nonmonetary effects of financial crises abstract this paper empirically examines the nonmonetary effects of financial crises it exploits the special nature of the great depression in canada to test propositions linking financial structure and aggregate economic activity canada s large domestic debt and shrinking banking system had little impact on the course of the depression in comparison with results for the united states this implicates bank failures as a prime factor in the real effects of financial crises

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

fiat money as a store of value in an experimental market abstract the time path of the value of fiat money is studied in an experimental market in this market players can achieve pareto superior allocations by trading goods for money at fixed nominal prices however the finite horizon makes the value of money unstable as players learn not to hold money near the horizon we investigate the value of money in stationary replications of the model where subjects trade off the increased value of money as a medium of exchange against the chances of holding worthless money as the role of money as a store of value deteriorates

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

branch banking bank competition and financial stability it is often argued that branching stabilizes banking systems by facilitating diversification of bank portfolios however previous empirical research on the great depression offers mixed support for this view using data on national banks from the 1920s and 1930s we show that branch banking raises the level of competition and increases exit from the banking system this consolidation strengthens the system as a whole without necessarily strengthening the branch banks themselves our empirical results suggest that the effects that branching had on competition were quantitatively more important than geographical diversification for bank stability in the 1920s and 1930s

convergence to nonstationary competitive equilibria an experimental analysis abstract this paper reports the results of 26 posted offer and double auction markets examining the effect of systematic supply and or demand nonstationarities on market performance and dynamic adjustment paths to the competitive equilibria both the trading institution and the source of the nonstationarity are found to affect the ability of markets to track the competitive equilibrium although some posted offer markets track the competitive equilibrium price as well as comparable double auctions posted offer markets consistently exhibit lower efficiency the inability of the posted offer trading institution to track demand based market shocks is particularly striking

the effects of market practices in oligopolistic markets an experimental examination of the ethyl case this study reports on the performance of experimental markets characterized by industrial structure and practices similar to those at issue in the ethyl case the central question is whether price competition is affected by the practices of advanced notification of price changes and most favored nation contracts or is determined by industrial organization and concentration alone

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

the political economy of u s wheat legislation bruce a babcock colin a carter and andrew schmitz both taxpayer subsidies to u s wheat producers and domestic deadweight losses increased as a result of the u s wheat program adopted in 1985 a calculation of the costs and benefits of alternative wheat policies shows that mandatory production controls with no taxpayer expense could have made wheat producers as well off as the adopted policy becker s theory of competition among interest groups and peltzman s theory of the equilibrium amount of regulation are shown to be consistent with the observed policy choice if the list of affected interest groups includes agricultural input suppliers and grain marketing firms i introduction every five years congress drafts new farm legislation dictating the provisions of commodity programs for cotton and the major food and feed grains for the subsequent five years from 1973 through 1985 the primary features of the commodity programs were guaranteed farm prices and government stockholding activities deadweight losses from the programs during this time were minimal market prices were generally higher than the government defended price floors because of a booming export market legislated increases in commodity support prices combined with a severe drop off in the demand for agricultural exports beginning in 1982 increased the economic costs of the commodity programs the u s price floor became the world price for wheat cotton and corn grain stocks accumulated while government payments to u s farmers grew to unprecedented levels most agricultural interest groups in 1984 agreed that an overhaul of agricultural policy was necessary supporters of large levels of production and exports wanted to stimulate the demand for exports by eliminating price floors others felt that the united states should reduce budgetary costs by using direct supply controls to raise farm prices the clear winners in the new 1985 farm bill were the proponents of maintained production levels and expanded exports the new policy froze the relatively high supply prices received by farmers while simultaneously lowering price floors becker 1983 argues that two forces mainly determine the outcome of policy debates the first following stigler 1971 and peltzman 1976 is the relative efficiency with which interest groups exert political pressure interest groups that are efficient in exerting political pressure can increase the subsidization or decrease the tax burden of their constituents the second force is the extent of deadweight losses associated with proposed policies those policies with lower deadweight losses are ceteris paribus more likely to be adopted for the simple reason that less tax needs to be collected from losing interest groups for given transfers to winning groups gardner 1987 finds empirical evidence that both the ability to redistribute efficiently and the effectiveness of political organizations help explain which farm commodities have received the most government support since 1930 his study provides little insight however into which force is more important in determining the type of redistribution policies that are ultimately adopted for a given commodity an examination of the wheat program adopted in the 1985 farm bill and alternative policies that were rejected provides an opportunity to determine whether the efficiency of programs or the political prowess of interest groups is more important in determining policy outcomes this task requires a calculation of the magnitudes and the distribution of costs and benefits of the chosen policy and alternative policies costs and benefits are calculated for 1 a continuation of the 1981 farm bill policies through 1986 1990 2 the adopted 1985 farm bill policies and 3 mandatory production controls all three alternatives are examined relative to a laissez faire policy whereby the u s government has no direct involvement in agriculture

