drawn into violence evidence on what makes a criminal from the vietnam draft lotteries draft lottery number assignment during the vietnam era provides a natural experiment to examine the effects of military service on crime using exact dates of birth for inmates in state and federal prisons in 1979 1986 and 1991 we find that draft eligibility increases incarceration for violent crimes but decreases incarceration for nonviolent crimes among whites this is particularly evident in 1979 where two sample instrumental variable estimates indicate that military service increases the probability of incarceration for a violent crime by 0 34 percentage points and decreases the probability of incarceration for a nonviolent crime by 0 30 percentage points we conduct two falsification tests one that applies each of the three binding lotteries to unaffected cohorts and another that considers the effects of lotteries that were not used to draft servicemen jel k42 h56

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

the relationship between the markup and inflation in the g7 economies and australia an i 2 analysis of inflation and the markup is undertaken for the g7 economies and australia we find that the levels of prices and costs are best described as i 2 processes and that except for japan a linear combination of the log levels of prices and costs cointegrate to the markup that is integrated of order 1 it is also shown that the markup in each case co integrates with inflation and that higher inflation is associated with a lower markup in the long run

disagreement in bargaining an empirical analysis of opec abstract we consider a stylised model in which two cartel members bargain over the aggregate production quota in a world of asymmetric information we show that when the two cartel members are sufficiently different the probability of agreement depends on both the current state of demand and initial production specifically the probability of agreement is much lower when demand is low and initial production is relatively high than when demand is high and initial production is relatively low we also find that regardless of the current demand state the more extreme is initial production the higher is the probability of agreement using an event study where we take as events opec production quota announcements we demonstrate empirically that the predictions of the model are borne out

an empirical study of tax audits in china on international transfer pricing abstract this research studies how chinese tax authorities implement international transfer pricing legislation the analysis indicates that tax audits on transfer pricing are confined mainly to medium and small sized foreign investments lower technology companies and transfer of tangible goods and tend to focus on certain nationality and forms of foreign investment persistent losses low profitability and lack of local partners in joint venture management most often trigger tax audits the authorities focus on profit results rather than prices and often use comparable profit method to adjust income tax differentials do not appear to be the most important inducement to transfer pricing manipulations

repeated auctions with impatient bidders and externalities author affiliation ki eun rhee krhee kdischool ac kr acknowledgment i am grateful to kyle bagwell for providing invaluable advice and support throughout the research process i also thank michael riordan eiichi miyagawa and two anonymous referees for helpful comments 1 introductioncollusive bidding behavior has been conventionally studied in a static setup often relying on some unspecified repeated interaction story for the enforcement of a cartel 1 it is not clear however whether the results from static auctions immediately carry over to a repeated setup when bidders are impatient and the enforcement or the participation constraint is binding moreover many empirical analyses for detecting collusion rely on an explicitly repeated structure rendering a theoretical analysis of collusion in a repeated setup necessary 2 several recent theoretical developments in repeated auctions have been made by aoyagi 2003 2007 skrzypacz and hopenhayn 2004 and blume and heidhues 2006 taking standard auctions as stage games these articles present various collusive bidding schemes with asymmetric punishments that outperform the bid rotation scheme which is known to be optimal in static auctions mcafee and mcmillan 1992 this article studies collusive bidding behavior in repeated auctions among both patient and impatient bidders when the outside option of the participation constraint is endogenized because of externalities a stage game involves negative externalities among the bidders when any losing bidder is worse off if a rival wins the good than if no one wins it auctions with externalities have been introduced most notably by jehiel and moldovanu 1996 and jehiel moldovanu and stacchetti 1996 these auctions describe environments in which the outcomes of auctions affect the nature of ensuing market interactions among potential bidders a wide variety of situations in which bidders are a set of oligopoly firms competing in the same market apply to this setting for example procurement auctions for highway construction contracts studied empirically by porter and zona 1993 may qualify as repeated independent private value auctions with negative externalities except that the lowest bidder wins 3 consecutive highway lettings were distributed by the department of transportation dot to a set of oligopoly firms competing in the same industry negative externalities may arise because a firm that wins the auction may experience learning by doing which provides the winning firm with a comparative cost advantage or because the winning firm may gain a reputation that gives the firm an advantage in future private sector competition as jehiel and moldovanu 1996 and jehiel moldovanu and stacchetti 1996 discuss the issue of participation is nontrivial in auctions with externalities because the ex ante payoff a bidder expects by not participating is no longer zero as in standard auctions but is rather endogenously determined by the actions of the other bidders thus an analysis of collusive bidding behavior under both nonbinding and binding participation constraints seems especially worth studying for these auctions the main findings of this article are that i there are no bidding wars along the equilibrium path and bidders expect to receive the maximal continuation values when they are both patient and impatient when bidders are impatient the optimal collusive bidding scheme involves ii a lower threshold type above whom bidding starts when externalities are small or iii more frequent jumps i e more sorting of bidders types when externalities are large in both cases seller s ex ante profit is higher when bidders are impatient if we consider patient bidders to be the ones that are interacting in a stable market 4 results carry an empirical implication either less frequent sales or fewer bid levels in auctions that are let out in stable markets will be observed

