bubbles and experience an experiment we investigate the occurrence of bubble crash pricing patterns in laboratory financial markets with a mixture of experienced and inexperienced traders we find that even with a minority of experienced traders bubbles are substantially abated

does ambiguity aversion survive in experimental asset markets although a number of theoretical studies explain empirical puzzles in finance with ambiguity aversion it is not a given that individual ambiguity attitudes survive in markets in fact despite ample evidence of ambiguity aversion in individual decision making most studies find no or only limited ambiguity aversion in experimental financial markets even when they exclude arbitrage we argue that ambiguity effects in markets depend on market feedback and on a sufficiently strong bias toward ambiguity among the participants accordingly we find significant ambiguity effects in low feedback call markets for assets that provoke high ambiguity aversion but no ambiguity effects in high feedback double auctions

lobbying by capital and labor over trade and labor market policies abstract this paper uses the common agency approach to analyze the joint determination of product and labor market distortions in a small open economy capital owners and union members lobby the government on both tariffs and minimum wages while other factors of production are not organized the paper shows that product and labor market distortions always move in the same direction and that their level is not modified by social pacts between capital and labor it also shows that labor market distortions are second best hence conditionality by foreign organizations should target distortions in product markets but not in labor markets

a two person dynamic equilibrium under ambiguity this paper describes a pure exchange continuous time economy with two heterogeneous agents and complete markets a novel feature of the economy is that agents perceive some security returns as ambiguous in the sense often attributed to frank knight the equilibrium is described completely in closed form after identifying agents as countries the model is applied to address the consumption home bias and equity home bias puzzles 2002 elsevier science b v all rights reserved jel classi cation d81 g11 g12 g15

unions w ages and employment evidence from finland reduced form wage and employment equations derived from a bargaining model are estimated using the two step method proposed by engle and granger 1987 econometrica 55 251 276 wages and employment arinfluenced by varriables which determine profits on the one hand and the utility of the union on the other hand in addition bargaining power appears to matter union strength was discovered to have a positive effect on both wages and employment in the manufacturing industry the a positive effect on both wages and employment in the manufacturing industry the two step method made it possible to evaluate both the long run elasticities and shortrun adjustment step response functions indicate that adjustment is not particularly slow in general this papers to be true for wages but especially for employment hence if the actual real wage employment combination is considered inappropriate it is not primarily due to too slow adjustment rather it implies that the equilibrium is inappropriate

union wage policy the importance of labour mobility and the degree of centralization with endogenous product prices nationwide wage setting gives lower unemployment than decentralized wage setting however intermediate level wage setting may give more unemployment than both completely decentralized and completely centralized wage setting the main part of the paper considers a dynamic model which includes flows of workers between firms and in and out of unemployment with less than full centralization the wages chosen by unions are lower the higher is the degree of labor mobility wages are also lower the higher is the degree of centralization unless labor mobility is very high copyright 1991 by the london school of economics and political science

profit sharing capital formation and the nairu this paper reconsiders the impact of different remuneration systems on aggregate employment contrary to common wisdom on this topic we show that the switch from a fixed wage economy to a share economy results in lower aggregate unemployment an additional innovation of this paper is the endogeneity of the capital stock decision of the firm which enables us to assess and reject the common disincentive to invest criticism of a share economy

unleashing animal spirits self control and overpricing in experimental asset markets one explanation for overpricing on asset markets is a lack of traders self control we implement the first experiment to address the causal relationship between self control and systematic overpricing on financial markets our setup detects some of the channels through which low individual self control could transmit into irrational exuberance in markets our data indicate a large direct effect of reduced self control on market overpricing low self control traders report stronger emotions after the market

efficiency wages and local wage bargaining in the literature on wage drift it is often argued that strikes or work to rule practices are used to force employers to pay a wage rate that exceeds the contract wage here we introduce the efficiency wage argument as a foundation for bargaining about wage drift contrary to the view in most bargaining models where firms and unions struggle to divide a fixed pie given employment we take the relation between wages and revenues explicitly into account the implications for wages and employment appear to differ not only with respect to the order of magnitude but also in a qualitative sense

