Second price auctions on general preference domains: two characterizations

Auction theory usually assumes the quasi-linearity of individual preferences. We drop this assumption and define an extension of second price mechanisms that applies to general preferences. It turns out that the extended second price mechanisms are the only rules satisfying efficiency, strategy-proofness, and a mild non-imposition property. Their definition is simple just as much as the definition of usual second price mechanisms: everyone reports his maximum willingness to pay and the bidder whose reported value is highest buys the auctioned object for the price equal to the second highest reported value. The characterization is valid if efficiency is replaced by envy-freeness. I gratefully acknowledge an associate editor and two anonymous referees for their very helpful comments. Hiroki Saitoh and Shigehiro Serizawa independently obtain a result that is closely related to my main result (see, Remark in Sect. 1). I thank them for sending me the paper and communication, and Yuji Fujinaka for informing me about their work. I also thank the financial support by KAKENHI (19310031).     

Exchange and evolution

This paper offers an extension of the distinction of [Kohn, Cato Journal, 24:303–339 (2004)] between the two paradigms of modern economic theory—value and exchange—as derived from the generic–operant framework of [Dopfer and Potts, The general theory of economic evolution, Routledge, London, (2007)]. I argue that Austrian and evolutionary economics can be analytically unified about a general framework of rule coordination and change that I shall call the generic value paradigm. This is an analytic generalization of Kohn’s “exchange paradigm” that will allow us to redefine his conception of the “value paradigm” as the operational value paradigm in terms of the economics of known and fully exploited opportunities. The generic value paradigm, in turn, underpins the economics of the growth of knowledge and the evolution of the economic order as an open-system process due to the origination, adoption, and retention of novel generic rules. Austrian economics is then circumscribed as a special case of the more general “generic” analysis of the coordination and evolution of economic rules.      

Regulation of the evolution of the architecture of a network by tensors operating on coalitions of actors

Socio-economic networks, neural networks and genetic networks describe collective phenomena through constraints relating actions of several actors, coalitions of these actors and multilinear connectionist operators acting on the set of actions of each coalition. We provide a class of control systems governing the evolution of actions, coalitions and multilinear connectionist operators under which the architecture of the network remains viable. The controls are the “viability multipliers” of the “resource space” in which the constraints are defined. They are involved as “tensor products” of the actions of the coalitions and the viability multiplier, allowing us to encapsulate in this dynamical and multilinear framework the concept of Hebbian learning rules in neural networks in the form of “multi-Hebbian” dynamics in the evolution of connectionist operators. They are also involved in the evolution of coalitions through the “cost” of the constraints under the viability multiplier regarded as a price.     

Testing for the Presence of a Tremble in Economic Experiments

The classical trinity of tests is used to check for the presence of a tremble in economic experiments in which the response variable is binary. A tremble is said to occur when an agent makes a decision completely at random, without regard to the values taken by the explanatory variables. The properties of the tests are discussed, and an extension of the methodology is used to test for the presence of a tremble in binary panel data from a well-known economic experiment.     

The economic effects of restrictions on government budget deficits: imperfect private credit markets

Summary. The present paper is an extension of Ghiglino and Shell [7] to the case of imperfect consumer credit markets. We show that with constraints on individual credit and only anonymous (i.e., non-personalized) lump-sum taxes, strong (or “global”) irrelevance of government budget deficits is not possible, and weak (or “local”) irrelevance can hold only in very special situations. This is in sharp contrast to the result for perfect credit markets. With credit constraints and anonymous consumption taxes, weak irrelevance holds if the number of tax instruments is sufficiently large and at least one consumer's credit constraint is not binding. This is an extension of the result for perfect credit markets. Received: August 28, 2001; revised version: March 25, 2002 RID="*" ID="*" We thank Todd Keister, Bruce Smith, and two referees for helpful comments. Correspondence to: C. Ghiglino     

Prudent expectations equilibrium in economies with uncertain delivery

In an economy with private information, we introduce the notion of objects of choice as lists of bundles out of which the market selects one for delivery. This leads to an extension of the model of Arrow–Debreu that is used to study trade ex ante with private state verification. Under the assumption that agents are prudent, equilibrium is characterized by the fact that agents consume bundles with the same utility in states that they do not distinguish. This is a weaker condition than the restriction of equal consumption imposed by Radner (Econometrica 36(1), 31–58, 1968), therefore, some no trade situations are avoided and the efficiency of trade increases.     