taking versus taxing an analysis of conscription in a private information economy most countries currently man their militaries through conscription i e a draft conventional wisdom suggests that by lowering the budgetary cost of the military a draft reduces distortionary taxation especially when military needs are large we find that this intuition is misguided when income taxes are set optimally voluntary enlistments lead to less distortionary taxation than a draft because the tax base left behind by a volunteer army tends to be more productive than that after a draft for reasonable parameter values drafts are more distortionary and less socially desirable when military needs are large

resale price maintenance and collusion the article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude we analyze the scope for collusion with and without resale price maintenance rpm when retailers observe local shocks on demand or retail costs in the absence of rpm retail prices react to retailers information and deviations from collusive behavior are thus difficult to detect by eliminating retail price flexibility rpm facilitates the detection of deviations but reduces profits and thus increases the short run gains from a deviation overall rpm can facilitate collusion and reduce total welfare when firms adopt it

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

menu costs and dynamic duopoly examining a state dependent pricing model in the presence of menu costs and dynamic duopolistic interactions this paper claims that the assumption regarding market structure is crucial for identifying the menu costs for price changes prices in a dynamic duopolistic market can be more rigid than those in more competitive markets such as a monopolistic competition market therefore the estimates of menu costs under monopolistic competition are potentially biased upward due to the price rigidity from strategic interactions between dynamic duopolistic firms by developing and estimating a dynamic discrete choice model with duopoly to correct for this potential bias this paper provides empirical evidence that dynamic strategic interactions as well as menu costs play an important role in explaining the observed degree of price rigidity in weekly retail prices

the long term impact of military service on health evidence from world war ii and korean war veterans during the world war ii and korean war era the u s military freely distributed cigarettes to overseas personnel and provided low cost tobacco products on domestic military bases in fact even today the military continues to sell subsidized tobacco products on its bases using a variety of instrumental variables approaches to deal with nonrandom selection into the military and into smoking we provide substantial evidence that cohorts with higher military participation rates subsequently suffered more premature mortality more importantly we show that a large fraction 35 to 79 percent of the excess veteran deaths due to heart disease and lung cancer are attributable to military induced smoking

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

going to college to avoid the draft the unintended legacy of the vietnam war between 1965 and 1975 the enrollment rate of college age men in the united states rose and then fell abruptly many contemporary observers e g james davis and kenneth dolbeare 1968 attributed the surge in college attendance to draft avoidance behavior under a policy first introduced in the korean war the selective service issued college deferments to enrolled men that delayed their eligibility for conscription these deferments provided a strong incentive to remain in school for men who wanted to avoid the draft for example the college entry rate of young men rose from 54 percent in 1963 to 62 percent in 1968 the peak year of the draft moreover both the college entry rate and the number of inductions dropped sharply between 1968 and 1973 as the draft was being phased out although these parallel trends are suggestive they do not necessarily prove that draft avoidance raised the education of men who were at risk of service during the vietnam war such an inference requires an explicit specification of the counterfactual what would have happened to schooling outcomes in the absence of the draft in this paper we use trends in enrollment and completed schooling of men relative to those of women to measure the effects of draftavoidance behavior during the vietnam war our maintained hypothesis is that in the absence of gender specific factors such as the draft the relative schooling outcomes of men and women from the same cohort would follow a smooth trend in light of the sharp discontinuity in military induction rates between 1965 and 1970 we look for similar patterns in the relative enrollment rate of men and in the relative college graduation rate of men from cohorts that were at risk of induction during this period

even up maintaining relationships abstract when are economic interactions mediated by prices and transfers and when are they mediated by variations in the continuation payoffs within a relationship to address this question we examine a relationship between two players who periodically face opportunities to undertake randomly generated projects that impose a cost on one player and a benefit on the other as well as opportunities to make voluntary transfers to one another we characterize the set of equilibria with particular emphasis on the efficient frontier in the absence of transfers incentives are often created by adjusting the continuation values of the relationship sometimes increasing player 1 s continuation payoff to induce player 1 to accept a particularly costly current project and sometimes increasing player 2 s continuation payoff in contrast once transfers enter the picture continuation payoffs maximize the sum of the two players payoffs no matter how asymmetric the point on the pareto frontier under consideration however transfers can also be relatively rare and in particular can occur less often than the adjustments in continuation values that occur without transfers players thus rely on transfers to create incentives but manage to do so while rarely making transfers

