Two more classes of games with the continuous-time fictitious play property

Fictitious Play is the oldest and most studied learning process for games. Since the already classical result for zero-sum games, convergence of beliefs to the set of Nash equilibria has been established for several classes of games, including weighted potential games, supermodular games with diminishing returns, and 3×3 supermodular games. Extending these results, we establish convergence of Continuous-time Fictitious Play for ordinal potential games and quasi-supermodular games with diminishing returns. As a by-product we obtain convergence for 3×m and 4×4 quasi-supermodular games.     

The Effects of Geographic Expansion on Bank Efficiency

We assess the effects of geographic expansion on bank efficiency, using cost and profit efficiencies estimated for over 7000 U.S. banks from 1993 to 1998. We find both positive and negative links between geographic scope and bank efficiency. Parent organizations exercise some control over the efficiency of their affiliates, although this control tends to dissipate with the distance to the affiliate. However, on average, distance-related efficiency effects tend to be modest, and our results suggest that some efficient organizations can export efficient practices to their affiliates and overwhelm any effects of distance. The results imply there may be no particular optimal geographic scope for banking organizations—some may operate efficiently within a single region, while others may operate efficiently on a nationwide or international basis.     

The Making of the Institutional Theory of Social Costs: Discovering the K. W. Kapp and J. M. Clark Correspondence

This article reconstructs the making of the often “overlooked” institutional theory of social costs based on the unexploited correspondence between John Maurice Clark and Karl William Kapp. The reconstruction demonstrates that the institutional argument on social costs was developed as a critique of neoclassical economics and of post‐WWII neoliberalism.     

The ability of banks to lend to informationally opaque small businesses

We test hypotheses about the effects of bank size, foreign ownership, and distress on lending to informationally opaque small firms using a rich new data set on Argentinean banks, firms, and loans. We also test hypotheses about borrowing from a single bank versus multiple banks. Our results suggest that large and foreign-owned institutions may have difficulty extending relationship loans to opaque small firms. Bank distress appears to have no greater effect on small borrowers than on large borrowers, although even small firms may react to bank distress by borrowing from multiple banks, raising borrowing costs and destroying some relationship benefits.     

Bank ownership and efficiency in China: What will happen in the world’s largest nation?

China is reforming its banking system, partially privatizing and taking on minority foreign ownership of three of its dominant “Big Four” state-owned banks. This paper helps predict the effects by analyzing the efficiency of Chinese banks over 1994–2003. Findings suggest that Big Four banks are by far the least efficient; foreign banks are most efficient; and minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners may increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the Big Four will likely improve performance significantly.     

Learning in games with strategic complementarities revisited

Fictitious play is a classical learning process for games, and games with strategic complementarities are an important class including many economic applications. Knowledge about convergence properties of fictitious play in this class of games is scarce, however. Beyond games with a unique equilibrium, global convergence has only been claimed for games with diminishing returns [V. Krishna, Learning in games with strategic complementarities, HBS Working Paper 92-073, Harvard University, 1992]. This result remained unpublished, and it relies on a specific tie-breaking rule. Here we prove an extension of it by showing that the ordinal version of strategic complementarities suffices. The proof does not rely on tie-breaking rules and provides some intuition for the result.     

Simulating soil fertility and poverty dynamics in Uganda: A bio-economic multi-agent systems approach

Declining soil fertility and increasing rural poverty are major problems facing sub-Saharan agriculture. Bio-economic modeling has been used to analyze the complex interaction between ecological sustainability and rural poverty as well as to explore policy options promoting sustainable development. This paper shows that these models can be further advanced by adopting an agent-based modeling approach. This gives a more realistic representation of diversity in socioeconomic and biophysical terms, allows local interaction between households, and can yield an ex-ante assessment of the distributional consequences of policy intervention. This paper describes the modeling approach and illustrates it with an empirical application to two village communities in the Lake Victoria Crescent of Uganda. It is shown how the model system can be calibrated with and validated against empirical data. The model is used to analyze the potential effect of short-term credit, mineral fertilizer, and improved maize seed on poverty and sustainability. Simulation results suggest substantial reductions in poverty although the incidence of poverty would remain high and these innovations alone would have little effect on the long-term ecological sustainability of the system.     

Small Business Credit Scoring and Credit Availability*

U.S. commercial banks are increasingly using small business credit‐scoring models to underwrite small business credits. The paper discusses this lending technology, evaluates the research findings on the effects of this technology on small business credit availability, and links these findings to a number of research and policy issues.     

Is There Job Lock? Evidence from the Pre-HIPAA Era

We estimate discrete time hazard models of employment duration and standard logarithmic wage equations using the 1987 and 1990 panels of the Survey of Income and Program Participation (SIPP) to examine the phenomenon of job lock. We lest for job lock using differences-in-differences approaches among those with and without employer-provided health insurance and family members with and without health problems. We find no statistically significant evidence of job lock on employment duration or wages using this approach. We do find some evidence of shorter employment spells for those with employer-provided health insurance and spouse-provided health insurance, and longer employment spells for those with employer-provided health insurance and large families. Others have interpreted these findings as evidence of job lock. However, the wage equation results using these measures are not consistent with job lock. Although anecdotal evidence makes it clear that some workers have been locked into less-than-optimal jobs because of the combination of health problems and employer-provided health insurance, our results do not suggest that this phenomenon is pervasive in the U.S. economy.