Discounting telephone service: An examination of participation in the Lifeline Assistance Program using panel data

We examine the Lifeline Assistance Program to consider reasons people forgo a program providing financial benefits. Using panel data we employ a feasible generalized least squares estimation in which the dependent variable is the logit of the Lifeline participation rate. Our unique database incorporates characteristics of the eligible rather than the general population. We find incumbent telecommunications providers’ enrollment efforts are statistically significant, and that home ownership and female head of household are associated with greater participation; being elderly and less educated are associated with less participation. Additionally, we find that an increase in the local phone rate is associated with increased participation. Our findings are important for regulatory policy surrounding the Lifeline program and universal service programs generally.     

Effect of an audience in public goods provision

This paper investigates a novel public goods game where contributions to the public goods require effort that is observable. When the players are observed, they exert more effort to contribute to the public goods, and free-riding diminishes significantly compared to the no observer case. These effects are absent when no effort is required in order to contribute to the public goods. Furthermore, in the presence of an audience, the contributions to the public goods do not diminish when the game is repeated in the effort-required environment. Being observed does not affect the performance of the players if there is no strategic aspect of the game, in other words, when they play a private goods game. These results indicate that an individual wants to avoid appearing lazy when her effort helps the society.     

Self-interest and fairness: self-serving choices of justice principles

We introduce non-enforceable property rights over a bargaining surplus in a dictator game with production, where the agent’s effort is differentially rewarded and subsequently determines the size of the surplus. Using experimental data, we elicit individual preferences over the egalitarian, accountability and libertarian principles and provide evidence to support the inability of these justice principles to individually account for the observed behavior. We show that the justice principle that can be used to explain dictators’ choices depends on whether dictators are paid more or less than recipients for their effort. Our findings suggest that dictators do employ justice principles in self-serving ways and choose in each context the justice principle that maximizes their financial payoffs.     

Free Entry under Uncertainty

When focusing on firm’s risk-aversion in industry equilibrium, the number of firms may be either larger or smaller when comparing market equilibrium with and without price uncertainty. In this paper, we introduce risk-averse firms under cost uncertainty in a model of spatial differentiation and show that the impact of uncertainty will increase the number of firms in an industry. With increased uncertainty, the risk premium of the marginal buyer increases by more than the risk premium of the average buyer, so that the price increases by more than the risk premium. When turning to the free entry game, we find that the market generates too many firms.     

Legislators' behaviour and electoral rules: Evidence from an Italian reform

We explore how electoral rules and the degree of civicness of the voters interact in shaping elected officials' behaviour. We examine the expenditure proposals sponsored by Italian Senators from 1994 to 2013 and exploit the 2005 electoral reform that transformed a mainly majoritarian system into a mainly proportional one. First, we find that legislators elected in first-past-the-post districts are more likely to sponsor pork-barrel bills and to put effort into legislative activity than those elected with a closed-list proportional system. Second, more importantly, we show that the effects of the electoral rules are muted in areas with high civicness.     

Constitutions and the resource curse

Utilizing the fact that natural resources are randomly distributed among countries, we investigate how public income shocks have different long run economic effects dependent on constitutional arrangements. We find that (i) the so-called ‘resource curse’ is present in democratic presidential countries—but not in democratic parliamentary countries, (ii) being parliamentary or presidential matters more for the growth effects of natural resources than being democratic or autocratic, and (iii) natural resources are more likely to reduce growth when proportional electoral systems are in place than when the electoral systems are majoritarian. The two first effects appear very robust, the last effect less so.     

What norms trigger punishment?

Many experiments have demonstrated the power of norm enforcement—peer monitoring and punishment—to maintain, or even increase, contributions in social dilemma settings, but little is known about the underlying norms that monitors use to make punishment decisions, either within or across groups. Using a large sample of experimental data, we empirically recover the set of norms used most often by monitors and show first that the decision to punish should be modeled separately from the decision of how much to punish. Second, we show that absolute norms often fit the data better than the group average norm often assumed in related work. Third, we find that different norms seem to influence the decisions about punishing violators inside and outside one’s own group.     

Asynchronized multiperiod commitments and cycles

We consider a game where agents can synchronize or stagger their decisions. We compare the outcomes of both timing patterns, and show that spillovers and strategic interactions are crucial for such a comparison. A typology used in industrial organization, distinguishing four cases (‘Fat-Cat’, ‘Top Dog’, Lean and Hungry’, ‘Puppy Dog’), allows us to compare the actions taken in the staggered variant and in the synchronized one. The staggered variant exhibits cycles and players are both better-off when there are strategic complementarities between them. A timing game is then set-up so as to endogenize the choice between the two variants we study.Two examples are developed: (i) Bertrand competition and (ii) a wage setting game when there are two monopoly unions in two interrelated firms. We show that the staggering of price decisions generates counter-cyclical mark-ups in the first example, and the staggering of wage decisions generates cycling output in the industry in the second example.     

