partnerships lemons and efficient trade we analyze the possibility of efficient trade with informationally interdependent valuations and with a dispersed ownership a crucial role is played by the sign of the derivatives that measure how valuation functions depend on others signals if valuations are increasing functions of other agents signals it is more difficult to achieve efficient trade with interdependent values than with private values where the respective derivatives are zero in contrast if valuations are decreasing functions of other agents signals it is easier to achieve efficient trade with interdependent values our results unify and generalize the insights of cramton et al 1987 myerson and satterthwaite 1983 and akerlof 1970

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

current account adjustment in the eurozone lessons from a flexible price model this paper discusses the desired size of the internal devaluation in the eurozone for a scenario of current account adjustment induced by shifts in relative demand based on obstfeld and rogoff i develop a four region model of the world economy consisting of the eurozone core eurozone periphery united states and asia in contrast to most of the existing literature this model structure enables studying the impact of global current account adjustment on the rebalancing process in the eurozone in addition the model allows for movements of factors of production between tradable and non tradable sectors the results point to the important impact of sectoral reallocation and increases in asian demand on the size of the internal devaluation as well as on the implied length of the adjustment period

bargaining in the shadow of power abstract often a bargainer can use some form of power legal military or political to impose a settlement how does the outside option of being able to impose a settlement albeit at some cost affect the bargaining and how does the probability that the bargaining will break down vary with the distribution of power between the bargainers these questions are examined by adding the option of imposing a settlement to rubinstein s game of dividing a pie each actor can accept an offer make a counteroffer or try to impose a solution imposing a settlement is however costly and each bargainer has private information about its cost journal of economic literatureclassification number c72

delay and settlement in litigation delay in litigation is a policy concern in many jurisdictions little evidence is available on the causes of such delay however we present a version of spier s 1992 bargaining model of litigation and derive directly a functional form for the conditional probability of case settlement we then estimate this and test predictions about the effects of legal costs and uncertainty over damages and liability on the conditional probability of settlement using data from negligence claims against several nhs trusts our results provide a direct test of the model and shed light on the causes of settlement delay in england

heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries this paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries var models are estimated for the individual countries using quarterly data from 1995q4 to 2013q4 besides unit labour costs as a competitiveness measure the models include gdp the current account balance and domestic credit the empirical analyses show that changes in unit labour costs help explain gdp dynamics in the short and medium term in most countries whereas they have little explanatory power for the current account balance or domestic credit for most countries overall the effects of the unit labour costs vary substantially across the countries in the euro area the heterogeneity suggests that policy measures aiming to improve economic growth correct current account imbalances and ensure financial stability need to take country specific features into account

pretrial bargaining with asymmetric information unilateral versus bilateral payoff relevance author affiliation amy farmer amyf walton uark edupaul pecorino ppecorin cba ua edu acknowledgment we would like to thank akram temimi and two anonymous referees for providing helpful comments on the article 1 introductionasymmetric information is a leading explanation for bargaining failure and the role of asymmetric information has been extensively analyzed in the civil litigation literature 1 most of this literature concerns information that has bilateral payoff relevance in the sense that the information in question affects the expected payoff at trial of both the plaintiff and defendant when there is bilateral payoff relevance trials may be predicted in the equilibrium of the bargaining game regardless of whether the informed or uninformed party makes the offer in this article we analyze information that has unilateral payoff relevance meaning that it affects the expected payoff of one of the two parties to the dispute but not the other as an example suppose the plaintiff has private information on her risk preferences this affects her expected payoff at trial but not the defendant s when there is unilateral payoff relevance there are never inefficient trials in the equilibrium of the game where the informed party makes the offer 2 however there may still be costly disputes in the equilibrium of the game in which the uninformed party makes the offer examples of information with bilateral payoff relevance include information on the probability that the plaintiff will prevail at trial and information on the amount of the judgment to be awarded at trial in the event the plaintiff is victorious in both cases the information clearly affects the expected payoff of both the plaintiff and defendant at trial and these are the types of informational asymmetry considered most often in the literature what type of information has only unilateral payoff relevance one example mentioned above is information on risk preferences farmer and pecorino 1994 swanson and mason 1998 and heyes rickman and tzavara 2004 all examine asymmetric information on risk preferences within the context of the screening model in which the uninformed party makes the offer 3 in each case trials are predicted in the equilibrium of these models as long as trials are not too costly for the participants however other types of information also have only unilateral payoff relevance a large literature on the ultimatum game has provided convincing evidence that under certain circumstances individuals will express a preference for being treated fairly 4 this preference may be expressed specifically by the percentage of her own court costs a player is willing to concede to her opponent via his settlement offer 5 since this preference is not observable and presumably differs across individuals the proposer in a screening game must decide how much of the joint surplus of settlement he will attempt to extract without knowledge of how low he can go before triggering a rejection suppose the judgment is 100 000 and the plaintiff s court costs are 30 000 a plaintiff without a taste for fairness will accept an offer of 70 000 rather than proceed to trial a plaintiff with a taste for fairness might as an example accept no less than 90 000 the defendant then must choose between an offer of 90 000 and 70 000 without knowledge of whether the other party has a taste for fairness or not the defendant will make the low offer if he believes it will be accepted with a sufficiently high probability if the plaintiff does indeed have a taste for fairness she will reject the low offer and a trial will result presumably a mechanism along these lines explains the persistence of disputes in ultimatum game experiments another example of information with unilateral payoff relevance is the degree of litigiousness which can be modeled as differences in perceived court costs on the part of the plaintiff eisenberg and farber 1997

