trading arrangements and industrial development how do different trading arrangements influence the industrialization process of developing countries can preferential trading arrangements ptas be superior to multilateral liberalization or at least an alternative when multilateral liberalization proceeds slowly if so what form should the ptas take are developing countries better advised to seek ptas with industrial countries or among themselves traditional analysis of these issues has been based on the idea of trade creation and trade diversion the problem with this analysis is that it starts from assuming a pattern of comparative advantage of newly industrialized countries the experience of these countries suggests the need for an analysis in which the pattern of comparative advantage is not set in stone but is potentially flexible and in which less developed countries can develop and converge in both income and economic structure to industrial economies the authors outline an alternative approach for analyzing the role of trade in promoting industrial development there are few fundamental differences between countries that generate immutable patterns of comparative advantage instead the pattern of trade and development in the world economy is determined mainly by history cumulative causation has created concentrations of industrial activity in particular locations industrial countries and left other areas more dependent on primary activities economic development can be thought of as the spread of these concentrations from country to country different trading arrangements may have a major impact on this development process by changing the attractiveness of countries as a base for manufacturing production they can potentially trigger or postpone industrial development this approach explains why firms are reluctant to move to economies that have lower wages and labor costs and shows how trade liberalization can change the incentives to become established in developing countries it provides a mechanism through which import liberalization can have a powerful effect in promoting industrialization and it suggests that import liberalization may create or amplify differences between liberalizing countries with the possible political tensions this may create while these features are consistent with the world economy they fall short of providing convincing empirical support for the approach using the approach the authors derive number of conclusions about the effects of trade liberalization first that unilaterally liberalizing imports of manufactures can promote development of the local manufacturing industry the mechanism is forward linkages from imported intermediates but this may be interpreted as part of a wider package of linkages coming from these imports second the gains from liberalization through pta membership are likely to exceed those obtained from unilateral action south south ptas will be sensitive to the market size of member states and north south ptas seem to offer better prospects for participating southern economies if not for north and excluded countries third the effects of particular schemes such as the division of benefits between southern economies will depend on the characteristics of the countries and cross country differences in these characteristics

long term competition in a dynamic game the cold fish war this article presents a model of credible voluntary collective agreements in a dynamic game these agreements are implicit in collections of history dependent threat strategies i consider the strategies in a game of resource exploitation credibility is represented by perfect equilibrium voluntarism requires at least that all behavior be supported by the threat of collapse of the agreement which would return the players to the memoryless equilibrium collective rationality requires that the agreement be robust to the possibility of mutually beneficial renegotiation i analyze the set of agreements meeting each of these restrictions

commodity price shocks and civil conflict evidence from colombia how do income shocks aect armed con ict theory suggests two op posite eects if labor is used to appropriate resources violently higher wages may lower con ict by reducing labor supplied to appropriation this is the opportunity cost eect alternatively a rise in contestable income may increase violence by raising gains from appropriation this is the rapacity eect our paper exploits exogenous price shocks in inter national commodity markets and a rich dataset on civil war in colombia to assess how dierent income shocks aect con ict we examine changes in the price of agricultural goods which are labor intensive and natural resources which are capital intensive we focus on coee and oil the two largest exports we nd that a sharp fall in coee prices in the 1990s increased violence dierentially in regions growing more coee by lower ing wages and the opportunity cost of joining armed groups in contrast a rise in oil prices increased violence dierentially in the oil region by in creasing municipal revenue siphoned through rapacity this pattern holds in several other agricultural and natural resource sectors providing robust evidence that price shocks aect con ict in opposite directions depending on the factor intensity of the commodity

the tragedy of the commons in a violent world earlier research has shown that the tragedy of the commons may be resolved by folk theorems for dynamic games in this article we graft on a standard natural resource exploitation game the possibility to appropriate the resource through violent means because conflict emerges endogenously as resources get depleted the threat supporting the cooperative outcome is no longer subgame perfect and thus credible the unique equilibrium is such that players exploit noncooperatively the resource when it is abundant and they revert to conflict when it becomes scarce the players utility is shown to be lower even if conflict wastes no resources

natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

the market for quacks a group of n quacks plays a price competition game facing a continuum of patients who recover with probability whether or not they acquire a quack s treatment if patients chose rationally the market would be inactive i assume however that patients choose according to a boundedly rational procedure which re ects anecdotal reasoning this element of bounded rationality has signi cant

the armed peace a punctuated equilibrium theory of war according to a leading rationalist explanation war can break out when a large rapid shift of power renders unbelievable a rising state s promise to compensate its declin ing opponent causing the latter to attack preventively this mechanism does not provide a complete and coherent explanation of war because it does not specify how inefficient fighting resolves this commitment problem we present a complete information model of war as a sequence of battles and show that although opportunities for a negotiated settle ment arise throughout the very desirability of peace creates a commitment problem that undermines its likelihood because players have incentives to settle as soon as possible they cannot credibly threaten to fight long enough if an opponent launches a surprise at tack this decreases the expected duration and costs of war and causes mutual deterrence to fail fighting s sheer destruction improves the credibility of these threats by decreasing the benefits from continuing the war equilibrium fighting may involve escalating costs that exceed the value of the stakes by the time peace is negotiated and that leave both players worse off than when the war began

structural workshop paper discrete choice models of consumer demand in marketing marketing researchers have used models of consumer demand to forecast future sales to describe and test theories of behavior and to measure the response to marketing interventions the basic framework typically starts from microfoundations of expected utility theory to obtain an econometric system that describes consumers choices over available options and to thus characterize product demand the basic framework has been augmented significantly to account for quantity choices to accommodate purchases of several products on a single purchase occasion multiple discreteness and multicategory purchases and to allow for asymmetric switching between brands across different price tiers these extensions have enabled researchers to bring the analysis to bear on several related marketing phenomena of interest this paper has three main objectives the first objective is to articulate the main goals of demand analysis forecasting measurement and testing and to highlight several considerations associated with these goals our second objective is to describe the main building blocks of individual level demand models we discuss approaches built on direct and indirect utility specifications of demand systems and we review extensions that have appeared in the marketing literature the third objective is to explore a few emerging directions in demand analysis including considering demand side dynamics combining purchase data with primary information and using semiparametric and nonparametric approaches we hope researchers new to this literature will take away a broader perspective on these models and see the potential for new directions in future research

one two three infinity newspaper and lab beauty contest experiments beauty contest is a game in which participants have to choose typically a number in 0 100 the winner being the person whose number is closest to a proportion of the average of all chosen numbers we describe and analyze beauty contest experiments run in newspapers in uk spain and germany and find stable patterns of behavior across them despite the uncontrollability of these experiments these results are then compared with lab experiments involving undergraduates and game theorists as subjects in what must be one of the largest empirical corroborations of interactive behavior ever tried we claim that all observed behavior across a wide variety of treatments and subject pools can be interpretedas iterative reasoning level 1 reasoning level 2 reasoning and level 3 reasoning are commonly observed in all the samples while the equilibrium choice level maximum reasoning is only prominently chosen by newspaper readers and theorists the results show the empirical power of experiments run with large subject pools and open the door for more experimental work performed on the rich platform offered by newspapers and magazines

job search and hyperbolic discounting structural estimation and policy evaluation this paper estimates the structural parameters of a job search model with hyperbolic discounting and endogenous search effort it estimates quantitatively the degree of hyperbolic discounting and assesses its implications for the impact of various policy interventions aimed at reducing unemployment the model is estimated using data on unemployment spells and accepted wages from the national longitudinal survey of youth nlsy the likelihood function explicitly incorporates all the restrictions implied by the optimal dynamic programming solution to the model both observed and unobserved heterogeneity are accounted for the results point to a substantial degree of hyperbolic discounting especially for low and medium wage workers the structural estimates are also used to evaluate alternative policy interventions for the unemployed estimates based on a model with exponential discounting may lead to biased inference on the economic impact of policies jel c6 c73 d90 j64 j68

conflict and deterrence under strategic risk we examine the determinants of cooperation and the effectiveness of deterrence when fear is a motive for conflict we contrast results obtained in a complete information setting with those obtained in a setting with strategic risk where players have different information about their environment these two strategic settings allow us to identify and distinguish the role of predatory and preemptive incentives as determinants of cooperation and conflict in our model weapons unambiguously facilitate peace under complete information in contrast under strategic risk we show that increases in weapon stocks can have a nonmonotonic effect on the sustainability of cooperation we also show that under strategic risk asymmetry in military strength can facilitate peace and that anticipated peacekeeping interventions may improve incentives for peaceful behavior

