Stable and efficient bargaining networks

Abstract. We examine a bargaining game among players connected by a network, where successively potential partners negotiate over terms of a project. For any network structure and ordering of selection of bargaining partners, there is a unique subgame perfect equilibrium outcome which coincides with the standard Rubinstein split. Based on this, we derive expected payoffs for players as a function of the network. We the characterize the pairwise stable and efficient bargaining networks. These two sets do not always coincide and in many situations pairwise stable networks are over-connected. Received: 10 April 2001 / Accepted: 17 January 2002 I am indebted to Matthew Jackson for suggesting this paper. I also thank Bernard Caillaud, Sanjeev Goyal, and the seminar participants at Universidad de Alicante, Universidad Carlos III de Madrid, CEMFI (Madrid), Universitat Autònoma de Barcelona, Erasmus University of Rotterdam, Universitat Pompeu Fabra (Barcelona) and CERAS (Paris) for helpful comments. This paper was written while at Universitat Pompeu Fabra and CERAS. Financial support from the Spanish Ministry of Education through research grant DGESIC PB96-0302, and from the Ecole Nationale des Ponts et Chaussées, Paris is gratefully acknowledged. All errors are of course mine.     

The war against drug producers

This paper develops a model of a war against illegal drug producers. This war occurs on two fronts. First, to prevent the cultivation of crops the state engages the drug producers in conflict over the control of land. Second, to impede further the production and exportation of drugs the state attempts to eradicate crops and to interdict drug shipments. The model includes an interested outsider who uses both a stick and a carrot to strengthen the resolve of the state in its war against drug producers. We use numerical calibrations of the model to evaluate the effectiveness and efficiency of Plan Colombia. The authors wish to thank an anonymous referee, Michelle Garfinkel, Jean Hindriks, Carlos Esteban Posada, and Marc St-Pierre for helpful comments and suggestions, as well as seminar participants at Brown, Yale, the CEPR conference on Crime and Conflicts, Marseilles, October 2004, LACEA, San José, November 2004, the AEA meetings, Philadelphia, January 2005, the ESWC, London, August 2005, and Banco de la República. Herschel Grossman died on October 9, 2004 in Marseilles during a conference where we were presenting this paper.     

A mechanism implementing the proportional solution

We consider the problem of a commonly owned technology which transforms a single input into a single output. We are interested in implementing a social choice rule called theproportional solution. We introduce a mechanism which implements the proportional solution in Nash, strong (Nash) and undominated Nash equilibria. In the mechanism each agent announces only two numbers which can be interpreted as the total output and her share of the total input-output combination. This paper was originally titled "Doubly implementing the proportional solution." I would like to thank my advisor William Thomson for his detailed comments and suggestions. I would also like to thank Jeffrey Banks and Sung-Whee Shin for their comments. Two anonymous referees and an editor’s comments improved this paper substantially.     

Finite sample properties for the semiparametric estimation of the intercept of a censored regression model

Financial support for this paper was provided by a C.A. Anderson Fellowship of the Cowles Foundation. I wish to thank Donald Andrews, Moshe Buchinsky, Oliver Linton, and Peter Robinson for helpful discussions. I also wish to thank three anonymous referees for their comments and suggestions. I am, of course, responsible for any remaining errors. A popular two-step estimator of the intercept of a censored regression model is compared with consistent asymptotically normal semiparametric alternatives. Using a root mean squared error criterion, the semiparametric estimators perform better for a range of bandwidth parameter choices for a variety of distributions of the errors and regressors. For error distributions that are close to the normal, however, the two-step parametric estimator performs better.     

A free-rider problem with a free-riding principal

In a moral hazard problem caused purely by joint production and not by uncertainty, we examine the problem faced by a principal who actively participates in production along with a group of agents. We show that, when designing the optimal output sharing rule, the principal need not look for anything more complicated than the frequently observed simple linear or piecewise linear rules. We also confirm the presence of a friction between the principal’s residual claimant role and her incentive to free-ride in the production process that prohibits her from completely mitigating the moral hazard problem. This paper is from the first chapter of my Ph.D. dissertation at The University of British Columbia, Canada, 1993. I would like to thank my thesis supervisor John Weymark for his many helpful comments and suggestions. I have also benefitted from the comments of Charles Blackorby, David Donaldson, Mukesh Eswaran, Kenneth Hendricks, Ashok Kotwal and Guofu Tan. An anonymous referee and an associate editor provided helpful suggestion. I am also grateful for the hospitality of the Indian Statistical Institute, Delhi Centre, and the Centre for Development Economics, Delhi School of Economics, where parts of the paper were revised while I was a visitor. I am solely responsible for any remaining errors and omissions.     

