laboratory tests of equilibrium predictions with disequilibrium data we examine a common practice used within previous studies of laboratory markets testing equilibrium models using some data from markets that have not reached an equilibrium we examine the effect of this practice when it is applied to some laboratory markets where an appreciable number of them eventually satisfied an operational definition of an equilibrium our data suggest that for our markets significantly different equilibrium test results would be obtained when using all data available in market periods analysed in previous studies rather than using only equilibrium data for our markets choices made in disequilibrium are quite different from those in equilibrium this paper is primarily concerned with examining one common practice used in previous studies of laboratory markets this practice is testing equilibrium models using some data from markets that have not reached an equilibrium the data set used typically consists of all available laboratory data from the last period an average of the last few periods an average of all periods or from the nth period for some fixed n i know of no attempt at least formally to assure all data were from markets in equilibrium markets where market choices have stabilized recently some laboratory markets were run where an appreciable number of them eventually satisfied an operational definition of an equilibrium could the use of disequilibrium data significantly affect the results of tests we might make of some equilibrium models for these laboratory markets this practice would be desirable if the disequilibrium data provided a useful estimate of the behaviour that would have been observed if an equilibrium had been obtained on the other hand if some disequilibrium behaviour is qualitatively different from the behaviour that would be observed in an equilibrium this practice could produce misleading results within this paper we examine the effect of this practice when it is used on our laboratory data

a theory of voting equilibria a voting equilibrium arises when the voters in an electorate acting in accordance with both their preferences for the candidates and their perceptions of the relative chances of various pairs of candidates being in contention for victory generate an election result that justifies their perceptions voting equilibria always exist and the set of equilibria can vary substantially with the choice of voting system we compare equilibria under the plurality rule approval voting and the borda system we consider a candidate positioning game and find that the plurality rule imposes little restriction on the position of the winning candidate in three candidate races while approval voting leads to a winner positioned at the median of the voter distribution we contrast campaign activities intended to influence voter preferences with activities meant to influence only perceptions of candidate viability

habit formation interdependent preferences and demographic effects in the almost ideal demand system the authors model myopic habit formation interdependence of preferences among consumers and demographic effects as taste shifters in a micro consumer demand model of the almost ideal demand variety the model is estimated for dutch micro data the authors investigate the dynamic properties of the model and find that it behaves very differently from models without interdependence of preferences the implications for micro macro modeling are discussed copyright 1991 by royal economic society

approval voting borda winners and condorcet winners evidence from seven elections we analyze 10 three candidate elections and mock elections conducted under approval voting av using a method developed by falmagne and regenwetter 1996 that allows us to construct a distribution of rank orders from subset choice data the elections were held by the institute of management science the mathematical association of america several professional organizations in britain and the institute of electrical and electronics engineers seven of the 10 elections satisfy the conditions under which the falmagne regenwetter method is suitable for these elections we recreate possible underlying preferences of the electorate on the basis of these distributions of preferences we find strong evidence that av would have selected condorcet winners when they exist and would have always selected the borda winner thus we find that av is not just simple to use but also gives rise to outcomes that well reflect voter preferences our results also have an important implication for the general study of social choice processes they suggest that transitive majority orderings may be expected in real world settings more often then the formal social choice literature suggests in six out of seven data sets we find social welfare orders only one data set generates cycles anywhere in the solution space

a dynamic generalisation of the almost ideal demand system abstract this paper proposes and estimates on annual time series u k data 1900 1980 a dynamic generalisation of the almost ideal demand system the results support the proposed generalisation and point to the dynamic aids as a potentially useful tool in future applications

units of measurement and the stone index in demand system estimation the stone index typically used in estimating linear almost ideal demand systems is not invariant to changes in units of measurement which may seriously affect the approximation properties of the model a modification to the stone index or use of a regular price index instead are both desirable practices in estimating linear ai models

the effects of market practices in oligopolistic markets an experimental examination of the ethyl case this study reports on the performance of experimental markets characterized by industrial structure and practices similar to those at issue in the ethyl case the central question is whether price competition is affected by the practices of advanced notification of price changes and most favored nation contracts or is determined by industrial organization and concentration alone