experimental economics comment in two important studies charles plott 1982 and vernon smith 1982 assess the current state of the literature about laboratory experiments in economics as a profession we are becoming aware that experimental methods can be applied to our models with cautious but growing confidence that these procedures can help us evaluate alternative theories these are significant developments whose potential ramifications are only beginning to be explored given the importance of laboratory testing i would like to discuss a key feature of past experiments one that has not been fully appreciated because of its central role in standard economic theory in particular these experiments depend on inducing agents to respond according to a prespecified value structure this usually amounts to starting with a known and fully determinate set of demand and supply value schedules for all transacting agents smith for example specifies four major principles about how preferences are to be experimentally induced nonsatiation saliency dominance and privacy see pp 931 35

long run neutrality high inflation and bank insolvencies in argentina and brazil abstract using long low frequency data on money and output over 1884 1996 for argentina and over 1912 1995 for brazil it is found that money is long run neutral but not long run superneutral with regard to real output a rise in money growth is associated with a decline in output the opposite of the tobin effect the introduction of dummy variables for 1930s or to capture recent periods of financial disruption associated with bank insolvencies does not restore long run superneutrality for either country however results indicate that bank insolvency episodes have a distinct and negative influence on output

consequences of discretion in the formation of commodities policy abstract in a simple model of endogenous primary commodity price support policy i policy is affected by private inventories and ii private inventories are affected by speculative attempts to forecast policy the interaction between these two forces is rich yielding bubbles and extrinsic volatility thus helping to explain some odd episodes observed in commodity markets in addition under some conditions a government that wishes to support the price but is unable to commit to future action may be impotent and a government that does not want to support the price may be trapped into doing so by speculative activity

the effects of commodity price stabilization programs in this paper the authors analyze the effects of commodity programs in which the government attempts to support and stabilize price through open market purchases and sales specifically they as sess the effects of such programs on the u s soybean market using a rational expectations model that allows for private storage expected price responsive production and arbitrary support and release price s a salient feature of the model is that private storage and product ion behavior adjusts to changes in government policy stochastic simu lations of the market model demonstrate that price stabilization prog rams can reduce long run market price and destabilize producer revenu e copyright 1988 by american economic association

digital options and efficiency in experimental asset markets abstract in asset markets extraordinary price run ups bubbles followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy leading to inefficient resource allocation and underinvestment conversely derivative markets contribute to price discovery and lead to informationally more efficient prices in the market for the underlying asset we combine these observations and test experimentally whether digital options a type of derivative that has recently been introduced to a wider audience via online prediction markets can reduce price bubbles in a laboratory setting we find that subjects do not use the derivative market to improve their expectations of future asset prices and analyze this result

advance production in posted offer markets abstract data from market sessions in which production is to demand are compared with data from sessions requiring that output decisions be made and production costs incurred prior to the start of trading in each period no inventory carry over is permitted differences in aggregate output measures such as average contact price sales and market efficiency tend to disappear as traders gain experience in an unchanging environment however the addtional risk introduced by the sunk cost aspect of advance production appears to offset any advantage regarding sellers share of the surplus conferred by the power to post prices

funding advantage and market discipline in the canadian banking sector we employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks funding advantage in canada and on the extent to which market discipline exists across different securities issued by the canadian banks

