theory and behavior of multiple unit discriminative auctions this paper reports the results of controlled experiments designed to test the harrisraviv generalization of the vickrey theory of bidding in multiple unit discriminative auctions the paper also discusses further development of the theory in a way suggested by the experimental results to include bidders with distinct risk preferences in a well known paper vickrey 20 formulated a nash equilibrium model of bidding by risk neutral economic agents in single unit auctions this analysis was subsequently extended in numerous papers vickrey 21 generalized his original model to include multiple unit auctions in which each of n risk neutral bidders can bid on one out of a total of q homogeneous items up for auction where 1 c q n in both of the vickrey papers individual values for the auctioned object s were assumed to be drawn from a uniform distribution holt 12 and riley and samuelson 19 for single unit auctions and harris and raviv 11 for multiple unit auctions have extended the vickrey model to the case in which valuations are from a general distribution function and all agents have identical concave utility functions this paper reports the empirical properties of individual bidding behavior and seller revenue for a group of 28 laboratory experiments designed to test the harris raviv generalization of the vickrey hereafter vhr model of nash equilibrium behavior in multiple unit discriminative auctions in section i we summarize briefly the theoretical results of the vhr model which form the basis for the hypotheses that we test section ii describes the experimental design that we use section iii describes the experimental results and various tests based on the bidding behavior of individual subjects and on aggregate market seller revenue data the results from six of the ten n q parameter designs reported

auctions with resale when private values are uncertain evidence from the lab and field abstract auction theory represents one of the richest areas of research in economics over the past three decades yet whether and to what extent the introduction of secondary resale markets influences bidding behavior in sealed bid first price auctions remains under researched this study begins by examining field data from a unique data set that includes nearly 3000 auctions over 10 000 individual bids for cutting rights of standing timber in british columbia from 1996 to 2000 in comparing bidding patterns across agents who are likely to have resale opportunities with those who likely do not we find evidence that is consistent with theory critical evaluation of the reduced form bidding model however reveals that sharp tests of the theoretical predictions are not possible because several other differences may exist across these bidder types we therefore use a laboratory experiment to examine if the resale opportunity by itself can have the predicted theoretical effect we find that while it does have the predicted effect a theoretical model based on risk averse bidders explains the overall data patterns more accurately than a model based on risk neutral bidders beyond testing theory the paper highlights the inferential power of combining naturally occurring data with laboratory data

individual behavior and bidding heterogeneity in sealed bid auctions where the number of bidders is unknown i introduction most of the work in sealed bid auction theory and related experimental work has focused on the case in which the number of bidders is known this is of course not always the case in naturally occurring environments for instance construction firms submitting bids in a sealed bid procurement auction may not know exactly how many other firms have completed the costly process of preparing and submitting a bid until bidding has closed there is a body of theory to address environments with an unknown number of bidders mcafee and mcmillan 1987 matthews 1987 harstad kagel and levin 1990 krishna 2002 1 the purpose of this article is to provide theoretical considerations and analysis of a large data set of individual bids from laboratory sealed bid auction markets in which buyers have some information about the number of rivals but not certainty 2 according to the received theory the availability of information about the number of rivals as expected directly affects bidding and therefore seller revenue in first price fp auctions but should not affect bidding in the second price sp auctions although bidding own valuation is optimal in sp auctions regardless of the number of bidders the majority of previous experimental work on auctions with known number of bidders has shown systematic deviation kagel 1995 while a few studies report coincidence with theory see isaac and james 2000b for an extended discussion earlier work on fp auctions with known number of bidders indicated systematic overbidding compared to risk neutral equilibrium risk aversion has been suggested as one of the possible explanations for observed overbidding cox roberson and smith 1982 dyer kagel and levin 1989 is the only previous experimental study looking at individual bidding in auctions where the number of bidders is unknown and their design is different from this study they look at fp auctions with restricted auction size of either six or three participants and ask subjects to submit three bids two bids for contingent bidding procedure and one bid for noncontingent bidding procedure subjects submit all three bids simultaneously and do not know at the time which procedure will be used they find overbidding in this environment compared to risk neutral nash equilibrium although we test for deviation from risk neutral bidding strategy in a more general setting our study also addresses a broader set of questions previous studies of open bid ascending silent auctions suggested that there may have been revenue loss to the sellers by bidders guarding their higher valued items that is remaining physically proximate to the bidding stations isaac and schnier 2005 the possibility that guarding was at the root of the revenue reductions was investigated by isaac and schnier 2006 who replaced the open bid ascending silent auctions with both fp and sp sealed bid auctions which is the environment studied in this article their paper reported on the aggregate revenue effects of the switch to sealed bid auctions but did not look at individual behavior it is clear that such analysis of individual bidding behavior must be informed by theories of bidding with an unknown number of rivals because such is the reality facing bidders in a multiple sealed bid silent auction context in addition data from a noncomputerized experiment closely approximating field auctions allows the analysis of possible behavioral adjustments in the field for example the attempt to guard the item and count the number of bidders such an analysis is presented in this article 3 our analysis of fp auctions contributes to the discussion about the causes of heterogeneous deviation of individual bidding from risk neutral theory cox roberson and smith 1982 and cox smith and walker 1988 reported heterogeneous bidding above risk neutral equilibrium in fp auctions for mechanisms with fixed number of bidders and palfrey and pevnitskaya 2008 for auctions with endogenous entry where the number of bidders was known at the time of submitting a bid

empirical evidence on competitive bidding some surprising results abstract this paper compares the assumptions and predictions of common values auction theory with ocs leasing data we find that the general assumption of continuous bid density functions is not supported by the empirical evidence this leads us to suggest several lines for future theoretical experimental and empirical research

