strategic behavior in contests comment almost by definition contests involve strategy this is especially true in contests between unevenly matched contenders in a recent article avinash dixit 1987 explored strategic commitment in contests between a favorite and an underdog the favorite is defined as the player whose chance of victory exceeds one half at the nash equilibrium an underdog s chance is less than one half dixit concludes that if the favorite has the opportunity to move first then he will overcommit effort compared with the nash equilibrium an important implication of the favorite overcommitting effort is that strategic behavior leads to greater social costs see gordon tullock 1980 the opposite holds if the underdog has the opportunity to move first this paper demonstrates that the favorite will never overcommit effort given endogenous order of moves the favorite finds it advantageous to wait until the underdog moves surprisingly the underdog s best strategy is not to wait but to make the first move throwing the first punch the equilibrium order of play is for the underdog to move before the favorite in this equilibrium one never observes overcommitment of effort consequently extending dixit s model to allow for endogenous order of moves suggests that strategic behavior in contests will lead to undercommitment compared with nash behavior

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

gathering information before signing a contract a screening perspective a principal has to choose among several agents to fulfill a task and then provide the right incentives to perform it agents do not a priori know how competent they are for the task it is shown that the principal should propose a contract that leads the agents to gather information about their competence prior to signing the contract this insight is in sharp contrast with cremer and khalil j cremer f khalil gathering information before signing a contract american economic review 82 1992 566 578 who consider a setup with one agent or alternatively a setup with several agents in which the private information commonly applies to all agents it emerges because in our private value setup information acquisition accompanied by a proper screening device increases the chance that the principal will pick a competent agent c 2006 elsevier b v all rights reserved

effort levels in contests with two asymmetric players a contest is a situation in which players compete with one another by expending effort to win a prize examples abound firms compete by spending rd 26 krueger 14 posner 20 rogerson 23 appelbaum and katz 1 hillman and riley 12 hirshleifer 13 ellingsen 8 nitzan 18 and baik 2 3 have studied rent seeking contests lazear and rosen 15 o keeffe viscusi and zeckhauser 19 and rosen 24 have examined performance incentives associated with reward schemes riley 22 has analyzed the war of attrition and auctions dixit 7 has considered strategic commitments in contests with different applications these are only a part of the literature on the theory of contests despite the vast literature however the effects of asymmetries between players have not been clarified except by harris and vickers 11 who analyze in a patent race model the strategic consequences of asymmetries the purpose of this paper is to examine the effects of asymmetries between two players on individual and total effort levels in a model with a logit form probability of winning function effort levels expended by the players deserve attention effort in a rent seeking contest is interpreted as social costs and thus total effort level is a measure of economic efficiency effort in an r d contest is interpreted as r d expenditures and thus effort levels determine the expected date of invention we focus on asymmetries between the players resulting from their different valuations of the prize their different abilities to convert effort into probability of winning or both such asymmetries are common in contests for example people in different locations may receive different

the effect of financial education training on the financial literacy of spanish students in pisa the aim of this paper is to analyze the effect of financial education training on spanish secondary students to do this we rely on data from pisa 2012 this included an assessment of students fi

linking savings behavior confidence and individual feedback a field experiment in ethiopia abstract in this paper we investigate behavioral constraints to savings among smallholder farmers in rural ethiopia increasing savings by overcoming such behavioral constraints has been documented to have positive effects on various outcomes such as health education and agricultural investments we causally identify a strong increase in savings to a soft commitment device in the form of a moneybox with a regular savings plan in our randomized field experiment we also provide personalized feedback consisting of recommendations to self set saving goals these recommendations trigger increases in savings of up to 36 percent in a detailed analysis of the behavioral characteristics driving these results we find a strong and robust link between financial confidence and savings behavior in particular the savings of underconfident individuals are less than 2 3 of the savings of overconfident individuals an association stronger than other behavioral traits such as risk lovingness and present biasedness remarkably the effect of our personalized feedback is particularly strong for underconfident individuals we discuss possible underlying mechanisms rule out a set of alternative behavioral explanations and address crowding out behavior into other forms of saving 1

caps on political lobbying the cost of political campaigns in the u s has risen substantially in recent years for example real spending on congressional election campaigns doubled between 1976 and 1992 steven d levitt 1995 there are many reasons why increased campaign spending might be socially harmful first increased spending means increased fund raising which may keep politicians from their legislative duties 1 second a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes on the shaping of legislation or on the outcome of regulatory proceedings 2 that is the socially preferred candidate or legislation may not prevail likewise a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator s intervention 3 third a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector a desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending beginning with the passage of the federal election campaign act feca political action committees pacs can contribute at most 5 000 per election to a candidate while individuals can contribute at most 1 000 restrictions have also been put on in kind contributions making it more difficult to circumvent these limits 4 while direct restrictions on campaign spending have proven difficult to implement recent initiatives aim to impose voluntary spending limits and stricter limits on contributions 5 despite the existing legislation and the proposals to limit contributions little is known about the impact of contribution limits on aggregate expenditures while it is intuitively appealing that aggregate expenditures would drop we challenge that intuition here we study a lobbying game and show that a cap on individual lobbyists expenditures may have the perverse effect of increasing aggregate expenditures and loweri this abstract was borrowed from another version of this item

