Nash equilibrium search for the best alternative

In a recent paper, Weitzman (Econometrica47 (1979) 641–654) described a policy of “optimal search for the best alternative.” The present paper is concerned with the development and characterization of a policy of “Nash equilibrium search for the best alternative.” Specifically, it is shown that, under certain monotonicity assumptions, and under the assumption that firms have incomplete information regarding the results of rivals' search behavior, a Nash equilibrium search policy exists and has the same form as Weitzman's optimal search policy.     

Efficiency Wages and Work Incentives in Urban and Rural China

This paper examines incentive-wage effects for production and for managerial/technical workers in both urban and rural Chinese nonagricultural enterprises. We report strong evidence of productivity-enhancing wage behavior among enterprises in all ownership categories. There is also evidence that firms paying higher efficiency wages experience less shirking among their employees. We find that the profit-maximizing potential of incentive-wage setting is not fully exploited, although there is weak evidence that joint ventures come closer to profit-maximizing behavior at this margin of wage/employment behavior than do collectives or state-owned enterprises. J. Comp. Econ., December 2001, 29(4), pp. 645–662. The Ohio State University, 1945 North High St., Columbus, OH 43210 and University of Hawaii at Manoa, Honolulu, Hawaii 96822. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: P23, J31, O15.     

Monopolistic competition,aggregation of competitive information,and the amount of product differentiation

Consider an industry with a large number of homogeneous firms. Each firm's profits are a function of its own strategy and the strategies the other firms select. Suppose other firms' strategies enter into each firm's profit function only through one or more statistics. For example, average price in the market may parameterize every firm's profit function. We prove that, as a general rule, the industry's firms will in equilibrium follow at most M + 1 distinct strategies, where M is the number of statistics by which competitors' strategies affect each firm's profits.     

The stability of the cournot oligopoly model: A reassessment

The stability properties of the Cournot oligopoly model are examined for the continuous adjustment process. Sufficient conditions for instability are established which are shown to be of significance when the number of firms, n, is small. Local and global stability are shown under appropriate conditions which for global stability include the restriction n ? 5. The proof of global stability corrects a well-known proof by F. Hahn (Rev. Econ. Stud.29 (1962), 329–331). Results for the discrete time adjustment process are reported and the restrictiveness of the model's assumptions are discussed.     

Foreign bank participation and access to credit across firms in developing countries

Combining responses from a survey of firms operating in 35 developing and transition economies with data on the degree of foreign bank presence across these countries, we investigate whether higher foreign bank participation improves the accessibility of external financing for firms. The results suggest that all enterprises, including small and medium-sized ones, report facing lower financing obstacles in countries having higher levels of foreign bank presence. The results are robust to the inclusion of many controls and to econometric adjustments for the potential endogeneity of foreign bank presence and for the likely correlation of responses across firms within countries. Journal of Comparative Economics 34 (4) (2006) 774–795.     

On the existence of equilibria in economies with infinitely many commodities and without ordered preferences

The present paper deals with the existence of equilibria in economies whose commodity space is L_∞(M, M, μ) and where the agents' preferences need not be complete or transitive. Applying a fixed point theorem of Browder, an equilibrium existence theorem for abstract economies (generalized qualitative games) is proven where each agent's choice set is contained in an arbitrary topological vector space. With the help of this theorem the existence of Walrasian general equilibrium for a suitably specified economic model is obtained. The final result is a generalization of T. F. Bewley's (J. Econ. Theory4 (1972), 514–540) equilibrium existence theorem to the case of non-ordered preferences.     

Zero-sum condition: A necessary and sufficient condition for a transitive voting system

A simple and quick way to ascertain whether or not any given majority voting system can always produce a transitive social preference orderings without imposing any restriction on the distribution of diverse individual preference orderings is to examine whether all individual voting (preference) vectors satisfy the Addition Rule or not. This conclusion was obtained by first reformulating the voting mechanism into that of a linear mapping from T^m defined by q = Σp_i. It was found that the subset P of T that can accommodate all possible individual preference ordering profiles and such that every sum vector q = Σ p_i of its member vectors p_i is contained in T can be expressed as P = {p: p∈ T, s(p) = 0}. It was also pointed out that this is equivalent to the requirement that all individual preference (voting) functions must satisfy the Addition Rule. Finally, Borda's Rule and Saposnik's Contributive Rule were shown to be examples of transitive voting rules which satisfy these necessary and sufficient conditions.     

