are health insurance markets competitive to gauge the competitiveness of the group health insurance industry i investigate whether health insurers charge higher premiums ceteris paribus to more profitable firms such direct price discrimination is feasible only in imperfectly competitive settings using a proprietary national database of health plans offered by a sample of large multisite firms from 1998 2005 i find firms with positive profit shocks subsequently face higher premium growth even for the same health plans moreover within a given firm those sites located in concentrated insurance markets experience the greatest premium increases the findings suggest health care insurers are exercising market power in an increasing number of geographic markets

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

it s what you say not what you pay an experimental study of manager employee relationships in overcoming coordination failure we study manager employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels the underlying game being played repeatedly by employees is a weak link game in the absence of managerial intervention subjects invariably slip into coordination failure to overcome a history of coordination failure managers have two instruments at their disposal increasing employees financial incentives to coordinate and communication with employees we find that communication is a more effective tool than incentive changes for leading organizations out of performance traps examining the content of managers communication the most effective messages specifically request a high effort point out the mutual benefits of high effort and imply that employees are being paid well

transparency efficiency and the distribution of economic welfare in pass through investment trust games we design an experiment to examine behavior and welfare in a multi level trust game representing a pass through investment in an intermediated market in a repeated game an investor invests via an intermediary who lends to a borrower a pre experiment one shot version of the game serves as a baseline and to type each subject we alter the transparency of exchanges between non adjacent parties we find transparency of the exchanges between the investor and intermediary does not significantly affect welfare however transparency regarding exchanges between the intermediary and borrower promotes trust on the part of the investor increasing welfare further this has asymmetric effects borrowers and intermediaries achieve greater welfare benefits than investors we discuss implications for what specific aspects of financial market transparency may facilitate more efficiency

per customer quantity limit and price discrimination evidence from the u s residential mortgage market abstract theoretically if firms face a regulatory per customer quantity limit they should have an incentive to discriminatively charge high demand customers higher prices and make them just willing to buy a quantity equal to the limit in the u s residential mortgage industry mortgages with origination balances above the conforming loan limits cannot be guaranteed by government sponsored enterprises which make lenders face a per customer quantity limit this paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination this study rules out the alternative explanation that those borrowers are of higher risk lending cost than other borrowers

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

price dispersion in mortgage markets using transaction level data on canadian mortgage contracts we document an increase in the average discount negotiated off the posted price and in rate dispersion our aim is to identify the beneficiaries of discounting and to test whether dispersion is caused by price discrimination the standard explanation for dispersion in credit markets is risk based pricing our contracts are guaranteed by government backed insurance so risk cannot be the main factor we find that lenders set prices that reflect consumer bargaining leverage not just costs the presence of dispersion implies a lack of competition but our results show this to be consumer specific

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

output price markups and producer size abstract this paper examines how output prices and markups vary across the size distribution of producers it uses unique plant level data on physical output revenue and input expenditures for six homogeneous u s manufactured products the results reveal that for five of the six products output prices decline systematically with increases in plant size in the most extreme case corrugated boxes the smallest producers have prices that average 20 percent above the mean price while the largest producers average 10 percent below the mean at the other extreme the price dispersion for gasoline is small and unrelated to plant size plant specific markups of price over marginal cost vary across the size distribution of producers for five of the products in three cases they decline in two cases they increase and one product gasoline shows no systematic variation

an experimental study of uncertainty in coordination games global games and poisson games have been proposed to address equilibrium indeterminacy in common knowledge coordination games where fundamentals are commonly known by all players global games assume that agents face idiosyncratic uncertainty about economic fundamentals whereas poisson games model the number of actual players as a poisson random variable to capture population uncertainty in large games the present study investigates in a controlled setup using as controls common knowledge coordination games whether idiosyncratic uncertainty about economic fundamentals or uncertainty about the number of actual players may influence subjects behavior our findings suggest that uncertainty about the number of actual players has a more significant impact on subjects behavior than idiosyncratic uncertainty about economic fundamentals furthermore subjects behavior under poisson population size uncertainty is consistent with the theoretical prediction of poisson coordination games