efficient bilateral trade with statistically dependent beliefs abstract this paper derives a necessary and sufficient condition for ex post efficient trade to be feasible when trader beliefs can be statistically dependent allowing for dependent beliefs produces equilibrium and comparative statics behavior that differs qualitatively from that observed in bilateral trade models in which traders have independent beliefs

bargaining with asymmetric information an empirical study of plea negotiations this paper empirically investigates how sentences to be assigned at trial impact plea bargaining the analysis is based on the model of bargaining with asymmetric information by bebchuk 1984 i provide conditions for the nonparametric identification of the model propose a consistent nonparametric estimator and implement it using data on criminal cases from north carolina employing the estimated model i evaluate how different sentencing reforms affect the outcome of criminal cases my results indicate that lower mandatory minimum sentences could greatly reduce the total amount of incarceration time assigned by the courts but may increase conviction rates in contrast the broader use of non incarceration sentences for less serious crimes reduces the number of incarceration convictions but has a very small effect over the total assigned incarceration time i also consider the effects of a ban on plea bargains depending on the case characteristics over 20 percent of the defendants who currently receive incarceration sentences would be acquitted if plea bargains were forbidden

austerity growth and inflation remarks on the eurozone s unresolved competitiveness problem while the financial protection measures enacted by the ecb and the community of eurozone members have calmed financial markets they have left the competitiveness problem of the eurozone s southern countries and france unresolved the paper compares price inflation before the crisis with the necessary and actual price cuts that have taken place since the outbreak of the crisis predicting a decade of stagnation for the south and inflation for the north keynesian demand policy is counterproductive in the south and unnecessary in the north the necessary realignment of relative goods prices and current account imbalances can be achieved if market forces are allowed to redirect capital flows to the north instead of being artificially steered to uses they are keen to avoid

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

litigation and settlement an empirical approach litigants in civil lawsuits involving monetary damages often find an out of court settlement preferable to a trial most theoretical models of settlement choice employ an expected utility maximizing framework that emphasizes the importance of risk preferences litigation costs and the distribution of trial awards an empirical model of settlement choice is used to examine whether the variables prominent in the theoretical literature are statistically useful in explaining the occurrence and monetary value of settlements estimates from a sample of civil filings provide new empirical evidence of how the legal system affects the behavior of litigants during the settlement process copyright 1989 by mit press

physician licensure a new approach to examining the role of professional interests for years economists have debated the extent to which organized medicine has benefited from medical licensing restrictions this debate has been hampered by the lack of a viable alternative hypothesis this paper provides an alternative hypothesis and suggests an empirical test which focuses on the relationship between licensure restrictions and the level of consumption of physician services across states the evidence suggests that in the mid 1960s the interests of organized medicine dominated those of consumers in influencing the medical regulatory supply process

