The All‐Pay Auction with Nonmonotonic Payoff

I model innovation contests as an all‐pay auction in which it is possible not to achieve successful innovation despite costly R&D investments, and as a result, there is no winner. In such a case, the winning payoff turns out to be nonmonotonic in own bid. I derive the sufficient conditions for the existence of pure strategy equilibria, and fully characterize the nondegenerate mixed strategy equilibrium. In the mixed strategy equilibrium, the support of the low‐value bidder is not continuous, and both the high‐value and the low‐value bidders place an atom in the (distinct) lower bound of their respective support. Under symmetric valuation, both bidders place an atom at zero. These results can explain why one does not observe very low quality innovation in real life, or why even symmetric firms may stay out of an innovation contest.     

How Large Looms the Ghost of the Past? State Dependence versus Heterogeneity in Coordination Games

In games with multiple, Pareto‐rankable equilibria and repeated play, does a history of playing an inefficient equilibrium make it harder for players to reach the efficient equilibrium? In other words, can people “get stuck” in bad equilibria? Previous studies have found support for this, but they have relied on naturally occurring variation in precedent. I implement randomized control to establish that precedent effects are important, but that naturally occurring variation exaggerates the importance of precedent. I present evidence that some of the endogeneity of naturally occurring precedents is due to variation in risk attitudes. This is because in the coordination games used, the inefficient equilibrium is associated with a safe strategy. Understanding the causal effect of precedent is important since many development problems are viewed as coordination games. Moreover, an appreciation of the way in which potential heterogeneity may interact with the policy is essential when trying to lift groups out of bad precedents.     

The Effect of Subtracting a Constant from all Payoffs in a Hawk‐Dove Game: Experimental Evidence of Loss Aversion in Strategic Behavior

Economists and psychologists have documented patterns of individual decision‐making behavior (e.g., loss aversion) whereby losses and gains are treated differently. However, there has been little evidence of such patterns in multiplayer games. I report results showing the strongest evidence I know of that this phenomenon is present in games. Experimental subjects play two hawk‐dove games that are identical up to a constant; in one, all payoffs are positive, while in the other, payoffs are negative if and only if both players choose “hawk.” Under both fixed pairs and random matching, differences between the games are substantial, significant, and consistent with loss aversion.     

Does Manufacturer Advertising Crowd‐in or Crowd‐out Retailer Advertising? An Application of an Endogenous Prize Contest with Asymmetric Players

When a manufacturer advertises, what is the impact on retailer advertising? I analyze a contest model of advertising where total advertising by the manufacturer and by retailers determines market size, and the relative level of advertising by each retailer determines market share. If retailers are symmetric I show that there is a crowding‐in effect so increased manufacturer advertising increases retail advertising. But if one retailer is stronger, then marginal increases in manufacturer advertising have a crowding‐out effect on retailer advertising, while sufficiently large increases have a crowding‐in effect by “jump‐starting” competition between retailers for the larger market. Furthermore, asymmetric abilities in such contests can lead the weaker player to effectively drop out of the contest, thereby undermining the ability of increased prizes to increase effort by intensifying competition.     

Existence of Bertrand equilibrium revisited

In this paper we reconsider existence of Bertrand equilibrium in a symmetric‐cost, homogenous‐product oligopoly. We prove the following main results. (a) If the cost function is strictly superadditive on [0, ∞) then there exists a pure strategy Bertrand equilibrium. Such Bertrand equilibria are necessarily non‐unique. (b) If the cost function is strictly subadditive on [0, ∞) then there exists no Bertrand equilibrium, either in pure strategies or in mixed strategies.     

Multi‐battle Contests: An Experimental Study

We examine behavior of subjects in simultaneous and sequential multi‐battle contests, where each individual battle is modeled as an all‐pay auction with complete information. In simultaneous best‐of‐three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceed to the third battle. Finally, although the aggregate bid in simultaneous contests is similar to that in sequential contests, in both settings, subjects make higher aggregate bids than predicted. The observed behavior of subjects can be rationalized by a combination of multidimensional iterative reasoning and a nonmonetary utility of winning.     

Ill‐Defined versus Precise Pre‐Play Communication in the Traveler's Dilemma

This article reports results from an experiment comparing the effects of vague versus precise pre‐play communication in a highly competitive two‐player game with conflicting interests. In the classic Traveler's Dilemma, non‐binding precise messages about intent of play are pure cheap talk. We conjecture that a form of imprecise pre‐play communication whereby subjects can submit ill‐defined messages may help foster cooperation because of their vagueness. Comparing behavior both across modes of communication and to a baseline case without communication, we find that cooperation is highest when players can communicate using precise numerical messages. When communication with ill‐defined messages is allowed, then conditional on receiving a message, subjects act more cooperatively than when no message is received. However, overall, the ability to exchange ill‐defined messages does not substantially improve cooperation.     