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

causes of u s farm commodity programs this paper i s an attempt to explain variations by commodity in producer protection afforded by farm price support programs since the1930s particularly emphasized are theideas that these programs are essentially income redistributional measures and that given political forces the programs are attempts to redistribute efficiently variables associated with the cost to producers of generating political pressure and the social cost deadweight losses of redistribution are both found to be empirically important copyright 1987 by university of chicago press

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

stability in the absence of deposit insurance the canadian banking system 1890 1966 the canadian banking system experienced a prolonged period of stability prior to the introduction of deposit insurance in 1967 documenting the reasons for this stability provides important evidence in the debate over the impact of mandatory flat rate deposit insurance in this paper we use new archival data to refute recent claims that this stability resulted from an implicit deposit insurance scheme managed by canada s largest banks and guaranteed by the federal government we argue that the canadian banking system was stable for two reasons first the absence of deposit insurance provided incentives for both prudence on the part of management and monitoring by depositors and regulators second the absence of unit banking and other regulatory barriers to competition facilitated efficient mergers which produced a relatively small number of well managed banks copyright 1995 by ohio state university press

output decisions and price matching theory and experiment we study the effects of price matching in a setting in which each firm selects both its price and output simultaneously we show that the availability of a price matching option leads to the cournot outcome in this setting our experimental study confirms this result in the laboratory our finding is a stark contrast to the one obtained in the standard price competition that the most likely market price in the presence of a price matching option is the monopolistic price in addition we show that price matching benefits consumers in markets with a large number of firms if a market has a few firms then the effects of price matching on consumers depend on the market demand and cost functions thus our study suggests that the effect of price matching depends on the strategic variables of the firms data and the online appendix are available at https doi org 10 1287 mnsc 2017 2788 this paper was accepted by eric anderson marketing

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

advance production inventories and market power an experimental investigation i introduction bertrand edgeworth games are an important part of any industrial organization economist s toolkit the unilateral market power created by capacity constraints represents one of economists primary methods for modeling supra competitive prices as a static equilibrium outcome in a price setting game 1 the standard bertrand edgeworth model however rather restrictively assumes that production is to demand and that goods are immediately perishable in the broad swath of modern economies that includes the production and sale of physical products these assumptions are often not even approximately satisfied goods are routinely produced prior to being offered for sale at retail establishments similarly while the effective shelf life of many products is quite short relatively few products perish immediately and many have effective shelf lives that extend throughout a sales season if not longer this paper reports a laboratory experiment conducted to assess the effects of having sellers make production decisions in advance rather than to demand and allowing sellers to carry unsold units across periods on market power in a bertrand edgeworth pricing game by way of preview we find that both advance production and an inventory option prominently affect market outcomes advance production reduces profits relative to a baseline condition while an inventory option reduces both prices and profits these results are important as they suggest that deviations from the standard oligopoly structures that routinely arise in natural contexts may fundamentally affect market performance we organize the paper as follows following a brief review of the pertinent literature in section ii we outline equilibrium predictions for baseline advance production and inventory treatments in section iii section iv describes the experimental design and procedures and section v presents the experimental results the paper concludes with a short section vi ii background a theoretical literature economists have long recognized the restrictiveness of the standard price setting oligopoly models shubik 1955 for example argues that when evaluating price setting duopolies economists should consider price quantity games where sellers simultaneously post prices and quantities in addition to games where price is the only decision variable 2 levitan and shubik 1978 compute the mixed strategy equilibrium for a duopoly given advance production and unlimited capacities more recently tasnadi 2004 analyzes the case of advance production for capacity constrained duopolists pertinent to the present investigation tasnadi shows that under very general conditions advance production raises prices but leaves seller profits unaffected the only theoretical work that analyzes the links between product durability and market prices of which we are aware is a stream of literature following coase 1972 regarding the effects of product durability on monopoly power specifically given sufficiently patient consumers the coase conjecture suggests that infinite durability will eliminate monopoly power analytical results are driven by consumers who drive prices down by waiting for future discounts 3 to the best of our knowledge no one has analyzed the effects of product durability on production and pricing incentives for capacity constrained price setting duopolists b experimental literature the relevant experimental literature consists of three strands a first strand consists of a series of papers establishing that laboratory sellers recognize and exercise the unilateral market power induced by capacity constraints pertinent seminal references are davis and holt 1994 and kruse et al 1994 while some relevant related papers include davis holt and villamil 2002 davis and wilson 2000 and wilson 1998 a second strand of the experimental literature studies the effects of advance production on posted price markets