Some extensions of a claim of Aumann in an axiomatic model of knowledge

The paper begins by presenting an axiomatic model of simple and iterated knowledge. A formal definition of the intuitive notion of common knowledge is given and shown equivalent to previous characterizations. It is shown that agents have information partitions. The second part generalizes Aumann's (Ann. Statist.4 (1976), 1236–1239) well-known propositions about common knowledge between two rational agents of each other's probability assignments. It is shown that: common knowledge of decisions—if these are rational—implies a common decision for like-minded agents; and that a “dialogue” in decisions leads to a common decision. A “no-trade” theorem is given which includes trade under complete uncertainty.     

JOINT BIDDING,GOVERNANCE AND PUBLIC PROCUREMENT COSTS:A CASE OF ROAD PROJECTS*

ABSTRACT *** : To utilize public resources efficiently, it is important to take advantage of competition in public procurement auctions to the maximum extent. Joint bidding is a common practice that potentially facilitates competition. By pooling financial and experiential resources, more firms are expected to enter the market, but it will also directly reduce competition if more than one bidder who is solely qualified makes a coalition. In theory joint bidding may or may not be beneficial to auctioneers, depending on the model. The paper empirically examines the impacts of joint bidding on firms' entry as well as bidding behaviour, using data on public road projects in developing countries. It shows that coalitional bids, in particular by local firms, would be competitive, but foreign joint ventures would undermine competition. It is also found that good governance can encourage firms' entry into the tendering and facilitate joint bidding practices.     

Overlapping expectations and Hart's conditions for equilibrium in a securities model

Hart (J. Econ. Theory9 (1974), 293–311) gave conditions for equilibrium to exist in a securities model where each agent undertakes asset transactions to maximize expected utility of wealth. These conditions rule out agents wanting to undertake unbounded balanced transactions to reach a Pareto superior allocation given their expectations. With mild extra assumptions to make agents unwilling to risk incurring unbounded losses on their portfolios, Hart's conditions become equivalent to an assumption of “overlapping expectations,” which is comparable to a much weaker form of Green's “common expectations” (Econometrica41 (1973), 1103–1124).     

The ex-post behavior of firms offering optimal employment contracts

The influential papers of Azariadas (1975) and Baily (1974) have clearly demonstrated that with imperfect labor mobility expected profit maximizing firms will offer employment contracts that will not result in profit maximizing behavior once the ‘state of nature’ is disclosed. This Letter shows that such firms will behave as if their objective were to maximize the expected utility of each individual worker subject to a profit target. The rule that emerges when there is unemployment will be shown to be formally equivalent to Meade's Rule for optimal population [Meade (1955, ch. 6)].     

Feasibility,Stability, and Multiple Research Joint Ventures

We study multiple research joint ventures (RJVs) using a repeated game with imperfect monitoring. Compared with the single joint venture case, we show that cooperation in multiple joint ventures creates two advantages for participating firms. First, by linking decisions together across all joint ventures firms can mitigate the likelihood of cooperation breakdowns following bad R&D outcomes. Second, as the incentive cost to sustain cooperation is independent of the number of joint ventures, the economy of scale effect reduces the efficiency loss due to imperfect monitoring.     

Foreign Direct Investment and Contract Enforcement

A long-standing deterrent to foreign direct investment in developing countries is weak enforcement of binding contracts. A local firm may learn business skills from a cooperating multinational firm and subsequently do business on its own based on the acquired skills. In a two-period, double-moral-hazard model, non-binding contracts are shown to be preferred by all parties, implying that contract enforcement is unnecessary. Our results shed light on the puzzling phenomenon that substantial FDI has been carried out under contractual arrangements in developing countries in which contract enforcement is problematic. They can also explain some interesting stylized facts on contractual joint ventures between multinationals and local firms in the early stage of an economic transition.J. Comp. Econom.,December 1998, 26(4), pp. 761–782. School of Business, The University of Hong Kong, Hong Kong; and Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong.     