it is not just confusion strategic uncertainty in an experimental asset market to what extent is the observed mispricing in experimental asset markets caused by strategic uncertainty and by confusion we address this question by comparing subjects initial price forecasts in two market environments one with six human traders and the other with one human and five computer traders we find that both strategic uncertainty and confusion contribute equally to the median initial forecast deviation from the fundamental value the effect of strategic uncertainty is greater for subjects with a perfect score in the cognitive reflection test and it is not significant for those with low scores

thar she bursts reducing confusion reduces bubbles to explore why bubbles frequently emerge in the experimental asset market model of smith suchanek and williams 1988 we vary the fundamental value process constant or declining and the cash to asset value ratio constant or increasing we observe high mispricing in treatments with a declining fundamental value while overvaluation emerges when coupled with an increasing c a ratio a questionnaire reveals that the declining fundamental value process confuses subjects as they expect the fundamental value to stay constant running the experiment with a different context stocks of a depletable gold mine instead of stocks significantly reduces mispricing and overvaluation as it reduces confusion jel c91 d14 g11 g12

the economics of worldwide stagflation the last fifteen years have witnessed dramatic changes in economics not only in the manner in which the economics profession views economics but also in the manner in which the general public views economics and economists by the late 1960 s there had emerged more or less a consensus macroeconomic framework that is an agreed upon structure to be used to study economic problems at the aggregate level robert solow stated as quoted in leijonhufvud 1968

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

the fragmentation of the bargaining society wage setting in the nordic countries 1950 to 1992 it is commonly believed that corporatist bargaining institutions have been in general decline in the 1980s and 1990s the leading explanations of the purported universal trend toward greater decentralization of collective bargaining are the impact of technological change changes in the occupational structure and growing international economic integration decentralization should be particularly visible in the nordic countries because collective bargaining was more centralized in these countries in the 1960s and 1970s than in any others in western europe in this article the authors present data on the changes in the centralization of wage bargaining in the four nordic countries since 1950 they document that a significant decentralization of collective bargaining has occurred in sweden as is well known but not in the other three the article concludes with a review of possible explanations of swedish exceptionalism

general economic conditions and national elections the fact that economic conditions influence voters is a leading commonplace of conversation in election years the question is is this fact in fact a fact despite the overwhelming popularity of the fact it has received neither an explicit theoretical analysis presumably because it is so obvious that economic adversity should create political adversaries nor until recently a satisfactory statistical analysis gerald h kramer has presented a multivariate analysis of congressional elections which would strongly suggest that fluctuations in the rate of unemployment have no appreciable effect upon elections but that fluctuations in per capita real income are influential in the following pages i propose to 1 reaffirm his finding on the electoral unimportance of ordinary fluctuations in unemployment 2 argue that contrary to kramer fluctuations in real income also do not have important electoral effects and 3 present an argument based upon rational voter behavior for the unimportance of general economic conditions in national elections

a dynamic ellsberg urn experiment two rationality arguments are used to justify the link between conditional and unconditional preferences in decision theory dynamic consistency and consequentialism dynamic consistency requires that ex ante contingent choices are respected by updated preferences consequentialism states that only those outcomes which are still possible can matter for updated preferences we test the descriptive validity of these rationality arguments with a dynamic version of ellsberg s three color experiment and find that subjects act more often in line with consequentialism than with dynamic consistency

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

firm profitability regional unemployment and human capital in wage determination this paper presents an analysis of wage formation in the norwegian private sector using data for individual workers matched with firm level information and regional unemployment a key issue is to test whether or not firm specific variables affect individual wages after controlling for individual specific factors and working conditions the results imply positive effects of firm specific profitability and firm size the elasticity of wages with respect to value added per worker and firm size is 5 and 3 3 respectively empirical evidence of a downward sloping regional wage curve is also reported while there is no support of the hypothesis of compensating wage differentials since data for three levels of aggregation are used the ols estimates of the standard errors are downward biased therefore results using a random effects model are also reported taking the multi level structure of the data into account

a note on mechanization and wage bargaining abstract collective wage bargaining may bias firms choice of production techniques but not in favour of mechanization it is most profitable to install relatively more equipment which is complementary to labour power than equipment which is a substitute

