inducing liquidity in thin financial markets through combined value trading mechanisms asset pricing theory hypothesizes that investors are only interested in portfolios individual securities are evaluated only in terms of their contribution to portfolio risk and return yet standard financial market design is that of parallel unconnected markets whereby investors cannot submit orders in one market conditional on events in others when markets are thin this exposes them to substantial execution risk fear of ending up with unbalanced portfolios after trading may even keep investors from submitting orders further eroding liquidity and the ability of markets to equilibrate the suggested solution is a portfolio trading mechanism referred to as combined value trading cvt investors are allowed to submit orders for packages of securities and the system matches trades and computes prices by optimally combining portfolio orders in an open book we study the performance of the cvt mechanism experimentally and compare it to the performance of parallel unconnected double auctions in experiments with similar parametrization and either a similar number of subjects or substantially thicker markets we present evidence that our portfolio trading mechanism facilitates equilibration to the extent that the thicker markets do inspection of order submission and trade activity reveals that subjects manage to exploit the direct linkages between markets enabled by the cvt system

allocative efficiency in simulated multiple unit combinatorial auctions with quantity support abstract we study the behavior of the quantity support mechanism a support tool which suggests new bids for bidders in semi sealed bid combinatorial auctions the support tool gives bidders a shortlist of provisionally winning bids price quantity combinations they can choose from we conducted a series of simulations to test the efficiency of the final allocations in the auctions our results indicate that quantity support auctions are more efficient than auctions without it although the theoretical optimum is not always reached also in our experiments quantity support auctions led to a lower total cost to the buyer than non combinatorial auctions where the items were auctioned individually the simulation results also show that the qsm cannot entirely overcome the threshold problem and what we call the puzzle problem

a review of wta wtp studies abstract willingness to accept wta is usually substantially higher than willingness to pay wtp these constructs have been studied for roughly 30 years and with a wide variety of goods this paper reviews those studies we find that the less the good is like an ordinary market good the higher is the ratio the ratio is highest for non market goods next highest for ordinary private goods and lowest for experiments involving forms of money a generalization of this pattern holds even when we account for differences in survey design ordinary goods have lower ratios than non ordinary ones we also find that ratios in real experiments are not significantly different from hypothetical experiments and that incentive compatible elicitation yields higher ratios

the motivation and bias of bureaucrats many individuals are motivated to exert effort because they care about their jobs rather than because there are monetary consequences to their actions the intrinsic motivation of bureaucrats is the focus of this paper and three primary results are shown first bureaucrats should be biased second sometimes this bias takes the form of advocating for their clients more than would their principal while in other cases they are more hostile to their interests for a range of bureaucracies those who are biased against clients lead to more efficient outcomes third self selection need not produce the desired bias instead selection to bureaucracies is likely to be bifurcated in the sense that it becomes composed of those who are most preferred by the principal and those who are least preferred

resolving differences in willingness to pay and willingness to accept reply gwendolyn c morrison 1997 raises a logical point regarding our experimental test of the divergence between willingness to pay wtp and willingness to accept wta measures of economic value shogren et al 1994 she argues that our design does not provide a true test of the existence of a fundamental endowment effect since we did not control for the potential of a pivoting indifference map daniel kahneman et al 1990 she concludes that even though our ev idence shows that the mean wtp and wta bids for market goods with close substitutes e g candy bars and coffee mugs converge after market experience the endowment effect might still be alive and well albeit at statisti cally insignificant levels

light duty vehicles and external impacts product and policy performance assessment abstract in order to demonstrate that welfare theory can be put into practice mathematical programming methods are used here which can handle the aggregation problems facing us when information concerning the relative valuation of external factors emissions safety risks non renewable energy use noise etc is highly uncertain product and policy performance measures are presented and then applied to one time period real data on the single perhaps most welfare affecting man made consumer product of the 20th century light duty vehicles ldvs the focus when examining costs imposed on society due to individuals or other economic units purchase and use of ldvs is here the total external cost from the choice of ldv technology the relative weights of the external factors are then determined endogenously by first using for each ldv model the unconstrained set of weights most favorable to itself the flexibility of the relative weights is then constrained according to assumed knowledge about true external relative costs by this procedure it is possible to aggregate the multiple societal impact factors of ldvs and thus to measure the total external impact of individual ldv models relative to current best practice technology

complementarities multiplicity and supply information if traders can obtain private information about the payoff and the supply of a stock then there can exist i complementarity in information acquisition and ii multiple equilibria in the financial and information markets the additional dimension of supply information increases coordination possibilities in the financial market leading to multiple equilibria the existence of two information sources can lead to information acquisition being complementary the multiplicity of equilibria is suggestive of excess volatility and crashes the different financial market equilibria imply differing patterns of cost of capital and volume of trade 2009 by the european economic association

the boundaries of loss aversion abstract in this article the authors propose some psychological principles to describe the boundaries of loss aversion a key idea is that exchange goods that are given up as intended do not exhibit loss aversion for example the authors propose that money given up in purchases is not generally subject to loss aversion the results of several experiments provide preliminary support for the hypotheses the authors find that consistent with prospect theory loss aversion provides a complete account of risk aversion for risks with equal probability to win or lose the authors propose boundaries for this result and suggest further tests of the model

