are biofuels a feasible option abstract recently a number of objections have been raised against the use of ethanol produced from agricultural products such as maize sugarcane wheat or sugar beets as a replacement for gasoline despite some of their advantages such as being cleaner and to some extent renewable we address these objections in this paper topics discussed include the corn connection which was theorized to be a cause of deforestation in the amazonia the rise of food prices due to ethanol production and the real possibilities of ethanol in reducing greenhouse gas emissions it has been shown that such concerns are grossly exaggerated and that ethanol from sugarcane as produced in brazil is the preferred option for the production of fuel not only in terms of cost but also as a favourable energy balance finally the possibility of expanding ethanol production to other sugar producing countries is also discussed

biofuels what a biopact between north and south could achieve abstract with very few exceptions such as the recent remarks by international energy agency iea head claude mandil commentators on the world s energy issues have yet to recognize the enormous contribution that biofuels producers from the south could make to solving the world s greenhouse gas emission problems and problems to do with the peaking of oil supplies once the equation between biofuels and high cost land intensive cultivation in the north is broken and a quite different scenario involving production in the south is adopted then the possibilities are dramatically changed the argument of this paper is that a transition to substitution of 20 percent of oecd gasoline needs by 2020 could be met from the south by creating the equivalent of 18 brazils over the course of the next decade such an enormous transition will not occur by itself or through the operation of market forces alone it needs an institutional framework one that guarantees for the countries of the north regular supplies of biofuels produced in a responsible manner and guarantees for the countries of the south open markets for the biofuels produced the oecd is in the best position to bring about such an arrangement through taking the initiative of offering developing countries a biopact between north and south thereby creating for the first time a global market for biofuels the launch of an international biofuels forum under the auspices of the un in early 2007 is a step towards the creation of such an international framework where north south issues on biofuels may be fruitfully addressed

strategic extremism why republicans and democrats divide on religious values party platforms differ sharply from one another especially on issues with religious content such as abortion or gay marriage given the high return to attracting the median voter why do vote maximizing politicians take extreme positions in this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote or make donations and the ability to target political messages toward those core constituents our model predicts that the political relevance of religious issues is highest when around one half of the voting population attends church regularly using data from across the world and within the united states we indeed find a nonmonotonic relationship between religious extremism and religious attendance

can new legislation in importing countries represent new barriers to the development of an international ethanol market the use of ethanol as a fuel has been attracting increasing attention in countries that are interested in reducing their dependence on imported oil and lowering their greenhouse gas emissions despite this growing interest the global ethanol market is still incipient because of the small number of producing countries the lack of technical standardization and the existence of tariff and non tariff trade barriers new laws have taken effect in 2010 in the united states and the european union imposing domestic requirements for sustainable production of ethanol although these are generally positive developments they can create greater difficulties for the development of an international ethanol market this work examines the technical barriers posed by these new laws and how they can be resolved under the auspices of the world trade organization in addition this work analyses the brazilian and caribbean cases discussing to what extent these new technical barriers will affect ethanol production and exports arising from these countries

towards a sustainably certifiable futures contract for biofuels abstract how are biofuels to be certified as produced in a sustainable and responsible fashion in the global debate over this issue one party to the proceedings seems rarely to be mentioned namely the commodities exchanges through which a global biofuels market is being created in this contribution i propose a solution to the problem of sustainability certification through a biofuels futures contract equipped with proof of origin documentation the proposal does not call for any radical break with current practice extending existing certification procedures with a requirement for the vendor to provide documentation probably in barcoded form of the history of the biofuel offered for sale including plantation and biorefinery where the biofuel was produced and subsequent blendings it may have undergone the proposal is thus compatible with the blending practices of large global traders whose activities are the source of the difficulties of other approaches to certification it is argued that if such a sustainable futures contract for bioethanol in the first instance were to be introduced then it would likely trade at a premium and become the primary vehicle for north south trade in biofuels

the effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets abstract newly established tradable fishing allowance markets are often accompanied by a period of high price volatility these fluctuations complicate capital investment decisions and play a significant role in determining outcomes for the traders involved this paper reports an evaluation of two market design features that may reduce volatility during price discovery a uniform price auction in which all trades within a period take place at the same price and an initial lease period which prohibits permanent allowance transfers at the beginning of the program we find that initial lease periods effectively reduce volatility once permanent trading is introduced

when is reputation bad abstract in traditional reputation models the ability to build a reputation is good for the long run player in ely j valimaki j 2003 bad reputation naj econ 4 2 http www najecon org v4 htm quart j econ 118 2003 785 814 ely and valimaki give an example in which reputation is unambiguously bad this paper characterizes a class of games in which that insight holds the key to bad reputation is that participation is optional for the short run players and that every action of the long run player that makes the short run players want to participate has a chance of being interpreted as a signal that the long run player is bad we allow a broad set of commitment types allowing many types including the stackelberg type used to prove positive results on reputation although reputation need not be bad if the probability of the stackelberg type is too high the relative probability of the stackelberg type can be high when all commitment types are unlikely

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

growth forecasts belief manipulation and capital markets abstract we analyze how a benevolent privately informed government agency would optimally release information about the economy s growth rate when the agents hold heterogeneous beliefs we model two types of agent conforming and dissenting the former has a prior that is identical to that of the government agency whereas the latter has a prior that differs from that of the government agency we identify both informative and uninformative equilibria informative equilibria are equilibria in which the government agency s equilibrium signal leads to a revision of beliefs we demonstrate that the uninformative equilibria can in fact dominate the informative ones in terms of ex post social welfare

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

when does it take a nixon to go to china substantial policy changes like market oriented reforms by populist parties and steps towards peace by hawks are sometimes implemented by unlikely parties to account for such episodes this paper develops a framework in which incumbent politicians have better information about the state of the world than voters the incumbent is unable to credibly transmit all this information since voters are also imperfectly informed about his ideology the paper identifies conditions under which an incumbent party s electoral prospects increase the more atypical the policy it proposes popular support for a policy or its credibility depends on the policymaker policy pair copyright 1998 by american economic association

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

informative cheap talk in elections why do office motivated politicians sometimes espouse views that are non congruent with their electorate s can non congruent statements convey any information about what a politician will do if elected and if so why would voters elect a politician who makes such statements furthermore can electoral campaigns also directly affect an elected official s behaviour we develop a model of credible cheap talk costless and non binding communication in elections the foundation is an endogenous voter preference for a politician who is known to be non congruent over one whose congruence is sufficiently uncertain this preference arises because uncertainty about an elected official s policy preferences generates policymaking distortions due to reputation career concerns we show that cheap talk can alter the electorate s beliefs about a politician s policy preferences and thereby affect the elected official s behaviour informative cheap talk can increase or decrease voter welfare with a greater scope for welfare benefits when reputation concerns are more important

a servant of two masters communication and the selection of international bureaucrats international bureaucrats must often serve multiple principals who collectively choose policy how does this affect bureaucrats incentives to truthfully reveal their private information i construct a cheap talk model in which a bureaucrat possesses private information about how policies translate into outcomes the bureaucrat can communicate publicly observable messages about this information to two policymakers who must then bargain over a set of policy choices i find that both the bureaucrat s willingness to communicate informatively and the choice of an optimal bureaucrat are highly contingent on the bargaining powers of the two policymakers when each policymaker is bound to adhere to the bargaining outcome moderate bureaucrats are most preferred in contrast when at least one policymaker can leave the bargaining table and exercise an outside option biased bureaucrats can be optimal i illustrate my findings by examining un weapons inspections in iraq from 1991 to 2003 i wish to thank bruce bueno de mesquita michael gilligan catherine hafer matias iaryczower dimitri landa adam meirowitz alastair smith and the editor and two anonymous reviewers for their feedback previous drafts of this article were presented in the new york university politics department research workshop and the 2006 annual conference of the midwest political science association

the energy behind vernon smith s experimental economics this paper begins with the interplay of the induced value theory and the hayek hypothesis and subsequently suggests that we need to understand vernon smith s experimental method as not simply empirical but encompassing a commitment to a special version of neoclassical demand theory to this end we compare his commitment to harold hotelling s important work on demand an exemplar of what we dub the mirowski hands thesis by providing an overview of smith s research up until the mid 1970s we place this progenitor of experimental economics in a new light revealing his special epistemic commitments