rational herding in financial economics abstract this paper briefly describes recent papers on the economics of rational herding in financial markets some models can predict perfect herding in which rational agents all act alike without any countervailing force such herding typically arises either from direct payoff externalities negative externalities in bank runs positive externalities in the generation of trading liquidity or in information acquisition principal agent problems based on managerial desire to protect or signal reputation or informational learning cascades the paper also provides a few pointers to related literature and suggests issues to be addressed in future research

ambiguity aversion and incompleteness of financial markets it is widely thought that incomes risks can be shared by trading in financial assets but financial assets typically carry some risk idiosyncratic to them hence disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk however standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels this argument is less robust than what standard theory leads us to believe ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets thus theoretically the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise

the vp function a survey of the literature on vote and popularity functions after 25 years vp functions explain the support for the government at votes and polls by economic and political variables most studies analyze macro time series we also cover studies of individual voters socio economic groups and regional cross sections the theory starts from the responsibil ity hypothesis voters hold the government responsible for economic conditions it works in two party block systems but not else voters in most countries are found to be sociotropic egotropic voting also occurs voters myopia is well established voting is retrospective as expectations are static it costs the average government almost 2 of the vote to rule

insider forces in wage determination new evidence for norwegian industries using panel data for norwegian industries we establish a significant permanent relation between industry wages and industry profitability the estimated long run insider weight is above 0 2 and stable both over time and across industries industry wages are significantly affected by aggregate unemployment and the preferred wage equation implies a highly convex wage curve

thar she blows gender competition and bubbles in experimental asset markets do women and men behave differently in financial asset markets our results from an asset market experiment show a marked gender difference in producing speculative price bubbles mixed markets show intermediate values and a meta analysis of 35 markets from different studies confirms the inverse relationship between the magnitude of price bubbles and the frequency of female traders in the market women s price forecasts also are significantly lower even in the first period implications for financial markets and experimental methodology are discussed jel d14 d81 g01 g11 j16

union wage differentials product market influences and the division of rents this paper examines the extent to which product market conditions limit the ability of trade unions to establish wage differentials over nonunion pay the mean union pay differential is estimated to be of the order of 8 percent to 10 percent in establishments with some degree of product market power but zero in establishments facing competitive product market conditions when competitive conditions are faced a preentry closed shop and high union coverage of the industry are both required it is estimated that only 5 percent of the establishments in which there are significant differentials over nonunion pay face generally competitive product market conditions copyright 1990 by royal economic society

wage rigidity inflation and institutions we study the possible existence of downward nominal wage rigidity dnwr at wage growth rates different from zero in aggregate data even if dnwr prevails at zero for individual workers compositional effects might lead to falling aggregate wages while changes in relative wages combined with dnwr might lead to positive aggregate wage growth we explore industry data for 19 oecd countries over the 1971 2006 period we find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s at 1 percent in the 1990s and at 0 5 percent in the 2000s furthermore we find that dnwr is stronger in country years with strict employment protection legislation high union density centralized wage setting and high inflation

local versus central wage bargaining with endogenous investments investment behavior may depend on whether wage bargaining takes place centrally or locally at the firm level the outcome of the wage bargain will in turn depend on previous investments ignoring other differences between the two bargaining regimes endogenous investments imply that wages are lower and profits higher under local wage bargaining than under central bargaining this does not necessarily imply that employment is highest under local bargaining since investments may differ in the two cases with a nash bargaining solution however reasonable assumptions imply that employment is highest under local wage bargaining

to see is to believe common expectations in experimental asset markets abstract we experimentally manipulate agents information regarding the rationality of others in a setting in which previous studies have found irrationality to be present namely the asset market experiments introduced by smith et al 1988 recent studies suggest that mispricing in such markets may be an artefact of confusion which can be reduced by training subjects to understand the diminishing fundamental value we reconsider this view and propose that when it is made public knowledge that training has occurred this may also reduce uncertainty over the behavior of others and facilitate the formation of common expectations our design disentangles the direct effect of training from the indirect effect of its public knowledge and our results demonstrate a distinct and statistically significant effect of public knowledge over and above that of training alone