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

first price sealed bid auctions when bidders exhibit different attitudes toward risk abstract when bidders have different risk aversion levels we determine in a first price auction the asymmetric equilibrium strategies we analyze the impact of asymmetric risk aversion levels on bidders markups and on the expected revenue and allocative efficiency of the auction

legislative organization and pollution taxation the role of political institutions in shaping public policy has been analyzed in isolation from corruption and legislative organization specifically bicameralism has received minimal attention we analyze pollution taxation when decisions are influenced by several veto players such as legislative chambers our theory predicts that an increase in the number of veto players e g moving from uni to bi cameralism pushes the pollution tax towards the social optimum with the effect being conditional on corruption as such dispersion around the optimal tax is lower under bicameralism empirical tests using data from 86 countries support the theory

the price quantity sealed bid offer auction with pro rata rationing experimental evidence this study examines a price quantity sealed bid offer auction with pro rata rationing in risky and riskless settings an asset with a known distribution of possible values is traded in the risky setting results include prices and quantities less consistent with the competitive equilibrium than with other nash equilibria frequent overrevelation of quantities a 0 73 correlation between inferred and induced risk coefficients lower forgone profits for the nonrationed side of the market and relatively low efficiencies the riskless setting in which asset values are known exhibits many of the same characteristics but to a lesser degree coauthors are ann martin david senkow and galen sevcik copyright 1993 by royal economic society

separation of powers and political accountability political constitutions are incomplete contracts and therefore leave room for abuse of power in democracies elections are the primary mechanism for disciplining public officials but they are not sufficient separation of powers between executive and legislative bodies also helps to prevent the abuse of power but only with appropriate checks and balances checks and balances work by creating a conflict of interest between the executive and the legislature yet requiring both bodies to agree on public policy in this way the two bodies discipline each other to the voters advantage under appropriate checks and balances separation of powers also helps the voters elicit information

a comprehensive analysis of expenditure decentralization and of the composition of local public spending sacchi a and salotti s a comprehensive analysis of expenditure decentralization and of the composition of local public spending regional studies many industrialized countries have recently implemented fiscal decentralization reforms assigning more spending responsibility to sub national governments this paper investigates the causes of the decentralization of different categories of public expenditure in 19 developed countries over the period 1980 2006 different models for each of the spending functions under analysis are estimated adopting a general to specific empirical approach results confirm existing findings on the negative link between regional income disparities and expenditure decentralization a similarly negative relationship is found for a set of demographic variables leading to the conclusion that macroeconomic and more importantly political factors are responsible for the recent increase in decentralization finally the analysis is completed by a study of the factors driving sub n

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

on the efficiency of equilibria in a legislative bargaining model with particularistic and collective goods this study analyzes the efficiency of equilibria in a multilateral bargaining game in which a legislature divides its budget among collective and particularistic goods in order to disentangle the causes of inefficiency we extend the model of volden and wiseman am polit sci rev 101 79 92 2007 by considering quasi linear utility functions and consensus requirements ranging from simple majority to unanimity although unanimous agreements can be reached under weaker consensus requirements we show that pareto inefficiency is associated with non unanimous consent we also study how i the endogenous selection of the legislature s size or ii a sequential choice of collective and particularistic spending eliminates or attenuates the inefficiency problem

government growth in the twenty first century public choice explanations of government growth fall into three main categories budget maximization theories rational choice models and path dependent models like the ratchet hypothesis the strengths and weaknesses of these theories as explanations for government growth are considered along with some facts about the actual growth of government to conjecture about its trajectory in the twenty first century government size seems to have been constrained in the past primarily by its ability to raise revenue growth rates in the new century thus appear to depend on factors constraining government s ability to continue to expand the tax base

comparative study of one bid versus two bid auctions abstract the paper focuses on a comparative investigation of the standard one bid first price auction and a corresponding two bid auction where each buyer may place two bids a high bid and a low one and the winner pays his low bid if this was higher than all other bids we characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues for the symmetric case we show that subjects in an experiment prefer the two bid over the one bid auction when given the possibility of choosing between the two and compare the observed behavior to the theoretical predictions

effectiveness of electoral systems for reducing government corruption a game theoretic analysis abstract a theoretical model is developed for predicting the relative effectiveness of different electoral systems for reducing government corruption we consider voting games in which parties with known corruption levels and known positions on a major policy question compete for legislative seats we find that approval voting and proportional representation are fully effective in the sense that all equilibria exclude corrupt parties from legislative seats plurality voting is partly effective in the sense that there always exist some equilibria that exclude corrupt parties borda voting is ineffective because for some political situations no equilibria can guarantee the exclusion of corrupt parties journal of economic literature classification number d72