the exercise of market power in laboratory experiments douglas d davis and charles a holt march 1998 introduction many aspects of antitrust policy are influenced by the possibility that sellers in concentrated markets may have the power to raise prices above competitive levels of course anyone can raise price so the issue is whether a change in structure e g a merger will allow one or more sellers to raise price profitably a price increase by one seller diverts sales to others so a firm is more likely to have market power when its competitors have limited capacity to expand their sales thus a merger that reduces competitors capacity may create market power in laboratory experiments any treatment that reassigns units of capacity from one seller to another may create or destroy market power even if the aggregate supply curve is unchanged for example giving one seller a relatively large endowment of infra marginal low cost units may make it less risky for this seller to raise price and forego the sale of high cost units thus it is not surprising that experiments with apparently similar supply and demand structures may yield different price outcomes as discussed below there are a number of other ways in which structural changes can affect the degree of power that sellers enjoy market power can also be sensitive to the trading institution and this is the context that power issues first arose in experimental economics for example the public posting of uniform prices in a posted offer auction eliminates the incentive to offer discounts on marginal units that arises in a double auction in fact smith 1981 found that even monopolists are sometimes unable to maintain prices above competitive levels in double auctions whereas supra competitive prices are the norm in postedoffer monopolies similarly holt langan and villamil 1986 found that sellers in concentrated double auctions were sometimes able to raise prices but that prices fell to competitive levels in about half of the sessions despite the high concentration of seller capacity davis and williams 1991 replicated the holt langan and villamil results for double auctions and then used the same market

addiction and discounting abstract in 1988 becker and murphy becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 675 700 launched a theory in which they proposed that the perspective of rational decision making could be applied also to cases of addictive behaviour this paper discusses the theory s assumptions of interpersonal variation and stability in time preferences on the basis of estimates derived from three groups of people with different consumption levels of illegal intoxicants we find that active injectors of heroin and amphetamine have a higher discount rate than a group reporting that they have never used the substances of greater interest though not in accordance with becker and murphy s assumption of stability we also find that the discount rate among active and former users differs significantly these findings raise the question of whether a high time preference rate leads to addiction or whether the onset of an addiction itself alters people s inter temporal equilibrium

cooperation in and out of markets an experimental comparison of public good games and markets with externalities experimental studies have compared cooperation across different nonmarket social dilemma settings but the experimental literature has largely overlooked comparing cooperation across market and nonmarket settings this paper reports the results from an experiment that compares behavior in theoretically equivalent public good games and market games with externalities both positive and negative external effects are considered results indicate that people tend to be less cooperative in the marketplace relative to the nonmarket setting whether the external effect is positive or negative most striking is the finding that the combination of a positive external effect in a nonmarket setting i e the standard public good game stands apart from the other market and nonmarket settings

rational addiction with learning and regret we present a theory of rational behavior in which individuals maximize a set of stable preferences over goods with unknown addictive power the theory is based on three fundamental postulates that consumption of the addictive good is not equally harmful to all that individuals possess subjective beliefs concerning this harm and that beliefs are optimally undated with information gained through consumption although individual actions are optimal and dynamically consistent addicts regret their past consumption decisions and regret their initial assessment of the potential harm of the good addict prone individuals who believe it could not happen to them are most likely to be drawn into a harmful addiction

plurality and runoff systems and numbers of candidates although political scientists have in the last few decades learned much about the abstract properties of multicandidate electoral systems we have accumulated little theoretical knowledge on the ways in which strategic behavior of voters and candidates changes when we move from one voting system to another this essay has illustrated how the relative desirability of voting systems can change when the number of candidates usually considered fixed in such comparisons is taken as endogenous to the voting system in force at the time our main conclusion is therefore that the method of voting must be understood in relation to the total electoral system it is not enough to analyze properties of voting systems in the abstract but also in terms of the interactions that voting systems have with political groups and the constitutional setting

on price indices in the almost ideal demand system a number of papers have discussed the relationship between the almost ideal demand system aids and its linear approximation la aids in this paper it is shown that if the prices in the system are normalized to one the aids and la aids representations are identical at the point of normalization also at the point of normalization the expressions for price and expenditure elasticities from both systems are identical

electoral equilibrium in double member districts the median voter result and the issue of stability in electoral competition generally have been examined from a number of different perspectives out of all these examinations however only a few focus on institutional variables this essay demonstrates that the median voter result is robust under a significant institutional change that entails altering the basic assumption of single member districts after developing a model of electoral competition in a two member first two past the post district i show that if there are three candidates the set of nash equilibria is the set of strategy triples x1 x2 x3 with x1 x2 x3 x and such that x lies between the quantiles of order 1 3 and 2 3 if there are four candidates i show that a unique nash equilibrium exists with all candidates adopting a position at the medianvoter s ideal point