can violence harm cooperation experimental evidence abstract in this paper we argue that natural resource conservation is jeopardised by the ability of users to resort to violence to appropriate resources when they become scarce we provide evidence from a lab experiment that participants interacting in a dynamic game of common pool resource extraction reduce their cooperation on efficient levels of resource extraction when given the possibility to appropriate the resource at some cost i e through conflict theoretically cooperation is achievable via the threat of punishment strategies which stop being subgame perfect in the presence of conflict accordingly we argue that the observed reduction of cooperation in the game s early stages in the lab is a consequence of participants correctly anticipating the use of appropriation when resources become scarce

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

designing price contracts for boundedly rational customers does the number of blocks matter when designing price contracts one of the major questions confronting managers is how many blocks there should be in the contract we investigate this question in the setting of a manufacturer retailer dyad facing a linear deterministic consumer demand theoretical marketing models predict that the manufacturer s profits rise dramatically when the number of blocks in the contract is increased from one to two because both channel efficiency and its share of channel profits increase however increasing the number of blocks to three yields no incremental profits we test these predictions experimentally and find that increasing the number of blocks from one to two raises channel efficiency but not the manufacturer s share of profits surprisingly having three blocks in the contract increases channel efficiency even further and also gives the manufacturer a slightly higher share of profits we show that these results can be explained by a quantal response equilibrium model in which the manufacturer accounts for noisy best response due to nonpecuniary payoff components in the retailer s utility we also show that the retailer is sensitive to the counterfactual profits it could have earned if it were charged a lower marginal price for earlier blocks in the multiple block contract

when rational sellers face nonrational buyers evidence from herding on ebay people often observe others decisions before deciding themselves using ebay data for dvd auctions we explore the consequences of neglecting nonsalient information when making such inferences we show that bidders herd into auctions with more existing bids even if these are a signal of no longer available lower starting prices rather than of higher quality bidders bidding a given dollar amount are less likely to win low starting price auctions and pay more for them when they do win experienced bidders are less likely to bid on low starting price auctions remarkably the seller side of the market is in equilibrium because expected revenues are nearly identical for high and low starting prices

the role of incentives for opening monopoly markets comparing gte and boc cooperation with local entrants while the 1996 telecommunications act requires all incumbent local telephone companies to cooperate with local entrants section 271 of the act provides the bell companies but not gte additional incentives to cooperate using an original data set i compare the negotiations of at t as a local entrant with gte and with the bell companies in states where both operate my results suggest that the differential incentives matter the bells accommodate entry more than does gte as evidenced in quicker agreements less litigation and more favorable prices offered for network access consistent with this there is more entry into bell territories

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

firm survival and the evolution of oligopoly after their commercial introduction the number of producers of autos tires televisions and penicillin initially grew and then experienced a sharp decline or shakeout guided by an evolutionary model of entry and exit firm survival patterns in the four products are examined to determine whether there were common forces governing their distinctive evolution predictions concerning the effects of pre and post entry experience and the timing of entry on firm survival are tested the findings are used to reflect on why industries experience shakeouts and evolve to be oligopolies

contesting resources rent seeking conflict and the natural resource curse a growing empirical literature links natural resource abundance and pointiness to impeded economic growth and civil strife we develop rent seeking and conflict models that capture the most salient features of contests for resource rents and show how both resource abundance and geographical clustering can be associated with intense contests and sub optimal economic performance however we also show that these relationships are not necessarily monotonous pointiness can trigger more intense contests but can also facilitate the coordination on peaceful outcomes finally we show that contesting resources through violent conflict may yield superior outcomes from an economy wide perspective than contests through rent seeking

when do markets tip a cognitive hierarchy approach the market structure of platform competition is critically important to managers and policy makers network effects in these markets predict concentrated industry structures whereas competitive effects and differentiation suggest the opposite standard theory offers little guidance full rationality models have multiple equilibria with wildly varying market concentration we relax full rationality in favor of a boundedly rational cognitive hierarchy model even small departures from full rationality allow sharp predictions there is a unique equilibrium in every case when participants single home and platforms are vertically differentiated a single dominant platform emerges multihoming can give rise to a strong weak market structure one platform is accessed by all and the other is used as a backup by some agents horizontal differentiation in contrast leads to fragmentation differentiation rather than competitive effects mainly determines market structure