recycling energy taxes impacts on a disaggregated labour market abstract this paper analyses the impacts of energy taxes whose revenue is recycled to reduce gross wages and increase employment the main novel feature of this paper is the attempt to assess the effectiveness of this fiscal reform by using a labour market model in which both skilled and unskilled workers are used in the production process this segmentation enables us to compare a policy which aims at reducing unskilled workers wages as in the original delors white book with a policy in which the environmental fiscal revenue is used to reduce the gross wage of all workers moreover two policy scenarios will be considered a non co operative one in which each country determines the optimal domestic energy tax to achieve a given employment target and a co operative one in which the energy taxes are harmonised to equalise marginal abatement costs in the eu and in which the employment target is set for the eu our results show that i an employment double dividend can be achieved in the short run only even if a trade off between environment and employment always exists ii the effect on employment is larger when the fiscal revenue is recycled into all workers gross wages rather than into unskilled workers only iii a co operative policy leads to even larger benefits in terms of employment provided that an adequate redistribution of fiscal revenues is adopted by eu countries

unions rent creators or extractors this paper proposes a model of workplace specific unions that integrates two views of what unions do one view holds that unions mainly engage in rent extraction another view holds that unions mainly engage in rent creation by providing agency services that increase workplace productivity we demonstrate that the choice between the two activities is systematically related to the economic and regulatory environment in which the union operates product market competition encourages rent creation while labor market deregulation encourages rent extraction moreover we provide a rationale for why firms may want to subsidize unions the editors of the scandinavian journal of economics 2005

on booms that never bust ambiguity in experimental asset markets with bubbles we study the effect of ambiguity on the formation of bubbles and on the occurrence of crashes in experimental asset markets a la smith suchanek and williams 1988 we extend their framework to an environment where the fundamental value of the asset is ambiguous we show that when the fundamental value is ambiguous asset prices tend to be lower than when it is risky although bubbles form in both the ambiguous and the risky environments additionally bubbles do not crash in the ambiguous case whereas they do so in the risky one these findings regarding depressed prices and the absence of crashes in the presence of ambiguity are in line with recent theoretical work stressing the crucial role of ambiguity to account for surprisingly low equity prices high returns as well as herding in asset markets

a theory of political cycles abstract we study how the proximity of elections affects policy choices in a model in which policymakers want to improve their reputation to increase their reelection chances policymakers equilibrium decisions depend on both their reputation and the proximity of the next election typically incentives to influence election results are stronger closer to the election for a given reputation level as argued in the political cycles literature and these political cycles are less important when the policymaker s reputation is better our analysis sheds light on other agency relationships in which part of the compensation is decided upon infrequently

trade unions and economic efficiency in this paper i shall investigate a role for trade unions in increasing economic efficiency this role is enabling an improvement in the allocation of riskbearing between a firm and its employees the essential idea is straightforward if employers and employees are both risk averse the optimal wage contract will not leave one party bearing all the risk if state contingent contracts are possible grossman and hart 1981 give several reasons for firms being risk averse that firms are indeed risk averse would seem to follow from the fact that employees bear substantial risks few firms offer a job for life at a guaranteed real wage employees bear the risks of layoff redundancy and changes in the real value of their earnings with transactions costs in finding and moving to another job which may be substantial in periods of high unemployment these are real risks yet the states of the world in which these eventualities are to occur are rarely specified in any legally enforceable form indeed it is hard to imagine that they ever could be both because of the problem of envisaging all the relevant states of the world the bounded rationality of simon 1979 and because of the problem of defining those states in such a way that the courts could in the event of a dispute decide which state had occurred in the absence of legal enforceability of state contingent contracts the analysis depends on whether or not decisions about production must be made before a firm knows which state has occurred if they do not have to be then it is not essential to negotiate any contract before the firm knows the state but it may still be desirable from a risk sharing point of view to have a long term contract covering different possible states for that case hall and lilien 1979 and grossman and hart 1981 have argued that some degree of state contingency may be achieved by negotiating a contract which allows the firm in the light of the state which occurs to choose between limited combinations of employment and wages the firm may for example be permitted to reduce wages under the contract but only at the expense of reducing employment so that it is only in its interest to do so if marginal productivity is low this can overcome some of the moral hazard problems arising when states are observed only by firms but as grossman and hart show only at the cost of pareto inefficiency in the employment contract at an empirical level it may explain provisions for compulsory overtime at premium rates this type of contract will work only in the case in which the firm observes the state of the world before making employment decisions but given that

