sequential procurement auctions abstract two auctions are held in sequence with the possibility of learning between the second and the first the buyer optimally chooses to discriminate against the winner of the first auction in the second the optimal mechanism has a discontinuity in the winner s second bid this strictly dominates a sequence of independent sealed bid auctions

explaining instability in the stability and growth pact the contribution of member state power and euroskepticism to the euro crisis the stability and growth pact clearly failed to prevent the euro crisis we contend that the failure was due largely to the ability of the member states to undermine the pact s operation the european commission served as a watchdog to monitor fiscal performance the member states themselves however collectively had the ability to change the content of the reports for individual states we confirm the expectation that powerful member states had the most success in undermining the role of the commission perhaps more surprisingly we find supporting evidence for our argument that governments with euroskeptic populations behind them were also more successful in weakening the commission s warnings these results have broader theoretical implications concerning which mechanisms explain country specific outcomes under a shared rule another contribution is the creation of a new data set of european commission assessments of member state economic programs and council of minister revisions

real exchange rate overvaluation and wto dispute initiation in developing countries why and when do developing countries file trade disputes at the world trade organization wto although financial conditions have long been considered an important driver of trade policy they have been largely absent from the literature on trade disputes we argue that developing country governments bring more trade dispute to the wto when overvalued real exchange rates put exporters at a competitive disadvantage this dynamic is most prevalent in countries where large foreign currency debt burdens discourage nominal currency devaluations that would otherwise serve exporters interests our findings provide an explanation for differences in dispute participation rates among developing countries and also suggest a new link between exchange rate regimes and trade policy

does feedback really matter in one shot first price auctions does the type of posterior feedback affect how people decide in one shot environments we revisit this question in first price auction markets we consider three feedback types minimal only knowing whether winning or not loser also knowing the winning bid and winner knowing the second highest bid if winning filiz ozbay and ozbay 2007 find that loser as opposed to minimal or winner feedback increases bids we use three novel protocols and additionally replicate theirs using a sample of 624 subjects we find that bidders ex ante knowledge of posterior feedback type has no systematic effect on the average bid value ratios

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

information disclosure in auctions an experiment we report experimental results on the importance of information disclosure policy in first price sealed bid auctions interaction takes place in 10 periods according to a random matching protocol and we control the level of information feedback bidders receive after each period when bidders are informed about the losing bids in previous periods prices are higher than the theoretical prediction however when this information is not revealed the bidding becomes more competitive and the bids come close to the theoretical prediction we suggest that a signaling phenomenon may be important for explaining these results 2002 elsevier science b v all rights reserved

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

selection into auctions for risky and ambiguous prospects we study experimentally the selection into first price sealed bid auctions for a risky or an ambiguous prospect most subjects chose to submit a bid for the risky prospect leading to thinner markets for the ambiguous prospect transaction prices for both prospects were equal although subjects expected the ambiguous markets to be smaller evidence of a positive correlation between risk and ambiguity aversion suggests that the ambiguous markets were populated by relatively risk tolerant bidders a control experiment with selection in a simple choice task shows that subjects correctly anticipate the effects of selection on market size and risk attitudes jel c91 d44 d81

the politics of foreign direct investment into developing countries increasing fdi through international trade agreements the flow of foreign direct investment into developing countries varies greatly across countries and over time the political factors that affect these flows are not well understood focusing on the relationship between trade and investment we argue that international trade agreements gatt wto and preferential trade agreements ptas provide mechanisms for making commitments to foreign investors about the treatment of their assets thus reassuring investors and increasing investment these international commitments are more credible than domestic policy choices because reneging on them is more costly statistical analyses for 122 developing countries from 1970 to 2000 support this argument developing countries that belong to the wto and participate in more ptas experience greater fdi inflows than otherwise controlling for many factors including domestic policy preferences and taking into account possible endogeneity joining international trade agreements allows developing countries to attract more fdi and thus increase economic growth

