The automobile industry and new trade theory: A classroom experiment

In this study, the author describes a classroom experiment on new trade theory appropriate for undergraduate international economics and trade courses. Students portray U.S. and Japanese automobile manufacturers with different average cost schedules. There are five rounds in the experiment, starting with autarky in the 1960s and ending with the Great Recession of 2008–9. In each round, the instructor announces a market price and quantity and then each producer calculates its market share, average cost and profit; and makes its shutdown decision. By varying the market price and size, the experiment illustrates the gains from intra-industry trade and also how efficiency gains and economic recession impact individual firm performance.     

A field experiment investigating age discrimination in four European labour markets

In a field experiment investigating age discrimination, pairs of men, aged 27 and 47, inquired about employment as waiters in towns across England, France, Germany and Spain. Statistically significant discrimination against the older waiter was found in all four countries, but it was considerably higher in France and Spain than in England and Germany.     

Prudence and prevention: an economic laboratory experiment

In an economic laboratory experiment, we study the relationship between prudence and prevention in general decision situations. Previous theoretical research on this relationship posits a negative impact of prudence on the optimal level of prevention. Overall, we find both risk-averse and prudent behaviour among our subjects. Moreover, prudent subjects chose significantly less prevention than nonprudent subjects, confirming the theoretical results of one-period models in the literature. Our findings might have implications for health policy if prudence – rather than irrational decision behaviour, as previously assumed – is responsible for low levels of preventive effort.     

我国区际技术性贸易壁垒的成因与管治探讨

地方政府作为利益主体、经济主体、管理主体是我国区际贸易技术性壁垒产生的主要原因。产品市场准人机制的统一、市场质量监管的统一、技术服务网络的统一是克服区际贸易技术性壁垒,加速区域市场一体化,进而达到全国市场一体化的根本途径。     

Allowing communities to trade in imperfectly competitive pollution-permit markets

Citizens and organizations representing them play an increasingly important role in markets for environmental quality, but much remains to be learned about how their participation affects these markets. We analyze the effects of allowing a community of citizens to trade pollution permits in an imperfectly competitive permit market. Allowing the community to trade directly reveals its preferences, which enhances welfare. However, community participation may also exacerbate distortions due to market power, even though the community itself trades competitively. Including the community in permit distribution may exacerbate market power distortions by affecting a dominant trader’s propensity to participate in the permit market. Second, the community’s demand/supply for permits may be more inelastic than other traders and worsen distortions due to market power. We illustrate in an example that these negative effects on competition can dominate the positive effect from preference revelation through the market place.      

A model for international capital markets closure in an economy with incomplete markets and short sales

Using a two-country dynamic optimization model, we investigate the impact of exchange risk, incomplete information and short sales constraints on international portfolio decisions around market closure. Using optimal control theory, we provide solutions and simulation results. Our model can be applied to solve several problems in financial economics in the presence of market closure, information asymmetry and short sales constraints.     

Pure numbers effects, market power, and tacit collusion in posted offer markets

This paper studies the effects of seller concentration and static market power on tacit collusion in extensively repeated laboratory posted-offer markets. Contrary to the implications of some earlier research, we find that tacit collusion does not become pervasive with extensive repetition. In a ‘strong no-power’ design persistently competitive outcomes are observed in markets with three or four sellers. Even duopolies are frequently competitive in this design. Unilateral market power raises prices, as predicted. However, static Nash predictions fail to organize outcomes across power treatments, because tacit collusion moves inversely with concentration. Excess capacity appears to explain observed tacit collusion levels.     

Market power, survival and accuracy of predictions in financial markets

In a standard General Equilibrium framework, we consider an agent strategically using her large volume of trade to influence asset prices to increase her consumption. We show that, as in Sandroni (Econometrica 68:1303–1341, 2000) for the competitive case, if markets are dynamically complete and some general conditions on market preferences are met then this agent’ long-run consumption will vanish if she makes less accurate predictions than the market, and will maintain her market power otherwise. We thus argue that the Market Selection Hypothesis extends to this situation of market power, in contrast to Alchian (J Pol Econ 58:211–221, 1950) and Friedman (Essays in Positive Economics, University of Chicago Press, Chicago, 1953) who claimed that this selection was solely driven by the competitiveness of markets. I would like to thank T. Hens, A. Kirman and A. Sandroni for many stimulating conversations and encouragements. Two anonymous referees also provided very valuable comments.     