the role of differentiation strategy in local telecommunication entry and market evolution 1999 2002 we examine the role of differentiation among competitive local exchange carriers clecs in nearly 1 200 u s cities in 1999 and 2002 before and after a valuation crash affecting communications firms we test and reject the null hypothesis of homogeneous competitors we also find strong evidence that differentiated clecs account for both potential market demand and the business strategies of competitors when making their entry decisions finally product heterogeneity in markets in 1999 helps predict how the structure of markets evolved through 2002 we conclude that the policy debate for local telecommunications regulation should account for differentiated behavior

a strategic analysis of global warming theory and some numbers we model the global warming process as a dynamic commons game in which the players are countries their actions at each date produce emissions of greenhouse gases and the state variable is the current stock of greenhouse gases the theoretical analysis is complemented by a calibration exercise the first set of results establishes theoretically and then with illustrative numbers the over emissions due to a tragedy of the commons the power of simple sanctions to lower emissions and increase welfare is then examined as is the effect of cost asymmetry finally a complete theoretical charactrization is provided for the best equilibrium and it is shown that it has a very simple structure it involves a constant emission rate through time

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

linking conflict to inequality and polarization in this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict we show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the gini coefficient the herfindahl hirschman fractionalization index and a specific measure of polarization due to esteban and ray jel classification d74 d31

winners and losers from regional integration agreements how are the benefits and costs of a customs union divided between member countries outcomes depend on the comparative advantage of members relative to each other and relative to the rest of the world countries with a comparative advantage between that of their partners and the rest of the world do better than countries with an extreme comparative advantage consequently integration between low income countries tends to lead to divergence of member country incomes while agreements between high income countries cause convergence results suggest that developing countries are likely to be better served by north south than by south south agreements

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

ebay s crowded evenings competition neglect in market entry decisions do firms neglect competition when making entry decisions this paper addresses this question analyzing the time of day at which ebay sellers set their auctions to end consistent with competition neglect it is found that i a disproportionate share of auctions end during peak bidding hours ii such hours exhibit lower selling rates and prices and iii peak listing is more prevalent among sellers likely to have chosen ending time strategically suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness the results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior

a dynamic theory of resource wars we develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment we show that a key parameter determining the incentives for war is the elasticity of demand our first result identifies a novel externality that can precipitate war price taking firms fail to internalize the impact of their extraction on military action in the case of inelastic resource demand war incentives increase over time and war may become inevitable our second result shows that in some situations regulation of prices and quantities by the resource rich country can prevent war and when this is the case there will also be slower resource extraction than the hotelling benchmark with inelastic demand our third result is that because of limited commitment and its implications for armament incentives regulation of prices and quantities might actually precipitate war even in some circumstances where wars would not have arisen under competitive markets copyright 2012 oxford university press

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

who thinks about the competition managerial ability and strategic entry in us local telephone markets we examine us local telephone markets shortly after the telecommunications act of 1996 the data suggest that older experienced educated managers tend to enter markets with fewer competitors this motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers ability to correctly conjecture competitor behavior we find that manager characteristics are key determinants in managerial ability furthermore our estimate of ability predicts out of sample success counterfactuals provide insight into the industry s struggles despite substantial indirect subsidies it is only when the ability to correctly conjecture competitor behavior is high that firms enter empty markets

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

agglomeration and economic development import substitution vs trade liberalisation this paper analyses a model of economic development in which international differences in industrial structure and income are caused by the agglomeration of industry in a subset of countries economic development may not be a gradual process of convergence by all countries but instead involve countries moving sequentially from the group of poor countries to the group of rich countries the role of trade policy in promoting industrialisation is studied while both import substitution and unilateral trade liberalisation may be successful in attracting industry they attract different sectors and welfare levels are higher under trade liberalisation

quantal response and nonequilibrium beliefs explain overbidding in maximum value auctions we report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit qre in combination with different models about bidder beliefs cursed equilibrium level k and cognitive hierarchy there is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids the pattern of median bids in the data consists of a combination of overbidding with low signals and near value bidding with higher signals logit qre with heterogeneous bidders approximates this pattern combining qre with any of the other models of belief formation leads to a closer match with the data all the estimated models predict only small treatment effects across different versions of the game consistent with the data we also reanalyze an earlier dataset for the same game ivanov et al 2010 which exhibited much more overbidding and reach similar qualitative conclusions

bounded rationality in pricing under state dependent demand do firms look ahead and if so how far the authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state dependent demand rather than assuming that firms are perfectl

estimating the poverty impacts of a prospective doha development agenda this paper summarises the findings from a major international research project on the poverty impacts of a potential doha development agenda it draws on an intensive analysis of the dda framework agreement and associated scenarios the implications for world markets are established using a global modelling framework the outputs of which form the basis for a dozen country case studies of the national poverty impacts of the dda scenarios liberalisation targets under the dda have to be quite ambitious if the round is to have a measurable impact on poverty we expect the near term poverty impacts to be mixed some countries experience small poverty increases and others more substantial poverty declines on balance poverty is reduced under the core dda scenario and this reduction is more pronounced in the longer run deeper cuts in developing country tariffs are found to make the dda more poverty friendly it is also clear that in order to generate significant poverty reductions in the near term complementary domestic reforms are required to enable households to take advantage of the new market opportunities over the long run sustained poverty reduction depends on stimulating economic growth which suggests that trade reforms must go beyond tariffs and subsidies also addressing barriers to services trade and investment

delay in contests abstract why is there delay in contests in this paper we follow and extend the line of reasoning of carl von clausewitz to explain delay for a given contest technology delay may occur if there is an asymmetry between defense and attack if the expected change in relative strengths is moderate and if the additional cost of investment in future strength is low

on the turnover of business firms and business managers this paper develops a model of small business failure and sale that is motivated by recent evidence concerning how the failure and sale of small businesses vary with the age of the business and the tenure of the manager this evidence motivates two key features of the model a match between the manager and the business and characteristics of businesses that survive beyond the current match the parameters of the model are estimated and the properties of this parametric model are studied this analysis results in a simple characterization of the workings of the small business sector

a south south survival strategy the potential for trade among developing countries trade between developing countries or south south trade has been growing rapidly in recent years following significant reductions in tariff barriers however significant barriers remain and there is currently reluctance among many developing countries to undertake further reductions instead preferring to focus on opening up access to developed country markets or to maintain the status quo given that multilateral liberalisation may results in the erosion of preferential access enjoyed by some developing countries this emphasis on northern markets represents a missed opportunity for developing countries to assess this we compare the potential effects of the removal of barriers on south south trade with the gains from developed country liberalisation and from regional free trade areas within africa asia and latin america a general equilibrium model gtap containing information on preferential bilateral tariffs is used to estimate the impacts the results indicate that the opening up of northern markets would provide annual welfare gains benefits to developing countries of 24 billion however the removal of south south barriers has the potential to generate gains 60 larger by contrast the potential gains from further regional agreements on a continental basis are limited in africa and asia although scope remains in latin america the results imply that giving greater emphasis to removing barriers between as well as within continents could prove a successful southern survival strategy and more

persistent fighting and shifting power three striking features about both interstate and civil war are 1 there are often periods of persistent fighting 2 fighting commonly ends in negotiated settlements as well as in militarily decisive outcomes and 3 fighting sometimes recurs this article links these features to shifts in the distribution of power and to the fact that one of the functions of fighting is to forestall adverse shifts the analysis centers on a simple model of state consolidation the equilibrium displays these features fighting occurs when the distribution of power is shifting rapidly the factions avoid fighting and cut deals when the distribution of power shifts slowly or is stable fighting resumes if the distribution of power again begins to shift rapidly the analysis also shows that state consolidation can occur without fighting if the process is sufficiently slow fighting now rather than later can also reduce the total cost of fighting