the settlement of patent litigation in this article i develop a model to analyze patent licensing that is induced as part of a settlement agreement to avoid litigation of the issue of patent validity the patentee possesses private information about patent validity and makes a take it or leave it settlement offer to a single potential rival an essentially unique sequential equilibrium exists if out of equilibrium beliefs are restricted appropriately the model analyzes the effect of the probability of settlement and litigation

plea bargaining and prosecutorial discretion a model of plea bargaining with asymmetric information is presented the prosecutor s private information consists of the strength of the case while the defendant s private information consists of h is guilt or innocence in equilibrium a fraction of cases are dismis sed because they are too likely to involve an innocent defendant in the remaining cases the prosecutor s offer of a sentence in exchange for a plea of guilty reveals the strength of the case it is shown t hat unlimited prosecutorial discretion may be socially disadvantageou s since it carries with it the requirement of sequential rationality copyright 1988 by american economic association

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

the costs of inefficient bargaining and financial distress abstract this study provides the first large sample analysis of the stock market reactions to interfirm litigation when a suit is filed the common stock of the typical defendant declines by about 1 while the plaintiff experiences no significant gains for the average pair of firms the combined drop in value upon filing is 21 million much of the loss is regained if the suit is settled the findings suggest that bargaining among firm claimants sometimes leads to very inefficient outcomes part of the leakage is explained by the costs of increased financial distress imposed on the defendant

the dynamics of pretrial negotiation it is shown that many cases proceed to court despite ample opportunity for interaction and much of the settlement takes place on the courthouse steps the deadline effect when fixed costs of bargaining are introduced a u shaped pattern of settlement appears with a greater chance of settlement at the beginning and at the end of negotiations than in the middle these characteristics persist even as the time between offers approaches zero the theoretical predictions are consistent with the stylized facts a large proportion of the lawsuits that are settled out of court are settled very close to the trial date or in the first several days of the trial 3 although the deadline effect appears in many other settings as well it has little theoretical support 4

an economic analysis on overbilling incentives and auditing programs an institutional auditing program typically consists of the following steps a sample audit the decision to move to the full audit a settlement offer and the full audit statistical sampling techniques are often used to estimate the overbilling percentage and amount this paper discusses the optimal settlement offer the net recovery through auditing the condition for the auditors to move to the full audit and how an auditing program can be truly cost effective this paper provides an evaluation for the statistical sampling techniques to an auditing program the economic incentives of a contractor to overbill are also identified finally it presents the key metrics and the managerial implications for auditing managers to design or enhance their auditing programs

a sequential concession game with asymmetric information the essence of the situation to be studied here is this two players are involved in a conflict that can be resolved in only two possible ways each player favors a different outcome during the bargaining phase which lasts until some finite time to each player has the option to concede if none concedes the game ends at time t in a way that is known to one of the players from the beginning of the game the other player is uncertain about the outcome time is valuable but each player prefers to receive his favored outcome at m than to concede immediately thus the game analyzed here is characterized by the asymmetric information about the outcome at the end point i e at time to whereas one player is perfectly informed about the possible outcome the other is compelled to deduce the information from the actions of his informed opponent the latter in turn can try to exploit his initial advantage by manipulating the flow of information for example the informed player may adopt a tough stance in order to create the impression that he is not afraid of forcing the resolution of the conflict at to and thereby builds his reputation at the same time the uninformed player by not conceding can test the opponent s resolve this brief description suggests that the problem analyzed here is a variant of the game of attrition 2 however our problem differs from the standard game of attrition in two respects first we formulate the game in discrete time which has important analytic consequences these are fully developed in hendricks and wilson 1985 second and more important perhaps we study

pretrial bargaining and the design of fee shifting rules legal rules for allocating the private costs of civil litigation or fee shifting rules provide powerful incentives for settlement within the context of a direct revelation mechanism the fee shifting rule that generates the highest probability of settlement bases the allocation of costs upon the proximity of the court s award to the pretrial announcements this mechanism resembles rule 68 of the federal rules of civil procedure and other offer based rules in a simple extensive form game if the litigants have asymmetric information about the level of damages probability of prevailing then rule 68 increases decreases the settlement rate