imperfect information and cross autocorrelation among stock prices i develop a model to explain why stock returns are positively cross autocorrelated when market makers observe noisy signals about the value of their stocks but cannot instantaneously condition prices on the signals of other stocks which contain marketwide information the pricing error of one stock is correlated with the other signals as market makers adjust prices after observing true values or previous price changes of other stocks stock returns become positively crossautocorrelated if the signal quality differs among stocks the cross autocorrelation pattern is asymmetric i show that both own and cross autocorrelations are higher when market movements are larger

security analysis and trading patterns when some investors receive information before others in existing models of information acquisition all informed investors receive their information at the same time this article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others the model implies that under some conditions investors will focus only on a subset of securities herding while neglecting other securities with identical exogenous characteristics in addition the model is consistent with empirical correlations that are suggestive of oft cited trading strategies such as profit taking short term position reversal and following the leader mimicking earlier trades in existing models of information acquisition all informed investors receive their information at the same time while these models provide many important insights in reality some investors either fortuitously or owing to superior skill acquire pertinent information before others by being first an investor can exploit this information to great advantage information that is uncovered only slightly later is less valuable even if it has not yet been publicly revealed we show in this article that the sequential nature of information arrival has a significant effect on both the trading decisions and the types of information collected by investors the model we develop describes the investment choices of a set of competitive risk averse investors who investigate the long term prospects of firms lucky or high ability investors uncover the

how important is pro social behaviour in the delivery of public services a number of papers have suggested that pro social behaviour in the workplace may be sensitive to the institutional environment but there is little empirical research that attempts to test this directly using data on worker behaviour this is the aim of this paper we show that individuals in the non profit sector are significantly more likely to do unpaid overtime than those in the for profit sector however we find no evidence of adjustment along either the extensive or intensive margins when individuals change sectors the results of our analysis therefore point to selection and we find supporting evidence that individuals do self select on the basis of their propensity to donate labour

the design of multidimensional auctions procurement auctions usually require the bid to specify several characteristics of the contract to be fulfilled in this article i study the design of such mechanisms allowing for a special case of correlation of the firm s costs i describe the properties of optimal mechanisms and study the design of multidimensional auctions contrary to the independent costs model to implement the optimal outcome the procurer will need to use a two stage auction in the first stage the procurer selects one firm in the second stage he bargains to readjust the level of quality to be provided

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

higher order expectations in asset pricing we examine formally keynes idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs we call this the higher order wedge which depends on the difference between higher and first order expectations of future payoffs we analyze the determinants of this wedge and its impact on the equilibrium price in the context of a dynamic noisy rational expectations model we show that the wedge reduces asset price volatility and disconnects the price from the present value of future payoffs the impact of the higher order wedge on the equilibrium price can be quantitatively large

a theory of the dynamics of security returns around market closures numerous empirical studies document patterns in the means and variances of security returns measured over periods that are punctuated by market closures this article develops a multiperiod model in which closures delay the resolution of uncertainty thereby redistributing risk across time and agents since agents are risk averse in the model this redistribution affects the equilibrium price altering risk premia liquidity costs and the degree of informational asymmetry as a consequence closures alter both the means and variances of returns the article demonstrates that closures can generate a variety of mean and variance effects including those that mirror the empirical phenomena numerous empirical studies of security returns have documented patterns in both the mean and the variance of returns interestingly most of these patterns are punctuated by periods in which the market is regularly closed for example the variance of returns from the market close to the market opening is much less than the variance from open to close similarly mean returns over weekends are abnormally low in fact significantly negative relative to daily mean returns during the trading week within a trading day return variances are u shaped with peaks occurring immediately after the market opens and just before it closes 2 further french and roll 1986 examine the variance of tuesday close to thursday close returns during a period in which the market was closed on wednesdays and show that this variance is only slightly greater than half the tuesday close to thursday close variance when the market was open on wednesdays 3 one explanation for the differences in the overnight and trading day variances is that market hours mostly coincide with business hours when

aggregate fluctuations as an information transmission mechanism a model is presented in which individuals attempt to track shocks with a capital like quantity that is costly to produce and to adjust the shocks have separate individual specific and economy wide components individuals do not have direct access to desired information about economy wide shocks the information is potentially available from the observation of endogenous aggregates but because the aggregates are endogenous there is an informational externality associated with them two polar cases are considered when the desired information is about economy wide real shocks as in townsend 1983 the externality is potentially completely internalized when the desired information is about purely nominal aggregates as in lucas 1973 1975 aggregate fluctuations are a necessary condition of equilibrium

information and diversity of analyst opinion this paper examines problems in the use of divergence of analyst opinion as a proxy for estimation risk in empirical studies of security returns and asset pricing models we demonstrate that diversity of opinion can increase even though the amount of private information increases and we show that diversity of opinion may overstate estimation risk if the capital market aggregates the information held by investors we produce empirical results consistent with our conclusions specifically we find that divergence of opinion can produce measures of estimation risk that are inconsistent with a received proxy for estimation risk and with observed common stock returns

