsenal of models cannot be held responsible for analysis paralysis new research on the informal sector rather than aiming at ultra generalizations should concentrate on issues such as identification of the determining factors of the urban production technologies and the nature of linkages and elasticity of substitution between formal and informal production

ethnic capital and intergenerational mobility this paper analyzes the extent to which ethnic skill differentials are transmitted across generations i assume that ethnicity acts as an externality in the human capital accumulation process the skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments or ethnic capital the empirical evidence reveals that the skills of today s generation depend not only on the skills of their parents but also on the average skills of the ethnic group in the parent s generation

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

costly buyer search in a differentiated products model an experimental study this study examines whether the content of buyer information and the timing of its dissemination affects seller market power we construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices the experiment varies the information on price or product characteristics that buyers learn under different timing assumptions pre and postsearch generating four information treatments theory predicts that price information lowers the equilibrium price but information about product characteristics increases the equilibrium price that is contrary to intuition the presence of informed buyers may impart a negative externality on other uninformed buyers data support the model s negative externality result when sellers face a large number of robot buyers that are programmed to search optimally observed prices conform to the model s comparative statics and are broadly consistent with predicted levels with human buyers however excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted

new evidence on whether unemployment and out of the labor force are distinct states this paper focuses on the question of whether people who are out of the labor force olf should be included in unemployment measures if people who are olf can obtain jobs as often as the people who are unemployed then there is no real distinction between the two states of nonemployment surprisingly there has been very little effort surrounding this issue in the past clark and summers 1982 conclude that for teenagers unemployment and olf are not distinct states while flinn and heckman 1982a find the opposite for white male high school graduates the methodology adopted in this paper enables one to use incomplete transition data on unemployment and olf and to obtain estimates of the full transition matrix between three labor force states that are not possible with standard methods new evidence for high school graduates is presented by gender and it is found that while for young women the two states are distinct for young men they are not

informative price advertising in a sequential search model the purpose of this paper is to study the role and implications of price advertising when shopping trips are costly to consumers to do so we introduce advertising into an optimal sequential search model information about prices is both gathered by consumers and disseminated by firms consumers search sequentially and stores advertise with various intensity when it is in their interest to do so our model has a unique equilibrium exhibiting priee dispersion the model generates predictions about the shape of the price distribution and firms advertising behavior we explore the effects of entry and find that when initial advertising costs at zero level of effort are precisely zero entry drives the equilibrium to the perfectly competitive outcome however when initial marginal advertising costs are positive entry drives prices higher and while the informed consumers almost surely locate competitive prices welfare does not necessarily increase finally we compare the effectiveness of the two informational channels when advertising costs shrink prices become competitive however when search costs shrink prices remain bounded above marginal production costs

economic search an experimental study this paper presents results of experiments designed to test several of the hypotheses present in the theoretical literature on optimal economic search first we test whether the subjects searchers actually search for wages in ways that are consistent with setting an optimal reservation wage we then proceed to determine experimentally the effects of risk aversion increased search costs changes in risk brought about by a mean preserving transformation of the distribution of wage offers the presence or absence of recall the existence of a finite horizon and the searcher s state of knowledge about the underlying distribution of wages in general we find that the searchers exhibit behavior that is consistent with that predicted by theory differences between risk neutral and risk averse searchers are found and the responses of both groups to changes in search costs in the degree of risk or in the state of knowledge are consistent with theoretical predictions

imperfect information and labor market bias against small and medium sized enterprises a korean case we examine the labor market s bias against small and medium sized enterprises focusing on the seoul digital industrial complex case we adopt heckman s approach to control selection bias and use primary data from questionnaire surveys conducted at both firm and employee levels we find that conventional firm specific factors such as wages fringe benefits and weekly work hours primarily explain the labor market bias but imperfect information is also positively associated with the bias for example a firm s inadequate ability to identify a pool of potential employee candidates or to provide them comprehensive firm or job specific information tends to worsen labor shortages and an employee s ex ante incomplete knowledge of on the job training or education opportunities tends to increase ex post turnover intentions our results suggest that reducing the market bias requires improving imperfect information as well as conventional firm specific conditions

identifying human capital externalities theory with applications the identification of aggregate human capital externalities is still not fully understood the existing mincerian approach confounds positive externalities with wage changes due to a downward sloping demand curve for human capital as a result the mincerian approach yields positive externalities even when wages equal marginal social products we propose an approach that identifies human capital externalities whether or not aggregate demand for human capital slopes downward another advantage of our approach is that it does not require estimates of the individual return to human capital applications to u s cities and states between 1970 and 1990 yield no evidence of significant average schooling externalities copyright 2006 wiley blackwell