promises or policies an experimental analysis of international agreements and audience reactions a key assumption of audience costs theories of crisis bargaining and international cooperation is that audience members have strong preferences for consistency between their leader s commitments and actual policy choices however audiences also have strong preferences over the policy choices themselves regardless of their consistency with past commitments i conducted a randomized survey experiment to evaluate the magnitude of consistency and policy effects in the context of international agreements over trade policy respondents with expressed policy preferences whether supporting or opposing free trade have muted reactions to learning that their leader has broken an agreement only respondents with no opinion on trade policy are affected by learning that their leader s policy is inconsistent with prior commitments this suggests that constituents underlying preferences limit the degree to which audience costs influence policymakers calculations

lobbying and agricultural trade policy in the united states the authors study whether political campaign contributions influence agricultural protection in the united states in the manner suggested by the political economy model of grossman and helpman 1994 this is the first attempt to test this model using agricultural data the authors test the model using a detailed cross sectional data set of agricultural protection subsidies and political action committee pac contributions in the late 1990s the model is qualitatively affirmed by the data they make a novel attempt to solve a puzzle about the model s quantitative implications also found in recent studies this solution makes the simple model consistent with the complicated decisionmaking process in real world government the results imply the underpinnings of a political economy equilibrium that will be hard to dislodge

the political economy of nontariff barriers a cross national analysis nontariff barriers to trade are most pervasive when deteriorating macroeconomic conditions give rise to demands for protection by pressure groups when countries are sufficiently large to give policymakers incentives to impose protection and when domestic institutions enhance the ability of public officials to act on these incentives statistical results based on a sample of advanced industrial countries during the 1980s support the argument that the incidence of nontariff barriers tends to be greatest when the preferences of pressure groups and policymakers converge more attention should be devoted to the interaction between societal and statist factors in cross national studies of trade policy

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

preseason bias in the nfl and nba betting markets abstractthis study extends research in the sports gaming literature by examining the efficiency of betting markets related to preseason professional sporting events using nfl 1995 2014 and nba 2005 2014 data from preseason games we examine the pricing efficiency of point spreads in these markets and consider evidence of systematic mispricing findings suggest point spreads are too large in these situations providing a profitable betting opportunity for those willing to systematically wager on underdogs similar findings are not seen within the context of nfl or nba regular seasons these findings are more pronounced as preseason point spreads become larger further stratification by week of the nfl preseason demonstrates that underdogs discontinue their superior performance for the one week week 3 in which clubs tend to expel a higher level of effort

step level reasoning and bidding in auctions step level models of reasoning slr proved to be very successful in predicting behavior in the beauty contest game recently a quantified version of the model was suggested as a more general model of thinking in particular it was found that the distribution of choices could be represented by a poisson distribution i test the model in stylized first and second price common value sealed bid auctions equilibrium for both auction types prescribes that players undercut each other and profits are small the slr prediction on the other hand is different for the two auctions nash equilibrium predicts the outcomes poorly the slr model predicts the outcomes well in the second price auction however while bids in the first price auction could be represented by a poisson distribution this could not be attributed to step level reasoning

firms governments and wto adjudication japan s selection of wto disputes what explains the selection of cases for wto adjudication this article explores the business conditions under which industries lobby their home government to use the wto adjudication process and the political factors that influence government decisions it explains the industry pattern of selection for international trade disputes as a function of the velocity of the business environment while wto adjudication is seen as costly and slow a positive ruling brings broad benefits in terms of deterrence against future discrimination firms in static industries will invest in wto dispute settlement to achieve these benefits but firms in industries shaped by dynamic competition have high opportunity costs that make them less willing to pursue adjudication this argument accounts for why there are fewer wto cases about electronics industry issues than there are likely incidences of protectionist measures since japan is a leading exporter and provides a government report with unique data on potential wto disputes it was chosen to test the argument in greater depth interviews with japanese business officials and statistical analysis of an original data set provide support for the argument the authors conclude that the passive attitude toward wto adjudication by japan s largest export industry electronics and the sensitivity of japan s diplomatic relations with china have constrained the cases that japan files these findings suggest that the effectiveness of the wto for dispute settlement is conditional upon the time horizon of the industry and the political relations among members

