the secondary market and the international debt problem abstract the objective of this study is to analyze the new secondary market of developing country debt we provide a brief description of the market participants instruments and purposes an analysis of prices in the secondary market follows we are especially concerned about the recent plunge in secondary market prices and whether it reflects fundamentals such as movements in debt to export ratios and suspensions of interest payments or simply the illiquidity of the market we find that both sets of factors are involved and as a result conclude that prices on the secondary market are probably below their long run equilibrium values in the next section we review the risks inherent in using the secondary market for debt from a developing country point of view and discuss the market s near term potential growth we conclude with some general remarks about the role of the secondary market in resolving the international debt problem that is in restoring capital flows to developing countries

introducing incentives in the market for live and cadaveric organ donations we evaluate the introduction of monetary incentives in the market for live and cadaveric organ donations we show that monetary incentives would increase the supply of organs for transplant sufficiently to eliminate the very large queues in organ markets and the suffering and deaths of many of those waiting without increasing the total cost of transplant surgery by more than about 12 percent we build on the value of life literature and other parts of economic analysis to estimate the equilibrium cost of live transplants for kidneys and livers we also show that market price for kidneys will be determined by the cost of live donations even though most organs will come from cadavers

ten little treasures of game theory and ten intuitive contradictions this paper reports laboratory data for games that are played only once these games span the standard categories static and dynamic games with complete and incomplete information for each game the treasure is a treatment in which behavior conforms nicely to predictions of the nash equilibrium or relevant refinement in each case however a change in the payoff structure produces a large inconsistency between theoretical predictions and observed behavior these contradictions are generally consistent with simple intuition based on the interaction of payoff asymmetries and noisy introspection about others decisions

explicit versus implicit contracts for dividing the benefits of cooperation abstract experimental evidence has accumulated highlighting the limitations of formal and explicit contracts in certain situations and has identified environments in which informal and implicit contracts are more efficient this paper documents the superior performance of explicit over implicit contracts in a new partnership environment in which both contracting parties must incur effort to generate a joint surplus and one strong agent controls the surplus division in the treatment in which the strong agent makes a non binding cheap talk bonus offer to the weak agent this unenforceable promise doubles the rate of joint high effort compared to a baseline with no promise the strong agents most frequently offered to split the gains of the high effort equally but actually delivered this amount only about one quarter of the time an explicit and enforceable contract offer performs substantially better increasing the frequency of the most efficient outcome by over 200 relative to the baseline

decisions error and heterogeneity probabilistic choices or choice errors may play an important supporting role in shaping observed risky choices and a variety of restrictions on such choice probabilities play the role of identifying restrictions in empirical decision research we test six restrictions in the context of common ratio effect data for a general class of theories of risky choice two restrictions one for aggregate and one for individual data are supported but none of the heterogeneity restrictions that make the aggregate data model powerful survive scrutiny nor do estimable parametric versions of the individual data model there is room for new stochastic identifying restrictions in empirical decision research

experimental evidence of a sunk cost paradox a study of pricing behavior in bertrand edgeworth duopoly a well known implication of microeconomic theory is that sunk costs should have no effect on decision making we test this hypothesis with a human subjects experiment students recruited from graduate business courses with an average of over six years of work experience played the role of firms in a repeated price setting duopoly game in which both firms had identical capacity constraints and costs including a sunk cost that varied across experimental sessions over six different values we find contrary to the prediction of microeconomic theory that subjects pricing decisions show sizable differences across treatments the effect of the sunk cost is non monotonic as it increases from low to medium levels average prices decrease but as it increases from medium to high levels average prices increase these effects are not apparent initially but develop quickly and persist throughout the game cachon and camerer s 1996 loss avoidance is consistent with both effects while cost based pricing predicts only the latter effect and is inconsistent with the former

