asset pricing implications of pareto optimality with private information we compare the empirical performance of a standard incomplete markets asset pricing model with that of a novel model with constrained pareto optimal allocations we represent the models stochastic discount factors in terms of the cross sectional distribution of consumption and use these representations to evaluate the models empirical implications the first model is inconsistent with the equity premium in the united states united kingdom and italy the second model is consistent with the equity premium and the risk free rate in all three countries if the coefficient of relative risk aversion is roughly 5 and the quarterly discount factor is less than 0 5

do soccer players play the mixed strategy nash equilibrium mixed strategy nash equilibrium msne is a commonly used solution concept in game theoretic models in various fields in economics management and other disciplines but the experimental results whether the msne predicts well actual play in games is mixed consequently the evidence for naturally occurring games in which the msne predicts the outcome well is of great importance as it can justify the vast use of msne in models the game between the kicker and the goalkeeper in soccer penalty kicks is a real world game that can be used to examine the application of the msne concept or its accuracy because payoffs are a common knowledge the players have huge incentives to play correctly the game is simple enough to analyse its nash equilibrium is in mixed strategies and players actions can be observed we collected and analysed the data on the direction of kicks and jumps in penalty kicks in various top leagues and tournaments our analysis suggests that the msne predictions are the closest to the act

is tiger woods loss averse persistent bias in the face of experience competition and high stakes although experimental studies have documented systematic decision errors many leading scholars believe that experience competition and large stakes will reliably extinguish biases we test for the presence of a fundamental bias loss aversion in a high stakes context professional golfers performance on the pga tour golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament yet each individual hole has a salient reference point par we analyze over 2 5 million putts using precise laser measurements and find evidence that even the best golfers including tiger woods show evidence of loss aversion jel d03 d81 l83

long run effects of public sector sponsored training in west germany between 1991 and 1997 west germany spent on average about 3 6 bn euro per year on public sector sponsored training programmes for the unemployed we base our empirical analysis on a new administrative data base that plausibly allows for selectivity correction by microeconometric matching methods we identify the effects of different types of training programmes over a horizon of more than seven years using bias corrected weighted multiple neighbours matching we find that all programmes have negative effects in the short run and positive effects over a horizon of about four years however for substantive training programmes with duration of about two years gains in employment probabilities of more than 10 points appear to be sustainable but come at the price of large negative lock in effects

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

ownership dynamics and asset pricing with a large shareholder we analyze the optimal trading and ownership policy of a large shareholder who must trade off diversification and monitoring incentives without commitment the problem is similar to durable goods monopoly the share price today depends on expected future trades we show that the large shareholder ultimately trades to the competitive price taking allocation even though it entails inefficient monitoring with continuous trading the large shareholder trades immediately to this allocation if moral hazard is weak enough that her private valuation of a share is decreasing in her stake otherwise the large shareholder adjusts her stake gradually we consider implications for asset pricing ipo underpricing and lockup provisions

