fighting with one hand tied behind the back political budget cycles in the west german states theories of political budget cycles have been contested because scholars find that incumbents can manipulate deficits in the pre election period only if fiscal transparency is low i argue that these findings do not generally rule out the possibility of fiscal electioneering governments may increase spending on highly visible policies the composition of the budget serves as a second best strategy it increases political support without straining the budget balance an empirical analysis of the west german states reveals alternative electoral budget strategies and ultimately point to the importance of analyzing how governments choose between alternative fiscal instruments

reciprocity and cooperation in repeated coordination games the principled player approach abstract two long lived players play a repeated coordination game i show the restrictions on players beliefs which imply that cooperation is optimal play journal of economic literature classification number d83

political cycles in oecd economies this paper studies whether the dynamic behaviour of gnp growth unemployment and inflation is systematically affected by the timing of elections and of changes of governments the sample include the last three decades in 18 oecd economies we explicitly test the implication of several models of political cycles both of the opportunistic and of the partisan type also we confront the implication of recent rational models with more traditional approaches our results can be summarized as follows a the political business cycle hypothesis as formulated in nordhaus 1975 on output and unemployment is generally rejected by the data b inflation tends to increase immediately after elections perhaps as a result of pre electoral expansionary monetary and fiscal policies c we find evidence of temporary partisan differences in output and unemployment and of long run partisan differences in the inflation rate as implied by the rational partisan theory by alesina 1987 d we find virtually no evidence of permanent partisan differences in output growth and unemployment

interrupted work careers depreciation and restoration of human capital the quantitative effects and even the existence of a human capital depreciation phenomenon have been a subject of controversy in the recent literature prior work however was largely cross sectional and the longitudinal dimension if any was retrospective using longitudinal panel data on married women in nls we have now established that real wages at reentry are indeed lower than at the point of labor force withdrawal and the decline in wages is greater the longer the interruption another striking finding is a relatively rapid growth in wages after the return to work this rapid growth appears to reflect the restoration or repair of previously eroded human capital the phenomenon of depreciation and restoration is also visible in data for immigrants to the united states however while immigrants eventually catch up with and often surpass natives returnees from the nonmarket do not fully restore their earnings potential

on the dominance solvability of large cournot games we consider cournot s model of oligopolistic competition in a market for a homogeneous good we seek conditions under which the oligopolists game is dominance solvable and hence the cournot equilibrium is the only outcome that survives iterated deletion of dominated strategies we focus on large oligopolies whereby we define an oligopoly to be large if both the demand and the supply side are replicated more than a certain finite number of times we show that large cournot oligopolies are dominance solvable if and only if the equilibrium of the approximated perfectly competitive market is globally stable under cobweb dynamics journal of economic literature classification numbers 022 1995 academic press inc

trends in unemployment duration data a method of estimating the distribution of uninterrupted unemploymentspells from aggregate unemployment data is outlined the methodology does not i mpose constant individual hazard rates and allows for heterogeneity characteris tics of the distribution of unemployment spells are then considered including ha zard rates measures of inequality such as gini coefficients and the fraction o f total unemployment associated with s weeks of unemploy ment the relationship between these char acteristics and labor demand variables gnp and supply side variables transfer payments unemployment insurance is considered in or der to better understand the relative role of short and long run unemployment copyright 1986 by mit press

unemployment persistence is there evidence for stigma effects we present evidence for a highly significant interaction between state dependence in individual unemployment risk and the business cycle the disadvantage from having been unemployed in the previous period is smaller in times of relatively high unemployment and larger in times of low unemployment this is consistent with the existence of stigma effects in the sense that unemployed individuals face difficulties finding a new job because employers interpret unemployment as a negative signal and do so especially when it is easier to find jobs i e when unemployment is low

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

the institutional and psychological foundations of natural resource policies abstractthe pressures of political interests which drive the resource curse are well understood but ordinary citizens are usually cast both as the innocent victims of this process and as the potential solution if only governments could be made more accountable to them this paper draws upon recent developments in social psychology to discuss the formation of mass opinions on two aspects of resource ownership one is the spatial assignment of ownership between local and national claims which has been a significant cause of conflict the other is the assignment of revenues between current consumption and future investment which has usually been excessively biased towards the former i suggest why in the absence of an active government communications policy to offset them known psychological biases may interact with resource discoveries to generate mass opinions which contribute to these problems