equilibrium price formation and the value of private information an economy is analyzed in which agents first choose whether to acquire costly information about the return to a risky asset and then choose demand functions that determine the allocation of assets it is a well known paradox that if agents are price takers and prices are fully revealing then an equilibrium with costly information acquisition does not exist it is shown that if the price formation process is modeled explicitly and agnets are not price takers then it is possible to have an equilibrium with fully revealing prices and costly information acquisition article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a comparison of stock market mechanisms i analyze a multi asset market under two trading mechanisms in the first the unrestricted system traders demand for each asset depends on all equilibrium prices and prices reflect the information contained in all order flows in the second the restricted system traders demand depends on the traded asset price and prices reflect single order flow information i show that informed traders use of multidimensional private information depends on the number of prices they observe and on the price formation process i then give conditions rendering the restricted system more efficient than the unrestricted system

values of gains and losses reference states and choice of measure the available empirical evidence continues to suggest that people commonly value losses more and often much more than otherwise commensurate gains consequently current practice of using the wtp measure for all changes is often likely to lead to misleading assessments of welfare changes the reference dependence of preferences implies instead that while the wtp measure is appropriate for gains the value of both positive and negative changes in the domain of losses will usually be more accurately assessed with the wta measure

a taxonomy of automated trade execution systems abstract a taxonomy of automated trade execution systems in financial markets is developed over 50 automated market structures in 16 countries are analyzed these markets consist of computerized rules governing both allowable message types and the means by which such messages are translated into trades computerized market structures are classified by ordered sets of trade execution priority rules trade matching protocols and associated degree of automation of price discovery and transparency to include informational asymmetries between classes of market participants differences in systems across types of financial instruments geographical locations and over time are analyzed jel g15 d44

identity and the economics of organizations on plebes first day at west point called r day they strip down to their underwear their hair is cut off they are put in uniform they then must address an older cadet with the proper salute and with the statement sir new cadet doe reports to the cadet in the red sash for the first time as ordered plebes must stand and salute and repeat and stand and salute and repeat until they get it exactly right all the while being reprimanded for every tiny mistake in the summary of david lipsky 2003 pp 145 154 who spent four years tracking a company of cadets at west point on r day you surrender your old self in stages but r day is just the beginning of the training and personal re engineering that is to come so that west point graduates emerge four years later as loyal officers in the u s army lipsky shows that despite some failure this tough program is remarkably successful in creating officers with the will to lead in battle economists current picture of organizations and work incentives has no place for the west point program and the motivations it seeks to inculcate in recruits in a standard economic model an individual s preferences are fixed and utility depends only on pecuniary variables the army s aim at west point is to change cadets preferences they wish to inculcate non economic motives in the cadets so that they have the same goals as the u s army alternatively stated the goal of west point is to change the identity of the cadets so they will think of themselves above all else as officers in the u s army they will feel bad about themselves they will lose utility if they fall short of the ideals of such an officer this change in identity

incorporating reference price effects into a theory of consumer choice although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior little formal theoretical work had been undertaken to date this paper incorporates reference price effects into the traditional economic theory of consumer choice and examines the effects of reference price formation on the results of the traditional theory its marketing implications and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior several implications of the theoretical model are empirically tested using weekly retail egg sales data from southern california this analysis indicates that reference price formation does have significant effects on consumer behavior furthermore these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases

disagreement portfolio optimization and excess volatility disagreement a key factor inducing trading has been receiving ever increasing attention in recent years most research has focused on disagreement about the expected returns several authors have shown that if the average belief coincides with the true expected return in the portfolio context prices are unaffected by disagreement in this paper we study the pricing effects of disagreement about return variances we show that i disagreement about variances has systematic and significant pricing effects more disagreement leads to higher prices and ii prices are very sensitive to the degree of disagreement even if the average belief about the variance is constant tiny fluctuations in the disagreement about the variance lead to substantial price fluctuations this second result may offer an explanation for the excess volatility puzzle when small changes in the degree of disagreement occur they induce relatively large price changes yet the changes in disagreement may be hard to directly detect empirically leading to apparent excess volatility

an investigation of the rationality of consumer valuations of multiple health risks after developing a conceptual analysis of consumer valuation of multiple risks we explore both economic and cognitive hypotheses regarding individual risk taking using a sample of over 1 500 consumers our study ascertains risk dollar tradeoffs for the risks associated with using an insecticide and a toilet bowl cleaner we observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases we also find evidence of certainty premiums for the total elimination of one risk but no strong evidence of additional certainty premiums for the elimination of multiple risks strong reference risk effects are evident as increases in risk were valued much more greatly than were decreases

information expected utility and portfolio choice we study the consumption investment problem of an agent with a constant relative risk aversion preference function who possesses noisy information about the future prospects of a stock we also solve for the value of information to the agent in closed form we find that information can significantly alter consumption and asset allocation decisions for reasonable parameter ranges information increases consumption in the vicinity of 25 information can shift the portfolio weight on a stock from 0 to around 70 thus de pending on the stock beta the weight on the market portfolio can be considerably reduced with information causing the appearance of underdiversification the model indicates that stock holdings of informed agents are positively related to wealth unrelated to systematic risk and negatively related to idiosyncratic uncertainty we also show that the dollar value of information to the agent depends linearly on his wealth and decreases with both the propensity to intermediate consumption and risk aversion

public service motivation as an argument for government provision a public service motivation psm inclines employees to provide effort out of concern for the impact of that effort on a valued social service though deemed to be important in the literature on public administration this motivation has not been formally considered by economists when a psm exists this paper establishes conditions under which government bureaucracy can better obtain psm motivated effort from employees than a standard profit maximizing firm the model also provides an efficiency rationale for low powered incentives in both bureaucracies and other organizations producing social services 2000 elsevier science s a all rights reserved