mixed markets and crime abstract this paper specifies and solves a two stage game theoretic model of a mixed market for crime control in the first stage of the model private targets and the government choose levels of policing in the second stage criminals choose targets and the severity of the crimes that they commit the paper s key results are as follows first private policing can both divert crime to targets that lack private protection and also increase the severity of the crime that these less protected targets suffer second an increase in private policing reduces the aggregate expenditure on traditional policing this is an instance of a political incentive externality where private policing affects the objective function of the government specifically it reduces the level of traditional policing that is consistent with the samuelson condition for efficient provision of a public good third the substitution of private for public policing carries with it a change in the technology of policing in effect private policing leads to a shift from enforcement and punishment towards monitoring and target hardening this in turn may lead to an increase in the severity of crime fourth the mixed policing equilibrium is inefficient and in some situations mixing may reduce the utility of all targets

help wanted economists crime and public policy beginning with gary w becker s 1968 article on crime and punishment economists have contributed important theoretical insights and empirical findings to the study of criminal behavior but the influence of economists on crime relevant research and over policy debates remains negligible this essay summarizes some basic data on the causes of crime the social costs and benefits of incarceration and replenishing social capital work on crime by economists should become influential in setting research agendas and shaping policy debates but economists will have to roll up their sleeves complexify their models and confront a real world prisoner s dilemma or two

selection into auctions for risky and ambiguous prospects we study experimentally the selection into first price sealed bid auctions for a risky or an ambiguous prospect most subjects chose to submit a bid for the risky prospect leading to thinner markets for the ambiguous prospect transaction prices for both prospects were equal although subjects expected the ambiguous markets to be smaller evidence of a positive correlation between risk and ambiguity aversion suggests that the ambiguous markets were populated by relatively risk tolerant bidders a control experiment with selection in a simple choice task shows that subjects correctly anticipate the effects of selection on market size and risk attitudes jel c91 d44 d81

towards micropolitical foundations of public finance abstract observed fiscal policy reflects the incentives embedded in political institutions in this paper we illustrate the effects of two general institutional features separation of powers which is common in presidential congressional political systems and legislative cohesion which is typical of parliamentary systems compared to a simple legislative game separation of powers brings about a smaller size of government and lower waste legislative cohesion induces a more equal distribution but more waste and higher taxes than separation of powers

english auctions with resale an experimental study i design and test a simple english auction and two english auctions with resale but with different informational backgrounds all three treatments theoretically have the same equilibrium i find however that the possibility of resale alters behavior significantly in the two treatments with resale subjects deviated from both the nash prediction and the common results about bidding behavior in english auctions subjects tend to overbid when they are certain they can reap the whole surplus in the resale market i employ different models like qre and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants that is as rational decision making when anticipating others to make errors when the outcome of the resale market is not certain there is significant signaling behavior and auction prices tend to be lower than the nash prediction

risk aversion and overbidding in first price sealed bid auctions new experimental evidence bidding above the risk neutral nash equilibrium in first price sealed bid auctions has traditionally been ascribed to risk aversion later studies however offer other explanations and even argue that risk aversion plays no or a minor role in a novel experimental design we directly test the relationship between risk aversion and overbidding by systematically varying the distribution of risk attitudes in auction markets we find a significant relationship between our measure of risk aversion and overbidding jel d44 c91

supplying trade reform political institutions and liberalization in middle income presidential democracies correcting the relative lack of attention to the supply side of trade policy this article addresses how political institutions channel societal demands for protection i hypothesize that strong presidents with significant legislative powers and strong party leaders empowered through electoral rules that rein in the personal vote can help overcome protectionist biases these arguments compare with two institutional alternatives first that protectionism should decrease as electoral district size grows because elections become more proportional and second that the collective action problems in fragmented party systems thwart trade reform i evaluate these hypotheses empirically using pooled time series cross sectional data involving 18 developing countries from 1971 to 1997 i find that delegation to presidents and party leaders is significantly related to trade liberalization and some evidence suggests that the effective number of parties and the size of electoral districts may also influence levels of protectionism

electoral rules and environmental policy abstract this paper investigates the effect of electoral rules on environmental policymaking using several estimators from the program evaluation literature we find that governments set stricter environmental policies under proportional as opposed to majoritarian systems

learning to bid an experimental study of bid function adjustments in auctions and fair division games we examine learning behaviour in auction and fair division experiments with independent private values under two different price rules first and second price participants play all four games repeatedly and submit complete bid functions rather than single bids this allows us to study how institutional changes are anticipated and whether learning is influenced by the structural differences between games we find that learning does not drive bidding towards the benchmark solution bid functions are adjusted globally rather than locally directional learning theory offers a partial explanation for bid changes the data support a cognitive approach to learning

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

an experimental study of precautionary bidding auctions often involve goods exhibiting a common knowledge ex post risk in such auctions precautionary bidding predicts that under expected utility dara bidders reduce their bids by more than the appropriate risk premium because the degree of riskiness of an auctioned good and bidders levels of risk aversion are difficult to observe in field settings we conduct experimental auctions that allow us to identify the precautionary premium directly we find strong evidence for precautionary bidding the effect is robust to changes in experimental design features our experiment provides the first empirical demonstration of precautionary motives in a strategic setting