economic science an experimental approach for teaching and research economics experiments have been used to study theories and policies that are often difficult to evaluate with data from naturally occurring markets this paper is a selective summary of my work in the main areas of experimental economics markets individual decisions games and public choice the discussion pertains both to scientific discoveries and teaching innovations

consumer search costs and market performance i introduction one of the seminal developments leading to the information economics revolution in the 1970s and 19c0s was diamond s 1971 theoretical result that in the absence of publicly posted price information the existence of even a small search cost could lead to monopoly pricing the intuition is straightforward no buyer with one price quote would want to search for a second unless it is likely that the buyer would encounter a price reduction that covers the search cost thus each seller has an incentive to price slightly above any common price and the noncooperative equilibrium in a single stage game yields a monopoly price this result is viewed as a paradox since a small search cost produces high prices but a zero search cost would produce the usual bertrand incentives that drive prices to competitive levels in the absence of capacity constraints and other imperfections 1 recent theoretical work has focused on finding a resolution to the paradox stahl 1989 for example generates a smooth transition between competitive and monopoly outcomes as the fraction of consumers with zero search costs increases from zero to one interestingly stahl finds that increasing the number of sellers makes pricing more monopolistic holding the number of informed buyers constant bagwell and ramey 1992 propose an alternative resolution that applies to an infinitely repeated market game where sellers who raise prices can develop a reputation that can affect sales in future periods bagwell and ramey show that buyers can obtain lower equilibrium prices by following a loyalty boycott search rule where low pricing sellers are rewarded with repeated purchases and high pricing sellers are punished with switching the price predictions vary continuously between monopoly and competitive levels depending on the size of the consumer search cost the policy relevance of the diamond paradox depends on whether there are realistic market environments in which small reductions in the availability of price information can cause large price increases 2 due to the difficulty of controlling and measuring information flows in natural markets the laboratory represents an ideal place to evaluate the diamond paradox and proposed resolutions the only experimental analysis of these issues is reported by grether schwartz and wilde 1988 who observed monopoly pricing in three of four predicted cases these results are suggestive but not definitive for reasons discussed below in particular as grether schwartz and wilde 1988 328 observe all four cases involved the same group of subjects to the extent possible this paper reports an experiment consisting of twelve market sessions designed to assess the effects of public price information the markets are conducted as normal posted offer markets except that buyers must pay a small cost each time they approach a different seller in baseline posted offer treatments all prices are publicly displayed to buyers while in search treatments prices are not publicly displayed in brief we find that prices approach competitive levels under the posted offer treatment and prices are significantly higher under the search treatment nevertheless the diamond prediction of monopoly pricing under search is not observed although increases in search costs do raise prices these results indicate that economists should take a more careful look at attempts to resolve the diamond paradox by introducing other factors that may impede monopoly pricing in markets with consumer search the paper is organized as follows our two primary treatments are outlined in section ii and results are presented in section iii the failure to observe the diamond monopoly price prediction motivated additional research on the effects of reputations and search costs which is presented in section iv the final section contains a conclusion ii

testing the boundaries of the double auction the effects of complete information and market power abstract we report boundary experiments testing the robustness of price convergence in double auction markets for non durable goods in which there is extreme earnings inequality at the competitive equilibrium ce following up on a conjecture by smith 1976a we test whether the well known equilibrating power of the double auction institution is robust to the presence of complete information about traders values and costs and the presence of symmetric market power we find that complete information is insufficient to impede convergence to ce prices however introducing market power consistently causes prices to deviate from the ce whether or not subjects possess complete information our design highlights the value of boundary experiments in understanding how market institutions shape behavior and our findings help delineate the limits of the double auction institution to generate competitive outcomes

majority rule and election models abstract this paper surveys the theoretical work that has been done on majority rule and economic models of elections section i provides an overview of the topic section 2 reviews the most important results that have been obtained about majority rule as an abstract collective choice rule section 3 identifies some alternative inferences that can be made from those results section 4 covers some models that include additional features that are present in political institutions where majority rule is used section 5 concentrates on some alternative election models and equilibrium concepts section 6 focuses on election models with abstentions and or candidate uncertainty about voter behaviour section 7 compares and contrasts models where candidates are certain about what the voters choices will be contingent upon about the choices made by the candidates and models where they are uncertain about those choices section 8 closes the survey by identifying some emerging areas of research

nutrient demand and the allocation of time evidence from guam this paper presents an econometric study of nutrient intake in guam which explicitly accounts for household time allocation and household capital variables the empirical framework is based on a household production model of nutrient consumption food expenditure and the allocation of time between labour leisure and food preparation activities the study finds evidence that 1 capital and wage variables have significant impacts on households nutrient demands 2 income wage and educational status have very different effects on the nutrient choices of low calorie households than on the nutrient choices of high calorie households and 3 a family s participation in the food stamp programme leads to higher levels of food expenditure but this impact is attributable to the purchase of more costly taste characteristics in food rather than to the purchase of more nutritious foods

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

household demand for fats and oils two step estimation of a censored demand system a censored system of household fat and oil demand equations is estimated with a two step procedure using cross sectional data from the 1987 1988 us nationwide food consumption survey own price and total expenditure elasticities are close to unity and there is no evidence of gross substitutability compensated elasticities suggest net substitution among the products considered

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

advance production inventories and market power an experimental investigation i introduction bertrand edgeworth games are an important part of any industrial organization economist s toolkit the unilateral market power created by capacity constraints represents one of economists primary methods for modeling supra competitive prices as a static equilibrium outcome in a price setting game 1 the standard bertrand edgeworth model however rather restrictively assumes that production is to demand and that goods are immediately perishable in the broad swath of modern economies that includes the production and sale of physical products these assumptions are often not even approximately satisfied goods are routinely produced prior to being offered for sale at retail establishments similarly while the effective shelf life of many products is quite short relatively few products perish immediately and many have effective shelf lives that extend throughout a sales season if not longer this paper reports a laboratory experiment conducted to assess the effects of having sellers make production decisions in advance rather than to demand and allowing sellers to carry unsold units across periods on market power in a bertrand edgeworth pricing game by way of preview we find that both advance production and an inventory option prominently affect market outcomes advance production reduces profits relative to a baseline condition while an inventory option reduces both prices and profits these results are important as they suggest that deviations from the standard oligopoly structures that routinely arise in natural contexts may fundamentally affect market performance we organize the paper as follows following a brief review of the pertinent literature in section ii we outline equilibrium predictions for baseline advance production and inventory treatments in section iii section iv describes the experimental design and procedures and section v presents the experimental results the paper concludes with a short section vi ii background a theoretical literature economists have long recognized the restrictiveness of the standard price setting oligopoly models shubik 1955 for example argues that when evaluating price setting duopolies economists should consider price quantity games where sellers simultaneously post prices and quantities in addition to games where price is the only decision variable 2 levitan and shubik 1978 compute the mixed strategy equilibrium for a duopoly given advance production and unlimited capacities more recently tasnadi 2004 analyzes the case of advance production for capacity constrained duopolists pertinent to the present investigation tasnadi shows that under very general conditions advance production raises prices but leaves seller profits unaffected the only theoretical work that analyzes the links between product durability and market prices of which we are aware is a stream of literature following coase 1972 regarding the effects of product durability on monopoly power specifically given sufficiently patient consumers the coase conjecture suggests that infinite durability will eliminate monopoly power analytical results are driven by consumers who drive prices down by waiting for future discounts 3 to the best of our knowledge no one has analyzed the effects of product durability on production and pricing incentives for capacity constrained price setting duopolists b experimental literature the relevant experimental literature consists of three strands a first strand consists of a series of papers establishing that laboratory sellers recognize and exercise the unilateral market power induced by capacity constraints pertinent seminal references are davis and holt 1994 and kruse et al 1994 while some relevant related papers include davis holt and villamil 2002 davis and wilson 2000 and wilson 1998 a second strand of the experimental literature studies the effects of advance production on posted price markets

seller beware supply and demand reduction and price manipulation in multiple unit uniform price auctions we experimentally compare under revelation of supply and demand across alternative variations of ascending and descending two sided price clock auctions we find that buyers reduce demand more when the price is ascending but sellers behavior is consistent across clock directions as a result the clock price rule has empirical effects on efficiency even though it is theoretically neutral

intertemporal price competition alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria one which we call disciplined arises when products are close substitutes another which we call spontaneous emerges when products are more differentiated in disciplined equilibria an implicit threat to cut price further in response to an initial price cut supports quite collusive outcomes which become less collusive as product differentiation increases in spontaneous equilibria no such threat is needed consumers in the smaller market tend to pay a higher price as do consumers served by the more efficient firm copyright 1990 by the econometric society

market power and mergers in laboratory markets with posted prices in this article we use laboratory methods to evaluate determinants of supracompetitive pricing the experiment involves three treatments each with the same market supply demand and competitive price in the baseline treatment capacity is divided among five sellers so that the competitive price is a nash equilibrium market power is created in a second treatment by reallocating capacity among the sellers this market power raises observed prices in all sessions in a third treatment the three smallest sellers are merged in a way that holds market power constant the consolidation has little residual effect on prices

