economies of density versus natural advantage crop choice on the back forty abstract we estimate the factors determining specialization of crop choice at the level of individual fields distinguishing between the role of natural advantage soil characteristics and economies of density scale economies achieved when farmers plant neighboring fields the same using rich geographic data from north dakota including new data on crop choice collected by satellite we estimate a model of how a farmer plants adjacent fields under the farmer s control we find planting decisions on a field are heavily dependent on the soil characteristics of adjacent fields through this relationship we back out the structural parameters of economies of density

clustering and competition in asset markets economists financial commentators regulatory agencies and the legal community have recently criticized the nasdaq stock market inc because there is greater clustering of stock quotations on even eighths on nasdaq than on the new york stock exchange or the american stock exchange a phenomenon which critics attribute to collusion or some other defect in nasdaq market structure however as this article demonstrates clustering occurs in varying degrees in many other incontestably competitive financial markets including the nyse the amex the london stock exchange the london gold market and the international foreign exchange market this article provides a competitive theory of clustering that emphasizes the effect of uncertainty the size of transactions volatility and the informational and transactional roles of quotations on the degree of clustering in addition the article examines how market structure can affect the degree of clustering and considers the relation between clustering spread

policy innovation in local jurisdictions testing for neighborhood influence in school choice policies before making difficult decisions individuals tend to collect information on decision makers in reference groups with respect to policy innovations in a decentralized public sector this may give rise to positive neighborhood influence on adoption decisions in this paper u s school district data are used to show that decision makers indeed are heavily affected by decision makers in reference groups the policy innovation under consideration is inter district public school choice the results suggest that if a given district s neighbors expected benefits from adopting school choice policies increase this substantially increases the original district s probability of adoption the paper thus supports the view that the diffusion of policy innovations is stimulated by horizontal interaction among local governments

a review of william easterly s the tyranny of experts economists dictators and the forgotten rights of the poor william easterly marshals yet another brilliant critique of established development policies with a focus on the experts excessive focus on state led policies and goals a la myrdal and ignorance of bottom up solutions including technology and individual rights a la hayek it suggests a world where success occurs in spite of nation states yet not all bottom up leads to success and the worst disasters as in civil violence occur where states fail easterly highlights the important links between success and individual freedom and opportunity he fails to note that myriad impoverished individuals cannot exercise these freedoms due to low expectations or compromised rights

labor market competition among youths white women and others we estimate substitution possibilities among a set of age race sex groups in the labor force the estimates are based on cross section data from smsas in 1969 and they allow us to consider how substitutable adult women are for young women or young men the estimates are used along with assumptions about the extent of wage rigidity and elasticities of labor supply to simulate the direct and indirect effects of the growth of the female labor force on job opportunities for youth assuming rigid wages for young workers and on the wage rates of adult males assuming these wages are flexible this abstract was borrowed from another version of this item

social networks and new product choice to successfully market new products in a social network it is essential to identify influential individuals whose product recommendations influence the consumption choices of their peers in this study we use spatial econometric methods to determine how individuals revise their preferences for product attributes when exposed to product recommendations from peers and how different individuals who vary in their degree of network connectedness exert influence on the product choices of others we find evidence that consumers look to others for guidance from peers in their preference for subjective taste specific parameters but tend not to respond to peer price choices our spatial methods allow us to empirically determine the influence exerted by individual members on the consumption choices of other members of the social network we find that connected members of the social network are not always the most influential in revising the consumption choices of others our estimates reveal that network proximity explains only 8 8 of influence

religious participation and children s education a social capital approach abstract based on the argument in both economic and sociological literature that religion is conducive to children s human capital formation this paper provides a model of religious participation and explores a mechanism that social capital affects children s education a la coleman coleman j s 1988 social capital in the creation of human capital american journal of sociology 94 s95 s120 the model generates several interesting implications which help explain some important stylized facts about education and religion further in a dynamic setting the model shows that there exists a steady state in which individuals allocate a positive amount of time and resources to religious activities thus it complements the existing literature to explain why seemingly unproductive religions can be everlasting

stock splits tick size and sponsorship a traditional explanation for stock splits is that they increase the number of small shareholders who own the stock a possible reason for the increase is that the minimum bid ask spread is wider after a split and brokers have more incentive to promote a stock i document a large number of small buy orders following nasdaq and nyse amex splits during 1993 to 1994 i also find strong evidence that trading costs increase and weak evidence that costs of market making decline following splits this is consistent with splits acting as an incentive to brokers to promote stocks stock splits seem to be purely cosmetic changes with no real economic consequences after a two for one split each shareholder has twice as many shares but each represents a claim on only half as much of the corporation s assets and earnings however one real consequence of a stock split is that the tick size increases as a proportion of the stock s price except for a small number of very low priced issues u s stocks listed on an exchange or on nasdaq have a tick or minimum price variation of 0 125 during the sample period thus a decrease in the stock price and an increase in the relative tick size are indistinguishable consequences of a split some authors notably angel 1997 argue that splits are intended to move relative ticks to desired levels several empirical studies provide indirect evidence that is consistent with an increase in relative tick size as a motivation for splits desai and jain 1997 fama et al 1969 lakonishok and lev 1987 and others document that splits occur after stocks have experienced significant price increases or equivalently after relative tick sizes have decreased significantly angel shows that there is far less dispersion internationally in relative tick sizes than in stock prices

estimating ethnic preferences using ethnic housing quotas in singapore there are many policies around the world aimed at integrating groups gender ethnic national in education employment immigration and housing in the case of housing since prices may not internalize externalities in residential location choices we need to know preferences for welfare analysis this paper estimates people s taste for living with own ethnic groups ethnic preferences using unique policy variation from the ethnic housing quotas in singapore my approach combines policy induced variation commonly used in reduced form settings with a non parametric identi cation strategy in a structural demand estimation framework a la berry levinsohn and pakes 1995 i nd that all groups have strong preferences to live with at least some other