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

why join the party in a one party system popularity versus political exchange the paper investigates empirically the determinants of political stability in one party states taking as an example socialist yugoslavia we assume that the number of the party members is an indicator of the stability of the regime and perform a time series analysis for the six yugoslav republics in the 1953 1988 period we find that rents distributed to the population were far more important than the popularity of economic policies and perhaps even more important than repression these findings provide strong empirical support for economic models of dictatorship based on the notion of political exchange

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

determinants of the increase in the number of interest groups in western democracies theoretical considerations and evidence from 21 oecd countries mancur olson s theory of institutionalsclerosis is based on the notion that thenumber of interest groups within a countryincreases with the duration of itspolitical stability the following paperargues that the increase in the number ofinterest groups over time could also be aconcomitant of economic development theoretically both explanations provetenable an empirical cross sectionalregression analysis using data from 21oecd countries finds no evidence for asignificant impact of the duration ofpolitical stability on the number ofinterest groups a significantly positiveeffect is however reported for the degreeof economic development

unions and cooperative behavior the effect of discounting using union contract and industry wage survey data this article examines the effect of discounting on cooperative bargaining behavior by unions and firms game theory predicts that higher discount rates raise the temptation to defect from cooperation measures of cooperative behavior included the presence of merit pay incentive pay wage employment guarantees or labor management study committees discount rates were proxied by the relevant industry s failure rate failure rates generally had negative effects on cooperation industry wage survey results showed larger effects for union than non union establishments providing support for the union bargaining framework

union s threats and wage determination this paper considers local wage bargaining as a sequential game and focus es on how different rules of the game affect employment and equilibri um payment to workers and employers work to rule and other go slow t hreats lead to low employment while strike threats lead to high empl oyment an increase in the bargaining power of the union induces high er or unchanged equilibrium employment in the strike threat case whi le employment is reduced in the slow down case finally if all kinds of industrial actions are legal only one is credible which type de pends on the parameters of the model copyright 1988 by royal economic society

a collection of surveys on market experiments this paper highlights the contributions in this special issue to the very large and rapidly growing research on experimental markets it contains ten surveys of different streams of research in this area including asset markets contests environmental policy frictions general equilibrium labor markets multi unit auctions oligopoly markets and prediction markets

nonspeculative bubbles in experimental asset markets lack of common knowledge of rationality vs actual irrationality we report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets in a setting in which speculation is not possible bubbles and crashes are observed the results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation but rather by behavior that itself exhibits elements of irrationality much of the trading activity that accompanies bubble formation in markets where speculation is possible is due to the fact that there is no other activity available for participants in the experiment

the costs of price stability downward nominal wage rigidity in europe in most european countries the prevailing terms of employment including the nominal wage can be changed only by mutual consent this legal feature gives workers a strategic advantage in wage negotiations when employers push for a nominal wage cut the upshot is a long run trade off between inflation and unemployment for low levels of inflation in spite of all agents being rational and with no expectational errors specifically downward nominal wage rigidity and excess unemployment at zero inflation are related to three factors the coverage of collective agreements the legal framework at contract renewal and the strictness of the employment protection legislation for non union workers

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

learning and asset prices under ambiguous information we propose a new modeling framework to study the asset pricing implications of learning under ambiguity aversion in a continuous time partial information lucas economy we characterize analytically equilibrium equity returns and make the following observations first learning under ambiguity aversion implies an equilibrium discount for ambiguity if and only if relative risk aversion is below one or equivalently the elasticity of intertemporal substitution eis is above one in this case ambiguity aversion increases conditional equity premia and volatilities second equilibrium interest rates are lower irrespective of risk aversion third no time invariant relation between excess returns and conditional variances exists therefore estimated relations between excess returns and equity conditional variances are highly time varying and have an indeterminate sign fourth estimates of the eis based on standard euler equations for equity returns are strongly downward biased in a setting of learning and ambiguity aversion therefore an eis well above one can be consistent with estimates of eis well below one fifth ambiguity does not resolve asymptotically finally using realistic model parameters we show that a low risk aversion and a moderate amount of ambiguity are consistent with the equity premium the low interest rate and the excess volatility puzzles