predation asymmetric information and strategic behavior in the classroom an experimental approach to the teaching of industrial organization abstract classroom market experiments can complement the theoretical orientation of standard industrial organization courses this paper describes various experiments designed for such courses and presents details of a multi market game with entry and exit in this experiment incumbents have a cost advantage in their home markets and mobile firms decide which market to enter after entry decisions are made firms choose prices and quantities to offer for sale predatory pricing is possible with this setup and the experiment can be used to motivate discussions of monopoly competition entry and efficiency other classroom experiments with an industrial organization focus are surveyed

market power and price movements over the business cycle this paper develops and tests implications of an oligopoly pricing model the model predicts that during a demand expansion the short run competitive price is a pure strategy nash equilibrium but in a recession firms set prices above the competitive price thus price markups over the competitive price are countercyclical prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions the empirical analysis utilizes hamilton s time series switching regime filter to test the predictions of the model fourteen out of fifteen industries have fluctuations consistent with this oligopoly pricing model

an explanation of the continuing federal government mandate of single member congressional districts a formal rational expectation model is developed to explain why congressional single member districts smd s were mandated in 1842 and why that mandate has repeatedly been re affirmed the tendency of voters to moderate the dominant party in the federal government combined with the single party sweep effect of multi member districts mmd s creates the incentives for the strongest party to support a smd mandate this model performs empirically much better than alternative theories the model s prediction that the current smd mandate is permanent is an example of how an institutional change can endure even if it no longer reflects voter preferences

rational voting and candidate entry under plurality rule we analyze a formal model of electoral competition under plurality rule that is characterized by two novel features first rather than assuming a fixed field of candidates we allow candidates to make decisions regarding entry as well as location second voters in our model are strategically rational that is they maximize utility over expected policy outcomes rather than simply voting for the ideologically closest candidate given these assumptions all equilibria in this model are such that the set of entrants locates at the median voter s ideal point this result stands in sharp contrast to earlier models of multicandidate competition in which entry is not allowed and voters vote sincerely

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

why do people drink tests of the rational addiction model the rational addiction ra model applied to alcoho consumption is tested using 1983 us health interview survey data the ra model yields refutable hypotheses concerning effects of current past and future prices past and future consumption time preference and marginal utility of wealth on addictive good consumption the estimations provide relatively strong support for the ra model past and present consumption had strong positive relationship with current consumption coefficients on past present and future money prices and fines for first oflence drunk driving as a form of price for alcohol consumption were significant and of the predical sign

incorporating demand shifters in the almost ideal demand system abstract intercepts of share equations generally include demand shift variables in the almost ideal demand system and related models this results in estimates that depend on units of measurement solutions to this problem are identified and discussed

experimental methods for the general economist five lessons from the lab i review five primary results from experimental economics that impact the economics profession as a whole these results regard the relative un importance of subject sophistication in laboratory markets the importance of gender on economic outcomes the propensity for humans to behave in less than fully rational ways the importance of trading institutions on economic performance and the behavioral relevance of economic theory i find that economics as a profession has benefited from the use of experimental methods by fostering a dialogue between theorists and empiricists better informing policy and improving data collection techniques

market power in oral double auctions this paper reports the results of a series of oral double auction experiments in which some traders possess market power a market is set up in which the configuration of the supply and demand curves leads to an asymmetry between buyers and sellers in their abilities to influence transactions prices this market structure does not always lead to convergence to the competitive equilibrium price despite the competitive nature of the oral double auction institution the nonconvergence occurs most frequently in the experiments involving experienced subjects

behavioral heuristics and market patterns in a bertrand edgeworth game abstract this paper studies bertrand price setting behavior when firms face capacity constraints bertrand edgeworth game this game is known to lack equilibria in pure strategies while the mixed strategy equilibria are hard to characterize we explore families of heuristic rules for individual price setting behavior and the resulting market patterns through simulations of agent based models and laboratory experiments overall the individual pricing strategies observed experimentally can be represented approximately by a sales based simple rule in the experiments average market prices tend to converge from above and approach a state resembling a steady state with slow aggregate price variations and low price dispersion around an average near the competitive level however that configuration can be disturbed occasionally by excursions triggered by discrete price raises of some agents salient features of experimental results can be described by simulations where agents use sales based heuristics with parameters calibrated from the experiments the results obtained here suggest the existence of useful complementarities between analytical experimental and agent based simulation approaches