can markets stimulate rights on the alienability of legal claims the alienability of legal claims holds the promise of increasing access to justice and fostering development of law i develop a principal agent framework where litigation funders provide expertise in reducing uncertainty in agents disutility of production the model leads to the counterintuitive prediction that litigation funders prefer cases with novel issues and social surplus is positively correlated with legal uncertainty consistent with the model court backlog court expenditures and a slowing in average time to completion are associated with third party funding cases with third party funding receive more citations and are reversed less often than comparable cases without such arrangements

financial literacy and participation in the derivatives markets we set out in this study to determine whether individuals with higher levels of financial literacy are more likely to be active participants in the derivatives markets our empirical results based upon an official national survey undertaken by the financial supervisory commission of taiwan reveal that even after controlling for stock market participation rates financial literacy represents a significant benefit to individuals since it helps them to lower the entry barriers to purchasing complex derivatives products we also find that household wealth gender residential location and diverse sources of information have significant effects on participation rates in the derivatives markets furthermore when taking into consideration issues of accessibility or measurement error the positive effects of financial literacy on derivatives market participation are found to remain largely unchanged

endogenous timing in contests with delegation i introduction contests with delegation where each player hires a delegate to expend effort or resources on the player s behalf to win a prize are common 1 an example is litigation between a plaintiff and a defendant in which each litigant hires an attorney who expends his effort to win the lawsuit on behalf of his client another example is a rent seeking contest in which each firm hires a lobbyist who expends his effort to acquire a monopoly or a procurement contract from the government on behalf of his client yet another example is a patent contest in which each firm hires a group of independent researchers or university professors who conduct research to obtain a patent on behalf of their employer delegation is attractive to players because they each can use superior ability by hiring a delegate with more ability than herself and achieve strategic commitments through delegation in such contests with delegation we believe delegates decide endogenously when to expend their effort after signing delegation contracts indeed pursuing their self interest the delegates may well endogenize the order of their moves and communicate it with each other before they expend their effort we believe also that players take it into account when designing their contracts for the delegates that the delegates will endogenize the order of their moves it is these ideas that motivate this paper accordingly the purpose of this paper is to systematically study contests with delegation in which delegates decide endogenously when to expend their effort after signing delegation contracts and before they expend their effort we study two player contests with delegation focusing on not only the equilibrium delegation contracts between players and their delegates but also the equilibrium orders of the delegates moves specifically we set up and analyze the following three stage game in the first stage two players each hire a delegate and they simultaneously announce their contracts written with their delegates each player s contract specifies how much her delegate will be paid if he wins the contest and how much if he loses it in the second stage each delegate decides when to expend his effort and the delegates announce their decisions simultaneously in the third stage the delegates expend their effort according to their decisions in the second stage to win the prize on behalf of their employers we show that in equilibrium the delegate hired by the higher valuation player chooses his effort level after observing his counterpart s and his expected payoff is greater than that of his counterpart this advantage of the delegate of the higher valuation player can be explained by the fact that his employer the higher valuation player offers better contingent compensation as it will be defined in section ii to him than the lower valuation player does to her delegate we compare the outcomes of the endogenous timing framework the three stage game presented above with those of the simultaneous move framework the game which is the same as the three stage game with the exception that the delegates choose their effort levels simultaneously and this order of their moves is given exogenously an interesting result is that each player offers her delegate a better contract in the endogenous timing framework than in the simultaneous move framework another interesting result is that unless the valuation for the prize of the higher valuation player is significantly greater than that of the lower valuation player then each delegate s expected payoff is greater in the endogenous timing framework than in the simultaneous move framework whereas each player s expected payoff is less in the endogenous timing framework than in the simultaneous move framework in summary pursuing their self interest the delegates decide endogenously when to expend their effort given contracts between the players and the delegates