on the complexity of strategy switching dynamics abstract a new approach has been proposed to analyze the strategy switching dynamics in a discrete model or a non cooperative game with the following characteristics i the agents are motivated by absolute payoffs rather than relative ones ii the payoffs vary as the composition of the population changes iii the agents are boundedly rational in the sense that they can only predict the outcomes of their own actions rich dynamic phenomena are exhibited for such discrete dynamic models or games the approach is then applied to explore the relative profitability of price taking behavior in a quantity competing heterogeneous oligopoly

unemployment dynamics and duration dependence in france the netherlands and the united kingdom this paper analyzes unemployment dynamics in the french dutch and u k labor market it presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment it turns out that for british male unemployed there is strong genuine negative duration dependence for french unemployed there is no strong duration dependence during the first year of unemployment while for dutch unemployed there is nonmonotonic duration dependence for all groups of french and dutch individuals significant unobserved heterogeneity is found for u k male unemployed heterogeneity seems to be empirically unimportant copyright 1994 by royal economic society

the british low wage sector and the employment prospects of the unemployed abstractare low wages a way for the unemployed to switch to higher paying jobs using data from the british household panel survey the labour market dynamics of unemployed low paid and higher paid employed men are analysed moreover the respective un employment duration and occupational skill level are accounted for results show that in general low wages significantly reduce the risk of future unemployment and increase the chances of ascending the salary ladder especially in the case of long term unemployment 360 days furthermore the occupational skill level has a substantial influence on the upward mobility of low paid jobs individuals working in the initial period in a low paid and higher skilled occupation have on average an 11 percentage points higher probability of entering higher pay compared to when working in a low paid and low skilled occupation

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

do elections affect the composition of fiscal policy in developed established democracies this paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high income oecd democracies during the period 1972 1999 we find that elections shift public spending towards current expenditures at the cost of public investment although we find no evidence for an electoral cycle for government deficit and overall expenditures we find a negative effect of elections on revenue attributed to a fall in direct taxation our results apply for predetermined electoral periods while endogenous elections seem to increase deficit and leave the composition of fiscal policy unaffected

an essay on the rationality of economic policy the test case of the electional cycle the literature on electional cycles is discussed in the light of the empirical findings by in particular the author two basically different types of explanations of such cycles are compared explanations based on the maximizing behavior of governments aiming at re election explanations building on the insufficiently controlled pressures of events in a democracy it is demonstrated that even when the most well known theory under the nordhaus macraemodel is a rather fragile construction a more robust argument termed the popularity investment argument can be constructed yielding the same basic result from the empirical literature it is concluded that almost the opposite pattern actually occurs in the data it is finally demonstrated that the weak but significant empirical pattern is easy to explain by the elections generate promises which give most real expansion in the second governmental year and most inflation in the third year an average behavior which hardly implies even medium term maximization by governments as assumed under

strategy subsets closed under rational behavior a set of strategy profiles is here said to be closed under rational behavior curb of it contains all its best replies each curb set contains the support of at least one nash equilibrium in mixed

perfection the infinite horizon and dominance abstract consideration of time and independence brought into focus by the example of perfection in the infinite horizon leads the author to a modified contraction by dominance solution for game theory

learning in games by random sampling abstract we study repeated interactions among a fixed set of low rationality players who have status quo actions randomly sample other actions and change their status quo if the sampled action yields a higher payoff this behavior generates a random process the better reply dynamics long run behavior leads to nash equilibrium in games with the weak finite improvement property including finite supermodular games and generic continuous two player quasi concave games if players make mistakes and if several players can sample at the same time the resulting better reply dynamics with simultaneous sampling converges to the pareto optimal nash equilibrium in common interest games journal of economic literature classification numbers c70 c72 c73

rational behaviour in extensive form games it is argued that subgame perfect equilibrium behavior is not an inevitable consequence of common belief of rationality among players in noncooperative extensive form games the argument centers around a particular extensive form game with perfect information in the context of this game it is argued that if rationality is not common belief throughout play of the game then it can be perfectly rational to play contrary to subgame perfection even if rationality is common belief at the beginning of the game it is then shown that it is impossible for rationality to be common belief throughout every play of the game

the electoral budget cycle on municipal waste collection expenditure abstractthis article analyses the determinants of municipal waste collection expenditure specifically the effects of electoral cycles on municipal waste collection expenditure we use a database with information on spanish municipalities with more than 1000 inhabitants for the period 2002 2011 our results reveal that incumbents adopt an opportunistic behaviour increasing spending on waste in the preelection year and reducing it in the election and post election years therefore we confirm an electoral budget cycle on waste collection expenditures in spain additionally we find that the levels of income unemployment and upper level governments transfers have a positive impact on waste collection spending finally population density level of urbanization average age of the population of the municipality and less fragmented governments negatively influence waste collection spending

