This paper examines the results of experiments with one-stage and two-stage alternating-offers bargaining games. As do previous experiments, we find that the results are inconsistent with the assumptions that players maximize their monetary payoffs and perform backward-induction calculations. Payoff-interdependent preferences have been suggested as an explanation for experimental results in bargaining games. We examine whether, given payoff-interdependent preferences, players respect backward induction. To do this, we break backward induction into its components, subgame consistency and truncation consistency. We examine each by comparing the outcomes of two-stage bargaining games with one-stage games with varying rejection payoffs. We find and characterize systematic violations of both subgame and truncation consistency.
Journal of Economic Literature Classification Numbers C70, C78
Keywords: Bargaining, experiments, backward induction, subgame-perfect equilibrium, interdependent preferences.
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This paper studies decision makers characterized by a stock of models, or analogies, who respond to strategic interactions by applying what appear to be the most suitable models; balancing the gains from more sophisticated decision-making against the attendant cost of placing heavier demands on scarce reasoning resources. Equilibrium models will be finely tuned to interactions, leading to seemingly "rational" behavior, when the interactions are sufficiently important and sufficiently distinct that a more generic model entails a prohibitive payoff reduction. Interactions that are infrequently encountered, relatively unimportant, or similar to other interactions may trigger seemingly inappropriate analogies, leading to behavioral anomalies.
Journal of Economic Literature Classification numbers C70, C72.
Keywords: Analogies, bargaining, bounded rationality, complexity, evolution.
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This paper describes a particular perspective on the causes of poverty: a memberships based theory. The
idea of this theory is that an individual's socioeconomic prospects are strongly influenced by the groups to which he
is attached over the course of his life. Such groups may be endogenous; examples include residential neighbor
hoods, schools and firms. Other groups are exogenous, including ethnicity and gender. I describe the main ideas of
the memberships theory, characterize the empirical evidence in its support, and remark on its implications for anti-
poverty policy.
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This paper studies "voluntary bargaining agreements" in an environment where preferences over an excludable public good are private information. Unlike the case with a non-excludable public good, there are non-trivial conditions when there is significant provision in a large economy. The provision level converges in probability to a constant, which makes it possible to approximate the optimal solution by a simple fixed fee mechanism, which involves second degree price discrimination if identities are informative about the distribution of preferences. Truth-telling is a dominant strategy in the fixed fee mechanism.
Being able to limit a public goods' consumption does not make it a turn-blue private good. For what, after all, are the true marginal costs of having one extra family tune in on the program. They are literally zero. Why then limit any family which would receive positive pleasure from tuning in on the program from doing so? [Samuelson [24], pp 335].
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Recent work in economics has begun to integrate sociological ideas into the modelling of individual
behavior. In particular, this new approach emphasizes how social context and social interdependences influence the
ways in which individuals make choices. This paper provides an overview of an approach to integrating theoretical
and empirical analysis of such environments. The analysis is based on a framework due to Brock and Durlauf
(2000a,2000b). Empirical evidence on behalf of this perspective is assessed and some policy implications are
explored.
Download WP#2016R in pdf. (revised 5/30/01).
We characterize the set of perfect Bayesian equilibria in symmetric separating strategies in Milgrom and
Weber's (1982) model of English auctions. There is a continuum of such equilibria. The equilibrium derived by
Milgrom and Weber is that in which bids are maximal. Only in the case of pure private values does a restriction
to weakly undominated strategies select a unique equilibrium. This has important implications for empirical
studies of English auctions, particularly outside the pure private values paradigm.
JEL Class: D44, D82
Keywords: English auctions, multiple equilibria
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No Abstract.
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No Abstract.
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No abstract.
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This paper reports tests of hypotheses that a variety of interest rates and
other measures from financial markets in countries belonging to the European
Monetary Union (EMU) were converging prior to the introduction of the euro in
January 1999. We expected to find convergence because of i) removal of national
barriers to flows of funds, ii) explicit and market-driven harmonization of
regulation and supervisory standards, iii) coordinated macroeconomic policies,
iv) privatization of state enterprises, and v) fiscal redistribution of resources.