wage bargaining and nominal rigidities abstract delays in wage negotiations do not necessarily mean work stoppage production can continue under the terms of the old contract while the parties are bargaining holdout this holdout option is included in a strategic bargaining game in addition to strike and lock out threats integrating the bargaining model in a standard macroeconomic framework it turns out that holdout threats will prevail under certain circumstances in this case wages will be rigid in nominal terms so that an increase in aggregate nominal demand increases aggregate output

wage drift and the relevance of centralised wage setting the system of wage setting in the nordic countries is often regarded as highly centralised contributing to considerable real wage flexibility this view has been questioned as sizeable wage drift may offset the effect of central negotiations this paper presents evidence from the four major nordic countries suggesting that there is little or no such offsetting effect yet at central negotiations the institutional system of wage formation may induce nominal rigidities that may prevent wage restraint when there is little room for money wage growth empirical evidence supports the existence of nominal rigidity

an economic theory of the open shop trade union there has been significant interest recently both in the empirical investigation of the determinants of trade union membership in the u k and elsewhere and in the theoretical analysis of the economic effects of the closed shop trade union however there is little rigorous microeconomic explanation of union membership which is relevant for much of the u k and similar labour markets where the open shop union is prevalent this paper attempts to overcome the free rider problem of explaining union membership in the open shop we argue that both private pecuniary gains and social influences affect the individuals union membership decisions citing evidence in support of these basic assumptions we show that stable intermediate union density is a possible equilibrium outcome in a generalised social custom model we also analyse the simultaneous determination of wages and union membership deriving a number of comparative static results in particular we find that both wages and union density depend upon inter alia the level of strike pay the net cost of union membership and the individual s sensitivity to social custom and associated solidarity effects we argue that the approach is consistent with various stylised facts concerning both wage bargaining and union membership and is able to explain a number of otherwise puzzling features of union membership

futures contracting and dividend uncertainty in experimental asset markets prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset s useful life explanations for this phenomenon are 1 that participants cannot form reliable future price expectations or 2 dividend risk aversion we report the results of experiments to test these hypotheses in one experimental series a futures market is introduced so that participants can obtain information on future share prices in another series of experiments the per period dividend is known with certainty the futures market treatment reduced the bubble the certain dividend treatment had little effect on the character of bubbles with inexperienced traders copyright 1995 by university of chicago press

the effects of union owned shares on the outcome of wage bargaining abstract the paper investigates the consequences of employee stock ownership in firms where the local union determines the purchase of shares who wins and who loses depends on the type of conflict threat that is used by the union however no employee share arrangement can simultaneously benefit all union members and external owners on the contrary there may be a total loss to be shared due to overmanning egalitarian employee stock ownership may therefore not be viable inegalitarian employee ownership may be viable paradoxically all union members are better off the more weight the union gives to the members with no shares

employer size or skill group size effect on wages the authors analyze explanations for firm or establishment size effects on wages one theory is that each firm faces an upward sloping supply curve for labor implying that the number of any particular type of worker should matter for his or her level of pay rather than the total number of workers in the firm to test this hypothesis the authors add the log of skill group size to the standard log wage equation results indicate that the traditional employer size effect on wages dwindles away once control for the number of workers of the same skill group educational type as the observed individual within the establishment is added to the equation the skill group size effect on wages is substantial after controlling for both individual and establishment specific heterogeneity a dwindling employer size effect and a significant group size effect remain

misery loves company social regret and social interaction effects in choices under risk and uncertainty abstract extensive field evidence shows individuals decisions in settings involving uncertainty depend on their peers decisions one hypothesized cause of peer group effects is social interaction effects an individual s utility from an action is enhanced by others taking the same action we employ a series of controlled laboratory experiments to study the causes of peer effects in choice under uncertainty we find strong peer group effects in the laboratory our design allows us to rule out social learning social norms group affiliation and complementarities as possible causes for the observed peer group effects leaving social interaction effects as the likely cause we use a combination of theory and empirical analysis to show that preferences including social regret are more consistent with the data than preferences including a taste for conformity we observe spillover effects as observing another s choice of one risky gamble makes all risky gambles more likely to be chosen