information management in banking crises a regulator resolving a bank faces two audiences depositors who may run if they believe the regulator will not provide capital and banks which may take excess risk if they believe the regulator will provide capital when the regulator s cost of injecting capital is private information it manages expectations by using costly signals i a regulator with a low cost of injecting capital may forbear on bad banks to signal toughness and reduce risk taking and ii a regulator with a high cost of injecting capital may bail out bad banks to increase confidence and prevent runs regulators perform more informative stress tests when the market is pessimistic

two sided learning and the ratchet principle i study a class of continuous time games of learning and imperfect monitoring a long run player and a market share a common prior about the initial value of a gaussian hidden state and learn about its subsequent values by observing a noisy public signal the long run player can nevertheless control the evolution of this signal and thus affect the market s belief the public signal has an additive structure and noise is brownian i derive conditions for an ordinary differential equation to characterize equilibrium behavior in which the long run player s actions depend on the history of the game only through the market s correct belief using these conditions i demonstrate the existence of pure strategy equilibria in markov strategies for settings in which the long run player s flow utility is nonlinear the central finding is a learning driven ratchet principle affecting incentives i illustrate the economic implications of this principle in applications to monetary policy earnings management and career concerns

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

marshall and walras disequilibrium trades and the dynamics of equilibration in the continuous double auction market prices and quantities converge to the theoretical competitive equilibria in continuous double auction markets the double auction is not a tatonnement mechanism disequilibrium trades take place the absence of any influence of disequilibrium trades which have the capacity to change the theoretical equilibrium appears to be due to a property found in the marshallian model of single market adjustments the marshallian model incorporates a principle of self organizing coordination that mysteriously determines the sequence in which specific pairs of agents trade in an environment in which market identities and agent preferences are not public disequilibrium trades along the marshallian path of trades do not change the theoretical equilibrium the substance of this paper is to demonstrate that the marshallian principle captures a natural tendency of the adjustment in single continuous double auction markets and to suggest how it takes place the marshallian model of quantity adjustment and the walrasian model of market price adjustment can be seen as companion theories that explain the allocation and price processes of a market the marshallian model explains the evolution of the allocation who will meet and trade and the walrasian excess demand explains the evolution of prices when they do

the esteem theory of norms when esteem is costless to supply does it provide an effectivemeans of enforcing norms for public goods production i examine thebasic mechanics of an enforcement through esteem model whileesteem may enforce norms to considerable degree systematicunderenforcement remains the general result even in very basicsettings with a minimum of transactions costs i also examine whyesteem has positive value in equilibrium if it can be producedcostlessly i e why esteem remains scarce and what collectiveaction problems plague the supply of esteem

marshallian vs walrasian stability in an experimental market the experiments discussed below are an attempt to examine concepts of stability as found in economic textbooks two concepts of stability which stem from two different concepts of market adjustment seem to have dominated thinking whilst these two concepts are typically called walras stability and marshall stability some controversy exists over the extent to which these two models represent their respective thinking no doubt the current formal statements of the theories reflect an evolution of the ideas through the work of many theorists the terminology is retained for convenience regardless of their origins these two concepts lead to competing hypotheses about the conditions under which market instability will be observed so the subject is a natural one for experimental investigation furthermore since this is the first experimental examination of the stability of equilibria the strategy is to inquire about stability in the context of these two classical models and to avoid the temptation to attempt to extend them or integrate them with more modern theory the old models have not been checked they seem to be an appropriate place to start

horizontal reputation and strategic audience management we study how a decision maker uses his reputation to simultaneously influence the actions of multiple receivers with heterogenous biases the reputational payoff is single peaked around a bliss reputation at which the incentives of the average receiver are perfectly aligned we establish the existence of two equilibria characterized by repositioning toward this bliss reputation that only differ through a multiplier capturing the efficiency of reputational incentives repositioning is moderate in the more efficient equilibrium but the less efficient equilibrium features overreactions and welfare may then be lower than in the no reputation case we highlight how strategic audience management e g centralization delegation to third parties with dissenting objectives alleviates inefficient reputational incentives and how multiple organizational or institutional structures may arise in equilibrium as a result