A channel model of investment decision: An intertemporal planning approach

The paper considers some theoretical implications of the Oslo-Cairo intertemporal planning model (the channel model). A version of the channel model with private and public investment projects is developed. The optimality properties of the model are derived. It is shown that: (i) Pareto solution can be supported by competitive prices and (ii) a ranking criterion can be constructed in the spirit of cost-and-benefit analysis. The results brings the channel model theoretically in line with the classical resource allocation models.This paper is a revised and abridged version of Chapter Two of my doctoral dissertation at the University of Kansas. I wish to thank Professor Mohamed El-Hodiri, Chairman of my thesis committee, for his guidance and support and for introducing me to the theory of optimal control with delays. I would also like to thank Professors Van Vleck, Paul Comolli, David Burress and Tom Weiss for their helpful suggestions. The paper has benefited substantially from the comments provided by anonymous referees. I remain responsible for all errors and inaccuracies.     

The Pazner-Schmeidler social ordering: A defense

It is shown that the Pazner-Schmeidler social ordering appears as a very natural solution to the problem of defining social preferences over distributions of divisible goods. The paper analyses various ways of deriving this social ordering from minimally egalitarian conditions and informational parsimony requirements.Received: 10 October 2003, Accepted: 4 April 2005, JEL Classification: D63, D71This paper was written while I was a research fellow at the ZiF (Bielefeld), for the project “Procedural Approaches to Conflict Resolution”, and the last version was prepared during my sabbatical year at Nuffield College, Oxford. I thank my hosts for their hospitality. D. Dimitrov and F. Maniquet have provided valuable comments on an earlier draft. I also thank the audience of a seminar at the U. of Montreal. Finally, the comments of three anonymous referees and the Associate Editor have been very helpful.     

Property Rights Assignment: Conflict and the Implementability of Rules

The paper studies the assignment of property rights. By assignment I mean a social mechanism that transfers a valuable resource from an “unowned” state to an “owned” state (for example, a first-possession rule). I argue that any assignment mechanism faces an implementation constraint with one exception, namely the assignment by conflict. I characterize this constraint and show that under some conditions population growth facilitates rule-based assignments because appropriation by conflict becomes more costly. In other cases, however, this effect is reversed. The model may give some insights regarding the emergence and the disappearance of the open-field system in medieval Europe which, paradoxically, both have been attributed to population growth. This paper is dedicated to Horst Hegmann. For helpful and insightful comments in discussions and on the paper I thank Roderick Hay, Horst Hegmann, Christopher Kingston, Guy Kirsch, Krishna Ladha, Marc Law, Anton Miglo, Douglass North, and John Nye. I also thank the editor Amihai Glazer and two anonymous referees for their comments. The usual disclaimer applies.     

Proportionally adjusted marginal pricing method to share joint costs

We consider the cost sharing problem with divisible demands of heterogeneous goods. We propose a cost sharing method called Proportionally Adjusted Marginal Pricing (PAMP) method. PAMP is a nonadditive (in the cost function) extension of average cost pricing. We introduce an axiom called Local Independence (LI) and use LI together with Continuity, Proportionality, and Scale Invariance to characterize PAMP. Received: 23 March 2001 / Accepted: 16 November 2001 I thank Yves Sprumont, Hervé Moulin, and Ahmet Alkan for discussions, comments and suggestions. Thanks also go to the associate editor and the referees, whose comments and suggestions greatly improve the paper.     

Differentiable strategy-proof mechanisms for private and public goods in domains that are not necessarily large or quasi-linear

In this paper, we develop a differentiable approach to deal with incentives in a, possibly small, subset of a general domain of preferences in economies with one public and one private good. We show that, for two agents, there is no mechanism which is efficient, strategy-proof and where consumption of both goods is positive for all agents. For the case of two or more agents the same result occurs when nondictatorship is replaced by Individual Rationality. We are very grateful to Atila Abdulkadiroglu, Carmen Beviá, Xavier Calsamiglia, Marco Celentani, Bernardo Moreno, Antonio Romero-Medina, William Thomson, Walter Trockel, an associate editor, three anonymous referees and participants at seminars at Universities of Alicante, Autónoma de Barcelona and Rochester and the Spanish Economic Association meeting in Sevilla for very helpful comments and suggestions.     