THE 2005 LAWRENCE R. KLEIN LECTURE: EMERGENT CLASS STRUCTURE*

This article presents a model of the emergent class structure, in which a society inhabited by inherently identical households may be endogenously split into the rich bourgeoisie and the poor proletariat. For some parameter values, the model has no steady state where all households remain equally wealthy. In this case, the model predicts emergent class structure or the rise of class societies. Even if every household starts with the same amount of wealth, the society will experience “symmetry‐breaking” and will be polarized into two classes in steady state, where the rich maintain a high level of wealth partly due to the presence of the poor, who have no choice but to work for the rich at a wage rate strictly lower than the “fair” value of labor. The nonexistence of the equal steady state means that a one‐shot redistribution of wealth would not be effective, as wealth inequality and the class structure would always reemerge. Thus, the class structure is an inevitable feature of capitalism. For other parameter values, on the other hand, the model has the unique steady state, which is characterized by perfect equality. In this case, the model predicts dissipating class structure or the fall of class societies. Even if the society starts with significant wealth inequality, labor demand by the rich employers pushes up the wage rate so much that workers will escape from the poverty and eventually catch up with the rich, eliminating wealth inequality and the class structure in the long run. In an extension, we introduce self‐employment, which not only provides the poor with an alternative to working for the rich, but also provides the rich with an alternative to investment that creates jobs. Due to this dual nature of self‐employment, the effects of self‐employment turn out to be quite subtle. Yet, within the present framework, it is possible to offer a complete characterization of the steady states even in the presence of self‐employment.     

Make a guess: a robust mechanism for King Solomon’s dilemma

We introduce endogenous fees for participating in second-price auction which we use for a two-stage mechanism to solve King Solomon’s dilemma. They are positive for all agents. They are nonetheless shown to maintain the agents’ incentives for truthful bidding and guarantee participation by the highest-value agent. This feature of the endogenous fees is powerful enough for the efficient outcome to uniquely result from one round elimination of weakly dominated strategies, followed by at most four rounds of iterative elimination of strictly dominated stage-strategies. We provide an extension to cases with n agents and k identical prizes. We thank Gary Charness, Harrison Cheng, Jeffrey Ely, Rod Garratt, Mamoru Kaneko, Xiao Luo, Albert Ma, and Steven Morris for helpful discussions. We also thank an anonymous referee for comments that have helped to improve the paper.     

The measurement of entry rates: Reply

The purpose of this paper is to respond to the comment by James H. Love on our 1991 paper inEmpirica explicitly examining the impact that the two distinct methods used to measure entry rates have had in influences made from statistical analyses. While we generally concur with Love's extension of our original paper, we do suggest that both theecological approach to measuring entry rates as well as thelabor market approach has an important contribution to make. What determines which method should be used to measure entry is the fundamental question being addressed.     

Existence and Uniqueness of Ordinal Nash Outcomes

In this paper we present necessary and sufficient conditions for existence and uniqueness of ordinal Nash outcomes. These outcomes are derived from the ordinal Nash solution—a reinterpretation and an extension of the Nash bargaining solution that allows bargainers to have preference relations that are more general than expected utility. Our task is undertaken by the construction of a new notion called “induced utilities”. Journal of Economic Literature Classification Number: C78.     

Timing, diffusion, and substitution of successive generations of technological innovations: The IBM mainframe case

Based on the behavioral assumptions of diffusion theory, this article proposes an extension of the Bass diffusion model that simultaneously captures the substitution pattern for each successive generation of a durable technological innovation, and the diffusion pattern of the base technology. Normative guidelines based on the model suggest that a firm should either introduce a new generation as soon as it is available or delay its introduction to a much later date at the maturity stage of the preceding generation. The decision depends on a number of factors including the relative size of the market potentials, gross profit margins, the diffusion and substitution parameters, and the discount factor of the firm. This “now or at maturity” rule is thus an extension and generalization of the “now or never” rule of Wilson and Norton [25]. Empirical and normative implications of the proposed model are explored for four successive generations on IBM mainframe computers: first generation (vacuum tubes); second generation (transistors); 360 family (integrated circuits); and 370 family (silicon chips). The model describes the growth of these generations well. The application of normative guidelines suggests that IBM introduced the two successive generations of 360 and 370 families too late, i.e., their time to market should have been shorter. Limitations and further extensions of the model and the application are discussed.     