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

reference dependence effects on wta and wtp value functions and their disparity in this study we investigate two reference dependence effects in a choice experiment the first is the effect of the well known distinction between gains and losses the second is the effect of changing the reference value on willingness to pay wtp and willingness to accept wta the latter has to our knowledge not been studied before we hypothesize that there are differences between wta and wtp and that both value functions and their disparity are affected by the absolute value of the reference point we test our hypotheses using a choice experiment with trade offs between changes in flood probabilities and costs the choice experiments elicit wtp and wta using two flood probability reference values yielding four separate value functions our findings show that a substantial wta wtp disparity exists and that this disparity increases when moving away from the reference point also both wta and wtp value functions are affected by the flood probability reference value and the wta wtp disparity increases when the flood probability reference point increases both findings suggest that welfare effects caused by changes in public good provision depend not only on the direction of change loss aversion but also the reference value moreover our results show that the latter effect is larger for losses than for gains we introduce the concept of reference point updating as a possible explanation for these findings

implications of an index contingent trading mechanism this article analyzes a call market that enables conditioning not only on an asset price but also on an index a weighted average of stock prices that is determined simultaneously with the prices of all assets the authors compare two trading systems with and without index conditioning and find that in the system with index conditioning traders indeed use the facility of index conditioning there is more depth liquidity in the market price fluctuations around true values are lower expected trading costs of liquidity traders are lower and the expected utility of informed traders is lower than in a system without index conditioning copyright 1997 by university of chicago press

the package assignment model we study assignment problems where individuals trade packages consisting of several rather than single objects although buyers reservations values are non additive efficient assignments can be formulated as a linear programming problem in which the pricing functions expressing duality may be non linear in the objects constituting the packages the interconnections among the linear programming formulation walrasian equilibrium and the core are established in the single seller auction version a necessary and sufficient condition is given for the vickrey payoff point to be implementable by a pricing equilibrium journal of economic literature classification numbers c62 d44 d51

natural resource valuation with a tribal perspective a case study of the penobscot nation the unique settings of tribal lands and preferences of tribal members can complicate the effective application of standard natural resource use valuation tools within these tribal settings we pres

on ascending vickrey auctions for heterogeneous objects abstract we construct an ascending auction for heterogeneous objects by applying a primal dual algorithm to a linear program that represents the efficient allocation problem for this setting the auction assigns personalized prices to bundles and asks bidders to report their preferred bundles in each round a bidder s prices are increased when he belongs to a minimally undersupplied set of bidders this concept generalizes the notion of overdemanded sets of objects introduced by demange gale and sotomayor for the one to one assignment problem under a submodularity condition the auction implements the vickrey clarke groves outcome we show that this type of condition is somewhat necessary to do so when classifying the ascending auction literature in terms of their underlying algorithms our auction fills a gap in that literature we relate our results to various ascending auctions in the literature

stock market microstructure and return volatility evidence from italy abstract this paper studies the impact of the stock market microstructure on return volatility and on the value discovery process in the milan stock exchange the primary trading mechanism employed by this exchange is a call market which is usually preceded and followed by trading in a continuous market we find that the opening transaction in the continuous market has the highest volatility and that opening the market with the call transaction seems to produce relatively lower volatility in the closing transaction investors correct perceived errors or noise in the prices set at the call the implications of the results for market design are examined

pricing combinatorial auctions abstract single item auctions have many desirable properties mechanisms exist to ensure optimality incentive compatibility and market clearing prices when multiple items are offered through individual auctions a bidder wanting a bundle of items faces an exposure problem if the bidder places a high value on a combination of goods but a low value on strict subsets of the desired collection to remedy this combinatorial auctions permit bids on bundles of goods however combinatorial auctions are hard to optimize and may not have incentive compatible mechanisms or market clearing individual item prices several papers give approaches to provide incentive compatibility and imputed individual prices we find the relationships between these approaches and analyze their advantages and disadvantages

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

the incentive effects of missions evidence from experiments with ngo employees and students abstract this paper studies the incentive effects of an organization s mission on the effort provision of agents across treatments i exogenously vary how much the agents and their projects missions match in the first study ngo employees are assigned the role of agents in an online one shot principal agent experiment in the second study i replicate the experimental design with a student subject pool in both experiments the agents effort choices are for any given piece rate increasing in their mission match in a third study a laboratory experiment with a finitely repeated principal agent game with random matching i do not find a motivational effect of missions unlike in my first two studies

price discovery in auction markets a look inside the black box opening mechanisms play a crucial role in information aggregation following the overnight nontrading period this article examines the process of price discovery at the new yorkstockexchange single price opening auction we develop a theoretical model to explain the determinants of the opening price and test the model using order level data we show that the presence of designated dealers facilitates price discovery relative to a fully automated call auction market this is consistent with specialists extracting information from observing the evolution of the limit order book in addition the specialist s opening trade reflects noninformational factors such as price stabilization requirements

