testing informational assumptions in common value bidding models this paper provides an example of a means of linking mathematical theory laboratory experiments and standard empirical work theory by necessity abstracts from the naturally occurring world and experiments designed to test theory must incorporate the same abstractions on the other hand empirical tests are generally performed on naturallyoccurring data which may not reflect those same abstractions given this possible divergence naturally occurring data should be tested for consistency with theoretical assumptions whenever possible on the basis of standard symmetric bidding theory this paper reports on a preliminary version of such a test for off shore oil bidding data

theory and behavior of multiple unit discriminative auctions this paper reports the results of controlled experiments designed to test the harrisraviv generalization of the vickrey theory of bidding in multiple unit discriminative auctions the paper also discusses further development of the theory in a way suggested by the experimental results to include bidders with distinct risk preferences in a well known paper vickrey 20 formulated a nash equilibrium model of bidding by risk neutral economic agents in single unit auctions this analysis was subsequently extended in numerous papers vickrey 21 generalized his original model to include multiple unit auctions in which each of n risk neutral bidders can bid on one out of a total of q homogeneous items up for auction where 1 c q n in both of the vickrey papers individual values for the auctioned object s were assumed to be drawn from a uniform distribution holt 12 and riley and samuelson 19 for single unit auctions and harris and raviv 11 for multiple unit auctions have extended the vickrey model to the case in which valuations are from a general distribution function and all agents have identical concave utility functions this paper reports the empirical properties of individual bidding behavior and seller revenue for a group of 28 laboratory experiments designed to test the harris raviv generalization of the vickrey hereafter vhr model of nash equilibrium behavior in multiple unit discriminative auctions in section i we summarize briefly the theoretical results of the vhr model which form the basis for the hypotheses that we test section ii describes the experimental design that we use section iii describes the experimental results and various tests based on the bidding behavior of individual subjects and on aggregate market seller revenue data the results from six of the ten n q parameter designs reported

empirical evidence on competitive bidding some surprising results abstract this paper compares the assumptions and predictions of common values auction theory with ocs leasing data we find that the general assumption of continuous bid density functions is not supported by the empirical evidence this leads us to suggest several lines for future theoretical experimental and empirical research

edgeworth price cycles cost based pricing and sticky pricing in retail gasoline markets abstract this paper examines dynamic pricing behavior in canadian retail gasoline markets i find three distinct pricing patterns cost based pricing sticky pricing and sharp asymmetric retail price cycles that resemble the edgeworth cycles of maskin and tirole 1988 i use a markov switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves i find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms in markets with few small firms sticky pricing dominates the findings are consistent with the theory of edgeworth cycles

equilibrium properties of auctions and alternative procedures for allocating transferable permits abstract this paper examines the equilibrium properties of a range of auctions and related procedures placing emphasis on the types of procedures that are likely to be of special interest in environmental management applications nash equilibrium properties are first derived for a very general class of auctions for multiple homogeneous or heterogeneous objects or permits next it is shown that given appropriate assumptions three broad classes of public allocation procedures that do not generate revenues for the government would yield participants equal expected profits these classes are 1 incentive compatible auctions where bidders receive equal lump sum refunds 2 non incentive compatible procedures where refunds are a function of participants bids and 3 free initial distribution of permits on a lump sum basis followed by trading via a competitive market the applicability of the general results is then demonstrated by examining the particular non incentive compatible fair division procedure originally suggested by knaster finally implications of the theoretical results for applications including the allocation of transferable discharge permits and water rights are discussed

optimal auction with resale this paper investigates the design of seller optimal auctions when winning bidders can attempt to resell the good in that case the optimal allocation characterized by myerson 1981 cannot be achieved without resale i find a sufficient and necessary condition for sincere bidding given the possibility of resale in two bidder cases i prove that the myerson allocation can be achieved under standard conditions supplemented with two assumptions with three or more bidders achieving the myerson allocation is more difficult i prove that it can be implemented in special cases in those cases the myerson allocation is generated through a sequence of resale auctions each optimally chosen by a reseller

gasoline taxes and revenue volatility an application to california this paper examines how applying different combinations of excise and sales taxes on motor fuels impact the volatility of retail fuel prices and tax revenues two features of gasoline and diesel markets make the choice of tax mechanism a unique problem first prices are very volatile second demand for motor fuels is extremely inelastic as a result fuel expenditures vary substantially over time tying state revenues to these expenditures as is the case with a sales tax results in a volatile stream of revenue which imposes real costs on agents in an economy on july 1 2010 california enacted assembly bill x8 6 the gas tax swap increasing the excise tax and decreasing the sales tax on gasoline purchases while the initial motivation behind the revenue neutral swap was to provide the state with greater flexibility within its budget we highlight that this change has two potentially overlooked benefits it reduces retail fuel price volatility and tax revenue volatility simulating the monthly fuel prices and tax revenues under alternative tax policies we quantify the potential reductions in revenue volatility the results reveal that greater benefits can be achieved by going beyond the tax swap and eliminating the gasoline sales tax entirely