electoral cycles in government employment evidence from us gubernatorial elections abstract incumbents may opportunistically design policies increasing employment before elections or postpone cuts until afterwards i investigate electoral cycles in public sector employment around us gubernatorial elections exploiting staggered gubernatorial election cycles across states i use both county fixed effects models and a geographic discontinuity design that compares neighboring counties at state borders with a difference in gubernatorial election cycles consistent with manipulation state and local government employment per capita are higher leading up to elections afterwards employment abruptly returns to normal political and spatial heterogeneities are investigated including by election competitiveness term limits incumbent party affiliation and ideological alignment between the incumbent and the state legislature or local citizens differences across types of government employment and private sector employment are also explored

electoral cycles and the earnings of federal bureaucrats this paper analyzes the relationship between the timing of federal elections and the pay raises received by civilian employees of the federal government the theoretical framework discusses how electoral wage cycles are generated as a result of optimizing behavior on the part of voters bureaucrats and the government the empirical analysis uses a time series of wage rates for the twenty eight largest federal agencies over the period 1961 1978 the study indicates that pay hikes during the presidential election year are significantly greater about 2 to 3 percent higher than bureaucratic pay raises in other years

do employers use unemployment as a sorting criterion when hiring evidence from a field experiment the stigma associated with long term unemployment spells could create large inefficiencies in labor markets while the existing literature points toward large stigma effects it has proven difficult to estimate causal relationships using data from a field experiment we find that long term unemployment spells in the past do not matter for employers hiring decisions suggesting that subsequent work experience eliminates this negative signal nor do employers treat contemporary short term unemployment spells differently suggesting that they understand that worker firm matching takes time however employers attach a negative value to contemporary unemployment spells lasting at least nine months providing evidence of stigma effects

evolution rationality and equilibrium in games abstract evolutionary game theory studies the robustness of strategy profiles and sets of strategy profiles with respect to evolutionary forces in games played repeatedly in large populations of boundedly rational agents the approach is macro oriented in the sense of focusing on the strategy distribution in the interacting population s some of the main features of this approach are here outlined and connections with learning models and standard notions of game theoretic rationality and equilibrium are discussed some desiderata and results for robust long run predictions are considered

political business cycles and macroeconomic credibility a survey there is clear evidence that government popularity and election performance is affected in part by economic performance suggesting that governments may manipulate the economy to political advantage simple models incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s but fell out of fashion with the advent of new classical economics however modern theories of the political business cycle which are closely related to the macroeconomic policy game literature assume rational expectations and lead to forms of political business cycle driven by the existence of uncertainty of one type or another the international evidence suggests that some aspects of the theories apply although definitive conclusions are as we might expect hard to come by

the keynesian and political determinants of unbalanced budgets u s fiscal policy from eisenhower to reagan the political business cycle proposition that politicians manipulate fiscal policy for political advantage is largely untested more often than not such manipulation is only assumed to occur on the basis of observed movements in inflation and unemployment and the few direct tests of the manipulation hypothesis are characterized by limited consideration of the full possibilities for political influence inadequate control for nonpolitical stabilization policy and inconsistent results this paper constructs several models of political fiscal policy incorporates them into a simple model of keynesian stabilization policy and tests the combined models using u s budget surplus deficit data from fy54 to fy83 the results provide little support for either the electoral motivation or partisan differences interpretations of the political business cycle the implications of these findings for the political business cycle literature long term economic management and deficit directed proposals for institutional reform are discussed

eductive learning and the rationalizability of oligopoly games abstract this paper extends the eductive learning approach in settings with non atomistic agents it shows the connection between the characterization of rationalizable sets by basu 1991 and the seminal result by guesnerie 1992 in the context of cournot oligopoly models

electoral cycles in active labor market policies we examine how electoral motives influence active labor market policies that promote short term job creation such policies reduce measures of unemployment using german state data for the period 1985 to 2004 we show that election motivated politicians pushed job promotion schemes before elections