ambiguity aversion and household portfolio choice puzzles empirical evidence we test the relation between ambiguity aversion and five household portfolio choice puzzles nonparticipation in equities low allocations to equity home bias own company stock ownership and portfolio under diversification in a representative us household survey we measure ambiguity preferences using custom designed questions based on ellsberg urns as theory predicts ambiguity aversion is negatively associated with stock market participation the fraction of financial assets in stocks and foreign stock ownership but it is positively related to own company stock ownership conditional on stock ownership ambiguity aversion is related to portfolio under diversification and during the financial crisis ambiguity averse respondents were more likely to sell stocks

the effect of reliability content and timing of public announcements on asset trading behavior financial markets are overwhelmed by daily announcements we use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter randomly selected or determined by past asset market prices we find that messages can play a significant role in bubble abatement or rekindling the preset message the price is too high decreases the amplitude and duration of bubbles for inexperienced subjects announcements that depend on the actual level of mispricing reduce bubble magnitude meanwhile a preset or random message the price is too low prevents experienced subjects from abating bubbles we account for the effect of public messages by showing that they significantly reduce inconsistent irrational trading behavior

the role of economic issues in elections the case of the 1988 chilean presidential referendum in this paper we tested the hypothesis that the performance of the economy is a determinant factor in the voter s preferences the results obtained enable us to corroborate this notion since the model has a high predictive value and the behavior of the economy both in terms of level of activity as well as in its changes comes up consistently as a determinant factor of voting behavior these results are also consistent with those obtained through chilean polls in which it has been ascertained that economic events particularly in the case of those who favored the anti pinochet option no were of utmost importance in the voters decisions the results also confirm the idea that in chile women tend to give economic issues a lesser weight in their political preferences

a dynamic model of union power wages and employment the traditional approach to modelling the effects of trade union power on wages and employment has paid very little attention to how the form of union power affects the outcome in this paper wage and employment determination is considered in a dynamic model where some workers e g non union members continue to work in the event of a dispute to see whether this practice can be justified the predictions of the model are very different from the standard one for example both wages and employment may be a nonmonotonic function of union density the model can also explain situations in which unions are sustainable in the long run

a spatial analysis of candidate competition in dual member districts the 1989 chilean senatorial elections this study uses empirical spatial theory to evaluate candidate and voter behavior in senate elections contested during the 1989 chilean general election the study evaluates whether senatorial candidates competing in dual member districts under chilean d hondt locate near the periphery or interior of the electoral space spatial analyses demonstrate the chilean senatorial electoral system is characterized by centrifugal forces in particular candidates of the right locate on the periphery of the space and face few incentives to pursue moderate electoral strategies the study also characterizes bases of party and candidate support and the underlying dimensions of political competition spatial analysis reveals both change and continuity in the pre and post authoritarian electoral universes

productivity and trade unions in british manufacturing industry 1973 85 this paper uses panel data on british manufacturing industries between 1973 and 1985 to examine the relationship between productivity and labour organization it is shown that the relationship between unions and productivity levels is sensitive to the econometric specification the evidence points to there being no relationship in the 1970s when unions were more popular and a negative relationship from 1979 onwards we also find evidence that industrial concentration is associated with higher levels of productivity and this accounts for more of the productivity recovery after the recession in the early 1980s than the impact of trade unions the recession itself is shown to have had an impact on subsequent productivity growth we also suggest that the long run gains in productivity caused by the shakeout of 1980 81 may not have compensated for the loss in output at the time

thar she blows can bubbles be rekindled with experienced subjects we report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and error elimination among participants in a laboratory asset market and its effect on price bubbles our answer to the title question is yes we impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium and this treatment rekindles a bubble however in replications of that same challenging environment across three experience levels we discover that the environment yields a rare residual tendency to bubble even in the third experience session therefore a caveat must be placed on the effect of twice experienced subjects in asset markets in order for price bubbles to be extinguished the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters experience including possible error elimination is not robust to major new environment changes in determining the characteristics of a price bubble jel c91 d83

efficiency wages and local versus central wage bargaining abstract a simple efficiency wage model is extended to allow for the presence of unions the presence of unions aggravates the unemployment caused by efficiency wage considerations provided the labour demand elasticity is not too much larger than one local firm level wage bargaining gives a higher negotiated wage than central wage bargaining implying higher unemployment under local wage bargaining than under central wage bargaining

