Context Effects in a Negatively Framed Social Dilemma Experiment

A number of studies of the positively-framed voluntary contribution mechanism (VCM) public goods game have examined the role of context on participant behavior. Relatively little attention, however, has been given to the effects of context in negatively-framed VCM games even though this setting is relevant to a wide array of real world challenges, such as common pool resource use and pollution externalities. This study uses a carefully-controlled laboratory experiment to investigate the degree to which the context in which decisions are made influences decision making in a negatively-framed VCM laboratory experiment. The context treatments that we evaluate vary communication, voting, and the status quo of the initial endowment. Results indicate that providing groups the opportunity to communicate and vote significantly reduces choices that impose external costs. Importantly, the pro-social effects of communication and voting are strongest when the status quo endowment is the private account, which generates costs on other participants. This result suggests that the effect of the status quo endowment is a function of whether the social dilemma is framed positively or negatively when communication between participants is allowed.     

Regret theory and policy reform ∗

This paper offers an explanation of policy reforms undertaken in times of an economic crisis. Our explanation does not depend either on conflicts of interests between different socio-economic groups, or on the informational imperfection about the effectiveness of the current policy regime. The single decision maker in our model experiences regrets when the uncertain reform outcome is worse than the status quo. We show that an economic crisis which reduces the status-quo income makes the regret-experiencing decision maker more eager to undertake reforms in times of an economic crisis, despite the higher utility costs of adjustments.     

Patents and R&D as Real Options

This article develops and implements a simulation approach to value patents and patent‐protected R&D projects based on the Real Options approach. It takes into account uncertainty in the cost‐to‐completion of the project, uncertainty in the cash flows to be generated from the project, and the possibility of catastrophic events that could put an end to the effort before it is completed. It also allows for the possibility of abandoning the project when costs turn out to be larger than expected or when estimated cash flows turn out to be smaller than anticipated. This abandonment option represents a very substantial part of the project's value when the project is marginal or/and when uncertainty is large. The model presented can be used to evaluate the effects of regulation on the cost of innovation and the amount on innovative output. The main focus of the article is the pharmaceutical industry. The framework, however, applies just as well to other research‐intensive industries such as software or hardware development.
(J.E.L.:G31, O22, O32).     

A SIGNALING MODEL OF COMPETITIVE POLITICAL PRESSURES

This paper models competitive political pressures as a signaling phenomenon. People participate in collective action in support of or against the status quo, or they abstain. Their actions and abstentions inform the decision of a policymaker who may overturn the status quo in favor of a policy alternative. By providing an informational microfoundation for the widely used reduced-form "pressure production functions" and "political influence functions," the analysis allows me to reexamine the role of the free rider problem in creating a bias towards vocal special interests.
The signaling hypothesis finds empirical support with a study of pro- and anti-Gulf War demonstrations that took place in San Francisco and Kansas City (Missouri) in early 1991.     

Resisting economic integration when industry location is uncertain

This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial centre is challenged by introducing costs of undertaking economic integration.     

Interconnected communications networks and home market effects

Abstract.  This study develops a model of trade that highlights the effects of the interconnection of country‐specific communications networks as a driving force behind trade in high‐tech products with positive transport costs. By constructing a two‐country model of monopolistic competition with two production factors, it is shown that the locational decisions of firms may magnify the influence of interconnected networks. In a reversal of the standard home market effects, the abundance of unskilled labour in the developing countries can attract high‐tech firms from the developed countries. JEL classification: D43, F12, L13     

An impossibility result for virtual implementation with status quo

In this paper, virtual implementation is restricted to deliver, on the equilibrium path, either a socially optimal outcome or a status quo: an outcome fixed for all preference profiles. Under such a restriction, for any unanimous and implementable social choice function there is a dictator, who obtains her most preferable outcome as long as all agents prefer this outcome to the status quo. Further restrictions on the lottery space and the range of social choice functions allow the dictator to impose her most preferred outcome even when other agents prefer the status quo to this outcome.     

Price stickiness, trend inflation, and output dynamics: a cross‐country analysis

Abstract.  Sticky price models based on menu costs predict that countries with high trend inflation should have (i) smaller impact effects of demand shocks on output and (ii) less persistent output fluctuations, relative to low‐trend inflation countries. These predictions are tested, controlling for changes in trend inflation, using a country‐specific approach. The results do not support the second prediction. That prediction is also not robust to a modified measure of trend inflation that excludes episodes of hyperinflation. These findings suggest that while price stickiness is important for understanding short‐run impact effects, real propagation mechanisms may drive persistence in output fluctuations.     