Preference for flexibility in infinite horizon problems

Summary. We consider the extension of the classical problem of preference for flexibility to many periods. Preferences are defined over sets of infinite paths of choices. The main result provides a set of axioms on preferences that yield an additive representation over a subjective state space. This space is the set of preferences over choice today and feasible set tomorrow. The main new axiom, stochastic dominance, is a stronger form of the assumption of monotonicity. Received: September 11 2000; revised version: December 18, 2001     

Exploring the role of pesticide traders in protecting farmers' benefit

Owing to the inadequacy of the public extension services, farmers in developing countries often rely on the suggestions of agricultural input traders. As profit-making agents, these traders, in their turn, may have an incentive to exploit farmers by suggesting relatively expensive inputs. In this study, the Endogenous Switching Regression (ESR) estimation method is applied to demonstrate that input traders in many ways play the substitute role of the public extension agents in a developing country. In the process, this study relied on primary information collected from 379 farmers in Bangladesh in two seasons (N = 758). Then the ESR estimation procedure is applied to predict farmer's expenditure on pesticides, conditional on whether or not they rely on traders' advice. Findings of this study suggest that pesticide expenditures are not statistically different between the farmers that rely on traders' suggestions and those that do not. The study thus concludes that by providing unbiased, useful information to the client farmers, profit-maximizing agricultural input traders render the services of public extension workers, which corrects possible market failures.     

Robustness of the Incentive Compatible Combinatorial Auction

Goods are said to be combinatorial when the value of a bundle of goods is not equal to the sum of the values of the same goods unbundled. Investigations of combinatorial allocation problems should recognize that there are two separate aspects of such problems: anenvironmental distinction between multiple-unit allocation problems which involve combinatorial goods and those which do not do so, and aninstitutional distinction between auctions in which combinatorial values can be expressed as part of the bidding rules and those in which they cannot. Forsythe and Isaac (Research in Experimental Economics, Vol. 2 (1982). Greenwich, Conn.: JAI Press, Inc.) reports the extension of the Vickrey auction into a demand-revealing, multiple unit, private goods auction that can incorporate combinatorial values. This current paper places that theoretically demand-revealing institution in a series of experimental environments in order to generate results (e.g. efficiencies) which may serve as a benchmark for other auctions (combinatorial or otherwise) whose implementation characteristics may be more favorable. To aid in interpretation of our Vickrey experimental results, we also provide results of alternatives to Vickrey allocations from both institutional and heuristic sources, as well as a discussion of the source of the Vickrey auctions high efficiencies even in the presence of misrevelation.     

Neutral Property Taxation

A major difficulty in implementing land/site value taxation is imputing the land value of built‐on sites. The literature has focused on two alternatives. The first, residual site value, measures postdevelopment site value as property value less structure value, with structure value measured as depreciated construction costs. Residual site value would be relatively easy to estimate, but a residual site value tax system, which taxes land value before development and residual site value after development at the same rate is distortionary, discouraging density. The second, raw site value, measures postdevelopment site value as “what the land would be worth were there no building on the site (though in fact there is).” Raw site value taxation is neutral (does not distort the timing and density of development), but the estimation of postdevelopment raw site value would be complex so that assessment would likely be less fair and more arbitrary, contentious, and prone to abuse. This paper asks the question: Is it not possible to design a property tax system (taxation of predevelopment land value, postdevelopment structure value, and postdevelopment site value at possibly different rates) that employs the administratively simpler residual definition of postdevelopment site value and achieves neutrality? Under restrictive assumptions and subject to an important qualification, the paper provides an affirmative answer, and characterizes the tax rates that achieve neutrality. It also briefly discusses issues of practical implementation.     

TALKING,SEARCHING, AND PRICING*

I study the implications of interpersonal communication for incentives for consumers to acquire information and firms’ pricing behavior. Firms market a homogeneous product and choose its price; consumers acquire price information at some cost to themselves. Also, each consumer accesses the information acquired by a sample of other consumers—interpersonal communication. An exogenous increase in the level of interpersonal communication decreases the information that consumers acquire, and, when search costs are low, firms price less aggressively. In an extension, consumers may choose to invest in interpersonal communication at some cost. A decrease in the costs of interpersonal communication decreases firms’ competition.     

Uhljeb – a post-socialist homo croaticus: a personification of the economy of favours in Croatia?