identification and estimation of dynamic games when players beliefs are not in equilibrium this article deals with the identification and estimation of dynamic games when players beliefs about other players actions are biased that is beliefs do not represent the probability distribution of the actual behaviour of other players conditional on the information available first we show that an exclusion restriction typically used to identify empirical games provides testable non parametric restrictions of the null hypothesis of equilibrium beliefs in dynamic games with either finite or infinite horizon we use this result to construct a simple likelihood ratio test of equilibrium beliefs second we prove that this exclusion restriction together with consistent estimates of beliefs at two points in the support of the variable involved in the exclusion restriction is sufficient for non parametric point identification of players belief functions as well as useful functions of payoffs third we propose a simple two step estimation method we illustrate our model and methods using both monte carlo experiments and an empirical application of a dynamic game of store location by retail chains the key conditions for the identification of beliefs and payoffs in our application are the following 1 the previous year s network of stores of the competitor does not have a direct effect on the profit of a firm but the firm s own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs and 2 firms beliefs are unbiased in those markets that are close in a geographic sense to the opponent s network of stores though beliefs are unrestricted and potentially biased for unexplored markets which are farther away from the competitors network our estimates show significant evidence of biased beliefs furthermore imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

on the empirical content of quantal response equilibrium the quantal response equilibrium qre notion of mckelvey and palfrey 1995 has recently attracted considerable attention due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects we show that this ability to t the data as typically measured in this literature is uninformative without ap riori distributional assumptions a qre can match any distribution of behavior by each player in any normal form game we discuss approaches that might be taken to provide valid empirical evaluation of the qre and discuss its potential value as an approximating empirical structure

cognitive hierarchy in capacity allocation games we examine a supply chain with a single supplier and multiple retailers to predict retailers actual ordering behaviors if retailer orders exceed supplier capacity a proportional rationing rule applies to capacity allocation among retailers we propose a behavior model based on cognitive hierarchy theory in which retailers with different levels of strategic reasoning capabilities form heterogeneous beliefs about other players capabilities when choosing their orders this behavioral model yields three interesting predictions first retailers orders increase as the number of retailers decreases or the supplier s production capacity shrinks second the orders tend to increase as the retailer population becomes more sophisticated third retailers profits first increase in relation to their strategic reasoning capabilities and then decrease indicating an inverted u shaped relationship between profits and strategic reasoning capabilities we experimentally examine the capacity allocation game with p

uniform pricing in us retail chains we show that most u s food drugstore and mass merchandise chains charge nearly uniform prices across stores despite wide variation in consumer demographics and competition demand estimates reveal substantial within chain variation in price elasticities and suggest that the median chain sacrifices 16 million of annual profit relative to a benchmark of optimal prices in contrast differences in average prices between chains are broadly consistent with the optimal benchmark we discuss a range of explanations for nearly uniform pricing highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants relative to our optimal benchmark uniform pricing may significantly increase the prices paid by poorer households relative to the rich dampen the response of prices to local economic shocks alter the analysis of mergers in antitrust and shift the incidence of intranational trade costs

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

a dynamic model of entry and exit in a growing industry the potential demand in a new industry evolves over time demand is initially low but advertising by the industry s early entrants can speed up demand growth however there is intrinsic uncertainty of the demand level in each period and uncertainty of the demand evolution path which can be affected by the underlying economic environment we construct a dynamic model that features the stochastically and endogenously expanding demand of a new industry and we investigate the optimal entry and exit behavior of firms as the industry evolves we find that firms incentive to enter early depends critically on the cost that early entrants have to pay in developing the market when the cost is high and the benefit spills over to potential entrants firms have an incentive to wait and the probability of entry can increase with the number of incumbents under certain circumstances firms entry strategy is also influenced by the transition of economic states firms are more likely to enter under a state that shows the prospect of demand taking off soon we also find that in the early stage of an industry higher demand uncertainty can induce faster entry

the development trinity how regional integration impacts growth inequality and poverty developing countries today have become more active participants in regional trade agreements this raises questions about how the benefits of integration are distributed and the extent to which lower income countries are able to capture development gains historically such impacts have been difficult to identify with precision this paper seeks to address this gap by empirically analysing the impact of regional integration on development particularly the effects on growth and welfare using both bilateral and regional integration measures we show that the ability to capture gains from integration varies across developing country regional groups with developing asia benefiting on par with developed countries the findings in the paper indicate that trade and trade policy play an important role in reducing inequality and poverty in developing countries it also shows that regionalism can function as a channel to make multilateralism a more adept way of addressing national challenges