the effect of subtracting a constant from all payoffs in a hawk dove game experimental evidence of loss aversion in strategic behavior author affiliation nick feltovich n feltovich abdn ac uk acknowledgment this research was partly funded by the university of aberdeen business school i thank miguel costa gomes erika seki joe swierzbinski and qin xiao for helpful suggestions and comments 1 backgroundgame theoretic solution concepts imply that a change in payoff levels modifying a game by adding a constant to all payoffs should not affect behavior as long as payoffs reflect players preferences i e they are equivalent to expected utilities however when the entries in a payoff matrix are actually monetary gains or losses as in economics experiments with human subjects the robustness of behavior to such changes becomes an empirical question research has found that payoff levels can indeed have an effect on behavior particularly when the signs of payoffs change as a result gains turn to losses or vice versa kahneman and tversky 1979 document survey evidence suggesting that losses weigh more heavily than equally sized gains and name this phenomenon loss aversion many examples of loss aversion in laboratory experiments and in the field have since been found camerer 2004 however nearly all have involved individual decision making tasks by contrast evidence of loss aversion in strategic decision making has been hard to find see section 2 for a review the objective of this article is to add to the discussion of whether and how strategic behavior is affected by differential treatment of gains and losses by reporting the strongest evidence i have seen thus far of such an effect in a strategic situation specifically results of a human subjects experiment involving two hawk dove games see figure 1 played under either a fixed pairs or a random matching protocol figure 1the hawk dove games used in the experimenti am agnostic about the source of the effect i find whether it comes from loss aversion or some other phenomenon such as loss avoidance described in section 2 so to save space i will often abuse terminology somewhat by using loss aversion as a shorthand term for any pattern of behavior in which losses weigh more heavily than gains irrespective of the underlying cause 12 previous literaturehere i present a brief review of previous research into the effects of changing payoff levels for a more thorough review see feltovich iwasaki and oda 2008 ido erev and colleagues have conducted several studies examining payoff level effects in repeated individual decision problems typically finding that subjects are quicker to learn an optimal choice under limited payoff information when both gains and losses are possible than when only gains or only losses are possible 2 erev bereby meyer and roth 1999 examined behavior in two versions of a repeated 2 2 constant sum stage game with a unique nash equilibrium in mixed strategies payoffs in the games differed only by subtraction of a constant but one game had losses possible while the other did not erev bereby meyer and roth found that subject choices were more consistent with fictitious play learning that is more likely to optimize against the historical distribution of opponent choices when losses were possible than when they were not on the other hand rapoport and boebel 1992 failed to find a payoff level effect in two versions of a repeated 5 5 constant sum game with a unique mixed strategy equilibrium unlike erev bereby meyer and roth though rapoport and boebel do not affect the signs of any payoffs with their manipulation of payoff levels suggesting that not all payoff level changes matter for behavior only those that change the signs of payoffs another way of examining payoff level effects is in market experiments in which subjects play the role of firms facing sunk costs that vary across treatments

how to evaluate the solvency of an indebted nation reassessing third world debt daniel cohen the conventional measures of the solvency of developing countries usually rely on such indices as debt export or debt gnp ratios the underlying rationale is that to be solvent a country must eventually pay back all its debt this paper starts from two simple but important remarks first solvency need not require the full eventual repayment of all debt continued borrowing may be possible rather what is required is that a country s debt accumulation does not outstrip its capacity to make future repayments and the capacity of lenders to make future loans second solvency therefore cannot be defined independently of the growth rates of lender and borrower countries nor of the interest rate at which past debts accumulate putting these ideas together a new solvency index is proposed and this is computed for all the less developed countries this new index suggests a less gloomy view of the international debt crisis the largest debtors may have already accomplished an adjustment which is more than sufficient to restore their solvency when this is properly computed to investigate this claim there is a detailed analysis of the policies recently adopted in argentina and brazil

market efficiency and cointegration an application to the sterling and deutschemark exchange markets abstract the assumption that the foreign exchange market is efficient that is that agents are risk neutral and use all available information rationally so that the forward exchange rate is an unbiased predictor of the future spot rate is a property often imposed in theoretical international macroeconomic models although a vast empirical literature has evolved to test market efficiency we use recent developments in the theory of cointegration to provide new methods of testing several aspects of foreign exchange market efficiency we ffind evidence inconsistent with market efficiency for both germany and the united kingdom