The erosion of personal norms and cognitive dissonance

In this article, we study how personal norms and behaviour interact and evolve when agents try to reduce cognitive dissonance, and how this dynamic relates to Nash equilibrium. We find that in long run, agents play, and norms prescribe, Nash equilibrium in material payoffs (in the absence of norms). Our model captures two main facts: (i) norms erode along the play of the game; (ii) the erosion of norms depends on the set of possible economic choices, so that the policy maker can potentially influence them.     

Political accountability and public service delivery in decentralized Indonesia: Incumbency advantage and the performance of second term mayors

To what extent do voters hold local elected leaders accountable for public service delivery in fiscally and politically decentralized environments, as theory suggests should be the case? We examine political accountability and service delivery in subnational Indonesia, through the lens of mayoral incumbency advantage. We apply regression discontinuity methods to a unique data set on local elections to identify the causal impact of incumbency on election outcomes and relate those effects to changes in citizen access to local public services. We find that voters in Indonesia are, in general, very willing to return incumbents to office compared to their counterparts in other countries. We also determine that the incumbent advantage is conditional on advances in local service provision: as service access expands more quickly, voters are more likely to vote incumbents back into office. Finally, we find that electorally successful incumbents—second term mayors—spend substantially less on education and health and more on infrastructure, manage their budgets less prudently, and deliver public services neither more nor less effectively than their first term equivalents. We conjecture that term limits and the attendant lack of electoral incentives leads to the disappointing second-term mayor performance.     

Preemptive collusion among corruptible law enforcers

This paper considers collusion between a supervisor and an agent within a Principal–Supervisor–Agent model. Other papers consider the possibility of collusion after the supervisor has exerted costly effort to obtain hard (“verifiable”) evidence regarding the agent’s actions, information which, if reported would result in the agent being fined with a certain probability. That is, collusion occurs because the supervisor may accept a bribe in exchange for hiding the information he has obtained. This paper allows the supervisor and the agent to enter into a collusive contract either before or after the supervisor has exerted effort to find verifiable information regarding the agent’s actions. The former type of collusion, which occurs after the supervisor has exerted effort, entails ex-post corruption, while the latter, which occurs before the supervisor has exerted effort, entails preemptive corruption. This paper shows that although raising the supervisor’s reward discourages ex-post corruption, it can simultaneously encourage preemptive corruption. Hence, raising the supervisor’s reward will not always discourage collusion. This result further implies that though privatizing law enforcement can always be used to eliminate ex-post corruption, it cannot be used to eliminate preemptive corruption. Furthermore, when compared to ex-post collusion, an equilibrium without corruption is always socially preferred. However, when compared to preemptive collusion, an equilibrium without corruption may not always be socially preferred.     

Cooperators and reciprocators: A within-subject analysis of pro-social behavior

We perform a within-subject analysis of pro-social behavior in the public-good and gift-exchange game. We find that participants classified as cooperators in the public-good game tend to reciprocate higher wages in the gift-exchange game with higher levels of effort. Non-cooperators do not exhibit such tendency. Both types offer similar wages.     

Happiness, freedom and control

How do people value freedom of choice? Drawing on economics and psychology the paper provides an hypothesis and empirical evidence on how individuals may value freedom of choice and derive utility from it. It is argued that the degree of perceived control that individuals have over choice – a construct known as the locus of control in psychology – regulates how we value freedom of choice. People who believe that the outcome of their actions depends on internal factors such as effort and skills (the ‘internals’) have a greater appreciation of freedom of choice than people who believe that the outcome of their actions depends on external factors such as fate or destiny (the ‘externals’). We find some evidence in support of this hypothesis using a combination of all rounds of the World and European Values Surveys. A variable that measures freedom of choice and the locus of control is found to predict life satisfaction better than any other known factor such as health, employment, income, marriage or religion, across countries and within countries. We show that this variable is not a proxy of happiness and measures well both freedom of choice and the locus of control. ‘Internals’ are found to appreciate freedom of choice more than ‘externals’ and to be happier. These findings have important implications for individual utility, social welfare and public policies.     

Overcoming free riding in multi-party computations—The anonymous case

This paper addresses the question of multi-party computation in a model with asymmetric information. Each agent has a private value (secret), but in contrast to standard models, the agent incurs a cost when retrieving the secret. There is a social choice function the agents would like to compute and implement. All agents would like to perform a joint computation, which input is their vector of secrets. However, agents would like to free-ride on others' contribution.A mechanism which elicits players' secrets and performs the desired computation defines a game. A mechanism is ‘appropriate’ if it (weakly) implements the social choice function for all secret vectors. namely, if there exists an equilibrium in which it is able to elicit (sufficiently many) agents' secrets and perform the computation, for all possible secret vectors. We show that ‘appropriate’ mechanisms approach agents sequentially and that they have low communication complexity.     

Voluntary provision of a pure public good as the game of ‘chicken’

The voluntary exchange model, where the amount of a public good and contributions to its cost are simultaneously determined, is treated as a (2×2) non-cooperative non-constant-sum game. Three conceptually different types of games emerge. One of them is ‘Chicken’; each player can gain by pre-emptively threatening to pay nothing—unless the other player acts likewise. ‘Zero public goods’ is thus a possible outcome of voluntary exchange, even though it is Pareto inferior.     