Incomplete Information, Trading Costs and Cross‐autocorrelations in Stock Returns

This paper provides an economic rationale for the cross‐autocorrelation patterns in stock returns in the context of a microstructure model in which investors have incomplete information. The paper shows that in a market in which investors are informed about only a sub‐set of stocks, the emergence of lead‐lag, cross‐autocorrelations is a function of the cost of trading in other stocks based on information about the sub‐set of stocks. If cross‐trading costs are high, informed investors will trade only in the sub‐set of stocks they are informed about; if cross‐trading costs are moderate, informed investors will randomize between trading and not trading in other stocks; and if cross‐trading costs are low, they will trade in all stocks. When informed investors trade only in a sub‐set of stocks, prices of stocks with more informed trading will adjust to common factor information faster than the prices of stocks with less informed trading giving rise to asymmetric lead‐lag cross‐autocorrelations. When informed investors trade in all stocks, asymmetric lead‐lag cross‐autocorrelations will disappear as a result of their cross‐market arbitrage trading. These results provide a number of testable implications for lead‐lag cross‐autocorrelation patterns. The data is consistent with the empirical predictions .
(J.E.L.G12, G14).     

Governance in Democratic Member‐Based Organisations

Abstract This paper considers issues of governance in democratic member‐based organisations (DMOs), such as co‐operatives and mutual societies. It examines the processes whereby members' interests are mediated through the democratic process, and the board; and it explores some of the factors influencing the power of managers. It goes on to argue that the system of governance in DMOs in their institutional context runs the risks of managers becoming powerful and entrenched in poorly performing social economy organisations, unless countervailing measures are adopted.     

RENT DISSIPATION AND THE SOCIAL COST OF PRICE POLICY

This paper uses a general equilibrium-based exchange economy model to examine rent seeking for a price policy. Opposing interests spend resources to influence the government's choice of a price vector. Rents, the willingness to pay for the policy, are determined endogenously from the Nash equilibirum of a non-cooperative game. Numerical simulations explore the degree to which rents are dissipated by wasteful rent seeking. It is found that dissipation, measured as the ratio of rent-seeking costs to rents garnered, can grow without limit, and is greatest when opponents are evenly matched. Dissipation is smallest with widely disparate groups, a result that might help explain the underdissipation that seems to occur in many industries.     

POLITICAL ECONOMY AND THE EFFICIENCY OF COMPENSATION FOR TAKINGS

To assess compensation for regulation-induced "takings," the authors model political support for regulation as a function of externalities, landowner wealth, and tax burdens. When competing social interests have equal influence on political outcomes, compensation should not be paid. However, when environmentalists and property owners have unequal influence, the model yields several counterintuitive implications. For example, disenfranchised environmentalists should support takings compensation, since it reduces landowner opposition to regulation. The authors also show how compensation rules can limit the deadweight social costs of income transfers, while recognizing their effects on regulator and landowner behavior. (JEL K11 , D72 , L51 )     

要素市场扭曲对企业家寻租及创新的影响

Baumol认为企业家行为模式受到所在制度环境的影响，良好的制度环境会促进企业家从事增加社会福利的生产性活动，比如创新；而制度环境不佳会导致企业家从事攫取社会利益的非生产性活动，比如寻租。Baumol的企业家才能配置理论在中国具体情境中，是否有其适用性？以我国2009-2014年省级层面面板数据，利用各省份人均土地出让面积作为地区要素市场扭曲的工具变量，在有效控制内生性可能导致的模型估计偏误后，实证考察了要素市场扭曲对企业家寻租活动的作用效应。研究发现，转轨时期我国地区要素市场扭曲程度越深，企业家寻租活动就越多。进一步通过系数检验以及Bootstrap方法考察企业家寻租活动在地区要素市场扭曲和企业创新强度之间的中介效应，证实了“要素市场扭曲→企业家寻租活动增多→企业创新强度减弱”传导机制的存在，可为深化中国要素市场机制改革提供理论和实证支持。     

Where are the rent seekers?

In a remarkably simple and yet one of the most original and insightful observations of 20th century economics, Gordon Tullock pointed out that there are efficiency losses when public policies and political behavior create contestable rents. Tullock also observed that social losses from contesting rents appeared smaller than might be expected, so raising the question ‘where are the rent seekers?’ Tullock proposed that political accountability and ‘free-riding’ incentives in interest groups limit social losses from rent seeking. We affirm Tullock’s explanations, which apply differently under different political institutions. We compare Tullock with Gary Becker, who focused on deadweight losses from redistribution and concluded, in contrast to Tullock, that political redistribution is efficient. The comparison with Becker highlights the significance of the recognition of Tullock’s concept of rent seeking. By excluding rent-seeking losses from the social costs of redistribution, Becker could arrive at a conclusion more favorable than Tullock to an ideology that sees merit in extensive redistribution. Tullock’s model, although more encompassing of actual social costs of redistribution, would have been less welcome in the social democratic welfare state.     

Trade, market size, and industrial structure: revisiting the home‐market effect

Abstract.  This paper shows that the issues in the recent discussion over the 'home‐market effects' are more complicated than previously thought. It is shown that, in general, market size matters for industrial structure even when both the homogeneous and the differentiated goods face transport costs. The home‐market effect for production structure can arise, disappear, or even reverse in sign. The analysis shall change a common perception about de‐industrialization of (small) economies and may also have important implications for the empirical research strategies in this area. JEL classification: F12, L1     

Investment under Uncertainty in Dynamic Conflicts

This paper analyses a model in which two groups repeatedly compete with each other for a prize in every time period. We assume that there is a status quo bias: if there is a fight today, yesterday's winner is in a stronger position than the other group. Hence, a change of the status quo has long-term consequences that groups need to take into account. Important applications of this model include lobbying for legislation and political transitions through revolutions. We analyse the strategic timing of attacks on the status quo, which is similar to investment decisions under uncertainty. We find that the attack threshold is considerably lower than in a comparable one-period game, and that the expenditure level necessary to change the status quo is low in comparison to the prize; this provides a possible solution to Tullock's "rent-seeking paradox" in lobbying.     

Probabilistic dominance and status quo bias

Decision makers have a strong tendency to retain the current state of affairs. This well-documented phenomenon is termed status quo bias. We present the probabilistic dominance approach to status quo bias: an alternative is considered acceptable to replace the status quo only if the chances of a (subjectively) severe loss, relative to the status quo, are not too high. Probabilistic dominance is applied and behaviorally characterized in a choice model that allows for a range of status quo biases, general enough to accommodate unanimity, but also standard expected utility maximization. We present a comparative notion of “revealing more bias towards the status quo” and study its implications to the probabilistic dominance model of choice. Lastly, the model is applied to the endowment effect phenomenon and to a problem of international portfolio choice when investors are home biased.     

The Economics of American Sports Leagues

Player mobility in North American sports leagues is limited by labour market constraints designed ostensibly to allow teams to recoup player development costs and to maintain competitive balance within leagues. Theory holds that the distribution of talent will be invariant under any institutional configuration, and that while rules to constrain movement will serve to enhance monopsonistic exploitation of talent, they will have no effect on competitive balance. This paper reprises a general theory through which the effects of the labour market constraints can be comparatively analysed for American sports leagues. The economics of sports has been relegated to the realm of labour theory by the unnecessarily limiting assumption that owners of sports clubs are single‐minded profit maximisers. This paper also presents a theory that seeks to unify capital market decisions of financial leverage and ownership syndication with operational labour market decisions for athletic talent and an owner's desire to win.     

The comparative advantage of public ownership: evidence from U.S. electric utilities

Abstract.  Studies of the performance effects of public vs private ownership have found mixed evidence. This paper draws on theory suggesting that public enterprise may have an advantage in producing goods and services whose quality attributes are difficult to specify a priori. Using a comprehensive data set of U.S. electric utilities to estimate cost functions, we find that while privately owned systems achieve lower costs in generation, public systems generally have an advantage in the end‐user‐oriented distribution function with its more non‐contractible quality attributes. Other evidence on quality differences by ownership type and by enterprise size supports this distinction. JEL classification: L33, L94     

The compelling effects of compulsory schooling: evidence from Canada

Abstract.  Compulsory school laws have existed for more than a hundred years, and policies to mandate further education continue to be discussed. The implications of these laws, however, are not well understood. Historical changes to compulsory schooling in Canada permit an examination of their effects on would‐be‐dropouts under very different circumstances than those during changes in other countries. Mandating education substantially increased adult income and substantially decreased the likelihood of being below the low‐income cut‐off unemployed, and in a manual occupation. These findings suggest significant gains from this legislation, which seem unlikely offset by the costs incurred while having to remain in school. JEL classification: I20, I28