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

payoff levels loss avoidance and equilibrium selection in games with multiple equilibria an experimental study i introduction game theoretic solution concepts carry the implication that a change in payoff levels a modification to a game by adding the same positive or negative constant to all payoffs should have no effect on behavior such changes do not affect expected payoff differences between strategies under any given beliefs about opponents actions so that best response correspondences and therefore nash equilibria pure or mixed are unaffected when the game has multiple nash equilibria game theory does not rule out the possibility that payoff level changes will lead to a change in which equilibrium is played but it does not predict when such sensitivity will be present or how it will be manifested when the game has a unique equilibrium game theory specifically predicts that changing payoff levels can have no effect so game theory is at least silent as to whether changes in payoff levels can affect players choices and at most explicitly rules out such an effect this implication relies however on the game s payoffs reflecting the true preferences of the players that is the equivalence between payoffs and expected utilities when payoffs are monetary gains or losses as in economics experiments with human subjects this equivalence cannot be taken for granted and the robustness of behavior to changes in payoff levels becomes an empirical question indeed there is evidence dating back at least to kahneman and tversky 1979 suggesting that payoff level changes can affect behavior 1 while their prospect theory was not developed specifically with payoff level effects in mind it can in some cases yield specific predictions for how they ought to affect behavior more recently cachon and camerer 1996 found that decisions in a coordination game experiment could be sensitive to changes in payoff levels when these changes affected the signs of payoffs positive payoffs became negative or vice versa they noted that their results could be explained by loss avoidance which they defined to be a tendency to avoid choices that with certainty yield negative payoffs in favor of alternatives that could yield positive payoffs 2 on the basis of this finding they conjectured that loss avoidance could be used as a criterion for equilibrium selection cachon and camerer s notion of loss avoidance is one of several ways that individuals could treat losses and gains differently in this paper we distinguish between their notion which we call certain loss avoidance and another type which we call possible loss avoidance and define as a tendency to avoid strategies that give a possible negative payoff in favor of one that gives a certain positive payoff we will sometimes use the term loss avoidance to encompass both certain and possible loss avoidance 3 the goal of this paper is to test for loss avoidance in strategic behavior in cases where payoffs are expected money payments to do so we design and conduct an experiment using a stage game well suited for such a test stag hunt a symmetric two player game with one risky action and one safe action and with multiple nash equilibria figure 1 shows three versions of stag hunt with the risky and safe actions labeled r and s these games differ only in payoff level so they are equivalent from a game theoretic standpoint as long as the payoffs represent the players preferences for example they have the same three nash equilibria the pure strategy equilibria r r and s s and a mixed strategy equilibrium in which both players choose r with probability 2 3 when these payoffs represent monetary gains and losses then despite this seeming equivalence our notions of loss avoidance make qualitative predictions regarding how individuals choices might change across the games in the high payoff game shh all payoffs are gains so neither type of loss avoidance will have an effect on behavior