A choice of auction format in seller cheating: a signaling game analysis

In this paper, we examine which auction format, first-price or second-price, a seller will choose when he can profitably cheat in a second price auction by observing all bids by possible buyers and submitting a shill bid as pretending to be a buyer. We model this choice of auction format in seller cheating as a signaling game in which the buyers may regard the selection of a second price auction by the seller as a signal that he is a shill bidder. By introducing trembling-hand perfectness as a refinement of signaling equilibrium, we find two possible strictly perfect signaling equilibria. One is a separating equilibrium in which a noncheating honest seller selects a first price auction and a cheating seller does a second price auction. In another pooling equilibrium, however, both cheating and non-cheating sellers select a second price auction. The conclusion that a seller chooses a second price auction even if he cannot cheat is in contrast to the previous literature, which focused on the case of independent values. We thank an anonymous referee for useful comments that have improved the paper. This research was partially supported by the Ministry of Education, Science, Sports and Culture, Grant-in-Aid for Scientific Research (B) 15310023 and (C) 18530139.     

Stock markets in transition: the Warsaw experiment1

This paper investigates the development from 1991 to 1994 of the Warsaw Stock Exchange, which opened on April 16th, 1991. An overview is presented focusing first on the deepening of the equity market, with a still limited but increasing number of listed companies, and then on the high trading activity and price dynamics with their impressive outburst in 1993. Three important dimensions are thereafter analyzed: the relevance of organizational and regulatory choices, the degree of market inefficiency and the origin of the discrepancy between IPO prices and first quoted market prices. Concluding remarks concentrate on the market's ability to fulfil its fundamental tasks.     

Price discovery and intermediation in linked emissions trading markets: A laboratory study

Many new and proposed emissions trading systems involve multiple countries and regions. The introduction of interregional trading raises questions about how flexible state- or national-level authorities should be in allowing individual firms to trade with firms or authorities in other states or countries. This paper uses laboratory methods to evaluate the efficiency and pricing performance of linking trading across regions at the firm-to-firm level. In one treatment, individual firms trade directly with firms or authorities in other regions. We compare performance in this treatment to an intergovernmental trading treatment, where emissions trading is restricted to occur only between intermediaries. A baseline treatment of autarky, where firms only trade with other firms in their country or region, provides a benchmark to assess the efficiency benefits of allowing linking. Although efficiency and price discovery are both improved by allowing intermediation in linked permit markets, we find that further gains can be realized through direct firm to firm trading. Buyers in high cost regions and sellers in low cost regions benefit the greatest from linking.     

Dishonesty: From parents to children

Acts of dishonesty permeate life. Understanding their origins, and what mechanisms help to attenuate such acts is an underexplored area of research. This study takes an economic approach to explore the propensity of individuals to act dishonestly across different contexts. We conduct an experiment that includes both parents and their young children as subjects, exploring the roles of moral cost and scrutiny on dishonest behavior. We find that the highest level of dishonesty occurs in settings where the parent acts alone and the dishonest act benefits the child. In this spirit, there is also an interesting, quite different, effect of children on parents’ behavior: parents act more honestly under the scrutiny of daughters than under the scrutiny of sons. This finding sheds new light on the origins of the widely documented gender differences in cheating behavior observed among adults, where a typical result is that females are more honest than males.     

A classroom experiment in monetary policy

The authors propose a classroom experiment implementing a simple version of a New Keynesian model suitable for courses in intermediate macroeconomics and money and banking. Students play as either the central bank or members of the private sector. The central banker sets interest rates to meet twin objectives for inflation and the output gap or to meet only an inflation target. In both settings, private sector agents are concerned with correctly forecasting the inflation rate. The authors show that an experiment implementing this setup is feasible and yields results that enhance understanding of the New Keynesian model of monetary policy. They propose alternative versions where the central bank is replaced by a policy rule and provide suggestions for discussing the experimental results with students.     