doctors with borders occupational licensing as an implicit barrier to high skill migration research on the political economy of immigration overlooks the specificity of human capital in skilled occupations and its implications for immigration preferences and policymaking conclusions that skilled americans are unconcerned about labor market competition from skilled migrants build on a simple dichotomy between high and low skill migrants in this article we show that natives turn to occupational licensing regulations as occupation specific protectionist barriers to skilled migrant labor competition in practice high skill natives face labor market competition only from those high skill migrants who share their occupation specific skills licensure regulations ostensibly serve the public interest by certifying competence but they can simultaneously be formidable barriers to entry by skilled migrants from a collective action perspective skilled natives can more easily secure sub national occupation specific policies than influence national immigration policy we exploit the unique structure of the american medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations we show that over the 1973 2010 period states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and as a consequence received fewer new migrant physicians by our estimates over a third of all us states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements this article advances research on the political economy of immigration and highlights an overlooked dimension of international economic integration regulatory rent seeking as a barrier to the cross national mobility of human capital and the public policy implications of such barriers

early settlement in european merger control we analyse the determinants of early settlement between merging parties and the european commission over remedies that remove concerns of anticompetitive effects this extends the previously narrow range of econometric literature on early settlement consistent with the theory of early settlement our results confirm the importance of delay costs and of uncertainty measured by the complexity of the economic analysis required for each merger we also find a non monotonic effect of agency resourcing which raises questions about the commission s efficiency in times of high case load econometrically we select a sample of merger decisions in which the european commission intervened due to concerns of anticompetitive effects and our selection model provides estimates of the factors determining intervention by the commission conclusions are drawn for public policy

litigation liability and incentives for care abstract in this paper potential injurers are subject to a negligence standard and differ in cost of taking care in the event of accident the injurer s degree of care is private information in litigation that follows award of damages for pain and suffering will lead to a general increase in care and hence reduce the likehood of accident a tighter negligence standard will lead some potential injurers to take more care and others to take less adoption of a rule under which the loser at trial must pay the litigation costs of the winner will reduce the pressure for punitive damages

negative expected value suits in a signaling model we extend the 1986 signaling model of reinganum and wilde by allowing for the possibility of negative expected value nev suits if filing costs are zero the equilibrium consistent with the dl refinement implies that settlement offers face a rejection rate of 100 if filing costs are positive an equilibrium with settlement can be restored in this equilibrium plaintiffs with nev suits choose not to file but settlement rates fall below the level in the model without nev suits this fall in settlement rates may be substantial in addition by making the filing decision endogenous we are able to derive new insights into the effects of fee shifting in the signaling model bargaining failures can be extremely costly when a plaintiff and defendant find themselves in trial after failing to negotiate a settlement the presence of asymmetric information is the most prominent explanation of this type of bargaining failure reinganum and wilde 1986 is one of the two canonical information based models of pretrial bargaining theirs is a signaling model in which an informed plaintiff makes an offer to an uninformed defendant reinganum and wilde rw assume that all plaintiffs have a credible threat to proceed to trial we relax this assumption and in the process endogenize the plaintiffs filing decision this is a realistic extension of the rw model which has some very important implications first if we add plaintiffs with negative expected value nev suits to the rw model and make no other changes the equilibrium of the model will require that all submitted offers be rejected at a rate of 100 to restore an equilibrium with settlement it is necessary to assume that the plaintiff incurs a fee at the time that suit is filed in this amended model we find that all plaintiff offers are rejected with a higher probability when compared to the model without nev suits this higher rate of rejection is a necessary part of the equilibrium as it discourages potential plaintiffs from filing nev suits thus no nev suit is filed in the equilibrium of the

the congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

litigation and settlement under two sided incomplete information this paper deals with a simple game of litigation and settlement with incomplete information parties are assumed to have the choice between settling their dispute out of court or resorting to costly litigation the set of sequential equilibria is characterized and conditions are given under which an efficient equilibrium does exist efficient equilibria however will be ruled out by various tests of refinement a comparative statics analysis is carried out with respect to the quality of private information which parties are assumed to receive before any moves have to be made

vertical coordination antitrust law and international trade this paper demonstrates that vertically aligned private or public organizations are capable of generating strategic trade advantage similar to that acquired through direct government export subsidization the model considers two forms of vertical coordination that lead to advantageous trade positions in international markets upstream vertical restraint and downstream equity sharing such practices are commonly employed both by state trading agencies and by private firms in nations with lenient antitrust laws the finding has important implications under new world trade organization wto rules intended to reduce government intervention in international transactions recent reforms in the wto favor nations that sanction highly refined vertical linkages between firms while nations with stringent antitrust legislation have an incentive to negotiate for greater harmonization of international laws