the effect of cadaveric kidney donations on living kidney donations an instrumental variables approach i introduction as of march 19 2012 there are 113 465 patients awaiting an organ transplant only 28 535 transplants were performed in the previous year 1 the critical shortage of organs is the result of an artificial price ceiling instituted by the national organ transplant act nota of 1984 which legislates financial compensation for organs to be unlawful for this reason the current supply of organs is generated by altruistic cadaveric and living donors lds these donors willfully supply organs without any expectation of compensation but the decision to donate is not the same for both cadaveric and lds unlike cadaveric donors cds where the functional value of the organ to the donor is small lds must consider the potential long term healthcare costs associated with donating an organ these costs include an increase in mortality risk morbidity risk loss in quality of life and lost wages generated by time away from work during recovery potential lds and their recipients must weigh these costs versus alternative sources of organs cadaveric organs and other lds and consider their own future demand for organs when deciding to donate even so the number of lds has increased dramatically from 1 769 in 1988 to 5 955 in 2008 an increase of 237 figure 1 over the same period the percentage of blood related or biological donors has decreased from 93 to 60 of all lds several factors can account for these changes introduction of tax incentives for organ donation compatibility websites relaxing donor match requirements and the implied responsiveness of potential lds to increases in the number of persons on the waiting list for deceased donors an increase from 40 000 to 52 000 from 2000 to 2009 2 figure 1 omitted the topic of organ donation has received considerable attention in both the academic literature and the press but there is limited empirical evidence identifying potential causes for the increase in ld rates the trade offs between living and cadaveric kidney donations and the change in ld composition from primarily blood related donors to an increase in non blood related donors 3 two concurrent studies address the substitutability between living and cadaveric donations howard 2011 utilized geographic variation in waiting times for organ transplants to estimate the substitution effect the author finds that a decrease of five kidneys from cadaveric donations is correlated with one additional living kidney donation sweeney 2010 exploits a discontinuity in panel reactive antibody pra 4 blood levels within a regression discontinuity framework and finds a 10 increase in the likelihood of receiving a cadaveric donation decreases the likelihood of receiving a living kidney donation by 2 3 we find similar results as these studies but we utilize a completely different identification method in this article we propose using variation in traffic safety laws between states as an instrumental variable to identify the substitution patterns between living and cadaveric kidney donations a benefit of our approach is that we can analyze how obesity influences the supply of donations the demand for transplantation and the use of living versus cadaveric donations we also analyze substitutability across classes of lds which helps to establish the plausibility of our results and the mechanisms underlying the substitution effects with respect to motor vehicle safety laws we study how changes in seat belt helmet and speed limit laws indirectly affect the number of living donations by shifting the supply of cadaveric organ donations previous studies have considered how changes in these safety laws would affect motor vehicle fatalities and cadaveric donations according to the organ procurement and transplantation network optn roughly 16 of cadaveric donations are the result of a motor vehicle accident mva

currency substitution and monetary autonomy the foreign demand for us demand deposits abstract this paper presents new evidence of currency substitution using the two step estimator of cointegrated systems developed by engle and granger 1987 we estimate and find cointegration among variables suggested by the money services model of currency substitution following engle et al 1989 we estimate an error correction model for each of five countries allowing isolation of long term from short term influences on the foreign demand for us demand deposits our results suggest that currency substitution is a potentially significant phenomenon influencing long term monetary policy independence

are sovereign debt secondary market returns sensitive to macroeconomic fundamentals evidence from the contemporary and interwar markets abstract the insensitivity of sovereign loan secondary market returns to macroeconomic fundamentals has been attributed to market illiquidity and the absence of publicly reported transactional prices during the 1920s and 1930s sovereign bonds were traded in an active market and weekly transactional prices were publicly available this paper shows that price changes from both eras are insensitive to unexpected changes in key external and country specific macroeconomic aggregates but that returns are moved by individual agent announcements that presage changes in future lending the results which contrast with studies of us equities indicate that the sovereignty of the issuer matters more than the type of debt contract

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

a valuation model for developing country debt with endogenous rescheduling creditors have little recourse if a sovereign state repudiates debt obligations they can however threaten to impose penalties if such action occurs which results in deadweight losses to the system as a whole a preferred alternative for both borrower and lender is to reconstruct debt obligations reschedulings are a device that creditors can use to restructure the incentives faced by borrowers such that repudiation is never a rational action this article develops a numerical method of valuing the option to reschedule the model shows why fees are preferred to higher interest spreads during a rescheduling exerise why maturities get shorter prior to a debt crisis but are lengthened in a rescheduling and why little has been done to attempt to seize the assets of countries that have not repaid any interest or principal for extended periods of time the model shows that lenders are willing to commit greater amounts if reschedulings are possible than if they are not and that precommitment to provide additional funds at rescheduling can raise the market value of existing debt and should not be construed as concessions by commercial lenders alternately the model can be used to improve systems for ranking country creditworthiness to assess the degree of adjustment requried to spark resumption of spontaneous lending or to estimate how much interest rates would have to fall to restore a country s creditworthiness