Optimal truncation in matching markets

Although no stable matching mechanism can induce truth-telling as a dominant strategy for all participants (Roth, 1982), recent studies have presented conditions under which truthful reporting by all agents is close to optimal (Immorlica and Mahdian, 2005, Kojima and Pathak, 2009, Lee, 2011). Our results demonstrate that in large, uniform markets using the Men-Proposing Deferred Acceptance Algorithm, each woman's best response to truthful behavior by all other agents is to truncate her list substantially. In fact, the optimal degree of truncation for such a woman goes to 100% of her list as the market size grows large. In general one-to-one markets we provide comparative statics for optimal truncation strategies: reduction in risk aversion and reduced correlation across preferences each lead agents to truncate more. So while several recent papers focused on the limits of strategic manipulation, our results serve as a reminder that without pre-conditions ensuring truthful reporting, there exists a potential for significant manipulation even in settings where agents have little information.     

Arbitrage and equilibrium in strategic security markets

Summary. In view of the fundamental price taking hypothesis, arbitrage is never compatible with equilibrium in Walrasian markets because the existence of an arbitrage opportunity in a competitive situation always leads to unbounded arbitrage activity. In strategic markets however, the mere effort of individuals to profit alters market clearing prices and thus distorts arbitrage opportunities as well. This observation suggests a different relationship between arbitrage and equilibrium, than in the competitive model. Indeed, we show that in such markets a spread between the cost of a portfolio and its returns is compatible with equilibrium. We provide an example of an equilibrium where a resourceless individual holds a portfolio with zero cost and positive return in every state. We further demonstrate via an asymptotic result, that no arbitrage is intimately related to price taking behaviour.Received: 8 September 2001, Revised: 6 March 2003, JEL Classification Numbers: G12, D4, D5, D52. Correspondence to: Leonidas C. Koutsougeras     

The value of reputation on eBay: A controlled experiment

We conducted the first randomized controlled field experiment of an Internet reputation mechanism. A high-reputation, established eBay dealer sold matched pairs of lots—batches of vintage postcards—under his regular identity and under new seller identities (also operated by him). As predicted, the established identity fared better. The difference in buyers’ willingness-to-pay was 8.1% of the selling price. A subsidiary experiment followed the same format, but compared sales by relatively new sellers with and without negative feedback. Surprisingly, one or two negative feedbacks for our new sellers did not affect buyers’ willingness-to-pay. JEL Classification D82 · L14 · Z13     

A natural experiment in the organization of entry-level labor markets: regional markets for new physicians and surgeons in the United Kingdom

The histories of seven regional markets for new physicians and surgeons in the United Kingdom are considered. Like the American market, these markets have experienced failures that led to the adoption of centralized market mechanisms. Because different regions employ different centralized mechanisms, these markets provide a test of the hypothesis that the success of the American market is related to the fact that it produces matches which are stable in the sense that no two agents mutually prefer to be matched to one another than to their assigned partners. Even in the more complex U.K. markets, this kind of stability plays an important role. Centralized markets that produced unstable matches in environments in which agents could act upon instabilities fared no better than the decentralized markets they replaced.     

Theories of choice under risk: Insights from financial markets

To date, the plausibility of theories of choice under risk hinges are mainly on experimental evidence. This paper devises and implements an approach amenable of assessing the performance of three families of models (expected utility, rank-dependent expected utility, and the cumulative prospect theory) using information from financial asset markets. Our findings unequivocally support reference-point dependence, diminishing marginal sensitivity, loss aversion, and nonlinear weighting of (gain and loss) physical probabilities. The empirical observations are found to be robust to, inter alia, the parameterization of the utility and probability weighting functions, “day-of-the-week effects”, the choice of a reference point, and the introduction of possible, low-probability market crashes (peso component).     

The relationship between risk attitudes and heuristics in search tasks: A laboratory experiment

Experimental studies of search behavior suggest that individuals stop searching earlier than the optimal, risk-neutral stopping rule predicts. Two different classes of decision rules could generate this behavior: rules that are optimal conditional on utility functions departing from risk neutrality, or heuristics derived from limited cognitive processing capacities and satisficing. To discriminate between these possibilities, we conducted an experiment that consists of a search task as well as a lottery task designed to elicit utility functions. We find that search heuristics are not related to measures of risk aversion, but to measures of loss aversion.