the dynamics of statistical discrimination this article demonstrates how learning dynamics select among equilibria in a statistical discrimination model of employment the static market model exhibits multiple equilibria the belief revision dynamics generate a markov market process which in the long run is mostly near one and only one of the static equilibria regardless of initial conditions usually policy effects appear in comparative statics where the equilibrium set moves with different policies but here policy is also seen to effect which equilibrium is selected even when it has no comparative statics effect at all social scientists have identified self fulfilling expectations as an important source of discrimination in labour markets and other social exchanges various theories highlight the role of negative racial attitudes in creating social outcomes that in turn help to perpetuate the initial beliefs in this account discriminatory outcomes appear as an equilibrium of beliefs and behaviour among sociologists merton 1948 is one source for this view 1 a similar view of discrimination was put forward by myrdal 1944 who referred to an equilibrium of beliefs and behaviour as the principle of cumulation and less abstractly as the vicious circle myrdal observes that social systems may have multiple equilibria and that different equilibria may be more or less robust to perturbations remedial policies he notes might work by destabilising one equilibrium in favour of another

tick size share prices and stock splits minimum price variation rules help explain why stock prices vary substantially across countries and other curiosities of share prices companies tend to split their stock so that the institutionally mandated minimum tick size is optimal relative to the stock price a large relative tick size provides an incentive for dealers to make markets and for investors to provide liquidity by placing limit orders despite its placing a high floor on the quoted bid ask spread a simple model suggests that idiosyncratic risk firm size and visibility of the firm affect the optimal relative tick size and thus the share price in stock markets around the world the average price per share differs substantially the median u s stock for example sells for about 40 a typical london stock sells for about 5 7 50 and a typical hong kong share is about 2 furthermore when stock prices rise above a country s usual trading range firms often split their stocks to restore prices to that range why are these price ranges so different among countries these trading ranges can be remarkably stable over time during the half century from 1943 to 1994 the s p composite index increased over 1 500 percent yet the average new york stock exchange nyse share price was

rapid evolution under inertia abstract this paper demonstrates that inertia driven by switching costs leads to more rapid evolution in a class of games that includes m m pure coordination games under the best response dynamic and a fixed rate of mutation the expected waiting time to reach long run equilibrium is of lower order in the presence of switching costs due to the creation of new absorbing states that allow ellison s ellison g 2000 basins of attraction long run stochastic stability and the speed of step by step evolution rev econ stud 67 17 45 step by step evolution to occur

imitation contagion or exertion using a tax reform to reveal how colleagues sick leaves influence worker behaviour we analyse the social interaction effects in sick leave behaviour in the workplace using high quality norwegian matched employer employee data with detailed individual information on sick leaves during the 2004 2006 period we find that social interaction effects in sick leave behaviour in the workplace do exist and that the effects are noticeable in size the strong relationship between the sick leave rates among colleagues is not solely the result of contagious diseases nor is it caused by improved informational quality or by the increased workload for the non absent workers evidence supports the existence of reciprocal worker behaviour that is unrelated to joint leisure seeking activities

stock splits and stock dividends why who and when this study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions the findings suggest that stock splits are mainly aimed at restoring stock prices to a normal range some support can also be found for the oft mentioned signalling motive of stock splits stock dividends are altogether different from stock splits and they appear to be a decreasing phenomenon the clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends neither stock splits nor stock dividends are recent phenomena the latter dates back to the elizabethan age among the first to declare such dividends was the east india company which while enjoying great prosperity declared in 1682 a stock dividend of one hundred percent during the eighteenth and nineteenth centuries stock dividends were quite frequently distributed by british companies in the united states an early and frequently discussed stock dividend distribution was that of the new york central railroad just prior to its union with the hudson river railroad in 1869 surprisingly stock dividends were quite popular in the u s despite their being subject to federal income tax thus for example during the seven years prior to 1922 the year in which the supreme court exempted the recipients of stock dividends from taxes the ratio of stock dividends to all dividend distributions was 14 5 percent this ratio increased to a staggering forty seven percent during the seven years succeeding the supreme court decision during 1936 to 1937 some american companies distributed stock dividends to avoid the undistributed profit tax

social interaction and conformism in a random utility model abstract we analyze a class of dynamic binary choice models with social interaction agents are heterogeneous and their degree of conformism taste externality changes over time endogenously we show that social interaction in itself is not enough to observe multiple equilibria and that the equilibrium outcome is not necessarily a polarized society the social outcome depends on the law of motion that drives the evolution of taste externality

set identification in models with multiple equilibria we propose a computationally feasible way of deriving the identified features of models with multiple equilibria in pure or mixed strategies it is shown that in the case of shapley regular normal form games the identified set is characterized by the inclusion of the true data distribution within the core of a choquet capacity which is interpreted as the generalized likelihood of the model in turn this inclusion is characterized by a finite set of inequalities and efficient and easily implementable combinatorial methods are described to check them in all normal form games the identified set is characterized in terms of the value of a submodular or convex optimization program efficient algorithms are then given and compared to check inclusion of a parameter in this identified set the latter are illustrated with family bargaining games and oligopoly entry games copyright 2011 oxford university press

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

stock market crashes as social phase transitions abstract stock market crashes are traumatic events that affect the lives of millions of people around the globe and have tremendous economic implications crashes are not only dramatic but often completely unexpected the 1987 crash for example was not induced by any obvious trigger even after the fact it is hard to find the reason for the crash why did the market crash in october rather than in september or december why did it crash at all to this day we lack satisfactory answers this paper shows that spontaneous market crashes can be explained by a social phase transition mechanism similar to statistical mechanics phase transitions investors heterogeneity plays the role of temperature and is key in determining the possibility and magnitude of the crash the analysis suggests that dramatic crashes are a robust and inevitable property of financial markets it also implies that market crashes should be preceded by an increase in price volatility as empirically observed thus market crashes like earthquakes are a fundamental and unavoidable part of our world however we can develop early warning systems that may help minimize the damage

homeownership community interactions and segregation the authors consider a multi community city where community quality is linked to residents civic efforts such as being proactive in preventing crime and ensuring the quality of publicly provided goods homeownership increases incentives for such efforts but credit market imperfections force the poor to rent within community externalities can lead to segregated cities with the rich living with the rich in healthy homeowner communities and the poor living with the poor in dysfunctional renter communities the pattern of tenure segregation across communities in the united states accords well with the study s prediction the authors analyze alternative tax subsidy policies to alleviate inefficiencies in the housing market and identify the winners and losers under such policies

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

neighborhood effects in integrated social policies when potential beneficiaries share their knowledge and attitudes about a policy intervention their decision to participate and the effectiveness of both the policy and its evaluation may be influenced this matters most notably in integrated social policies with several components in this article spillover effects on take up behaviors are investigated in the context of a conditional cash transfer program in rural mexico these effects are identified using exogenous variations in the local frequency of beneficiaries generated by the program s randomized evaluation a higher treatment density in the areas surrounding the evaluation villages is found to increase the take up of scholarships and enrollment at the lower secondary level these cross village spillovers operate exclusively within households receiving another component of the program and do not carry over larger distances while several tests reject heterogeneities in impact due to spatial variations in program implementation evidence is found suggesting that spillovers stem partly from the sharing of information about the program among eligible households

catering through nominal share prices we propose and test a catering theory of nominal stock prices the theory predicts that when investors place higher valuations on low price firms managers respond by supplying shares at lower price levels and vice versa we confirm these predictions in time series and firm level data using several measures of time varying catering incentives more generally the results provide unusually clean evidence that catering influences corporate decisions because the process of targeting nominal share prices is not well explained by alternative theories in frictionless and efficient stock markets there is no optimal nominal pershare stock price a firm s board of directors may choose to split to manage the nominal share price and number of shares outstanding but cannot change its overall market value through these means yet boards typically do manage their firms nominal share price rather than watch it passively drift with returns theories offered to explain share price management include arguments that trading costs depend on nominal prices dolley 1933 angel 1997 that splits signal inside information brennan and copeland 1988 asquith healy and palepu 1989 and ikenberry rankine and stice 1996 or that prices in certain ranges simply constitute a market norm from which there is little gain to deviating rozeff 1998 weld et al 2009 in this paper we propose a catering theory of nominal share prices we define catering as the managerial behavior of increasing the supply of a characteristic that investors appear to be paying a premium for even though that characteristic does not increase fundamental value the catering theory of nominal share prices thus posits that the supply of securities of different price ranges is partly a response to investor demand for securities of different price ranges managers increase the supply of low priced securities

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

stock splits evidence from mutual funds mutual fund splits occur in high priced funds after unusually high returns split factors are related to the deviation of a fund s price from the mean of all fund prices post split prices are below the mean of other funds prices post split numbers of shareholders and assets do not increase compared with funds having similar rates of asset growth however i find evidence that mutual fund splits bring per account shareholdings back up to normal levels i argue that signaling liquidity and tick size theories do not apply to mutual fund splits

stock splits signaling or liquidity the case of adr solo splits abstract stock splits should have no effect on firm value in perfect capital markets yet stock prices increase on split announcements the two traditional explanations are information signaling and improved liquidity for shares that trade at lower prices we investigate these explanations by studying splits of american depositary receipts adrs that are not associated with splits in their home country stock and which represent unique illustrations of the effect of liquidity we interpret our findings as supportive of the liquidity explanation of stock split announcement effects

intrinsic heterogeneity in expectation formation we introduce the concept of misspecification equilibrium to dynamic macroeconomics agents choose between a list of misspecified econometric models and base their selection on relative forecast performance a misspecification equilibrium is a stochastic process in which agents forecast optimally given their choices with forecast model parameters and predictor proportions endogenously determined under appropriate conditions the misspecification equilibrium will exhibit intrinsic heterogeneity in which all predictors are used at all times even in the neoclassical limit in which only the most successful predictors are used this equilibrium is attainable under least squares learning and dynamic predictor selection based on average profits

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

how family networks drive residential location choices evidence from a stated preference field experiment in bogota colombia this research quantifies the relative importance of proximity to extended family networks in the stated residential location choices of bogota s low to middle income residents by applying a conditional logistic regression model and using data from an original choice experiment i find that the surveyed individuals prefer living near their extended family and on average prioritise it more than accessibility to the central business district those who have relied on help from extended family members in a personal or economic crisis situation have a stronger preference for living near extended family compared with those who have not as do those who are able to rely on extended family ties for childcare assistance

understanding regression versus variance tests for social interactions this article considers the relationship between the use of regressions and the use of variance contrast methods to uncover social interactions we illustrate how these methods employ different identifying assumptions and are therefore complementary approaches we also provide formal identification results that extend existing ones for the two methods jel c12 c21 c23 z13 this article is designed to understand the relationshipbetweentwoapproachestotheempirical analysis of social interactions the first approach is the use of linear regressions to uncover social interactions this approach estimates social interaction effects through changes in the conditional linear expectation of individual outcomes when group level variables are included in the conditioning set in econometrics this method was first analyzed by manski 1993 who dubbed it the linearin means model since the group level variables are typically averages of individual variables within the group this model is also studied by brock and durlauf 2001a 2001b cohencole 2006 and graham and hahn 2005 among others durlauf 2004 surveyed empirical studiesof social interactionsbasedonsuch regressions the second approach originally proposed by glaeser sacerdote and scheinkman 1996 and developed into a full inferential procedure by graham 2005 who refers to this approachasvariancecontrasts usesintragroup variation in behavior to infer social interactions the idea in this approach is that social interactions willinduceintragroupdependences in behavior that affect sample variances for intragroup outcomes there has been relatively little work evaluating social interactions using variance contrasts one reason is that with the exception of graham s work there is little formal statistical theory for the approach the purpose of this article was to clarify the relationship between regression and variance contrast tests weclarify how these tests employ different informational assumptions to achieve identification of social interaction specifically we argue that regression and variance contrast approaches correspond to identification via exclusion restrictions in the one case and covariance restrictions on errors in the other as such the two approaches replicate the classes of identification strategies that appear in the classical simultaneous equations literature see fisher 1966 for a classic treatment the remainder of the article is organized as