two player asymmetric contests with ratio form contest success functions i examine players equilibrium effort levels in two player asymmetric contests with ratio form contest success functions i first characterize the nash equilibrium of the simultaneous move game i show that the equilibrium effort ratio is equal to the valuation ratio and that the prize dissipation ratios for the players are the same i also show that the prize dissipation ratio for each player is less than or equal to the minimum of the players probabilities of winning at the nash equilibrium and thus never exceeds a half then i examine how the equilibrium effort ratio the prize dissipation ratios and the players equilibrium effort levels respond when the players valuations for the prize or their abilities change jel d72 c72 i introduction a contest is a situation in which players compete with one another by expending irreversible effort to win a prize typical examples are various types of rent seeking contests competition among firms to win a monopoly rent secured under government protection or by a government procurement contract competition between domestic and foreign firms to obtain governmental trade policies favorable to them competition among firms to acquire a rent generated by rights of ownership to an import quota and competition among firms to capture rents created by governmental decisions to establish tariffs or other trade barriers other examples of contests include auctions patent races research and development r d competition among firms litigation competition for jobs among job candidates competition among candidates to win promotion to higher ranks election campaigns between political candidates and competition between local governments to invite business firms government institutions or government owned corporations into their districts naturally due to their prevalence and importance in economies such contests have been studied by many economists loury 1979 lee and wilde 1980 tullock 1980 rogerson 1982 rosen 1986 appelbaum and katz 1987 dixit 1987 hillman and riley 1989 hirshleifer 1989 ellingsen 1991 nitzan 1991 1994 krishna and morgan 1997 che and gale 1998 hurley and shogren 1998 and konrad 2000 to name a few in this vast literature on the theory of contests one of the main issues is how much effort do the players exert in pursuit of the prize indeed it is of great interest because the players effort levels determine the profitability of the players engaging in the contest and in some cases they are revenues collected by the contest organizer or bribes given to government officials furthermore they account for other important outcomes of the contest for example in a rent seeking contest efforts expended by the players are viewed as social costs due to rent seeking activities so that total effort level is a measure of economic efficiency in an r d contest effort levels expended by the players these are r d expenditures of the firms determine the expected date of invention this article also addresses the issue how much effort do the players exert in pursuit of the prize but it differs from previous research by dealing with contests with ratio form contest success functions 1 specifically the novelty of this article is to consider two player asymmetric contests in which each player s probability of winning is a function of the ratio of the two players effort levels two player contests with ratio form contest success functions or two player contests that can be best modeled with ratio form contest success functions are easily observed in the real world examples include various types of two player rent seeking contests litigation between a plaintiff and a defendant election campaigns between two parties or candidates and r d competition between two firms consider for example a rent seeking contest in which two firms potential monopolists compete with each other to win a government monopoly franchise contract

price and advertising as signals of quality when some consumers are informed abstract a monopoly produces a good of either high or low quality some consumers are informed about quality while others are uninformed and infer quality through the firm s marketing strategy the model is an extension of bagwell and riordan american economic review 81 1 1991 224 dissipative advertising combined with a high price is an efficient signal of quality when the marginal cost of production of high quality is low if the proportion of informed consumers is low quality is signaled only through a high price however if this proportion is intermediate quality is signaled by both advertising and price

valuation by conflict abstract nonmarket valuation remains a central issue in ecological and environmental economics this paper examines the properties of an ex post revealed preference approach to value nonmarket goods valuation through observed effort expended in an environmental conflict we consider the strategic interaction between players in a conflict address the implied nash equilibrium and report a benchmark 4x rule as an ex post valuation estimate for a symmetric player conflict we then illustrate the degree of bias that exists once one allows for asymmetries in delegation ability and valuation the benchmark tends to overestimate value if a firm hires a powerful delegate who receives a large contingency fee

financial illiteracy and mortgage refinancing decisions we analyze the effect of an exogenous shock to the italian mortgage market where a reform has abolished prepayment fees and simplified mortgage refinancing making it a virtually cost free decision for households this law along with the considerable drop in market interest rates has generated important gains for fixed rate borrowers which we quantify at up to 15 of the principal balance nevertheless only about 13 of borrowers have locked in this opportunity we study the relationship between this sluggish behavior and their level of financial literacy

delegation and threat in bargaining abstract two principals nations appoint one agent each to bargain over the provision of a public good two institutional set ups are studied each with a different level of authority given to the agents here authority means the right to decide the own side s provision if negotiations break down in equilibrium the principals choose agents with preferences differing from their own the low authority equilibrium pareto dominates with regard to the principals the case of the principals deciding on the provisions simultaneously autarchy the high authority equilibrium is pareto dominated by the low authority equilibrium and it may even be dominated by autarchy journal of economic literatureclassification numbers c71 and c72

oligopoly limit pricing we expand milgrom and roberts 1982 limit pricing model to allow for multiple incumbents each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent s preentry price we find that incumbents are unable to coordinate deception which results in a separating equilibrium in which preentry prices are not distorted further introducing the refinement of unprejudiced beliefs we show that the no distortion equilibrium is the only refined separating equilibrium plausible pooling equilibria fail to exist or involve downward distortions in preentry prices

share tenancy as strategic delegation abstract the paper develops a new explanation of sharecropping based on the idea of an incentive equilibrium it considers a set up in which a few landlords in a village confront the choice of cultivating their farms by adopting different tenurial arrangements ranging from owner operation through the fixed rental system to sharecropping these landlords are the only sources of employment in the village and compete in the wages they pay to their workers in such an environment sharecropping is explained as a form of strategic delegation where a landlord gets extra benefit by having a share tenant and giving him suitable incentives

legal fee restrictions moral hazard and attorney rents abstract when attorney effort is unobservable and certain other simplifying assumptions such as risk neutrality hold it is efficient for an attorney to purchase the rights to a client s legal claim however the american bar association model rules of professional conduct prohibit this arrangement we show that this ethical restriction which is formally equivalent to requiring a minimum fixed fee of zero can create economic rents for attorneys even though they continue to compete along the contingent fee dimension the contingent fee is not bid down to the zero profit level because such a fee does not induce sufficient attorney effort we thereby provide a political economy explanation for these restrictions

asymmetric two stage group rent seeking comparison of two contest structures two variations of a two stage rent seeking contest areconsidered in the first stage of the between groupmodel groups compete through the expenditure of resources bytheir members based on group expenditures one winning groupis probabilistically determined on the second stage membersof the winning group compete with one another for an exogenousprize in the semi finals model a player is chosen fromeach group and then these players compete for the prize groups differ in size or in their valuation of the prize subgame perfect equilibrium solutions are constructed forthese two contest structures

the financial education fallacy research to date does not demonstrate a causal chain from financial education to welfare enhancing financial behavior in part due to biases heuristics and emotional influences on decisions yet the search for effective financial education continues but it is time to ask whether giving every person effective financial education would make us better off two reasons it might not are discussed here first the time expense and invasion of privacy required would be enormous second such a world would entail a decrease in individual autonomy alternative tools could potentially increase household financial welfare and security at lower social and individual expense

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the evolution of common law we present a model of lawmaking by appellate courts in which judges influenced by policy preferences can distinguish precedents at some cost we find a cost and a benefit of diversity of judicial views policy motivated judges distort the law away from efficiency but diversity of judicial views also fosters legal evolution and increases the law s precision we call our central finding the cardozo theorem even when judges are motivated by personal agendas legal evolution is on average beneficial because it washes out judicial biases and renders the law more precise our paper provides a theoretical foundation for the evolutionary adaptability of common law

gathering information before signing a contract after being offered a contract an agent has the possibility to observe the state of nature this enables him to refuse the contract in unfavorable states but burdens him with an observation cost the authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms later they show that the principal finds it profitable to organize competition between several agents even though he has monopoly power and can push a single agent down to his reservation utility copyright 1992 by american economic association

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

financial literacy and consumer credit portfolios we use survey data from a sample of uk households to analyse the relation ship between financialliteracy and consumer credit portfolios we show that individ uals who borrow on consumer credit exhibit worse financial literacy than those who do not borrowers with poor financialliteracy hold higher shares of high cost credit such as home collected credit mail order catalogue debt and payday loans than those with higher literacy we also show that individuals with poor financialliteracy are more likely to lack confidence when interpreting credit terms and to exhibit confusion over financialconcepts they are also less likely to engage in behaviour which might help them to improve their awareness of the credit market

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

information and endogenous delegation in a rent seeking contest we offer a new explanation for the occurrence of delegation in rent seeking contests we consider a two player contest for a prize of common value the players only know that the prize is high or low with given probabilities each player can hire a delegate to act on his behalf after a delegate is hired she privately observes the true value of the prize we derive the conditions under which respectively no player only one player or both players delegate in equilibrium jel d7

mortgage risks debt literacy and financial advice a limited understanding of mortgage contracts and the risks involved may have contributed to the outbreak of the 2007 2008 financial crisis we developed a special questionnaire relating mortgage loan decisions to financial knowledge and financial advice our results demonstrate that homeowners appear to be well aware of mortgage risks large loans relative to home value are perceived as riskier as are loans with large mortgage payments relative to income and loans linked to investment vehicles homeowners with riskier mortgages indicated that they could encounter financial problems should house prices or their income decline homeowners with relatively low debt literacy are more likely to take out traditional mortgages with principal repayments over the maturity of the loan riskier mortgages are more prevalent among homeowners with a better understanding of loan contracts financially less sophisticated homeowners consulting mortgage brokers too hold riskier mortgages

when do experts cheat and whom do they target a credence good is a product or service whose usefulness or necessity is better known to the seller than to the buyer this information asymmetry often persists even after the credence good is consumed i propose two new theories of expert cheating suggesting that identifiable heterogeneities among customers can cause expert sellers to defraud their customers according to these theories cheating arises as a substitute for price discrimination and experts cheat selectively for instance experts target high valuation and high cost customers finally selective cheating may damage the communication of useful information from customers to experts and result in inferior services

