when is reputation bad abstract in traditional reputation models the ability to build a reputation is good for the long run player in ely j valimaki j 2003 bad reputation naj econ 4 2 http www najecon org v4 htm quart j econ 118 2003 785 814 ely and valimaki give an example in which reputation is unambiguously bad this paper characterizes a class of games in which that insight holds the key to bad reputation is that participation is optional for the short run players and that every action of the long run player that makes the short run players want to participate has a chance of being interpreted as a signal that the long run player is bad we allow a broad set of commitment types allowing many types including the stackelberg type used to prove positive results on reputation although reputation need not be bad if the probability of the stackelberg type is too high the relative probability of the stackelberg type can be high when all commitment types are unlikely

the breakdown of hierarchies in the soviet union and china a neoinstitutional perspective why did modest attempts to decentralize the centrally administered soviet system lead to its collapse while more far reaching decentralization in china left central political and administrative hierarchies intact this article analyzes the disintegration of centrally planned organizations in the context of a neoinstitutional model of the breakdown of authority within hierarchies an agency model of hierarchy is presented that incorporates the ambiguous property rights authority relations and risk sharing conditions that prevailed under central planning and then persist during postcommunist transitions this model suggests that decentralizing reforms could trigger an organizational bank run prompting local agents to seize organizational assets under their control the article also considers reputation preserving strategies that central authorities might use to avert disintegration as an application of this model the collapse of soviet political industrial and state fiscal hierarchies are considered and compared with the experience of analogous sectors in china reforms in both states transferred significant autonomy from the center to local field agents in the soviet case these agents appropriated organizational assets with little interference from the center in china by contrast the center preserved both its capacity for monitoring and its reputation for disciplining transgressions and the rise of hybrid ownership forms made expropriation of state and party assets far less attractive

comparative study of one bid versus two bid auctions abstract the paper focuses on a comparative investigation of the standard one bid first price auction and a corresponding two bid auction where each buyer may place two bids a high bid and a low one and the winner pays his low bid if this was higher than all other bids we characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues for the symmetric case we show that subjects in an experiment prefer the two bid over the one bid auction when given the possibility of choosing between the two and compare the observed behavior to the theoretical predictions

credit market frictions and capital structure dynamics we study the implications of credit market frictions for the dynamics of corporate capital structure and the risk of default of corporations to do so we develop a dynamic capital structure model in which firms face uncertainty regarding their ability to raise funds in credit markets and have to search for investors when seeking to adjust their capital structure we provide a general analysis of shareholders dynamic financing and default decisions show when markov perfect equilibria in financing and default barrier strategies exist and when uniqueness can be achieved we then use the model to generate a number of novel testable implications relating credit market frictions to target leverage the pace and size of capital structure changes creditor turnover and the likelihood of default c 2014 elsevier inc all rights reserved

reputation in long run relationships we model a long run relationship as an infinitely repeated game played by two equally patient agents in each period the agents play an extensive form stage game of perfect information with either locally non conflicting interests or strictly conflicting interests there is incomplete information about the type of player 1 while player 2 s type is commonly known we show that a sufficiently patient player 1 can leverage player 2 s uncertainty about his type to secure his highest pay off compatible with player 2 s individual rationality in any perfect bayesian equilibrium of the repeated game copyright 2012 oxford university press

fiscal transparency political parties and debt in oecd countries abstract many believe and argue that fiscal or budgetary transparency has large positive effects on fiscal performance however the evidence linking transparency and fiscal policy outcomes is less compelling to analyze the effects of fiscal transparency on public debt accumulation we present a career concerns model with political parties this allows us to integrate as implications of a single model three hitherto separate results in the literature on deficit and debt accumulation that transparency decreases debt accumulation at least by reducing an electoral cycle in deficits that right wing governments at least for strategic reasons tend to have higher deficits than left wing governments and that increasing political polarization increases debt accumulation to test the predictions of the model we construct a replicable index of fiscal transparency on 19 country oecd data simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits independent of controls for explanatory variables from other approaches

environmental regulation and french firms location abroad an economic geography model in an international comparative study abstract in this study we re examine the pollution haven hypothesis by a fresh take on both its theoretical and empirical aspects the originality of our work is twofold first we apply an economic geography model with the aim of deriving a rigorous specification for the impact of environmental regulation on firms location choice second we test a conditional logit model using french firm level data in an international comparative study we confirm evidence of a strong pollution haven effect for our pooled sample of countries receiving french direct investments however through a sensitivity analysis we validate this finding for developed countries and most of emerging economies and central and eastern european countries but not for most countries of the commonwealth of independent states and developing countries where a more stringent environmental regulation seems to attract investments furthermore we highlight a forward looking behavior of firms in terms of their location decision making

firm heterogeneity and location choices evidence from foreign manufacturing investments in china this paper develops a model which indicates that foreign firms location choices are determined jointly by site attributes and firm heterogeneity the model is estimated using data on 2565 foreign manufacturing investments in china the conditional logit estimates and simulation results provide supportive evidence an increase in a firm s labour intensity magnifies the impact of labour cost while a location s local communications infrastructure has a stronger influence on foreign firms that have adopted modern information technology it is also found that agglomeration effects decrease with firm size and labour quality implications for researchers and policy makers are discussed in the conclusion