the role of liquidity and implicit guarantees in the german twin crisis of 1931 abstract using monthly balance sheet data of all major german credit banks we analyze deposit withdrawals and bank failures in the german banking and currency crisis of 1931 we find that deposit withdrawals were driven by the run on the currency but were also related to banks liquidity positions that branch banks were no more stable than unit banks and that large banks were privileged being bailed out and receiving preferential access to the discount window these findings underline the importance of liquidity and implicit guarantees in twin crises

advance production in experimental markets the effects of advance production in posted offer and double auction markets are investigated previously observed differences between these institutions in mean contract prices and in the distribution of producers and consumers surpluses under the production to demand condition disappear when sellers make output decisions and incur production costs prior to the start of trading the double auction institution remains more efficient under advance production the results suggest that the differential effects of alternative trading institutions on market outcomes may be partially offset by the production conditions characterizing a market

commodity agreements and commodity markets lessons from tin in what follows we study the history of the tin market over the period i982 5 important questions this exercise will help to answer are was the collapse of the tin market a failure of the buffer stock operation and was it inevitable was the activity of the buffer stock a commodity market manipulation was there a deficiency in the drafting of the tin agreement was there a failure of commodity market regulation more generally while it has long been recognised that stabilisation schemes are vulnerable to speculative attacks the interconection between buffer stock managements and futures markets has not been explored in this sense our historical analysis will

the informational efficiency of experimental asset markets a fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders without a consensus as to reasonable empirical specifications tests of the hypotheses remain minimal or controversial in this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders we focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information our experimental results support four conclusions 1 market outcomes tend to evolve toward strong form informationally efficient equilibria whether or not futures markets and or event uncertainty are present 2 the presence of futures markets clearly stabilizes spot prices 3 the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there

stock market quality in the presence of a traded option we use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option we find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated the time series properties of the stock price depend directly on the intrinsic value of the option when the intrinsic value of the option is positive informational efficiency is higher in the market for the stock and volatility is lower we provide evidence that the introduction of an option improves market quality in the underlying asset

the theory of rational bubbles in stock prices free disposal of equity which directly rules out the existence of negative rational bubbles in stock pric es also imposes theoretical restrictions on the possible existence o f positive rational bubbles the analysis in this paper shows that a positive rational bubble can start only on the first date of trading of a stock thus the existence of a rational bubble at any date woul d imply that the stock has been overvalued relative to market fundame ntals since the first date of trading and that prior to the first da te of trading the issuer of the stock and potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued copyright 1988 by royal economic society

wealth and risk effects of adopting deposit insurance in canada evidence of risk shifting by banks and trust companies this paper confirms that adopting explicit deposit insurance expanded risk shifting incentives for canadian banks and trust companies by transferring responsibility for monitoring non systematic risk to the canadian deposit insurance corporation cdic deposit insurance eliminated the compensation previously paid to large block stockholder monitors this transfer fueled a redistribution of insured institution stock from poorly diversified large block shareholders to diversified investors also subsequent changes in market volatility support the hypothesis that cdic insurance and the absorption of catastrophic risk it provided reduced systematic risk in the stock market as a whole even as it increased non systematic risk in the banking and trust company sector