making sense of nonbinding retail price recommendations we model retail price recommendations rprs as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand with static trade rprs are irrelevant and the equilibrium outcome is inefficient with repeated trade rprs can become part of a relational contract communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus we show that this contract is self enforcing if the retailer s profit is independent of production costs and punishment strategies are chosen appropriately the predictions of our analysis are consistent with the available empirical evidence

bounds on average and quantile treatment effects of job corps training on wages we review and extend nonparametric partial identification results for average and quantile treatment effects in the presence of sample selection these methods are applied to assessing the wage effects of job corps united states largest job training program targeting disadvantaged youth excluding hispanics our estimates suggest positive program effects on wages both at the mean and throughout the wage distribution across the demographic groups analyzed the statistically significant estimated average and quantile treatment effects are bounded between 4 6 and 12 percent and 2 7 and 14 percent respectively we also document that the program s wage effects vary across quantiles and demographic groups

collusive equilibrium in cournot oligopolies with unknown costs the article studies collusive equilibria in an infinitely repeated cournot oligopoly with unknown costs i look at collusive pooled perfect bayesian equilibria and separating equilibria either with signaling or with communication in the separating equilibria with signaling the firms play the strictly separating bayesian nash equilibrium in period 1 and produce the optimal incentive compatible collusive quantity vector from period 2 onwards in the separating equilibrium with communication the optimal incentive compatible quantity vector is produced from period 1 onwards among these the optimal separating equilibrium with communication gives the highest expected discounted joint profits

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

dynamic mechanism design for a global commons we model dynamic mechanisms for a global commons countries value both consumption and conservation of an open access resource a country s relative value of consumption to conservation is privately observed and evolves stochastically an optimal quota maximizes world welfare subject to being implementable by perfect bayesian equilibria with complete information the optimal quota is first best it allocates more of the resource each period to countries with high consumption value under incomplete information the optimal quota is fully compressed identical countries receive the same quota even as environmental costs and resource needs differ this is true even when private information is negligible

impossibility of collusion under imperfect monitoring with flexible production we show that it is impossible to achieve collusion in a duopoly when 1 goods are homogenous and firms compete in quantities 2 new imperfect information arrives continuously without sudden events and 3 firms are able to respond to this new information quickly the result holds even if we allow for asymmetric equilibria or monetary transfers the intuition is that the flexibility to respond to new information quickly unravels any collusive scheme and that signals about the aggregate behavior only cannot be used effectively to provide individual incentives via transfers our result applies both to a simple stationary model and a more complicated one with prices following a mean reverting markov process

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

lifetime earnings and the vietnam era draft lottery evidence from social security administrative records errata the randomly assigned risk of induction generated by the draft lottery is used to construct estimates of the effect of veteran status on civilian earnings these estimates are not biased by the fact that certain types of men are more likely than others to service in the military social security administrative records indicate that in the early 1980s long after their service in vietnam had ended the earnings of white veterans were approximately 15 percent less than the earnings of comparable nonveterans copyright 1990 by american economic association

collusion with almost no information we analyze noncooperative collusion in an infinitely repeated bertrand game where each of the n firms receives a privately observed i i d cost shock in each period and firms only and privately observe whether they have won the unit mass of consumers no other information is available and no communication is allowed we prove that there exist equilibria in private strategies approximating first best profits when firms are sufficiently patient in particular productive efficiency obtains in the limit

transfer pricing determinants of u s multinationals this paper examines the influence of environmental and firm specific variables on the selection of international transfer pricing strategies the primary data were obtained from 164 multinational enterprises by means of a questionnaire responses were analyzed by performing factor analysis and constructing a probit model the findings suggest that legal constraints and firm size are significant determinants in the selection of international transfer pricing strategies by u s multinationals

optimal cartel pricing in the presence of an antitrust authority the dynamic behavior of a price fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed consistent with preceding static theories the cartel s steady state price is decreasing in the damage multiple and the probability of detection however contrary to those theories it is independent of the level of fixed fines it is also shown that the cartel prices higher when a more competitive benchmark price is used in calculating damages

tacit collusion in repeated auctions abstract this paper considers the question of tacit collusion in repeated auctions with independent private values and with limited public monitoring mcafee and mcmillan show that the extent of collusion is tied to the availability of transfers monetary transfers allow cartels to extract full surplus a folk theorem proved by fudenberg et al econometrica 62 1994 997 1039 shows that transfers of future payoffs are almost as good if players are patient and communicate before auctions we ask how the scope of collusion is affected if players dispense with explicit communication and their monitoring is limited collusion better than bid rotation is still feasible but full surplus cannot be extracted this constraint becomes less severe with more players and large cartels can become asymptotically efficient even with very limited monitoring

does multimarket contact facilitate tacit collusion inference on conduct parameters in the airline industry we provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior where conduct parameters are modelled as functions of multimarket contact we find i carriers with little multimarket contact do not cooperate in setting fares whereas carriers serving many markets simultaneously sustain almost perfect coordination ii cross price elasticities play a crucial role in determining the impact of multimarket contact on equilibrium fares iii marginal changes in multimarket contact matter only at low or moderate levels of contact iv assuming firms behave as bertrand nash competitors leads to biased estimates of marginal costs