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

an error correction almost ideal demand system for meat in greece this paper represents a dynamic specification of the almost ideal demand system aids based on recent developments on cointegration techniques and error correction models based on greek meat consumption data over the period 1958 1993 it was found that the proposed formulation performs well on both theoretical and statistical grounds as the theoretical properties of homogeneity and symmetry are supported by the data and the lechatelier principle holds regardless of the time horizon beef and chicken may be considered as luxuries while mutton lamb and pork as necessities in the short run beef was found to have price elastic demand pork an almost unitary elasticity whereas mutton lamb chicken and sausages had inelastic demands in the long run beef and pork were found to have a demand elasticity greater than one whereas mutton lamb chicken and sausages still had inelastic demands all meat items are found to be substitutes to each other except chicken and mutton lamb and pork and chicken

modeling the pattern of structural change in u s meat demand the hypothesis of structural change in u s meat demand is tested in a four meat almost ideal demand system with parameters following a gradual switching regression model the results support the notion that structural change partly explains the observed u s meat consumption patterns structural change is biased against beef neutral for pork in favor of chicken and fish and it does not affect estimated elasticities the estimated path of structural change implies a rapid transition to a new regime in the mid 1970s although a smooth path cannot be ruled out

delegation with multiple instruments in a rent seeking contest we consider delegation in a rent seeking contest with two players where delegates have more instruments at their disposal than the main players we endogenize both the decision to hire a delegate and the contingent fee offered to the delegates we characterize the situations when either no one or two players hire a delegate in equilibrium we show that the decision to hire a delegate depends in a non monotonic way on the size of the contested prize

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

household optimism and overborrowing we use finnish household level data from 1994 to 2013 to measure how often and what kind of forecast errors households make and how the errors are linked to the households borrowing behavior and overindebtedness we find that those households that make the largest optimistic forecast errors have greater debt to income ratios they also are more likely to report that they suffer from excessive debt loads and have problems in coping with their bills there are no such systematic effects for the households that make pessimistic forecast errors

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

equilibrium contingent compensation in contests with delegation we consider two player contests in which each player hires a delegate who expends his effort to win a prize on the player s behalf endogenizing delegation contracts we focus on the equilibrium contracts between the players and their delegates we first show that each player s equilibrium contract is a no win no pay contract then we examine the delegates equilibrium compensation spreads effort levels probabilities of winning expected payoffs and the players equilibrium expected payoffs we show that economic rents for the delegates may exist

teaching teenagers in finance does it work abstract many initiatives worldwide aim at improving financial literacy through targeted education programs yet there is little evidence regarding their effectiveness we examine the impact of a short financial education program on teenagers in german high schools our findings reveal that the training program significantly increases teenagers interest in financial matters and their financial knowledge especially their ability to properly assess the riskiness of assets behaviorally we observe a decrease in the prevalence of self reported impulse purchases but at the same time find no evidence of a significant increase in savings

strategic decisions on lawyers compensation in civil disputes i introduction a plaintiff and a defendant usually bargain to settle a civil dispute when they cannot reach a settlement the case goes to trial naturally through the settlement and trial stages the litigants behave strategically a few researchers study such a situation by developing contest models 1 examples include plott 1987 katz 1988 farmer and pecorino 1999 wfirneryd 2000 and hirshleifer and osborne 2001 there exists however some discrepancy between the contest models and the mainstream articles in the law and economics literature the contest models deal with the legal battle itself to use the words of hirshleifer and osborne 2001 by contrast the mainstream articles focus on one or some of the important aspects of the negotiation and litigation process such as the likelihood of settlement the reasons for lawsuits the efficient levels of precautions the burden of proof the comparison of alternative fee shifting systems and the compensation for lawyers in the presence of an agency problem 2 this article attempts to reconcile the two strands a bit further to do so we develop a contest model in which the negotiation and litigation stages are combined as in the previous contest models but unlike the previous ones two lawyers one for a plaintiff and the other for a defendant are introduced using this contest model with delegation we are able to analyze some of the important issues in legal disputes for instance a plaintiffs lawyer in the united states routinely charges one third of the award if his client wins and nothing if his client loses a natural question which we can address using our model is then why the lawyer s contingent fee is not one half of the award nor two thirds but one third using our model we can also address the following issues does the plaintiff have an incentive to choose an hourly fee arrangement if feasible does delegation to the lawyers increase the total legal expenditure of the plaintiff and defendant compared with the case of no delegation why do a plaintiff and a defendant hire lawyers in litigation a straightforward reason for such delegation is that a litigant can benefit by hiring a lawyer who has more capacity than herself throughout the article we use she to refer to a litigant and he to refer to a lawyer another explanation is that a litigant can benefit by achieving strategic commitments through delegation specifically the litigant can change her opponent s behavior in her favor by using a lawyer whose objective function differs from hers baik and kim 1997 consider a contest model that carries both aspects of delegation for the first time in the delegation literature but the idea that strategic delegation benefits a main player has long been emphasized in many contexts examples include schelling 1960 fershtman and judd 1987 katz 1991 and warneryd 2000 this article extends the delegation model of baik and kim 1997 to the case where a plaintiffs lawyer works on a contingent fee basis but a defendant s lawyer on an hourly fee basis 3 we assume that the litigants and lawyers are risk neutral to be more precise our two stage game runs as follows in the first stage knowing that the defendant adopts the hourly fee the plaintiff determines the contingent fee fraction for her lawyer and announces it publicly in the second stage the lawyers exert their effort simultaneously and independently to win the lawsuit the plaintiff s lawyer chooses the effort level on his own but the effort level of the defendant s lawyer is chosen by the defendant the defendant has to incur a monitoring cost because she hires her lawyer under the hourly fee we use logit form probability of winning functions after solving for the subgame perfect equilibrium of the game we first derive the condition on relevant parameters under which delegation to the lawyers brings both litigants more payoffs compared with the case of no delegation

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

self control financial literacy the co holding puzzle we use uk survey data to analyze the puzzling co existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets which we name the co holding puzzle approximately 12 of households in our sample co hold on average 3800 of revolving consumer credit on which they incur interest charges even though they could immediately pay down all this debt using their liquid assets co holders are typically more financially literate with above average income and education in most estimates co holding is also associated with impulsive spending behavior on the part of the household our results provide empirical support to theoretical models in which households co hold as a means of managing self control problems

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

no win no fee some economics of contingent legal fees mark up in different types of case is to be issued after consultation with professional bodies american style share contracts whereby the lawyer is paid a proportion of the award if the case is won and nothing if it is lost will continue to be unenforceable at law and prohibited by the professional bodies the introduction of contingency fees in england and wales has been discussed in a number of official and semi official reports without any consensus emerging 3 we use a formal model of the litigation process to analyse the implications of contingent fees under both english and united states cost shifting rules in the model potential defendants can take care to avoid accidents which impose losses on potential plaintiffs if an accident occurs the defendant is sued by the plaintiff and makes a settlement offer if the plaintiff rejects the offer the case proceeds to trial plaintiffs who win at trial are awarded damages and under english rules costs against the defendant lawyer client contracts can be evaluated by the extent to which they a compensate plaintiffs after an accident by making it easy to sue and obtain redress b induce settlements rather than costly trials and c provide

exponential growth bias and household finance exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively we show that exponential growth bias can explain two stylized facts in household finance the tendency to underestimate an interest rate given other loan terms and the tendency to underestimate a future value given other investment terms bias matters empirically more biased households borrow more save less favor shorter maturities and use and benefit more from financial advice conditional on a rich set of household characteristics there is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication what drives household financial decisions the canonical economic model assumes that consumers choose to consume borrow or save based on their preferences their expectations and the costs and benefits of borrowing and saving a growing body of work applies insights from psychology to enrich specifications of three of the model s key pieces preferences expectations and problem solving conditional on parameter values 1 in this paper we bring psychological evidence to bear on a fourth specification issue how consumers perceive the costs and benefits of borrowing and saving we begin by tying together existing and new evidence on these cost perceptions to show that most consumers err systematically when given information commonly available in the market on the saving side consumers display future value bias a systematic tendency to underestimate a future value given

tournament rewards and risk taking this article considers a lazear rosen tournament model where agents can influence both the spread of their output distribution risk taking and its mean the unique equilibrium induces excessive risk taking and a low level of effort by modifying the tournament to give the highest prize to the agent with the most moderate output a low level of risk taking and high level of effort can be sustained as an equilibrium the first result can be useful to understand the relative performance evaluation puzzle of executive compensation and the second result can be useful to understand puzzling workplace norms promoting mediocrity

warranties as signals under consumer moral hazard this article examines the use of prices and warranties as signals of product quality to consumers who choose how to maintain their purchases the seller s incentives are strongly affected by the interaction of quality and maintenance in determining product reliability two different assumptions about this interaction are made a separating equilibrium in which high quality is signalled with a low warranty and low price is shown to be possible in both cases

