Endogenous transfers in the Prisoner's Dilemma game: An experimental test of cooperation and coordination

We test a two-stage compensation mechanism for promoting cooperation in Prisoner's Dilemma games. Players first simultaneously choose binding non-negative amounts to pay their counterparts for cooperating, and then play the induced game knowing these amounts. In our games, all payment pairs consistent with mutual cooperation in subgame-perfect equilibrium transform these games into coordination games, with both mutual cooperation and mutual defection as Nash equilibria in the second stage. When endogenous transfer payments are not permitted, cooperation is much less likely. Mutual cooperation is most likely when the (sufficient) payments are identical, and it is also substantially more likely with payment pairs that bring the mutual-cooperation payoffs closer together. Both the Fehr–Schmidt and Charness–Rabin models predict that transfers that make final payoffs closer are preferred; however, they do not explain why equal transfers are particularly effective. Transfers are also effective in sustaining cooperation even when they are imposed and not chosen.     

Altruistic behavior in a representative dictator experiment

We conduct a representative dictator game in which students and random members of the community choose both what charity to support and how much to donate to the charity. We find systematic differences between the choices of students and community members. Community members are much more likely to write in their own charity, community members donate significantly more ($17), on average, and community members are much more likely (32%) to donate the entire $100 endowment. Based on this evidence, it does not appear that student behavior is very representative in the context of the charitable donations and the dictator game.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

The Political Economy of Policy Reform in the Philippines: 1992–1998

Accurately measuring Turkey's informal sector is important for policymaking. We utilize household income‐expenditure surveys to examine this sector's income underreporting. The Pissarides‐Weber approach hypothesizes that data would reflect such underreporting as “excess food consumption”. Our results suggest informal sector members spend more than their formal sector counterparts with comparable reported income levels. Using this information, we estimate the average size of the true informal sector to be about 1.25 times the official estimate. The informal sector accounts for around 83% of officially reported disposable income. Therefore, true Turkish disposable income is (25%)?(83%), roughly 21% larger than the officially estimated magnitude.     

TAXES,INCOME, AND RETIREMENT SAVINGS: DIFFERENCES BY PERMANENT AND TRANSITORY INCOME

This article examines the determinants of and benefits from saving for retirement in tax‐preferred accounts by permanent and transitory income levels. We find that higher incomes (both permanent and transitory) are associated with a greater probability to contribute and larger contributions. We also find that tax benefits for retirement savings increase strongly with income, although the increase is slightly smaller when taxpayers are ranked by their permanent (rather than current) income. In addition, we find that a large portion of the benefits from the Saver's Credit go to taxpayers who would not be eligible based on their permanent income. Finally, we find that recent tax changes (including the introduction of the Saver's Credit) significantly increased contributions among low‐income households, although the effect was centered among those with only transitorily low income. (JEL H24, H31, E21)     

“Constitutionalizing” the corporation

To become effective instruments in the attainment of a sustainable society, corporations should have their constitutional status settled. Thus far, mainly by Supreme Court decisions, corporations have an uncertain status. They are “persons” under the Constitution and have certain rights; but unlike natural persons, they do not have concomitant constitutional duties. Corporations should be viewed as “private” governments exercising substantial power in society. They are, however, considered to be associations of individuals rather than divisions of society. The need is to legitimate their governing power by “constitutionalizing” them. That can be done by corporations accepting, or having imposed upon them, two principal constitutional duties. First, means should be developed whereby corporate officers routinely take the general good into account. That duty could be implemented by making “social impact statements,” analogous to but broader than the familiar environmental impact statements, before making important corporate decisions. Secondly, as “sociological communities,” corporate officers wield considerable power over members of those communities. A bill of rights similar to the Constitution's Bill of Rights is recommended so as to make corporate power that is necessary for achievement of societal goals as tolerable and decent as possible. Acceptance of those duties would make corporations parts of, not separate from, the greater corporation called society. They would be private, profit-making entities with a definite public function. Preferably, the duties should be voluntarily accepted. Congress, however, has undoubted constitutional power to impose both, should it so desire.     