on the role of retaliation in trade agreements this paper analyzes the role of retaliation in trade agreements it shows that in the presence of private information retaliation can always be used to increase the welfare derived from such agreements by the participating governments in particular it is shown that retaliation is a necessary feature of any efficient equilibrium we argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms of trade externalities within the current world trading system though in which transfers are seldom observed whereas export subsidies are prohibited the use of the remaining trade instruments in a retaliatory fashion might be optimal the model is used to interpret the retaliatory use of antidumping observed in the last decades and the proliferation of these measures relative to other trade remedies

the initiation and withdrawal of odd eighth quotes among nasdaq stocks an empirical analysis christie and schultz 1994 journal of finance 49 1813 1840 nd that market makers in many active nasdaq stocks avoid odd eighth quotes this paper studies 67 58 nasdaq stocks whose market makers initiate withdraw odd eighth quotes these regime shifts are often completed within the span of a day and coincide with dramatic changes in dollar percentage and e ective spreads in most cases we are unable to identify comparable changes in the costs of making markets we do identify long run changes in average prices that may provide a partial explanation however we also nd

optimal cartel trigger price strategies abstract a dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at cournot quantities for a period of fixed duration whenever the market price falls below some trigger price in this model firms can observe only their own production level and a common market price the market demand curve is assumed to have a stochastic component so that an unexpectedly low price may signal either deviations from collusive output levels or a downward demand shock

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

testing the purchasing power parity through i 2 cointegration techniques this paper contributes to the empirical literature on the purchasing power parity ppp over the post bretton woods period by providing a time series based interpretation of the controversial evidence characterizing the dynamics of real exchange rates it is shown that the persistence of deviations from the ppp between a set of european countries and the united states may be empirically attributed to the presence of i 2 stochastic trends in prices using consumer price indices interestingly the slow adjustment towards the equilibrium can be modelled through integral proportional equilibrium correction models and this evidence can be partly reconciled with theories where the inflation rate reduces the markup of profit maximizing firms acting on imperfectly competitive markets copyright 2005 john wiley sons ltd

the taxing task of taxing transnationals financial and real investment flexibility tax competition and superior economic information by transnationals both create a rationale for corporate income taxation and limit the effectiveness of such taxation while these factors have led to a variety of transnational tax policies such as deferral double taxation apportionment and trade rules very few of these institutional features have been integrated into tax competition and agency models in this paper i show how the integration of investment flexibility tax competition and agency issues is crucial to our understanding of corporate tax policies

international corporate taxation and u s multinationals behaviour an integrated approach this paper explores the effects of corporate taxation on u s capital invested abroad and on tax planning practices the econometric analysis first indicates that investment is strongly influenced by average tax rates with a magnified impact particularly for low tax rates implying that the attractiveness of low tax countries is not weakened by anti deferral rules and cross crediting limitations further explorations suggest that firms report higher profit higher subpart f income and are less likely to repatriate dividends when they are located in low tax jurisdictions finally when the role of effective transfer pricing regulations is estimated it appears that low degrees of law enforcement are associated with higher income shifting ce memoire s interesse aux effets des impots sur le revenu des societes sur l investissement et les pratiques de planifications fiscales des firmes multinationales americaines l analyse econometrique indique que l investissement americain est fortement influence par le taux d imposition moyen et que cet impact est sensiblement plus important pour de faibles taux d imposition ceci suggere que l attractivite des pays a faible imposition n est pas affaiblie par les limites imposees par le systeme fiscal americain sur la possibilite de differer l impot et sur les moyennes de credit des tests additionnels montrent que les firmes reportent un profit ainsi qu un revenu subpart f plus important et rapatrient moins leurs dividendes lorsqu elles sont localisees dans des pays a faible imposition finalement en estimant le role joue par l efficacite des reglementations en termes de prix de transferts il apparait qu un faible etat de droit est associea de plus fortes manipulations fiscales

bidding rings and the winner s curse this article extends the theory of legal cartels to affiliated private value and common value environments we show that efficient collusion is always possible in private value environments but may not be in common value environments with a binding reserve price in the latter case collusion does more than simply transfer rents from the seller to the buyers it also gives buyers a chance to pool their information prior to trade and make an efficient investment decision however full efficiency may not be compatible with information revelation buyers with high signals may be better off if no one colludes leading to inefficient trade this result provides a possible explanation for the low incidence of joint bidding especially on marginal tracts in u s federal government offshore oil and gas lease auctions