effects of ambiguity in market experiments prior studies have shown that individuals are averse to ambiguity in probability many decisions are however made in market settings where an individual s decision is influenced by decisions of others participating in the market in this paper we extend the previous research to evaluate the effect of ambiguity on individual decisions and the resulting market price in market settings we therefore examine an important issue whether ambiguity effects persist in the face of market incentives and feedback two different market organizations the sealed bid auction and the double oral auction were employed the subjects in the experiments were graduate business students and bank executives our results show that the individual bids and market prices for lotteries with ambiguous probabilities are consistently lower than the corresponding bids and market prices for equivalent lotteries with well defined probabilities the aversion to ambiguity therefore does not vanish in market settings our results provide insights into what a manager can expect in bidding situations where the object of the sale oil leases mineral rights involves ambiguity in probability due to for example lack of information or prior experience the results may also be useful in understanding some phenomena in insurance and equity markets

futures markets cognitive ability and mispricing in experimental asset markets we study the effect of a futures market in which contracts maturing in the last period of the life of the asset can be traded our experiment has two treatments one in which a spot market operates on its own and a second treatment in which a spot and a futures market are active simultaneously futures markets lower spot prices but increase price volatility the futures markets themselves exhibit considerable overpricing individuals with higher cognitive reflection test crt scores achieve greater earnings and tend to sell in the overpriced futures market while traders with lower crt scores make purchases in the futures market greater average crt score among a group of traders is associated with better price discovery when no futures market is present but there is no such relationship in the presence of a futures market modified measures of crt which take into account different types of incorrect responses are introduced

information mirages in experimental asset markets one explanation for the apparent volatility of asset prices is that people overreact to trades that are uninformative creating self generated information mirages the authors test whether mirages occur in experimental asset markets there are insiders in only half the periods so traders cannot be sure if the trades of others reveal information the authors observed four clear mirages in forty seven periods without insiders mirages always occurred early in an experimental session in later periods traders learn whether there are insiders by observing nonprice information such as the speed of trading and mirages occurred only temporarily copyright 1991 by university of chicago press

a review of bubbles and crashes in experimental asset markets this paper discusses the literature on bubbles and crashes in the most commonly used experimental asset market design introduced by smith et al it documents the main findings based on the results from 41 published papers 3 book chapters and 20 working papers

holdouts backdating and wage negotiations the haller and holden jet 1990 wage bargaining model is extended to incorporate holdouts with and without work to rule inefficient holdouts and backdating of new contracts the union s most effective action inflicts the highest costs upon the firm among the credible actions necessary and sufficient conditions for equilibria with lengthy holdouts are derived backdating does not affect the bargaining positions of the parties the settlement wage negatively depends upon the length of the holdout and this dependence does not disappear as the time between bargaining rounds vanishes this result has implications for empirical work moreover this negative effect is small and confirms empirical evidence for the netherlands

government subsidies and presidential election outcomes evidence for a developing country summary we explore the effects of government subsidies on presidential elections in chile in 1989 99 we use a panel with three periods the elections of 1989 1993 and 1999 and 229 counties we correct for the potential simultaneity problem deriving from the fact that an incumbent facing a difficult political scenario might react by increasing subsidies to improve his her electoral performance our results indicate that the greater the coverage of these types of programs i e the percentage of people receiving subsidies the higher the votes for the incumbent

why are rich countries more politically cohesive we document empirically that rich countries are more politically cohesive than poorer countries in order to explain this regularity we provide a model where political cohesion is linked to the emergence of a fully functioning market economy without market exchange the welfare of inherently selfish individuals will be mutually independent whoever has greater bargaining power will be willing to make decisions that enhance the productivity of their supporters at the expense of other groups in society if the gains from specialization are sufficiently large however a market economy will emerge from being essentially non cohesive under self sufficiency the political decision making process becomes cohesive in the market economy because the welfare of individuals will be mutually interdependent as a result of the exchange of goods

open shop unions and product market competition in this paper we analyse the impact of changes in product market competition on wage outcomes in the presence of an open shop union with less than full union membership product market competition is shown to aect not only a unionised rm s pro ts but also its payoin the event of a dispute in contrast to the pre diction of the standard model increases in product market competition may now increase wage levels the model is therefore able to accommodate the mixed empir ical ndings regarding the impact of product market competition on union wages