Mixed strategy equilibria in repeated games with one-period memory

Infinitely repeated games is the pre-dominant paradigm within which economists study long-term strategic interaction. The standard framework allows players to condition their strategies on all past actions; that is, assumes that they have unbounded memory. That is clearly a convenient simplification that is at odds with reality. In this paper we restrict attention to one-period memory and characterize all totally mixed equilibria. In particular, we focus on strongly mixed equilibria. We provide conditions that are necessary and sufficient for a game to have such an equilibrium. We further demonstrate the exact set of payoffs that can be generated by such equilibria.     

Go West Young Man: Self‐Selection and Endogenous Property Rights

If, as Hume argues, property is a self‐referring custom of a group of people, then property rights depend on how that group forms and orders itself. In this article we investigate how people construct a convention for property in an experiment in which groups of self‐selected individuals can migrate between three geographically separate regions. To test a hypothesis of Demsetz's, we vary across two treatments the external benefits of migrating. We find that self‐selection has a powerful effect on establishing conventions of property and begetting increases in wealth through exchange and specialization. We also find support for the Demsetz hypothesis.     

TO PREY OR NOT TO PREY? WELFARE AND INDIVIDUAL LOSSES IN A CONFLICT MODEL1

We analyse a generalised form of the Hirshleifer‐Skaperdas predation model. In such a model agents have a choice between productive work and appropriation. We suggest that such a model can usefully be thought of as a continuous form of the Prisoners' Dilemma. We present closed form solutions for the interior equilibria and comparative statics for all Cournot equilibria and analyse the social welfare losses arising from predation. We show that predation is minimised under two quite different regimes, one in which claiming is very ineffective and another in which one of the players becomes marginalised. The worst outcomes seem to arise when claiming is effective, but inequality in power is significant but not extreme. This, arguably, is the situation in a number of transition societies.     

Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior

Recent articles hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first‐price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one‐to‐one relationship in the auction between winning and positive earnings and the ex post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first‐price auction environment in which these characteristics are not present, while leaving unchanged the expected‐earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects that are not essential to the auction environment.     

Nash equilibria of games when players’ preferences are quasi‐transitive

Much of game theory is founded on the assumption that individual players are endowed with preferences that can be represented by a real‐valued utility function. However, in reality human preferences are often not transitive. This is especially true for the indifference relation, which can lead an individual to make a series of choices which in their totality would be viewed by the same individual as erroneous. There is a substantial literature that raises intricate questions about individual liberty and the role of government intervention in such contexts. The aim of this paper is not to go into these ethical matters but to provide a formal structure for such analysis by characterizing games where individual preferences are quasi‐transitive. The paper identifies a set of axioms which are sufficient for the existence of Nash equilibria in such “games.”     

Focal Points and Economic Efficiency: The Role of Relative Label Salience

Coordination games represent coordination problems that arise across social science disciplines. Focal points have been found to be an effective way to solve many of these coordination problems. We experimentally analyze the efficiency‐enhancing power of focal points in 2 × 2 Pareto‐ranked coordination games. We find that the power of focal labels, when attached to the Pareto‐efficient strategy, to promote efficiency critically depends upon the alternative strategy's label salience. When the relative salience of our focal labels is considerably weaker, focal labels mostly fail to raise expected efficiency beyond the mixed‐strategy prediction. But when the relative salience of our focal labels is markedly stronger, focal labels raise expected efficiency much beyond the mixed‐strategy prediction. Furthermore, we find that the efficiency‐enhancing power of focal labels decreases as a measure of risk‐dominance increases across games.     

Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub‐Sahara Africa

In this paper, we argue that the answer to the question of whether the impact of corruption on development is homogenous, is no. Our optimism rest on how development may be conceptualised. When equated to a narrow measure in economic‐wise which fundamentally ignores critical issues, then there is a possibility the outlook could be positive. But when conceptualised using a broad‐based approach such as sustainable development, then the outlook could be negative. We assess a panel of 22 economies in Sub‐Sahara Africa with the most recent dataset (1996–2013) from the World Bank and other reputable agencies. Our finding is quite robust. It holds in pooled OLS, Fixed effects and GMM within IV settings; and it also holds for different measures of institutions and different measures of development using growth per capita GDP and genuine wealth per capita, respectively. Taking stock of major policy blue‐prints of selected countries in the region on the fight against corruption, we are able to point out that institutions play important role in insulating citizens against the devastation caused by corruption. Overall, through this comparison, we are able to signal that both incidental and systematic corruption poses a long‐term threat to sustainable development.     

Social Welfare in Sports Leagues with Profit‐Maximizing and/or Win‐Maximizing Clubs

This article develops a contest model to compare social welfare in homogeneous leagues in which all clubs maximize identical objective functions with mixed leagues in which clubs maximize different objective functions. We show that homogeneous leagues in which all clubs are profit maximizers dominate all other leagues. Mixed leagues in which small‐market clubs are profit maximizers and large‐market clubs are win maximizers (type‐I mixed leagues) are dominated by all other leagues. From a welfare perspective, large‐market clubs win too often in (purely) win‐maximizing and type‐I mixed leagues; whereas, small‐market clubs win too many games in (purely) profit‐maximizing leagues and in mixed leagues in which large‐market clubs are profit maximizers and small‐market clubs are win maximizers (type‐II mixed leagues). These results have important policy implications: Social welfare will increase if clubs are reorganized from non‐profit member associations to profit‐maximizing corporations. Moreover, we show that revenue sharing decreases (increases) social welfare in mixed (homogeneous) leagues.     

In‐Group versus Out‐Group Trust: The Impact of Income Inequality

In this article, we adopt a variant of the trust game by Berg, Dickhaut, and McCabe (1995) and the dictator game by Cox (2004) to determine if income inequality can activate in‐group favoritism and, if so, whether such a bias is strong enough to survive the removal of income inequality. We find evidence of in‐group favoritism only on the part of rich first movers. Rich first movers trust their in‐group members significantly more in the presence of income inequality not only before but also after they gain enough experience. Poor first movers, in contrast, do not exhibit such in‐group bias. They do not discriminate between in‐group and out‐group at the very outset of the experiment, and once they become experienced, they behave with significantly more trust toward the rich than toward the poor. We also find that in‐group and out‐group favoritism established in the past can be alleviated, but not completely removed, by an equal income distribution.     

A few bad apples: Communication in the presence of strategic ideologues

I propose a very simple model of strategic communication. The motivation is to help explain widespread persistent disagreement about objective facts. In the model, there is a message sender and a receiver, and two possible states of the world, left or right. The sender is one of three types: honest, or a leftist or rightist “ideologue.” The honest type observes a private signal in , with higher values implying stronger support for the right state, and reports the observed value truthfully. Ideologues strategically choose any message from this set to maximize the receiver's belief in their preferred state, ignoring any private information they may have. I show that a small presence of ideologues can have a large effect on communication: while we might expect ideologues to just send extreme messages, in most equilibria ideologues use “strategic understatement,” and in many cases actually mix over all non‐neutral (non‐N∕2) messages to mimic honest types and gain credibility. This distorts the interpretation of these messages such that all messages on a side of the spectrum (above or below N∕2) have the same effect on receiver beliefs. This coarsened communication is less informative than even the weakest non‐neutral messages in the absence of ideologues. I show by example how ideologues can cause large delays in the time required for receiver beliefs to converge to truth.     

Role of Information on Consumers’ Willingness‐to‐pay for Genetically‐modified Rice with Health Benefits: An Application to China

Despite their potential health benefits, the controversial nature surrounding the use of GM technology in biofortified crops remains a subject of discussion. This paper investigates the role of information on willingness‐to‐pay for folate‐biofortified rice in a Chinese folate‐deficient region. We conducted second price auctions with 252 women of childbearing age, split up into two target groups based on street (n = 132, non‐student sample) or school auctions (n = 120, student sample). Notwithstanding a general positive effect of folate‐related information (i.e. content, benefits and regional situation), evidence reveals that the non‐student sample is less concerned about GM technology. The results also provide insight into serial position effects in conflicting GM information. Whereas participants in the non‐student sample are more prone to a primacy bias when receiving both positive and negative information, an alarmist reaction is observed in the student sample. This study highlights the need for segmented, targeted communication strategies on biofortification.     

Effort and Performance: What Distinguishes Interacting and Noninteracting Groups from Individuals?

We study how group membership affects behavior both when group members can and cannot interact with each other. Our goal is to isolate the contrasting forces that spring from group membership: a free‐riding incentive leading to reduced effort and a sense of social responsibility that increases effort. In an environment with varying task difficulty and individual decision making as the benchmark, we show that the free‐riding effect is stronger. Group members significantly reduce their effort in situations where they share the outcome but are unable to communicate. When group members share outcomes and can interact, they outperform groups without communication and individuals. We show that these groups do as well as the best constituent member would have done on his or her own.     

Plague and long‐term development: the lasting effects of the 1629–30 epidemic on the Italian cities

This article aims to analyse the effects of plague on the long‐term development of Italian cities, with particular attention to the 1629–30 epidemic. By using a new dataset on plague mortality rates in 56 cities covering the period c. 1575–1700, an economic geography model verifying the existence of multiple equilibria is estimated. It is found that cities severely affected by the 1629–30 plague were displaced to a lower growth path. It is also found that plague caused long‐lasting damage to the size of Italian urban populations and to urbanization rates. These findings support the hypothesis that seventeenth‐century plagues played a fundamental role in triggering the process of relative decline of the Italian economies.