coordination in the presence of asset markets markets aggregate widely dispersed information and direct resources to where they produce the greatest value friedrich a hayek 1945 adam smith 1776 these dual roles of informational and allocative efficiency help explain why asset markets are often used to guide economic activity such as production and investment many economic contexts involving production and investment are characterized by multiple equilibria john bryant 1983 jack hirshleifer 1983 russell w cooper 1999 colin camerer and marc knez 1997 jordi brandts and david j cooper 2006 when asset markets are linked to such contexts it is important to understand what role they play in aiding coordination and selecting equilibria if asset markets obtain both informational and allocative efficiency in a multiple equilibrium con text then they should coordinate the beliefs of economic agents and guide behavior to an efficient equilibrium indeed some evidence suggests that one sided auction markets may facilitate efficient coordination in an environment with multiple equi libria john b van huyck raymond c battalio and richard o beil 1993 vincent crawford and bruno broseta 1998 however the broader question of whether asset markets generally lead to efficient coordination in environments with multiple equi libria remains an open question in this paper we explore experimentally the influence of two sided futures asset markets on behavior and outcomes in an economic activity characterized by multi plicity of equilibria we use laboratory experiments where we can control impor tant features of both the market and the underlying activity and focus on situations where the outcome of the economic activity is sensitive to the behavior of small numbers of agents the economic activity in our setting consists of a coordination game with pareto ranked equilibria in which the payoff to each player is a function of her own choice or input and group output which is some order statistic such as the minimum of all players input choices see van huyck battalio and beil 1990 van huyck battalio and beil 1991 crawford 1995 players all do better if they coordinate on the highest output efficient equilibrium which is pareto optimal but they also prefer to select a lower input if they believe others will do so coordination games of this kind have been applied widely to model economic activity from the relationship between beliefs and output in macroeconomic models cooper 1999 to public good provision hirshleifer 1983 to firm production

dealer price discrimination in new car purchases evidence from the consumer expenditure survey this paper documents the variation in dealer discounts for new cars using transactions price data from the consumer expenditure survey consumer specific characteristics fail to explain dealer discounts whereas model market specific and purchase transaction variables e g first time purchase trade in and financing through dealer do explain them the results contradict earlier findings of race and gender discrimination based on a controlled experiment this contradiction is reconciled by examining the higher moments of the empirical discount distribution while mean and median markups do not vary by race and gender minority purchases are characterized by higher dispersion this may rationalize the disparate treatment of minorities by dealers documented in the controlled experiment

sovereign debt repurchases no cure for overhang troubled debtor countries do not gain by repurchasing external bank debt at market discount even if a buyback would stimulate investment by relieving debt overhang the reason is that buybacks allow creditors to reap more than 100 percent of any efficiency gains that might result from increased investment we show that open market buybacks provide a benchmark for evaluating more complex negotiated buyback deals by comparing any given deal with a hypothetical market buyback of the same size one can derive upper and lower bounds on the gain to the country we apply our model to the 1990 mexican debt deal

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

a model of search with price discrimination abstract we introduce observable heterogeneity across buyers into a model of simultaneous search buyers differences are informative about their willingness to search giving rise to price discrimination even if they all have the same willingness to pay we analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not we find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution interestingly for normally distributed search costs there is an inverted u shape relationship between prices and buyers size similarly a ban on price discrimination hurts small and large buyers to the benefit of the medium size ones

external debt labour productivity growth and convergence evidence from sub saharan africa sub saharan africa ssa has long suffered from lagging productivity and excessive levels of indebtedness using both parametric and non parametric techniques this paper examines the impact of external debt on labour productivity growth and convergence across ssa economies over the period 1970 2010 the results indicate the presence of debt overhang effects regardless of model and sample specification debt reduction through the heavily indebted poor countries and multilateral debt relief initiatives enhanced growth but was not successful in offsetting the debt overhang effects moreover excessive levels of external debt were responsible for divergence in output per worker over the early 1990s although this trend was reversed over the 2000s reduction in debt through the debt relief initiatives seems to have been insufficient in helping heavily indebted countries in ssa catch up with the labour productivity levels of the best performing economies in the region

price competition in multimarket duopolies in this article we analyze the pricing strategies offirms that compete for the demand of an assortment of goods in a complete information static framework in particular we model the competition between two symmetric firms in a market that consists of two types of consumers each of which may buy one unit of both goods sold by the two firms we show that all nash equilibria are such that neither firm charges the same price for both goods interestingly under certain conditions thefirms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits for another set of conditions the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard hotelling model with one good finally we show that if these equilibria exist both firms prefer to sell both goods rather than specialize in either one of them these results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment as modelled in this article

social preferences and strategic uncertainty an experiment on markets and contracts this paper reports experimental evidence on a stylized labor market the experiment is designed as a sequence of three phases in the first two phases p1 and p2 agents face simple games which we use to estimate subjects social and reciprocity concerns together with their beliefs in the last phase p3 four principals who face four teams of two agents compete by offering agents a contract from a fixed menu then each agent selects one of the available contracts i e he chooses to work for a principal production is determined by the outcome of a simple effort game induced by the chosen contract we find that heterogeneous social preferences are significant determinants of choices in all phases of the experiment since the available contracts display a trade off between fairness and strategic uncertainty we observe that the latter is a much stronger determinant of choices for both principals and agents finally we also see that social preferences explain to a large extent matching between principals and agents since agents display a marked propensity to work for principals with similar social preferences

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

institutions and behavior experimental evidence on the effects of democracy a novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed in contrast to the previous literature our experimental design allows us to control for selection effects e g those who choose the policy may be affected differently by it our finding implies that democratic institutions may affect behavior directly in addition to having effects through the choice of policies our findings have implications for the generalizability of the results of randomized policy interventions

endogenous incentive contracts and efficient coordination we examine the effects of endogenous assignment to incentive contracts on worker productivity assignment to high performance pay via a market mechanism is roughly twice as effective as imposing the same contract exogenously this positive effect is largely offset by a negative effect for workers that endogenously choose low performance pay we decompose the positive effect of endogenous assignment to high performance pay into effects due to selection and strategic anticipation and find that selection has a greater effect than strategic anticipation we use a reverse sort treatment to show that the effect of selection is sufficiently strong to overcome the direct effect of lower performance pay yielding coordination at high effort levels in spite of low incentives

diagnosing consumer confusion and sub optimal shopping effort theory and mortgage market evidence mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers lack of knowledge and experience we study the compensation that borrowers pay to mortgage brokers for assistance from application to closing two findings support the conclusion that confused borrowers overpay for brokers services i a model of effective shopping shows that bor rowers sacrifice at least 1 000 by shopping from too few brokers ii borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash jel d12 d14 g21 we study a large and financially complex expenditure that the majority of consumers make only a few times in their lives the payment for mortgage origination services in these transactions information is not only imperfect but traditional market practices have likely contributed to consumer confusion these payments range from 0 to 30 000 for mortgages of normal size mortgage brokers receive payments from both borrowers and from wholesale lenders on most loans broker fees paid in cash by the borrower are usually broken down into more than a dozen individual items such as origination fee discount points funding fee and doc prep in addition to these cash payments about half of the value that the bor rower transfers to the broker takes the form of a payment from the wholesale lender to the mortgage broker the borrower bears the burden of this part of the payment in the form of a higher interest rate on the loan these payments compensate mortgage brokers for arranging mortgage loans we stress that this paper is about how and how much borrowers pay their brokers for origination services the broker is an administrator of the process of loan origination the broker bears none of the risk of default on the mortgage so that risk is not a determinant of the broker s compensation under standard theories of pricing because consumers enter the mortgage market infrequently and because features of the market make it difficult to learn the best price mortgage origination pricing

instrument choice the demand for mortgages in canada abstract this paper is directed at understanding the factors which caused mortgage demand to fluctuate to the degree witnessed in the 1980s we model the mortgage choice decision as involving simultaneous options on both the term and the amortization choice by cost minimizing risk averse borrowers the model is estimated using a bivariate ordered probit methodology an extensive database containing details on the financial and demographic characteristics of households is used we find that contrary to the dominant model of mortgage demand borrowers react to market conditions in a risk averse and cost minimizing manner

consumer financial protection the recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets this paper discusses consumer financial regulation emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making we present three case studies of mortgage markets payday lending and financing retirement consumption to illustrate the need for and limits of regulation we argue that if regulation is to be beneficial it must be tailored to specific problems and must be accompanied by research to measure the effectiveness of regulatory interventions

signaling future actions and the potential for sacrifice we consider extensions of games where some players have the option of signaling future actions by incurring costs the main result is that in a class of games if one player can incur costs then forwards induction selects her most preferred outcome surprisingly the player does not have to incur any costs to achieve this the option alone suffices however when all players can incur costs one player s attempt to signal a future action is vulnerable to a counter signal by the opponent this vulnerability to counter signaling distinguishes signaling future actions from signaling types

what price coordination the efficiency enhancing effect of auctioning the right to play a model is proposed to explain the results of recent experiments in which subjects repeatedly played a coordination game with the right to play auctioned each period in a larger group subjects bid the market clearing price to a level recoverable only in the efficient equilibrium and then converged to that equilibrium although subjects playing the game without auctions converged to inefficient equilibria the efficiency enhancing effect of auctions is reminiscent of forward induction but is not explained by equilibrium refinements the model explains it by showing how strategic uncertainty interacts with history dependent learning dynamics to determine equilibrium selection copyright 1998 by american economic association

asset markets as an equilibrium selection mechanism coordination failure game form auctions and tacit communication abstract in this paper we explore the possibility that asset markets provide a means of tacit communication which may allow subjects to coordinate on the payoff dominant equilibrium in an underlying coordination game we find that the existence of a market price for the right to play does communicate information about the equilibrium selection problem specifically behavior never converged to the efficient outcome when subjects were endowed with the right to participate but always converged to the efficient outcome when subjects purchased the right to participate journal of economic literature classification numbers c720 g120

sorting and incentive effects of pay for performance an experimental investigation agency theory highlights losses in productivity that may occur when the interests of owners and employees are imperfectly aligned pay for performance has been proposed as a solution to this proble

communication and efficiency in competitive coordination games costless pre play communication has been found to effectively facilitate coordination and enhance efficiency in games with pareto ranked equilibria we report an experiment in which two groups compete in a weakest link contest by expending costly efforts allowing intra group communication leads to more aggressive competition and greater coordination than control treatments without any communication on the other hand allowing inter group communication leads to less destructive competition as a result intra group communication decreases while inter group communication increases payoffs our experiment thus provides an example of an environment where communication can either enhance or damage efficiency this contrasts sharply with experimental findings from public goods and other coordination games where communication always enhances efficiency and often leads to socially optimal outcomes