Strategic freedom, constraint, and symmetry in one-period markets with cash and credit payment

Summary. In order to explain in a systematic way why certain combinations of market, financial, and legal structures may be intrinsic to certain capabilities to exchange real goods, we introduce criteria for abstracting the qualitative functions of markets. The criteria involve the number of strategic freedoms the combined institutions, considered as formalized strategic games, present to traders, the constraints they impose, and the symmetry with which those constraints are applied to the traders. We pay particular attention to what is required to make these strategic market games well-defined, and to make various solutions computable by the agents within the bounds on information and control they are assumed to have. As an application of these criteria, we present a complete taxonomy of the minimal one-period exchange economies with symmetric information and inside money. A natural hierarchy of market forms is observed to emerge, in which institutionally simpler markets are often found to be more suitable to fewer and less-diversified traders, while the institutionally richer markets only become functional as the size and diversity of their users gets large.Received: 5 June 2003, Revised: 18 November 2003, JEL Classification Numbers: C7, G10, G20, L10, D40, D50. Correspondence to: Eric SmithEric Smith, Martin Shubik: We are grateful to Lloyd Shapley, Duncan Foley, and Doyne Farmer for discussions in the course of this work.     

Structure,Clearinghouses and Symmetry

We introduce and justify a taxonomy for the structure of markets and minimal institutions which appear in constructing minimally complex trading structures to perform the functions of price formation, settlement and payments. Each structure is presented as a playable strategic market game and is examined for its efficiency, the number of degrees of freedom and the symmetry properties of the structure     

Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels

A pay-as-offered or discriminatory price auction (DPA) has been proposed to solve the problem of inflated and volatile wholesale electricity prices. Using the experimental method we compare the DPA with a uniform price auction (UPA), strictly controlling for unilateral market power. We find that a DPA indeed substantially reduces price volatility. However, in a no market power design, prices in a DPA converge to the high prices of a uniform price auction with structural market power. That is, the DPA in a no market power environment is as anti-competitive as a UPA with structurally introduced market power.     

Streets, Malls, and Supermarkets

We develop a model of competition between shopping centers, comparing competitive outcomes in three alternative modes of retail organization, namely: streets (in which neither developers or retailers internalize agglomeration effects between products); malls (in which developers internalize); and supermarkets (in which both developers and retailers internalize). For a fixed number of centers: (i) converting streets to malls intensifies developer (but not retailer) competition, which increases product range (i.e., the number of shops built by the developers) and consumer surplus, reduces profits, and has ambiguous effects on welfare; (ii) converting streets to supermarkets intensifies retailer and developer competition, has ambiguous effects on product range (number of shops), reduces profits, and increases social welfare. With free entry both conversions reduce the number of centers and, if there is excess entry, conversion to supermarkets (but not malls) unambiguously increases welfare.     

Deposit insurance and bank regulation in a monetary economy: a general equilibrium exposition

Summary. It is commonly argued that poorly designed banking system safety nets are largely to blame for the frequency and severity of modern banking crises. For example, underpriced deposit insurance and/or low reserve requirements are often viewed as factors that encourage risk-taking by banks. In this paper, we study the effects of three policy variables: deposit insurance premia, reserve requirements and the way in which the costs of bank bailouts are financed. We show that when deposit insurance premia are low, the monetization of bank bailout costs may not be more inflationary than financing these costs out of general revenue. This is because, while monetizing the costs increases the inflation tax rate, higher levels of general taxation reduce savings, deposits, bank reserves, and the inflation tax base. Increasing the inflation tax rate obviously raises inflation, but so does an erosion of the inflation tax base. We also find that low deposit insurance premia or low reserve requirements may not be associated with a high rate of bank failure.Received: 2 January 2002, Revised: 1 March 2003JEL Classification Numbers: D5, E5, G1.B. D. Smith: Sadly, our co-author, colleague and dear friend, Bruce D. Smith, died on July 9, 2002.     

Financing Transit Systems Through Value Capture

A bstract .   Much of the literature on value capture reports empirical findings on the incidence of rising land values related to distance from a transit stop following the installation of rail transit improvements. This annotated bibliography shows that the elevated value effects of transit access are well documented. The authors maintain that it is now time for transit/land-use research to move from hypothesis testing to practical applications of value capture . Longitudinal models can help predict land-value increments over a period of time, yielding estimates of the total capturable revenues that would support the debt financing of transit improvement projects.     

Retraining midcareer managers: Career history and self-efficacy beliefs

Many corporations are retraining midcareer managers in order to combat employee obsolescence and boost corporate competitiveness. The receptivity of midcareer managers to retraining is mixed. Those managers who believe they can master new work-related learning (in the terms of this study, those who have positive self-efficacy in learning beliefs) are most amenable to retraining. The objective of the present study was to determine the antecedents of positive self-efficacy beliefs for midcareer managers facing retraining. We discovered that managers' advancement potential and the relevance of their previous training had a profound impact on their self-efficacy beliefs. These findings have important practical implications. The seeds of receptivity to retraining are planted throughout managers' careers. Hence, retraining should not be viewed on a program-by-program basis, but rather should be understood in the broader context of corporate life and individual career history. To prepare for the inevitable corporate evolution and change demanded in a dynamic business environment, senior executives and human resource managers should be proactive in creating those conditions that facilitate the development of positive self-efficacy in learning beliefs.     

The Effects of local Fair Housing Ordinances on Housing Segregation: Their Impact Is Small, But It's an Important Positive Change Toward Integration

Abstract . State and local fair housing ordinances, patterned after federal legislation, are promoted by federal policy. This study investigates whether these local laws have had any effect on levels of residential segregation between Whites and Blacks, 1970-1980, by comparing changes in segregation for 111 cities characterized by different types of fair housing coverage. Results show average declines of 9 points in the index of dissimilarity, with cities covered by both state and local laws declining slightly more than cities with no fair housing coverage. Declines are not greater in cities with laws that are “substantially equivalent” to Title VIII vs. cities with non-equivalent laws. When changes in segregation were examined by a variety of population, economic and housing variables that may affect segregation change, it was found that local ordinances continue to have a small, but statistically significant effect. This effect varies according to the pattern of segregation change under study; deconcentration of ghetto areas and integration of White areas are not affected by type of local fair housing coverage.     

Government wage differentials

This paper shows that public sector wages usually exceed private but the size and composition of the differentials depend on sex and level of government. Using a technique derived from the literature on sex discrimination, these differentials are decomposed into a portion attributable to differences in productivity between the two types of workers and a portion ascribed to economic rent. This rent results from public workers' relatively greater political influence in the government wage-setting process and a systematic upward bias in public wages imparted by present government pay policy.