behavioral economics and the environment manyeconomistshaveembracedaparadigmcharacterizedbyperfectinformation rational expectations and an otherwise benign environment in which perfect competition reigns with very minor asides for imperfect competition rumblings of opposition have been growing louder nobel prizes are being awarded to scholars who have taken us out of this historic straight jacket lo and behold there can be asymmetric information increasing returns to scale cooperative behavior and agents who consistently fail to optimize behavioral economics is another theme gathering strength and it may be particularly germane to environmental and resource economics consumer theory measurement of benefits intergenerational discounting mechanism design and the role of fairness are all subjects of importance for environmental and resource economics and they are all areas in which behavioral economics may provide important insights to explore this possibility we brought together a group of distinguished scholars for a workshop hosted by western washington university this special edition presents a collection of papers from that workshop we have included a diversity of perspectives ranging from the skeptical to the supportive while not intended as a comprehensive survey of the field these papers provide a general sense of the scope of current research there is growing evidence that fairness is an argument in an individual s utility function if we believe that consumer sovereignty counts why would utility derived from perceived fairness count less than the same amount derived from any other argument in the utility function that is the principle subject of johansson stenman s and konow s 2010 fair air distributive justice and environmental economics we encourage you to read this contribution with an open mind the paper covers an enormous amount of ground we must touch down only selectivity fairness is a fact of life in the ultimatum game when one is given a lumpsum say 20 onlyifhis herofferofanamounttoanotherparticipantisaccepted there

signaling and screening of workers motivation abstract this paper develops a model in which workers are heterogeneous in their intrinsic motivation to work at a firm we characterise optimal incentive schemes and examine how the firm can attract and select highly motivated workers to fill a vacancy when workers motivation is private information while posting a higher wage increases the probability of filling the vacancy it decreases the expected average quality of job applicants because less motivated workers are induced to apply the optimal wage scheme entails a trade off between the probability of filling the vacancy the rents left to the worker and the expected worker s motivation

corporate philanthropy and productivity evidence from an online real effort experiment contributing to a social cause can be an important driver for workers in the public and nonprofit sectors as well as in firms that engage in corporate philanthropy or other corporate social responsibility policies this paper compares the effectiveness of a social incentive that takes the form of a donation received by a charity of the subject s choice to a financial incentive we find that social incentives lead to a 13 rise in productivity regardless of their form lump sum or related to performance or strength the response is strong for subjects with low initial productivity 30 whereas high productivity subjects do not respond when subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation with women more likely to do so than men furthermore offering subjects some discretion in choosing their own payment schemes leads to a substantial improvement in performance comparing social incentives to equally costly increases in private compensation for low productivity subjects reveals that the former are less effective in increasing productivity but the difference is small and not statistically significant data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1985 this paper was accepted by uri gneezy behavioral economics

a trading mechanism contingent on several indices we introduce a trading mechanism where the execution of an order on a security can be made contingent on the relation between the clearing price of the security and the clearing price of one or several indices a mechanism similar to ours but limited to only one index was implemented on the tel aviv stock exchange we argue that it is in some cases crucial to make the execution of an order contingent on several indices our mechanism consists of a particular implementation of a double sided multi unit combinatorial auction with substitutes or dmcs auction which we introduced in an earlier article

reverse auction with buyer supplier negotiation using bi level distributed programming this study presents a framework for solving a sealed bid multi issue and multi sourcing reverse auction problem in which negotiation takes place between the buyer and the suppliers during the bidding process the problem is formulated as a bi level distributed programming model in which the buyer is the upper level decision maker while suppliers at the lower level make decisions independent of each other the negotiation process between the buyer and the suppliers is facilitated via the iterative exchange of decision information between the upper and lower levels of the model the outcome of the sealed bid auction is determined using an algorithm designed to establish the optimum quantity allocation and delivery time at the upper level and the corresponding optimized production plans at the lower level the feasibility of the proposed approach is demonstrated via an illustrative example

intrinsic motivation and optimal incentive contracts i study the role of intrinsic motivation on optimal incentive contracts agents engage in efforts to generate projects with both financial return and intrinsic value to the agent in a neutral environment where intrinsic motivation has no direct effect on the disutility of effort static contracts are unaffected by intrinsic motivation in contrast the firm s profits from an implicit contract are increasing in the degree to which the agent is intrinsically motivated showing that implicit contracts and intrinsic motivation are complements the results are further extended to consider the role of multiple implicit contracts and product market strategy

competitive bidding in asymmetric multidimensional public procurement abstract in a multidimensional procurement auction such as a most economically advantageous tender asymmetric opponents with different cost structure and predetermined quality compete for the highest score which combines price and quality production inefficiency characterizes each tenderer we derive the equilibrium equations and boundary conditions for which closed form solutions are not available we compare the bidding behavior of any pair of rival tenderers and demonstrate that equilibrium prices critically depend on the comparison of the cost difference c with respect to the increment of score attribute s for the same production inefficiency a tenderer with a relatively higher c compared to s stands in weak competitive position and is forced to bid more aggressively we show how the opposing advantage of each bidder with respect to cost or score attribute induces the extent of competition under a different perspective we analyze bidding by a pair of tenderers for a given maximum score achieved when pricing is at cost our analysis reveals that the player with consistently higher percentage change of the probability of being more efficient than the rival is in a disadvantageous position and receives lower score in the awarding process our results are useful for tenderers in assessing their competitive position the findings enable contracting authorities to evaluate competition at the preliminary stage of design and to examine the effects of the awarding criterion on pricing