Party patronage combined with a collectivist culture appears to present a very resistant socialist legacy in Croatia. In-group favouritism and an overly bureaucratised system provide a fertile soil for uhljebs. An uhljeb is a public sector employee whose main ‘competence’ is membership of a political party or a nepotistic relationship. They now already count in the thousands, and often contribute to the further multiplication of uhljebs, and to an increase in clientelist arrangements. The practice of employing uhljebs both undermines and underpins the existing system. That ambivalence is one of the characteristics of the Russian sistema, and that is one of the important links to compare blat users and uhljebs, in addition to the practice of ‘pulling strings’. As key protagonists, uhljebs and blat users illustrate their own and society’s modus operandi: an intense ‘economy of favours’. Recent studies increasingly show that cultural variables influence economic outcomes and this article presents an extension of the ‘economy of favours’ into Croatia’s paradigm. Based on primary sources and international benchmarks, it provides a comparison of the cultural contexts of Eastern and Western European countries, and portrays a rising informal practice that, despite its omnipresence, has been under-researched in the academic literature.     

SOCIAL ASSETS*

We present a model incorporating both social and economic components and analyze their interaction. The notion of a social asset, an attribute that has value only because of the social institutions governing society, is introduced. In the basic model, agents match on the basis of income and unproductive attributes. An attribute has value in some equilibrium social institutions (matching patterns), but not in others. We then show that productive attributes (such as education) can have their value increased above their inherent productive value by some social institutions, leading to the notion of the social value of an asset.     

Incremental net monetary benefit of ocrelizumab relative to subcutaneous interferon β-1a

Aim: Disease-modifying therapies (DMTs) impact the natural history of relapsing forms of multiple sclerosis (RRMS) by reducing annual relapse rates and slowing disability progression. The effect of DMTs on indirect costs has not been consistently explored in cost-effectiveness studies thus far. The value to patients of an emerging DMT, ocrelizumab, was quantified in comparison to subcutaneous interferon beta-1a (IFNβSC) for the prevalent RRMS population with mild-to-moderate disability in the US, based on two Phase 3 trials, OPERA I and OPERA II, of ocrelizumab vs IFNβSC in RRMS.

Materials and methods: A Markov model was developed to compare disability progression as measured by Expanded Disability Status Scale (EDSS) and relapse outcomes over a 30-year horizon for ocrelizumab vs IFNβSC. Direct, indirect, and informal costs (2016?US dollars) and utilities for EDSS health states were obtained from the literature. Hazard ratios for disability progression and relapse rates were estimated from clinical trials. Value was assessed by calculating the net monetary benefit (NMB), defined as the monetary value of discounted quality-adjusted life years (QALYs) minus total costs, where the value of a QALY was $150,000. One-way sensitivity analyses were conducted.

Results: Ocrelizumab was associated with an incremental gain of 0.84 QALYs and cost savings of $287,713 relative to IFNβSC, resulting in an incremental NMB (INMB) of $413,611 per person over 30 years. The INMB increased by $151,763 for those initiating ocrelizumab at EDSS level 1 vs level 4. Influential parameters were QALY value, treatment costs, and disability progression; however, all sensitivity analyses indicated that the INMB for ocrelizumab relative to IFNβSC was ≥$300,000 per person.

Conclusions: Ocrelizumab provides greater value to RRMS patients compared with IFNβSC. Initiating ocrelizumab at lower EDSS levels leads to a greater cumulative value due to slower disability progression, which extends years with higher quality-of-life.     

Conditions for Sustainable Optimal Economic Development

This paper shows that, for dynamic optimizing economies with different types of natural resource, environmental, and human‐made capital stocks, a necessary and sufficient condition for permanently sustaining an optimal utility/consumption level is the stationarity of the current‐value Hamiltonian. For economies whose development is not exogenously and directly affected by time (i.e., time‐autonomous economies), this stationarity condition generalizes Dixit et al.’s (1980 ) “zero‐net‐aggregate‐investment” rule of sustain‐ability, which in turn generalizes Solow‐Hartwick’s sustainability rule. For non‐autonomous economies, the stationarity condition is not generally fulfilled, and the current‐value Hamiltonian under (over) estimates the true welfare level by an amount equal to the discounted value of the net “pure time effect.” For the non‐autonomous case of a time‐dependent utility discount rate, a general condition on the discount rate function (of which the hyperbolic discount rate function is a special case) upholds the results obtained for autonomous cases. The paper concludes with a discussion of policies that promote both optimality and sustainability objectives.