transparency democratic accountability and the economic consequences of monetary institutions debates about the appropriate mix between autonomy and accountability of bureaucrats are relevant to numerous areas of government action i examine whether there is evidence of a tradeoff between transparency democratic accountability and the gains from monetary delegation i begin by presenting a simple theoretical model which suggests that central banks that are transparent in the sense of publishing their macroeconomic forecasts will find it easier to acquire a reputation despite making central banks more subject to outside scrutiny then monetary transparency can lead to improved economic outcomes i also consider arguments about the effect of accountability provisions involving parliamentary oversight and control over central bankers the paper then uses a new data set to examine these issues empirically focusing on a natural experiment involving disinflation costs under different central banking institutions during the 1990s results suggest that countries with more transparent central banks face lower costs of disinflation while accountability provisions have no clear effect on disinflation costs my results also concord with earlier findings that the effect of monetary institutions is conditional on other features of the political environment

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

reputation and the flow of information in repeated games this paper derives payoff bounds from reputation effects akin to those of fudenberg and levine 1992 for repeated moral hazard games in which a long run player interacts frequently with a population of short run players and the monitoring technology varies with the length of the period of interaction the bounds depend on the monitoring technology through the flow of information a measure of signal informativeness per unit of time based on the relative entropy examples are shown where under complete informatione the set of equilibrium payoffs of the long run player converges as the period length tends to zero to the set of static equilibrium payoffs whereas when the game is perturbed by a small ex ante probability on commitment types reputation effects remain powerful in the frequent interaction limit

is more information always better a case in credit markets this paper studies the impact of behavioral and non behavioral information contained in consumer credit reports on the credit market a repeated game of incomplete information between a borrower and a sequence of lenders is considered lenders beliefs regarding the borrower s type depend on the borrower s historical loan performance and other informative signals it is established that for low beliefs strategic defaults occur in equilibrium as the borrower defaults on his loans despite having the ability to repay them further as the ancillary signals become increasingly informative of the borrower s type the range of beliefs over which strategic defaults occur expands this increase in strategic defaults highlights an unintended negative effect of allowing informative signals to influence beliefs on the upside the informative signals allow lenders to learn the borrower s type more quickly

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

collective reputation social norms and participation this paper analyzes a repeated games model of collective reputation with imperfect public monitoring and perfect local peer monitoring of efforts even when peer monitoring is local firms may achieve higher profits under collective reputation by decreasing the cost of maintaining customers trust the optimal number of firms that share a common reputation is greater when 1 trades are more frequent and public information is disseminated more rapidly 2 the deviation gain is smaller compared to the quality premium 3 customers information regarding firms quality is more precise or 4 intragroup information about firms quality is more global from a positive perspective we suggest how social norms can influence the reputation of regional products we also offer an efficiency explanation for food scares from a normative point of view in our model protection of geographical indications increases and mandatory traceability decreases welfare and incentives to provide quality without taking into account direct implementation costs copyright 2012 oxford university press

learning and information aggregation in an exit game we analyze information aggregation in a stopping game with uncertain common payos players learn from their own private experiences as well as by observing the actions of other players we give a full characterization of the symmetric mixed strategy equilibrium and show that information aggregates in randomly occurring exit waves observational learning induces the players to stay in the game longer the equilibria display aggregate randomness even for large numbers of players

indeterminacy of reputation effects in repeated games with contracts abstract we study whether allowing players to sign binding contracts governing future play leads to reputation effects in repeated games with long run players we proceed by extending the analysis of abreu and pearce 2007 by allowing for the possibility that different behavioral types may not be immediately distinguishable from each other given any prior over behavioral types we construct a modified prior with the same total weight on behavioral types and a larger support under which almost all efficient feasible and individually rational payoffs are attainable in perfect bayesian equilibrium thus whether reputation effects emerge in repeated games with contracts depends on details of the prior distribution over behavioral types other than its support

measurement of excess bidding in auctions this paper provides a link between the structural approach of econometrics of auctions with the stochastic frontier literature in an effort to model excess bidding behaviour the new technique is applied to timber auction data the results suggest that both systematic overbidding and underbidding components are important

measuring image spillovers in umbrella branded products umbrella branding the practice of labeling more than one product with a single brand name is commonly used by multiproduct companies spillovers occur when information about one product affects the demand for other products with the same brand name this article provides a methodology to analyze spillovers and uses it to measure two instances of spillover effects the study shows that negative spillovers resulted from the audi 5000 s problems with sudden acceleration and that positive spillovers resulted from jaguar s first major model change in seventeen years copyright 1990 by the university of chicago

a sheriff two bullets and three problems this paper analyzes deterrence in international conflicts assume a strong country has several opponents and faces a military capacity constraint which is not exhausted after just one war two main effects are at work if the strong country is constrained then reputation is more expensive and may occur less often the problem is that the opponents may but need not be more aggressive compared to a world without a constraint it may be that an axis of evil does not exist before a war occurs but is implicitly formed even by moderate countries after the first war was waged a point of interest is whether the constrained strong country should obtain additional capacity given that the objective is to minimize the number of wars the analysis sheds some new light on the u s foreign policy the united nations and the axis of evil

natural endowments production technologies and the quality of wines in bordeaux does terroir matter we study whether quality assessments made by wine experts and by consumers based on prices obtained at auction between 1980 and 1992 can be explained by variables describing endowments land characteristics exposures of vineyards and technologies from grape varieties and picking to bottled wines however since technological choices are likely to depend on endowments the effects can only be identified using an instrumental variables approach we show that technological choices affect quality much more than natural endowments the effect of which is negligible

modelling prices and the reputation of individual named wines this article develops empirical models to assess the relation between the reputation of an individual named wine and its price unrestricted and polynomial distributed lag models are used to assess

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

collective reputation and quality firms who sell regional or specialty products often share a collective reputation based on aggregate quality collective reputation can be approached as a dynamic common property resource problem we show that for an experience good without firm traceability individual firms have the incentive to choose quality levels that are sub optimal for the group these results support minimum quality standards trigger strategies are analyzed as an alternative solution to this problem finally the implications of these results are discussed as they relate to the case study of washington apples specialty regional authentic and local food products have become a more important part of consumer purchases in recent years firms have responded by marketing food products that come from specific geographic areas this trend in consumers preferences has led the european union to introduce protected designations of origin labels and protected geographical identification labels which provide protection of food names on a geographical or traditional basis ranging from parmesan cheese to such lesser known items such as galician veal in the united states there are popular state products that carry labels such as washington apples idaho potatoes

the economics of collective reputation evidence from the wine industry we use original data regarding the array of italian winery coalitions wine denominations to analyze the economics and determinants of collective reputation we first run a cross sectional analysis with 2008 data and the full set of control variables then move to the dynamics of collective reputation with panel data analysis on a 30 year time span 1978 2008 group reputation is history dependent in particular past bad collective behavior increases the probability of being stuck in a bad reputation trap minimum quality standards and effective enforcement are fundamental drivers of group reputation the relationship between group size and collective reputation is non linear free entry may not be optimal due to free riding problems finally institutional signals such as the wine classification system are useful because they can be used by consumers as easily available proxies for information that is much more difficult to acquire

crime intimidation and whistleblowing a theory of inference from unverifiable reports we consider a game between a principal an agent and a monitor in which the principal would like to rely on messages by the monitor the potential whistleblower to target intervention against a misbehaving agent the difficulty is that the agent can credibly threaten to retaliate against the monitor in the event of an intervention in this setting intervention policies that are responsive to the monitor s message provide informative signals to the agent which can be used to target threats efficiently principals that are too responsive to information shut down communication channels successful intervention policies must therefore garble the information provided by monitors and cannot be fully responsive we show that policy evaluation on the basis of non verifiable whistleblower messages is feasible under arbitrary incomplete information provided policy design takes into account that messages are endogenous

incentive contracts in two sided moral hazards with multiple agents abstract the paper studies a contracting problem in which a principal enters in two sided moral hazards withnindependent agents there are no technological or informational linkages among thenagency problems despite this independence optimal incentive schemes essentially eliminate the principal s incentive problem when team size is large enough reputation like effects appear in a static setting through an improved aggregation of information about the actions of the principal one implication of this result is that it is generally suboptimal to require an agent s compensation to depend only on his own outcome another implication is the existence of purely informational economies of scale to increasing team size thus the concentration of otherwise unrelated transactions in a single firm creates wealth through a more efficient use of information about the principal s actions the paper also shows that extremely simple statistical contracts are approximately optimal in large teams the outcome of such contracts is observationally indistinguishable from standard principal agent contracts this provides a theoretical justification for using standard principal agent contracts in environments that involve two sided hazard in a fundamental way journal of economic literatureclassification numbers d21 d23

sustainable reputations with rating systems abstract in a product choice game played between a long lived seller and an infinite sequence of buyers we assume that buyers cannot observe past signals to facilitate the analysis of applications such as online auctions e g ebay online shopping search engines e g bizrate com and consumer reports we assume that a central mechanism observes all past signals and makes public announcements every period the set of announcements and the mapping from observed signals to the set of announcements is called a rating system we show that absent reputation effects information censoring cannot improve attainable payoffs however if there is an initial probability that the seller is a commitment type that plays a particular strategy every period then there exists a finite rating system and an equilibrium of the resulting game such that the expected present discounted payoff of the seller is almost his stackelberg payoff after every history this is in contrast to cripps mailath and samuelson 2004 5 where it is shown that reputation effects do not last forever in such games if buyers can observe all past signals we also construct finite rating systems that increase payoffs of almost all buyers while decreasing the seller s payoff

the economics of nested names name specificity reputations and price premia a good can be identified by its region or country of origin the firm that produces it and its product name in other words names can nest within each other to categorize goods with increasing specificity this article develops a conceptual framework for jointly analyzing the effect of product firm and collective reputations on market price the model is estimated via quantile regression with california wine market data the results portray how the structure and relative importance of reputations change as product prices vary specifically reputation premia migrate from collective to specific names as prices increase

