the war of attrition in continuous time with complete information this paper provides a complete characterization of the nash equilibrium outcomes for the war of attrition when time is continuous and information is complete it allows for asymmetric payoffs and an arbitrary time horizon in addition to certain asymme tric pure strategy equilibria that always exist the authors establi sh the conditions under which there is also a continuum of mixed strategy equilibria these are most likely to exist when either the horizon is infinite or the game is symmetric copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

lies defection and the pattern of international cooperation this article characterizes how incentives to lie affect international cooperation and the design of cooperation agreements i study the optimal structure of cooperation agreements in an environment where the costs of cooperation fluctuate over time cooperation is complicated by the fact that the costs of cooperation are private information and participants can benefit from lying about them when the extent of asymmetries of information between the cooperating governments can be measured in terms of the transparency of the political process democracies face greater contracting opportunities than authoritarian regimes however this article shows that even under asymmetries of information a limited extent of cooperation can be achieved when the design of cooperation agreements recognizes incentives to lie

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

the influence of central planning on the economic slowdown in the soviet union and eastern europe a comparative production function analysis the estimation of various forms of the production function and because of the use of different data sets predictions of future growth based on these calculations have varied significantly but generally have implied continued decreasing growth of the economy the interpretation is that there are system determined technological constraints in the soviet economy causing the slowdown in growth and that these constraints are identifiable through the parameters of an aggregate production function the finding of diminishing returns to capital is linked to the belief that existing and future deployments of capital cannot be improved and the decreasing rate of factor productivity growth is attributed to microeconomic barriers to the introduction and diffusion of new technology and to expectations about future trends in technical and economic inefficiency the validity of these inferences has not been systematically tested although

structural adjustment policies and productive efficiency of socialist enterprises abstract the paper uses panel data from a five percent stratified random sample of yugoslav industrial enterprises to test several hypotheses about the determinants of productive efficiency the estimating procedure selects the production function best supported by the data and allows for industry specific production function parameters as well as from firm specific fixed or random effects the instrumental variable estimates suggest that productive efficiency is unaffected by the four structural policy variables whose effect we examine the extent of export orientation joint venture status divisionalization of the firm and the firm s market share

bargaining and reputation the paper develops a reputation based theory of bargaining the idea is to investigate and highlight the influence of bargaining postures on bargaining outcomes a complete information bargaining model a la rubinstein is amended to accommodate irrational types who are obstinate and indeed for tractability assumed to be completely inflexible in their offers and demands a strong independence of procedures result is derived after initial postures have been adopted the bargaining outcome is independent of the fine details of the bargaining protocol so long as both players have the opportunity to make offers frequently the latter analysis yields a unique continuous time limit with a war of attrition structure in the continuous time game equilibrium is unique and entails delay consequently inefficiency the equilibrium outcome reflects the combined influence of the rates of time preference of the players and the ex ante probabilities of different irrational types as the probability of irrationality goes to zero delay and inefficiency disappear furthermore if there is a rich set of types for both agents the limit equilibrium payoffs are inversely proportional to their rates of time preference

intimidation linking negotiation and conflict challenger demands a resource from defender in each period challenger chooses whether to attack if attacked defender chooses whether to concede the resource forever each player might be committed to ghting until victory before con ict begins defender can make nitely many offers con ict begins if challenger rejects all offers in equilibrium all offers except the last are unacceptable negotiation cannot eliminate con ict because a larger offer makes con ict increasingly attractive for challenger if negotiation fails prolonged con ict can happen in equilibrium even when uncertainty is vanishingly small we provide comparative statics regarding the probability and length of con ict

the might of the pen a reputational theory of communication in international disputes i present a theory of effective diplomacy based on honesty and reputations i model diplomacy as a form of cheap talk and international interactions as an infinitely repeated game in which similar states find themselves in disparate situations over time the theory explains the success and failure of diplomacy reputations for honesty make honest communication possible a state caught bluffing is less able to communicate and less likely to attain its goals in the near future these findings imply that domestic audience costs are unnecessary for international signaling and that military strength is not the only way to build credibility

make buy or ally a transaction cost theory meta analysis since the publication of williamson s markets and hierarchies many empirical articles have investigated the tenets of transaction cost theory using meta analytic techniques we quantitatively syn

bargaining with imperfect commitment abstract we study the effect of imperfect commitment in noncooperative two person bargaining games by establishing the reputation for being stubborn a player sometimes commits to her initial demand becoming unable to change her demands or to accept an inferior offer from her opponent when the probability of being stubborn is small the set of equilibria is shown to be small and agreement may be reached immediately despite the possibility of stubbornness a player has greater bargaining power when she is more patient and or is more likely to be stubborn journal of economic literature classification number c78