paired comparison and contingent valuation approaches to morbidity risk valuation abstract this research uses an experimental approach for eliciting consumer valuations of morbidity risk reductions associated with safter chemical products and introduces the paired comparison questions approach to non market valuation in four applications the paired comparisons approach yields higher morbidity valuations than the more familiar contingent valuation approach however both methodologies produce large values of morbidity reduction benefits in comparison to estimates derived from wage hedonic studies explanations for the difference in the estimates and their magnitudes are suggested along with the public policy implications

semi nonparametric distribution free dichotomous choice contingent valuation abstract we apply a semi nonparametric distribution free estimator for binary discrete response data to the estimation of a dichotomous choice contingent valuation model using this estimator mean and median compensating and equivalent variation can be consistently estimated without making nontheoretically motivated assumptions on consumer preferences the approach is illustrated using a contingent valuation survey of willingness to pay for reduction of risk of premature death due to exposure to hazardous waste we find that a conventional parametric estimator and the proposed estimator give similar estimates of unconditional wtp but that conditional on explanatory variables the estimates are quite different

differences between continuous and discrete contingent value estimates in a split sample contingent valuation study of willingness to pay wtp for food safety improvements the dichotomous choice dc elicitation method consistently generated much larger estimates of wtp than did a continuous method little or none of these differences was due to bias introduced by the statistical techniques used with the dc data most or all of the difference was due to differences in respondent behavior in addition the continuous wtp responses showed a significant scope effect while the dc responses did not the observed difference in behavior may be attributable in part to yea saying by dc respondents

valuing water supply reliability instead of creating water supply systems that fully insulate mankind from climate imposed water deficiencies it is possible that for municipal water systems a nonzero probability of water supply shortfall is efficient perfect water supply reliability meaning no chance of future shortfall is not optimal when water development costs are high designing an efficient strategy requires an assessment of consumer preferences pertaining to the reliability of water supply contingent valuations of both current and future shortfalls are reported the consistency of these measures is gauged using an expected utility model copyright 2000 oxford university press

using first price auctions to sell heterogeneous licenses abstract this paper considers three alternative ways to sell heterogeneous licenses via a first price format when there is single unit demand it has been suggested that incorporating a first price element may bolster competition in this case klemperer paul d 2002 what really matters in auction design journal of economic perspectives 16 169 189 in a controlled laboratory setting we compare the performance of the simultaneous first price auction the sequential first price auction and the simultaneous descending auction with that of the simultaneous ascending auction the experiments involve several bidding environments of varying complexity we find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks i its revenues are low and variable ii per license profits vary and iii the incidence of winner s curse outcomes is high seller s revenues are highest when the licenses are sold in a sequential first price auction in decreasing order of quality

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

managing online auctions current business and research issues the internet s computational power and flexibility have made auctions a widespread and integral part of both consumer and business markets though online auctions are a multi billion dollar annual activity with a growing variety of sophisticated trading mechanisms scientific research on them is at an early stage this paper analyzes the current state of management science research on online auctions it develops a broad research agenda for issues such as the behavior of online auction participants the optimal design of online auctions the integration of auctions into the ongoing operation of firms and the use of the data generated by online auctions to inform future trading mechanisms these research areas will draw from applied and theoretical work spanning management science economics and information systems

generalized second price auction is optimal for discrete types we prove that a variant of the second price auction for the sale of a single good through a bayesian incentive compatible mechanism that maximizes expected revenue of the seller is optimal when the type space is discrete moreover we show that this variant is related to the widely used generalized second price auction mechanism in keyword auctions for advertising thus providing a theoretical justification for a practical tool

a test that discriminates between two models of the dutch first auction non isomorphism abstract previous experiments reject the hypothesis that the dutch and first auctions are isomorphic two alternatives to the standard normal form analysis of the dutch auction are formalized 1 bidders violate bayes rule 2 bidders experience a utility of suspense that is additive with the utility of monetary reward paired comparisons of bidding behavior between groups in which the treatment is to triple the payoff of the baseline group yields no significant effect of this treatment we therefore reject the utility of suspense model

multi unit pay your bid auctions with variable awards abstract multi unit auctions in which bidders can win a variable number of units differ significantly from multi unit auctions in which bidders can only win one unit in an independent private values pay your bid auction where bidders may win up to two units we show that first order conditions imply separating and pooling of bids must both occur with positive probability this behavior is not found in multi unit uniform price auctions it also contrasts with asymmetric first price auctions of a single good whose first order conditions are superficially similar a uniform distribution example is analyzed numerically journal of economic literature classification numbers d44 d82 c72

a satisfactory benefit cost indicator from contingent valuation abstract standard economic concepts are used to develop a model of individual behavior when subject to the constraints of the contingent valuation choice context the model yields refutable consequences that are consistent with previously reported empirical findings including some that have been thought to be anomalous the model is used to show that different contingent valuation formats have predictably different performance characteristics notably the hicksian compensating measures are satisfactory benefit cost indicators when elicited using any one of several formats identified in the text of the formats examined one form of a policy referendum appears to have the most satisfactory characteristics overall we conclude that contingent valuation is a progressing research program