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

spatial externalities in agriculture empirical analysis statistical identification and policy implications summary spatial externalities can affect economic welfare and landscape pattern by linking farm returns on adjoining parcels of land while policy can be informed by research that documents spatial externalities statistically quantifying the presence of externalities from landscape pattern is insufficient for policy guidance unless the underlying cause of the externality can be identified as positive or negative this article provides a springboard for empirical research by examining the underlying structure social environmental interactions and statistical identification strategies for the analysis and the quantification of agricultural spatial externalities that are derived from observations of landscape change the potential for original policy treatments of agricultural spatial externalities in development and environment outcomes is highlighted

measurement effects and the variance of returns after stock splits and stock dividends this article examines the relation between two factors affecting stock returns the bid ask spread and price discreteness and the increase in return variance after ex dates of stock splits and stock dividends controlling for these effects the variance of daily returns still increases significantly the variance of weekly returns also increases significantly and the variance of returns for a control sample of nonsplitting firms shows no significant increase variance ratio tests show that bid ask errors are small for these stocks and therefore cannot explain the large increase in variance spreads and price discreteness do not explain increased variance after stock distributions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the population problem theory and evidence this study is concerned with the relationships among population growth poverty and environmental degradation with particular focus on the situation in developing countries the author rejects the concept of a general theory of fertility behavior in favor of an interpretation of these relationships which might be applicable to certain situations in the poorest parts of the indian subcontinent and sub saharan africa such situations include unacceptable risks of maternal death for poor illiterate women and a condemnation to extreme poverty in conditions of the deterioration of local resources and of the environment the author concludes that population growth rates are too high in certain specific areas and that an appropriate policy reaction to such conditions would be to try to change the options that men and women face so that their reasoned choice would be to lower their fertility

the economic consequences of social network structure we survey the literature on the economic consequences of the structure of social networks we develop a taxonomy of macro and micro characteristics of social interaction networks and discuss both the theoretical and empirical findings concerning the role of those characteristics in determining learning diffusion decisions and resulting behaviors we also discuss the challenges of accounting for the endogeneity of networks in assessing the relationship between the patterns of interactions and behaviors

gale nikaido debreu and milgrom shannon communal interactions with endogenous community structures abstract this paper examines nash jurisdictional stability in a model with a continuum of agents whose characteristics are distributed over a unidimensional interval communal benefits and costs of each individual depend on her identity and the composition of the community which she belongs to since the framework is too general to yield an existence of nash equilibrium we introduce the essentiality of membership in one of the communities for all individuals we highlight the border indifference property bip when all individuals located on a border between two adjacent jurisdictions are indifferent about joining either of them and show that bip is a necessary condition for yielding a nash equilibrium we invoke the celebrated gale nikaido debreu lemma to guarantee the existence of a partition that satisfies bip we then proceed to demonstrate that bip is not sufficient to yield a nash equilibrium the equilibrium existence under bip is rescued when we use the milgrom shannon monotone comparative statics conditions

sickness absence and local benefit cultures in many countries sickness absence financed by generous insurance benefits is an important concern in the policy debate there are strong variations in absence behavior among local geographical areas such variations are difficult to explain in terms of observable socioeconomic factors in this paper we investigate whether such variations are related to group effects in the form of social interaction among individuals within neighborhoods well known methodological problems arise when trying to answer this question a special feature of our efforts to deal with these problems is that we adopt several alternative approaches to identify group effects our study is based on a rich set of swedish panel data and we find indications of group effects in each of our approaches

quotes order flow and price discovery the goal of this article is to examine the impact of 1975 congressional mandate to integrate the trading of nyse listed stocks the conclusions are most of the time the new york stock exchange nyse quote matches or determines the best displayed quote and the nyse is the most frequent initiator of quote changes non nyse markets attract a significant portion of their volume when they are posting inferior bids or offers indicating they obtain order flow for other reasons such as payment for order flow yet when a non nyse market does post a better bid or offer it does attract additional order flow

contagious development neighbor interactions in deforestation article i nfo we estimate neighbor interactions in deforestation in costa rica to address simultaneity and the presence of spatially correlated unobservables we measure for neighbors deforestation using the slopes of neighbors and neighbors neighbors parcels we find that neighboring deforestation significantly raises the probability of deforestation policies for agricultural development or forest conservation in one area will affect deforestation rates in non targeted neighboring areas correct estimation of the interaction reverses the naive estimate s prediction of multiple equilibria

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

stability and chaos in demand based pricing under social interactions abstract demand based pricing is often used to moderate demand fluctuations so as to level resource utilization and increase profitability however such pricing policies may not be effective when customers purchase decisions are influenced by social interactions this paper investigates the demand dynamics under a demand based pricing policy of a frequently purchased service when social interactions are at work customers are heterogeneous and adaptively forward looking existing customers re purchase decisions are based on adaptively formed price expectations and reservation prices potential customers are attracted through social interactions with existing customers the demand process is characterized by a two dimensional dynamical system it is shown that the equilibrium demand can be unstable for a given reservation price distribution we first analyze the stability of the equilibrium demand under various scenarios of social interactions and customers adaptively forward looking behavior and then characterize their dynamics using the bifurcation plots lyapunov exponents and return maps the results indicate that the demand process can be stable periodic or chaotic the study shows that the intended effect of a demand based pricing policy may be offset by customers adaptively forward looking behavior under the influence of social interactions in fact the interplay of these factors may even lead to chaotic demand dynamics the result highlights the complex dynamics produced by a simple demand price mechanism under social interactions for a demand based pricing strategy to be effective companies must take social interactions into account