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

bargaining enforcement and international cooperation neoliberals and their neorealist critics have debated the relative importance of two main obstacles to international cooperation problems of cheating and enforcement and problems of relative gains by contrast i argue that problems of international cooperation have a common strategic structure in which a third distinct obstacle plays a crucial role almost regardless of the issue area states must first resolve the bargaining problem of agreeing on terms before they can implement and begin to enforce an agreement furthermore the bargaining and enforcement problems interact using a game model i show that if states must bargain to determine the deal to be enforced the shadow of the future cuts two ways a high expectation of continued interactions may make enforcing the agreement easier but it can also give states an incentive to bargain harder delaying agreement in hopes of getting a better deal empirical evidence from trade and arms control negotiations suggests that this mechanism may help to explain the costly standoffs that are often observed in international politics and are problematic for received neoliberal theories

military coercion in interstate crises in an international crisis states make demands backed by threats to use force although these threats can be explicit in diplomatic communications they will not generally carry much weight unless substantiated by some show of force military measures designed to convey the commitment to resort to arms if one s demands are not satisfactorily met to have an impact this commitment must be credible it must be in one s interest to carry out the threat if the opponent refuses to comply in an environment where states possess private information about their valuations capabilities or costs credibility can be established by actions that a state unwilling to fight would not want or would not dare to take military moves such as arms buildups troop mobilizations and deployments to the potential zone of operations can alter incentives in a crisis by changing one s expected payoff from the use of force these are tacit bargaining moves that can restructure the strategic context thereby creating and possibly signaling one s commitments while undermining those of the opponent how can states use the military instrument to establish commitments and how does the nature of the instrument affect their ability to communicate them credibly to their adversaries there are two distinct mechanisms for credible signaling in economic models information can be transmitted reliably by sinking costs actors burn money to reveal that they value the disputed issue even more in contrast theories of interstate crisis bargaining usually rely on choices that increase the difference between backing down and fighting actors tie their hands by running higher risks of war to reveal their resolve the first mechanism involves costs that actors pay regardless of outcome and the second involves costs that actors pay only if they fail to carry out some threat or promise

behavior of participatory firms in yugoslavia lessons for transforming economies this paper develops a multiparty model of enterprise behavior with the management workers and government authorities being the decisionmakers the model captures the behavior of yugoslav enterprises in the 1970s and 1980s enterprises in transitional economies and public sector bargaining in western countries estimating the model on yugoslav firm level data from the 1970s and 1980s indicates that the perverse behavior predicted by the ward domar vanek model of labor managed firms is not supported by the data as firms place emphasis on both wages and employment a direct test shows that the employment response to output price changes is insignificant coauthors are jan svejnar dubravko mihaljek and vesna prasnikar copyright 1994 by mit press

co ownership of intellectual property exploring the value appropriation and value creation implications of co patenting with different partners combining both interview data and empirical analyses at the patent and firm levels we explore the value appropriation and value creation implications of r d collaboration resulting in the co ownership of intellectual property i e co patents we make an explicit distinction between three different types of co patenting partners intra industry partners inter industry partners and universities our findings indicate that the value appropriation challenges of ip sharing are clearly evident with intra industry co patenting where partners are more likely to encounter overlapping exploitation domains co patenting with universities is associated with higher market value since appropriation challenges are unlikely to play a role and collaboration may signal novel technological opportunities although we find some evidence that co patenting corresponds to higher patent value patents co owned with firms are significantly less likely to receive self citations indicating constraints on the future exploitation and development of co owned technologies

market imperfections labor management and earnings differentials in a developing country theory and evidence from yugoslavia in this paper we evaluate empirically the relative importance of two explanations of yugoslav interindustry income differentials one explanation proposed initially by vanek and jovicic 1975 stresses capital market imperfections which permit capital rents to be appropriated as workers incomes the second explanation points to labor allocation problems under self management we first present a critique of the vanek jovicic original formulation and then respecify the problem to permit simultaneous evaluation of the two schools of thought results based on two data sets suggest that labor allocation factors and monopoly power rather than capital rents are the main source of yugoslav earnings dispersion

domestic opposition and signaling in international crises this article explores the effect of domestic political competition on the escalation of international crises it combines an incomplete information model of crisis bargaining with a simple model of two party electoral choice one state has two strategic actors a government and an opposition party both of which declare openly whether they support the use of force to alter the status quo the rival state updates its beliefs and selects its strategy in response to both signals the parties payoffs depend upon a retrospective evaluation by the domestic electorate the model shows that the inclusion of a strategic opposition party decreases the ex ante probability of war by helping to reveal information about the state s preferences this finding has important implications for research on democracy and international conflict since it suggests a mechanism through which democratic states can overcome informational asymmetries which have been identified as a central obstacle to negotiation

bargaining reputation and competition this paper addresses the question of whether playing the tough bargainer is a useful strategy for rational negotiators in competitive environments the unique equilibrium outcome of a continuous time multilateral bargaining game between a single seller and two buyers i e a three player war of attrition game show that it does not benefit the buyers the long side of the market if the probability of obstinacy is constant and independent of the initial demands this result is robust in the sense that the buyers heterogeneity about their flexibility does not weaken the intensity of the competition when the seller decides which buyer to negotiate first he not only chooses his bargaining partner but also picks his outside option the seller can strengthen his bargaining position against both buyers by picking the unattractive buyer who is greedier or tougher than the other buyer first and by leaving the attractive buyer aside because he starts the sequel with a strong outside option

deterrence the elusive dependent variable the testing of theory in international relations requires clearly articulated assumptions the specification of scope conditions rigorously formulated propositions appropriate tests and a valid and reliable data set against which to test the propositions this last requirement has generally been the most neglected dimension of research in this article we examine two prominent studies of immediate extended deterrence by paul huth and bruce russett that do not deal adequately with the problems intrinsic to constructing a valid data set for quantitative analysis t the problems are particularly acute in the testing of theories of deterrence because of the difficulties inherent in identifying deterrence successes which leave few if any behavioral traces and of inferring the intentions of would be challengers our analysis explores these problems and suggests ways of testing theories of deterrence that can reduce the threats to valid inference 2 we would like to thank the canadian institute for international peace and security and

disentangling the multiple effects of affiliate reputation on resource attraction in new firms past research has established that new firms can enhance their attractiveness to prospective resource providers by affiliating with more reputable firms but research on this process has yet to fully account for two critical realities underscored by recent research 1 firms need to acquire resources from different groups of resource providers and 2 reputation is multidimensional drawing on the organizational reputation literature and on information processing theory we propose that two groups of resource providers will respond differently to new firms affiliations in accordance with differences in the groups abilities to recognize and interpret reputation related signals we also propose that within a single group of resource providers distinct characteristics of the affiliate will exert different influences we test these propositions using longitudinal data from belgian firms that affiliated with venture capital vc investors consistent with our predictions we find that characteristics of a

total factor productivity growth technological progress and technical efficiency change dimensions of productivity change in yugoslavia 1965 1978 this article total factor productivity growth technological progress and technical efficiency change dimensions of productivity change in yugoslavia 1965 78 was reprinted with permission from the december 1982 issue of the economic journal this article proposes a methodology that decomposes total factor productivity change into two distinct elements technological progress and changes in technical efficiency technological progress is defined as the change in the best practice production frontier all other productivity change is attributed to technical efficiency change the article provides a theoretical framework for decomposing total factor productivity growth as well as a specification and estimation of the deterministic frontier production function it employs a programming technique to estimate a flexible functional form of the production frontier the paper then applies this technique to empirical data from yugoslavia of the period from 1965 to 1978 it concludes that for yugoslavia improvements to technical efficiency comprise the dominant contribution to total factor productivity change this agrees with accumulating evidence that in many developing economies productivity gain due to technological mastery of imported technology is substantial

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

exports growth and causality in developing countries abstract previous empirical studies have interpreted results in regressions of output variables on export variables as providing support for an export promotion development strategy such an interpretation is questionable since these regressions provide no means of determining the direction of causality this paper performs causality tests between exports and growth for 37 developing countries the results cast considerable doubt on the validity of the export promotion hypothesis

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

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

continuous time games of timing abstract we address the question of existence of equilibrium in general timing games with complete information under weak assumptions any two player timing game has a markov subgame perfect e equilibrium for each e 0 this result is tight for some classes of games symmetric games games with cumulative payoffs stronger existence results are established

how much does trust really matter some reflections on the significance and implications of madhok s trust based approach madhok s 1995 article defined and developed a trust based perspective on the stability of international joint ventures ijvs proposing a shift in focus from ownership to relationship and from governance form to process the article emphasised the role of trust in holding ijvs together and the importance of considering the dynamics of inter organisational collaboration by distinguishing between structural and social components of trust it contributed to a more nuanced understanding of what makes inter firm partnership durable and able to realise its value potential this paper reviews madhok s original ideas and highlights the influence they have had on the field of international business it concludes with avenues for further research inspired by the article

capabilities uncertainty and resolve a limited information model of crisis bargaining this paper presents and solves a crisis bargaining game under limited information the sides alternate offers from three possible offers with war and its costs starting if the target s counteroffer is rejected the equilibrium of the model falls into four different cases these four cases are analyzed to determine how the sides communicate through their offers and how the costs of war initial beliefs misperceptions and distribution of capabilities drive the probabilities of a crisis and war the model demonstrates a joint selection bias misspecification problem in empirical studies of crises arising from the unobservable nature of beliefs several empirical studies of crisis bargaining are discussed in the light of this methodological problem new patterns of evidence are found that support the presence of the selection problem and their conclusions are reexamined

information processing moderators of the effectiveness of trust based governance in interfirm r d collaboration it is generally assumed that improved outcomes accompany the use of trust as a governance mechanism in an interfirm relationship briefly trust is a social lubricant that reduces the friction costs of existing trade and or serves to increase the scope of trade in contrast to this universalistic view we posit that the performance of trust based governance is contingent on the ability of trading partners to read each other and learn about counterpart behavior these information processing abilities allow firms to assess partner trustworthiness better which reduces the risk of misplaced trust the increased efficacy of communication and learning from one another also enables them to better capitalize from the adaptation and revision possibilities uncovered through trust based governance during the task execution phase given the central role of these cognitive requirements we assess these contingent effects with data from a knowledge intensive task setting using a sample of 129 firms that have engaged outside contractors on client sponsored r d projects we find strong support for our thesis specifically we find that trust based governance has a larger positive impact on task performance when the client is more skilled at understanding the outsourced tasks at hand the task itself requires skills that are relatively more readily taught less tacit and the task itself is organized in parallel with work being done at the contractor as well as the client as a corollary we also find that firms adopt trust based governance to a greater extent as these information processing abilities increase as well as with the colocation of the contractor and client suggestions for engineering trust based governance are offered

evolutionary stability in a reputational model of bargaining a large and growing literature on reputation in games builds on the insight that the possibility of one or more players being boundedly rational can have significant effects on equilibrium behavior this literature leaves unexplained the presence of behavioral players in the first place as well as the particular forms of irrationality assumed and the population shares of the various types in this paper we endogenize departures from rationality on the basis of an evolutionary stability criterion under the assumption that rational players incur a cost which reflects the greater sophistication of their behavior this cost may be arbitrarily small within the context of a reputational model of bargaining we show that evolutionary stability necessitates the presence of behavioral players it also places significant joint restrictions on the set of behavioral types that can coexist their respective population shares and the long run population share of rational players

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

do intergovernmental organizations promote peace a basic debate in world politics involves the impact of intergovernmental organizations igos on international conflict liberals functionalists and others see igos as capable of transforming global anarchy while realists emphasize the essential irrelevance of igos in managing such fundamental processes as war and peace recent quantitative studies also yield disparate conclusions depending on particular econometric assumptions implying variously that igos foster pacific relations among states have no impact on dispute behavior or even increase dispute propensity at least part of the problem is a lack of theoretical and empirical specificity the authors apply bargaining theory to develop a middle path between the realist and liberal perspectives only some igos those with security mandates and the most sophisticated institutional structures are likely to influence dispute behavior the authors combine the theory with two improvements in research design first igos vary in capability mandate and cohesion the authors construct a dataset of igo institutional heterogeneity and member cohesiveness second states join igos for reasons that are not unrelated to why states fight the authors control for the level of international involvement among countries and find support for their arguments in initial tests

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

audience costs and reputation in crisis bargaining in crisis bargaining literature it is conventional wisdom that the ability of generating higher audience costs is an advantage for a leader of a state however empirical studies show that democratic states use this mechanism only occasionally this paper formally shows that higher audience costs may be good or bad depending on 1 the benefit cost ratio of the crisis 2 initial probability of resolve and 3 how fast states generate audience costs with time in particular if the value of the prize over the cost of attacking is low or the initial probability of resolve is high enough then having greater ability to generate audience costs may undermine democratic states diplomatic success

reputation and hegemonic stability a game theoretic analysis we develop and explicate a game theoretic model in which repeated play incomplete information and reputation are major elements a significant advance of this model is the way it represents cooperation under incomplete information among rational actors of different sizes the model is used to formalize certain aspects of the theory of hegemonic stability it shows that the dilemma or limits of hegemonic stability look like natural attributes of games where reputation is involved unifying both benevolent and coercive strands of hegemony theory an example drawn from recent developments in the organization of petroleum exporting countries shows how our model of reputation guides the study of hegemonic regime construction we conclude by comparing the nature of cooperative behavior under conditions of complete and incomplete information

dynamic competition and intellectual property rights in a model of product development we study innovation timing and socially optimal intellectual property rights iprs when firms facing market uncertainty invest strategically in product development if demand growth and volatility are high attrition occurs and iprs should ensure the cost of imitation attains a lower bound we identify if demand growth and volatility are low then provided that the private imitation incentive is socially excessive iprs should set the cost of imitation high enough to induce preemption and possibly winner take all preemption moreover the welfare achieved with optimal iprs is then greater with endogenous innovation than if firm roles are predetermined illustrating the importance of fostering dynamic competition in extensions we show how firms benefit from open standards takeovers have ambiguous welfare effects and simple licensing schemes are welfare improving

reputation effects and the limits of contracting a study of the indian software industry this paper examines evidence of the role that reputation plays in determining contractual outcomes we conduct an empirical analysis of the indian customized software industry using a data set we collected containing detailed information on 230 projects carried out by 125 software firms we propose a model ofthe industry where reputation determines contractual outcomes the evidence supports the view that reputation matters ex ante contracts as well as the outcome after ex post renegotiation vary with firms characteristics plausibly associated with reputation this holds after controlling for project client and firm characteristics

goliath s curse coercive threats and asymmetric power states typically issue compellent threats against considerably weaker adversaries yet their threats often fail why expanding on a standard model of inter national crisis bargaining i argue that a theory of reputation building can help shed light on this puzzle the model casts reputation as a strategic problem showing that challengers issuing compellent threats have incentives to anticipate the reputation costs that target states incur when appeasing aggressors if challengers can recognize these costs and offset them with side payments or smaller demands then even reputation conscious targets will acquiesce i argue however that military strength contributes to information problems that make challengers more likely to underesti mate their targets reputation costs and insufficiently compensate them in this way military power can undermine the effectiveness of compellent threats the logic is illustrated by the 1939 russo finnish crisis and the argument s implications for the study of coercive diplomacy are explored

rational deterrence in an imperfect world this chapter applies recent economic research on games with incomplete information to the calculus of deterrence 1 we do not attempt to provide a complete theory of rational deterrence the focus is on the role of reputation and signaling in establishing deterrence we show how strategic players signal a reputation for strength from the perspective of an internally consistent equilibrium model