Learning in games with unstable equilibria

We propose a new concept for the analysis of games, the TASP, which gives a precise prediction about non-equilibrium play in games whose Nash equilibria are mixed and are unstable under fictitious play-like learning. We show that, when players learn using weighted stochastic fictitious play and so place greater weight on recent experience, the time average of play often converges in these “unstable” games, even while mixed strategies and beliefs continue to cycle. This time average, the TASP, is related to the cycle identified by Shapley [L.S. Shapley, Some topics in two person games, in: M. Dresher, et al. (Eds.), Advances in Game Theory, Princeton University Press, Princeton, 1964]. The TASP can be close to or quite distinct from Nash equilibrium.     

Integrating business risk into auditor judgment about the risk of material misstatement: The influence of a strategic-systems-audit approach

Auditing standards direct auditors to consider business risk and other risk factors when they evaluate the overall risk of material misstatement during the planning phase of an audit. Large audit firms generally use either a strategic-systems approach (SSA) or a transaction-focused approach (TFA) to evaluate misstatement risk. This study used data from a laboratory experiment to examine whether (1) being trained to use either SSA or TFA and (2) analyzing information organized in an SSA or TFA format influence the extent to which auditors integrate knowledge of business risk into their judgment about the likelihood of financial misstatement. Only auditors trained to use SSA who analyzed information provided in an SSA format effectively integrated business risk assessments with their assessment of the risk of material misstatement.     

Privatisation and the restructuring of enterprise social and welfare assets in the Czech Republic

This article examines the impact of privatisation upon the restructuring of social and welfare assets in large, former state enterprises in the Czech Republic. It considers the actual operation of welfare provision before 1989, the motives behind asset restructuring, and its implications for managers and employees in the post-communist industrial enterprise.     

Effects of rising energy prices on urban space

In this paper we review and analyze several well-known urban models that are presently being used to evaluate the impact of a decreasing energy supply on the spatial structure of our metropolitan areas. Certain models which demonstrate that rising energy prices reinforce a tendency for decentralization are shown to be extremely sensitive to modifications of certain desirable assumptions and, consequently, they may have restrictive applicability in urban policy formation. Acknowledging this possibility, we use a production function approach to derive, independently of the previously discussed models, results that indicate a rise in energy prices will generate centralizing urban adjustments.     

Disability Risk, Disability Benefits, and Equilibrium Unemployment

This paper analyses the labour market and efficiency effects of various kinds of disability policies. It therefore extends Pissarides (1990) model of equilibrium unemployment with disability risk and disability benefits and allows for the improper use of disability schemes by the unemployed. The paper finds that recognition of this improper use can reverse the ranking of policies. In addition, it concludes that disability policies that reduce the participation in disability schemes tend to increase the rate of official unemployment. Only policies that lower the rate of disability shocks succeed to reduce both the participation in disability and unemployment schemes.     

Status, affluence, and inequality: Rank-based comparisons in games of status

We examine the effects of changes in the income distribution in an economy where agents' utility depends both on consumption and on their rank in the distribution of conspicuous consumption. We introduce a new methodology to compare the behavior of agents that occupy the same rank in the two different income distributions but typically have different levels of incomes. Here, an increase in incomes of the least endowed improves their welfare, yet it also increases social competition, making those in the middle to be worse off—even if they have higher incomes as well. As social competition can be lowered by spreading agents apart in income space, we find that an increase in incomes for all, augmented by (weakly) increased income dispersion, constitutes a sufficient condition for Pareto-improvement. We also show that one can have an increase both in income and relative position but still be worse off.     

Money, intermediation, and banking

The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently—but not always—combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for money due to a lack of record-keeping and a role for intermediation due to the existence of private information: both money and intermediation are essential. When monitoring costs associated with intermediation are sufficiently low, the two activities can be separated from one another. However, when monitoring costs are sufficiently high, a banking system that combines these two activities is essential.