dynamic instability of a mixed city in the presence of neighborhood externalities it has been often asked whether a city currently accommodating a variety of economic social and racial groups will continue to be a mixed city or will become exclusively occupied by a single group particularly poor blacks with all other groups moving out of the city in the long run in order to answer this question properly it seems essential to develop a long run dynamic model of a city with emphasis on socioeconomic factors like neighborhood externalities within or among various groups of residents as well as spatial factors like the individual choice of residential space and location it might be safely said that in the literature the only theoretical work which employs a long run dynamic approach to this kind of problem is a paper on dynamic models of segregation by thomas schelling 197 1 although his socioeconomic analysis has revealed some of the dynamic properties of a racially mixed area with neighborhood externalities his model itself is quite unsatisfactory from the economic point of view since it lacks individual utility functions and thereby disregards the aspect of the individual choice of space and location within the city 2 as a result he failed to analyze the effect of spatial segregation within the city on the long run nature of the residential composition of the city in this paper i develop a long run dynamic model of an open city which accommodates two groups of households for example blacks and whites rich and poor young and old with their utility functions depending on a consumption good and residential space i also assume two kinds of neighborhood externalities the first is called negative intergroup externalities that is the utility level of a typical household in one group is adversely affected by an increase in the number of households in the other group living in the city the second is called positive intragroup externalities that is the utility level of a typical household in one group is positively affected by an increase in the size of its own group in in the city first i define a mixed city equilibrium as a long run equilibrium which allows the two groups to coexist in the city in the long run and then introduce a dynamic adjustment process of household movement into and out of the city it is proved that the mixed city equilibrium is always unstable in the presence of negative intergroup externalities and or positive intragroup externalities if residential land is perfectly homogeneous and there is no differential transport cost incurred within the city it turns out however that in the case of a monocentric city with positive transport cost the mixed city equilibrium may be stable or unstable depending on the degree of neighborhood externalities because of the stabilizing effect of spatial segregation between the two groups within the city

how to grow a bubble a model of myopic adapting agents abstract we present a simple agent based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism and vice versa our agents invest according to their opinion on future price movements which is based on three sources of information i public information i e news ii information from their friendship network and iii private information our bounded rational agents continuously adapt their trading strategy to the current market regime by weighting each of these sources of information in their trading decision according to its recent predicting performance we find that bubbles originate from a random lucky streak of positive news which due to a feedback mechanism of these news on the agents strategies develop into a transient collective herding regime after this self amplified exuberance the price has reached an unsustainable high value being corrected by a crash which brings the price even below its fundamental value these ingredients provide a simple mechanism for the excess volatility documented in financial markets paradoxically it is the attempt for investors to adapt to the current market regime which leads to a dramatic amplification of the price volatility a positive feedback loop is created by the two dominating mechanisms adaptation and imitation which by reinforcing each other result in bubbles and crashes the model offers a simple reconciliation of the two opposite herding versus fundamental proposals for the origin of crashes within a single framework and justifies the existence of two populations in the distribution of returns exemplifying the concept that crashes are qualitatively different from the rest of the price moves

schelling s spatial proximity model of segregation revisited schelling schelling t c 1969 models of segregation american economic review papers and proceedings 59 488 493 schelling t c 1971a dynamic models of segregation journal of mathematical sociology 1 2 143 186 schelling t c 1971b on the ecology of micromotives the public interest 25 61 98 schelling t c 1978 micromotives and macrobehavior new york norton presented a microeconomic model showing how an integrated city could unravel to a rather segregated city notwithstanding relatively mild assumptions concerning the individual agents preferences i e no agent preferring the resulting segregation we examine the robustness of schelling s model focusing in particular on its driving force the individual preferences we show that even if all individual agents have a strict preference for perfect integration best response dynamics may lead to segregation this raises some doubts on the ability of public policies to generate integration through the promotion of openness and tolerance with respect to diversity we also argue that the one dimensional and two dimensional versions of schelling s spatial proximity model are in fact two qualitatively very different models of segregation

habits peers and happiness an evolutionary perspective the principal motivating factor in our lives is the pursuit of happiness in most cultures when seeking this end individuals place a high priority on income and spend much of their waking time procuring this intermediate goal the connection between income and happiness is by no means trivial however two critical factors come into play first beyond subsistence level the positive effect of a permanent change in income tends to be short lived we rapidly become accustomed to a more expensive lifestyle a common name for this feature is habit formation second the satisfaction derived from a given level of income is sharply dependent on how it compares to the income of peers see for example andrew b abel 1990 becker 1996 and william a brock and steven n durlauf 2001 for a demonstration of the influence of habits and peer comparisons over behavior and see shane frederick and george loewenstein 1999 for a review of the underlying psychology habits and peer comparisons mean that an individual is not concerned mainly with her absolute level of income but rather with the difference between her income and a benchmark that changes over time in recent years economists have become increasingly interested in this fact this interest has been both applied i e the study of habits and peer influences over behavior and the analysis of happiness surveys and theoretical i e a search for biological foundations but unlike other more developed areas of economics these two approaches remain fairly separate from each other in particular the existing theoretical work is motivated only by the most basic empirical observations and the existing applied work for the most part has not been influenced by theoretical results in this essay we seek to reduce the distance between these two literature strands in particuhabits peers and happiness an evolutionary perspective

the labor force participation of older workers this study examines the decision to participate in the labor force made by persons over 54 years of age through the use of a set of pooled time series cross section observations from the current population survey over the years 1974 80 the analysis emphasizes the effect of two factors on this decision cohort crowding and supplemental security income ssi the empirical results reveal that pressures arising from the relative growth in the youth population led to increased labor market activity by older women that retirement incentives in the form of ssi and social security had a negative effect on female as well as male labor force behavior though the effects were considerably stronger for men and that the differential between men s and women s participation rates was largely a result of the female response to marital status and retirement incentives

