market clearing and price formation abstract considered here is decentralized exchange of privately owned commodity bundles voluntary transactions take the form of repeated bilateral barters under broad and reasonable hypotheses the resulting process converges to competitive equilibrium price taking behavior is not assumed prices emerge over time they need neither be anticipated nor known at any interim stage

traders expectations in asset markets experimental evidence we elicit traders predictions of future price trajectories in repeated experimental markets for a 15 period lived asset we find that individuals beliefs about prices are adaptive and primarily based on past trends in the current and previous markets in which they have participated most traders do not anticipate market downturns the first time they participate in a market and when experienced they typically overestimate the time remaining before market peaks and downturns occur when prices deviate from fundamental values belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks

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

what factors determine the outsourcing intensity a dynamic panel data approach for manufacturing industries the present article investigates the determinants of outsourcing production using a panel of 93 spanish manufacturing industries for the period 1993 to 2002 outsourcing is measured as production tasks which are contracting out to external suppliers a more direct and suitable indicator after controlling for unobserved heterogeneity and simultaneity our results show a high persistence of the outsourcing intensity moreover outsourcing of production is positively related to unit labour costs skills requirements national ownership and orientation to international markets we also find evidence for a negative link between the outsourcing intensity and the share of small firms

do institutions promote rationality an experimental study of the three door anomaly the three door problem is an example of a systematic violation of a key rationality postulate that has attracted much attention in this seemingly simple individual decision task most people initially fail to apply correctly bayes law and to make the payoff maximizing choice previous experimental studies have shown that individual learning reduces the incidence of irrational choices somewhat but is far from eliminating it we experimentally study the roles of communication and competition as institutions to mitigate the choice anomaly we show that the three door anomaly can be entirely eliminated by these institutions

firm heterogeneity and location choices evidence from foreign manufacturing investments in china this paper develops a model which indicates that foreign firms location choices are determined jointly by site attributes and firm heterogeneity the model is estimated using data on 2565 foreign manufacturing investments in china the conditional logit estimates and simulation results provide supportive evidence an increase in a firm s labour intensity magnifies the impact of labour cost while a location s local communications infrastructure has a stronger influence on foreign firms that have adopted modern information technology it is also found that agglomeration effects decrease with firm size and labour quality implications for researchers and policy makers are discussed in the conclusion

international outsourcing and the productivity of low skilled labor in the eu this article presents first insights into the role of international outsourcing on the productivity of low skilled workers in eu manufacturing whereas in the short run international outsourcing exhibits a negative marginal effect on real value added per low skilled worker the long run parameter estimates reveal a positive impact this may be explained by imperfections in european labor and goods markets which prohibit an immediate adjustment in the factor employment and the output structure the change in the outsourcing intensity since 1993 alone acounts for a long run increase of about 6 0 in the real value added per low skilled worker jel c33 f14 f15

scale externalities in korea this paper estimates the nature and magnitude of scale externalities in a developing country korea in the period 1983 1993 this is a period of rapid industry deconcentration from seoul to other metro areas providing a context where externalities are measured when local scale magnitudes are changing dramatically the data allow us to examine the emerging degree of national industrial concentration in different industries as related to their scale externality magnitudes we also examine whether individual industries agglomerate in cities which have a comparative advantage for that industry

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

outsourcing labour productivity and wage inequality in the us a primal approach we investigate the linkages among outsourcing activities labour productivity and wage inequality for skilled and unskilled labour by employing a primal approach that involves estimating a nested constant elasticity of substitution production function using six digit north american industry classification system us manufacturing industries from 2002 to 2005 first we find that general outsourcing and international outsourcing have a skill biased impact on labour productivity however the skill biased impact of general outsourcing on labour productivity is larger than that of international outsourcing second we find that the wage gap between skilled and unskilled labour which is defined as their marginal productivity gap can be better explained by general outsourcing than by international outsourcing these two results imply that the wage inequality of us manufacturing industries during 2002 2005 was mainly due to the skill biased labour productivity effect of general outsourcing rather than that of

allocation of track capacity experimental evidence on the use of priority auctioning in the railway industry allocation of track capacity concerns multiple users facing demand indivisibilities running trains over an inelastic supply of railway tracks the paper suggests a vickrey type mechanism to handle incentive aspects of this technically complex optimisation task here the price for operating a train will correspond to the bids foregone by other operators who are pushed off their preferred routes the paper reports the results of 11 experimental markets using variations of this mechanism where each market includes up to 10 trading periods and subjects bid for routes over a highly stylised railway network the experiments generated solutions that capture 90 100 of potential benefits

economic transition dynamic externalities and city industry growth in china using data on two digit manufacturing industries for prefecture level cities during the period of 2000 05 this study found a significant non linear relationship between dynamic externalities and city industry growth industrial specialisation and local competition may help city industry growth but may harm growth when they exceed a certain level diversity helps industry growth but only when it reaches a certain level liberalised globalised and locally protected industries are more likely to benefit from dynamic externalities industries located in cities with greater authorities are also found to grow faster the empirical findings indicate that economic transition has created conditions to allow a larger role of dynamic externalities in stimulating city industry growth

