communication networks in markets abstract this paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network there is a unique equilibrium in which every individual obtains the same outcome independent of their network position and this outcome depends on the peripheral least connected individuals in the network the main testable predictions are that networks with high density and or low variability in the number of connections across individuals allow their members to obtain a better deal these predictions are tested in a lab experiment through 4 treatments that vary the network that subjects are assigned to the results of the experiment lend support to the theoretical predictions subjects converge to an outcome that is independent of their network position and they fare better if they are assigned to a network that is dense and or has low variability in number of connections across members

defending the articles of confederation a reply to dougherty this reply addresses the issues raised bydougherty in response to my 1999 article in this journal ialso develop a new graphical model of the optimal collectionrate under the articles where states made contributions andcontrast it to the revenue potential from direct taxation ibelieve that despite dougherty s criticisms my argumentremains valid while the articles were not perfect in anabsolute sense that when more properly viewed in acomparative manner that the system of state contributions forraising revenue under the articles was and still is superiorto a system of direct federal taxation

reverse revenue sharing a modest proposal while no claim is made that reverse revenue sharing is even from a private interest perspective the best fiscal arrangement it has been argued that it represents an improvement over current arrangements in important ways still reverse revenue sharing surely will be seen by most as a rather extreme proposal for some this will come from the fact that it is the public interest model of government that remains dominant in structuring their view of the political process but even those who accept the private interest model of government will see the proposal as extreme in terms of its political infeasibility the very considerations that make the decentralization of the reverse revenue proposal desirable i e reducing the power of political interest groups make it unlikely that it will generate enthusiastic political support indeed few things would provide more compelling evidence that reverse revenue sharing is a badly flawed proposal than the formation of an effective coalition of political interests in favor of it i conclude this paper with confidence that the case for reverse revenue sharing is completely safe from this damaging prospect

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

bargaining and markets complexity and the competitive outcome abstract rubinstein and wolinsky rev econ stud 57 1990 63 78 consider a simple decentralised market game in which agents meet randomly or voluntarily and bargain over the terms of trade they show that any individually rational price can be sustained as a sequential equilibrium even though the model has a unique competitive outcome here i consider rubinstein and wolinsky s model and show that if complexity costs of implementing strategies enter players preferences together with the standard payoff in the game then every equilibrium is stationary markov and induces the unique competitive price thus i demonstrate that aversion to complexity may provide a justification for the competitive outcome

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

the role of networks in antitrust investigations antitrust investigations typically focus on the competitive pressures coming from within the defined markets of interest however competitive pressures can also come from other markets even when individually these markets place only weak constraints on one another collectively they may matter a networks approach to modelling competition permits a systemic view of competition that can sometimes paint a more accurate picture we demonstrate this through some simple examples and show more generally how tools from the networks literature can be applied to capture competition across a system of interrelated markets as a leading example we consider antitrust investigations into supermarkets where local geographic markets have been used as the basis of investigation

ethnic fractionalization in an african labour market abstract we find evidence of ethnic fractionalization and its consequences in an african labour market we consider earnings differentials between members of different ethnic groups and between employers relatives unrelated co ethnics and other workers in the ghanaian manufacturing sector variations in a standard set of observed workers characteristics explain a large proportion of the earnings differentials between ethnic groups however the greatest proportion is explained by the ethnic fractionalization of the labour market combined with variations in employers characteristics workers who are related to their employers earn a premium and there is statistical discrimination in favour of inexperienced co ethnic workers

contracting with qualified suppliers in an extension of the laffont tirole model a buyer fully qualifies a set of suppliers ex ante and awards production to the most efficient ex post the buyer s incomplete information about production costs biases ex ante market structure in favor of a greater number of qualified suppliers further extensions that allow product differentiation and learning by doing suggest explanations for split production awards and less than fully qualified suppliers it may be difficult to specify ex ante precisely how the assets will be employed in production grossman and hart 1986 once relationship specific assets are in place the characteristics of the transaction and the gains from trade will be determined by ex post contracting between the buyer and the seller a safeguard for the buyer is to contract with more than one potential supplier to invest in the relationship specific assets required for production then after production require ments become clear the buyer can structure a competition between these suppliers for the right to produce this article analyzes when a second sourcing policy is desirable and how the buyer should structure it asanuma s 1989 description of the two vendor policy of automobile manufac turers in japan provides a context for the analysis japanese automobile manufac turers contract out for various kinds of components for example headlamps brakes or steering columns the common practice is to purchase each component from a small and relatively stable group of qualified suppliers with the purposes of assuring supply and of creating competition moreover for a particular part for a particular model there is a tendency for an automobile manufacturer to purchase from a single supplier in the group for the life of the model my understanding from interviews and the trade press is that u s automobile manufacturers also sole source from a select group of qualified suppliers but with

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

bilateral bargaining in networks abstract each connected pair of nodes in a network can jointly produce one unit of surplus a maximum number of linked nodes is selected in every period to bargain bilaterally over the division of the surplus according to the protocol proposed by rubinstein and wollinsky equilibrium in a market with sequential bargaining econometrica 53 1985 1133 1150 all pairs which reach an agreement obtain the discounted payoffs and are removed from the network this bargaining game has a unique subgame perfect equilibrium that induces the dulmage mendelsohn decomposition partition of the bipartite network of the set of nodes in this network

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

bargaining dynamics in exchange networks abstract we consider a one sided assignment market or exchange network with transferable utility and the dynamics of bargaining in such a market our dynamical model is local involving iterative updates of offers based on estimated best alternative matches in the spirit of pairwise nash bargaining agents are not strategic in our model we establish that when a balanced outcome a generalization of the pairwise nash bargaining solution to networks exists our dynamics converges rapidly to such an outcome

price dispersion in stationary networked markets abstract different sellers often sell the same good at different prices using a strategic bargaining model i characterize how the equilibrium prices of a good depend on the interaction between its sellers costs its buyers values and a network capturing various frictions associated with trading it in contrast to the standard random matching model of bargaining in stationary markets i allow agents to strategically choose whom to make offers to which qualitatively changes how the network shapes prices as in the random matching model the market decomposes into different submarkets and in the limit as bargaining frictions vanish the law of one price holds within but not across them but strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket s price

bargaining and efficiency in networks abstract we study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus players who reach agreement are removed from the network without replacement the global logic of efficient matchings and the local nature of bargaining in combination with the irreversible exit of player pairs following agreements create severe hurdles to the attainment of efficiency in equilibrium for many networks all markov perfect equilibria of the bargaining game are inefficient even as players become patient we investigate how incentives need to be structured in order to achieve efficiency via subgame perfect but non markovian equilibria the analysis extends to an alternative model in which individual players are selected according to some probability distribution and a chosen player can select a neighbor with whom to bargain

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

bargaining in stationary networks we study an infinite horizon game in which pairs of players con nected in a network are randomly matched to bargain players who reach agreement are replaced by new players at the same positions in the network we show that all equilibria are payoff equivalent the payoffs and the set of agreement links converge as players become patient several new concepts mutually estranged sets partners and shortage ratios provide insights into the relative strengths of the positions in the network we develop a procedure to deter mine the limit equilibrium payoffs for all players characterizations of equitable and nondiscriminatory networks are also obtained jel c78 d85 competitive equilibrium theory assumes large and anonymous markets in which every buyer can trade with every seller underlying these assumptions are standard goods and services that may be traded at low transaction costs by agents who are not in specific relationships with one another however in many markets goods and services are heterogeneous e g cars apartments or need to be tailored to particular needs e g manufacturing inputs technical support furthermore trad ing opportunities may depend on transportation costs social relationships infor mation advertising trust technological compatibility joint business opportunities free trade agreements etc in such cases it is natural to model the market using a network where only pairs of connected agents may engage in exchange new theories are needed to explore the influence of the network structure on market outcomes many questions arise how does an agent s position in the net work determine his bargaining power and the local prices he faces who trades with whom and on what terms when are prices uniform in the network one possible conjecture is that an agent s bargaining power is determined by his relative number of connections in the network however this simple theory is implausible consider the network of four sellers located at the top nodes and nine buyers located at the bottom nodes depicted in figure 1 assume that each seller supplies one unit of a homogeneous indivisible good each buyer demands one unit of the good and all buyers have identical values for the good the buyer located in the middle has the largest number of links in the network as he is connected to each

bilateral trading in networks in many markets goods flow from initial producers to final customers travelling through many layers of intermediaries and information is asymmetric we study a dynamic model of bargaining in networks that captures these features we show that the equilibrium price demanded over time is non monotonic but the sequence of transaction prices declines over time with the possible exception of the last period the price dynamic is therefore reminiscent of fire sales and hot potato trading traders who intermediate the object arise endogenously and make a positive profit the profit earning intermediaries are not necessarily traders with many connections for the case of multilayer networks they belong to the path that reaches the maximum number of potential buyers using the minimal number of intermediaries this is not necessarily the path of the network that maximizes the probability of consumption by traders who value the most the object i e welfare

marginal cost sharing and the articles of confederation between 1781 and 1789 the american states attempted to share the costs of national public goods through a system of requisitions this paper uses a simple public goods analysis to show why rational states would not share costs as intended by the articles of confederation this normative argument illustrates a potential flaw in the constitutional design of the articles and provides insight into the decline of the american confederation

risk preference differentials of small groups and individuals the risk prefer ences of thr ee person group s a nd individuals are compar ed using a non sequential repeated measures lottery exp eriment w ith 20 per player win pe rcentages varying from 10 to 90 analysis based on independent samples of certainty equivalent ratios certainty equivalent expected value elicited using a maximum willingness to pay mechanism for fifty two individuals and sixteen groups reveals that 1 certainty equi valent ratios cers va ry significantly a cross lottery win percentages 2 cer dispersion tends to decline as the lottery win percentage increases and is significantly smaller for groups than individuals in seven of the nine lotteries 3 for the highest risk lotteries the average cers submitted by groups are significantly smaller more risk averse than the average cers submitted by individuals 4 for the lowest risk lotteries the average cers submitted by groups are approximately risk neutral cer 1 and somewhat larger than the average cers submitted by individuals

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

nash in nash bargaining a microfoundation for applied work a nash equilibrium in nash bargains has become the workhorse bargaining model in applied analyses of bilateral oligopoly this paper proposes a non cooperative foundation for nash in nash bargaining that extends the rubinstein 1982 model to multiple upstream and downstream rms assuming there exists gains from trade for each rm pair we prove that there exists an equilibrium with immediate agreement and negotiated prices that correspond to rubinstein prices if and only if the marginal contribution of a set of agreements is weakly greater than the sum of the agreements marginal contributions we provide stronger conditions under which equilibrium prices are unique

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

efficiency in decentralized oligopolistic markets the paper analyzes quantity competition in economies in which a network describes the set of feasible trades a model is presented in which the identity of buyers of sellers and of intermediaries is endogenously determined by the trade flows in the economy the analysis first considers small economies and provides sufficient conditions for equilibrium existence a characterization of prices and flows and some negative results relating welfare to network structure the second and central part of the analysis considers behavior in large markets and presents necessary and sufficient conditions on the network structure for equilibria to be approximately efficient when the number of players is large

markov equilibria in a model of bargaining in networks abstract we study the markov perfect equilibria mpes of an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain players who reach agreement are removed from the network without replacement we establish the existence of mpes and show that mpe payoffs are not necessarily unique a method for constructing pure strategy mpes for high discount factors is developed for some networks we find that all mpes are asymptotically inefficient as players become patient

formation of buyer seller trade networks in a quality differentiated product market we examine the formation of buyer seller links when exchange can take place only if such a link exists sellers produce products of different qualities and multiple sellers can form a sellers association to pool their customers setting uniform prices buyers form trade links with individual sellers or sellers associations we show which buyer seller links will form and find the set of links that are stable and show how these links influence prices we also show that a trade network mismatch may occur where a high quality good remains unsold even without an economy wide excess supply of goods jel classification d40 d51 d82

in defense of the articles of confederation and the contribution mechanism as a means of government finance a general comment on the literature i attempt to dispel several widely held myths regarding government finance under the articles of confederation some of which were reiterated in dougherty and cain 1997 i defend the contribution mechanism as a method of government finance that is superior to direct taxation by the federal government and present evidence contradicting the belief that revenue collections under the articles were poor a proper comparison is with alternatives at that time such as state tax collections and the federal governments own tax collections under the new u s constitution both of which were lower than the collection rate from states under the articles