Corruption and cross-border investment by multinational firms

Motivated by previous studies on the effect of corruption on foreign direct investment, we examine the impact of a distance measure of corruption between host and source countries on cross-border direct investment and find that corruption distance deters cross-border investment. The evidence indicates that corruption distance is not as serious a deterrent of outward direct investment from more-corrupt countries as it is from less-corrupt countries. We conclude that multinational firms with the capacity to engage in bribery can disregard this activity in transparent environments, whereas multinational firms accustomed to operating in transparent environments find it difficult to overcome the administrative complexities in corrupt environments. Journal of Comparative Economics 34 (4) (2006) 839–856.     

Technical and Allocative Efficiency among Socialist Enterprises: The Case of the Garment Industry in China

Using survey data, this paper compares technical and allocative efficiency among state, urban collective, township-village, and joint venture enterprises in the garment industry in China. Township-village enterprises are further classified into independent enterprises and cooperative ventures with state and urban collective enterprises. According to the estimation results of the production and labor share functions, state and urban collective enterprises are much less efficient, both technically and allocatively, than cooperative township-village enterprise and joint ventures. These findings suggest that this new type of socialist enterprise and joint ventures will eventually dominate in the garment industry. J. Comp. Econom. December 1994, 19(3), pp. 410-433. Tokyo Metropolitan University, Hachiohji City, Tokyo 192-03, Japan; Tokyo Gakugei University, Koganei City, Tokyo 184, Japan; and International Food Policy Research Institute, Washington, DC 20036.     

R & D joint ventures and tacit product market collusion

It is shown that R & D joint ventures make it more likely that firms will be able to sustain tacit product-market collusion, all else equal.     

Capital as a commitment: Strategic investment to deter mobility

This paper analyzes how an early entrant in a market can exploit its head start by strategic investment. The analysis is based on Spence's paper, Investment strategy and growth in a new market, (Bell J. Econ., 10 (1979), 1–19). We frist study the investment game in the no-discounting case, which embodies the key features of mobility deterrence. We establish the existence of a set of perfect equilibria and suggest that one particular equilibrium is most reasonable. This equilibrium, also valid with discounting, involves the follower firm being forever deterred from investing to its steady-state reaction curve, in contrast to Spence's proposed solution.     

Foreign trade,resource allocation,and structural adjustment in Yugoslavia: 1976–1980

A multisector computable general-equilibrium model for the Yugoslav economy is used to analyze some of the internal and external causes of the foreign-exchange crisis of the 1976–1980 period. Methodologically, its modeling approach, appropriately modified for institutional differences, can be used to study the behavior of socialist economies in which prices play a role in resource allocation. Empirically, the results suggest that internal policy errors and systemic factors were the predominant force behind Yugoslavia's growing foreign-exchange shortage between 1976 and 1980. J. Comp. Econ., March 1985, 9(1), pp. 46–70. University of California, Berkeley, California 94720.     

Seize the state, seize the day: state capture and influence in transition economies

Data from the 1999 Business Environment and Enterprise Performance Survey is used to examine state capture and influence in transition economies. We find that a capture economy has emerged in many transition countries, where rent-generating advantages are sold by public officials and politicians to private firms. While influence is a legacy of the past inherited by large, incumbent firms with existing ties to the state, state capture is a strategic choice made primarily by large de novo firms competing against influential incumbents. Captor firms, in high-capture economies, enjoy private advantages in terms of more protection of their own property rights and superior firm performance. Despite the private gains to captor firms, state capture is associated at the aggregate level with social costs in the form of weaker economy-wide firm performance. Journal of Comparative Economics 31 (4) (2003) 751–773.     

Low information nash equilibria for oligopolistic markets

This paper deals with an infinite horizon n firm oligopoly in which firms are assumed to have incomplete information about one another's actions and profit functions. An equilibrium concept is defined that is similar to the Nash non-cooperative equilibrium, but is suitable for the information assumptions of the model. The equilibrium uses a type of bounded rationality which makes firms' computations relatively easy. This is due to an implicit assumption that computation is costly and a Bayesian approach is prohibitively costly. This low information Nash equilibrium is proved to exist, and, in addition, an adaptive expectations decision process is described which, if followed by all firms, leads to the low information Nash equilibrium.