Wage determination in late socialism: The case of Poland

Does economic transition necessitate a profound change in the inter-industry wage structure? This paper argues that principles of wage determination in centrally planned economies were not basically different from those prevailing in market economies. Even if the center became involved in wage setting, reward for human capital and the compensating differential had to be taken into consideration. Moreover, market power led to rent-sharing via wage bargaining and efficiency wages. Hence, this paper claims that wages in socialist economies were determined by similar factors to those in market economies. This is supported by comparison of inter-industry wage structures between socialist and capitalist countries and by results of the estimation of the wage equation for Poland. There is a noticeable degree of similarity in wage structures generated by both systems.I started this paper when I was a research visitor at the Centre of Economic Performance, London School of Economics and completed it when I was a visiting fellow at Princeton University. While at Princeton University I was financed as a Fulbright Fellow.I am grateful to David Card, Hartmut Lehmann, Marcus Rubin, Mark Schaffer and an anonymous referee for their helpful comments and suggestions. I also wish to thank the participants of the seminars at the Industrial Relations Section of Princeton University and at the University of Maryland for useful discussion. The usual disclaimer applies.     

Efficiency and information aggregation in auctions with costly information

Consider an auction in which k identical objects are sold to n > k bidders who each have a value for one object which can have both private and common components to it. Private information concerning the common component of the object is not exogenously given, but rather endogenous and bidders face a cost to becoming informed. If the cost of information is not prohibitively high, then the equilibrium price in a uniform price auction will not aggregate private information, in contrast to the costless information case. Moreover, for a wide class of auctions if the cost of information is not prohibitively high then the objects can only be allocated in a weakly efficient sense, and then only if the equilibrium proportion of endogenously informed agents is vanishing as the economy grows. In spite of these results, it is shown that there is a mechanism for which there exist equilibria and for which (weak) efficiency is achieved as the economy grows in the face of endogenous information acquisition.Received: 6 August 2001, Accepted: 27 July 2002, JEL Classification: C72, D44, D82Financial support under NSF grant SBR-9507912 is gratefully acknowledged. I thank Valentina Bali for conversations out of which this project grew, and Larry Ausubel for a very helpful discussion of an early version of this paper at the 1998 summer meetings of the Econometric Society from which I have borrowed in structuring the exposition of the paper. I also thank Andy Postlewaite, Jeroen Swinkels, and an associate editor and anonymous referee for helpful comments and suggestions on earlier drafts.     

Manipulation via merging and splitting in claims problems

In claims problems, we study coalitional manipulations via claims merging and splitting. We characterize (division) rules that are non-manipulable via (pairwise) splitting and that also satisfy standard axioms of equal treatment of equals, consistency, and continuity. And we obtain a similar result for non-manipulability via (pairwise) merging.Received: 22 January 2002, Accepted: 5 February 2003, JEL Classification: C70, C71, D70I am grateful to William Thomson for many helpful comments and suggestions. I also thank Murat Sertel and an anonymous referee for many helpful suggestions for the revision. All remaining errors are mine.     

Industry dynamics with knowledge-based competition: a computational study of entry and exit patterns

I propose a computational model of industry evolution capable of matching many stylized facts. It views the firm as a myopic but adaptive entity whose survival depends on its ability to perform various activities with greater efficiency than its rivals. In this model, the shakeout pattern arises naturally in the early stage of industrial development. I provide a full comparative dynamics analysis of how various industry-specific factors determine the numbers and the rates of entries and exits over time as well as the ages of the exiting firms. An earlier version of this paper was circulated and presented under the title, “Non-Equilibrium Industry Dynamics with Knowledge-Based Competition: An Agent-Based Computational Model.” I would like to thank the two anonymous referees, Jason Barr, Ed Bell, Jon Harford, Joe Harrington, Bill Kosteas, Edward Nell, and the conference participants at the EEA-2007 Meetings (New York, NY) as well as the 2007 International System Dynamics Conference (Boston, MA) for their helpful comments and suggestions. I gratefully acknowledge the support of the College of Graduate Studies at Cleveland State University.     

A reexamination of additivity of power in randomized social preference

We show that Barberá and Sonnenscheins (1978) power function becomes additive if we replace the Paretian condition by nonimposition and monotonicity. Since these conditions are very much in the spirit of Arrow (1951), our result sharpens the analogy to Arrows theorem.Received: 29 November 2001, Accepted: 4 May 2003, JEL Classification: D71Shasikanta Nandeibam: I would like to thank Professor Prasanta Pattanaik for very helpful discussions. I have also benefitted from the comments and suggestions of an associate editor. The usual disclaimer applies.     