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

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

corruption and competition in procurement auctions we investigate the effect of corruption on competition in procurement our assumption is that the bureaucrat i e the agent that administers the market if corrupt may provide an opportunity for bid readjusments in exchange for a bribe as firms expect to be paying a bribe a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe we show however that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat we discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition

information feedback in first price auctions i apply the notion of a self confirming equilibrium sce to study how feedback in first price auctions influences bidders perceptions about their strategic environment and consequently their bidding behavior in a private values setting revealing the two highest bids at the end of each auction is sufficient for bidders to have correct beliefs justifying the assumption of nash equilibrium in contrast in every symmetric sce of a symmetric affiliated private values model bidding strategies and revenue are weakly higher if only the highest bid is revealed i also consider interdependent valuations and discuss implications for the empirical auction literature

collusion under monitoring of sales collusion under imperfect monitoring is explored when firms prices are private information and their quantities are public information such an information structure is consistent with several recent price fixing cartels such as those in lysine and vitamins for a class of symmetric oligopoly games it is shown that symmetric equilibrium punishments cannot sustain any collusion an asymmetric punishment is characterized that does sustain collusion and it has firms whose sales exceed their quotas compensating those firms with sales below their quotas in practice cartels could have performed such transfers through sales among the cartel members

was china the first domino assessing links between china and other asian economies abstract several commentators have suggested that competition from china in particular its 1994 devaluation and strong export performance during 1994 95 may have contributed to the asian crisis of 1997 98 we provide evidence against this view we show that the devaluation was not important in economic terms and china s strong export performance in 1994 95 was matched by other asian economies we also show that the period 1993 and 1996 was marked by relative stability in the export shares of china and other asian economies in various geographical regions and industries the paper concludes by outlining channels through which the asian crisis could affect china

combat exposure cigarette consumption and substance use this study estimates the relationship between combat exposure and several risky health behaviors cigarette consumption binge drinking and drug use we find that the u s active duty military personnel deployed to combat zones with enemy firefight are more likely to subsequently smoke cigarettes consume alcohol and use illicit drugs than their counterparts deployed to noncombat operations our results suggest that the mental health effects of combat can explain up to two thirds of the estimated association between combat exposure and risky health behaviors jel h56 i12

self enforcing voting in international organizations some international organizations are governed by unanimity rule some others by a majority system still others have moved from one system to the other over time the existing voting models have a difficult time explaining the observed variation in governance mode and in particular the widespread occurrence of the unanimity system we present a model whose main departure from standard voting models is that there is no external enforcement mechanism each country is sovereign and cannot be forced to follow the collective decision or in other words the voting system must be self enforcing the model yields unanimity as the optimal system for a wide range of parameters and delivers rich predictions on the variation in the mode of governance both across organizations and over time we thank james anderson matt jackson francois maniquet guido tabellini and jean tirole for very helpful comments arnaud costinot provided excellent research assistance we also bene

reported trade figure discrepancy regulatory arbitrage and round tripping evidence from the china hong kong trade data this study uses reported trade figures from china and hong kong to examine the relationships among market impediments trade figure irregularities and tax induced regulatory arbitrage the empirical findings consistent with our tax induced regulatory arbitrage models and the round tripping phenomenon in china that is moving funds across the mainland chinese border through trade typically to hong kong or an offshore tax haven before re entering china as foreign direct investment provide support for several conclusions first the spurious flows of funds to and from china via the underreporting of exports and the overreporting of imports closely follow the preferential tax incentives accorded to foreign investors second the underreporting of exports is negatively related to export tax rebates third the overreporting of imports is negatively related to import tariffs finally both of these two appear to be most prevalent in state owned enterprises

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

private monitoring in auctions abstract we study infinitely repeated first price auctions in which a bidder only learns whether or not he won the object while repetition of the stage game equilibrium is the unique nash equilibrium in public strategies with patient bidders there are simple nash equilibria in private strategies that improve on bid rotation sequential rationality is appropriately captured by essentially perfect bayesian equilibrium epbe which ignores behavior after irrelevant histories our main result is the construction of epbea that improve upon bid rotation assuming symmetry the exclusionary schemes of skrzypacz and hopenhayn tacit collusion in repeated auctions j econ theory 114 2004 153 169 including asymptotically efficient ones are supported as epbea