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

efficient redistribution through commodity markets efficiency in redistribution is measured in terms of deadweight loss generated per dollar of economic surplus transferred between consumers and producers of a commodity by means of market intervention the implications of supply and demand elasticities for efficiency in redistribution are examined with special attention to the comparison of production control and deficiency payment programs the results may be used to aid in the evaluation of commodity programs and as a basis for consideration of the hypothesis that observed policies are efficient given the political power of interest groups

rules and discretion in trade policy abstract we argue that the second best nature of trade policy suggests that the issue of time consistency will be an important consideration in determining the extent and efficacy of such intervention if production decisions are made prior to consumption decisions governments with sufficient policy discretion will be tempted to surprise producers with policies other than those announced in an effort to separate the consumption tax aspect from the production subsidy dimension of a tariff this leads optimal trade policy to be time inconsistent in a wide range of environments we explore this idea and illustrate the results with specific examples

the vulnerability of price stabilization schemes to speculative attack this paper examines the effects of government attempts to stabilize the prices of commodities by use of buffer stocks agricultural goods subject to supply uncertainty as well as depletable resources are considered in each case it is shown that the resulting rational expectations competitive equilibrium contains a speculative attack a situation where the entire government stock is suddenly purchased by previously inactive speculators the analysis is applied to the historical attempt to peg the gold price which caused the attack of 1968 the insights gained and the methodology developed also apply to the various international agreements to impose bans on commodity prices which have been proposed by the united nations conference on trade and development

disadvantageous oil tariffs and dynamic consistency a large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs and may find itself worse off than if it were unable to impose tariffs at all futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency copyright 1990 by american economic association

forecasting dynamics and convergence to market fundamentals evidence from experimental asset markets abstract subjects trade shares of a fictitious asset in a computerized double auction market and submit one period ahead forecasts of the mean contract price on average the predictions of the rational expectations hypothesis are not supported and forecasts tend to be both biased and inconsistent with the specification of the process which would generate prices in a rational expectations equilibrium nevertheless an empirical analysis of agents forecasting dynamics indicates that learning does occur and that agents forecasts evolve in a direction consistent with a rational expectations equilibrium

futures contracting and dividend uncertainty in experimental asset markets prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset s useful life explanations for this phenomenon are 1 that participants cannot form reliable future price expectations or 2 dividend risk aversion we report the results of experiments to test these hypotheses in one experimental series a futures market is introduced so that participants can obtain information on future share prices in another series of experiments the per period dividend is known with certainty the futures market treatment reduced the bubble the certain dividend treatment had little effect on the character of bubbles with inexperienced traders copyright 1995 by university of chicago press

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

production in advance versus production to order abstract we use a theoretical framework to compare production in advance type and production to order type environments carrying out our analysis in the framework of a symmetric capacity constrained bertrand edgeworth duopoly game we prove that the equilibrium profits are the same in case of production in advance and production to order in addition advance production results in higher prices than production to order if both games have an equilibrium in nondegenerated mixed strategies

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

a simple testable model of double auction markets abstract we propose a model of price formation in double auction markets which employs the strong simplifying assumption that agents neglect strategic feedback effects and regard themselves as playing a game against nature agents otherwise are strict expected utility maximizers employing bayesian updating procedures we prove the optimality of simple aggressive reservation price strategies in our general model and propose a parametric form that yields very detailed and computable predictions of market behavior

anti hoarding laws a stock condemnation reconsidered economists have regarded anti hoarding laws as irrational reactions to nonexistent monopoly in the storage of grain this paper shows that anti hoarding laws cannot be rationally directed against a monopolistic storer for he will always store less not more than would be stored under competition but seemingly perverse competitive storage in the form of excessive stockholding can arise when a price ceiling distorts the market additional public storage exacerbates this perverse private behavior and may even induce behavior that appears to be active market manipulation under such circumstances anti hoarding laws can be desirable second best measures