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

theoretical comparisons of electoral systems abstract elements of an economic theory of political institutions are introduced a variety of electoral systems are reviewed cox s threshold is shown to measure incentives for diversity and specialization of candidates positions when the number of serious candidates is given duverger s law and its generalizations are discussed to predict the number of serious candidates duverger s law is interpreted as a statement about electoral barriers to entry and this idea is linked to the question of the effectiveness of democratic competition as a deterrent to political corruption the impact of post electoral bargaining on party structure in presidential and parliamentary systems is discussed

political parties and the size of government in multiparty legislatures examining cross country and panel data evidence this article tests the effect of an increase in the number of represented political parties and the size of the majority party on the size of government proxied by central government expenditure as a percentage of gdp in multiparty legislatures the author argues that an increase in the number of represented parties leads to higher central government expenditure conversely as the size of the majority party grows from a bare minimum majority to above the supermajority level it has a nonlinear specifically cube effect on central government expenditure panel data on central government expenditure from 110 countries are used to test these arguments the results corroborate the theoretical claims and are robust in regression models where fixed effects were introduced and endogeneity was corrected finally an increase in the number of represented parties leads to higher government spending on subsidies and transfers but to lower spending on public goods

inducing risk neutral preferences with binary lotteries a reconsideration abstract we evaluate the binary lottery procedure for inducing risk neutral behavior we strip the experimental implementation down to bare bones taking care to avoid any potentially confounding assumptions about behavior having to be made in particular our evaluation does not rely on the assumed validity of any strategic equilibrium behavior or even the customary independence axiom we show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes and that the binary lottery procedure does indeed induce a statistically significant shift toward risk neutrality this striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment

aid effectiveness and the politics of personalism this article examines how political institutions that provide an incentive to cultivate a personal vote condition the relationship between foreign aid and economic growth in developing country democracies politicians in aid recipient countries with high levels of personalism are more likely to pursue corruption and target government spending to narrow constituencies because personalism affects these outcomes it provides incentives to use foreign aid for politically motivated spending at the expense of investing foreign aid in growth promoting public goods using panel data from 61 aid recipient democracies from 1961 to 2001 the author finds that aid increases growth in democracies with less personalist institutions but decreases growth in countries with high personalism the author also shows that personalism conditions the relationship between aid and the composition of government spending aid increases spending on public goods relative to narrow particularistic goods in countries with low person

how the electoral college influences campaigns and policy the probability of being florida this paper analyzes how us presidential candidates should allocate resources across states to maximize the probability of winning the election by developing and estimating a probabilistic voting model of political competition under the electoral college system actual campaigns act in close agreement with the model there is a 0 9 correlation between equilibrium and actual presidential campaign visits across states both in 2000 and 2004 the paper shows how presidential candidate attention is affected by the states number of electoral votes forecasted state election outcomes and forecast uncertainty it also analyzes the effects of a direct national popular vote for president

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

individual protection against property crime decomposing the effects of protection observability we re examine the efficiency of observable and unobservable crime protection decisions with new results and insights observable protection is unambiguously associated with a negative externality at the individual level it reduces the crime effort but its unit payoff remains unchanged conversely unobservable protection reduces the unit payoff and has no effect on the crime effort exerted though it deters crime globally a decrease in the global crime payoff is detrimental to a victim if protection is observable while it is beneficial when unobservable while observable protection has a positive diversion effect it has the opposite effect when unobservable on reexamine l efficacite des decisions observables et non observables de protection par rapport au crime et on en tire de nouveaux resultats et de nouvelles perspectives la protection observable est associee a une externalite negative sans aucune ambiguite au niveau individuel elle reduit l effort de crime mais laisse les resultats financiers inchanges d autre part la protection non observable reduit les resultats financiers de l unite mais n a aucun effet sur l effort de crime dans ce cas particulier meme si cela se traduit par un effet dissuasif sur le crime globalement un declin dans le rendement global de l activite criminelle nuit a une victime si la protection est observable alors qu il est benefique quand la protection n est pas observable alors que la protection observable a un effet positif de diversion elle a l effet oppose quand elle n est pas observable

the cost of intraparty competition the single nontransferable vote and money politics in japan many scholars have argued that money politics in japan has been driven in part by the imperatives of intraparty competition under the single nontransferable vote sntv system used for lower house

gated communities and the economic geography of crime abstract this paper analyzes gated communities in a geographic model of crime there are four major results first gating always diverts crime to other communities but has an overall deterrent effect on crime as long as it does not impact legitimate employment opportunities second gating expenditures may be strategic substitutes or strategic complements the latter possibility may help explain why gated communities appear to spread like a contagion third the nash equilibrium level of gating expenditures is inefficiently large fourth gating may actually increase the overall level of crime if it either affects employment opportunities or it influences the selection among multiple equilibrium crime rates