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

auctions and bidding a primer maybe the contractor was right to think bid jobs are different but it is more likely that he suffered from too simple a view of what is involved in preparing a competitive bid our analysis will show that even an experienced estimator working in familiar terrain can lose money if he doesn t understand the subtleties of competitive bidding the phenomenon experienced by the painting contractor known as the winner s curse is just one of the surprising and puzzling conclusions that have been turned up by modern research into auctions another is the theoretical proposition supported also by some experimental evidence that for example a sealed bid treasury bill auction in which each buyer pays a price equal to the highest rejected bid would yield more revenue to the treasury than the current procedure in which the winning bidder pays the seemingly higher amount equal to his own bid there are also subtle results that demonstrate the equivalence of such apparently different institutions as the standard sealed bid auction in which the auctioneer seller sells the goods to the highest bidder for a price equal to his bid and the dutch auction in which the auctioneer seller begins by asking a high price and gradually lowers the price until

a new and improved design for multiobject iterative auctions in this paper we present a new improved design for multiobject auctions and report on the results of experimental tests of that design we merge the better features of two extant but very different auction processes the simultaneous multiple round smr design used by the fcc to auction the electromagnetic spectrum and the adaptive user selection mechanism ausm of banks et al 1989 allocating uncertain and unresponsive resources an experimental approach rand journal of economics vol 20 no 1 pp 1 25 then by adding one crucial new feature we are able to create a new design the resource allocation design rad auction process which performs better than both our experiments demonstrate that the rad auction achieves higher efficiencies lower bidder losses higher net revenues and faster times to completion without increasing the complexity of a bidder s problem

exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory systematic asymmetries in exchange behavior have been widely interpreted as support for endowment effect theory an application of prospect theory positing that loss aversion and utility function kinks set by entitlements explain observed asymmetries we experimentally test an alternative explanation namely that asymmetries are explained by classical preference theories finding influence through the experimental procedures typically used contrary to the predictions of endowment effect theory we observe no asymmetries when we modify procedures to remove the influence of classical preference theories when we return to traditional type procedures however the asymmetries reappear the results support explanations based in classical preference theories and reject endowment effect theory

iterative combinatorial auctions with bidder determined combinations in combinatorial auctions multiple distinct items are sold simultaneously and a bidder may place a single bid on a set package of distinct items the determination of packages for bidding is a nontrivial task and existing efficient formats require that bidders know the set of packages and or their valuations in this paper we extend an efficient ascending combinatorial auction mechanism to use approximate single item pricing the single item prices in each round are derived from a linear program that is constructed to reflect the current allocation of packages introduction of approximate single item prices allows for endogenous bid determination where bidders can discover packages that were not included in the original bid set due to nonconvexities single item prices may not exist that are exact marginal values we show that the use of approximate single item prices with endogenous bidding always produces allocations that are at least as efficient as those from bidding with a fixed set of packages based on package pricing a network resource allocation example is given that illustrates the benefits of our endogenous bidding mechanism

anti social behavior in profit and nonprofit organizations abstract two types of intrinsically motivated workers are considered good workers care about the mission of an organization whereas bad workers derive pleasure from destructive behavior compared to the case with only good motivated workers the mission oriented sector has to resort to higher monitoring to deter bad workers from entering the sector in equilibrium bad workers work in the for profit sector where they behave like normal people while good workers self select into the mission oriented sector in the profit oriented sector both monitoring and bonus payments for good behavior increase to control the damage caused by bad workers the results of the paper are illustrated by examples from child care and the threat posed by pedophiles in this sector

analyzing online b2b exchange markets asymmetric cost and incomplete information this research applies the discriminating auction to analyze the online b2b exchange market in which a single buyer requests multiple items and several suppliers having equal capacity and asymmetric cost submit bids to compete for buyer demand in the present model we examine the impact of asymmetric cost and incomplete information on the participants in the market given the complete cost information each supplier randomizes its price and the lower bound of the price range is determined by the highest marginal cost in addition the supplier with a lower marginal cost has a larger considered pricing space but ultimately has a smaller equilibrium one than others with higher marginal costs when each supplier s marginal cost is private information the lowest possible price is determined by the number of suppliers and the buyer s reservation price comparing these two market settings we find whether it is beneficial to buyers or suppliers depends on the scale of the bid process and the highest marginal cost when the number of suppliers and the difference between the highest marginal cost and the buyer s reservation price are sufficiently large each supplier can gain a higher profit if the marginal costs are private information on the contrary when the highest marginal cost approaches the buyer s reservation price complete cost information benefits the suppliers

the design of decentralized auction mechanisms that coordinate continuous trade in synthetic securities abstract this paper explores smart market mechanisms that link auction markets together in order to support trade in synthetic securities that are derived from a well defined bundle of underlying component securities these mechanisms coordinate the auctions of the component securities without interrupting the normal order flow of these markets by selectively locking individual orders using techniques from concurrency control theory a decentralized market mechanism that automatically performs cross market arbitrage is developed this mechanism requires only that the markets for the component securities be loosely coupled i e intermarket communications are not instantaneous a mechanism that does not require orders to be locked but is subject to arbitrage is also examined