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

political budget cycles the case of the western german lander this paper focuses on the issue of the electoral andideological cycles in state government budget for the elevenwestern german lander we verify this hypothesis over theperiod 1974 1994 for the following budgetary variables totalexpenditures surplus deficit administration health care education roads and social security benefits while overallour results seem to show that generally the party variabledoes not play a systematic role in spending decisions theyprovide some support to the opportunistic cycle theory showingthat the only relevant phenomenon is the effect of theupcoming election on the government spending inclinations

the electoral dynamics of human development this paper analyses the impact of elections on the dynamics of human development in a panel of 82 countries over the period 1980 2013 the incidence of partisan and political support effects is also taken into account a gmm estimator is employed in the empirical analysis and the results point out to the presence of an electoral cycle in the growth rate of human development majority governments also influence it but no clear evidence is found regarding partisan effects the electoral cycles have proved to be stronger in non oecd countries in countries with less frequent elections with lower levels of income and human development in presidential and non plurality systems and in proportional representation regimes they have also become more intense in this millennium

testable implications of subjective expected utility theory abstract i show that the predictive content of the hypothesis of subjective expected utility maximization critically depends on what the analyst knows about the details of the problem a particular decision maker faces when the analyst does not know anything about the agent s payoffs or beliefs and can only observe the sequence of actions taken by the decision maker any arbitrary sequence of actions can be implemented as the choice of an agent that solves some intertemporal utility maximization problem under uncertainty

on the existence of a political monetary cycle this paper examines electoral influence on monetary policy as measured by ml money growth i find a significant four year electoral cycle in money growth even when controlling for the influence of interest rates income and budget deficits further the residual electoral cycle produces the income and inflation movements associated with the political business cycle when it is used in simulations of simple reduced form macro models the paper concludes by discussing the difficulties in rationalizing cyclical monetary policy with rational expectations

experimental evidence on the evolution of the meaning of messages in sender receiver games an experiment this paper experimentally investigates the evolution of message meanings when talk is cheap we consider communication between a privately informed sender and a receiver when the sender s message does not affect payoffs directly sender receiver games introduced by jerry green and nancy stokey 1980 and vincent p crawford and joel sobel 1982 provide the simplest stylized environment in which communication is essential communication is the only way to link the receiver s action to the sender s private information in addition sender receiver games have been widely used to study communication in accounting economics finance and political science intuition strongly suggests that effective communication will evolve when the players interests are closely aligned however there is always a nash equilibrium in which the sender randomizes uniformly across all messages such babbling equilibria are proper roger b myerson 1978 blume 1994 and even strategic stability elon kohlberg and jeanfrancois mertens 1986 does not rule out uninformative equilibria in general in response a literature developed that formulates equilibrium selection criteria by appealing to the existence of a commonly understood language matthew rabin 1990 steven a matthews et al 1991 joseph farrell 1993 that can be used to formulate credible deviations from equilibrium unfortunately the selection criteria from this literature are frequently strong enough to remove all equilibria from consideration in addition these arguments are vulnerable to stiglitz s observation in koo cho and david m kreps 1987 that successful deviations from equilibrium may induce further deviations which in turn may undermine the credibility of the original deviations both problems can be avoided by a dynamic approach as in rabin and sobel 1996 we also adopt a dynamic perspective but do not require messages to have a priori meanings instead distinct meanings may emerge endogenously this is important for communication across cultures and for language change 2 we are guided by recent results of blume department of economics university of iowa iowa city ia 52242 dejong department of accounting university of iowa iowa city ia 52242 kim department of economics sung kyun kwan university seoul 110 745 korea sprinkle department of accounting university of wisconsin madison wi 53706 we thank joyce berg vince crawford robert forsythe joel horowitz deirdre mccloskey forrest nelson larry samuelson gene savin joel sobel and especially two anonymous referees for their advice and suggestions we benefitted from comments and discussions resulting from presentations at the 1994 summer meetings of the econometric society the 1996 social learning workshop at suny stony brook the io me gt workshop at the university of iowa the university of bonn the university of bielefeld the center for economic research at tilburg university ohio state university seoul national university and texas a m university we are grateful for financial support from the college of business administration at the university of iowa the ira b mcgladrey institute and the national science foundation

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

tenable strategy blocks and settled equilibria when people interact in familiar settings social conventions usually develop so that people tend to disregard alternatives outside the convention for rational players to usually restrict attention to a block of conventional strategies no player should prefer to deviate from the block when others are likely to act conventionally and rationally inside the block we explore two set valued concepts coarsely and finely tenable blocks that formalize this notion for finite normal form games we then identify settled equilibria which are nash equilibria with support in minimal tenable blocks for a generic class of normal form games our coarse and fine concepts are equivalent and yet they differ from standard solution concepts on open sets of games we demonstrate the nature and power of the solutions by way of examples settled equilibria are closely related to persistent equilibria but are strictly more selective on an open set of games with fine tenability we obtain invariance under the insertion of a subgame with a unique totally mixed payoff equivalent equilibrium a property that other related concepts have not satisfied

on the effects of ranking by unemployment duration abstract we propose a theory based on the firm s hiring behavior that rationalizes the observed significant decline of callback rates for an interview and exit rates from unemployment and the mild decline of reemployment wages over unemployment duration we build a directed search model with symmetric incomplete information on worker types and non sequential search by firms sorting due to firms testing of applicants in the past makes expected productivity fall with duration which induces firms to rank applicants by duration in equilibrium callback and exit rates both fall with unemployment duration in our numerical exercise using u s data we show that our model can replicate quite well the observed falling patterns with the firm s ranking decision accounting for a sizable part

voting suffrage and the political budget cycle evidence from the london metropolitan boroughs 1902 1937 we study the opportunistic political budget cycle in the london metropolitan boroughs between 1902 and 1937 under two different suffrage regimes taxpayer suffrage 1902 1914 and universal suffrage 1921 1937 we argue and find supporting evidence that the political budget cycle operates differently under the two types of suffrage taxpayer suffrage where the right to vote and the obligation to pay local taxes are linked encourages demands for retrenchment and the political budget cycle manifests itself in election year tax cuts and savings on administration costs universal suffrage where all adult residents can vote irrespective of their taxpayer status creates demands for productive public services and the political budget cycle manifests itself in election year hikes in capital spending and a reduction in current spending

admissibility in games suppose that each player in a game is rational each player thinks the other players are rational and so on also suppose that rationality is taken to incorporate an admissibility requirement that is the avoidance of weakly dominated strategies which strategies can be played we provide an epistemic framework in which to address this question specifically we formulate conditions of rationality and mth order assumption of rationality rmar and rationality and common assumption of rationality rcar we show that i rcar is characterized by a solution concept we call a self admissible set ii in a complete type structure rmar is characterized by the set of strategies that survive m 1 rounds of elimination of inadmissible strategies iii under certain conditions rcar is impossible in a complete structure

who follows the crowd groups or individuals abstract in games of social learning individuals tend to give too much weight to their own private information relative to the information that is conveyed by the choices of others weizsacker 2010 in this paper we investigate differences between individuals and small groups as decision makers in information cascade situations in line with results from social psychology as well as results on bayesian decision making charness et al 2006 we find that groups behave more rationally than individuals groups in particular are able to abandon their own private signals more often than individuals when it is rational to do so our results indicate that the intellective part of the decision task contributes slightly more to the superior performance of groups than the judgmental part our findings have potential implications for the design of decision making processes in organisations finance and other economic settings

statistical discrimination and duration dependence in the job finding rate this article models a frictional labour market where employers endogenously discriminate against the long term unemployed the estimated model replicates recent experimental evidence which documents that interview invitations for observationally equivalent workers fall sharply as unemployment duration progresses we use the model to quantitatively assess the consequences of such employer behaviour for job finding rates and long term unemployment and find only modest effects given the large decline in callbacks interviews lost to duration impact individual job finding rates solely if they would have led to jobs we show that such instances are rare when firms discriminate in anticipation of an ultimately unsuccessful application discrimination in callbacks is thus largely a response to dynamic selection with limited consequences for structural duration dependence and long term unemployment

information externalities in the labour market and the duration of unemployment a matching model is analysed in which firms imperfectly test workers prior to hiring them if some firms hire only workers who pass the test there is an informational externality unemployment duration is a signal of productivity in equilibrium if it is profitable for a firm to test it is also profitable for it to condition its hiring decision on duration hiring those whose duration is less than a critical value this testing equilibrium is inefficient with too much testing and too low a critical duration value sensitivity analysis of the latter suggests explanations for the dependence of re employment probabilities on duration and the instability of the u v curve

information cascades in the laboratory when a series of individuals with private information announce public predictions initial conformity can create an information cascade in which later predictions match the early announcements this paper reports an experiment in which private signals are draws from an unobserved urn subjects make predictions in sequence and are paid if they correctly guess which of two urns was used for the draws if initial decisions coincide then it is rational for subsequent decisionmakers to follow the established pattern regardless of their private information rational cascades formed in most periods in which such an imbalance occurred copyright 1997 by american economic association

the electoral budget cycle this article begins with a review of the now substantial literature on the thesis that polticians manipulate governmental outputs so as to favor their chances of reelection it concludes that while this electoral cycle thesis was initially overstated by its proponents it retains more plausibility than recent critics have allowed this conclusion is then demonstrated through an analysis of expenditures by the ten provincial governments in canada between 1951 and 1984

political parties and the business cycle in the united states 1948 1984 this paper tests the existence and the extent of a politically induced business cycle in the u s in the post world war ii period the cycle described in this paper is different from the traditional political business cycle of nordhaus it is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts from an explicit optimization problem we derive a system of equations for output and money growth then we successfully test the non linear restriction imposed by the theory on the parameters of the system of equations we cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations

duration dependence and labor market conditions evidence from a field experiment this article studies the role of employer behavior in generating negative duration dependence the adverse effect of a longer unemployment spell by sending fictitious resumes to real job postings in 100 u s cities our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker s unemployment spell with the majority of this decline occurring during the first eight months we explore how this effect varies with local labor market conditions and find that duration de pendence is stronger when the local labor market is tighter this result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets jel code j64

evolutionary game theory game theory has been developed as a theory of rational behavior in interpersonal conflict situations with economics and the other social sciences being the intended fields of application since the theory is based on an idealized picture of human rationality it is by no means obvious that it can be applied to situations in which the players cannot be attributed any intellectual capabilities however in their seminal paper the logic of animal conflict maynard smith and price showed that animal contests can be modeled as games and that game theory can be applied successfully in biology the objective of this chapter is to review some of the developments in this biological branch of game theory and to point out the distinctions and similarities with the classical branch also see parker and hammerstein 1985 the main emphasis will be on the mathematics involved lack of space prevents an extensive discussion of the underlying biological assumptions as well as an analysis of specific examples for these the reader is referred to the very stimulating book evolution and the theory of games by john maynard smith

tax structure turbulence in oecd countries this paper analyses whether and to what extent politiciansmanipulate tax structures strategically in order to winelections or for ideological purposes we introduce anindicator for tax structure turbulence which measures thedegree to which a country s tax structure changes from oneyear to another using data on 18 oecd countries over theperiod 1965 1995 we find clear evidence of a politicalbudget cycle in national tax structures more precisely wefind that in election years tax structures are changedsignificantly less than in other years further thedispersion of political power significantly lowers the abilityof governments to change the tax structure we do not however find any evidence of partisan budget cycles innational tax systems following political regime changes

orchestrating impartiality the impact of blind auditions on female musicians a change in the audition procedures of symphony orchestras adoption of blind auditions with a screen to conceal the candidate s identity from the jury provides a test for sex biased hiring using data from actual auditions in an individual fixed effects framework we find that the screen increases the probability a woman will be advanced and hired although some of our estimates have large standard errors and there is one persistent effect in the opposite direction the weight of the evidence suggests that the blind audition procedure fostered impartiality in hiring and increased the proportion women in symphony orchestras

a myopic adjustment process leading to best reply matching we analyze a myopic strategy adjustment process in strategic form games it is shown that the steady states of the continuous time limit which is constructed assuming frequent play and slow adjustment of strategies are exactly the best reply matching equilibria as discussed by droste kosfeld and voorneveld 2000 mimeo tilburg university in a best reply matching equilibrium every player matches the probability of playing a pure strategy to the probability that this pure strategy is a best reply to the pure strategy profile played by his opponents we derive stability results for the steady states of the continuous time limit in 2 2 bimatrix games and coordination games analyzing the asymptotic behavior of the stochastic adjustment process in discrete time shows convergence to minimal curb sets of the game moreover absorbing states of the process correspond to best reply matching equilibria of the game

clever agents in adaptive learning abstract saez marti and weibull j econom theory 86 1999 268 investigate the consequences of letting some agents play a myopic best reply to the myopic best reply in young s j econom theory 59 1993 145 bargaining model which is how they introduce cleverness of players i analyze such clever agents in general finite two player games and show young s individual strategy and social structure princeton university press princeton nj 1998 prediction to be robust adaptive learning with clever agents does select the same minimal curb set as in the absence of clever agents if their population share is less than one however the long run strategy distribution in such a curb set may vary with the share of clever agents

public spending interactions and local politics empirical evidence from french municipalities this paper aims at testing whether there exist spending interactions between french municipalities by estimating a dynamic panel data model our results suggest that there are some interactions between neighbouring municipalities as regards primary and investment expenditures a positive relationship between municipalities wage bill and un employment rates is likely to stress a rise of temporary employment in those municipalities that suffer from social troubles further the estimation results show that these interdepen dences also exist between cities whose mayors have the same partisan affiliation finally our results confirm the opportunistic behaviour of local governments which increase all categories of public spending in pre electoral periods

equilibrium selection in a merger game abstract a merger game is modeled as a non cooperative simultaneous moves exclusive membership game of coalition formation in the three player case in the equilibrium selected by refinements the merger is such that the participants prefer it to other mergers involving them

stochastic adaptation in finite games played by heterogeneous populations we analyze stochastic adaptation in finite n player games played by heterogeneous populations containing best repliers better repliers and imitators individuals select strategies by applying a

political models of the business cycle should be revived political models of the business cycle have typically been ignored because they appear inconsistent with rational behavior and because empirical evidence is inconclusive this paper addresses the second issue demonstrating for u s real gnp unemployment and inflation that electoral cycles persistent patterns across electoral terms are significant but apparently only for republican incumbents and that partisan cycles persistent differences between parties are also significant these findings are consistent with the conjecture that a minority party is more constrained by electoral concerns whereas a majority party is freer to pursue partisan objectives

election results and opportunistic policies a new test of the rational political business cycle model the literature on the rational pbc suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chances of reelection most tests of this theory look for evidence of pre election distortions in fiscal policy we propose a new test that explores the two way interaction between the magnitude of the opportunistic distortion and the margin of victory the test is implemented using a large panel of portuguese municipalities the results show that opportunism leads to a larger win margin for the incumbent and that incumbents behave more opportunistically when their win margin is small these results are consistent with the theoretical model

evolution in games with endogenous mistake probabilities abstract j bergin and b lipman econometrica 64 1996 943 956 show that the selection effect from the random mutations in the adaptive population dynamics in m kandori g mailath and r rob econometrica 61 1993 29 56 and p young econometrica 61 1993 57 84 is due to restrictions on how these mutation rates vary across population states we here model mutation rates as endogenously determined mistake probabilities by assuming that players with some effort can control the probability of implementing the intended strategy this is shown to corroborate the results in kandori mailath rob 1993 and under certain regularity conditions those in young 1993 journal of economic literature classification number c72

cournot and the oligopoly problem cournot s recherches sw les principes mathpmatiques de la thiorie des richesses 1838 contribution to economic theory ranges from the formulation of the concept of demand function to the analysis of price determination in different market structures from monopoly to perfect competition he is credited for being the pioneer in the use of mathematics in economic analysis nevertheless cournot is most known for his theory of oligopoly cournot claimed that prices would also be determined under oligopolistic rivalry he envisioned firms the celebrated mineral water producers competing independently deciding about their production levels and bringing to the market the output where a price emerges from the interaction of supply and demand an equilibrium is reached when the output of any firm is a best response to the other firms outputs that is when each firm chooses an output level that maximizes profits given the outputs chosen by the rivals the equilibrium involves a price above the marginal cost of production cournot thought furthermore that this equilibrium would be stable in the sense that a departure from it would be self correcting through a series of reactions of the firms the disequilibrium dynamics would be governed by the best response functions of the firms that is by the functions that give the optimal output of a firm in terms of the outputs of the rivals cournot also evoked the question of why is it that firms do not come to an understanding and agree on sharing the market at the monopoly price the answer is that from the point of view of a firm if the rivals follow the agreement it is in the interest of the firm to depart from it since this way it can increase its profits in other words there is an incentive to cheat cournot thought that monopoly or cartel type agreements could only be maintained by means of a formal engagement p 83 our author also considered competition of

learning from schelling s strategy of conflict thomas schelling s strategy of confl ict is a masterpiece that should be recognized as one of the most important and infl uential books in social theory this paper reviews some of the important ideas in strategy of confl ict and considers some of the broader impact that this book has had on game theory economics and social theory by his emphasis on the critical importance of information and commitment in strate gic dynamics schelling played a vital role in stimulating the development of non cooperative game theory more broadly schelling s analysis of games with multiple equilibria has redefi ned the scope of economics and its place in the social sciences jel d74 f51 h56

individual learning and social rationality abstract classical game theory assumes that players have a coherent model of the game in which they are engaged that they make optimum plans assuming that everyone else makes optimum plans and that all of this is common knowledge evolutionary game theory postulates instead that players have limited understanding of their environment only modest reasoning ability and no common knowledge surprisingly a fair amount of classical solution theory survives with this change of perspective we show how high rationality solutions can emerge in low rationality environments provided the evolutionary process has sufficient time to unfold

nonemployment stigma as rational herding a field experiment abstract long spells of unemployment are known to reduce the likelihood of re employment but it is difficult to discern the reasons for this observation using an experimental method that controls for search intensity and possible discouragement of job applicants i document that job market opportunities for the nonemployed diminish rapidly over time in this experiment duration dependence is solely due to firm perceptions why do firms view long spells of nonemployment as negative signals rational herding is one important factor managers believe that unemployed applicants were previously interviewed and if the applicants were productive they would have been hired

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

online ascending auctions for gradually expiring items abstract we consider dynamic auction mechanisms for the allocation of multiple items items are identical but have different expiration times and each item must be allocated before it expires buyers are of dynamic nature and arrive and depart over time our goal is to design mechanisms that maximize the social welfare we begin by showing that dominant strategy incentive compatibility cannot be used in this case since any such auction cannot obtain any constant fraction of the optimal social welfare we then design two auctions that perform well under a wide class of semi myopic strategies for every combination of such strategies the auction is associated with a different algorithm or allocation rule and so we have a family of semi myopic algorithms we show that any algorithm in this family obtains at least 1 3 of the optimal social welfare we also provide some game theoretic justification for acting in a semi myopic way we suggest a new notion of set nash equilibrium where we cannot pinpoint a single best response strategy but rather only a set to which best response strategies belong we show that our auctions have a set nash equilibrium which is all semi myopic

overlapping political budget cycles we advance the literature on political budget cycles by testing for cycles in expenditures for elections to the legislative and the executive branches using municipal data we identify cycles independently for the two branches evaluate the effects of overlaps and account for general year effects we find sizable effects on expenditures before legislative elections and even larger effects before joint elections to the legislature and the office of mayor in the case of coincident elections we show that it is important whether the incumbent chief executive seeks reelection to account for the potential endogeneity of that decision we apply an iv approach using age and pension eligibility rules

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions

a characterization of the class of rationalizable equilibria of oligopoly games abstract the set of rationalizable strategies of a firm in a quantity setting oligopoly is characterized it is shown that as the number of firms in the industry increases the rationalizable solution converges to the interval from zero to the monopoly output

unemployment dynamics and duration dependence a major issue in the analysis of unemployment durations concerns distinguishing genuine duration dependence of the exit rate out of unemployment from unobserved heterogeneity we present a method for the nonparametric estimation of both phenomena designed to be applicable to time series data on aggregate outflows from different duration classes the model explicitly takes into account that individual exit rates are affected by the business cycle and by seasonal effects the method is applied to u s data we find diverging duration effects among black and white individuals however except for white males duration dependence is dominated by unobserved heterogeneity

the effects of unemployment and underemployment on employment opportunities results from a correspondence audit of the labor market for college graduates the authors use data from a resume audit to estimate the impact of unemployment and underemployment on the employment prospects of recent college graduates they find no statistical evidence linking unemployment spells of different durations to employment opportunities by contrast college graduates who are underemployed have callback rates that are 30 lower than those of applicants who are adequately employed the null effects associated with unemployment and the adverse effects associated with underemployment are robust across cities with relatively tight and loose labor market conditions internship experience obtained while completing one s degree substantially reduces the negative effects of underemployment the data support the proposition that employers view underemployment as a strong signal of lower expected productivity

an empirical study of long term unemployment in australia this paper has two parts the first part concentrates on modeling transitions out of unemployment using aggregated gross flow data models are estimated using monthly transition probabilities for march april 1984 this analysis produces evidence consistent with negative duration dependence but sheds no light on the role of macroeconomic factors the second part focuses on this issue a time series analysis of the proportion of long term unemployment using data for four age and sex groups provides evidence that a proportionately greater increase in long term unemployment in australia in the 1970s has been associated with reduction in job availability and the effect of certain supply shocks

determinants of callbacks to job applications an audit study abstract we summarize findings from an audit study investigating how unemployment duration age and holding a low level interim job affect the likelihood that experienced college educated females applying for administrative support jobs receive a callback from potential employers the results show no relationship between callback rates and unemployment duration in contrast workers age 50 and older and workers with an interim job are significantly less likely to receive callbacks we also summarize disparate findings in the growing literature of resume based audit studies of career histories and discuss avenues in which the literature could achieve results that are more comparable and externally valid

public expenditures in canadian provinces an empirical study of politico economic interactions it is widely believed that government ideology and electoral constraints are two major factors that influence the level of public expenditures however frey and schneider argue that the effects of the two phenomena are not simultaneous only when a government is popular can it pursue ideological goals and when popularity is low energies must be redirected toward gaining support from voters to win the next election data draw from the canadian provincial case are used to test empirically this hypothesis the findings support the frey and schneider explanation