The first series of tests (s-tests) are that standard
deviations and/or coefficients of variation of cross-sections of national measures
are diminishing over time, relative to a group of non-EMU countries. Evidence
of convergence was found for inflation rates, short- and long- term nominal
interest rates, and ex post real short-term rates, but not for real per
capita GDP. The second series concerned levels and trends in interbank claims
and noninterest income at banks. These measures are believed to be larger and
growing more rapidly when banks are attempting to escape binding national regulations.
Interbank claims were larger at EMU banks than at banks in other countries,
but had no interpretable trends. The ratios of noninterest income to total bank
income and assets were found to have positive trends. The third series of tests
used a statistical cost accounting model estimated for nine countries to examine
whether marginal costs of liabilities and revenues from assets were tending
toward equality, as might be expected in an efficient unified economy. Within
the EMU, significant differences across six major countries were observed for
1994, 1995, and 1996, but not in 1997 or 1998.
Convergence seemed to be being achieved.
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Competitive procurement is often susceptible to corruption when non-price components of a bid, such as
quality, requires expert evaluation by an agent. We study the effect of a corrupt agent who manipulates quality
assessment in exchange for a bribe. With complete information and no corruption, the efficient firm will win the
contract for sure and offer the first-best quality. If the agent is corrupt and has sufficiently large manipulation power,
however, bribery makes it costly for the efficient firm to secure a sure win, so in equilibrium firms randomize their
contract bids and bribes in such a way that the efficient firm loses the contract with positive probability. Bribery
blunts price competition, which inflates the cost of procurement. The optimal scoring rule for the buyer
deemphasizes quality relative to price and does not fully handicap the efficient firm. The allocative inefficiency
carries over to a setting in which the firms have incomplete information about their costs.
WP2023 is not available electronically at this time.
See March 8, 2001 revised version.
The ultimatum bargaining game has bedeviled economic theorists and experimenters alike. Questions like,
"Why don't subjects reach the subgame perfect outcome?" and. "What are preferences for fairness?" have eluded answer.
One reason is that the ultimatum game itself, by its all-or-nothing nature, masks a great deal of information about the
preferences of bargainers. Here we explore a game that convexifies the decisions, allowing us to observe preferences
for "partial" rejections. This convex game maintains the subgame perfect equilibrium, but allows a clearer look at
preferences. We then apply principles of rational choice to analyze the behavior of both proposers and responders. We
are able to conclude that an economic approach can describe behavior, and that our findings suggest new avenues for
research into models of bargaining and fairness
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No Abstract.
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Resource-based models of species competition have been introduced recently as an alternative to the
classical theory based on the Lotca-Volterra methodological approach to species competition. We consider
economic management of an ecosystem for a Tilman model of mechanistic resource-based species competition
where the growth of species is limited by resource availability. We analyze the equilibrium ecosystem state
resulting from Nature's equilibrium, and two basic management problems: the privately optimal management
problem and the socially optimal management problem. Under private optimization agents do not take into account
externalities associated with the effects of their management practices on ecosystem service flows, while these
effects are accounted for at the socially optimal management. We show that in general three different equilibrium
species specialization patterns emerge, we completely characterize these patterns for the ecological/economic model
with linear structure, and we provide policy rules so that the privately optimal state could be driven towards the
socially optimal or the natural equilibrium. We also develop an approach for unifying equilibrium price theory with
Tilman ecological modelling and we prove the existence and analyze the stability of a price equilibrium for a
stochastic discrete choice model of species specialization. Finally we discuss equilibrium specialization and policy
issues for a generalized model where species and resources interact among themselves, as a conceptual basis for
incorporating detailed ecological modelling into economic management.
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No abstract.
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