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

econometrics of first price auctions in this paper we propose an estimation method for the empirical study of theoretical auction models we focus on first price sealed bid and descending auctions and we adopt the private value paradigm where each bidder is assumed to have a different private value only known to him for the object that is auctioned following mcfadden 1989 and pakes and pollard 1989 our proposed method is based on simulations specifically the method relies on a simulated nonlinear least squares objective function appropriately adjusted so as to obtain consistent estimates of the parameters of interest we illustrate the proposed method by studying a market of agricultural products where descending auctions are used our analysis takes into account heterogeneity of the auctioned objects and the fact that only the winning bid is observed we estimate the parameters that characterize the distribution of the unobserved private values for each auctioned object

the impact of competition on management quality evidence from public hospitals in this paper we examine the causal impact of competition on management quality we analyze the hospital sector where geographic proximity is a key determinant of competition and english public hospitals where political competition can be used to construct instrumental variables for market structure since almost all major english hospitals are government run closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment we find that management quality measured using a new survey tool is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions ami more importantly we find that higher competition as indicated by a greater number of neighboring hospitals is positively correlated with increased management quality and this relationship strengthens when we instrument the number of local hospitals with local political competition adding another rival hospital increases the index of management quality by one third of a standard deviation and leads to a 10 7 reduction in heart attack mortality rates

volunteering to be taxed business improvement districts and the extra governmental provision of public safety abstract when the median voter s preference sets the level of local public goods some voters are left unsatisfied is there an institution by which subsets of voters can resolve the collective action problem and increase the local provision of public goods if so what are the consequences in response to problems such as crime and vandalism neighborhood property owners have established business improvement districts bids to provide local public goods when a bid is approved by a majority of property owners in a neighborhood state law makes contributions to the bid budget mandatory this resolution of the neighborhood s collective action problem reduces crime bids in the city of los angeles are robustly associated with crime declines of 6 to 10 indeed crime falls regardless of estimation technique fixed effects comparing bids to neighborhoods that considered but did not adopt bids using propensity score matching and comparing bids to their neighbors strikingly these declines are purchased cheaply attributing all bid expenditure to violent crime reduction and thus ignoring the impact of bid expenditure on many quality of life crimes bids spend 21 000 to avert one violent crime this higher bound estimate is substantially lower than the 57 000 social cost of a violent crime

the social efficiency of private decisions to enforce property rights costs must be incurred if an owner is to enforce private property rights effectively we show that in a perfectly competitive economy private decisions to enforce rights may result in either more or less enforcement than is socially efficient cases of multiple stable equilibria occur and an equilibrium may be locally but not globally efficient resources may not be employed in their socially most valuable uses and enforcement may be accompanied by inefficient investment in resource productivity

environmental policy in majoritarian systems abstract this paper sheds new light on the determination of environmental tax policies in majoritarian federal electoral systems such as the u s and derives implications for the environmental federalism debate on whether the national or local government should have authority over environmental taxes in the absence of majority bias the socially preferred policy would be federal district level taxation which accounts both for cross boundary pollution and differences in industry concentration across districts in majoritarian systems however where the legislature consists of geographically distinct electoral districts the majority party at the national or state level favors home districts depending on the location of polluting industries and the associated damages the majority party may therefore impose sub optimally high or low pollution taxes due to a majority bias majority bias can influence the social welfare ranking of alternative environmental tax policies in some cases majority bias may make decentralized or federal uniform taxation the preferred solution

differentiating mixed member electoral systems mixed member majoritarian and mixed member proportional systems and government expenditures the increasing use of mixed member electoral systems has led to an explosion of research attempting to specify their effects yet there has been no work on the economic policy effects of such systems even though this has been a significant subject of debate for scholars analyzing other electoral systems an analysis of mixed member system policy effects is problematic given the wide variation in institutional rules among different systems this article attempts to determine whether the institutional differences between mixed member majoritarian mmm and mixed member proportional mmp systems lead to differences in policy outputs the political economy literature finds that government expenditures are positively correlated with electoral system proportionality our statistical analysis of government expenditures in 17 mixed member systems between 1990 and 2000 shows that mmp systems which are more proportional than mmm systems are correlated with higher levels of government spending thus the mmm mmp

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

auctions with anticipated emotions overbidding underbidding and optimal reserve prices the experimental literature has documented that there is overbidding in second price auctions regardless of the valuations of bidders in contrast in first price auctions there tends to be overbidding for large valuations but underbidding for small valuations we show that the experimental evidence can be rationalized by a simple extension of the standard auction model where bidders anticipate constant positive or negative emotions caused by the mere fact of winning or losing even if the emotional dis utilities are very small the revenue maximizing reserve price r might be significantly different from the standard model moreover r decreases with the number of bidders