using mandated speed limits to measure the value of a statistical life in 1987 the federal government permitted states to raise the speed limit on their rural interstate roads but not on their urban interstate roads from 55 mph to 65 mph since the states that adopted the higher speed limit must have valued the travel hours they saved more than the fatalities incurred this institutional change provides an opportunity to estimate an upper bound on the public s willingness to trade off wealth for a change in the probability of death our estimates indicate that the adoption of the 65 mph limit increased speeds by approximately 4 percent or 2 5 mph and fatality rates by roughly 35 percent together the estimates suggest that about 125 000 hours were saved per lost life when the time saved is valued at the average hourly wage the estimates imply that adopting states were willing to accept risks that resulted in a savings of 1 54 million 1997 dollars per fatality with a sampling error roughly one third this value we set out a simple model of states decisions to adop

risk aversion and incentive effects comment charles a holt and susan k laury 2002 develop an experimental design to determine the risk attitude of an individual they use their observations to argue that increased incentives appear to change risk attitudes leading to greater risk aversion popular utility functions that do not allow for such effects are therefore misspecified building on this finding they estimate a flexible utility function that characterizes their aggregate data well but that does not assume constant absolute or relative risk aversion the basic holt and laury 2002 hl design should become an important tool for the interpretation and design of experiments in which risk attitudes could play a role however their most important result showing the effect of scaling up the stakes of the lottery choice task is confounded by a possible order effect an order effect occurs when prior experience with one task affects behavior in a subsequent task the primary methodological contribution of experiments in economics is to enhance control ideally such control makes the explanatory variables of interest in this case scale orthogonal to other explanatory variables such as order allowing clearer inferences about behavior than one could get from field econometric data we argue that not controlling for order effects results in a misspecification of utility functions that is as important as that of scale the subjects in the hl design were given sequences of three or four tasks as shown in table 1 task 1 involved choices over lotteries with a baseline level of prizes which we will refer to as the 1 scale task 2 involved hypothetical choices over prizes with a scaled up level of prizes either 20 50 or 90 task 3 repeated task 2 but with choices that involved real payoffs task 4 was a return to the baseline task with real 1 prizes in some sessions subjects were not given task 2 or task 3 what could one infer from the comparison of measured risk attitudes in the 1 and 20 tasks in hl unfortunately any observed difference could be due either to the scale of the prizes involved or the task order or some combination of both thus the effect of scale is intrinsically confounded with the possible effect of task order this is a logical flaw in their design which

coordination and focality under gain loss framing experimental evidence are people better at coordinating on a focal point when the game is framed as coordinating on a division of losses rather than gains in an experimental coordination game we vary the payoff framing gain vs loss and stake size low vs high to examine this question we find that loss framing reduces coordination on the focal point with the strongest effect observed in high stakes games

predictability of secondary market developing country debt prices this paper examines the predictability of secondary market prices for sovereign debt instruments issued by colombia ecuador and venezuela monthly time series observations for each economy are utilized in a seemingly unrelated regression framework econometric analysis includes both in sample and out of sample modelling and forecasting results only data available to financial markets are included in the extrapolation analysis theil inequality coefficients are reported for the simulation tests

highly flexible neighborhood promotes efficient coordination experimental evidence abstract we experimentally investigate group effort coordination games where individuals are occasionally offered opportunities to alter their interaction neighborhood with whom they want to connect and interact we vary the neighborhood flexibility or the rate with which such opportunities arise we find that increasing neighborhood flexibility significantly improves coordination efficiency when players start with a decentralized circle shaped network but the improvement is limited if they start with a highly centralized star shaped network neighborhood flexibility improves coordination through facilitating assortative matching among high effort players in star shaped networks neighborhood flexibility has a side effect of decentralizing the networks which weakens the central player s ability in facilitating coordination hence partially offsets the benefit from assortative matching

subsidizing altruism in living organ donation the current supply of deceased donor organs is insucient to meet the growing demand for transplantable organs the median waiting time for a kidney from a deceased donor is over three years consequently candidates for kidney transplantation are strongly encouraged to nd a living donor however many potential donors have low incomes and donation related costs may discourage them from volunteering to be a donor in 2008 the department of health and human services began to reimburse donor s travel related expenses via the national living donor assistance center nldac using within transplant center variation in their applications for donor assistance we use a dierence in dier ence model to estimate the impact of the nldac on the number of living donor kidney transplants we nd that among participating transplant centers the program increased the number of living donor kidney transplants by approximately 14 the nldac program provides an eective subsidy for donor s altruism

enjoying the quiet life corporate governance and managerial preferences much of our understanding of corporations builds on the idea that managers when they are not closely monitored will pursue goals that are not in shareholders interests but what goals would managers pursue this paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences we use plant level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws we find that when managers are insulated from takeovers worker wages especially those of white collar workers rise the destruction of old plants falls but the creation of new plants also falls finally overall productivity and profitability decline in response to these laws our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life

the impact of exchange rates and developing country debt on commodity prices a major feature of the international economy over the past decade has been the swings in the value of the us dollar the dollar fell to a historically low level in the late i970s but rose sharply over the period i982 4 by the beginning of i985 the dollar was generally considered to be over valued by between 2o and 40 since i985 there has been a depreciation of over one third these wide fluctuations in the value of the dollar have had implications for all major traded goods this paper focuses on the effects of changes in the value of the dollar on primary commodity prices and possible interactions between ldc indebtedness and these effects a rise fall in the value of the dollar must be expected to result in a fall rise in dollar commodity prices ridler and yandle i972 proposed a simple comparative static single commodity model to analyse the effects of exchange rate changes on the price of an individual primary commodity they showed that the commodity price change would be given by the change in an appropriately weighted exchange rate index write the price of commodityj as

strategic loan defaults and coordination an experimental analysis this paper experimentally studies the impact of bank and borrower fundamentals on loan repayment we find that solvent borrowers are more likely to default strategically when the bank s expected strength is low although loan repayment is a pareto dominant nash equilibrium borrowers are also less likely to repay when other borrowers expected repayment capacity is low regardless of banks fundamentals we show that changes in expectations about bank and borrower fundamentals change the risk dominance properties of the borrowers coordination problem and that these changes subsequently explain strategic defaults for the individual borrower loss aversion and negative past experiences reduce repayment suggesting that bank failure can be contagious in times of distress

debt sustainability and overadjustment abstract a simple debt accumulation model based on balance of payments identifies is analyzed and used to project debt to export ratios in latin america and africa uo tp 1990 the fundamentals of debt dynamics are shown to be determined by four ratios interest rate to export growth import growth to export growth and the initial debt to export and import to export ratios the relevance of the initial conditions and the importance of import growth on debt dynamics are discussed sustainability of the debt in terms of keeping debt to export ratios on a declining trend is defined and used to quantify the associated amount of excess import restraint in debtor countries two tests are constructed that measure excess restraint i e overadjustment based on the fundamentals of debt dynamics both tests assume that interest rates exceed export growth the first requires a substantial amount of past adjustment effort the second does not but places tighter restrictions on the future commitment that is needed to remain solvent these tests are applied to latin america and to africa both before and after the recent downward oil price shock estimates of excess import restraint are reported

loss avoidance as selection principle evidence from simple stag hunt games abstract we investigate experimentally the conjecture that loss avoidance solves the tension in stag hunt games for which payoff dominance and risk dominance make conflicting predictions contrary to received textbook wisdom money losing outcomes do shift behavior albeit not strongly toward the payoff dominant equilibrium