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

rent seeking with regretful agents theory and experiment abstract we investigate both theoretically and experimentally the role that information disclosure has on behavior in all pay environments in which all agents must exert costly effort but only the winner is rewarded through the lens of all pay auctions we show that bidders who have regret concerns when they lose an auction may alter their bids whether or not information about the winning bid is disclosed all losing bidders regret not bidding 0 however when feedback on the winning bid is provided those bidders who lost at an affordable price may regret not bidding more we show that the former effect causes bidders to lower their bids while the latter effect causes bidders to raise their bids our experimental results indicate overbidding whether or not the winning bid is disclosed to losing bidders however disclosing the winning bid leads to even more aggressive bidding increases revenues decreases the frequency of dropouts and also leads to more efficient allocations thus our results show that information disclosure is a powerful tool that mechanism designers may wish to exploit to extract more rents in all pay environments

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

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

anomalous behavior in a traveler s dilemma the notion of a nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions moreover the nash equilibrium and closely related game theoretic concepts are being widely applied in other social sciences and even in biology where evolutionary stability often selects a subset of the nash equilibria many people are uneasy about the stark predictions of the nash equilibrium in some contexts where the extreme rationality assumptions seem implausible kaushik basu s 1994 traveler s dilemma is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior the story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation their luggage is lost on the return trip and the airline asks them to make independent claims for compensation in anticipation of excessive claims the airline representative announces

competitive burnout theory and experimental evidence abstract we examine equilibrium selection in a two stage sequential elimination contest in which contestants compete for a single prize this game has a continuum of equilibria only one of which satisfies the coalition proof nash equilibrium cpne refinement that equilibrium involves burning out by using all of one s resources in the first stage it is pareto dominated by many other equilibria we find that cpne predicts well when four people compete but not when eight people compete for two second stage spots using a cognitive hierarchy ch framework we show that when the number of players and the mean number of thinking steps are large the ch prediction involves burning out this provides a partial explanation of our results we also develop a formal argument as to why cpne logic is more compelling with more players we conclude that more competition leads to higher bids and that burning out is indeed a competitive phenomenon

cost reducing investment optimal procurement and implementation by auctions the authors analyze a model in which potential suppliers invest in research and development r d and then compete for a procurement contract from a buyer if the buyer is able to commit to a procurement mechanism before the investment stage the full information solution can be uniquely implemented by first price and second price sealed bid auction mechanisms when the r d technology exhibits decreasing returns to scale if the procurement mechanisms and the levels of investment are chosen simultaneously the full information solution cannot be implemented the authors discuss how the second best equilibrium contract varies with the number of suppliers copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

competing for capital the diffusion of bilateral investment treaties 1960 2000 over the past forty five years bilateral investment treaties bits have become the most important international legal mechanism for the encouragement and governance of foreign direct investment the proliferation of bits during the past two decades in particular has been phenomenal these intergovernmental treaties typically grant extensive rights to foreign investors including protection of contractual rights and the right to international arbitration in the event of an investment dispute how can we explain the widespread adoption of bits we argue that the spread of bits is driven by international competition among potential host countries typically developing countries for foreign direct investment we propose a set of hypotheses that derive from such an explanation and develop a set of empirical tests that rely on network measures of economic competition as well as more indirect evidence of competitive pressures on the host to sign bits the evidence suggests that potential hosts are more likely to sign bits when their competitors have done so we find some evidence that coercion and learning play a role but less support for cultural explanations based on emulation our main finding is that the diffusion of bits is associated with competitive economic pressures among developing countries to capture a share of foreign investment we are agnostic at this point about the benefits of this competition for development for useful comments on earlier drafts of this article we thank bill bernhard bear braumoeller frank dobbin robert franzese jeffry frieden geoffrey garrett tom ginsburg jude hays lisa martin bob pahre mark ramsayer steven ratner susan rose ackerman and john sides for research assistance we thank elizabeth burden raechel groom and alexander noonan