the new competition for land food energy and climate change abstract the paper addresses the new competition for land arising from growing and changing demand for food when combined with increasing global demand for transport energy under conditions of declining petro chemical resources and the urgent need to reduce greenhouse gas emissions the paper starts from the premise of a food energy and environment trilemma tilman et al 2009 where all demands to expand the area of cultivated land present high risks of increasing the carbon footprint of agriculture having reviewed the main drivers of demand for food and for liquid transport fuels the paper weighs the controversies surrounding biofuels arising from food price spikes the demand for land and consequent direct and indirect land use change it suggests that we need a more complex and geographically differentiated analysis of the interactions between direct and indirect land use change the paper then reviews evidence of land availability and suggests that in addition to technical availability in terms of soil water and climate political social and technological factors have significantly shaped the competition for land in different global regions particularly the three major biofuel producing ones of the usa brazil and europe this point is further developed by reviewing the different innovation pathways for biofuels in these three regions the main conclusion of this review is firstly that any analysis requires an integrated approach to the food energy environment trilemma and secondly that strategic political direction of innovation and sustainability regulation are required to bring about major shifts in agriculture leading to sustainable intensification of cultivation royal society 2009 rather than the continued expansion of cultivated area the consequent perspective is one of considerable global variety in technologies agricultural productive systems and use of natural resources this contrasts sharply with the world of a dominant global and integrated technology platform based on petro chemicals to which we have become accustomed

a world away and close to home the multi scalar making of indonesia s energy landscape abstract indonesia is the world s largest producer of palm oil a feedstock for agrofuels and an important source of direct nutritional energy for human consumption the country is also an important global supplier of coal petroleum and natural gas while per capita fossil energy consumption is relatively low for biomass and fossil fuel based energy indonesia has been transforming its energy landscape in order to provide for foreign demand the landscape both in literal and in the figurative sense simultaneously forms and is formed by the material resource flows required for society s biophysical reproduction i e the social metabolism in the context of the ongoing energy transition both are subject to change in our analysis of indonesia s palm oil production we find that the drivers shaping the country s resource use as well as its energy landscape are located at a spatial temporal and functional distance from where they take effect the energy landscape and resource use patterns are formed across levels of scale from the subnational to the global energy policy confined to the framework of the sovereign nation state cannot effectively address the complex drivers of increasingly detrimental environmental change associated with energy transitions nor can it trigger a sustainability transition

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

extreme walrasian dynamics the gale example in the lab we study the classic gale 1963 economy using laboratory markets tatonnement theory predicts prices will diverge from an equitable interior equilibrium towards infinity or zero depending only on initial prices the inequitable equilibria determined by these dynamics give all gains from exchange to one side of the market our results show surprisingly strong support for these predictions in most sessions one side of the market eventually outgains the other by more than twenty times leaving the disadvantaged side to trade for mere pennies we also find preliminary evidence that these dynamics are sticky resisting exogenous interventions designed to reverse their trajectories

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

global stability condition on the plane a general law of demand abstract it is well known that global stability of competitive equilibrium obtains only under quite stringent restrictions this paper identifies a set of restrictions which may be interpreted as a very weak form of the so called law of demand and shows how this may imply global stability for motion on the plane it is also of some interest that this condition is satisfied by a perturbed version of the celebrated scarf example which does not satisfy existing conditions for global stability

instability of equilibria in experimental markets upward sloping demands externalities and fad like incentives the objective of the paper is to study markets in which the value of the activity to any one person increases with the level with which the activity is undertaken by others the general interpretation could be fads mimicking behavior or some sort of belief formation process in which the beliefs or expectations of agents about some underlying state of nature are influenced by the buying behavior of other agents the result is to create a market that can be modeled as having an upward sloping market demand curve the questions posed are 1 in the fad like environment does the classical concept of equilibrium as an equating of market demand and market supply accurately predict market behavior ii can both stable and unstable equilibria be observed and iii which of the two classical concepts of stability best describes the conditions under which instability is obeserved under the conditions of a fad like demand side externality in a market organized by the multiple unit double auction muda market equilibration occurs at a point where demand equals supply the disequilibrium behavior follows the dynamics of the marshallian model of dynamics as opposed to the walrasian model these results confirm and extend the major findings of plott and george who studied a similar environment with a downward sloping supply