theory and misbehavior in first price auctions comment in his recent paper in this review glenn harrison 1989 argues that the conclusions of james cox et al 1982 1983 1985 1988 in their studies of first price private value auctions are not well supported because of shortcomings in the way their experimental investigations were designed analyzed and reported harrison argues that the expected cost of deviations from risk neutral nash equilibrium rnne bidding in these auctions was quite small less than 0 05 at the median so that in terms of expected monetary payoffs payoff space many subjects had little to lose from deviating from the rnne strategy harrison suggests that the significance of the differences cox vernon smith and james walker hereafter csw report between subjects bids and the rnne bids deviations in the message space may therefore need to be reexamined in discussing harrison versus csw we have three primary points to make first in arguing that it is more natural to evaluate subject behavior in expected payoff space harrison 1989 p 749 we think harrison has overstated his case however we agree with his more important point that looking at the cost of deviations is a useful diagnostic tool for determining when experimenters are likely to have lost control over subjects incentives further as we will show in section i this part of harrison s critique applies with special force to csw s studies of bidding second a broader examination of the results of private value auction experiments indicates that risk aversion cannot be the only factor and may well not be the most important factor behind bidding above the rnne found so often in first price privatevalue auctions the most telling evidence here is bidding above the dominant bid price found in second price auctions kagel et al 1987 kagel and levin 1990 and the risk loving found under several treatment conditions in csw s 1984 own multipleunit discriminative auctions auctions in which the high bidders pay their bid price these and other data inconsistent with risk averse bidding are largely ignored in csw 1988 but are nevertheless relevant to the substantive issue of risk aversion in private value auctions they are discussed in section ii third there are data gathered in other investigations which provide strong support for the view that the deviations from rnne bidding reported in first price auctions are not the results of the low expected cost of such deviations however these data unlike the higher stakes payoff data that csw offer in response to harrison are not consistent with csw s subsidiary conclusions that the data can be well accounted for by a narrow class of risk aversion parameters for the bidders together with the assumption that all agents are playing a nash equilibrium of the resulting game of incomplete information a key difference between these experiments and csw s is that if subjects do not respond to csw s treatment condition increasing the payoffs from experimental to u s dollars their behavior will be consistent with csw s theory in contrast department of economics university of pittsburgh pittsburgh pa 15260 we thank jack ochs and emilie roth for thoughtful discussions on earlier drafts of the paper jim cox and glenn harrison for helpful comments on the initial draft of the paper susan garvin for research assistance and ray battalio carl kogut and don meyer for providing us with access to their data research support was provided by the information science and technology and economics divisions of the national science foundation the alfred p sloan foundation and the russell sage foundation the usual caveat applies with special force iwe do not respond to specific comments that csw 1992 make in response to our comment as in order to avoid indefinite regress the ground rules for this debate required us to comment on csw s criticism of harrison after which they would be given the opportunity to respond to our comment

contingent deficit sanctions and moral hazard with a stability pact abstract we show how a stability pact based on deficit sanctions eliminates the exacerbation of debt accumulation that may arise from monetary unification moreover with sanctions contingent on the observed state of the economy the pact avoids aggravating the situation of a country in recession moral hazard problems arise if the state also depends on unobservable politically costly fiscal effort this could explain why sanctions under the actual stability and growth pact are only automatically waived in extreme recessions and why the procedure linking observed deficits and sanctions involves a long and detailed assessment of a country s situation

electoral competition and agricultural support in oecd countries agricultural trade protectionism in developed countries remains a politically charged issue yet few studies have attempted to explain the political dynamics behind this important trade issue we consider agricultural subsidies as a type of distributive policy that targets the agricultural sector at the expense of consumers and taxpayers based on cox 1987 1990 and myerson 1993 we argue that electoral systems that encourage politicians to appeal to a narrow constituency tend to have a higher level of agricultural support we test this theoretical hypothesis using oecd agricultural support data disaggregated by commodity and country a cross classified multilevel model is employed to account for complex variation of agricultural support across countries commodities and time our empirical results show that electoral systems that encourage politicians to target narrow broad constituencies are associated with relatively high low levels of agricultural subsidies

individual behavior of first price auctions the importance of information feedback in computerized experimental markets abstract this article reports the results of an individual choice experiment designed to test the nash equilibrium predictions of the first price sealed bid auction a subject faced in 100 auctions always the same resale value and competed with computer simulated bids the design used between subjects variation and involved information feedback as the treatment variable earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral nash equilibrium our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments which after each auction reveals the winning bid only by means of learning direction theory we explain the individual bidding dynamics in our experiment finally we apply impulse balance theory and make long run predictions of individual bidding behavior

corruption and the composition of government expenditure abstract this paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure corruption is found to reduce government spending on education in a cross section of countries

experimental development of sealed bid auction theory calibrating controls for risk aversion we offer a brief survey of bidding theory in high price auctions of experimental studies of behavior in such auctions and of the interplay between the design and results of the experiments and efforts to further develop the theory two new series of experiments are reported the first applies a convex transformation of payoffs in an attempt to induce a lowering of subject bids as if the bidders had become less risk averse the second applies a method for inducing any prespecified utility function for risky choices on an individual we use it to induce as if risk neutral behavior both series use baseline control to calibrate the hypothesized effect of the procedures on riskaverse behavior

opportunity cost inattention and the bidder s curse abstract auction winners sometimes suffer a bidder s curse paying more for an item at auction than the fixed price charged for an identical item by other sellers this seemingly irrational behavior is puzzling because the information necessary to avoid overpaying would appear to be readily available to bidders yet they seem to ignore it to understand this behavior we consider the bidders decisions whether to acquire information about the fixed price before bidding in the presence of opportunity costs our theory introduces costly information acquisition into an auction model with a fixed price aftermarket selling an identical good when information about the fixed price is costly bidders sometimes remain rationally ignorant and overbid in the auction generating the bidder s curse to assess the empirical validity of our proposed explanation we study the model s predictions in an experiment where subjects have an opportunity cost of looking up a fixed price and bid in an auction we find that information acquisition decreases and overbidding increases with opportunity cost as predicted most observed lookup behavior is rationalizable and rational ignorance reliably generates the bidder s curse