what is different about urbanization in rich and poor countries cities in brazil china india and the united states abstract are the well known facts about urbanization in the united states also true for the developing world we compare american metropolitan areas with analogous geographic units in brazil china and india both gibrat s law and zipf s law seem to hold as well in brazil as in the u s but china and india look quite different in brazil and china the implications of the spatial equilibrium hypothesis the central organizing idea of urban economics are not rejected the india data however repeatedly rejects tests inspired by the spatial equilibrium assumption one hypothesis is that spatial equilibrium only emerges with economic development as markets replace social relationships and as human capital spreads more widely in all four countries there is strong evidence of agglomeration economies and human capital externalities the correlation between density and earnings is stronger in both china and india than in the u s strongest in china in india the gap between urban and rural wages is huge but the correlation between city size and earnings is more modest the cross sectional relationship between area level skills and both earnings and area level growth are also stronger in the developing world than in the u s the forces that drive urban success seem similar in the rich and poor world even if limited migration and difficult housing markets make it harder for a spatial equilibrium to develop

agglomeration economies in urban manufacturing industries a case of japanese cities abstract the effects of urban agglomeration economies on productivities in two digit manufacturing industries is estimated using the cross section data of japanese cities in 1979 urbanization and localization economies which are major forms of urban agglomeration economies are explicitly separated the estimates of these economies vary considerably among industries light industries receive more productive advantages from urbanization economies than from localization economies but heavy industries experience these economies more from localization economies than from urbanization economies

a decentralized market with common values uncertainty non steady states we analyse a market where i trade proceeds by random and anonymous pairwise meetings with bargaining ii agents are asymmetrically informed about the value of the traded good and iii no new entrants are allowed once the market is open we show that information revelation and efficiency never obtain in equilibrium even as discounting is removed this holds whether the asymmetry is two sided or one sided in some cases there exist equilibria where a substantial amount goes untraded this contrasts with the earlier literature which was based on the steadystate equilibria of a model where agents enter the market every period

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

information revelation in a market with pairwise meetings the paper presents a simple pairwise meetings model of trade the new feature is that agents have asymmetric information about the true state of the world the focus is on the transmission of the information through the process of trade the qualitative question is to what extent is the information revealed to uninformed agents through the trading process when the market is in some sense frictionless in particular does the decentralized process give rise to full revelation results as derived by the literature on rational expectations for centralized and competitive environments in the context of the model of this paper it turns out that the information is not fully revealed to uninformed agents even when the market is in some sense approximately frictionless

convergence of the static estimation toward the long run effects of dynamic panel data models abstract this article focuses on the estimation of long run effects on panel data we show that the probability limit of the between estimator of a static relation whereas the true specification is a dynamic error components model converges to the long run effects

information percolation in large markets we introduce a simple model of the percolation of information of common interest through a large market as agents encounter each other over time and reveal information to each other some of which they may have received earlier from other agents we are particularly interested in the evolution over time of the cross sectional distribution in the population of the posterior probability assignments of the various agents we provide a market example based on privately held auctions and obtain a relatively explicit solution for the cross sectional distribution of posterior beliefs at each time our results contribute to the literature on information transmission in markets hayek 1945 argues that markets allow information that is dispersed in a population to be revealed through prices grossman s 1981 notion of a rational expectations equilibrium formalizes this idea in a setting with price taking agents milgrom 1981 pesendorfer and swinkels 1997 and reny and perry 2006 provide strategic foundations for the rational expectations equilibrium concept in centralized markets a number of important markets however are decentralized these include over the counter markets and private auction markets wolinsky 1990 and blouin and serrano 2002 study information transmission in decentralized markets in contrast to these two papers equilibrium behavior in our market example leads to full revelation of information we happily acknowledge conversations with manuel amador frank kelly jeremy stein and pierre olivier weill and research assistance from sergey lobanov rubinstein and wolinsky 1985 and gale 1986a 1986b study decentralized markets without asymmetric information satterthwaite and shneyerov 2003 study decentralized market with private value asymmetric information amador and weill 2006 study a more abstract setting regarding transmission of common and private i nformation

follies subdued informational efficiency under adaptive expectations and confirmatory bias abstract we study the informational efficiency of a market with a single traded asset the price initially differs from the fundamental value about which the agents have noisy private information which is on average correct a fraction of traders revise their price expectations in each period the price at which the asset is traded is public information the agents expectations have an adaptive component and a social interactions component with confirmatory bias we show that taken separately each of the deviations from rationality worsens the informational efficiency of the market however when the two biases are combined the degree of informational inefficiency of the market measured as the deviation of the long run market price from the fundamental value of the asset can be non monotonic both in the weight of the adaptive component and in the degree of confirmatory bias for some ranges of parameters two biases tend to mitigate each other s effect thus increasing informational efficiency

urban productivity in china in this empirical study we test the relationship of chinese urban productivity and city size using over 119 790 firm level production data cross 28 industries from the third national industrial survey along with the urban population data of 224 cities we find strong and prevailing significant agglomeration economies in chinese urban areas the estimated average agglomeration elasticity is around 0 051 implying that every doubling of city size will provide a 3 6 per cent gain in firm productivity the breakdown analysis suggests that based on current data the major source of the agglomeration advantage comes from localisation economies benefits from the concentration of firms of the same industry within one geographical area rather than urbanisation economies externalities from urban development itself the maximum size study also suggests that while most chinese cities have yet to grow to demonstrate the full strength of agglomeration economies many chinese industries have reached the optimal i