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

traders vs relationship managers reputational conflicts in full service investment banks we present a model that explains why investment bankers struggle to manage conflicts of interest banks can build a type reputation for technical competence by performing complex deals that may not serve their clients interest on the other hand banks can sustain a behavioral reputation by refraining from doing so a behavioral reputation is a luxury reserved for banks that have proven their abilities the model sheds light on conflicts between the trading and advisory divisions of investment banks as well as the consequences of technological change for time variation in the relative strength of behavioral and type reputation concerns

bilateral versus multilateral trade and investment liberalisation to assess the welfare effects of bilateral versus multilateral trade and or investment liberalisation in general equilibrium we set up a three country and three factor knowledge capital model of trade and multinational activity numerical simulation results indicate that multilateral liberalisation tends to dominate bilateral liberalisation in welfare terms a transition economy tends to prefer bilateral over multilateral liberalisation to avoid plant relocation for similar reasons a developed country may prefer bilateral over multilateral liberalisation if the other economies exhibit big relative factor endowment differences

how does foreign direct investment affect pollution toward a better understanding of the direct and conditional effects this paper seeks to investigate the impact of foreign direct investments fdis on industrial pollution hbox co 2 hbox so 2 hbox no mathrm x and bod emissions on a large sample of highly heterogeneous countries by using panel data on manufacturing fdis from france germany sweden and the united kingdom between 1995 and 2008 and by developing an empirical model with first and second order interaction terms we investigate the existence and the conditionality of the most controversial fdi induced effects on industrial emissions i e pollution haven factor endowments and pollution halo hypotheses the paper has three main findings 1 the central hypotheses linking pollution to fdi are found to act simultaneously with opposing effects 2 fdis are associated with pollution reduction i e predominating pollution halo induced effect in countries with low to average capital to labour ratio but not too lax environmental regulation 3 fdis are found to increase pollution i e prevailing pollution haven and or factor endowments induced effects in countries with average capital endowments and lax environmental regulations as well as in all the capital abundant countries though with a smaller magnitude in countries having strict environmental regulations and or a high skilled labour force some specific and interesting findings are discussed regarding different fdi origin countries and fdi host country groups

history lessons the birth of impersonal exchange the community responsibility system and impartial justice this occasional feature will discuss episodes and events drawn from economichistory that have lessons for current topics in policy and research responses to thiscolumn and suggestions for future ones should be sent to kenneth sokoloff c ojournal of economic perspectives department of economics university of cali fornia los angeles 405 hilgard ave los angeles california 90095 1477

merging reputation and repeated games with incomplete information we relate and unify several results that appeared in the following domains merging of probabilities perturbed games and reputation phenomena and repeated games with incomplete information journal of economic literature classification numbers c72 d83

what explains china s rising urbanisation in the reform era china has been transforming from a rural to an urban economy over the past century especially since 1978 when economic reforms were initiated and rapid economic growth began this paper attempts t

is fta epa effective for a developing country to attract fdi the knowledge capital model revisited to prepare an answer to the question of how a developing country can attract foreign direct investment fdi this paper explored the factors and policies that may help bring fdi into a developing country by utilising an extended version of the knowledge capital model with a special focus on the effects of a free trade agreement fta or an economic partnership agreement epa between a pair of market and non market countries simulations with the model revealed the following i although fta epa generally tends to increase fdi to a developing country the possibility of improving welfare through increased demand for skilled and unskilled labour decreases as the size of the country grows ii a developing country may suffer severe welfare losses through fta epa if the availability of skilled labour is extremely limited and iii a developing country can enhance welfare gains from a fta and it is even possible to recover the welfare effects from negative to positive by making the arrangement an epa

on the robustness of equilibrium refinements abstract the philosophy of equilibrium refinements is that the analyst if he knows things about the structure of the game can reject some nash equilibria as unreasonable the word know in the preceding sentence deserves special emphasis if in a fixed game the analyst can reject a particular equilibrium outcome but he cannot do so for games arbitrarily close by then he may have second thoughts about rejecting the outcome we consider several notions of distance between games and we characterize their implications for the robustness of equilibrium refinements

seller reputation from word of mouth to centralized feedback abstract reputation is one of the most important incentives for trade and cooperation using the complete selling history of 125 135 sellers on eachnet com an ebay equivalent in china we show that sellers with a longer successful selling record enjoyed more repeat business reached more buyer regions sold in more product categories and had a higher completion rate even before eachnet introduced a centralized feedback system since the centralized feedback system the difference between reputable and non reputable sellers has decreased in terms of repeat business but enlarged in terms of market expansion these findings suggest that while reputation can facilitate trade through buyer experience and word of mouth it is not as effective as centralized feedback our study also shows that although completion rate and transaction price are the two outcomes most often examined in the literature seller reputation is important for buyer clientele market reach business scope and market survival

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

all in the family a simultaneous model of parenting style and child conduct the upbringing of children is modeled as a modified principal agent problem in which children attempt to maximize their own well being when faced with a parenting strategy chosen by the parent to maximize parent s perception of family well being thus children as well as parents are players but children have higher discount rates than parents the simultaneity of parenting and child behaviour is confirmed using the 1994 canadian national longitudinal survey of children this abstract was borrowed from another version of this item

when does cheating on mail in bids pay a guide for the dishonest auctioneer abstract in english auctions an auctioneer sometimes receives second price bids from bidders who cannot attend the auction these bids are referred to as mail in bids left bids or bookbids and are commonly handled by an auctioneer s assistant in this paper i consider auctions where there is one bid left with the auctioneer in an english auction with no reserve the auctioneer can increase his revenue by cheating at least partially through phantom bids or large bidding increments on the bookbid when the bookbidder s valuation is more likely to be the highest than the second highest among all valuations this is true even if in equilibrium this cheating is perfectly anticipated this implies that the acquisition of a good reputation is not a sufficient incentive for honest auctioneer behavior

reputation and exogenous private learning abstract short run competitors in the chain store game receive noisy signals of the long run incumbent firm s type the history of signals which in the limit is fully revealing is observable to the competitors but possibly not to the incumbent as long as there is sufficient noise in the signals then in any equilibrium a patient weak incumbent obtains a payoff strictly higher than her minmax payoff

rating the raters are reputation concerns powerful enough to discipline rating agencies abstract credit rating agencies cras are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products in response to this accusation cras argue that such an attitude would be too dangerous for them since their reputation is at stake the objective of this article is to examine the validity of this argument within a formal model are reputation concerns sufficient to discipline rating agencies we show that the reputation argument only works when a sufficiency large fraction of the cra income comes from other sources than rating complex products by contrast when rating complex products becomes a major source of income for the cra we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough we provide some empirical support for this prediction by showing that ceteris paribus the proportion of subprime residential mortgage backed securities rmbs that were rated aaa by the three main cras indeed increased over the last eight years we analyze the policy implications of our findings and advocate for a new business model of cras that we call the platform pays model

foreign direct investment and country specific human capital i introduction the past three decades have witnessed an unprecedented increase in foreign direct investment fdi in the world annual fdi flows from and to organisation for economic cooperation and development oecd countries have increased more than 30 fold from 1982 to 2005 while the world trade merely quadrupled during the same period the ratio of gross private capital flows to gross domestic product gdp has risen from 10 3 in 1990 to 32 4 in 2005 the ratio of fdi flows to gdp has climbed up from 2 2 in the early 1990s to 4 4 in 2005 1 as fdi gained importance in the international movement of capital a variety of theoretical and empirical studies have investigated the factors that determine fdi 2 in this article we offer an important but under studied determinant of fdi foreign educated labor in fdi host countries specifically using international bilateral data on fdi and foreign education we present empirical evidence on the role of country specific foreign educated labor in an fdi host country as a determinant of foreign direct investments production involves the process of combining physical capital and the human capital of employees human capital includes the general skills of workers but it also includes their knowledge of firm specific technology managerial skills specific to the organization and efficient communication skills with co workers consequently the labor that possesses these firm specific skills which can be readily used by a firm can be more productive in that firm than in other firms when a firm invests in a foreign country through a subsidiary that shares the technology of the parent firm the labor force that has acquired various types of human capital specific to the parent firm and thus to the subsidiary can be more productive in the foreign subsidiary for instance the local managers of a foreign subsidiary who are able to speak the same language of the managers of their parent firm or who know thoroughly well how the parent firm and its subsidiaries are organized and operated can be more productively utilized in the subsidiary firm since human capital specific to a firm and its foreign subsidiaries can be acquired through education provided in the country of the parent firm the availability of workers in a potential fdi host country who studied in the parent firm country can be an important deciding factor for a firm in investing abroad through its foreign subsidiary 3 foreign training can provide various types of country specific human capital that would increase labor productivity more in the host country of training than in other countries country specific human capital includes language capital which has been shown by numerous papers such as chiswick and miller 1993 and lazear 1999 to have considerable importance in labor market performances knowledge on firm organization and social system is another example of country specific human capital that can be acquired through foreign training foreign education can also enhance the productivity of students in firms of the host country because it provides information about the ability and potential of students in a form that can be more easily processed by firms in the host country greater knowledge regarding employees allows firms to utilize manpower more efficiently and enhance workers productivity as pointed out by becker 1993 who discusses low worker mobility across countries as evidence of the importance of country specific training earlier theoretical models in international trade such as macdougall 1960 attribute international capital movement to the difference in factor endowment measured by physical capital per worker 4 empirical findings however show that the actual capital flows fall short of the theoretical prediction that capital moves from developed economies to developing economies to take advantage of the higher rates of returns to capital

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

minimum quality standards and collusion we model the introduction of a minimum quality standard in a vertically differentiated duopoly we extend the literature in determining the standard endogenously showing that the maximisation of social welfare entails an increase in the surplus accruing to consumers served by the low quality firm and a decrease in the surplus of the remaining consumers then we consider the effects of the standard on the stability of price collusion proving that the standard makes it more difficult for firms to collude if consumers are sufficiently rich

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

the relationship between communicable diseases and fdi flows an empirical investigation this paper focuses on the impact of communicable diseases which affects the population health component of human capital on worldwide fdi flows the model controls for endogeneity that can stem from the interconnected relationship between fdi population health and per capita gdp after controlling for this endogeneity we find that communicable diseases have a statistically significant negative effect on fdi which is 2 to 5 times larger than when using ordinary least squares the results remain robust to alternative model specifications

gambling reputation repeated bargaining with outside options we study the role of incomplete information and outside options in determining bargaining postures and surplus division in repeated bargaining between a long run player and a sequence of short run players the outside option is not only a disagreement point but reveals information privately held by the long run player in equilibrium the uninformed short run players offers do not always respond to changes in reputation and the informed long run player s payoffs are discontinuous the long run player invokes inefficient random outside options repeatedly to build reputation to a level where the subsequent short run players succumb to his extraction of a larger payoff but he also runs the risk of losing reputation and relinquishing bargaining power we investigate equilibrium properties when the discount factor goes to 1 and when the informativeness of outside options diffuses in both cases bargaining outcomes become more inefficient and the limit reputation building probabilities are interior publication abstract