redistributive politics with distortionary taxation abstract this paper proposes a first step towards a positive theory of tax instruments we present a model of redistributive politics that extends those of myerson r myerson incentives to cultivate minorities under alternative electoral systems amer polit sci rev 87 1993 856 869 and lizzeri and persico a lizzeri n persico the provision of public goods under alternative electoral incentives amer econ rev 91 2001 225 239 two politicians compete in terms of targeted redistributive promises financed through distortionary taxes we solve for the case of both targetable and non targetable taxes we prove that there is an imperfect efficiency targetability trade off on the tax side politicians prefer targetable taxes over non targetable ones especially when the latter are less efficient yet targetable taxation is always used even when it is very inefficient compared to non targetable taxes

centripetal and centrifugal incentives in electoral systems this paper investigates how electoral laws affect the position taking incentives of parties and candidates it seeks to extend the finding presented in the classical median voter theorem to a wide class of electoral systems or to show the limits of such extension the factors examined are the district magnitude the electoral formula the number of votes each voter is allowed to cast whether voters can cumulate their votes and whether voters can partially abstain i suggest a crude division of electoral systems into those producing predominantly centripetal incentives and those producing predominantly centrifugal incentives among the factors found to produce centripetal incentives at least in noncumulative systems are the following increases in the number of votes per voter outlawry of partial abstention and decreases in the district magnitude in systems allowing the cumulation of votes matters are a bit different

fiscal implications of immigration a net present value calculation focusing on the net fiscal effects the gain from admitting immigrants is computed for a welfare state with large expenditures and a large tax burden sweden prices and behavior are held constant which allows a detailed analysis of the effects of immigration the present value of future tax revenues minus outlays is potentially large usd 23 500 per young working age immigrant but an average new immigrant represents a net government loss of usd 20 500 the dominant factors are employment rates and age for young working age immigrants the break even participation rate for which the gain would be zero is 60 well below the empirical rate for this group

resolving uncertainty about the number of bidders in independent private value auctions an experimental analysis results from first price sealed bid auctions in which there is uncertainty regarding the number of bidders are reported consistent with recent theoretical findings concealing information regarding the number of bidders raises more revenue for the seller than revealing information individual bids show that 1 narrowly interpreted the nash equilibrium bidding theory underlying these theoretical predictions is rejected as less than 50 of all bids satisfy the strict inequality requirements of the theory but 2 a majority of the deviations from these inequality requirements favor the revenue raising predictions of the nash model and in a large number of cases involve marginal violations of the theory

political selection under alternative electoral rules we study the patterns of political selection in majoritarian versus proportional systems political parties face a trade off in choosing the mix of high and low quality candidates high quality candidates are valuable to voters and thus help to win elections but they crowd out loyal candidates who are most preferred by the parties under proportional representation politicians selection depends on the share of swing voters in the entire electorate in majoritarian elections it depends also on the distribution of competitive versus safe single member districts we show that a majoritarian system with only a few competitive districts is less capable of selecting good politicians than a proportional system as the share of competitive districts increases the majoritarian system becomes more efficient than the proportional system however for a large enough share of competitive districts a non monotonic relation arises the marginal positive effect of adding high quality politicians on the probability of winning the election is reduced and highly competitive majoritarian systems become less efficient than proportional ones in selecting good politicians

the spite motive in third price auctions a spiteful agent losing an auction experiences negative emotions towards the winner in line with previous experimental findings i show that the symmetric equilibrium bid of a spiteful agent in third price auctions is higher than the risk neural nash equilibrium bid furthermore it can be shown that spiteful agents bid the same way agents would who anticipate to regret their decision in equilibrium

city level analysis of the effect of political regimes on public good provision this paper uses u s city level data on five public expenditure categories to test empirically whether the form of local government affects the amount of public good provision this also serves as an empirical test of a theory of national politics that predicts higher provision of public good in parliamentary than in presidential regimes the robust results indicate that at the city level the mayor council form of government provides significantly more public good than the council manager form of government for two of the public expenditure categories and at the national level presidential regimes provide more public good than do parliamentary regimes

openness government size and the terms of trade this paper investigates the relationship between trade openness and the size ofngovernments both theoretically and empirically we argue that openness can increase the size of governments through two channels 1 a terms of trade externality whereby trade lowers the domestic cost of taxation and 2 the demand for insurance whereby trade raises risk and public transfers we provide a unified framework for studying and testing these two mechanisms our main theoretical prediction is that the relative strength of the two explanations depends on a key parameter namely the elasticity of substitution between domestic and foreign goods moreover while the first mechanism is inefficient from the standpoint of world welfare the second is instead optimal in the empirical part of the paper we provide new evidence on the positive association between openness and government size and we explore its determinants consistently with the terms of trade externality channel we show that the correlation is contingent on a low elasticity of substitution between domestic and foreign goods our findings raise warnings that globalization may have led to inefficiently large governments