testing mixed strategy equilibria when players are heterogeneous the case of penalty kicks in soccer the concept of mixed strategy is a fundamental component of game theory and its normative importance is undisputed however its empirical relevance has sometimes been viewed with skepticism the main concern over the practical usefulness of mixed strategies relates to the indifference property of a mixedstrategy equilibrium in order to be willing to play a mixed strategy an agent must be indifferent between each of the pure strategies that are played with positive probability in the mixed strategy as well as any combination of those strategies given that the agent is indifferent across these many strategies there is no bene t to selecting precisely the strategy that induces the opponent to be indifferent as required for equilibrium why an agent would in the absence of communication between players choose exactly one particular randomization is not clear of course whether agents in real life actually play nash equilibrium mixed strategies is ultimately an empirical question the evidence to date on this issue is based almost exclusively on laboratory experiments e g barry o neill 1987 amnon rapoport and richard b boebel 1992 dilip mookherjee and barry sopher 1994 jack ochs 1995 kevin a mccabe et al 2000 the results of these experiments are mixed o neill 1987 concludes that his experimental evidence is consistent with nash mixed strategies but that conclusion was contested by james n brown and robert w rosenthal 1990 with the exception of mccabe et al 2000 which looks at a three person game the other papers generally reject the nash mixedstrategy equilibrium while much has been learned in the laboratory there are inherent limitations to such studies it is sometimes argued that behavior in the simpli ed arti cial setting of games played in such experiments need not mimic real life behavior in addition even if individuals behave in ways that are inconsistent with optimizing behavior in the lab market forces may discipline such behavior in the real world finally interpretation of experiments rely on the assumption that the subjects are maximizing the monetary outcome of the game whereas there may be other preferences at work among subjects e g attempting to avoid looking foolish that distort the results tests of mixed strategies in nonexperimental data are quite scarce in real life the games played are typically quite complex with large strategy spaces that are not fully speci ed ex ante in addition preferences of the actors may not be perfectly known we are aware of only one paper in a similar spirit to our own research using data from classic tennis matches mark walker and john wooders 2001 test whether the probability the player who serves the ball wins the point is equal for serves to the right and chiappori department of economics university of chicago 1126 east 59th street chicago il 60637 levitt department of economics university of chicago groseclose graduate school of business stanford university 518 memorial way stanford ca 94305 the paper was presented at games 2000 in bilbao and at seminars in paris and chicago we thank d braun j m conterno r guesnerie d heller d mengual p reny b salanie and especially j l ettori for comments and suggestions and m mazzocco and f bos for excellent research assistance any errors are ours 1 the theoretical arguments given in defense of the concept of mixed strategy equilibria relate either to puri cation john c harsanyi 1973 or to the minimax property of the equilibrium strategy in zero sum games for recent elaborations on these ideas see authur j robson 1994 and phil reny and robson 2001 2 the ultimatum game is one instance in which experimental play of subjects diverges substantially from the predicted nash equilibrium robert slonim and alvin e roth 1998 demonstrate that raising the monetary payoffs to experiment participants induces behavior closer to that predicted by theory although some disparity persists

primaries and the new hampshire effect candidates for u s presidential elections are determined through sequential elections in single states the primaries we develop a model in which candidates can influence their winning probability in electoral districts by spending money on campaigning the equilibrium replicates several stylized facts very well campaigning is very intensive in the first district the outcome of the first election then creates an asymmetry in the candidates incentives to campaign in the next district which endogenously increases the equilibrium probability that the first winner wins in further districts on the normative side our model oers a possible explanation for the sequential organization it leads in expectation to a lower level of advertising expenditures than simultaneous elections moreover if one of the candidates is the more eective campaigner sequential elections also perform better with regard to the selection of the best candidate

exploitable actions of believers in the law of small numbers in repeated constant sum games abstract in repeated fixed pair constant sum games with unique equilibria in mixed strategies such as matching pennies the subgame perfect equilibrium is repeating the stage game mixed strategy equilibrium action in such games rational players avoid strategies that are exploitable in that current actions either deviate systematically from the equilibrium action probabilities or fail to be serially independent of past actions i revisit classic experiments and find that subjects actions are sometimes exploitable because they are serially dependent subjects have difficulty in producing serially independent actions and in recognizing serially dependent sequences due to a bias called local representativeness

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

behavior in group contests a review of experimental research group contests are ubiquitous some examples include warfare between countries competition between political parties team incentives within firms group sports and rent seeking in order to succeed members of the same group have incentives to cooperate with each other by expending individual efforts however since effort is costly each member also has an incentive to abstain from expending any effort and instead free ride on the efforts of other members contest theory shows that the intensity of competition between groups and the amount of free riding within groups depend on the group size sharing rule group impact function contest success function and heterogeneity of players we review experimental studies testing these theoretical predictions almost all studies of behavior in group contests find significant over expenditure of effort relative to the theory we discuss potential explanations for such over expenditure including the utility of winning bounded rationality relative payoff maximization parochial altruism and social identity despite over expenditure most studies find support for the comparative statics predictions of the theory with the exception of the group size paradox finally studies show that there are effective mechanisms that can promote within group cooperation and conflict resolution mechanisms that can de escalate and potentially eliminate between group conflict

do professionals choke under pressure high rewards or the threat of severe punishment provide strong motivation but also create psychological pressure which might induce performance decrements by analyzing the performance of professional football players in penalty kick situations the paper provides empirical evidence for the existence of detrimental incentive effects two pressure variables are considered in particular 1 the importance of success and 2 the presence of spectators there are plenty of situations in which pressure arises in the workplace knowing how individuals perform under pressure conditions is crucial because it has implications for the design of the workplace and the design of incentive schemes