exchange economies and loss exposure experiments exchange economies were created in which individuals faced losses if people are risk seeking in the losses as predicted by prospect theory then due to the nonconvexity the competitive equilibria are all on the boundaries of the edgeworth box the experimental results are that risk seeking behavior is observed in many people and appears in markets as predicted in addition market behavior is consistent with answers to hypothetical questionnaires contrary to prospect theory risk seeking seems to diminish with experience preferences in the market setting are not labile and risk seeking preferences are not simply a result of framing effects copyright 1997 by american economic association

the dynamics of general equilibrium in walras original description of general equilibrium walras 1954 1874 market clearing was effected by a central authority this authority which has come to be known as the auctioneer remains today because no one has succeeded in producing a plausible decentralised dynamic model of producers and consumers engaged in market interaction in which prices and quantities move towards market clearing levels only under implausible assumptions can the continuous auctioneer dynamic be shown to be stable fisher 1983 and in a discrete model even these assumptions gross substitutability for instance do not preclude instability and chaos in price movements saari 1985 bala and majumdar 1992 1 moreover contemporary analysis of excess demand functions suggests that restrictions on preferences are unlikely to entail the stability of t sonnenschein 1972 1973 debreu 1974 kirman and koch 1986 it has been a half century since debreu 1952 and arrow and debreu 1954 provided a satisfactory analysis of the equilibrium properties market economies yet we know virtually nothing systematic about walrasian dynamics this suggests that we lack understanding of one or more fundamental properties of market exchange this article provides an agent based model of the walrasian economy an agentbased model is a computer simulation of the repeated play of a game in which a large number of agents are endowed with software encoded strategies governing both how they play the game and how they gather information and update their behaviour the disequilibrium behaviour of agents in our agent based models is governed by a replicator dynamic taylor and jonker 1978 in which over time successful agents tend in darwinian fashion to increase in frequency at the expense of unsuccessful agents we describe the process of shifting from lower to higher payoff strategies as imitation

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

a model of electoral competition with incomplete information a model of two candidate electoral competition is developed in which voters are uncertain about the policy either candidate would implement if elected candidates simultaneously announce policy positions from which voters attempt to infer the true positions the candidates would adopt announcing a position different from the true position is costly to the winning candidate with these costs increasing as the difference between the true policy and the announced policy increases a refinement of the sequential equilibrium concept is used to describe the behavior of candidates and voters

market distortions and government transparency in this paper we investigate how government transparency depends on economic distortions we first consider an abstract class of economies in which a benevolent policy maker is privately informed about the exogenous state of the economy and contemplates whether to release this information our key result is that distortions limit communication even if transparency is ex ante pareto superior to opaqueness it cannot constitute an equilibrium when distortions are sufficiently high we next confirm this broad insight in two applied contexts in which monopoly power and income taxes are the specific sources of distortions jel d82 e61

sugar rush prospects for a global ethanol market in 2005 the major economies of the world including the g8 and 5 developing nations mexico india brazil china and south africa along with the united nations the international energy agency and the european union launched the global bioenergy partnership to discuss ways to promote the sustained use and production of biofuels around the globe reflecting growing concerns for finding economically viable substitutes for petroleum this paper examines whether and if a vibrant global market in biofuels based on sugarcane based ethanol is economically feasible the paper finds that while there is already international trading in biofuels it is highly limited compared with its potential in the current climate of accelerating fossil fuel prices biofuels represent an increasingly attractive displacement for some of our fossil fuel addiction not only do they substitute for petrol but they also produce lower emissions the paper finds that sugarcane ethanol could make an important contribution to substituting for a portion of petroleum and also offer potential benefits for international development