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

entry barriers and medical board funding autonomy in this paper we develop and test the hypothesis that institutional funding arrangments affect the extent to which public agencies are influenced by special interests we test this hypothesis using data on state medical boards in 1989 medical boards in twenty one states received budget appropriations from their legislatures the remaining boards operated independent of legislative control financing their activities from fees and other revenues we find that budgetary autonomy does influence agency decisions the ability of physicians to restrict entry is enhanced where licensing boards are self financed

strategic voting over strategic proposals prior research on strategic voting has reached the conclusion that unanimity rule is uniquely bad it results in destruction of information and hence makes voters worse off we show that this conclusion depends critically on the assumption that the issue being voted on is exogenous that is independent of the voting rule used we depart from the existing literature by endogenizing the proposal that is put to a vote and establish that under many circumstances unanimity rule makes voters better off moreover in some cases unanimity rule also makes the proposer better off even when he has diametrically opposing preferences in this case unanimity is the pareto dominant voting rule voters prefer unanimity rule because it induces the proposing individual to make a more attractive proposal the proposing individual prefers unanimity rule because the acceptance probabilities for moderate proposals are higher we apply our results to jury trials and debt restructuring

comparative analysis of litigation systems an auction theoretic approach a simple auction theoretic framework is used to examine symmetric litigation environments where the legal ownership of a disputed asset is unknown to the court the court observes only the quality of the case presented by each party and awards the asset to the party presenting the best case rational litigants influence the quality of their cases by hiring skilful attorneys this framework permits us to compare the equilibrium legal expenditures that arise under a continuum of legal systems the british rule continental rule american rule and some recently proposed legal reforms are special cases of our model

credible pretrial negotiation pretrial negotiation is a structured environment in which to study bargaining with incomplete information when a plaintiff believes that a defendant owes him damages he may first attempt to reach a private settlement before resorting to a costly court imposed judgment a central issue in their negotiations is whether the plaintiff s threat to litigate is credible it is possible for the plaintiff to undermine the credibility of his litigation threat by making a settlement demand that is insufficient as a result the plaintiff must raise his settlement demand to limit the amount of bad news he can learn if his offer is rejected when this credibility constraint is binding traditional comparative static results are reversed in addition even though the defendant is being sued he wants the plaintiff s threat to be credible

the economics of a centralized judiciary uniformity forum shopping and the federal circuit abstract in 1982 the u s congress established the court of appeals for the federal circuit cafc as the sole appellate court for patent cases this court was created ostensibly to eliminate inconsistencies in the application and interpretation of patent law across federal courts and thereby mitigate the incentives of patentees and alleged infringers to forum shop for a preferred venue we perform the first econometric study of the extent of nonuniformity and forum shopping in the pre cafc era and of the cafc s impact on these phenomena we find that in patentee plaintiff cases the pre cafc era was indeed characterized by significant nonuniformity in patent validity rates across circuits and by forum shopping on the basis of validity rates we find weak evidence that the cafc has increased uniformity of validity rates and strong evidence that forum shopping on the basis of validity rates ceased several years prior to the cafc s establishment

antitrust settlements and trial outcomes risk aversion plays an important role in explaining why antitrust cases settle instead of going to trial using a jointly estimated model of settlement and trial outcome the authors find that a one percent increase in the probability that the plaintiff wins at trial raises the probability of a settlement by 0 13 percent they also find that reputation effects are not a significant factor for defendants so the risk aversion of the defendants does not play a dominant role in determining whether the parties settle plaintiffs are more likely to win in certain jurisdictions which encourages venue shopping by plaintiffs copyright 1996 by mit press