expectationally driven market volatility an experimental study abstract we study the existence and robustness of expectationally driven price volatility in experimental overlapping generation economies in the theoretical model under study there exist pure sunspot equilibria which can be learned if agents use some adaptive learning rules our data show the existence of expectationally driven cycles but only after subjects have been exposed to a sequence of real shocks and learned a real cycle in this sense we show evidence of path dependent price volatility journal of economic literature classification numbers c62 c92 f17 e32 e44

input versus emission taxes environmental taxes in a mass balance and transaction costs perspective the standard policy recommendation to limit pollution is to use taxes or tradeable quotas on emissions a general emphasis on emissions does not however take proper account of the characteristics of the material flow through the economy an analysis of the relationships between transaction costs and features of this flow shows that it may be less costly to tax inputs into the economy the paper focuses on the advantages of a mass flow perspective in environmental economics the trade off between the precision of an environmental regulation and its implementation costs and develops criteria for choosing between input and emission related instruments

active and passive behaviour in land ownership in recent years empirical studies of the motives and behaviour of landowners have helped enlighten theoretical understandings of the process of land supply for urban development structuralist and behaviourist approaches have both been used in empirical work this paper presents the results of recent research on the involvement of landowners in the local planning process the research points to a much greater variety of landowner behaviour than either acknowledged by structuralist typologies or contained within behaviourist characteristics involvement in the local planning process would however appear to be an early indicator of later activity by the landowner in the development process such early warnings may be useful in enabling landowner behaviour to be predicted

the welfare effects of third degree price discrimination in the author examines third degree price discrimination by an upstream monopolist in an intermediate good market discrimination is motivated by the fact that downstream firms differ in their abilities to integrate backward into supply of the input the author shows that under reasonable specifications of equilibrium price discrimination leads to all buyers facing higher input prices in other cases discrimination raises some prices and lowers others the author derives conditions under which discrimination lowers welfare by reducing total output and shows that in some markets discrimination will raise welfare by preventing socially inefficient backward integration copyright 1987 by american economic association

price manipulation in an experimental asset market we analyze in the laboratory whether an uninformed trader is able to manipulate the price of a financial asset by comparing the results of two experimental treatments in the benchmark treatment 12 subjects trade a common value asset that takes either a high or a low value only three subjects know the actual value of the asset while the market is open for trading the manipulation treatment is identical to the benchmark treatment apart from the fact that we introduce a computer program as an additional uninformed trader this robot buys a fixed number of shares in the beginning of a trading period and sells them again afterwards our main result shows that the last contract price is significantly higher in the manipulation treatment if the asset takes a low value and that private information is very well disseminated by both markets if the value of the asset is high finally even though this simple manipulation program loses money on average it is profitable in some instances

housing price land supply and revenue from land sales in a recent study peng and wheaton empirically examine the effect of restrictive land supply on hong kong house prices however we argue that the impact of the supply of new land by the hong kong government is not as important as they maintain in accounting for the volatile house prices in hong kong we show that there is no causal relationship between land supply and housing prices our estimations based on the annual data of hong kong s public land sales find that the government acts to maximise land revenue maximisation of revenue from land sales is however consistent with the efficient allocation of resources we also show that the amount of land sales by the government and land in developers land banks tend to decrease when market interest rates increase land banking behaviour is governed by economic conditions long term land holding costs should cover interest costs

affecting policy by manipulating prediction markets experimental evidence abstract documented results indicate prediction markets effectively aggregate information and form accurate predictions this has led to a proliferation of markets predicting everything from the results of elections to a company s sales to movie box office receipts recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy however we present evidence from the lab indicating that single minded well funded manipulators can in fact destroy a prediction market s ability to aggregate informative prices and mislead those who are making forecasts based upon market predictions however we find that manipulators primarily influence market trades meaning outstanding bids and asks remain informative