global instability in experimental general equilibrium the scarf example scarf 1960 proposed a market environment and a model of dynamic adjustment in which the standard tatonnement price adjustment process orbits around rather than converges to the competitive equilibrium hirota 1981 characterized the price paths by the configuration of endowments we explore the predictions of scarf s model in a nontatonnement experimental double auction we find that the average transaction prices in each period do follow the path predicted by the scarf and hirota models when the model predicts prices will converge to the competitive equilibrium our data converge when the model predicts prices will orbit our data orbit the equilibrium and in the direction predicted by the model moreover we observe a weak tendency for prices within a period to follow the path predicted by the model

production trade prices exchange rates and equilibration in large experimental economies we study market equilibration in laboratory economies that are larger and more complex than any that have been studied experimentally to date complexity is derived from the fact that the economies are international in economic structure with multiple input output and foreign exchange markets in operation the economies have twenty one markets and due to the fact that they have roughly fifty agents the economies are characterized by several hundred equations in spite of the complexity and interdependence of the economy the results demonstrate the substantial power of the general equilibrium model of perfect competition to predict the direction of movement of market level variables empirical patterns in the convergence process are explored and described

price dynamics in general equilibrium experiments general equilibrium ge theory faces several related challenges classical theories of out of equilibrium adjustment are intuitive but implausibly centralized further standard restrictions on individual preferences place little structure on aggregate excess demand functions amongst other issues this fact implies that economies can be unstable under classical dynamics and thus instability appears to be an unavoidable feature of ge theory this paper recounts laboratory studies of ge environments which reveal that classical theories of dynamics do in fact organize market activity surprisingly well these experiments suggest that the walrasian auctioneer for example appears to be a constructive abstraction and that instability should be accommodated within theory rather than circumscribed laboratory applications of ge theory focused on issues beyond stability and dynamics are also briefly surveyed

the strategy of manipulating conflict two decision makers choose hawkish or dovish actions in a con ict game with incomplete information the decision making can be manipulated by extremists who send publicly observed cheaptalk messages the power of extremists depends on the nature of the underlying con ict game if actions are strategic complements a hawkish extremist provocateur can increase the likelihood of con ict by sending messages which trigger a fear spiral of hawkish actions this reduces the welfare of both decision makers if actions are strategic substitutes a dovish extremist paci st can send messages which cause one decision maker to back down and become more dovish this reduces his welfare but bene ts the other decision maker the hawkish extremist is unable to manipulate the decision makers if actions are strategic substitutes and the paci st is equally powerless if actions are strategic complements

information incentives and organizational mode we examine the choice of organizational mode for a two stage production process wherein cost realizations at each stage are observed only by the producing party when these costs are positively correlated the principal prefers to undertake second stage production herself when the correlation is negative and sufficiently small she will prefer that the agent who performs the first stage also perform the second for large negative correlation either mode might be preferred when costs are uncorrelated the principal is indifferent between modes

money or friends social identity and deception in networks abstract strategic communication occurs in virtually all committee decision environments theory suggests that small differences in monetary incentives between committee members can leave deception a strategically optimal decision crawford and sobel 1982 galeotti et al 2013 at the same time in natural environments social incentives can also play an important role in determining the way people share or withhold truthful information unfortunately little is known about how monetary and social incentives interact to determine truth telling we investigate this issue by first building a novel model and then testing its equilibrium predictions using laboratory data in the absence of social identity the model s predictions are supported there is more truthful communication between those who share monetary incentives than those who do not we find that the effect of identity is asymmetric sharing the same identity does not promote truth telling but holding different identities reduces truthfulness overall as compared to environments lacking social identity committees with both monetary and social incentives exhibit truthful communication substantially less frequently

being efficiently fickle a dynamic theory of organizational choice a central proposition in organization theory is that discrete organizational forms are matched to environmental conditions market strategies or exchange conditions this paper develops a contrary theoretical proposition we argue that efficiency may dictate modulating between discrete governance modes i e structural modulation in response to a stable set of exchange conditions if governance choices are discrete as much of organization theory argues then the consequent steady state functionality delivered by these organizational forms is itself discrete however if the desired functionality lies in between the steady state functionality delivered by two discrete choices then efficiency gains may be available by modulating between modes we develop an analytical model of structural modulation and examine factors that influence when modulation is ef ficiency enhancing as well as the optimal rate of modulation we conclude that under certain conditions structural modulation is efficiency enhancing further contrary to theories that highlight the potentially destructive consequences of inertia on organizational survival we identify important efficiencyyielding benefits of inertia