Lexicographic composition of simple games

Certain voting bodies can be modeled as a simple game where a coalition's winning depends on whether it wins, blocks or loses in two smaller simple games. There are essentially five such ways to combine two proper games into a proper game. The most decisive is the lexicographic rule, where a coalition must either win in G₁, or block in G₁ and win in G₂. When two isomorphic games are combined lexicographically, a given role for a player confers equal or more power when held in the first game than the second, if power is assessed by any semi-value. A game is lexicographically separable when the players of the two components partition the whole set. Games with veto players are not separable, and games of two or more players with identical roles are separable only if decisive. Some separable games are egalitarian in that they give players identical roles.     

Risks of Latin America sovereign debts before and after the financial crisis

We investigate the financial determinants of the return and volatility of sovereign CDS spread from six major Latin American countries before and after the bankruptcy of Lehman Brothers. Other than CBOE VIX index, we also find that global factors including US Baa–Aaa default yield, TED spread and US Treasury rate all contribute to the changes in these sovereign CDS spread. Although global risk aversion (VIX) is a significant determinant of sovereign debt spread, in the years after the crisis, the emphasis has shifted towards short-term refinancing risk (TED). Furthermore, the risk of Greek sovereign debt crisis also transmitted Latin American CDS spreads immediately, but only in the post-Lehman sub-period. These findings provide implications for international bonds and credit derivatives trading strategies.     

COMPARING FEDERAL AND PRIVATE‐SECTOR WAGES WITHOUT LOGS

I use Current Population Survey data from 2005 through 2010 to compare the wages of federal employees and workers in the private sector who have similar observable characteristics. The distribution of wages differed drastically between the federal and private sectors. In particular, I find that federal employees with no more than a high school diploma earned 21% more, on average, than their private‐sector counterparts, whereas those with a professional degree or doctorate earned 23% less. Overall, the average of federal wages was about 2% higher than the average wage of similar private‐sector workers. Other researchers have found larger differences because they used log‐linearized models, which result in comparisons of geometric means. I show that arithmetic means are more relevant in the context of the relationship between a government's compensation policy and its budget. The discrepancy between differences in arithmetic and geometric means occurs because the wages of federal employees were much less dispersed than those of employees with similar characteristics in the private sector. (JEL J31, J38, J45)     

The Theory of the Individual in Economics: Identity and Value

Fundamental to social provisioning is ensuring that community members have access to employment opportunities that pay living wages and sustain the environment. In a previous study, two of us (Underwood, Friesner and Cross 2014 Underwood, Daniel, Dan Friesner and Jason Cross. “Toward an Institutional Legitimation of Sustainability.” Journal of Economic Issues 48, 3 (2014): 870–885. [Google Scholar]) presented criteria for sustainable community economic development, a three-fold test to comparatively assess economic development policies: ecological holism, community centeredness, and institutional legitimacy. Applying this test generates an iterative, evolutionary process of economic development. Absent from these criteria is the concept of intention, as policy options are not “given,” but rather designed by self-interested groups to manipulate interpretations of these test criteria in advancement of their vested interests — outcomes which can be juxtaposed to the “interests of community.” Here, we integrate two additional principles: economic diversity and solidarity. Economic diversity emphasizes living wages in numerous industries to stabilize exogenous economic shocks. Solidarity, as a unit of socio-economic interdependence, stresses commonality of wellbeing within communities. Integrating solidarity and economic diversity into the criteria for sustainable community economic development improves policy design and outcomes that sustain the environment, while also providing living wage employment for community members.     

Main Currents of Marxism

We present a three-fold test for sustainability on policies addressing environmental and natural resource management. The first — ecological holism — requires that management of natural systems not only ensure the long term viability of ecosystem functions and enhanced diversity of wildlife within that ecosystem, but also facilitate the provision of renewable energy and material resources. The second — community centeredness — is an assessment of the improvement (or reduction) in economic wellbeing of local populations measured by employment and income and in quality of life for the larger community resulting from that policy. The third — institutional legitimacy — evaluates the level of justice that a policy and its outcome(s) bring to the entire community (here, just policies will satisfy Rawls's "veil of ignorance" test). Three policies for National Forest management on Washington's Olympic Peninsula are examined and results are compared: the Northwest Forest Plan, the Wild Olympics Wilderness and Scenic Rivers Act of 2012 (Wild Olympics), and The Third Way (an alternative forest management option). Each policy satisfies the first test of ecological holism, but not in equal measures. Success in this regard can be differentially ranked because the relative impacts are not neutral. Both the Northwest Forest Plan and Wild Olympics fail the test of community centeredness. In contrast, The Third Way promotes community centeredness and ecological holism. We assert that, as a result, it would satisfy John Rawls's test for justice, and it is institutionally legitimate.     

Ex Post Welfare under Alternative Health Care Systems

The implications of a societal aversion to inequality for the optimal structure of the health care system are studied. The agents are assumed to be ex ante identical, but to differ ex post in the state of their health. Inequality aversion is introduced by postulating a strictly concave ex post social welfare function. It is shown that the optimal public health care system allocates health care differently than would private health insurance; specifically, people who are relatively unhealthy with and without treatment receive more health care, and people who are relatively healthy with and without treatment receive less health care. The aggregate quantity of health care under the optimal public health care system can be either greater or smaller than under private health care insurance. If the public health care system is optimally designed, allowing agents to purchase supplementary private health care insurance cannot raise social welfare and is likely to decrease it.     

Gender differences in occupational mobility – evidence from Portugal

In this paper we evaluate if gender influences the pattern of upward and downward occupational mobility. With data for Portugal in the period 1998–2009, we find that women have a lower probability of upward mobility and a higher probability of downward mobility. The results also reveal the importance of some other determinant factors, especially education and initial occupation. Additionally, considering an analysis in which we group occupations into four ranked categories (low, medium-low, medium-high, and high level occupations), we confirm that the determinants of occupational mobility depend on the ranking of the initial occupation. This analysis allows us to conclude that the unfavorable pattern of occupational mobility in the case of women is due, essentially, to the disadvantage they have at the bottom of the distribution. On the contrary, in the top occupations, the results suggest the existence of equality between genders.     

Determinants of specialist physician ambulatory visits: a neurology example

Background: Economic theory argues that specialization in medicine improves efficiency. Current literature suggests that access to and utilization of specialist care vary widely based on many determinants. Thus, understanding the determinants of specialist physician ambulatory care utilization is integral to healthcare policy.

Objectives: The objective is to investigate the individual and community determinants of specialist ambulatory care utilization—specifically neurologists. The aim was to find predictors of specialist utilization and to identify the particular determinants that can be modified by regulatory or legislative action.

Methods: A large claims database, Truven Health Analytics? Marketscan data, was used from 2007–2010 as the sample. These data are supplemented with data from the American Academy of Neurology (for geographic distribution of neurologists) and the US Census American FactFinder (for community demographic factors). Multivariate regression analysis was run to test the hypotheses. Several robustness tests of our models were included.

Results: Most importantly, neurologists per capita has a meaningful impact on utilization. Additionally, the difference in neurologist usage by neurological condition is an important factor. It was also found that union status, age, comorbidities, and diagnosis are significant individual level determinants, and that the percentage of Hispanic residents and median income are significant community level determinants.

Conclusions: There are two predictors believed to be the most important. The first is the unique neurologists per 1,000 capita variable, which shows a small increase in the number of neurologists would be correlated with a small increase in the probability of seeing a neurologist. We suggest that this is within policymakers’ control, and policymakers should consider this action in the face of the predicted shortage. The second is what appears to be possible sorting by neurologists of patients based on diagnosis – the large difference in the fraction of patients seeing a neurologist by disease.     

Choosing Among Regulatory Options in the United States Telecommunications Industry

We examine the determinants of the choice between rate-of-return regulation and incentive regulation in the United States telecommunications industry. We find that a state is more likely to select incentive regulation in any year: (1) when it has employed incentive regulation in the past; (2) when the Republican party controls both the executive and the legislative branches of the state government, but the Democratic party has controlled these branches historically; and (3) as the firms earnings under rate-of-return regulation increase toward the industry average. We also find that appointed regulators are more likely than their elected counterparts to revert to rate-of-return regulation.     

Unemployment in Australia: Duration and Recurrent Spells*

Using a parametric technique. this paper estimates average completed duration of unemployment for several age and sex categories. It shows that the use of Labour Force Survey data leads to underestimates due to the presence of recurrent unemployment. When allowance is made, using A BS Persons Looking for Work and Labour Force Experience data, it is shown that new entrants to unemployment in 1981 could expect to remain unemployed for nearly six months. For teenagers evidence is presented to suggest that, contrary to current economic thought, teenagers may on average be unemployed for longer periods per spell and may have less experience of recurrent spells than their counterparts. It also shows that changes in the unemployment rate are dominated by changes in duration.     

Teams, Firms and the Evolution of Profit Seeking Behavior

Even as advances in information theory over the last quarter century have cast increasing doubt on the proposition that firms successfully maximize profits, the objective of profit maximization continues to be an axiomatic feature of the neoclassical theory of the firm. This paper attempts to improve our understanding firms by treating the objective function as an open question. Specifically, an ontogenetic thought experiment is undertaken to address the question of what differentiates production teams from firms by asking why team members would sell their control rights to a principal, thereby transforming the team into a firm. What results is an account of the emergence of the objective of profit seeking. Profit seeking emerges endogenously as a more fit alternative than the objective of value maximization, which is less capable of coping with uncertainty through purposive adaptation.     

Discrimination and the unemployment durations of white and black males

In this study we develop a model to decompose the longer unemployment duration of blacks into discriminatory and non-discriminatory components. By extending Becker's theory of discrimination to job-search theory, the discriminatory component is seen to be the result of two separate effects. First, a white treatment advantage shortens the unemployment duration of whites because they receive more frequent and higher wage offers than would prevail in the absence of discrimination for working alongside blacks. Second, a black treatment disadvantage lengthens the jobless spell of blacks because blacks receive lower wage offers than would prevail without discrimination as discriminating employers extract quasi-rents from their labour. We estimate our model using date from the CPS Displaced Workers Survey. The results show that 3.81 of the 4.58 weeks longer unemployment spell for blacks is due to discrimination, with 3.11 weeks resulting from the white treatment advantage, and 0.7 weeks emanating from the black treatment disadvantage.     

Economic competitiveness of selected European countries

In many publications, the notion of economic competitiveness has different meanings. For example, it could mean competitiveness by county or by creating more goods and services than competitors in the world market [The World Competitiveness Report, 1944]. In this paper, a proposal is given for measuring competitiveness and preparing a ranking list for selected European countries (the European Union members and Poland) based on data obtained fromThe World Economic Competitiveness Report [1994]. To fulfill such an objective, special producers are used. Moreover, results obtained from similarity, distance, and development measures calculated for every country serve as the basis for dividing the analyzed countries into three homogeneous groups.     

Returns to skills,incentives to study and optimal educational standards

In imperfectly competitive labor markets returns to skills are lower than their productivity and educational standards may play an important role in stimulating students to provide efforts. We propose a principal-agent model to analyze the determinants of student effort and the setting of standards by a policy-maker maximizing alternative social welfare functions. We show that if the policy-maker takes into account individuals' future earnings, he finds it optimal to set lower standards in more distorted labor markets, whereas higher standards would be preferable for efficiency reasons. Moreover, we show that labor market distortions may also influence the amount of resources devoted to schools. Finally, it is shown that standard setting may be useful in preventing the opportunism of school principals in the use of resources.