do prediction markets aid defenders in a weak link contest abstract laboratory experiments have demonstrated that prediction market prices weakly aggregate the disparate information of the traders about states moves of nature however in many practical applications one is attempting to predict the move of a strategic rival this is particularly important in aggressor defender contests this paper reports an experiment where the defender may have the advantage of observing a prediction market on the aggressor s action the results of the experiments indicate that the use of prediction markets does not increase the defender s win rate prediction markets contain reliable information regarding aggressors decisions that is not being exploited by defenders and the existence of a prediction market does not alter the behavior of the aggressor whose behavior is being forecast

rational expectations and the aggregation of diverse information in laboratory security markets the idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization hurwicz 1972 and rational expectations lucas 1972 we report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations in two of the three series one in which participants trade a complete set of arrow debreu securities and a second in which all participants have identical preferences double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium

the choice between emission taxes and output taxes under imperfect monitoring we consider a regulator s choice between environmentally motivated emissions taxes and output taxes we investigate how the optimal instrument depends on the monitoring cost function the firm s technology and on social preferences regarding output and environmental quality pure emissions taxes are usually not optimal with monitoring costs pure output taxes are optimal under sufficiently high monitoring costs sufficiently limited options for emission reduction by means other than output reduction and sufficiently high substitutability of the output finally conditions for the optimality of mixed taxes are given

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

information aggregation and manipulation in an experimental market prediction markets are increasingly being considered as methods for gathering summarizing and aggregating diffuse information by governments and businesses alike critics worry that these markets are susceptible to price manipulation by agents who wish to distort decision making we study the effect of manipulators on an experimental market we find that manipulators are unable to distort price accuracy subjects without manipulation incentives compensate for the bias in offers from manipulators by setting a different threshold at which they are willing to accept trades

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

upstream and downstream pollution taxations in vertically related markets with imperfect competition when two markets are vertically related the government can control pollution at the upstream as well as the downstream market levels this paper employs the stylized model of input price discrimination and compares the effectiveness of upstream and downstream pollution taxations we consider the situation in which downstream firms have heterogeneous abatement technologies and an upstream monopolist performs input price discrimination against them in order to mitigate pollution the government imposes input tax on the intermediate inputs and emission tax on the pollutant we show that the degree of input price discrimination decreases with a rise in the input tax and increases with a rise in the emission tax we further examine the effect of a green tax reform in which the government changes the source of taxation from input tax to emission tax we argue that although this green tax reform may reduce the tax revenue of the government it will certainly increase social welfare

how much information is incorporated in financial asset prices experimental evidence we propose a new estimation method and use experimental data from multiple double auction experiments in the literature to directly estimate how much information is incorporated in financial market prices we find that public information is almost completely reflected in prices but that surprisingly little private information less than 50 is incorporated in prices our estimates therefore suggest that while semi strong informational efficiency is consistent with the data financial market prices may be very far from strong form efficiency we compare our estimates with beliefs of economists surveyed at the econometric society meetings and find that economists and finance researchers alike expect market prices to reflect considerably more private information than what we estimated

environmental taxation and strategic commitment in duopoly models in this paper we address the issue of optimalenvironmental taxation under imperfect competition the problem is analysed for three different types ofduopoly models the cournot open and closed loopmodels and the stackelberg model we explicitlyanalyse the role of strategic behaviour each firm hasto make a choice of output level and of the level ofa strategic variable the choice of this strategicvariable affects both marginal cost and emissions wecompare the properties of these three duopoly models and derive and compare optimal environmental taxes weshow that whether the optimal tax is lower or higherthan marginal environmental costs depends on theinformation transmission and the effect of thestrategic variable on marginal costs in addition thedifferences in market shares and the influence of thetax on the cost structure play important roles indetermining optimal emission taxes

historical presidential betting markets this paper analyzes the large and often well organized markets for betting on u s presidential elections that operated between 1868 and 1940 four main points are addressed first we show that the market did a remarkable job forecasting elections in an era before scientific polling second the market was fairly efficient despite the limited information of participants and active attempts to manipulate the odds third we argue political betting markets disappeared largely because of the rise of scientific polls and the increasing availability of other forms of gambling finally we discuss lessons this experience provides for the present

the supply of land the supply of land to a use may result from individual suppliers maximizing utility as a consequence the slope of the supply curve cannot be determined a priori supply will be influenced by the distribution of non land income different tenure categories will behave according to the balance of substitution and welfare effects compulsory purchase may be necessary to surmount individual preferences and the effect of a development gains tax on change of use will depend upon the relation between the rate of tax the tax base and the supplier s compensating variation