professionals play minimax the implications of the minimax theorem are tested using natural data the tests use a unique data set from penalty kicks in professional soccer games in this natural setting experts play a one shot two person zero sum game the results of the tests are remarkably consistent with equilibrium play in every respect i winning probabilities are statistically identical across strategies for players ii players choices are serially independent the tests have substantial power to distinguish equilibrium play from disequilibrium alternatives these results represent the first time that both implications of von neumann s minimax theorem are supported under natural conditions during the last few decades game theory has contributed to a reshaping of important aspects of the methodology of economics and other social sciences in a large part this is because the language concepts and techniques of non cooperative game theory have become central to many areas of the discipline undoubtedly studying the interaction of ideally rational players greatly aids our understanding of the behaviour of real individuals firms and other agents moreover as kreps 1991 remarks studying the former should aim at understanding the latter the point of game theory is to help economists understand and predict what will happen in economic social and political contexts theoretical contributions should thus feed back to empirical analysis however testing the implications of the theory has proven extremely difficult in the literature the primary reason is that many predictions often hinge on properties of the utility functions and the values of the rewards used even when predictions are invariant over classes of preferences data on rewards are seldom available in natural settings moreover there is often great difficulty in determining strategy sets and in measuring individuals choices effort levels and the incentive structures they face as a result even the most fundamental predictions of game theoretical models have not yet been supported empirically in real situations in view of the substantial problems associated with testing theoretical predictions using natural data many authors have been compelled to test them in experimental settings interestingly enough despite the controlled structure of experiments the results of many experiments during the last few decades typically reject the assumption that subjects are playing according to the theoretical implications of equilibrium play for instance a number of experiments have evaluated the empirical validity of von neumann s minimax theory for two person zero sum games a theory that occupies a central position in our understanding of strategic situations the results have been mixed and are often rather negative see for instance brown and rosenthal 1990 rapoport and boebel 1992 camerer 2003 and the references therein

good girl bad boy evidence consistent with collusion in professional tennis we identify professional tennis matches where one player competes for extraordinarily high payoffs while their opposition does not players on the bubble of direct qualification to upcoming grand slam events face substantially higher stakes than opponents which presents an opportunity for collusion our findings produce evidence that is consistent with the hypothesis of unethical behavior taking place on the men s tour as bubble players are 5 1 percentage points more likely to beat better ranked opponents than in comparable nonbubble matches however no such evidence emerges when analyzing women s tennis we find additional support for the hypothesis of match fixing activities on the men s tour from analyzing the occurrence of tie breaks and the fact that our results become stronger once monetary incentives were increased after the 2013 season finally the betting market does not predict this phenomenon further confirming our suspicion of irregular activities

the power of incentives variable pay is usually defined as pay that is tied to some measure of worker output the most typical form of variable pay historically was the piece rate which was more prevalent during the early part of the 20th century than it is at the beginning of the 21st there is a resurgence in variable pay particularly as it relates to executives whose pay is tied to output through some mechanism like stock options or bonuses that depend on individual or firm performance why use variable pay the typical reaction is that variable pay provides incentives to put forth effort although true discrete pay schemes also generate incentives much of the confusion in the literature results from the use of the terms high powered and low powered incentives which connote difference in ability to elicit worker effort it is more informative to make distinctions between discrete and continuous pay and between inputbased and output based pay 2 pay structures can be summarized by the following equation

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

does player specialization predict player actions evidence from penalty kicks at fifa world cup and uefa euro cup penalty kicks are analysed in the literature as real life experiments for assessing the use of rational mixed strategies by professional players however each penalty kick cannot be considered a repetition of the same event because of the varying background conditions in particular the heterogeneous ability of different players consequently aggregate statistics over data sets composed of a large number of penalty kicks mediate the behaviour of the players in different games and the properties of optimal mixed strategies cannot be tested directly because of aggregation bias in this article we model the heterogeneous ability of players we then test the hypothesis that differently talented players randomize over different actions to achieve this aim we study a data set that collects penalties kicked during shoot out series in the last editions of fifa world cup and uefa euro cup 1994 2012 where kickers are categorized as specialists and non specialists the results support our theoretical predi

the effects of moral hazard on asset prices when financial markets are complete abstract this paper discusses the implications for prices and quantities of an alternative trading arrangement in kahn s 1990 economic environment with moral hazard unlike kahn s model of asset trade my model does not impose any unmotivated restrictions on short sales instead it features complete markets and publicly observable asset transactions like kahn s model my model implies that allocations are constrained pareto optimal however the implications of my model for asset prices are considerably different in particular when all agents have log utility asset prices satisfy an aggregation theorem also unlike kahn s model the model in this paper does worse than the standard representative agent model in terms of explaining the equity premium