torture and the commitment problem we study torture as a mechanism for extracting information from a suspect who may or may not be informed we show that a standard rationale for torture generates two commitment problems first the principal would benefit from a commitment to torture a suspect he knows to be innocent secondly the principal would benefit from a commitment to limit the amount of torture faced by the guilty we analyse a dynamic model of torture in which the credibility of these threats and promises is endogenous we show that these commitment problems dramatically reduce the value of torture and can even render it completely ineffective we use our model to address questions such as the effect of enhanced interrogation techniques rights against indefinite detention and delegation of torture to specialists

is more information always better experimental financial markets with cumulative information abstract we study the value of information in financial markets by asking whether having more information always leads to higher returns we address this question in an experiment where information about an asset s intrinsic value is cumulatively distributed among traders we find that only the very best informed traders i e insiders significantly outperform less informed traders however there is a wide range of information levels from zero information to above average information levels where additional information does not yield higher returns the latter result implies that the value of additional information need not be strictly positive

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

electoral competition globalization and subnational education spending in mexico 1999 2004 this article examines the determinants of primary education spending among 29 mexican states from 1999 to 2004 there is wide variation in spending despite expectations of policy convergence due to market forces associated with globalization and in spite of the unique potential of education spending to complement economic strategies in achieving equitable growth this study exploits significant advantages of subnational analysis in exploring political and economic variables that have been useful in explaining spending levels cross nationally consistent with these studies this article shows that greater electoral competition leads to increased spending in contrast to other work however this study finds that exposure to the global economy has distinctly mixed effects on education spending these findings thus further highlight the positive returns to higher quality democracy while underscoring the need to examine the effects of many different aspects of globalization representing a wide variety of strategies employed by governments in engaging the international economy

determinants of foreign direct investment a tale of nine theoretical models abstract this paper presents a review of nine theoretical models of foreign direct investment fdi discussed are early studies of determinants of fdi 1 as well as determinants of fdi based on the neoclassical trade theory 2 ownership advantages 3 aggregate variables 4 the ownership location and internalization advantage framework 5 horizontal and vertical fdi models 6 the knowledge capital model 7 diversified fdi and risk diversification models 8 and policy variables 9 from each of the nine theories the relevant determinants of fdi are derived empirical studies indicate the importance of these determinants in the real world the paper shows that there is not one single theory of fdi but a variety of theoretical models attempting to explain fdi and the location decision of multinational firms therefore any analysis of determinants of fdi should not be based on a single theoretical model instead fdi should be explained more broadly by a combination of factors from a variety of theoretical models such as ownership advantages or agglomeration economics market size and characteristics cost factors transport costs protection risk factors and policy variables

reputation with analogical reasoning we consider a repeated interaction between a long run player and a sequence of short run players in which the long run player may either be rational or may be a mechanical type who plays the same possibly mixed action in every stage game we depart from the classical model in assuming that the short run players make inferences by analogical reasoning meaning that they correctly identify the average strategy of each type of long run player but do not recognize how this play varies across histories concentrating on 2 2 games we provide a characterization of equilibrium payoffs establishing a payoff bound for the rational long run player that can be strictly larger than the familiar stackelberg bound we also provide a characterization of equilibrium behavior showing that play begins with either a reputation building or a reputation spending stage depending on parameters followed by a reputation manipulation stage

reputation in the long run with imperfect monitoring abstract we study an infinitely repeated game where two players with equal discount factors play a simultaneous move stage game player one monitors the stage game actions of player two imperfectly while player two monitors the pure stage game actions of player one perfectly player one s type is private information and he may be a commitment type drawn from a countable set of commitment types who is locked into playing a particular strategy under a full support assumption on the monitoring structure we prove a reputation result for stage games with a strong stackelberg action if there is positive probability that player one is a particular type whose commitment payoff is equal to player one s highest payoff consistent with the players individual rationality then a patient player one secures this type s commitment payoff in any bayes nash equilibrium of the repeated game in contrast if the type s commitment payoff is strictly less than player one s highest payoff consistent with the players individual rationality then the worst perfect bayesian equilibrium payoff for a patient player one is equal to his minimax payoff

the value of commitment with imperfect observability and private information the idea that commitment is valuable plays a key role in many economic models however bagwell 1995 has shown that commitment may have no value if there is even a slight noise in the observation of the leader s action thus casting doubt on the notion that commitment has strategic value here i reconsider the commitment story in a model where the leader s action is imperfectly observed and the leader has private information and i examine how it is affected by uncertainty about the leader s type and by the observation noise

reputation and impermanent types i consider a version of the chain store game where the incumbent firm s type evolves according to a markov process with two states a tough type who always fights entry and a weak type who prefers to accommodate there exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough above that level as the number of markets t increases in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence when t is infinite then regardless of the discount factor there exists a sequential equilibrium in which the incumbent s payoff is bounded below her stackelberg payoff both results are in contrast to the outcome when the incumbent s type is fixed one interpretation is that reputation is not permanent but must be renewed occasionally

reputation with equal discounting in repeated games with strictly conflicting interests we analyze reputation effects in two player repeated games of strictly conflicting interests in such games player 1 has a commitment action such that a best reply to it gives player 1 the highest individually rational payoff and player 2 the minmax payoff players have equal discount factors with positive probability player 1 is a type who chooses the commitment action after every history we show that player 1 s payoff converges to the maximally feasible payoff when the discount factor converges to one this contrasts with failures of reputation effects for equal discount factors that have been demonstrated in the literature journal of economic literature classification number c71

games with espionage abstract we consider normal form games in which two players decide on their strategies before the start of play and player 1 can purchase noisy information about his opponent s decisions concerning future response policies i e spy on his opponent we give a full characterization of the set of distributions over the players payoffs that can be induced by such equilibria as well as describe their welfare and pareto properties in 2 2 games we find three equilibrium phenomena i when the game is non degenerate the information purchased is independent of its cost the cost determines only whether information is purchased or not ii the player who spies treats his information as if it were deterministic even though it is correct only probabilistically and iii in chain store models espionage is used if and only if the perfect equilibrium payoff differs from the stackelberg equilibrium payoff with player 2 being the stackelberg leader

reputation and experimentation in repeated games with two long run players this paper considers reputation effects in a repeated game between two long run players one of whom is relatively patient and may be committed to a fixed strategy which punishes the opponent for increasingly long periods whenever inappropriate actions are taken by following this commitment strategy the more patient player can induce a sufficiently patient opponent to experiment to see whether the commitment strategy is also being followed off the equilibrium path this can guarantee the more patient player in any nash equilibrium a payoff close to the highest feasible payoff consistent with the individual rationality of the other player for an arbitrary degree of patience of the less patient player a weaker result is established the more patient player is guaranteed an average equilibrium payoff close to the static stackelberg payoff this latter result generalizes that of schmidt 1993 who established the same result for the restricted class of games of conflicting interests

human capital and fdi inflow an assessment of the african case summary this study assesses the role of human capital hk on fdi inflows to sub saharan africa it uses panel data for the period 1980 2012 to asses if changing skill needs influence fdi inflows several measures of hk are used to assess whether the quality of labor explains fdi flows over the study period various versions of an fdi model were estimated and the results show that all measures of hk have a significant influence on fdi as are the traditional variables there is no evidence of the increasing importance of hk on fdi over time probably reflecting the type of fdi flowing into ssa

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

human capital and fdi inflows to developing countries new empirical evidence abstract despite the dramatic increase in total foreign direct investment fdi flows to developing countries in the last few years the bulk of the inflows has been directed to only a limited number of countries it has been argued that developing countries might enhance their attractiveness as locations for fdi by pursuing policies that raise the level of local skills and build up human resource capabilities nevertheless the empirical evidence in the literature in support of this recommendation for a large sample of developing countries is scant this paper evaluates this argument in the light of the evolution in the structural characteristics of fdi and empirically tests the hypothesis that the level of human capital in host countries may affect the geographical distribution of fdi the empirical findings are a human capital is a statistically significant determinant of fdi inflows b human capital is one of the most important determinants and c its importance has become increasingly greater through time

the complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment abstract the behavior of many multinational enterprises is not well described by existing models of foreign direct investment fdi firms often follow strategies that involve vertical integration in some countries and horizontal integration in others a strategy known as complex integration this paper presents a three country model that is used to analyze why firms might follow a strategy of complex integration my analysis reveals that complex integration strategies create complementarities between potential host countries that have important implications for the structure of fdi the analysis also shows that falling transport cost between countries may increase the importance of complex integration strategies

cultural and institutional determinants of economic growth a cross section analysis economic growth rates for the period 1968 1987 are analyzed for ninety countries culture political and economic arrangements and personal freedoms are statistically significant determinants of growth personal freedom is shown to be a normal good whose demand might be affected by cultural influences democracies raise personal freedoms ceteris paribus and consequently grow more quickly than non democratic regimes evidence is found for the convergence hypothesis other things equal lower income countries grow more rapidly than higher income countries

what is the value of terroir meaning land to refer to the special characteristics of a place that impart unique qualities to the wine pro duced the appellation d origine controlee aoc system in france and similar systems adopted in other wine producing countries are based upon the geographic location of grape production predicated on this notion of ter roir under the us system production regions are designated as american viticultural areas avas with finer geographical designations known as sub avas such designations allow wineries to identify the geographical origin of the grapes used in producing their wines and equally important seek to prevent producers outside an ava from making false claims about the nature and origin of their wines what is the value of terroir in the american context does the reality of terroir the loca tion specific geology and geography predomi nate in determining the quality of wine does the concept of terroir the location within an officially named appellation impart additional value to grapes and wine does location within such an appellation impart additional value to vineyards the central question we address is whether measurable site attributes such as slope aspect elevation and soil type or appellation designations are more important determinants

repeated games with long run and short run players this paper studies the set of equilibrium payoffs in repeated games with long and short run players and little discounting because the short run players are unconcerned about the future each equilibrium outcome is constrained to lie on their static reaction best response curves the natural extension of the folk theorem to games of this sort would simply include this constraint in the definitions of the feasible payoffs and minmax values in fact this extension does obtain under the assumption that each player s choice of a mixed strategy for the stage game is publicly observable but in contrast to standard repeated games the set of equilibrium payoffs is different if players can observe only their opponents realized actions

does human capital constrain the impact of foreign direct investment and remittances on economic growth in ghana this article empirically investigates whether human capital constrains the impact of foreign direct investment fdi and remittances on economic growth in ghana an economic growth model for ghana is specified and estimated using fully modified ordinary least squares fmols estimator and employing annual data spanning the period 1965 to 2008 empirical results indicate that fdi and remittances are key determinants of economic growth in ghana results indicate that human capital enhances the impact of fdi and remittances on economic growth although both government expenditure and trade openness are growth enhancing government expenditure appears to crowd out private investment empirical results also indicate that domestic inflationary pressures unstable political environment and volatile global economy exert a negative impact on economic growth in ghana

a game theoretic model for the role of reputation feedback systems in peer to peer commerce abstract we propose a dynamic game theoretic model to study how a reputation feedback system affects a peer to peer p2p trading platform continuums of buyers and sellers with bounded rationalities are paired to trade periodically sellers have private knowledge on their own types that encode tendencies to cheat their reputation scores are on the other hand visible to all and periodically updated by their trading partners a buyer can use a seller s score to assess the latter s characters and decide whether to trade using a continuity based fixed point theorem we first establish the existence of equilibria that convey information on traders behaviors as well as the type score composition on the market we then look into a special case which for model tractability includes two types of sellers with two score levels besides the proportion of prone to cheating sellers it indicates that how much sellers value their future payoffs also plays a major role in determining the prevalence of online frauds therefore reputation feedback systems are especially beneficial under high trading volumes which can in turn for instance be facilitated by attracting more buyers to the online marketplace

wine market prices and investment under uncertainty an econometric model for bordeaux crus classes this paper describes an econometric assessment of wine market prices for 21 of the crus classes ch teaux in the bordeaux region of france the model developed in the analysis attempt to define the relationship between factors that influence wine quality and those that influence wine prices characteristics of the models are 1 climate influences on grape composition acid and sugar levels 2 grape composition influences on market prices 3 subjective quality evaluations parker points on market prices and 4 the effects of age of the wine on market prices the results indicate that composition levels of merlot dominated wines are more climate sensitive than those from cabernet sauvignon dominated wines overall warm dry summers result in high sugar and low acid levels at harvest which in turn lead to higher quality wines wine market price sensitivity to parker point ratings indicates that properties with high cabernet sauvignon dominated wines are highly dependent on the external ratings while merlot dominated wines have a decreased rating sensitivity smaller properties tend to gain over proportionally from high ratings indicating great jumps in price from year to year additionally ch teaux that have experienced high ratings for past vintages exhibit great sensitivity to point steps in ratings for current vintages aging has a positive effect on bordeaux wine pricing this is due to the increasing maturity as well as the increasing absolute scarcity absolute scarcity of product is expressed by the size of the property with small properties producing less per vintage and therefore having less in the market additionally merlot dominated wines exhibit more maturing potential and profit more from aging than cabernet sauvignon dominated wines average per ch teau real annual profit ranges from 1 to 10 high levels of grape ripeness absolute scarcity and smaller properties that are dominated by merlot in their blend lead to the highest profits forecasts for a vintage not yet on the market indicates that 1995 is better than 1994 for both cabernet sauvignon and merlot dominated wines but that 1996 and 1997 are not as good as 1995 especially for merlot dominated wines 2001 elsevier science b v all rights reserved

predation and its rate of return the sugar industry 1887 1914 we show that the price wars following two major entry episodes were predatory our proof is twofold by direct comparison of price to marginal cost and by construction of a lower bound to predicted competitive price cost margins that we show to exceed observed margins predation occurred only when its relative cost to the dominant firm the american sugar refining company asrc was small its most clear effect was to lower the acquisition price of entrants and small incumbents it may also have deterred future capacity additions and raised asrc s share of industry profits predation operated by strengthening asrc s reputation as a willing predator

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

maintaining a reputation when strategies are imperfectly observed this paper studies reputation effects in games with a single long run player whose choice of stage game strategy is imperfectly observed by his opponents we obtain lower and upper bounds on the long run player s payoff in any nash equilibrium of the game if the long run player s stage game strategy is statistically identified by the observed outcomes then for generic payoffs the upper and lower bounds both converge as the discount factor tends to 1 to the long run player s stackelberg payoff which is the most he could obtain by publicly committing himself to any strategy

is bigger better customer base expansion through word of mouth reputation a model of gradual reputation formation through a process of continuous investment in product quality is developed we assume that the ability to produce high quality products requires continuous investment and that as a consequence of informational frictions such as search costs information about firms past performance diffuses only gradually in the market this leads to a dual process of growth of a firm s customer base and an increase in the firm s investment in quality the model predicts therefore that the longer its tenure as a high quality producer the more a firm invests in quality we relate this finding to empirical work on online commerce as well as on traditional industries

vertical multinationals and host country characteristics abstract we inquire into the question of what country characteristics particularly market size and labor force composition attract inward investment this approach is motivated by the empirical observation that the poorest countries attract a far smaller share of world direct investment than their share of income small markets receive less investment per capita than larger ones we develop a model that generates both stylized facts in equilibrium suggesting the existence of a development trap for small skilled labor scarce countries