Learning by replicator and best-response: the importance of being indifferent

This paper compares two learning processes, namely those generated by replicator and best-response dynamics, from the point of view of the asymptotics of play. We base our study on the intersection of the basins of attraction of locally stable pure Nash equilibria for replicator and best-response dynamics. Local stability implies that the basin of attraction has positive measure but there are examples where the intersection of the basin of attraction for replicator and best-response dynamics is arbitrarily small. We provide conditions, involving the existence of an unstable interior Nash equilibrium, for the basins of attraction of any locally stable pure Nash equilibrium under replicator and best-response dynamics to intersect in a set of positive measure. Hence, for any choice of initial conditions in sets of positive measure, if a pure Nash equilibrium is locally stable, the outcome of learning under either procedure coincides. We provide examples illustrating the above, including some for which the basins of attraction exactly coincide for both learning dynamics. We explore the role that indifference sets play in the coincidence of the basins of attraction of the stable Nash equilibria.     

Foreign competition and optimal privatization with excess burden of taxation

We examine in a mixed oligopoly setting how foreign competition and the excess burden of taxation will affect privatization policy in the presence of strategic tax/subsidy policies. We show that in the presence of excess burden of taxation with foreign competitors, output subsidy coupled with import tariff and partial privatization is adopted to improve the social welfare. However, if the excess burden of taxation is relatively large, the government may switch to use production tax coupled with tariff policy and partial privatization to improve the social welfare.     

When do sell-side analysts switch industries they follow?

Between 1984 and 2014 over 3400 sell-side analysts changed the primary industry they followed. This article documents that analysts are more likely to change their industries when their absolute and relative forecasting accuracy in that industry is low and when the accuracy in the new industry is high. Analysts are more likely to switch industries at the beginning of their careers, after a recent change of an employing brokerage house, and if they have a history of switching industries before. Analysts are less likely to make a switch when their forecasting activity in the industry is high, when the industry is followed by many analysts and when they are employed by a top brokerage house.     

Outward foreign direct investment by Polish state-owned multinational enterprises: is ‘stateness’ an asset or a burden?

State-owned enterprises (SOEs) are commonly associated with undue advantages due to preferential treatment by the state. Simultaneously they are often quoted as handicapped given the notorious state interference, management problems and agency tensions. They used to be regarded as a mainly domestic issue but in the context of globalisation and the fact that states enter treaties with new obligations, SOEs’ performance ceased to be solely a domestic problem, increasingly so as state-owned multinational enterprises (SOMNEs) emerge. This article presents the results of research on Polish SOEs’ outward foreign direct investment (OFDI). It offers an overview of overseas activities of nine major Polish firms with a state stake and aims to contribute to the conceptual literature on foreign investments conducted by SOMNEs. We distinguish between FDI by SOMNEs as specific – privileged (facilitated) or discriminated (hampered) – investments subject to the home country’s state power and the host country’s state perception.     

Why (not) cooperate? A cognitive model of farmers’ intention to join producer groups in Romania

After the breakdown of the communist regime in Romania, collective farms were replaced by a large number of small-scale private farms. Although cooperation seems to be a favourable choice for these smallholders, it did not develop as perhaps expected. This article explores the factors that determine the formation of the intention of Romanian vegetable farmers to join marketing cooperatives in the form of so called producer groups. Our theoretical framework refers to Ajzen’s Theory of Planned Behaviour, which we model with a structural equation model. We identified as main intention drivers the expectation for better prices and easier access to capital. Perceived family support is another significant factor. The level of distrust is high. Although our trust variable is not significant as a predictor of the intention to cooperate in the model, we find qualitative indications that trust plays a role when the intention is translated into actual behaviour.     

How the source of the entrant's advantage limits entry‐deterring tying

I revisit a simple model of entry‐deterring tying—example 1 from Whinston's (1990) seminal paper—but allow the potential entrant to have either a cost advantage or a willingness‐to‐pay (WTP) advantage relative to the incumbent. I show that, compared to the usual case in which the potential entrant is cost‐advantaged, tying is less effective against an entrant with a WTP advantage because an entrant with a large WTP advantage may be able to induce the buyer to buy both the tied bundle and the entrant's product. I also show that tying but failing to deter entry can be less costly when facing an entrant with a WTP advantage than when facing an entrant with a cost advantage. For a firm facing uncertainty about, for example, the entrant's entry costs, this makes tying a more attractive entry deterrence strategy against a WTP‐advantaged entrant. These results shed light on the important policy question of which markets are most likely to be susceptible to entry‐deterring tying.     

The efficiency of decentralized environmental policies under global pollution and tradable emission permits

We build a two asymmetric regions model with cross‐border pollution related to production. Each region issues emission permits and revenues from their sales finance public pollution abatement. The decentralized level of emission permits is efficient when permits are interregionally tradable and cross‐border pollution is perfect. This result is robust in a variety of cases—for example, when (i) capital is immobile or internationally mobile or only mobile between the two regions, and (ii) revenue from permits sales is transferred to a federal authority.     

Tax competition and the political economy of public employment: a model for Austria

In this work, we simulate the effects of the tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment in the public sector of between 25 and 35% of the current level. We also show that tax autonomy increases welfare levels by 1–1.5%; that is, the positive change in the disposable income of the workers more than offsets the welfare loss resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public sector are adjusted.     

Liking what others “Like”: using Facebook to identify determinants of conformity

In this paper we explore the micro-level determinants of conformity. Members of the social networking service Facebook express positive support to content on the website by clicking a Like button. We set up a natural field experiment to test whether users are more prone to support content if someone else has done so before. To find out to what extent conformity depends on group size and social ties we use three different treatment conditions: (1) one stranger has Liked the content, (2) three strangers have Liked the content, and (3) a friend has Liked the content. The results show that one Like from a single stranger had no impact. However, increasing the size of the influencing group doubled the probability that subjects expressed positive support. Friendship ties were also decisive. People were, on average, four times more likely to press the Like button if a friend, rather than a stranger, had done so before them. The existence of threshold effects in our experiment clearly shows that both group size and social proximity matters when opinions are shaped.     

Misjudging the character of the welfare state: Hayek,generality, and the knowledge problem

What are the limits of collective action? As James Buchanan famously worried, is it possible to empower the productive state without lapsing into the predatory state? This paper uses insights from F.A. Hayek to address problems of public goods and the role of the state. Hayek convincingly argued that no central planner has sufficient knowledge to run an economy. Yet Hayek also allowed for state provision of some goods beyond the prevention of coercion. The question, then, is whether Hayek’s safeguards offer a satisfactory response to Buchanan’s worry. This paper contends that Hayek violated his own conditions for permissible government activity. Nevertheless, he offers a serious research agenda for limiting state abuses.