monetary policy and financial spillovers losing traction abstract has financial globalisation compromised central banks effectiveness in managing domestic financial conditions this paper tackles this question by studying the dynamics of bond yields encompassing 31 advanced and emerging market economies to gauge the extent to which external financial conditions complicate the conduct of monetary policy we isolate a contagion component by focusing on comovements in measures of bond return risk premia that are unrelated to domestic economic fundamentals our contagion measure is designed to more accurately capture relative to simple yield correlation spillovers driven by exogenous global shifts in risk preference or appetite in contrast to what simple comovements in bond yields suggest emerging market economies appear to be much less susceptible to global contagion than advanced economies and the overall sensitivities to contagion have not increased after the global financial crisis the extent to which financial spillovers have compromised policy traction thus appears to be lower relative to studies based on common variation in bond yields

search and segregation abstract consumers willingness to pay for an identical product e g as caused by differences in local income or tastes may differ greatly across locations yet while a large literature examines consumers optimal price and product search behavior under various market configurations the equilibrium effects of such consumer segregation remain unexplored to this end i study a stylized model in which two local monopolistic markets differ in size and their consumers willingness to pay after observing their native market s price a subset of flexible consumers may travel to the other market at positive cost hoping for a bargain i show that as long as the proportion of flexible high valuation consumers is not too large active and directed search to the lower valuation market will occur in equilibrium if the higher valuation market is relatively large in size complex mixed strategy pricing emerges in equilibrium for regulators increasing the fraction of flexible consumers tends to be more effective than manipulating search costs

the dynamics of price dispersion or edgeworth variations abstract hypotheses on the dynamics of dispersed prices are extracted from computer simulations and theory and are tested using laboratory data as predicted in some variations of the edgeworth hypothesis the data exhibit a significant cycle relative to the unique stationary distribution the empirical distribution of posted prices has excess mass in an interval that declines until it approaches the lower boundary of the stationary distribution then jumps upward and the downward cycle resumes the amplitude of the cycle seems fairly constant over the longer experimental sessions a hybrid of gradient dynamics and logit dynamics seems to best reproduce the observed dynamics

an experimental study of price dispersion abstract we report an experiment examining a simple clearinghouse model that generates price dispersion according to this model price dispersion arises because of consumer heterogeneity some consumers are informed and simply buy from the firm offering the lowest price while the remaining consumers are captive and shop based on considerations other than price in our experiment we observe substantial and persistent price dispersion we find that as predicted an increase in the fraction of informed consumers leads to more competitive pricing for all consumers we also find as predicted that when more firms enter the market prices to informed consumers become more competitive while prices to captive customers become less competitive thus our experiment provides strong support for the model s comparative static predictions about how changes in market structure affect pricing

misallocation of talent and human capital political economy analysis abstract mismatches in the labor market specifically because of underrepresentation of various population groups carry significant economic cost in this paper we argue using a simple analytical model that an additional cost component is related to the effect of such underrepresentation on incentives to invest in human capital which results in a mutual feedback relationship between the labor market and the skill acquisition market and may lead to economy s divergence further it is shown that an initially advantaged group may have an incentive to minimize the bias against the disadvantaged group and that political enfranchisement is the means to achieve a commitment to such a policy

buyer search and price dispersion a laboratory study we study markets with costly buyer search in which sellers simultaneously post prices buyers costlessly observe one or with probability 1 q two of the posted prices and can accept one or pay to search again the experiment varies q the search cost and the number of buyers equilibrium theory predicts a unified very low high price for q 0 q 1 and predicts specific distributions of dispersed prices for q 1 3 and 2 3 actual prices conform closely to the predictions in some treatments buyers reservation prices are biased away from the extremes however and sellers prices have positive autocorrelation and cross sectional correlation

real time search in the laboratory and the market the standard model of labor market search posits repeated infinite horizon search from a fixed distribution of wages in a stationary environment under these circumstances the optimal search policy has a reservation wage property i e the decision to accept an offer involves a comparison of the offer with a time invariant constant w which itself is a function of the parameters characterizing the search environment a wage offer greater than or equal to w is accepted while any other is rejected and search is continued some early empirical job search studies however accumulated evidence of a declining trend in reservation wages over the course of an unemployment spell 1 since then several theoretical explanations for the declining reservation wage profiles have emerged all of which relax the stationarity assumption of the standard model for example reuben gronau 1971 assumes searchers have finite lives kenneth burdett 1977 gerard j van den berg 1990 james albrecht and susan vroman 2005 and others model short term unemployment benefits albrecht pieter a gautier and vroman 2006 permit directed search to heterogeneous prospects 2 john p danforth 1979 and silvio rendon 2006 consider general liquidity con strained search and burdett and tara vishwanath 1988 model learning about the job offer distribution behavioral explanations for declining reservation wages have been suggested by braunstein and schotter 1981 schotter and braunstein 1982 and others in this paper we present the results of the first ever to our knowledge real time search laboratory experiment performed in an effort to investigate this falling res ervation wage phenomenon where field studies of unemployed search often rely on strong identifying assumptions to recover searchers unobservable reservation wages in the laboratory we are able to elicit subjects complete reservation wage profiles in an incentive compatible manner 3 further in the laboratory we are able to

optimal sequential investment decisions under conditions of uncertainty this paper presents a mathematical model of sequential investment behavior under conditions of uncertainty the model addresses the problem of an investor with access to a limited pool of capital who makes sequential decisions on long lasting investments under uncertainty as to the timing or the quality of future opportunities we derive optimal investment strategies for the cases where the return from investment is a convex or concave function we present closed form solutions for commonly adopted return functions and we evaluate how the optimal investment behavior should change when changes occur in the environment or the underlying probability distributions in addition we analyze three modifications of the problem the results presented in this paper extend previous results on investment behavior for long lasting irreversible decisions in addition some results are in accordance with existing ones from portfolio theory and or search theory

capital inflows and the real exchange rate a comparative study of asia and latin america the nexus of real exchange rate rer and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in asian and latin america during the period 1985 2000 it is found that the degree of appreciation in rer associated with capital inflow is uniformly much higher in latin american countries compared to their asian counterparts despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy the econometric evidence suggests that both the composition of capital flows and differences in the degree of response of rer to capital flows matter in explaining these contrasting experiences while rer appreciation is a phenomenon predominantly associated with other non fdi forms of capital inflows ocfw a given level of ocfw brings about a far greater degree of appreciation of the real exchange rate in latin america where the importance of these flows in total capital inflow is also far greater on the policy front asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the rer against the appreciation pressure of capital inflows there is however no evidence to suggest that sterilized intervention can generate a lasting impact on the real exchange rate

teachers growth and convergence this paper examines the role of individual instruction and teacher quality in determining economic growth and convergence across school districts the model shows that if teacher quality is more important for human capital accumulation than individual instruction human capital convergence will occur between two school districts this convergence arises because a poor school district hires relatively better teachers but uses them in larger classes in comparison with a rich school district the model is estimated on panel data of the states of the united states from 1882 to 1990 the estimates indicate that teacher quality is relatively more important for human capital accumulation than individual instruction the model accounts for all the mean growth in state per capita incomes and between 80 and 100 percent of convergence in state per capita incomes

consumer search behavior and sunk costs abstract this paper presents the results of four economic experiments involving 41 undergraduate students who were assigned the task of searching for the lowest price from a known distribution of prices economic theory predicts that individuals should continue to draw until the expected gain of another search is less than the marginal search cost additionally once individuals have made a draw and then continued they should never return to a price drawn earlier exercise recall both of these predictions are tested in the paper and the results show that behavior is not always consistent with them it appears that individuals are making decisions based on the total return from searching rather than simply the marginal return from another draw

young workers and quit behaviour a model is set up to explain the quit behaviour of new entrants to the labour market it uses an incentive opportunity approach to integrate existing relevant arguments from search and information theory and human capital analysis it also provides for impetuous quits the model is tested by an examination of a disaggregated data set concerning a single cohort of 16 year old school leavers in the first year after gaining full time work the theory received strong support for example in the main model seven out of the ten coefficients were highly significant interestingly even in a time of deepening recession the existence of the job shopper seemed to be apparent

human capital and earnings distribution dynamics abstract earnings heterogeneity plays a crucial role in modern macroeconomics we document that mean earnings and measures of earnings dispersion and skewness all increase in us data over most of the working life cycle for a typical cohort as the cohort ages we show that i a human capital model can replicate these properties from the right distribution of initial human capital and learning ability ii differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and iii differences in learning ability account for the bulk of the variation in the present value of earnings across agents these findings emphasize the need to further understand the role and origins of initial conditions

how large are learning externalities the quantitative features of human capital externalities are not fully understood although static externalities are estimated in some studies learning externalities remain mostly unestimated by calibrating a growth model this article provides an estimate of learning externalities the calibration uses an equilibrium condition that equates private returns on physical capital and human capital the results suggest that sizable learning externalities exist even in a conservative setup the estimated social rate of return on human capital is 9 0 compared to the private rate of return 6 6 therefore human capital externalities are an important source of economic growth