valuing the mortality risk of wildlife reintroduction heterogeneous risk preferences abstract this study is the first to value the mortality risk incurred from wildlife reintroduction we conducted choice experiments on wolf reintroduction in hokkaido japan in order to value the resulting mortality risk this process involves three unique factors the mortality risk is zero before the reintroduction the increment of the risk caused by the reintroduction is substantially small and the risk largely depends on citizens individual characteristics concerning reintroduction because of these factors the heterogeneity of risk preference is expected to be large in order to examine these heterogeneous risk preferences we use a random parameter logit model the estimation results confirm that considerable heterogeneous risk preferences exist finally the mean marginal willingness to pay to prevent the loss of one person per one billion people because of wolf reintroduction is several hundred yen

individual bidder behavior in first price private value auctions abstract individual bid functions display sensitivity to the strategic considerations inherent in first price auctions however several formal models including heterogeneous nash equilibrium bidding models with constant relative risk aversion perform quite poorly

a point decision for partially identified auction models this article proposes a decision theoretic method to choose a single reserve price for partially identified auction models such as haile and tamer 2003 using data on transaction prices from english auctions the article employs gilboa and schmeidler 1989 for inference that is robust with respect to the prior over unidentified parameters it is optimal to interpret the transaction price as the highest value and maximize the posterior mean of the seller s revenue the monte carlo study shows substantial gains relative to the revenues corresponding to a random point and the midpoint in the haile and tamer interval

differential payments within a bidder coalition and the shapley value bidder coalitions at english auctions frequently distribute collusive gains among members via a secondary auction or knockout when coalition members are sufficiently heterogeneous nested coalition structures are observed in which a knockout is conducted at each level of nesting the nested knockout s characteristics are investigated within many settings we find that the expected payments to coalition members via the nested knockout equal the shapley value incentive compatibility problems of the nested knockout are also analyzed

risk aversion and overbidding in first price sealed bid auctions new experimental evidence bidding above the risk neutral nash equilibrium in first price sealed bid auctions has traditionally been ascribed to risk aversion later studies however offer other explanations and even argue that risk aversion plays no or a minor role in a novel experimental design we directly test the relationship between risk aversion and overbidding by systematically varying the distribution of risk attitudes in auction markets we find a significant relationship between our measure of risk aversion and overbidding jel d44 c91

gasoline demand revisited an international meta analysis of elasticities meta analysis is used to determine if there are factors that systematically affect price and income elasticity estimates in studies of gasoline demand four econometric models are estimated using long run and short run price and income elasticity estimates from previous studies as the dependent variables explanatory variables include functional form lag structure time span national setting estimation technique and other features of the model structure elasticity estimates are found to be sensitive to the inclusion or exclusion of some measure of vehicle ownership static models appear to overestimate short run elasticities underestimate long run price elasticities but pick up the full long run income responsiveness there is variation in the elasticity of demand across countries especially in the short run and gasoline demand appears to be getting more price elastic and less income elastic over time

a learning approach to auctions we analyze a repeated first price auction in which the types of the players are determined before the first round it is proved that if every player is using either a belief based learning scheme with bounded recall or a generalized fictitious play learning scheme then for sufficiently large time the players bids are in equilibrium in the one shot auction in which the types are commonly known

the expected stop out price in a discriminating auction abstract optimal bidding strategies and expected seller revenues in price discriminating auctions have been derived in previous studies we extend this research by characterizing the behavior of the expected stop out price for such auctions

estimates from a consumer demand system implications for the incidence of environmental taxes abstract most studies suggest that environmental taxes are regressive making them less attractive policy options we consider the distributional effects of a gasoline tax increase using four incidence measures and under three scenarios for gas tax revenue use to incorporate behavioral responses we use consumer expenditure survey data to estimate a consumer demand system that includes gasoline other goods and leisure our estimates confirm that when revenues are not recycled a gasoline tax is regressive use of incidence measures that ignore demand responses however will substantially overstate this regressivity in contrast the differences between the equivalent variation and easier to implement consumer surplus measures are relatively small in addition our results suggest that using the additional gas tax revenue to fund labor tax cuts makes the policy substantially less regressive while using the revenue to fund lump sum transfers actually makes it progressive

perfect equilibria in budget constrained sequential auctions an experimental study this article presents an experimental study of bidding behavior in sequential auctions in which there are budget constraints and perfect information our experiments test both the properties of such auctions and the predictive power of a refinement of the nash equilibrium concept we find that budget constraints affect the behavior of bidders and that the trembling hand perfect equilibrium is generally a good predictor of prices

does britain or the united states have the right gasoline tax this paper develops an analytical framework to assess the second best optimal level of gasoline taxation taking into account unpriced pollution congestion and accident externalities as well as interactions with the broader fiscal system we provide calculations of the optimal taxes for the us and the uk under a variety of parameter scenarios under our central parameter values the second best optimal gasoline tax is 1 01 gal for the us and 1 34 gal for the uk current tax rates are much lower than this in the us and higher in the uk the calculations are moderately sensitive to alternative parameter assumptions the congestion externality is the largest component in both nations revenue raising needs also play a significant role as do accident externalities and local air pollution potential welfare gains from reducing the current uk tax rate are estimated at nearly one fourth the production cost of all gasoline used in the uk even larger gains could be achieved by switching to a tax on vehicle miles with equal revenue yield for the us the welfare gains from optimizing the gasoline tax are smaller but those from switching to an optimal tax on vehicle miles are very large