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

information cascades replication and an extension to majority rule and conformity rewarding institutions in a randomly determined order each agent was given an independent private signal about which of two states was selected by a random draw after receiving the private signal each agent made a publicly announced decision about the state thus at the time of personal decision each agent had a private signal and also knew the decisions of all preceding agents the experiments focused on three different types of organization 1 agents were rewarded according to whether their announced decision was right or wrong this individualistic institution is the one studied by anderson and holt aer 1997 their discovery of information cascades is replicated 2 agents were rewarded according to whether a majority of announced decisions were right or wrong under this majority rule institution the instance of information cascades is sharply reduced 3 agents are rewarded more according to whether their personal announced decision was the same as the majority decision than they were rewarded if their decision was correct this conformity rewarding institution is motivated by proceedings in which there is incentive to produce reports that conform to the reports of others substantial information cascades are observed

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

input market price discrimination and the choice of technology recent concerns over the effects of the robinson patman act and so called priceprotection policies such as most favoredcustomer clauses mfc s 2 on market performance have given economists new reasons to examine the welfare effects of third degree price discrimination in order to assess these effects correctly it is imperative that one understand how price discrimination influences market behavior joan robinson s 1933 work launched the formal inquiry into the welfare effects of third degree price discrimination building on the intuition presented by arthur pigou 1932 she showed that if a monopolist faces two independent linear demand curves the use of price discrimination will not affect industry output but will reduce welfare richard schmalensee 1981 extends these results to nonlinear demand curves and shows that an increase in total industry output is a necessary condition for price discrimination to be welfare improving hal varian 1985 broadens these results by deriving upper and lower bounds on the welfare change due to the use of price discrimination he shows that these results can be applied to markets in which there are nonzero cross price effects all of this work examines how the ability of a monopolist to price discriminate will affect the market outcome when all other characteristics of the market are treated as exogenous recently two lines of research have extended this inquiry beyond the case of a monopolist in a market with exogenously fixed parameters the first line considers the case of oligopoly the work of charles holt and david scheffman 1985 and thomas cooper 1986 has shown that restrictions on price discrimination imposed by the use of mfc s can facilitate collusion between oligopolists attempting to restrict output this implies that third degree price discrimination can be welfare improving the second line of research shows that price discrimination by a firm can affect nonprice decisions made by other market participants thus affecting the market outcome michael katz 1987 presents a model in which a large firm s ability to vertically integrate backward into the production of an input allows it to obtain a lower per unit price from the supplier of the input than can be obtained by smaller firms without this ability he shows that third degree price discrimination reduces welfare unless it prevents inefficient backward integration degraba 1987 shows that the use or nonuse of price discrimination by a national firm can affect nonprice decisions made by local firms that compete with the national firm in this situation third degree price discrimination is welfare reducing because it induces local firms to produce a product that is overly differentiated from the product of the national firm in all of the work cited above price discrimination is important when sellers set prices in separate markets or charge different prices to different customers in the same market the following analysis which can be considered a contribution to the second line of research suggests that price discrimination can be important even when a seller faces a single market in which all customers are identical the intuition behind this result is that nonprice decisions made by downstream producers such as the choice of technology can be affected by the use or johnson graduate school of management cornell university ithaca ny 14853 i thank robert frank robert smiley richard thaler and the participants of the jgsm applied microeconomics workshop for their helpful comments see william baldwin 1987 pp 438 40 for a good summary of the debate 2see john kwoka and lawrence white 1989 pp 196 7