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

the evolution of cooperation in infinitely repeated games experimental evidence 1 for example in infinitely repeated prisoner s dilemma games with patient agents both cooperate and defect may be played in equilibrium even though the theory of infinitely repeated games has been used to explain cooperation in a variety of environments no definitive solution has been provided to the problem of equilibrium selection when both cooperation and defection are possible equilibrium outcomes which one should we expect to prevail previous experimental evidence has shown that subjects often fail to coordinate on a specific equilibrium when they play a small number of infinitely repeated games some subjects attempt to establish cooperative agreements while others defect but how would behavior evolve as subjects learn from previous repeated games would cooperation prevail when it can be supported in equilibrium or will subjects learn

futures markets cognitive ability and mispricing in experimental asset markets we study the effect of a futures market in which contracts maturing in the last period of the life of the asset can be traded our experiment has two treatments one in which a spot market operates on its own and a second treatment in which a spot and a futures market are active simultaneously futures markets lower spot prices but increase price volatility the futures markets themselves exhibit considerable overpricing individuals with higher cognitive reflection test crt scores achieve greater earnings and tend to sell in the overpriced futures market while traders with lower crt scores make purchases in the futures market greater average crt score among a group of traders is associated with better price discovery when no futures market is present but there is no such relationship in the presence of a futures market modified measures of crt which take into account different types of incorrect responses are introduced

international commodity agreements design and performance abstract this article traces the design and performance of the five currently or recently active international commodity agreements icas in cocoa coffee natural rubber sugar and tin following detailed discussion of each of these the author makes three observations that icas can only be successful provided that they command a consensus in their industries that existing agreements are not robust enough with regard to exchange rates and that existing agreements are poorly drafted the author argues that the collapse of the tin agreement in october 1985 may have marked the end of the postwar chapter in the commodity intervention story he finds it improbable that new icas will emerge and suggests instead that more of the existing agreements will lapse

canadian banking solvency 1922 1940 the use of market value accounting to restate the year end balance sheets for canadian banks strongly suggests that only one surviving bank was economically solvent during the depression like u s s ls the authors alternative hypothesis argues that canadian banks continued to operate because of the canadian government s forebearance policy of providing an implicit 100 percent guarantee of bank deposits standing ready to lend to banks and encouraging early mergers of troubled and healthier banks unlike the stylized fact the role of national branching was to facilitate this policy by reducing the number of banks and lessening competition copyright 1993 by ohio state university press

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

prediction markets in the laboratory prediction markets are becoming an ever more popular method for aggregating disparate information companies use prediction markets to forecast sales release dates and other internal activities recently several well known economists have argued that government ought to eliminate impediments to unleashing the power of prediction markets broadly this survey paper looks at the laboratory experiments which provide part of the scientific justification for using prediction markets these systems work because people who have private knowledge can use this insider information in the market but doing so causes the price to reflect these data starting with early experiments that show markets can under certain circumstances aggregate information we discuss the robustness of prediction markets to various design features we also discuss places where performance does not match rhetoric and briefly look at experimental comparisons of alternative information aggregating institutions another issue consistently raised regarding the implementation of prediction markets is the degree to which traders can manipulate prices and thus the information gleaned by following a series of experiments on manipulation we present the circumstances that are and are not sufficient for manipulation attempts to be successful finally we offer suggestions on where we believe future experiments are needed in this area

speculative overpricing in asset markets with information flows in this paper we derive and experimentally test a theoretical model of speculation in multiperiod asset markets with public information flows the speculation arises from the traders heterogeneous posteriors as they make different inferences from sequences of public information this leads to overpricing in the sense that price exceeds the most optimistic belief about the real value of the asset we find evidence of speculative overpricing in both incomplete and complete markets where the information flow is a gradually revealed sequence of imperfect public signals about the state of the world we also find evidence of asymmetric price reaction to good news and bad news another feature of equilibrium price dynamics under our model markets with a relaxed short sale constraint exhibit less overpricing

the causes of free bank failures a detailed examination abstract in this paper we propose and test a new explanation of bank behavior during the free banking era 1837 1863 arguing against the conventional view that free bank failures were due to wildcat banking we claim they were caused by falling asset prices confronting both explanations with our new and detailed data set developed from state auditor reports we find that the falling asset price explanation of free bank failures explains far more failures than does the wildcatting hypothesis

tariffs as insurance optimal commercial policy when domestic markets are incomplete free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile ex post and markets for contingent claims are incomplete the government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti trade bias we also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context this abstract was borrowed from another version of this item