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

endogeneity of risk perceptions in averting behavior models this paper examines the relationship between averting expenditures choices and perceived health risks models in the literature often employ risk perceptions as explanatory variables without addressing the potential endogeneity of the perceived risk we examine the implications of ignoring endogeneity in this context using an application to both drinking water choices and expenditures and perceived health risks our data are from an internet based cross canada survey that employs a novel interactive risk ladder to elicit mortality risk perceptions relating to water we employ two fundamentally different methods to assess the impact of risk perceptions on behavior an analysis of expenditures on alternate water sources and a model of proportional choice of water sources results suggest the presence of averting behavior with respect to perceived mortality risks and that the estimated effect of water risks is greater than 3 times higher when using approaches that correct for endogeneity compared to models that do not

tests of a heterogeneous bidders theory of first price auctions abstract this paper reports the results of eight first price sealed bid auction market experiments using cash motivated subjects to test a constant relative risk averse model crram of equilibrium bidding behavior of heterogeneous bidders

asymmetry of information regulatory lags and optimal incentive contracts theory and evidence procurements the procurement process and the equilibrium bidding behavior is modelled in sections ii and iii and the effect of contract parameters and other structural variables on expected procurement costs are explicitly derived the existing models are enriched by incorporating a technology for cost reduction where the investment in cost reduction made by the contractor is unobservable to the utility in the presence of such informational asymmetry the optimal incentive parameter to be used is derived in terms of information available to the utility in section iv the effects of changing contractual parameters and other structural variables number of contractors bidding the riskiness of the production process etc on equilibrium bidding behavior and ex post cost reduction incentives are derived in section v we relate some of the implications of our model to a sample

on strategic quantity bidding in multiple unit auctions standard studies of multiple unit auctions generally overlook the strategic role of bidders quantity decisions using a simple equilibrium model of bidding the author analyzes bidders incentives to choose quantities in discriminatory and competitive auctions the main result is that bidders have a stronger strategic incentive to bid for fewer units in competitive auctions since under competition a bidder pays the lowest accepted price for each unit she gets she may benefit from dropping her quantity to let lower valuing bidders enter the set of winners this prediction is consistent with empirical observations from foreign currency and spectrum auctions copyright 1997 by blackwell publishing ltd

incentive contracts and competitive bidding an increasing segment of economic activity is taking place in nonmarket situations in which economic agents act outside the traditional markets or create markets to deal with specific resource allocation problems one such problem involves the selection by a buyer of a contractor using a competitive bidding process competitive bidding is used extensively by the government for the selection of suppliers of goods and services and for the sale of resources such as offshore oil leases firms may use competitive bidding for the selection of certain suppliers of factor inputs and may attempt to sell certain products in markets in which competitive price quoting is the established market mechanism this paper is concerned with a bidding process in which a firm has an opportunity to bid on a project under the terms of an incentive contract incentive contracts

2 00 gas studying the effects of a gas tax moratorium there are surprisingly few estimates of the effects of sales taxes on retail prices especially at the firm level we consider the temporary suspension and subsequent reinstatement of the gasoline sales tax in illinois and indiana following a price spike in 2000 earlier laws set the timing of the reinstatements providing plausibly exogenous changes in the tax rates using a unique dataset of daily prices at the gas station level 70 of the tax suspension is passed on to consumers in the form of lower prices while 80 100 of the tax reinstatements are passed on to consumers some evidence suggests that these short run pass through estimates are smaller near the state borders with the tax reinstatements associated with relatively higher prices up to an hour s drive into neighboring states

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

information and conspiracy in sealed bid auctions abstract this paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered specifically we examine a the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids and b the effect on price determination when conspiratorial discussions are allowed

flexible functional form estimation of willingness to pay using dichotomous choice data abstract this paper introduces fully flexible semi nonparametric methods for calculating willingness to pay wtp bounded between zero and the respondent s income for dichotomous choice contingent valuation a method to estimate median wtp using fully flexible functional forms is also presented finally the numerical illustration demonstrates the importance of considering jensen s inequality in calculating wtp with nonlinear models

risk aversion and the winner s curse this article analyzes an auction in which bidders see independent components of a common prize value the nash equilibrium for two rational bidders is shown to be independent of risk attitudes the information structure allows explicit calculation of an alternative equilibrium in which naive bidders do not correctly discount the value of the prize contingent on winning and thus they suffer the winner s curse subjects in a laboratory experiment clearly fall prey to the winner s curse the data conform most closely to the predictions of the naive model moreover the level of risk aversion implied by fitting the naive model is similar to an independent risk aversion measure obtained in a separate private value bidding exercise