building routines learning cooperation and the dynamics of incomplete relational contracts this paper studies how agents with conflicting interests learn to cooperate when the details of cooperation are not common knowledge it considers a repeated game in which one player has incomplete information about when and how her partner can provide benefits initially monitoring is imperfect and cooperation requires inefficient punishment as the players common his tory grows the uninformed player can learn to monitor her partner s actions which allows players to establish more efficient cooperative routines because revealing information is costly it may be optimal not to reveal all the existing information and efficient equilibria can be path dependent jel c73 d82 d83 d86 this paper studies how agents with conflicting interests go about developing a successful cooperative relationship when the details of cooperation are not common knowledge in cir cumstances where formal contracts are unavailable or inconvenient agents frequently rely on informal cooperative agreements or relational contracts to resolve incentive conflicts in fact whenever the interested parties have better information than do outside courts relational con tracts can outperform formal contracts by allowing agents to adapt their joint behavior to contin gencies that cannot be assessed by third parties 1 the starting point of this paper is to recognize that even when agents have better information than outside courts this does not mean that the details of how and when cooperation should occur are common knowledge between the parties for instance a new plant manager may not have a complete understanding of what her produc tion teams can and cannot do a firm s ceo may have only partial understanding of how research teams should operate and so on the question is then how do players go about building a com mon agreement or formulated in a slightly different way how do they go about specifying the contingencies of their relational contract the model developed in the paper considers two players engaged in an infinitely repeated game with asymmetric information in each period player 1 decides to stay and interact with player 2 or exit and skip interaction for one period staying is costly for player 1 and yields a benefit for player 2 if player 1 stays player 2 can reciprocate by taking some action from a set of available actions which is randomly drawn in each period from a countable superset player 2 can take actions of two types unproductive actions that are costless to player 2 but yield zero benefit to

retailer entry conditions and wholesaler conduct the theatrical distribution of motion pictures abstract i add to the empirical literature on vertical contracting and wholesaler conduct by using retailer entry conditions to infer unobserved choice variables and equilibrium responses to prices and advertising after estimating the us demand for theatrical motion pictures from 1990 96 i apply these techniques to compare observed outcomes to predictions under various distributor conduct hypotheses while several caveats apply results indicate that the hypothesis of competition among distributors fails to describe advertising levels or aggregate payments of theaters to studios the hypothesis of some collusion among distributors however matches the data fairly well

an i 2 analysis of inflation and the markup an i 2 analysis of australian inflation and the markup is undertaken within an imperfect competition model it is found that the levels of prices and costs are best characterized as integrated of order 2 and that a linear combination of the levels which may be defined as the markup cointegrates with price inflation from the empirical analysis we obtain a long run relationship where higher inflation is associated with a lower markup and vice versa the impact in the long run of inflation on the markup is interpreted as the cost to firms of overcoming missing information when adjusting prices in an inflationary environment copyright 2001 john wiley sons ltd

optimal collusion proof auctions abstract we study an optimal collusion proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation despite their ability to collude on participation informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power the second best auction i e the optimal auction in a collusion free environment can be made collusion proof if at least one bidder is not collusive or there are multiple bidding cartels or the second best outcome involves a non trivial probability of the object not being sold regardless optimal collusion proof auction prescribes non trivial exclusion of collusive bidders i e a refusal to sell to any collusive bidder with positive probability

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

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

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

a theory of hub and spoke collusion abstract we develop a model of hub and spoke collusion between a manufacturer and two retailers demand is stochastic and collusion between retailers is difficult the best collusive equilibrium is inefficient rotemberg and saloner 1986 in the hub and spoke collusive agreement retailers transmit their information about the state of demand to the supplier the supplier uses this information to adjust the wholesale price by organizing the collusion the supplier increases profits of the vertical chain we show that surprisingly this type of collusive agreement can under some conditions improve consumer welfare

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

robust collusion with private information the game theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars without resorting to either impatience symmetry restrictions inability to communicate or failure to optimize this paper introduces a new explanation that relies on none of these assumptions if the cartel s member firms have private information about their costs price wars can be optimal in the face of complexity specifically equilibria that are robust to pay off irrelevant disruptions of the information environment generically cannot attain or approximate efficiency an optimal robust equilibrium must allocate market shares inefficiently and may call for price wars under certain conditions for a two firm cartel cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium that optimal equilibria are inefficient generically applies not only to collusion games but also to the entire separable pay off environment a class that includes most typical economic models copyright 2012 oxford university press

competitive procurement with corruption we study competitive procurement administered by a corrupt agent who is willing to manipulate his evaluation of contract proposals in exchange for bribes with complete information and no corruption the efficient firm will win the contract for sure if the agent is corrupt and has large manipulation power however bribery makes it costly for the efficient firm to secure a sure win so in equilibrium the efficient firm loses the contract with positive probability the optimal scoring rule for the buyer deemphasizes quality relative to price and does not fully handicap and may even favor the efficient firm

collusion enforcement with private information and private monitoring abstract this paper shows that a cartel that observes neither costs prices nor sales may still enforce a collusive agreement by tying each firm s continuation profit to the truncated current profits of the other firms the mechanism applies to both price and quantity competition and the main features are broadly consistent with common cartel practice identified by harrington and skrzypacz 24