Melioration learning in games with constant and frequency-dependent pay-offs

The paper explores the implications of melioration learning—an empirically significant variant of reinforcement learning—for game theory. We show that in games with invariable pay-offs melioration learning converges to Nash equilibria in a way similar to the replicator dynamics. Since melioration learning is known to deviate from optimizing behavior when an action’s rewards decrease with increasing relative frequency of that action, we also investigate an example of a game with frequency-dependent pay-offs. Interactive melioration learning is then still appropriately described by the replicator dynamics, but it indeed deviates from rational choice behavior in such a game.     

Bank runs as coordination failures: An experimental study

We use experimental methods to investigate what factors contribute to breakdowns in coordination among a bank’s depositors. Subjects in our experiment decide whether to leave their money deposited in a bank or withdraw it early; a bank run occurs when there are too many early withdrawals. We explore the effects of adding uncertainty about fundamental withdrawal demand and of changing the number of opportunities subjects have to withdraw. Our results show that (i) bank runs are rare when fundamental withdrawal demand is known but occur frequently when it is stochastic, and (ii) subjects are more likely to withdraw when given multiple opportunities to do so than when presented with a single decision. For the multiple-opportunity case, we evaluate individual withdrawal decisions according to a set of simple cutoff rules. We find that the cutoff rule corresponding to the payoff-dominant equilibrium of the game, which involves Bayesian updating of probabilities, explains subject behavior better than other rules.     

The Carrot vs. the Stick in Work Team Motivation

This paper reports on the use of carrot (positive) and stick (negative) incentives as methods of increasing effort among members of work teams. We study teams of four members in a laboratory environment in which giving effort towards the team goal is simulated by eliciting voluntary contributions towards the provision of a public good. We test the efficiency-improving properties of four distinct environments: monetary prizes given to high contributors versus monetary fines assessed to low contributors, where high/low contributor is defined first in terms of absolute contributions and then in terms of contributions relative to abilities—which we call handicapping. Our results show that both carrot and stick can increase efficiency (i.e., contributions) levels by 10–28%. We find that handicapped incentives promise the highest efficiency levels, and when handicapping is not used penalties may be more effective than prizes. The implications for work teams and suggestions for practical implementation are discussed.     

Portfolio delegation under short-selling constraints

Summary. In this paper we study delegated portfolio management when the manager’s ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. We find that the risk-averse manager’s effort is an increasing function of her share in the portfolio’s return. This result affects the risk-averse investor’s choice of contracts. Unlike previous results, the purely risk-sharing contract is now shown to be suboptimal. Using numerical methods we show that under the optimal linear contract, the manager’s share in the portfolio return is higher than what it is under a purely risk sharing contract. Additionally, this deviation is shown to be: (i) increasing in the manager’s risk aversion and (ii) larger for tighter short-selling restrictions. As the constraint is relaxed the deviation converges to zero.Received: 25 July 2002, Revised: 12 December 2004, JEL Classification Numbers: D81, D82, J33.Juan-Pedro Gómez: Correspondence toAn earlier version of the paper was circulated under the title “Providing Managerial Incentives: Do Benchmarks Matter?” We are grateful to an anonymous referee whose comments helped to improve the paper. We also thank comments by Viral Acharya, Alexei Goriaev, Ernst Maug, Kristian Rydqvist, Neil Stoughton, Rangarajan Sundaram, Fernando Zapatero and seminar participants at the 1999 SED meetings in Sardinia, the 1999 Workshop in Mutual Fund Performance at EIASM, Brussels, the 2000 EFA meetings in London, the Bank of Norway, the Stockholm Schools of Economics, the Norwegian School of Management and the 2001 WFA meetings in Tucson. Sharma gratefully acknowledges financial support from the Asociacion Mexicana de Cultura.     

Communication,competition and social gift exchange in an auction for public good provision

Reverse auctions are an established policy instrument for allocating conservation contracts. While the auction mechanism has been the subject of a number of studies, less attention has been paid to the post-bidding contract phase. As contracts involving natural resource management are usually incomplete, trust becomes crucial for the effectiveness of the programme. We test the effect of communication between auctioneer and bidders on bidding behaviour and contract fulfilment using experimental economics. We combine a repeated reverse auction with an effort-level game and use a bilateral chatting tool as treatment variable. Without communication, auctioneers tended to select the lowest-priced bidders, who invested substantially less than the socially optimal level of effort when fulfilling their contract to provide the public good. Relational contracting proved important, with effort levels and profits tending to be higher when auctioneers and bidders entered into consecutive contract relationships. In the communication treatment there was no evidence of price competition, as auctioneers were more likely to accept high-priced bids. However, an overall higher price level did not lead to efficiency losses, since contractors realised higher effort levels in return, establishing a ‘social gift exchange’. Our results demonstrate the importance of trust-based relationships between the auctioneering institution and landholders.