contractual signaling in a market environment abstract we consider a game of signaling where the informed sender proposes a contract which can only be accepted or rejected by the receiver while most of the literature considers a bilaterally monopolistic setting we embed the game in a market environment where a sender may switch to another receiver in case of rejection we analyze how this structural extension can be employed to restrict the set of stationary equilibrium allocations journal of economic literature classification number c78 d82

endogenous availability in search equilibrium bargaining power by shopping at two firms and then bringing those firms into competition with one another knowing this firms adjust quoted prices to keep customers from exercising this option we compare equilibrium prices and availability firm profits and customer welfare under duopoly with those that would obtain under monopoly wefind that for low levels of exogenous customer search costs duopolists provide lower prices and lower availability while for high customer search costs duopolists provide the same price but greater availability than would a monopolist

endogenous timing of contest with asymmetric information simultaneous moves have been conventionally assumed in modeling rent seeking competition however in reality many forms of contests involve contestants sequentially choosing their effort entries this study allows agents to choose the timing of their moves before the contest takes place in contrast to the previous literature we introduce information asymmetries across agents we find that in all sequential move equilibria the uninformed agent moves first more generally we show that the order of agents moves in a sequential contest is a regularity stemming from information asymmetries furthermore under plausible assumptions sequential moves pareto dominate simultaneous moves from the view point of the players and also result in lower rent seeking expenditures our result explains the timing pattern in national presidential conventions observed from 1948 through 2004 our result also applies to many other formal or informal institutions which give rise to sequential contests

in defense of lawyers moral hazard as an aid to cooperation abstract this paper studies strategic delegation in two player contests for an indivisible prize as in e g litigation where one party s probability of winning is determined by the relative investments of both even though neither player stands to gain anything from precommitment both players ex ante prefer compulsory representation by agents e g lawyers whose efforts are unobservable this delegation equilibrium is unaffected by secret renegotiation opportunities equivalently it does not matter whether contracts are observable or not hence the paper points out a role for delegation with moral hazard in facilitating cooperation an effect quite separate from precommitment journal of economic literature classification numbers c72 d72 d82 k41

bargaining with noisy delegation principals delegate to an agent in the context of the nash bargaining model but communicate instructions to their agents imperfectly numerical methods are used to find a unique equilibrium in the principals strategies agents fail to agree with a positive probability invoking a secondary mechanism for the resolution of disputes such as arbitration comparative statics are informative the risk sensitivity of the nash bargaining solution is mitigated but not eliminated as uncertainty goes to zero a stable unique limiting equilibrium is identified from the set of multiple equilibria identified in a model in which principals delegate without trembles

expenditure on different categories of meat in greece the influence of changing tastes this paper employs a latent variable approach to isolate the effects of changing tastes on the share of total meat expenditure on different categories of meat products in greece during the period 1965 1995 we find that changes in the relative expenditure on different categories of meat cannot be explained by changes in the relative prices of the different meat products and increased expenditure alone for pork products in particular the increase in the share of expenditure has been greater than would be expected as a result of the relative fall in their price the increase can therefore be associated with changes in taste this finding is of general interest to those conducting empirical research into consumer behaviour both in economies where there have been significant changes in patterns of food consumption and where as in the case of many less industrialised economies rapid structural changes in food consumption patterns are still to come it is also of importance to policy makers in assessing die effectiveness of advertising or promotional campaigns in influencing longer term changes in consumer preferences for different products

contingent fees meet the british rule an exploratory study compensation schemes in which lawyer s fees are contingent on winning the suit are becoming increasingly popular throughout europe at the same time the british rule of legal cost allocation is applicable in many european countries as a result it is of policy relevance how their coexistence may be harmonized this paper uses the litigation contest framework to analyze the consequences of three different cost allocation regimes if a plaintiff s attorney is compensated on a contingent fee basis we compare the equilibrium contest effort justice and payoffs for affected parties in the different regimes and find arguments in favor of not reimbursing contingent fees

effort levels in a cournot nash contest with asymmetric information abstract many contests exist where one player does not know his opponent s value of a fixed prize e g unobservable non market preferences for preservation this paper explores how changes in the nature of a one sided information asymmetry affect effort levels in a cournot nash contest the results indicate that the uninformed player s effort is an uncertain input such that his effort is inversely related to risk this reduces his average odds of success comparative static results are driven by the perceived odds of success and risk for the uninformed player and the actual odds of success for the informed player