the health effects of military service evidence from the vietnam draft i introduction the impact of military service on long term health is reemerging as a vital policy question as the united states conducts major military operations in iraq and afghanistan health professionals have raised concerns that significant numbers of the veterans of these conflicts are experiencing psychological and physical health problems the department of veterans affairs estimates that anywhere from 12 to 20 of servicemen returning from iraq suffer from posttraumatic stress disorder which the medical literature suggests can have a long term adverse effect on an individual s health in the 2005 fiscal year the department of veterans affairs spent about 32 billion dollars on medical care for veterans a substantial liability for the american taxpayer thus understanding the long term health impacts of military service is important both for allocating treatment resources and for correctly estimating the cost of waging these two wars comparing the health of veterans with that of nonveterans may not give us credible estimates of the effect of military service people voluntarily enlisting in the military differ in their observable characteristics from those who do not these observable differences between veterans and nonveterans leave us concerned that cross sectional estimates of the long term health consequences of military service will be biased by systematic differences in the unobservable characteristics of the two groups for this reason we use the draft lottery implemented during the vietnam war as an instrument for military service the draft lottery required randomly selected men born between 1944 and 1952 to report for possible induction into the military we use confidential versions of the 19742004 national health interview surveys nhis 1 to examine the impact of military service on veterans health we focus on the 67 608 men who were born between 1950 and 1952 because as we document this is the cohort most affected by the vietnam draft lottery we begin with a cross sectional comparison of veterans and nonveterans which reveals that veterans are in systematically worse health than nonveterans and that these health disparities increase with age these estimates probably overstate the causal effect of military service because veterans differ systematically from nonveterans on dimensions such as education that are strongly associated with adverse health when we correct for this problem using draft status to instrument for military service we find that despite a very strong first stage relationship between draft eligibility and military service the 2 stage least squares 2sls estimates of the impact of military service on health are fairly imprecise for most of the outcomes we examine the confidence intervals from the 2sls regressions containing both zero and the point estimate from the cross sectional regression this paper makes two contributions to the literature first unlike the cross sectional literature on the impact of military service on health the instrumental variables approach used in this paper provides unbiased estimates second this paper documents that though the vietnam lottery very significantly increased military service it led to only a modest increase in combat exposure 2 in the following section we discuss the existing literature on veterans health and on the impact of the vietnam era draft in section iii we describe our primary data source the nhis in section iv we discuss the research methodology and some of the issues that complicate the use of draft eligibility as an instrument section v discusses our results and section vi concludes ii previous literature there is a significant literature documenting the disproportionate prevalence of health problems among military veterans hoge et al 2004 find that mental health problems are common in veterans who served in iraq and afghanistan

tacit collusion with imperfect monitoring in the canadian manufacturing industry an empirical study this article undertakes a cross sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by abreu pearce and stachetti 1986 specifically we assess the prevalence of a first order markovian process for alternating between price wars and collusive periods through nonparametric tests the analysis focuses on 30 different industries in canada the evidence provides weak support for optimal collusion in one industry which is consistent with the idea that such kind of collusive arrangements is unusual or if collusion is all too common that price wars as deviations from collusion are rare

multinational firms heterogeneity in tax responsiveness the role of transfer pricing in this paper we show that the ability of multinational firms to manipulate transfer prices affects the tax sensitivity of foreign direct investment fdi we offer a model of international capital allocation where firms are heterogeneous in their ability to manipulate transfer prices perhaps paradoxically we show that the ability to shift profits can make parent companies investment more sensitive to host country tax rates as long as investors expect fiscal authorities to use price and profit detection methods we then offer a comprehensive empirical study to test our predictions in the case of japanese fdi we exploit the finding that the unobservable ability to manipulate transfer prices is correlated with whole ownership of affiliates and r d expenditure based on country parent firm and sector characteristics we estimate an investment equation on a sample of 3 614 japanese affiliates in 49 emerging countries we obtain a greater semi elasticity of investment to the statutory tax rate in affiliates that are wholly owned and that have r d intensive parents we interpret these results as indirect evidence that abusive transfer pricing is one of the determinants of fdi activity

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

an anatomy of cartel contracts we study cartel contracts using data on 18 contract clauses of 109 legal finnish manufacturing cartels one third of the clauses relate to raising profits the others deal with instability through incentive compatibility cartel organization or external threats cartels use three main approaches to raise profits price market allocation and specialization these appear to be substitutes choosing one has implications on how cartels deal with instability simplifying we find that large cartels agree on prices cartels in homogenous goods industries allocate markets and small cartels avoid competition through specialization