viable allocations of information in financial markets abstract we study in the context of a financial market allocations of information that are consistent with endogenous information acquisition we focus on whether information is concentrated within a fraction of the market or is diffuse the aggregation of information in prices tends to make signals more complementary than they would be if considered in isolation favoring concentration of information however the ability to use some signals together with prices to predict other signals may increase the degree of substitutability among signals we present conditions under which each of these effects is particularly strong

effective response to rfqs and supplier development a supplier s perspective abstract considering multiple attributes while evaluating request for quotes rfqs responses from suppliers is gaining significant importance in industrial procurement while price has traditionally been the most important factor in evaluating rfq responses incorporation of non price attributes such as quality and delivery performance is becoming essential and critical research on multi attribute rfqs has received significant attention in an auction format with models addressing issues relating to auction mechanism design winner determination and auction dynamics primarily from a buyer s perspective there have been few approaches if any that have investigated the issue of response to multi attribute rfqs from a supplier s perspective which is the focus of this paper such an approach will assist a supplier in effectively responding to rfqs thereby maximizing the likelihood of winning future contracts it also indirectly assists in supplier development and helps foster competition among suppliers which benefits both the buyers and the suppliers we develop mathematical models that address this important issue and demonstrate their usefulness through an illustrative dataset

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

the endowment effect and the reference state evidence and manipulations abstract recent reports suggest that the endowment effect may be due to conditions under which it is observed and explained by incentives long recognized in standard theory evidence from new experiments reported here provides empirical support for the role of the economic environment on people s perceived reference state and consequently on their valuations as suggested by koszegi and rabin koszegi b rabin m 2006 a model of reference dependent preferences quarterly journal of economics 121 1133 1165 and indicates that the disappearance of the valuation disparity is more likely due instead to conditions that weaken the perception of reference states further these conditions appear to be poor approximations of those that prevail in most cases for which valuations are normally made

more laboratory evidence on the disparity between willingness to pay and compensation demanded abstract recent experimental work showing a disparity between willingness to pay for and compensation demanded to give up lottery tickets is contrary to economists ideas about rationality presented here are the results of experiments in which subjects participate in second price auctions to indicate willingness to pay and compensation demanded for lottery tickets that have fixed odds of winning or losing money when the auction institution used has truthful revelation of preferences as the dominant strategy and that strategy is announced to subjects the difference between the measures of value decreases significantly the within subject comparison design provides a more discriminating measure of behavior than between subject comparison designs used previously

modeling competitive bidding a critical essay in analyzing bidding modeling matters this paper is a critical analysis of the models available to aid competitive bidding decision making bidding strategy and auction design in real transactions after an introductory overview this paper describes the contexts in which auctions arise reviews the mainstream theory of single isolated auctions and discusses the important work involved in enrichment of this theory in doing so it indicates results that have been obtained and the sort of changes in analytical approach that are needed to tackle other critical enrichments the paper summarizes briefly what is known about the direct use of models by bidders and auction designers a general theme of this paper is that enriched models are needed to bring bidding theory closer to direct applicability in decision making

a multi attribute e auction mechanism for procurement theoretical foundations abstract we describe a multi attribute e auction mechanism with a focus on its theoretical foundations our mechanism is designed for auctioning multiple units of a good primarily in b2b transactions it can be used in various types of forward and reverse auctions rfqs request for quote although the emphasis in this paper is on procurement to incorporate the auction owner s preferences across issues attributes in an auction negotiation setting we adopt a novel application of the pricing out technique another key feature of our mechanism is the optimization based suggested price decision support component which momentarily gives the best price acceptable to the buyer

a double sided multiunit combinatorial auction for substitutes theory and algorithms combinatorial exchanges have existed for a long time in securities markets in these auctions buyers and sellers can place orders on combinations or bundles of different securities these orders are conjunctive they are matched only if the full bundle is available on business to business b2b exchanges buyers have the choice to receive the same product with different attributes for instance the same product can be produced by different sellers a buyer indicates his preference by submitting a disjunctive order where he specifies the quantity he wants of each particular good and what limit price he is willing to pay for each good thus providing a subjective valuation of each attribute only the goods with the best prices will be traded this article considers a doubled sided multiunit combinatorial auction for substitutes that is a uniform price auction where buyers and sellers place both types of orders conjunctive and orders and disjunctive xor orders we show that linear competitive prices exist we also propose an algorithm to clear the market which is particularly efficient when the number of traders is large and the goods are divisible

the puzzling evolution of the home bias information processing and financial openness abstract this paper explains the home equity bias and its puzzling evolution in a model where investors face an information constraint and have an initial local informational advantage after financial liberalization local investors have a magnified informational advantage since information processed under autarky remains useful after liberalization a gradual shift towards foreign assets occurs as the relevance of autarkic information declines over time in the long run home bias remains large due to the interaction between information and portfolio choices empirical evidence supports the main predictions of our model namely that bias increases with information capacity and decreases with financial openness

combinatorial auction design combinatorial auctions have two features that greatly affect their design computational complexity of winner determination and opportunities for cooperation among competitors dealing with these forces trade offs between desirable auction properties such as allocative efficiency revenue maximization low transaction costs fairness failure freeness and scalability computational complexity can be dealt with algorithmically by relegating the computational burden to bidders by maintaining fairness in the face of computational limitations by limiting biddable combinations and by limiting the use of combinatorial bids combinatorial auction designs include single round first price sealed bidding vickrey clarke groves vcg mechanisms uniform and market clearing price auctions and iterative combinatorial auctions combinatorial auction designs must deal with exposure problems threshold problems ways to keep the bidding moving at a reasonable pace avoiding and resolving ties and controlling complexity