theory and misbehavior of first price auctions comment glenn harrison s recent 1989 article in this review has provoked the loudest debate yet heard among experimental economists his critique of the james cox vernon smith and james walker 1983a b 1985a b 1988 henceforth csw laboratory studies of first price sealed bid auctions with independent and private values in my view raises a fundamental methodological issue that is well worth debating and the csw research program deserves further discussion in this short comment i confine myself to what i see as the most important issues and do not try to address all evidence relevant to the ongoing debate first i summarize harrison s central argument very briefly after pointing out two shortcomings in harrison s specific analysis of csw i propose a methodological reconciliation finally and with some trepidation since my own experience with the auction data is relatively slight i suggest an alternative approach to understanding the anomalies discovered by csw

efficient allocation with continuous quantities abstract the inefficiency of allocation mechanisms in the presence of bilateral asymmetric information is reconsidered in an environment with continuous quantities the result of myerson and satterthwaite is proved in this environment under the condition that zero trade is efficient if the highest cost seller or the lowest value buyer appears in addition if this condition fails there may exist mechanisms implementing efficient allocations the problem of hidden endowments is considered where any agent may be either a buyer or seller depending on the realization of the privately observed information in this environment it is often possible to arrange efficient trades ex ante asymmetries rather than interim asymmetries tend to prevent efficient allocations

an optimal auction for complements abstract this paper considers the optimal selling mechanism for complementary items when buyers are perfectly symmetric the optimal procedure is to bundle the items and run a standard auction in general however bundling the items is not necessarily desirable and the standard auctions do not maximize revenue moreover the optimal auction allocation may not be socially efficient since the auction must discriminate against bidders who have strong incentives to misrepresent their true preferences journal of economic literature classification number d44

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

the optimal gas tax for california this paper calculates the optimal gasoline tax for the state of california according to our analysis the optimal gasoline tax in california is 1 37 gal which is over three times the current california tax when excluding sales taxes the pigovian tax is the largest part of this tax comprising 0 85 gal of this the congestion externality is taxed the most heavily at 0 27 followed by oil security accident externalities local air pollution and finally global climate change the other major component a ramsey tax comprises a full 0 52 of this tax reflecting the efficiency in raising revenues from a tax on gasoline consumption due to the inelastic demand of this consumption good

incidence of federal and state gasoline taxes the federal specific gasoline tax falls equally on consumers and wholesalers whereas state specific taxes fall almost entirely on consumers the consumer incidence of state taxes is greater in states that use relatively little gasoline

problems in valuing the benefits of biodiversity protection this paper considers two problems in valuing the benefits of biodiversity protection these are firstly that preferences for biodiversity protection may be lexicographic rather than utilitarian the more individuals for whom this is true the less is cost benefit analysis validated as a means of decision making for biodiversity protection since lexicographic preferences are incompatible with the kaldor hicks compensation test secondly people may be poorly informed about the meaning of biodiversity complicating the use of contingent valuation as a means of measuring preservation benefits this paper first discusses the meaning of biodiversity and trends in diversity over time we offer some empirical evidence with regard to lexicographic preferences consider the implications of having poorly informed consumers and then report the results of a contingent valuation study of biodiversity protection with varying levels of information we find that willingness to pay for biodiversity protection increases with the level of information provided

theory and misbehavior in first price auctions comment in his recent paper in this review glenn harrison 1989 argues that the conclusions of james cox et al 1982 1983 1985 1988 in their studies of first price private value auctions are not well supported because of shortcomings in the way their experimental investigations were designed analyzed and reported harrison argues that the expected cost of deviations from risk neutral nash equilibrium rnne bidding in these auctions was quite small less than 0 05 at the median so that in terms of expected monetary payoffs payoff space many subjects had little to lose from deviating from the rnne strategy harrison suggests that the significance of the differences cox vernon smith and james walker hereafter csw report between subjects bids and the rnne bids deviations in the message space may therefore need to be reexamined in discussing harrison versus csw we have three primary points to make first in arguing that it is more natural to evaluate subject behavior in expected payoff space harrison 1989 p 749 we think harrison has overstated his case however we agree with his more important point that looking at the cost of deviations is a useful diagnostic tool for determining when experimenters are likely to have lost control over subjects incentives further as we will show in section i this part of harrison s critique applies with special force to csw s studies of bidding second a broader examination of the results of private value auction experiments indicates that risk aversion cannot be the only factor and may well not be the most important factor behind bidding above the rnne found so often in first price privatevalue auctions the most telling evidence here is bidding above the dominant bid price found in second price auctions kagel et al 1987 kagel and levin 1990 and the risk loving found under several treatment conditions in csw s 1984 own multipleunit discriminative auctions auctions in which the high bidders pay their bid price these and other data inconsistent with risk averse bidding are largely ignored in csw 1988 but are nevertheless relevant to the substantive issue of risk aversion in private value auctions they are discussed in section ii third there are data gathered in other investigations which provide strong support for the view that the deviations from rnne bidding reported in first price auctions are not the results of the low expected cost of such deviations however these data unlike the higher stakes payoff data that csw offer in response to harrison are not consistent with csw s subsidiary conclusions that the data can be well accounted for by a narrow class of risk aversion parameters for the bidders together with the assumption that all agents are playing a nash equilibrium of the resulting game of incomplete information a key difference between these experiments and csw s is that if subjects do not respond to csw s treatment condition increasing the payoffs from experimental to u s dollars their behavior will be consistent with csw s theory in contrast department of economics university of pittsburgh pittsburgh pa 15260 we thank jack ochs and emilie roth for thoughtful discussions on earlier drafts of the paper jim cox and glenn harrison for helpful comments on the initial draft of the paper susan garvin for research assistance and ray battalio carl kogut and don meyer for providing us with access to their data research support was provided by the information science and technology and economics divisions of the national science foundation the alfred p sloan foundation and the russell sage foundation the usual caveat applies with special force iwe do not respond to specific comments that csw 1992 make in response to our comment as in order to avoid indefinite regress the ground rules for this debate required us to comment on csw s criticism of harrison after which they would be given the opportunity to respond to our comment