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

auctions and corruption an analysis of bid rigging by a corrupt auctioneer in many auctions the auctioneer is an agent of the seller this invites corruption we analyze a model in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid whichever is more profitable the interplay between these two types of corruption gives rise to a complex bidding problem that we tackle with numerical methods our results indicate that corruption does not only redistribute surplus away from the seller but also distorts efficiency we furthermore explain why both the auctioneer and bidders have a vested interest in maintaining corruption

collusive price rigidity under price matching punishments by analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price matching punishment strategy we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close this provides game theoretic support for the results of the kinked demand curve in contrast to the kinked demand curve it also generates predictions regarding the level and the determinants of the best collusive price which in turn has implications for the corresponding collusive profits the relationships between such price rigidity and the expected duration of a high cost phase the degree of product differentiation and the number of firms in the market are also investigated

endogenous price commitment sticky and leadership pricing evidence from the italian petrol market this article studies dynamic pricing strategies in the italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky pricing policy using daily italian firm level prices and weekly average eu prices we show that the effect of the new policy was twofold first it facilitated price alignment and coordination on price changes after the policy change the observed pricing pattern shifted from cost based to sticky leadership pricing second using a dif in dif estimation and a synthetic control group we show that the causal effect of the new policy was to significantly increase prices through sticky leadership pricing our paper highlights the importance of price commitment by a large firm in order to sustain tacit collusion

collusion over the business cycle we present a theory of collusive pricing for markets in which demand alternates stochastically between fast growth boom and slow growth recession phases we show that 1 the most collusive prices are weakly procyclical countercyclical when demand growth rates are positively negatively correlated through time and 2 the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases we also offer a generalization of rotemberg and saloner s 1986 model interpreting their findings in terms of transitory demand shocks that occur within broader business cycle phases

gun prevalence and suicide abstract in light of the ongoing debate over tighter firearm regulations this paper considers the relationship between gun prevalence and suicide i exploit a reform in switzerland that reduced the prevalence of military issued guns in private households in switzerland military service is compulsory for men and military issued guns account for nearly half of the total number of firearms available the results show that the firearm suicide rate decreases by 9 for a reduction in gun prevalence of 1000 guns per 100 000 inhabitants the elasticity of gun suicides with respect to firearm prevalence is 0 48 but converges towards zero for low levels of gun prevalence the overall suicide rate is negatively and significantly related to firearm prevalence which indicates that non gun methods of suicide are not perfect replacements for firearms

a model of add on pricing this paper examines competitive price discrimination with horizontal and vertical taste differences consumers with higher valuations for quality are assumed to have stronger brand preferences two models are considered a standard competitive price discrimination model in which consumers observe all prices and an add on pricing game in which add on prices are naturally unobserved and firms may advertise a base good at a low price in hopes of selling add ons at high unadvertised prices in the standard game price discrimination is self reinforcing the model sometimes has both equilibria in which the firms practice price discrimination and equilibria in which they do not the analysis of the add on pricing game focuses on the chicago school argument that profits earned on add ons will be competed away via lower prices for advertised goods a conclusion is that add on practices can raise equilibrium profits by creating an adverse selection problem that makes price cutting unappealing although profitable when jointly adopted using add on pricing is not individually rational in a simple extension with endogenous advertising practices and costless advertising several models that could account for add on pricing are discussed

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

bertrand competition when rivals costs are unknown the conclusions of the bertrand model of competition are substantially altered by the presence of asymmetric information about rivals costs asymmetric information eliminates the discontinuity in the bertrand model and significantly alters the properties of the market equilibrium in the bertrand nash equilibrium when rivals costs are unknown firms price above marginal cost and have positive expected profit the analysis is extended to franchise competition the market equilibrium is sensitive to market structure and yields incentives for entry copyright 1995 by blackwell publishing ltd

relational incentive contracts with persistent private information this paper investigates relational incentive contracts with continuous privately observed agent types that are persistent over time with fixed agent types full separation is not possible when continuation equilibrium payoffs following revelation are on the pareto frontier of attainable payoffs this result is related to the ratchet effect in that 1 a type imitating a less productive type receives an information rent and 2 with full separation one imitating a more productive type receives the same future payoff as that more productive type however the reason for 2 is fundamentally different than with the ratchet effect it arises from the dynamic enforcement requirement in relational contracts not from the principal having all the bargaining power and applies whatever the distribution between principal and agent of the future gains from the relationship i e whatever the point on the pareto frontier this result extends to sufficiently persistent types under certain conditions

price cutting and business stealing in imperfect cartels although economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns important puzzles remain standard models of repeated interaction formalize the observation that cartels keep participants in line through the threat of punishment but they fail to explain two important factual observations first apparently deliberate cheating actually occurs second it frequently goes unpunished even when it is detected we propose a theory of equilibrium price cutting and business stealing in cartels to bridge this gap between theory and observation

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

the political economy of indirect control this paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority we develop a dynamic principal agent model in which a principal a government delegates the prevention of a disturbance such as riots protests terrorism crime or tax evasion to an agent who has an advantage in accomplishing this task our setting is a standard dynamic principal agent model with two additional features first the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players second the principal suffers from limited commitment using recursive methods we derive a fully analytical characterization of the likelihood intensity and duration of intervention the first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium this is because they serve as a punishment to induce the agent into desired behavior the second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal s inability to commit finally we derive sharp predictions regarding the impact of various factors on likelihood intensity and duration of intervention we discuss these results in the context of some historical episodes