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

the feasibility of an index contingent trading mechanism auction or call trading systems are used in many stock exchanges an essential problem in the application of these systems is that orders in one security cannot be conditioned on prices of other securities this paper proposes and analyzes the feasibility of an index contingent trading system in this system limit orders may be conditioned on an index any weighted average of the security prices that is determined simultaneously with the prices in addition to the asset price without any assumptions about traders behavior it is shown that under a reasonable restriction on the structure of the limit orders there is a unique solution vector of prices to any set of orders in all securities moreover the paper presents a quick and simple algorithm that converges to the solution this algorithm is based on an extension of the current mechanisms therefore it can be implemented easily in any computerized auction system

a new meta analysis on the wtp wta disparity abstract this study reports a new meta analysis of papers that elicit willingness to pay wtp and willingness to accept compensation wta measures of value for the same good we investigate the effects of type of good and several survey design features on the wtp wta disparity measured as the logarithm of the ratio of mean wta to mean wtp confirming horowitz and mcconnell s 2002 pioneering meta analysis we find the disparity is smaller for ordinary private goods than for public and non market goods that it is not solely an artifact of using hypothetical transactions or other weak experimental or survey methods and that it is smaller for studies using student subjects in addition we find that the disparity is smaller when subjects have experience valuing the good in real markets or through repeated experimental trials in contrast to horowitz and mcconnell we find the disparity is significantly smaller in studies using incentive compatible elicitation mechanisms the disparity is smaller in more recent studies an effect that is attributable only in part to changes in study characteristics

on the robustness of non linear personalized price combinatorial auctions abstract though the vcg auction assumes a central place in the mechanism design literature there are a number of reasons for favoring iterative combinatorial auctions icas several promising ica formats were developed based on primal dual and subgradient algorithms prices are interpreted as a feasible dual solution and the provisional allocation is interpreted as a feasible primal solution ibundle 3 dvsv and ascending proxy auction result in vcg payoffs when the coalitional value function satisfies buyer submodularity and bidders bid straightforward which is an ex post nash equilibrium in this case ibea and creditdebit auctions do not even require the buyer submodularity and achieve the same properties for general valuations often however one cannot assume straightforward bidding and it is not clear from the theory how these non linear personalized price auctions nlppas perform in this case robustness of auctions with respect to different bidding behavior is a critical issue for any application we conducted a large number of computational experiments to analyze the performance of nlppas with respect to different bidding strategies and valuation models we compare nlppas with the vcg auction and with icas with linear prices such as alps and the combinatorial clock auction while nlppas performed very well in case of straightforward bidding we observe problems with revenue efficiency and speed of convergence when bidders deviate

revenue deficiency under second price auctions in a supply chain setting consider a firm called the buyer that satisfies its demand over two periods by assigning both demands to a supplier via a second price procurement auction call this the standard auction in the hope of lowering its purchase cost the firm is considering an alternative procedure in which it will also allow bids on each period individually where there can be either one or two winners covering the two demands call this the multiple winner auction choosing the multiple winner auction over the standard auction can in fact result in a higher cost to the buyer we provide a bound on how much greater the buyer s cost can be in the multiple winner auction and show that this bound is tight we then sharpen this bound for two scenarios that can arise when the buyer announces his demands close to the beginning of the demand horizon under a monotonicity condition we achieve a further sharpening of the bound in one of the scenarios finally this monotonicity condition allows us to generalize this bound to the t period case in which bids are allowed on any subset of period demands

risk aversion market liquidity and price efficiency a model of a noncompetitive speculative market is analyzed in which privately informed traders and market makers are risk averse market liquidity is found to be nonmonotonic in the number of informed traders their degree of risk aversion and the precision of their information it is also shown that increased liquidity trading leads to reduced price efficiency and that under endogenous information acquisition market liquidity may also be nonmonotonic in the variance of liquidity trades article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a smart market for industrial procurement with capacity constraints we address the problem of designing multi item procurement auctions for a monopsonistic buyer in capacity constrained environments using insights from classical auction theory we construct an optimization based auction mechanism smart market relying on the dynamic resolution of a linear program minimizing the buyer s cost under the suppliers capacity constraints suppliers can modify their offers in response to the optimal allocation corresponding to each set of bids giving rise to a dynamic competitive bidding process to assist suppliers we also develop a bidding suggestion device based on a myopic best response mbr calculation that solves an associated optimization problem assuming linear costs for the suppliers we study within a game theoretic framework the sequence of bids arising in this smart market under a weak behavioral assumption and some symmetry requirements an explicit upper bound for the winning bids is established we then formulate a complete behavioral model and solution methodology based on the mbr rationale and show that the bounds derived earlier continue to hold we analytically derive some structural and convergence properties of the mbr dynamics in the simplest nontrivial market environment which suggests further possible design improvements and investigate bidding dynamics and incentive compatibility issues via numerical simulations