some evolutionary foundations for price level rigidity this paper shows that price rigidity evolves in an economy populated by imperfectly rational agents who experiment with alternative rules of thumb in the model firms must set their prices in face of aggregate demand shocks their payoff depends on the level of aggregate demand as well as on their own price and their neighbor s price the latter assumption captures local interactions despite the fact that the rational expectations equilibrium ree is characterized by a simple pricing rule that firms can easily adopt the economy does not converge to the ree for all parameter values when the volatility of monetary innovations is low and interactions among firms are high the aggregate price level exhibits rigidity in that it does not fully react to contemporaneous aggregate demand shocks we discuss the role of the nature of experimentation and of path dependence driven by interactions in explaining these results

price based return comovement abstract similarly priced stocks move together stocks that undergo splits experience an increase in comovement with low priced stocks and a decrease in their comovement with high priced stocks price based comovement is not explained by economic fundamentals firm size or changes in liquidity or information diffusion the shift in comovement following splits is greater for large stocks high priced stocks and when investor sentiment is high in the full cross section price based portfolios explain variation in stock level returns after controlling for movements in the market and industry portfolios as well as portfolios based on size book to market transaction costs and return momentum the results suggest that investors categorize stocks based on price

equity and efficiency in human capital investment the local connection a general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyse the causes of economic segregation and its consequences for equity and efficiency significant polarization arises from minor differences in endowments preferences or access to capital markets this makes income inequality more persistent across generations but the same need not be true for wealth equilibrium stratification tends to be excessive resulting in low aggregate surplus whether state equalization of school resources can remedy these problems hinges on how purchased social and family inputs interact in education and in mobility decisions

macroeconomic and stock market interactions with endogenous aggregate sentiment dynamics abstract this paper studies the implications of heterogeneous capital gain expectations on output and asset prices we consider a disequilibrium macroeconomic model where agents expectations on future capital gains affect aggregate demand agents beliefs take two forms fundamentalist and chartist and the relative weight of the two types of agents is endogenously determined we show that there are two sources of instability arising from the interaction of the financial with the real part of the economy and from the heterogeneous opinion dynamics two main conclusions are derived on the one hand perhaps surprisingly the non linearity embedded in the opinion dynamics far from the steady state can play a stabilizing role by preventing the economy from moving towards an explosive path on the other hand however real financial interactions and sentiment dynamics do amplify exogenous shocks and tend to generate persistent fluctuations and the associated welfare losses we consider alternative policies to mitigate these effects

the economic implications of disability insurance in canada the article empirically estimates the effects of disability pensions provided under the canada quebec pension plans on the labor force participation rates of males aged 45 64 years two data sets are used one consists of pooled cross section annual time series data by province for the years 1975 83 the other consists of observations as of 1985 on 651 males in the specified age group naive estimation results from both sets of data suggest a large negative effect of pension income in the case of the micro data this effect becomes small and statistically nonsignificant when more sophisticated estimation methods are used

volatility increases subsequent to nyse and amex stock splits the post split increase in daily returns volatility is less for amex stocks than for nyse stocks the exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered furthermore when measured on a weekly basis there is no increase in amex stocks returns volatility these results suggest that measurement errors created by bid ask spreads and the 1 8 effect and also one or more of the elements that make the nyse different from the amex explain why the estimated volatility of daily stock returns increases after the ex split date ohlson and penman 1985 provide evidence that nyse stock returns variances increase subsequent to ex stock distribution days for splits of 100 or greater the increase in volatility is independent of the size of the split alnd the post split price seven potential problems that might affect their results are analyzed and rejected 1 ohlson and penman 1985 suggest that the greater post split volatility may be due to the activity of relatively ignorant noisy traders who prefer trading low priced stocks this clientele factor is attributed to black 1986 pg 534 and institutional factors a rather broad category that incorporates measurement problems created by the 1 8 effect and bid ask spreads as possible hypotheses for the post split volatility increase this paper extends ohlson and penman s 1985 analysis to amex stocks exchange listing can serve as a proxy for several real factors that may cause the increase in post split variance many of which are related to the clientele factor and institutional factors cited above if the increase in volatility differs between nyse and amex stocks it will suggest that one or more of the following contributes to the phenomenon

a discrete choice model with social interactions with an application to high school teen behavior we develop an empirical discrete choice interaction model with a finite number of agents we characterize its equilibrium properties in particular the correspondence between interaction strength number of agents and the set of equilibria and propose to estimate the model by means of simulation methods in an empirical application we analyze the individual behavior of high school teenagers in almost 500 school classes from 70 schools in our baseline model endogenous social interaction effects are strong for behavior closely related to school truancy somewhat weaker for behavior partly related to school smoking cell phone ownership and moped ownership and absent for behavior far away from school asking parents permission for purchases intra gender interactions are generally much stronger than cross gender interactions in a model with school specific fixed effects social interaction effects are insignificant with the exception of intra gender interactions for truancy copyright c 2007 john wiley sons ltd

factor models for binary financial data abstract researchers are often interested in modeling binary decisions made by firms e g the yes or no decisions to split the shares initiate a dividend or acquire another firm as functions of economy wide variables common factors although factor models for continuous dependent variables are used widely the toolkit of a financial researcher does not contain a generally accepted methodology that allows estimating factor models for binary dependent variables in this paper we study such a methodology using simulations we identify data characteristics that allow for reliable estimates of factor parameters and conclude that the methodology is appropriate for the panel datasets of the type often used in finance as an illustration we use the methodology to address a currently debated issue of common factors in firms decisions to split their shares

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

record date when issued and ex date effects in stock splits negative abnormal stock returns of about 1 occur near record dates of stock splits fur ther the lower the returns the more positive are ex date returns and when issued premi ums a possible explanation of these related phenomena is that trading hindrances asso ciated with record dates create trading inconvenience that is reflected in lower prices near record dates in turn anomalous positive ex date returns arise in part from the abnormally low prices of unsplit shares caused by the negative record date returns

the social multiplier aggregate data is often used to make inferences about individual level behavior if there are social interactions in which one person s actions influence his neighbor s incentives or information then these inferences are inappropriate the presence of positive social interactions or strategic complementarities implies the existence of a social multiplier where aggregate relationships will overstate individual elasticities we present a brief model and then estimate the size of the social multiplier in three areas the impact of education on wages the impact of demographics on crime and group membership among dartmouth roommates in these contexts there is a significant social multiplier jel ho jo co

grouping tests for misspecification an application to housing demand we consider several grouping tests for regression misspecification with reference to housing demand function estimation we compare three existing test procedures demonstrate modifications necessary in most applications and propose a fourth test to distinguish between two categories of potential specification error the test procedures are evaluated in artificial simulations of alternative errors finally we apply the tests to fha home purchase data we reject the hypothesis that household and grouped regressions differ only by sampling error or random mismeasurement of household income or price our results have implications for choices among test procedures and interpretations of previous housing demand analysis

the market reaction to stock splits in this paper a model of market reaction to stock splits is presented and tested we argue that the announcement of a split sets off the following chain of events the market recognizes that subsequent to the reverse split ex day the daily number of transactions along with the raw volume of shares traded will increase decrease this increase in volume results in an increase in the noisiness of the security s return process the increase in noise raises the tax option value of the stock and it is this value that generates the announcement effect of stock splits empirical evidence using security returns daily trading volume and shareholder data strongly supports this theory the evidence in conjunction with this theory also agrees with extant literature that splits result in decreased liquidity but there is no evidence that this reduction in liquidity is priced stock splits have presented finance theorists with a conundrum these nonevents seem to be a purely cosmetic change nevertheless research shows that significant price reaction is attributable directly to splits recently grinblatt masulis and titman 12 show that even in clean cases i e where no other firm specific event coincides with a split announcement stock splits generate a positive abnormal return of close to three percent upon announcement and an additional one percent abnormal return on the ex day the primary contribution of this paper is to provide and empirically support a rational explanation for the split reverse split announcement effect a recent study by ohlson and penman 16 documents a statistical aberration that stock volatilities increase by an average of thirty five percent subsequent to split ex days in this paper we provide a direct statistical extension of ohlson and penman in three directions first we examine reverse splits and demonstrate that they exhibit reductions in volatility second we isolate the shift in volatility as between the nonsystematic and systematic components finally we establish a link between trading volume and the increased volatility copeland 9 shows that contrary to market folklore the liquidity of a stock is actually reduced by a split we provide a statistical extension to copeland by examining the volume pattern of reverse splits copeland observes a drop in split adjusted volume and concludes that liquidity has declined once again we show that the behavior of stocks that reverse split is opposite that of splitting stocks

school segregation and the identification of tipping behavior we develop a method to empirically implement the schelling model of segregation and use it to study racial segregation in los angeles schools from 1995 to 2012 our two step method combines the estimation of parents preferences for their children s peers with a counterfactual simulation analysis we find substantial heterogeneity in the existence and locations of tipping points and stable equilibria schools are observed on equilibrium trajectories but many remained out of equilibrium by 2012 we also introduce novel instrumental variables to identify preferences for endogenous peer groups that require no additional data and can be used in other educational settings

a social interaction model with ordered choices abstract we introduce a social interaction model with ordered choices we provide a micro foundation for the econometric model based on an incomplete information network game and characterize the sufficient condition for the existence of a unique equilibrium of the game we discuss the identification of the model and propose to estimate the model by the nfxp and npl algorithms we conduct monte carlo simulations to investigate the finite sample performance of these two estimation methods

preference heterogeneity in the structural estimation of efficient pigovian incentives for insecticide spraying to reduce malaria this paper bridges the theoretical and empirical literatures on the role of preference heterogeneity in characterizing externalities related to disease transmission we use a theoretical structure similar to locational sorting models which characterize equilibria in terms of marginal individuals who are indifferent between locations in our case the locations are binary consisting of whether or not to take a discrete preventative action individual heterogeneity arises in this structure due to variation in the costs and disutility associated with prevention we demonstrate application of this approach in the context of participation in insecticide based indoor residual spraying programs for malaria control in northern uganda we identify the parameters of our theoretical model using a stated preference choice experiment combined with estimates from published epidemiological studies the model implies that pigovian subsidies for participation in this context should decrease household malaria risk by 19 25 our approach can be applied to other bioeconomic externalities with spillovers from discrete preventative actions including agricultural pest management and the control of pest infestations and invasive species

estimation of an equilibrium model with externalities post disaster neighborhood rebuilding we study the optimal design of subsidies in an equilibrium setting where the decisions of individual recipients impose externalities on one another we apply the model to the case of post katrina rebuilding in new orleans under the louisiana road home rebuilding grant program rh we estimate the structural model via indirect inference exploiting a discontinuity in the formula for determining the size of grants which helps isolate the causal effect of neighbors rebuilding on one s own rebuilding choices we find that the additional rebuilding induced by rh generated positive externalities equivalent to 4950 to each inframarginal household whose rebuilding choice was not affected by the program counterfactual policy experiments find that optimal subsidy policies bias grant offers against relocation with an inverse u shaped relationship between the degree of bias and the severity of damages from the disaster

cultural integration and its discontents a community s culture is defined by the preferences and equilibrium behaviours of its members contacts among communities alter individual cultures through two interrelated mechanisms behavioural adaptations driven by pay offs to coordination and preference changes shaped by socialization and self persuasion this paper explores the workings of these mechanisms through a model of cultural integration in which preferences and behaviours vary continuously it identifies a broad set of conditions under which cross cultural contacts promote cultural hybridization the analysis suggests that policies to support social integration serve to homogenize preferences across communities thereby undermining a key objective of multiculturalism yielding fresh insights into strategies pursued to influence cultural trends it also shows that communities benefit from having other communities adjust their behaviours

modeling choice interdependence in a social network this paper investigates how individuals product choices are influenced by the product choices of their connected others and how the influence mechanism may differ for fashion versus technology related products we conduct a novel field experiment to induce and observe choice interdependence in a closed social network in our experiment we conceptualize individuals choices to be driven by multiattribute utilities and we measure their initial attribute preferences prior to observing their choice interdependence and collecting network information these design elements help alleviate concerns in identifying social interaction effects from other confounds given that we have complete information on choices and their sequence we use a discrete time markov chain model nonetheless we also use a markov random field mrf model as an alternative when the information on choice sequence is missing we find significant social interaction effects our findings show that whereas experts exert asymmetrically gre

follies subdued informational efficiency under adaptive expectations and confirmatory bias abstract we study the informational efficiency of a market with a single traded asset the price initially differs from the fundamental value about which the agents have noisy private information which is on average correct a fraction of traders revise their price expectations in each period the price at which the asset is traded is public information the agents expectations have an adaptive component and a social interactions component with confirmatory bias we show that taken separately each of the deviations from rationality worsens the informational efficiency of the market however when the two biases are combined the degree of informational inefficiency of the market measured as the deviation of the long run market price from the fundamental value of the asset can be non monotonic both in the weight of the adaptive component and in the degree of confirmatory bias for some ranges of parameters two biases tend to mitigate each other s effect thus increasing informational efficiency

the effects of stock splits on bid ask spreads this paper examines the effects of stock splits on bid ask spreads for nyse listed companies percentage spreads increase after splits representing a liquidity cost to investors these spread increases are directly related to decreases in share prices following splits and can explain part but not all of the observed increase in return variability after splits the evidence thus suggests a liquidity cost of stock splits that must be weighed against any other perceived benefits of splits such a liquidity cost may validate that stock splits are a signal of favorable information about the firm stock splits have long been a prominent feature in u s financial markets five to ten percent of all amex and nyse firms split in a typical year lakonishok and lev 1987 two potentially conflicting explanations for splits are frequently given first most managers believe baker and gallagher 1980 that splits return share prices to some optimal trading range and improve shareholder liquidity the second explanation is that splits are a costly signal of favorable future prospects for the firm for instance brennan and copeland 1988a show that if stock splits increase liquidity costs to investors such splits can serve as valid signals most empirical studies of the liquidity effects of splits use trading volume copeland 1979 lamoureux and poon 1987 and murray 1985 all conclude that shareholder liquidity decreases after a split based on finding dollar trading volume decreases after splits on the other hand lakonishok and lev 1987 find abnormally high volume in the year preceding a split and abstracting from this abnormal volume that splits are not associated with a change in trading volume the use of volume to measure liquidity is largely motivated by empirical findings of a negative relationship between volume and the bid ask spread e g demsetz 1968 benston and hagerman 1974 and tinic 1972 among others this spread is a direct measure of the cost of liquidity when liquidity is defined hicks 1946 as the ease or rapidity with which a financial instrument can be exchanged for currency despite the importance of the bid ask spread as a liquidity measure only two studies provide evidence on splits and bid ask spreads and they yield conflicting conclusions copeland 1979 studies 162 otc firms for the period 1968 1976 and finds a statistically significant increase in percentage spreads comparing days before and after the ex date murray 1985 studies 100 otc splitting firms for the period 1972 1976 and finds no evidence of a change in percentage spreads relative to a control group

presidential address social transmission bias in economics and finance i discuss a new intellectual paradigm social economics and finance the study of the social processes that shape economic thinking and behavior this emerging field recognizes that people observe and talk to each other a key underexploited building block of social economics and finance is social transmission bias systematic directional shift in signals or ideas induced by social transactions i use five fables models to illustrate the novelty and scope of the transmission bias approach and offer several emergent themes for example social transmission bias compounds recursively which can help explain booms bubbles return anomalies and swings in economic sentiment

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

the share price puzzle we document substantial variation in the prices of common stocks in u s markets due to firms selecting particular price ranges for their shares cross sectional evidence indicates that variables consistent with merton s model of capital market equilibrium explain roughly two thirds of this variation in share prices in addition measures of trading range and share price appreciation predict stock splits and the investor base of firms that split their stock increases compared to other firms we conclude that firms manage share price levels to increase the value of the firm

quantifying equilibrium network externalities in the ach banking industry we seek to estimate the causes and magnitudes of network externalities for the automated clearinghouse ach electronic payments system using a panel data set on individual bank usage of ach we construct an equilibrium model of consumer and bank adoption of ach in the presence of a network the model identifies network externalities from correlations of changes in usage levels for banks within a network from changes in usage following changes in market concentration or sizes of competitors and from adoption decisions of banks outside the network with small branches in the network and can separately identify consumer and bank network effects we structurally estimate the parameters of the model by matching equilibrium behavior to the data using simulated maximum likelihood and a data set of localized networks and use a bootstrap to recover confidence intervals the parameters are estimated with high precision and fit various moments of the data reasonably well we find that most of the impediment to ach adoption is due to large consumer fixed costs of adoption the deadweight loss from the network externality is moderate the optimal number of ach transactions is about 16 higher than the equilibrium level

adaptive play by idiosyncratic agents abstract equilibrium selection in coordination games has generated a large literature kandori mailath and rob econometrica 61 1993 29 and young econometrica 61 1993 57 studied dynamic models of aggregate behaviour where agents best respond to observations of population play crucially infrequent mistakes mutations allow agents to take actions contrary to current trends and prevent initial configurations from determining long run play an alternative approach is offered here trembles are added to payoffs so that with some probability it is optimal to act against the flow of play the long run distribution of population behaviour is characterised modes correspond to stable bayesian nash equilibria allowing the variance of payoff trembles to vanish a purification process a single equilibrium is played almost always in the long run kandori mailath and rob and young show that the number of contrary actions required to escape an equilibrium determines selection here the likelihood that such actions are taken is equally important