domestic audience costs in international relations an experimental approach what makes international threats credible recent theories point to domestic audience costs the domestic price a leader would pay for making foreign threats and then backing down this article provides the first direct evidence of audi ence costs the analysis based on experiments embedded in public opinion surveys shows that audience costs exist across a wide range of conditions and increase with the level of escalation the costs are evident throughout the population and espe cially among politically active citizens who have the greatest potential to shape government policy finally preliminary evidence suggests that audience costs arise because citizens care about the international reputation of the country or leader these findings help identify how and under what conditions domestic audiences make commitments credible at the same time they demonstrate the promise of using ex periments to answer previously intractable questions in the field of international relations

suspiciously timed trade disputes abstract this paper shows that electoral incentives crucially affect the initiation of trade disputes focusing on wto disputes filed by the united states during the 1995 2014 period we find that u s presidents are more likely to initiate a dispute in the year preceding their re election moreover u s trade disputes are more likely to involve industries that are important in swing states to explain these regularities we develop a theoretical model in which re election motives can lead an incumbent politician to file trade disputes to appeal to voters motivated by reciprocity

audience features and the strategic timing of trade disputes if international institutions are such potent alarm mechanisms that mobilize procompliance domestic audiences as many existing theories argue why do countries wait so long before sounding the alarm world trade organization wto members often wait months or even years before objecting to their trading partners wto illegal barriers to turn a phrase trade cooperation delayed is trade cooperation denied so why wait to explain this variation i develop a theory of institutional alarm mechanisms in which 1 the preferences and strength of the audience hearing the alarm vary and 2 the decision to sound the alarm is strategic sounding the alarm is most valuable when strong audiences in the defendant country support compliance i test this prediction using competing risks models analyzing the timing of wto disputes against us tariff barriers consistent with the theory disputes are more likely during election years when macroeconomic indicators suggest broader support for free trade

the impact of information sharing opportunities on market outcomes an experimental study information regarding uncertain demand conditions or industry costs as well as the opportunity to share this information can have an important impact on firm behavior a series of recent game theoretic models have characterized the incentives for firms to share information regarding uncertain parameters 3 7 8 13 14 16 22 26 20 21 provide a comprehensive survey most of the models assume that behavior in the output market is noncooperative regardless of the firms information sharing decisions this paper reports a series of 15 laboratory sessions that test the noncooperative backward induction approach of these models the results suggest that pricing behavior may be influenced by the information sharing decision under most conditions the noncooperative nash model accurately describes average behavior although in certain conditions information sharing appears to facilitate tacit collusion the paper also estimates a simple behavioral model of learning that describes how experimental subjects learn the optimal information sharing decision as an alternative to the theories backward induction assumption the information sharing models tested here have been interpreted as identifying the incentives for competitive firms to form a trade association that reduces their uncertainty thousands of trade and professional associations are active worldwide and the majority collect information from their members that is aggregated and distributed through association statistical programs the theoretical models demonstrate how three variables influence the information sharing incentives 1 the type of competition bertrand or cournot 2 the nature of the goods substitutes or complements and 3 the source of uncertainty demand or cost the first two variables determine the slope of the firms reaction functions and the uncertainty source along with the information sharing decision determines the degree of correlation among the firms strategies the incentive for noncooperative firms to share information shifts as these three variables change because reduced correlation has a negative or positive effect on profit depending upon the slope of the reaction functions

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

support for free trade self interest sociotropic politics and out group anxiety although it is widely acknowledged that an understanding of mass attitudes about trade is crucial to the political economy of foreign commerce only a handful of studies have addressed this topic these studies have focused largely on testing two models both of which emphasize that trade preferences are shaped by how trade affects an individual s income the factor endowments or heckscher ohlin model posits that these preferences are affected primarily by a person s skills the specific factors or ricardo viner model posits that trade preferences depend on the industry in which a person works we find little support for either of these models using two representative national surveys of americans the only potential exception involves the effects of education initial tests indicate that educational attainment and support for open trade are directly related which is often interpreted as support for the heckscher ohlin model however further analysis reveals that education s effects are less representative of skill than of individuals anxieties about involvement with out groups in their own country and beyond furthermore we find strong evidence that trade attitudes are guided less by material self interest than by perceptions of how the u s economy as a whole is affected by trade

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis