reducing moral hazard associated with implied warranties of animal health shogren provides a hypothesis that buyers will have sufficient incentive to purchase optimal selfprotection despite the existence of implied warranties of animal health this hypothesis is based on three points assumptions adopted from previous literature we take issue with one of these assumptions and show that shogren s additional theoretical development supports our contention that moral hazard is associated with implied warranties the assumption at issue is whether the blurred distinction between probability and severity of losses as reported by ehrlich and becker and hiebert may be applied to an analysis of moral hazard in livestock marketing this assumption is for theoretical convenience and generally does not hold in particular for the livestock market a major buyer self protection device is quarantine the physical separation of purchased diseased animals quarantine can affect the severity of losses by preventing the infection of healthy animals but it does not affect the probability of loss the importance of quarantine in reducing severity of losses from disease in the livestock market indicates that buyers do discriminate between probability and severity of loss thus the theoretical assumption adopted by shogren is too restrictive the legislative history associated with the warranty legislation discloses that the abrogation of implied warranties was based largely on the severity of the loss liability in an amount several times more than the sales price eftink foster p 645 such losses were possible because warrantors were liable for consequential damages which included losses associated with the infection of healthy animals by a diseased animal purchased under warranty we demonstrate that the legislative responses to excessive consequential damages is not remedied by shifting moral hazard from livestock buyers to sellers centner and wetzstein confusion surrounding shogren s assumption and the interpretation of the theoretical results of our article may be attributed to the relationships among b1 b2 and q variable q was defined as the amount of loss resulting from contamination after disease has occurred thereby denoting consequential damages generally available under warranty law the difference between b and b1 is buyer benefits reflected solely in the value of healthy animals as opposed to diseased animals an implied warranty made by sellers covers both of these losses and not just q implied by shogren is an alternative formulation which aggregates the two losses into a single loss

laboratory evidence on the effectiveness of corporate leniency programs the number of cartels detected in the united states and in europe has increased considerably since the introduction of corporate leniency programs in antitrust legislation it cannot however be ruled out that this apparent success results in part from increased cartel activity we explore the effects of corporate leniency programs on pricing and cartel activity by use of an experiment we find that in the lab i fewer cartels are established when a leniency program is in place and ii cartels that do exist are less successful in charging prices above the static nash equilibrium price and have lower survival rates

exporting europe s trade policy there are three well known observations about the current regional trade policy of europe the first one is the central role played by the european union in the worldwide spreading of regional agreements the second is the new policy of signing bilateral deep regional trade agreements the third is the growing demand for harmonisation of international and domestic trade regulations we show that the combination of these three trends results in europe increasingly weighing on the policy decisions of its trade partners in particular with regard to their trade policies the european hegemonic influence which can be viewed as europe exporting its policy models is extending to all partners in preferential trade agreements not only the accession candidates it has two main broad manifestations a prescriptive approach to push bilateral partners into regional agreements among themselves and a tendency to diffuse european rules in its bilateral agreements with its partners we review the various provisions of the agreements through which this influence operates although this policy can be viewed as desirable in some instances it also generates actual and potential future costs for developing countries as well as posing non trivial dangers to the process of multilateral liberalisation and to the building of appropriate policies for the partner countries

reducing moral hazard associated with implied warranties of animal health comment in a recent journal article centner and wetzstein examine efficiency losses associated with moral hazard and the assignment of cost liability arising from diseased animals traditionally a buyer of livestock had an implied warranty that the seller would compensate all ex post costs arising from diseased animals the fear that implied warranties would provide disincentive for buyer self protection against possible damages moral hazard has led sellers to lobby for abrogation of implied warranties centner and wetzstein argue that abrogation of implied warranties does not remove moral hazard but simply transfers disincentive from buyer to seller by noting that welfare under buyer liability may be lower than under seller liability centner and wetzstein suggest efficiency losses can be reduced by maintaining seller liability and introducing partial insurance contracts where both parties share a burden of the ex post damages to induce a buyer to self protect the partial insurance contract is assumed to be a decreasing function of self protection this is a restrictive assumption however because it is often impossible or prohibitively costly for insurers sellers to monitor and enforce the insured s buyer behavior spence and zeckhauser holmstrom indeed it is this lack of monitoring that motivates moral hazard in the first place arrow 2 the purpose of this comment is to illustrate that a decentralized solution where monitoring is unnecessary can be obtained by considering three points a that the state of the world is dependent on the buyer s self protecting actions b the blurred distinction between self protection that influences severity of loss and self protection that influences probability of loss and c a sufficiently large difference in the dollar benefits of diseased and disease free animals given these three points contrary to centner and wetzstein s claim the buyer will have sufficient incentive to purchase optimal self protection despite the existence of implied warranties of animal health 3 first centner and wetzstein assume that the two mutually exclusive and jointly exhaustive states of nature are independent of buyer action let 13 and 1 p3 represent the buyer s degree of belief of selecting a diseased or a disease free animal using centner and wetzstein s notation as pointed out by marshall however independent states of nature exist only if a complete set of contingent contracts exist while theoretically feasible complete contingent claims contracts rarely if ever exist in reality for example given imperfect contingency markets the buyer can influence the probability of r ceiving a disease free animal by adopting assorted self protection strategies i e pretesting for disease use of experienced sellers and markets l t x represent buyer self protection such that the degrees of belief of selecting diseased and diseasefree animals are p p3 x and 1 p p3 x respectively where 3p is an endowed probability assume that an increase in self protection decreases the probability of selecting a diseased animal 3 0 4 subscripts denote relevant partial derivatives

fines leniency and rewards in antitrust this article reports results from an experiment studying how fines leniency and rewards for whistleblowers affect cartel formation and prices antitrust without leniency reduces cartel formation but increases cartel prices subjects use costly fines as punishments leniency improves antitrust by strengthening deterrence but stabilizes surviving cartels subjects appear to anticipate the lower postconviction prices after reports leniency with rewards prices fall at the competitive level overall our results suggest a strong cartel deterrence potential for well run leniency and reward schemes these findings may also be relevant for similar white collar organized crimes such as corruption and fraud

modeling the birth and death of cartels with an application to evaluating competition policy one of the primary challenges to measuring the impact of antitrust policy on collusion is that the cartel population is unobservable we observe only the population of discovered cartels to address this challenge a model of cartel creation and dissolution is developed to endogenously derive the populations of cartels and discovered cartels it is then shown how one can infer the impact of antitrust policy on the population of cartels by measuring its impact on the population of discovered cartels in particular the change in the distribution on the duration of discovered cartels could be informative in assessing whether a new antitrust policy is reducing the latent rate of cartels

do meetings in smoke filled rooms facilitate collusion the sherman act prohibits firms from discussing prices in meetings traditional thought suggests that this prohibition makes it harder for firms to collude and economists have concluded that the sherman act operates in the public interest i provide an alternative explanation for the act that also accounts for the small sanctions chosen by the legislature when firms interact in a dynamic environment in which the law helps them to prevent renegotiation the firms may benefit from the law that makes it costly but not very costly to meet to discuss prices the sherman act may help firms to collude

endogenous communication and tacit coordination in market entry games an explorative experimental study this paper explores experimentally the effects of costly communication possibilities in market entry games it is shown that these effects depend on whether entry costs are symmetric or asymmetric in the former but not the latter case communication possibilities increase coordination success substantially and are likely to generate inferior outcomes for consumers furthermore cost asymmetries provide a tacit coordination cue that is robust to changes in the game and is used by experienced players as a substitute to communication it is also shown that although communication opens up for aggressive market domination strategies such strategies are not used often successful

evaluating the regulator winners and losers in the regulation of spanish electricity distribution abstract the principal aim of this study is to evaluate the regulation of electricity distribution in spain to this end we begin by analyzing whether the changes introduced by the regulator led distribution companies to improve their efficiency we then address whether the reimbursements paid to the distribution companies are linked to efficiency lastly we examine whether consumers benefited from the efficiency improvements we focus on spain because the electricity regulator in that country is a longstanding pioneer in the implementation of incentive based regulatory models our analysis was implemented using the regulatory model proposed by bogetoft 1997 as a benchmark the results show that the spanish electricity regulator did not establish a link between efficiency and the reimbursements paid to electricity companies in addition the electricity companies benefited to the detriment of consumers

endogenous cartel formation experimental evidence in a bertrand oligopoly experiment firms choose whether or not to engage in cartel like communication and if so they may get fined by a cartel authority we find that the four firm industries form cartels more often than the duopolies because they gain less from a hysteresis effect after cartel disruption

economic partnership agreements between sub saharan africa and the eu a development perspective this paper draws on hinkle and schiff 2003 it analyses the planned economic partnership agreements epas between the eu and sub saharan africa ssa from a development perspective it does not take a position on whether ssa should enter into epas with the eu rather it starts from the notion that the process of forming epas is unlikely to be reversed and examines the conditions that will maximise ssa s benefits from the epas if this notion is correct then the analysis presented in the paper applies on the other hand pascal lamy the eu trade commissioner made a proposal at the may 2004 g 90 summit in dakar that might lead to a change in the epa process he proposed that the g 90 a group consisting of acp and non acp ldc countries should not have to make concessions at the wto doha round of multilateral trade negotiations i e he proposed a free round for the g 90 this proposal opens the door to the possibility that the same might apply to the acp countries in the eu acp negotiations and that the epa process might be reversed the paper considers the key issues raised by the planned epas their relationship to the wto s doha round and the eu s everything but arms initiative the changes needed to make the epas internally consistent the domestic reforms in ssa that would need to accompany trade liberalisation in both goods and services and the potential effects of the epas on regional integration in ssa the epas will pose a number of policy challenges for ssa countries including restructuring of indirect tax systems reduction of mfn tariffs liberalisation of service imports on an mfn basis and related regulatory reforms in the services sector and liberalisation of trade in both goods and services within the regional trading blocs in ssa the paper also finds that the epas provide an opportunity to accelerate regional and global trade integration in ssa to realise the potential development benefits of the planned epas two steps are essential first the eu must as it has stated truly treat the epas as instruments of development subordinating its commercial interests in the agreements to the development needs of ssa second the ssa countries need to implement a number of epa related trade policy reforms however the latter is far from certain given the lack of reform momentum in ssa

fines and reputational sanctions the case of cartels abstract in this article we revive an old debate in the law and economics literature the relative role of public and reputational sanctions in deterring misconduct we propose an empirical framework which accounts for public sanctions in our case cartel fines and a more direct measure of reputational sanctions harnessing recent developments in opinion mining we use the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus approximation of the reputational sanction as a demonstration we combine an event study approach sentiment analysis and econometric techniques on a sample of 339 listed cartel member firms prosecuted by the european commission between 1992 and 2015 our results offer evidence that in the context of cartels public and reputational sanctions act as substitutes where there is a reputational penalty increasing this penalty reduces the effect of the public sanction one the other hand in the absence of a reputational punishment the effect of the cartel fine steps in

design of yardstick competition and consumer prices experimental evidence abstract in this paper we analyze the effect of the design of yardstick competition on consumer prices by means of a theoretical analysis as well as an economic experiment we compare four different designs the uniform yardstick the unweighted uniform yardstick the discriminatory yardstick and the best practice yardstick the effect of a specific design on prices depends on two separate mechanisms one which affects the incentive power to increase productive efficiency and another which affects the risk of collusion we show theoretically that for the best practice yardstick which is widely applied in several industries in a number of countries these two mechanisms point in the same direction high prices which is confirmed by the experiment both the theoretical analysis as well as the economic experiment show that the discriminatory yardstick results in lower prices than the unweighted uniform yardstick the theory however does not give a clear answer on the relative performance of the discriminatory versus the weighted uniform yardstick in the experimental analysis we find that the advantage of the discriminatory yardstick in terms of giving incentives to improve productive efficiency exceeds the disadvantage of a relatively higher risk of collusion this conclusion appears to be robust for different degrees of heterogeneity of the industry hence the discriminatory yardstick yields the lowest prices for consumers

do antitrust laws facilitate collusion experimental evidence on costly communication in duopolies bertrand supergames with non binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets the experimental design consists of three treatments with different costs of communication zero cost low cost and high cost prices are found to be significantly higher when communication is costly moreover costly communication decreases the number of messages but more importantly it enhances the stability of collusive agreements mccutcheon 1997 presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices although our experimental results do not support the mechanism of mccutcheon s 1997 argument the findings point in the direction of her prediction that antitrust laws might work in the interest of firms

new bilateralism in the asia pacific this paper reviews recent changes in the geographic pattern of regional trading agreements rtas focusing on examples from the asia pacific area the general pattern is one of new bilateral agreements combined with a trend towards continentalism the new trend towards bilateralism can be explained largely by a fear of countries being excluded from their major markets as other countries secure preferential and superior access to these markets this pattern is creating many intersections between rtas with consequential multi tiered preferences and multiple systems of trade rules viewed dynamically however this pattern may have positive effects on world trade it mitigates the effects of large continental rtas and may lead to coalescence or enlargement of rtas the paper reviews models which ask the important question as to whether this process will progress all the way to free trade for the world economy

antitrust and prices this study examines the effects of antitrust prosecution on prices charged by firms indicted for price fixing in a survey of 25 cases filed between 1973 and 1984 prices are found to gradually rise by about 7 percent over the 4 years following an indictment however the severity of penalties is negatively correlated with prices these two findings suggest either that penalties are too lenient or that prosecution is too broad penalizing economically efficient conspiracies along with those that are inefficient

bertrand competition with asymmetric marginal costs this article tests the prediction of three discrete asymmetric duopoly price competition games in the laboratory the games differ from each other in terms of the size of the cost asymmetry that induces a systematic variation in the difference between the firms marginal costs while the standard theory requires the low cost firm to set a price just equal to the high cost firm s marginal cost which is identical across all three games and win the entire market intuition suggests that market price may increase with a decrease in the absolute difference between the two marginal costs we develop a quantal response equilibrium model to test our competing conjecture jel l11 l12 c91 d43

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

self insurance self protection and the theory of the competitive firm several writers including magnusson 6 feldstein 5 batra 3 and ratti and ullah 9 have introduced production uncertainty into the theory of the firm by including a random variable in the firm s production function since a more favorable state of nature increases both output and the marginal product of the firm s controllable inputs in most of these analyses the random variable can be interpreted as a productive input which is complementary to the inputs chosen by the firm alternatively in this paper we view the production process as random because the firm is exposed to the possibility of production losses due to the disruptive effects of accidents the firm may then be able to undertake expenditure on resources which reduce the expected loss due to accident an increase in such expenditure will plausibly lead to a decrease in the variability of output a possibility which is precluded in most of the previous models of stochastic production this paper develops two models of the competitive firm under production uncertainty where resources can be devoted to loss reduction in the first model the firm can devote expenditure to care which reduces the magnitude of the loss without affecting the probability that a loss occurs self insurance for example the firm can reduce the severity of the loss due to fire by installation of a firm alarm system in the second model expenditure on care reduces the probability that a loss occurs without affecting the magnitude of the loss self protection for example the firm can lower the probability of fire by taking care to reduce sources of possible ignition for both models we examine the impact of increases in the degree of risk aversion and the probability of loss the distinction between self insurance and self protection is due to ehrlich and becker 4 who examined the demands for self insurance and self protection by the household when market insurance is available 2 in our model of the competitive firm market insurance is not available as is common for many production risks and we concentrate on the relationship between a traditional productive input and self insurance

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

effects of institutional history and leniency on collusive corruption and tax evasion we investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance we explore this through a formal leniency program in our experiment we nest collusive corruption within a tax evasion framework we not only study the effect of the presence of such a mechanism on behavior but also the dynamic effect caused by the introduction and the removal of leniency we find that in the presence of a leniency mechanism subjects collude and accept bribes less often while paying more taxes but there is no increase in bribe offers our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate and increases the collected tax yield it also does not encourage bribe offers in contrast the removal of the institutional mechanism does not induce negative effects suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed

scale economies in electricity distribution a semiparametric analysis we estimate the costs of distributing electricity using data on municipal electric utilities in ontario canada for the period 1993 5 the data reveal substantial evidence of increasing returns to scale with minimum efficient scale being achieved by firms with about 20 000 customers larger firms exhibit constant or decreasing returns utilities which deliver additional services such as water sewage have significantly lower costs indicating the presence of economies of scope our basic specifications comprise semiparametric variants of the translog cost function where output enters non parametrically and remaining variables including their interactions with output are parametric we rely upon non parametric differencing techniques and extend a previous differencing test of equality of non parametric regression functions to a panel data setting copyright 2000 john wiley sons ltd

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

incentive regulation of electricity distribution networks lessons of experience from britain this paper reviews the recent experience of the uk electricity distribution sector under incentive regulation the uk has a significant and transparent history in implementing incentive regulation in the period since 1990 we demonstrate the successes of this period in reducing costs prices and energy losses while maintaining quality of service we also draw out the lessons for other countries in implementing distribution sector reform we conclude by discussing the place of incentive regulation of networks within the wider reform context the required legislative framework the need for appropriate unbundling the importance of quality of service incentives the regulatory information requirements and the role of sector rationalisation

product warranties and double moral hazard this article explores a model of warranties in which moral hazard problems play a key role the goal is to understand the important characteristics of warranties including their provision of incomplete insurance and the relationship between product quality and coverage we analyze a model in which buyers and sellers take actions that affect a product s performance since these actions are not cooperatively determined an incentives problem arises we characterize the optimal warranty contract and undertake comparative statics to determine the predicted correlation of warranty coverage and product quality

collusion proof yardstick competition abstract this paper analyses the incentives for collusion among firms when an industry is regulated by means of yardstick competition the central assumption is that firms must write collusive side contracts before the revelation of private correlated information and are unable to communicate later the analysis shows that collusion is costly to society only if firms can commit to side payments third best collusion proof yardstick competition entails more less distortion of efficiency for low productivity high productivity firms than second best yardstick competition the benefit of yardstick competition vanishes in the limit as correlation of private information becomes near perfect

making eu trade agreements work the role of rules of origin a key element of the eu s free trade and preferential trade agreements is the extent to which they deliver improved market access and so contribute to the eu s foreign policy objectives towards developing countries and neighbouring countries in europe including the countries of the balkans previous preferential trade schemes have been ineffective in delivering improved access to the eu market since only a small proportion of the available preferences have actually been utilised the main reason for this is probably the very restrictive rules of origin that the eu imposes coupled with the costs of proving consistency with these rules if the eu wants the everything but arms agreement and free trade agreements with countries in the balkans to generate substantial improvements in access to the eu market for products from these countries then it will have to reconsider the current rules of origin and implement less restrictive rules backed up by a careful safeguards policy

price leadership and unequal market sharing collusion in experimental markets abstract we consider experimental markets of repeated homogeneous price setting duopolies we investigate the effect on collusion of sequential versus simultaneous price setting we also examine the effect on collusion of changes in the size of each subject s market share in case both subjects set the same price our results show that sequential price setting compared with simultaneous price setting facilitates collusion if subjects have equal market shares or if the follower has the larger market share with sequential price setting we find more collusion if subjects have equal market shares rather than unequal market shares we observe more collusion if the follower has the larger market share than if the follower has the smaller market share

collusion under yardstick competition an experimental study abstract the effectiveness of relative performance evaluation schemes such as yardstick competition can be undermined by collusion the degree to which the regulated agents manage to collude will be affected by the particulars of the scheme we hypothesize that in a repeated game setting schemes will be more prone to collusion the smaller are the rents to the agents in case they behave noncooperatively we illustrate the relevance of this hypothesis by means of an economic experiment in which we compare the efficiency of two performance evaluation schemes

the evolution of cooperation in infinitely repeated games experimental evidence 1 for example in infinitely repeated prisoner s dilemma games with patient agents both cooperate and defect may be played in equilibrium even though the theory of infinitely repeated games has been used to explain cooperation in a variety of environments no definitive solution has been provided to the problem of equilibrium selection when both cooperation and defection are possible equilibrium outcomes which one should we expect to prevail previous experimental evidence has shown that subjects often fail to coordinate on a specific equilibrium when they play a small number of infinitely repeated games some subjects attempt to establish cooperative agreements while others defect but how would behavior evolve as subjects learn from previous repeated games would cooperation prevail when it can be supported in equilibrium or will subjects learn

what price coordination the efficiency enhancing effect of auctioning the right to play a model is proposed to explain the results of recent experiments in which subjects repeatedly played a coordination game with the right to play auctioned each period in a larger group subjects bid the market clearing price to a level recoverable only in the efficient equilibrium and then converged to that equilibrium although subjects playing the game without auctions converged to inefficient equilibria the efficiency enhancing effect of auctions is reminiscent of forward induction but is not explained by equilibrium refinements the model explains it by showing how strategic uncertainty interacts with history dependent learning dynamics to determine equilibrium selection copyright 1998 by american economic association

legalizing bribe giving i introduction corruption remains an endemic problem in the developing world and has become a central political issue in many countries empirical work has considerably advanced our understanding of how widespread corruption is and how it can cause harm 1 governments and agencies such as the world bank have sponsored numerous anticorruption programs however regarding how to best fight corruption in practice research has lagged behind policy 2 recently kaushik basu chief economist then of the indian government and now of the world bank proposed a specific approach in basu s 2011 pamphlet why for a class of bribes the act of giving a bribe should be treated as legal he describes a society where bribery is rampant a scourge that deserves to be banished and proposes for the case of harassment bribes that people pay to get services they are legally entitled to 3 the following policy legalize bribe giving double the fine for bribe taking and make the bribe taker pay back the bribe if discovered when a citizen bribes a bureaucrat under traditional law the two become partners in crime they thus lack incentives to report the activity under basu s policy bp which he deems fairly radical incentives are provided for the bribe giver to report the bribe taker if this is foreseen the bureaucrat would not accept the bribe in the first place that is the key idea will it work a hot debate has raged in indian and international press the economist appeared sympathetic 4 however in some quarters the proposal stirred outrage and commentators discarded it mainly on moral grounds 5 more tempered thoughtful criticism has come from economists dreze 2011 in particular wrote a penetrating comment arguing that basu does not give adequate attention to some institutional and moral concerns which may change conclusions basu s intriguing presentation is informal as is the heated debate it inspired perhaps one should not expect the issues to be easily settled through such discourse the proposal is reminiscent of somewhat analogous tools used in other fields such as leniency policies in antitrust and whistleblower protection and reward schemes against fraud and organized crime scholars who studied those measures have suggested they may be effective if well designed and administered but counterproductive if details are not set right 6 deeper understanding of the pros and cons of subtle legal rules may require careful scrutiny within a formal model in section ii we develop a simple formal model to represent the scenarios basu and his commentators care about as explicit games by comparing equilibria we draw conclusions regarding the conditions under which bp is likely to be effective bp gets mixed context dependent grades and we highlight complementarities with other policies the proposal works best if coupled with measures that increase the costs for bureaucrats of denying citizens what they deserve and that reduce the costs for citizens of getting justice verifying whether a bribe was paid entails costs which may deter reporting hence bp works better against larger bribes inefficient or corrupt law enforcement increases these costs so bp will be more effective if it is part of a wider reform package that also fosters independence and accountability of the legal system in section iii we take into account also the legal and moral considerations brought up by dreze revealing other problems related to bp we propose a modified policy mbp that escapes many objections the idea is inspired by leniency rules in antitrust rather than legalize bribe giving only those who report having paid a bribe would be awarded legal immunity extortionary harassment bribes are distortive when they are not paid because a justified and presumably welfare enhancing licence is then not issued with other arguably often more serious forms of corruption distortions occur when bribes are paid not otherwise

asset markets as an equilibrium selection mechanism coordination failure game form auctions and tacit communication abstract in this paper we explore the possibility that asset markets provide a means of tacit communication which may allow subjects to coordinate on the payoff dominant equilibrium in an underlying coordination game we find that the existence of a market price for the right to play does communicate information about the equilibrium selection problem specifically behavior never converged to the efficient outcome when subjects were endowed with the right to participate but always converged to the efficient outcome when subjects purchased the right to participate journal of economic literature classification numbers c720 g120

does auctioning of entry licences induce collusion an experimental study we use experiments to examine whether the auctioning of entry rights affects the behaviour of market entrants standard economic arguments suggest that the licence fee paid at the auction will not affect pricing since it constitutes a sunk cost this argument is not uncontested though and this paper puts it to an experimental test our results indicate that an auction of entry licences has a significant positive effect on average prices in oligopoly but not in monopoly these results are consistent with the conjecture that entry fees induce players to take more risk in pursuit of higher expected profits in oligopoly entry fees increase the probability that the market entrants coordinate on a collusive price path in monopoly taking more risk does not make sense since average prices are already close to the profit maximizing price

quantifying the deterrent effect of anticartel enforcement this paper presents a rare attempt to quantify the deterrent effect of anti cartel policy it develops a conceptual framework which establishes the sort of information necessary for such quantification this is then illustrated and calibrated by drawing upon existing literatures and using evidence from legal cartels to approximate what would be observed absent policy measuring impact by the proportion of all potential harm that is deterred our best estimate is two thirds and even on conservative assumptions at least half of all harms or seven times the detected harm is deterred

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony