Equilibrium binding agreements under diverse behavioral assumptions

Summary. This paper extends the work of Ray and Vohra [3]. It ascertains which partitions of players will emerge and what actions will these players choose under each partition, when they can sign binding agreements and their actions have externalities. The emphasis, however, is placed on situations with multiple outcomes and how agents behave in the presence of such multiplicity. In particular, a deviating coalition considers all the likely outcomes that may prevail upon its deviation, and selects (if possible) a subset of them. Three augmentations of Ray and Vohra's [3] solution concept are defined, capturing three distinct behavioral assumptions. Efficiency of and the relation between the three notions are discussed. Received: October 9, 2001; revised version: April 22, 2002 RID="*" ID="*" I wish to thank Licun Xue, Joseph Greenberg and the participants of PET 2000 for very helpful suggestions. I am indebted to an anonymous referee for his/her valuable comments. The paper has been previously circulated under the title Binding Agreements.     

The Bank Lending Channel and Monetary Policy Rules: Evidence from European Banks

There exist two main channels of the monetary transmission mechanism: the interest rate and the bank lending channel. This paper focuses on the latter, which is based on the central bank’s actions that affect loan supply and real spending. The supply of loans depends on the monetary policy indicator, which, in most studies, is the real short-term interest rate. The question investigated in this paper is how the operation of the bank lending channel changes when this short-term indicator is allowed to be endogenously determined by the target rate the central bank sets through a monetary rule. We examine the effect that a rule has on the bank lending channel in European banking institutions spanning the period 1999–2009. The expectations concerning inflation and output affect the decision of the central bank for the target rate, which, in turn, affect private sector’s expectations —commercial banks— by altering their loan supply.     

Young Adults Living with their Parents and the Influence of Peers

This study examines the impact of peer behaviour on the living arrangements of young adults in the US using data from the National Longitudinal Study of Adolescent Health. We achieve identification by exploiting the differences in the timing of leaving the parental home among peers, the individual‐specific nature of the peer groups that are based on friendship nominations, and by including network and cohort fixed effects. Our results indicate that there are statistically significant peer effects on young adults’ decisions to leave the parental home. We discuss various mechanisms and confirm the robustness of our results through a placebo exercise.     

New facts on infidelity

We establish new empirical facts, in line with the recent theoretical literature on infidelity. Infidelity displays seasonality and state dependence. In the US socioeconomic status is not a driver of infidelity and females and males are equally likely to be unfaithful.     

International Environmental Agreements—The Role of Foresight

The present paper attempts to bridge the gap between the cooperative and the non-cooperative approach employed to examine the size of stable coalitions, formed to address global environmental problems. We do so by endowing countries with foresightedness, that is, by endogenizing the reaction of the coalition’s members to a deviation by one member. We assume that when a country contemplates withdrawing or joining an agreement, it takes into account the reactions of other countries ignited by its own actions. We identify conditions under which there always exists a unique set of farsighted stable IEAs. The new farsighted IEAs can be much larger than those some of the previous models supported but are not always Pareto efficient.     

Coalitions, agreements and efficiency

If agents negotiate openly and form coalitions, can they reach efficient agreements? We address this issue within a class of coalition formation games with externalities where agents’ preferences depend solely on the coalition structure they are associated with. We derive Ray and Vohra's [Equilibrium binding agreements, J. Econ. Theory 73 (1997) 30-78] notion of equilibrium binding agreements using von Neumann and Morgenstern [Theory of Games and Economic Behavior, Princeton University Press, Princeton, 1944] abstract stable set and then extend it to allow for arbitrary coalitional deviations (as opposed to nested deviations assumed originally). We show that, while the extended notion facilitates the attainment of efficient agreements, inefficient agreements can nevertheless arise, even if utility transfers are possible.     

Stable cartels revisited

Summary. This paper analyzes cartel stability when firms are farsighted. It studies a price leadership model á la D Aspremont et al. (1983), where the dominant cartel acts as a leader by determining the market price, while the fringe behaves competitively. According to D Aspremont et al. s (1983) approach a cartel is stable if no firm has an incentive to either enter or exit the cartel. In deciding whether to deviate or not, a firm compares its status quo with the outcome its unilateral deviation induces. However, the firm fails to examine whether the induced outcome will indeed become the new status quo that will determine its profits. Although the firm anticipates the price adjustment following its deviation, it ignores the possibility that more firms may exit (or enter) the cartel. In other words, the firm does not consider the fact that the outcome immediately induced by its deviation may not be stable itself. We propose a notion of cartel stability that allows firms to fully foresee the result of their deviation. Our solution concept is built in the spirit of von Neumann and Morgensterns (1944) stable set, while it modifies the dominance relation following Harsanyis (1974) criticism. We show that there always exists a unique, non-empty set of stable cartels.Received: 20 August 2002, Revised: 11 August 2004, JEL Classification Numbers: C79, D43, D49, L13.On page 921, the final paragraph as well as the two references by Rothschild were inserted.This revised version was pulished in February 2005.I would like to thank Joseph Greenberg, Licun Xue, Daniel Arce M. and Curtis Eberwein for their helpful suggestions on an earlier draft. I am indebted to an anonymous referee for his very constructive comments.     

Not just a work permit: EU citizenship and the consumption behaviour of documented and undocumented immigrants

This paper explores the impact of the 2007 European Union enlargement on the consumption behaviour of immigrant households. Using data from a unique Italian survey and a difference-in-differences approach, we find that the enlargement induced a significant consumption increase for the immigrant households from new member states both in the short and in the medium run. This enlargement effect cannot be attributed to the mere legalization as it concerns both undocumented and documented immigrants, albeit through different channels. Detailed information on immigrants’ legal status (undocumented/documented) and sector of employment (informal/formal) allows us to shed light on the exact mechanisms. Following the enlargement, previously undocumented immigrants experienced an increase in the labour income by moving from the informal towards the formal economy, whereas immigrants who were already working legally in Italy benefited from the increased probability of getting a permanent contract. Enhanced employment stability in turn reduced the uncertainty about future labour income leading to an increase in documented immigrants’ consumption expenditure.