the effects of payoff magnitude and heterogeneity on behavior in 2 2 games with unique mixed strategy equilibria the logit version of quantal response equilibrium predicts that equilibrium behavior in games will vary systematically with payoff magnitudes if all other factors are held constant including the nash equilibria of the game we explore this in the context of a set of asymmetric 2x2 games with unique totally mixed strategy equilibria the data provide little support for the payoff magnitude predictions of the logit equilibrium model we extend the theoretical quantal response equilibrium model to allow for heterogeneity and find that the data fit the heterogeneous version of the theory significantly better

semiparametric estimation of first price auctions with risk averse bidders in view of the non identification of the first price auction model with risk averse bidders this paper proposes some parametric identifying restrictions and a semiparametric estimator for the risk aversion parameter s and the latent distribution of private values specifically we exploit heterogeneity across auctioned objects to establish semiparametric identification under a conditional quantile restriction of the bidders private value distribution and a parameterization of the bidders utility function we develop a multistep semiparametric method and we show that our semiparametric estimator of the utility function parameter s converges at the optimal rate which is slower than the parametric one but independent of the dimension of the exogenous variables thereby avoiding the curse of dimensionality we then consider various extensions including a binding reserve price affiliation among private values and asymmetric bidders the method is illustrated on u s forest service timber sales and bidders risk neutrality is rejected

asymmetric information incentives and intrafirm resource allocation this paper considers the question how should a firm allocate a resource among divisions when the productivity of the resource in each division is known only to the division manager obviously if the divisions as represented by their managers are indifferent among various allocations of the resource the headquarters can simply request the division managers to reveal their private information on productivity knowing that the managers have no incentive to lie the resource allocation problem can then be solved under complete or at least symmetric information this aspect is a flaw in much of the recent literature on this topic i e there is nothing in the models considered which makes divisions prefer one allocation over another thus although in some cases elaborate allocation schemes are proposed and analyzed they are really unnecessary in the model we develop a division can produce the same output with less managerial effort if it is allocated more resources and effort is costly to the manager we further assume that this effort is unobservable by the headquarters so that it cannot infer divisional productivity from data on divisional output and managerial effort given these assumptions we seek an optimal resource allocation process our results show that certain types of transfer pricing schemes are optimal in particular if there are no potentially binding capacity constraints on production of the resource then an optimal process is for each division to choose a transfer price from a schedule announced by the headquarters division managers receive a fixed compensation minus the cost of the resource allocated to them at the chosen transfer price resources are allocated on the basis of the chosen transfer prices if there is a potentially binding constraint on resource production a somewhat more complicated but similar scheme is required

gasoline demand and car choice estimating gasoline demand using household information in recent years calls for carbon taxes as a policy tool to combat global warming have kept a discussion of the price and income elasticities of gasoline demand alive to date gasoline demand elasticity estimates are almost exclusively based on aggregate data that are subject to aggregation problems and make distributional concerns impossible to address by using household level data from the panel study of income dynamics psid and imputed fuel efficiency measures and gasoline prices i estimate household demand for gasoline and the corresponding price and income demand elasticities an attempt is made to include data on the car stock in the estimation since car portfolio and gasoline demand decisions are closely related empirical results from a selection corrected gasoline demand regression suggest low short run price and income elasticities and clear differences in gasoline demand across the population these results suggest that a gasoline tax is not likely to result in large decreases in gasoline consumption while potentially imposing hardship on identifiable segments of the population

not knowing the competition evidence and implications for auction design in a government auction program where first price auctions generate significantly higher revenue than english auctions i document evidence that bidders are uncertain about the number of auction entrants motivated by additional data evidence i estimate a structural model of auctions in which rivals participation is stochastic allowing for bidders risk aversion and asymmetry counterfactual simulations reveal that bidders uncertainty about the number of entrants combined with risk aversion substantially softens the revenue impact of low competition in first price auctions this explains the observed revenue patterns and uncovers an empirically important reason for sellers to favor first price auctions over english auctions

expanding contingent value sample estimates to aggregate benefit estimates current practices and proposed solutions a mail survey was administered to a panel of colorado consumers to obtain estimates of willingness to pay wtp for preserving union park detailed socioeconomic data for all surveyed individuals was available a priori we develop and employ the multiple