search bargaining and signalling in the market for legal services over the last eight centuries lawyers in common law countries have generally been precluded from buying their clients cases recently a number of economists and lawyers have argued that sale should be allowed so as to eliminate moral hazard particularly when contingent fees are used this argument is based on full information reasoning however if the lawyer has private information about the case value then compensation demands potentially signal this value when the client can search over lawyers we provide a formal model and a family of computational examples that show that allowing possibly partial purchase can reduce expected social efficiency

financial literacy externalities this paper uses unique administrative data and a quasi field experiment of exogenous allocation to apartments in sweden to estimate medium and longer run effects on financial behavior from exposure to financially literate neighbors it contributes evidence of causal impact of financial literacy and points to a social multiplier of effective programs to enhance it exposure promotes saving in private retirement accounts and stockholding especially when neighbors have economics or business education but only for educated or male headed households findings point to relevant knowledge transfer through social interactions rather than to labor market or other channels linked to local economic conditions

dispute rates and contingency fees an analysis from the signaling model 1 introductioncontingency fee contracts under which the plaintiff pays her lawyer a percentage of the judgment if she wins at trial and nothing if she loses are very common in the united states but are banned or severely restricted in many other countries 1 their use in the united states generates great controversy and while their use is restricted in some states further calls for restrictions on contingency fee contracts are often heard 2 although contingency fee contracts are quite simple their effects on the litigation process are complex and wide ranging previous studies have considered the effect of contingency fees on the frequency of litigation danzon 1983 miceli and segerson 1991 and nuisance suits miceli 1993 1994 and on various aspects of the lawyer client relationship miller 1987 dana and spier 1993 rubinfeld and scotchmer 1993 watts 1994 hay 1996 1997 in this article we focus on the effects of contingency fees on the selection of disputes for trial and the overall dispute rate in the signaling model of reinganum and wilde 1986 3 along with bebchuk 1984 this is one of the two canonical models of pretrial settlement in addition since the solution to a model with two sided informational asymmetries has a strong signaling element daughety and reinganum 1994 it is particularly important to understand how contingency fees affect dispute rates in the signaling model as in the standard literature on pretrial settlement e g bebchuk 1984 reinganum and wilde 1986 we assume that the plaintiff controls all aspects of the case 4 in the reinganum and wilde model an informed plaintiff makes a take it or leave it offer to an uninformed defendant who rejects these offers with some probability in equilibrium in order to conduct a complete analysis of the contingency fee in a signaling model we also consider the case in which an informed defendant makes a single offer to the uninformed plaintiff reinganum and wilde first develop a signaling model in which the plaintiff s lawyer is paid via a fixed fee and then go on to present pp 562 3 a very general solution to the model in the presence of a contingency contract we use the general framework of reinganum and wilde to focus on specific forms for the contingent fee contracts our contribution lies not in the derivations of the model solutions as these follow from the reinganum and wilde framework rather closely instead our contribution lies in the analysis of how these specific contingency fee contracts affect pretrial settlement patterns we analyze the effects both on overall dispute rates and on the selection of disputes for litigation in section 2 we will further note the relationship between our work and the earlier analysis provided by reinganum and wilde we examine two types of contracts in this article a bifurcated contingency fee and a unitary contingency fee under a unitary contract the same contingency payment is made by the client to her lawyer regardless of whether there is an out of court settlement or a victory at trial 5 under a bifurcated fee the contingency percentage at trial is generally higher than the percentage for cases that settle 6 while unitary fees appear to be more common a significant use of bifurcated fees has been noted in the literature 7 in a model with attorney moral hazard hay 1997 notes that bifurcated fees are generally optimal from the perspective of the plaintiff on the other hand bebchuk and guzman 1996 argue that a unitary fee can lead to a larger net settlement for the plaintiff since both types of contracts appear to be relevant empirically we examine both in this article one robust finding from our article is that unitary fees lead to an unambiguous increase in the incidence of trial relative to both the fixed fee contract and the bifurcated contingency fee contract

simultaneity and structural change in u s meat demand an inverse of the almost ideal demand system the iaids is developed in order to test the endogeneity of prices and quantities in the u s meat demand system the iaids has all the desirable theoretical properties of the aids except aggregation from the micro to the market level using annual data both prices and quantities appear to be endogenous within the entire meat market including livestock production costs and technical change indicators as instruments eliminates evidence of a mid 1970s demand change

comparative statics of contests and rent seeking games this paper develops the comparative statics properties of a contest encountered in patent races and rent seeking games the author shows that symmetric equilibrium expenditure and profit per player decrease with the number of competitors and the discount rate but increase with the value of the prize a fundamental lemma established in the paper shows that a stability condition usually imposed on the model is automatically satisfied the author identifies a class of likelihood or hazard rate functions for which aggregate expenditure increases with the number of competitors and total profits converge to zero copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association