Equilibrium allocations of endowment-pretension games in public good economies

In a public good economy where agents' preferences are known but endowments are private information, instituting an allocation rule and asking the agents their initial endowments induces an endowment-pretension game. We analyse the Nash equilibrium allocations of this game and discuss its welfare properties with reference to voluntary contributions allocations. Received: 30 May 2001, Accepted: 23 September 2005 JEL Classification: H41 I am grateful to Murat Sertel for his continuous support and encouragement; to G?ksel Asan and Arunava Sen for their invaluable help. I would also like to thank Fikret Adaman, Ahmet Alkan, Salvador Barberá, Semih Koray, Andrei Ratiu, Muhamet Yíldíz, ünal Zenginobuz, an Associate Editor and two referees of the Review of Economic Design for their enlightening comments on previous drafts. Earlier versions of this paper were written during my stay at Universitat Autónoma de Barcelona and at the Indian Statistical Institute. Both visits have been possible by the kindness of the host institutions and the financial support of the Turkish Academy of Sciences and Serem Ltd. It is a pleasure for me to express my gratitude to all these institutions. Of course, all possible errors are mine.     

Civil conflict and secessions

This paper studies secessions as the outcome of conflict between regions. We study under what conditions regions will divert costly resources to fight each other over political borders. We derive the probability of secession and the amount of resources diverted to separatist conflict, and show how those variables depend on factors such as heterogeneity costs, economies of scale, relative size, and external threats. We also model civil conflict over types of government, after borders have been determined, and study how this political conflict affects the incentives to secede. This paper has been written in memory of Herschel Grossman, and owes much to his inspiration. I am grateful to Michelle Garfinkel and David Weil, who co-organized a conference in Herschel’s honor at Brown in April 2006, for their encouragement. I thank Michelle Garfinkel and an anonymous referee for useful comments and suggestions. The usual disclaimer applies.     

Endogenous coalition formation in contests

This paper analyzes coalition formation in a model of contests with linear costs. Agents first form groups and then compete by investing resources. Coalitions fight for a prize that is assumed to be subject to rivalry, so its value is non-increasing in the size of the group that obtains it. This formulation encompasses as particular cases some models proposed in the rent-seeking literature. We show that the formation of groups generates positive spillovers and analyze two classes of games of coalition formation. A contest among individual agents is the only stable outcome when individual defections leave the rest of the group intact. More concentrated coalition structures, including the grand coalition, are stable when groups collapse after a defection, provided that rivalry is not too strong. Results in a sequential game of coalition formation suggest that there exists a non-monotonic relationship between the level of underlying rivalry and the level of social conflict.

“If men were supplied with every thing in the same abundance, justice and injustice would be equally unknown among mankind.” David Hume (1740), A Treatise of Human Nature

I thank Luis Corchón, Joan Esteban, Michelle Garfinkel and József Sákovics for their comments and suggestions on the paper.     

Black’s hypothesis and developed economies

This paper examines the relationship between the volatility of output growth and the average growth rate of output in developed economies using the Generalized Auto-Regressive Conditional Hetereoskedasticity-in-mean (GARCHM) framework. The results indicate that that volatility is correlated with output growth for half of the countries and that the correlation is negative for some countries and positive for others. This finding is consistent with models that suggest country characteristics are important for determining the growth-volatility ralationship. However, the estimated correlation between volatility and the average growth rate is sensitive to the specification of the conditional variance equation. I would like to thank Donn Johnson for his helpful comments on an earlier version of this paper.     

The impact of foreign variables on domestic money demand: Evidence from the United Kingdom

This paper contributes to the existing money demand literature by developing and estimating a shopping-time model in an open economy framework. Based on this microfoundations-of-money model, United Kingdom quarterly data for the period 1973:2–1997:2 are analyzed in the empirical study. After accounting for nonstationarity in the time series processes, I find three long-run relationships among the relevant variables. Estimation of the error-correction representation implied by the model shows that the foreign exchange rates and the imports consumption, in addition to the domestic variables, have significant effects on British demand for real money. I am grateful to Kenneth D. West, Donald D. Hester, James M. Johannes, Hung-Neng Lai, two anonymous referees, and seminar participants at the University of Alabama and the University of Wisconsin for helpful comments. I also thank the Chiang Ching-Kuo Foundation for its financial support. Naturally, all remaining errors are mine.