the minimum wage and di claims abstract this article examines the impact of the minimum wage on di claims based on a state year panel for 2002 2017 constructed from the social security administration s state agencies monthly workload mowl dataset across a wide variety of specifications the minimum wage has had no discernable short run effect on di claims

team contests with multiple pairwise battles abstract we consider a multi battle team contest in which players from two rival teams form pairwise matches to fight in distinct component battles which are carried out sequentially or partially

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

infinite horizon incomplete markets the model of general equilibrium with incomplete markets is a generalization of the arrow debreu model which provides a rich framework for studying problems of macroeconomics this paper shows how the model which has so far been restricted to economies with a finite horizon can be extended to the more natural setting of an open ended future thereby providing an extension of the finite horizon representative agent models of modern macroeconomics to economies with heterogeneous agents and incomplete markets there are two natural concepts of equilibrium over an infinite horizon which prevent agents from entering into ponzi schemes that is from indefinitely postponing the repayment of their debts the first is based on debt constraints which place bounds on debt at each date event the second is based on transversality conditions which limit the asymptotic rate of growth of debt the concept of an equilibrium with debt constraint is a natural concept of equilibrium for macroeconomic analysis however the concept of an equilibrium with transversality condition is more amenable to theoretical analysis since it permits the powerful techniques of arrow debreu theory to be carried over to the setting of incomplete markets in an economy in which agents are impatient expressed by the mackey continuity of their preference orderings and have a degree of impatience at each date event which is bounded below a concept defined in the paper we show that the equilibria of an economy with transversality condition coincide with the equilibria with debt constraints an equilibrium with transversality condition is shown to exist it follows that for each economy there is an explicit bound m such that an equilibrium with explicit debt constraint m exists in which the constraint is never binding this latter property ensuring that the debt constraint whose objective is to prevent ponzi schemes does not in itself introduce a new imperfection into the model over and above the incompleteness of the markets

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

an equilibrium model of asset pricing and moral hazard this article develops an integrated model of asset pricing and moral hazard it is demonstrated that the expected dollar return of a stock is independent of managerial incentives and idiosyncratic risk but the equilibrium price of the stock depends on them thus the expected rate of return is affected by managerial incentives and idiosyncratic risk it is shown however that managerial incentives and idiosyncratic risk affect the expected rate of return through their influence on systematic risk rather than serve as independent risk factors it is also shown that the risk aversion of the principal in the model leads to less emphasis on relative performance evaluation than

the health and earnings of rejected disability insurance applicants applicants for social security disability benefits who fail to pass the medical screening form a natural control group for beneficiaries data drawn from the 1972 and 1978 surveys of the disabled done for the social security administration show that fewer than 50 percent of rejected male applicants work typical earnings of those that do are less than 59 percent of median earnings for other men their age these data cast doubt on recent econometric work that suggests that the disincentive effects of the social security disability program have been substantial copyright 1989 by american economic association

disability earnings income and consumption using longitudinal data for the period 1968 2005 for a sample of male household heads we determine the prevalence of disability during the working years and examine how the extent of disability affects a range of outcomes including earnings income and consumption we have seven main findings first disability rates are high we divide the disabled along two dimensions based on the persistence and severity of their work limiting condition we estimate that a person reaching age 56 has a 53 percent chance of having been disabled at least once during his working years and a 19 percent chance that he has begun a chronic and severe disability second the economic consequences of disability are frequently profound ten years after disability onset a person with a chronic and severe disability on average experiences a 68 percent decline in earnings a 32 percent decline in after tax income a 22 percent decline in food and housing consumption and a 21 percent decline in food consumption third the various economic consequences differ sharply across disability groups the outcome declines for those with a chronic and severe disability are often more than twice as large as those for the average disabled fourth our findings show the partial and incomplete roles that individual savings family support and social insurance play in reducing the consumption drop that follows disability only about half of this most disabled group reports receiving social security disability insurance or supplemental security income fifth we find a noticeable fall in earnings and income prior to the onset of a reported disability consumption also falls somewhat suggesting that future disability is partially but incompletely predictable in the short run sixth time use and detailed consumption data further indicate that disability is associated with a decline in well being seventh the quantities we have estimated combined with elasticities from the literature allow us to examine the optimality of current compensation for the disabled we find that the current compensation for our most disabled group appears to be lower than is optimal

multi battle contests abstract we study equilibrium in a multistage race in which players compete in a sequence of simultaneous move component contests players may win a prize for winning each component contest as well as a prize for winning the overall race each component contest is an all pay auction with complete information we characterize the unique subgame perfect equilibrium analytically and demonstrate that it exhibits endogenous uncertainty even a large lead by one player does not fully discourage the other player and each feasible state is reached with positive probability in equilibrium pervasiveness expected effort in the component contests may be non monotonic in the closeness of the race and realized individual effort may exceed the value of the prize by a factor that is proportional to the maximum number of stage victories required

round robin tournaments with a dominant player we analyze the subgame perfect equilibrium of the round robin tournament with one strong dominant and two weak players and we compare this tournament and the one stage contest with respect to the players expected payoffs expected total effort and their probabilities of winning we find that if the contest designer s goal is to maximize the players expected total effort then if the asymmetry between the players is relatively low the one stage contest should be used however if the asymmetry is relatively high then the round robin tournament should be used

the sports business as a labor market laboratory with superior data on compensation and productivity as well as the occurrence of abrupt dramatic market structure and player allocation rules changes sports labor markets offer an excellent setting in which to test economic hypotheses this paper reviews evidence from sports in four areas employer monopsony discrimination the coase theorem and incentive contracts supervision and performance there is considerable evidence of monopsony as well as for the existence of some forms of discrimination against minority athletes incentive contracts have strong effects on player performance and behavior and there is mixed evidence on the predictions of the coase theorem

backward induction in the wild evidence from sequential voting in the us senate in the us senate roll calls are held in alphabetical order we document that senators early in the order are less likely to vote with the majority of their own party than those whose last name places them at the end of the alphabet to speak to the mechanism behind this result we develop a simple model of sequential voting in which forward looking senators rely on backward induction in order to free ride on their colleagues estimating our model structurally we find that this form of strategic behavior is an important part of equilibrium play we also consider but ultimately dismiss alternative explanations related to learning about common values and vote buying

disability insurance and health insurance reform evidence from massachusetts abstract as health insurance becomes available outside of the employment relationship as a result of the affordable care act aca the cost of applying for social security disability insurance ssdi potentially going without health insurance coverage during a waiting period totaling 29 months from disability onset will decline for many people with employer sponsored health insurance at the same time the value of ssdi and supplemental security income ssi participation will decline for individuals who otherwise lacked access to health insurance we study the 2006 massachusetts health insurance reform to estimate the potential effects of the aca on ssdi and ssi applications

does disability insurance receipt discourage work using examiner assignment to estimate causal effects of ssdi receipt abstract we present the first causal estimates of the effect of social security disability insurance benefit receipt on labor supply using all program applicants we use administrative data to matc

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

disability transfers self reported health and the labor force attachment of older men evidence from the historical record we use trends in self reported disability to gauge the impact of the growth of disability transfer programs on the labor force attachment of older working aged men our tabulations suggest that between 1949 and 1987 about half of the 4 9 percentage point drop in the labor force participation of men aged 45 54 and between one quarter and one third of the 19 9 point drop among men aged 55 64 represented a movement of men out of the labor force and onto the rolls of transfer programs targeted at the disabled since the expansion of transfer programs represents only one of the forces behind this movement these figures represent upper bounds on the impact of such programs on work force attachment

discouragement effect and intermediate prizes in multi stage contests evidence from davis cup abstract the discouragement effect of being the lagging player in multi stage contests is a well documented phenomenon in this study we utilize data from 2447 davis cup matches in team tennis tournaments to test the effect of being behind or ahead on individuals performance with and without intermediate prizes using several different strategies to disentangle the effect of being ahead in the interim score from the effect of selection we find the usual discouragement effect however the discouragement effect disappears after the introduction of intermediate prizes in the form of ranking points the lagging favorite had close to a 20 percentage point greater probability of winning compared to matches without such a prize we show that this result is not driven by the selection of better players into tournaments with intermediate prizes as predicted by previous theoretical studies our empirical findings suggest that intermediate prizes may mitigate or even eliminate the ahead behind effects that arise in multi stage contests

moral hazard imperfect risk sharing and the behavior of asset returns abstract this paper develops a model of endogenous idiosyncratic risk in a simple two period general equilibrium setting and examines its implications for the behavior of asset returns the model readily generates empirically plausible idiosyncratic risk in consumption and yields more realistic behavior of asset returns than comparable models with perfect insurance the most dramatic effects of imperfect risk sharing however are not on the spreads between asset returns but on their absolute levels overall the results suggest allowing for incomplete markets can contribute to a resolution of the equity premium puzzle

equilibrium asset prices with undiversifiable labor income risk abstract in a two period lucas tree economy in which ex ante identical but ex post dissimilar agents face undiversifiable labor income risk calibrating a wrong representative agent model results in overstating the equilibrium riskfree rate and in understating the equilibrium equity premium if the utility function exhibits decreasing absolute risk aversion and decreasing absolute prudence these behavioral assumptions provide as a consequence a theoretical rationale for the often advanced conjecture that nontraded risk contributes to the solution of the riskfree rate and equity premium puzzles

mixed strategy in oligopoly pricing evidence from gasoline price cycles before and under a timing regulation this paper studies oligopoly firms dynamic pricing strategies in a gasoline market before and after the introduction of a unique law that constrains firms to set price simultaneously and only once per day the observed gasoline pricing behavior both before and under the law is well captured by the edgeworth price cycle equilibrium in the maskin and tirole dynamic oligopoly model my results highlight the importance of price commitment in tacit collusion i also find evidence that the price leadership outcome under the law is better predicted by mixed strategies play than by alternative hypotheses

first in first win evidence on schedule effects in round robin tournaments in mega events the order of actions in contests may have a significant effect on performance in this study we examine the role of the schedule in round robin tournaments with sequential games between three and four contestants our empirical analysis based on soccer fifa world cups and uefa european championships and on two olympic wrestling events reveals that there is a substantial advantage to the contestant who competes in the first and third matches our findings are in line with the hypothesis that winning probabilities in multi stage contests with sequential games are endogenously depending on the schedule of contests as predicted by game theoretical models we also discuss possible ways to reduce the effect of the schedule

interim rank risk taking and performance in dynamic tournaments we empirically study the impact of interim rank on risk taking and performance using data on professionals competing in tournaments for large rewards as we observe both the intended action and the performance of each participant we can measure risk taking and performance separately we present two key findings first risk taking exhibits an inverted u relationship with interim rank revealing information on relative performance induces individuals trailing just behind the interim leaders to take greater risks second competitors systematically underperform when ranked closer to the top despite higher incentives to perform well disclosing information on relative ranking hinders interim leaders

what s to know about laboratory experimentation in economics abstract experimental economics has grown as a discipline from near non existence 50 years ago to a full fledged field within economics in the present much of experimental economics research involves experimental methods as a tool applied to problems in other fields of economics however some of this research is inward looking focusing on questions of the methodology of experimental economics in this note i briefly discuss two methodological issues in experimental economics that might benefit from meta analysis the pool from which experimental participants are drawn university undergraduate students versus other populations and the scale of monetary incentives faced by participants large small or hypothetical

nash equilibrium in strictly competitive games live play in soccer abstract i model a scoring situation that arises frequently during soccer matches the nash equilibrium solution is shown to be broadly consistent with the conventional wisdom of experts data on goals scored over an entire season in italy s soccer league provide statistical support for a prediction of the model s nash equilibrium

psychological pressure in competitive environments evidence from a randomized natural experiment much like cognitive abilities emotional skills can have major eects on performance and economic outcomes this paper studies the behavior of professional subjects involved in a dynamic competition in their own natural environment the setting is a penalty shoot out in soccer where two teams compete in a tournament framework taking turns in a sequence of ve penalty kicks each as the kicking order is determined by the random outcome of a coin ip the treatment and control

disability benefit take up and local labor market conditions exploiting county level variation in oil producing areas from shocks to world oil and gas prices we study how local labor market conditions affect disability take up we extend well known previous work using a similar research design by analyzing a different price shock a larger more representative set of labor markets and a more recent period marked by skyrocketing disability payments our estimated elasticity for ssdi payments with respect to earnings of 0 29 is surprisingly similar to earlier findings our preferred ssi elasticity estimate of 0 16 is smaller than previous findings but we show that ssi programmatic changes explain most of the difference jel codes j0 h0

when pressure sinks performance evidence from diving competitions tournaments are designed to enhance participants effort and productivity however ranking near the top may increase psychological pressure and reduce performance we empirically study the impact of interim rank on performance using data from international diving tournaments we find that competitors systematically underperform when ranked closer to the top despite higher incentives to perform well

the impact of economic conditions on participation in disability programs evidence from the coal boom and bust abstract we examine the impact of the coal boom of the 1970 s and the coal bust of the 1980 s on disability program participation these shocks provide clear evidence that as the value of labor market participation increases disability program participation falls for the disability insurance program the elasticity of payments with respect to local earnings is between 0 3 and 0 4 and for supplemental security income the elasticity is between 0 4 and 0 7 consistent with a model where qualifying for disability programs is costly the relationship between economic conditions and program participation is much stronger for permanent than for transitory economic shocks

who benefits from local oil and gas employment labor market composition in the oil and gas industry in texas and the rest of the united states abstract this paper examines local labor market outcomes from an oil and gas boom we examine two main outcomes the probability of employment and the log wages of workers employed outside the oil and gas industry for texas and the rest of the united states across gender race and ethnicity we find that men and women gain employment in the oil and gas industry during booms but such gains are much larger for men and are largest for black and hispanic men we also find positive income spillovers for workers in other industries that are similar in magnitude across demographic groups

nonlinear incentive provision in walrasian markets a cournot convergence approach abstract the paper studies insurance with moral hazard in a system of contingent claims markets insurance buyers are modelled as cournot monopolists or oligopolists the other agents condition their expectations on market prices as in models of rational expectations equilibrium with asymmetric information thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers net trades when there are many agents to share the insurance buyers risks cournot equilibrium outcomes are close to being second best in contrast if insurance buyers are price takers equilibria fail to exist or are bounded away from being second best

incentive systems in a real effort experiment in the reported experiment different payment schemes are examined on their incentive effects payments based on individual team and relative performance are compared subjects conducted computerized tasks that required substantial effort the results show that individual and team payment induced the same effort levels in team production free riding occurred but it was compensated by many subjects providing more effort than in case of individual pay effort was higher but more variable in tournaments while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others finally attitudes towards work and other workers differed strongly between conditions

the cycle of violence an empirical analysis of fatalities in the palestinian israeli conflict thomas c schelling s the strategy of conflict 1960 laid the groundwork for thinking about conflicts as non zero sum games in which each side may choose to exercise or threaten violence in order to deter or incapacitate the opponent or simply to exact revenge it has been difficult however to test many of the predictions formulated by schelling and others because of the lack of data on the strategic choices of the two sides engaged in a conflict observed at a high enough frequency for statistical tests to have any power this paper uses daily frequency data to analyze the dynamics of violence during four years of the second intifada the most recent outburst of the palestinian israeli conflict

can losing lead to winning individuals groups and teams who are behind their opponents in competition tend to be more likely to lose in contrast we show that through increasing motivation being slightly behind can actually increase success analysis of more than 18 000 professional basketball games illustrates that being slightly behind at halftime leads to a discontinuous increase in winning percentage teams behind by a point at halftime for example actually win more often than teams ahead by one or approximately six percentage points more often than expected this psychological effect is roughly half the size of the proverbial home team advantage analysis of more than 45 000 collegiate basketball games finds consistent though smaller results experiments corroborate the field data and generalize their findings providing direct causal evidence that being slightly behind increases effort and casting doubt on alternative explanations for the results taken together these findings illustrate that losing can sometimes lead to winning this paper was accepted by peter wakker decision analysis

cognitive performance in competitive environments evidence from a natural experiment competitive situations that involve cognitive performance are widespread in labor markets schools and organizations including test taking competition for promotion in firms and others this paper studies cognitive performance in a high stakes competitive environment the analysis takes advantage of a natural experiment that randomly allocates different emotional states across professional subjects competing in a cognitive task the setting is a chess match where two players play an even number of chess games against each other alternating the color of the pieces white pieces confer an advantage for winning a chess game and who starts the match with these pieces is randomly decided the theoretical analysis shows that in this setting there is no rational reason why winning frequencies should be better than 50 50 in favor of the player drawing the white pieces in the first game yet we find that observed frequencies are about 60 40 differences in performance are also stronger when the competing subjects are more similar in cognitive skills we conclude that the evidence is consistent with the hypothesis that psychological elements affect cognitive performance in the face of experience competition and high stakes