valuing the incremental benefits of groundwater protection when exposure levels are known both economic theory and psychological research indicate that benefit functions for reductions in health risk exposures may be conditional on current exposures using nitrates found in household wells it is demonstrated that perceptions of health risks across exposure levels are affected by the individual s current exposure level thus providing support for a conditional benefits function approach functions of conditional incremental benefits are estimated from a contingent valuation study of households that had been informed of their water test results incremental benefits reach a peak at an intermediate level of nitrates and then decline possible explanations for this non convexity are provided

individual behavior of first price auctions the importance of information feedback in computerized experimental markets abstract this article reports the results of an individual choice experiment designed to test the nash equilibrium predictions of the first price sealed bid auction a subject faced in 100 auctions always the same resale value and competed with computer simulated bids the design used between subjects variation and involved information feedback as the treatment variable earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral nash equilibrium our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments which after each auction reveals the winning bid only by means of learning direction theory we explain the individual bidding dynamics in our experiment finally we apply impulse balance theory and make long run predictions of individual bidding behavior

buybacks with costly participation abstract posted price offers and first price auctions along with the multi unit discriminatory auction extension are two widely used mechanisms for allocating conservation contracts the choice between the two typically hinges on the trade off between the posted price s simplicity and the potential revenue gains of the auction in this paper we introduce a novel mechanism that attempts to bridge the gap between the performance of posted price offers and auctions a two price and lottery schedule combines the simplicity of the former with some of the flexibility of the latter using a model that incorporates agents cognitive and information costs of bidding we analyze how the ranking of allocative efficiency and cost effectiveness between the mechanisms varies as the wedge of participation costs increases when the number of bidders is endogenously determined by participation costs bid shading associated with a lack of competition in the auction compromises its cost effectiveness vis a vis the posted price and the lottery schedule we use data from three recent buybacks for fishing licenses conducted in maryland to calibrate our model and identify conditions under which the two price schedule outperforms the other mechanisms

evaluating change in objective ambiguous mortality probability valuing reduction in ambiguity size and risk level this article develops a valuation model to evaluate mortality probability changes under objective ambiguity where multiple mortality probabilities are exogenously given we construct the valuation model based on upalpha maxmin expected utility to evaluate the reduction in ambiguity size and risk level as well as estimate the subjects ambiguity attitude our model can bring an interesting policy implication if the subjects are ambiguity averse a reduction in ambiguity size with a constant risk level can increases welfare thus even if risk level cannot be lowered reduction in ambiguity size can also be used as a measure toward increasing welfare our model can empirically estimate this welfare change resulting from the reduction in ambiguity size to demonstrate how our model works we apply it to survey data on a public program that reduces mortality probability in accidents caused by wildlife

resolving uncertainty about the number of bidders in independent private value auctions an experimental analysis results from first price sealed bid auctions in which there is uncertainty regarding the number of bidders are reported consistent with recent theoretical findings concealing information regarding the number of bidders raises more revenue for the seller than revealing information individual bids show that 1 narrowly interpreted the nash equilibrium bidding theory underlying these theoretical predictions is rejected as less than 50 of all bids satisfy the strict inequality requirements of the theory but 2 a majority of the deviations from these inequality requirements favor the revenue raising predictions of the nash model and in a large number of cases involve marginal violations of the theory

uncertainty and measurement error in welfare models for risk changes abstract most welfare models of environmental or mortality risk reductions assume that risks are exogenously determined and known with certainty however a growing body of research suggests that uncertainty about risks can affect choices over risky prospects i present a decision weighted random utility model that decomposes welfare losses into those attributable to an increase in the deterministic component of risk and those attributable to uncertainty about risk i apply the model to an illustrative dataset of subjects perceived mortality risk and willingness to accept the risk of nuclear waste transport i estimate the model using lewbel s 2000 strictly exogenous regressor approach to account for endogeneity bias and measurement error subjects display aversion to both risk and uncertainty about the risk of a transport accident so that increases in either leads to social welfare losses roughly 12 of the external cost of nuclear waste transport is attributable to the public s uncertainty about transport risk

premium auctions and risk preferences abstract in a premium auction the seller offers some payback called premium to a set of high bidders at the end of the auction this paper investigates how the performance of such premium tactics is related to the bidders risk preferences we analyze a two stage english premium auction model with symmetric interdependent values in which the bidders may be risk averse or risk preferring upon establishing the existence and uniqueness of a symmetric equilibrium we show that the premium causes the expected revenue to increase in the bidders risk tolerance a net premium effect is key to this result