the size and composition of government expenditure abstract this paper tests several leading hypotheses on determinants of government expenditure the purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification to identify persistent puzzles for the current set of theories and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude using government financial statistics data from the imf covering over 100 countries from 1970 2000 i look at cross sectional and inter temporal variation in government expenditure and both individual categories of expenditure such as defense education health care and different levels of government central and local among other results i find a new explanation for wagner s law widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk and evidence that both political access and income inequality affect the extent of social insurance

policy experimentation political competition and heterogeneous beliefs abstract we consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally but faces competition from a political opponent in the future both parties care about voters payoffs but they have different beliefs about how policy choices will map into future economic outcomes we show that when the incumbent party can endogenously influence whether learning occurs through its policy choices policy experimentation future political competition gives it a new incentive to distort its policies it manipulates them so as to reduce uncertainty and disagreement in the future thus avoiding facing competitive elections with an opponent very different from itself the model thus demonstrates that all incumbents can find it optimal to over experiment relative to a counterfactual in which they are sure to be in power in both periods we thus identify an incentive for strategic policy manipulation that does not depend on parties having conflicting objectives but rather stems from their differing beliefs about the consequences of their actions

electoral systems and income inequality abstract the goal of this paper is to determine if electoral systems and inequality are linked using high quality data lis database and simple panel methods we show that when the degree of proportionality of a system increases inequality decreases

political cycles in a developing economy effect of elections in indian states the author studies the effect of state legislative assembly elections on the policies of state governments in 14 major states of india from 1960 to 1996 she identifies the effect of the timing of elections using an instrument for the electoral cycle that distinguishes between constitutionally scheduled elections and midterm polls she contrasts two levers of policy manipulation fiscal policy and public service delivery to distinguish between alternative models of political cycles the predictions of three models are tested 1 populist cycles to woo uninformed and myopic voters 2 signaling models with asymmetric information 3 a moral hazard model with high discounting by political agents the empirical results for fiscal policy show that election years have a negative effect on some commodity taxes a positive effect on investment spending but no effect on deficits primarily because consumption spending is reduced with regard to public service delivery elections have a positive and large effect on road construction by state public works departments strikingly the fiscal effects are much smaller than the effect on roads the author argues that the pattern of evidence is inconsistent with the predictions of models of voter myopia and asymmetric information she explores an alternative moral hazard model in which the cycle is generated by high political discounting and career concerns persuade politicians to exert greater effort in election years on the management of public works

private law enforcement fine sharing and tax collection theory and historical evidence abstract this paper contributes to the literature on private law enforcement by proposing a novel solution to the problem of underenforcement by monopolistic enforcers monopolistic enforcers underinvest in enforcement because they ignore the social benefits of deterrence we show that this problem can be partially resolved by combining law enforcement with tax collection because a joint enforcer collector will have an interest in reducing the crime rate in order to maximize his tax income in support of the theory we discuss two historical examples of this practice decentralized law enforcement under european feudalism and centralized law enforcement in the ottoman empire

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

between decisiveness and credibility transforming the securities industry in singapore and thailand abstract this article suggests a political party centred explanation of economic policy reforms that differs significantly from the standard theoretical models that emphasise social coalitions government systems regime types or electoral cycles the explanatory approach advanced here focuses on inter party and intra party organisational dimensions within an integrated analytical framework as the major determinants of both the decisiveness of policy reforms and the credibility of such reforms a comparative analysis of government efforts to transform the securities industry in singapore and thailand provides preliminary evidence with which to explore the proposed causal linkage between the patterns of stock market reforms and the changing configurations of political parties

star shaped probability weighting functions and overbidding in first price auctions there is a debate about whether risk aversion is the main source of overbidding in a first price independent private values auction as an alternative we adopt a non expected utility framework and identify an interpretable property on the probability weighting function which always induces overbidding

the political economy of fiscal deficits a survey this paper surveys recent literature both theoretical and empirical regarding political explanations for fiscal deficits political economy suggests conflicts of interest may lie behind the emergence of deficits 1 opportunistic politicians generate deficits to win elections even in conflict with general welfare 2 conflicts of interests between politicians partisan preferences create incentives for at least some incumbents to run deficits and 3 conflicts of interest between different social groups or regions generate tensions in the allocation of government resources leading to overspending this paper reviews these different strands of the literature it also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes promising avenues for future research are highlighted

equilibrium selection and bounded rationality in symmetric normal form games abstract we develop and test a model of initial play for symmetric normal form games with multiple nash equilibria first we specify an encompassing model that incorporates both equilibrium selection principles and boundedly rational behavioral models we then design experimental games that can identify a variety of equilibrium selection principles model comparisons and hypothesis tests indicate that 1 boundedly rational behavior is prevalent in initial period play 2 homogeneous population models can be strongly rejected in favor of heterogeneous population models and 3 deductive selection principles add no statistically significant contribution to explaining the data

the effect of a gated community on property and beach amenity valuation we examine how location in a gated community affects the value of a single family home and the valuation of a beach using data on 2 358 sales on barrier islands near charleston south carolina the empirical results indicate that homeowners pay a premium of 18 6 for a property in a gated community the value of location near a beach is greater in gated than nongated communities