the principles of exchange rate determination in an international finance experiment this paper reports the first experiments designed to explore the behavior of economies with prominent features of international finance two countries each with its own currency were created international trade could take place only through the operation of markets for currency the law of one price and the flow of funds theory of exchange rate determination were used to produce general equilibrium models that captured much of the behavior of the economies prices of goods as well as the exchange rate evolve over time toward the predictions of the models however both the law of one price and purchasing power parity can be rejected for reasons that do not appear in the literature patterns of international trade were as predicted by the law of comparative advantage

price controls non price quality competition and the nonexistence of competitive equilibrium we investigate how price ceilings and floors affect outcomes in continuous time double auction markets with discrete goods and multiple qualities when price controls exist the existence of competitive equilibria is no longer guaranteed hence we investigate the nature of non price competition and how markets might evolve in its presence we develop a quality competition model based on matching theory equilibria of the quality competition model always exist in such price constrained markets moreover they naturally correspond to competitive equilibria when competitive equilibria exist additionally we characterize the set of equilibria of the quality competition model in the presence of price restrictions in a series of experiments we find that market outcomes closely conform to the predictions of the model in particular price controls induce non price competition between agents both in theory and in the experimental environment market behaviors result in allocations close to the predictions of the model

persuasive puffery sellers often make claims about product strengths without providing evidence even though such claims are mere puffery we show that they can be credible because talking up any one strength comes at the implicit trade off of not talking up another potential strength puffery pulls in some buyers who value product attributes that are talked up or emphasized while pushing away other buyers who infer that the attributes they value are relative weaknesses when the initial probability of making a sale is low there are more potential buyers to pull in than to push away so puffery is persuasive overall this persuasiveness requires that buyers have some privacy about their preferences so that the seller does not completely pander to them more generally the results show how comparative cheap talk by an expert to a decision maker can be credible and persuasive in standard discrete choice models used throughout marketing economics and other disciplines

can the government talk cheap communication announcements and cheap talk a great deal of attention has recently been focused on communication in economic contexts while some models of credible announcements have been based on reputational forces or penalties imposed by third parties as in sobel 21 and cothren 4 several recent papers have addressed the possibility of communication through cheap talk that is talk in situations with no explicit penalties for deception perhaps the most prominent application of cheap talk in the literature is the recent model of federal reserve announcements by stein 22 this paper will show that cheap talk equilibria of the sort modeled by stein and others often depend in a fundamental way on implausible discontinuities in public responses to government announcements that is cheap talk equilibria are frequently only possible if certain infinitesimally small changes in government announcements are capable of causing large discontinuous changes in public expectations and behavior intuitively if public expectations are a continuous function of government announcements then the government can fine tune these expectations the government will therefore often be tempted to deviate from the cheap talk equilibrium announcements in order to manipulate expectations this causes the equilibrium to unravel discontinuous public reactions sometimes prevent these equilibria from unraveling because they convert continuous choice problems which allow manipulative fine tuning into discrete choice problems where such fine tuning is impossible these discontinuities are implausible however and this may often rule out cheap talk as a realistic model of governmental policy announcements 2

markets as information gathering tools the academic literature wall street commentary and even daily news reporting reflect a belief that markets can anticipate events the current movements in the stock market are interpreted as reflecting the likelihood that the federal reserve system will change interest rates futures markets are interpreted as reflecting the best estimates of things to come movements in individual stock prices are thought to anticipate earnings reports or the probability of a merger or buyout if we want to know about future weather in the south we should study the orange juice futures the academic journals are filled with the concept of rational expectations in which current prices are supposed to reflect the sum of all knowledge in the system prices according to this theory are a statistic that indicates the aggregation of information about underlying states of the economy those who are outsiders to the information in the system become insiders by simply observing the economic activity