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

managing exchange rate crises evidence from the 1890s abstract this paper investigates the effectiveness of the monetary authority s borrowing policies in resolving exchange rate cises it shows why obtaining loans or lines of credit in foreign currency may avoid at least temporarily the devaluation of a fixed rate and discusses the problem of the optimal size of the loan and or the line of credit the analysis focuses on a particular episode of foreign exchange rate pressure during the troubled years between 1894 to 1896 the results suggest that the borrowing policy followed by the us treasury in those years was effective in avoiding the collapse of the united states gold standard and that the amount of the borrowing undertaken by the treasury might have been optimal

modeling competitive bidding a critical essay in analyzing bidding modeling matters this paper is a critical analysis of the models available to aid competitive bidding decision making bidding strategy and auction design in real transactions after an introductory overview this paper describes the contexts in which auctions arise reviews the mainstream theory of single isolated auctions and discusses the important work involved in enrichment of this theory in doing so it indicates results that have been obtained and the sort of changes in analytical approach that are needed to tackle other critical enrichments the paper summarizes briefly what is known about the direct use of models by bidders and auction designers a general theme of this paper is that enriched models are needed to bring bidding theory closer to direct applicability in decision making

automobile externalities and policies this paper discusses the nature and magnitude of externalities associated with automobile use including local and global pollution oil dependence traffic congestion and traffic accidents it then discusses current federal policies affecting these externalities including fuel taxes fuel economy and emissions standards and alternative fuel policies summarizing insofar as possible the welfare effects of those policies finally we discuss emerging pricing policies including congestion tolls and insurance reform and summarize the appropriate combination of policies to address automobile externalities

risk attitudes in first price auction experiments a bayesian analysis non cooperative bidding theory for sealed bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to risk or are all risk neutral this paper constructs an explicit bayesian prior distribution for the risk attitudes of experimental subjects and reconsiders the experimental results it finds that observed bidding behavior is still inconsistent with the nash predictions when explicit prior weights are attached to alternative assumptions about subject risk attitudes thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes non cooperative bidding theory for sealed bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents archetypical of this result is the nash equilibrium prediction for first price auctions for an object that is valued by agents in an independent and private manner received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to riskor are all risk neutral in this paper we construct an explicit prior distrlbution for the risk attitudes of experimental subjects and reconsider the experimental results we find that observed bidding behavior is indeed consistent with the nash predictions when explicit prior weights are attached to alternative assumptions about subject risk aversion however when one allows for risk loving subjects as well observed behavior is inconsistent with nash predictions thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes in section i we consider a specific nash equilibrium ne bidding model due to cox roberson and smith 1982 and cox smith and walker 1988 that clearly illustrates the risk sensitivity of the theoretical predictions in section ii we provide independent evidence of the risk attitudes of experimental subjects in a test for risk attitudes developed by harrison 1986a this evidence allows us to construct an explicit prior probability density function over the coefficient of constant relative risk attitudes employed in the specific bidding model of section i in section iii we reconsider the evidence from the first price fp experiments reported in cox roberson and smith 1982 and cox smith and walker 1983a 1983b i a specific bidding model cox roberson and smith 1982 hereafter crs present a model based on a power function utility specification for agent i ui y y 1 received for publication august 31 1987 revision accepted for publication december 18 1989 university of south carolina i am grateful to two anonymous referees for helpful comments although they are not responsible for my conclusions

optimal reserve prices in sealed bid auctions with reference effects abstract the reference effect and loss aversion are incorporated into the buyer s utility in the symmetric independent private value models of sealed bid auctions the buyer s equilibrium bidding strategy and the seller s optimal reserve price are derived for the first price and second price sealed bid auctions in both auction mechanisms the seller s optimal reserve price and expected revenue are increasing in the reference point we compare the seller s expected revenues as well as the optimal reserve prices in the two auctions the results show that the seller will set a higher optimal reserve price but obtain lower optimal expected revenue in the second price auction compared to the first price auction further we extend the model to the gain seeking case and endogenize the reference point as the ex ante expected price of the item in equilibrium in contrast to the loss averse case the seller will set a lower optimal reserve price but obtain higher optimal expected revenue in the second price auction compared to the first price auction if the buyers are gain seeking with an endogenous reference point similar results are obtained in terms of revenue comparison between the two auctions

a general characterization of interim efficient mechanisms for independent linear environments we consider the class of bayesian environments with independent types and utility functions which are both quasi linear in a private good and linear in a one dimensional private value type parameter we call these independent linear environments for these environments we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints we also prove that they correspond to decision rules based on virtual surplus maximization together with the appropriate incentive taxes we illustrate these techniques with applications to auction design and public good provision

evaluating the effect of alternative risk communication devices on willingness to pay results from a dichotomous choice contingent valuation experiment two versions of a contingent valuation questionnaire that differ only in the device used to communicate risks from hazardous waste were sent to california households both risk communication devices provide wtp functions which vary in a statistically significant fashion with the absolute risk reduction however these empirical results also demonstrate that different risk communication devices produce statistically different logit equations and hence estimates of willingness to pay wtp for reductions in exposure to hazardous waste the pros and cons of using each risk communication device in cvm surveys is also discussed

behavioral models for first price sealed bid auctions with the one shot decision theory abstract we build an auction model with the one shot decision theory which describes the process of a bidder deciding his her bidding price in first price sealed bid auctions the decision making procedure involves two steps first for each of his her possible bidding prices the bidder examines every possible highest bidding price provided by the other bidders and chooses one as a focus point of this bidding price of him her then the bidder determines such a bidding price as the optimal one that generates the best outcome when its focus point occurs the optimal bidding price can be obtained and two common phenomena in auction markets throwing away and overbidding are well explained