Christian Ewerhart, Patricia Feubli, Lemons and Money Markets, In: Working paper series / Institute for Empirical Research in Economics, No. No. 455, 2009. (Working Paper)
This paper identifies simple conditions for monotone comparative statics of a unique equilibrium in the Akerlof-Wilson model. Separate conditions apply to trade volume and price. Trade volume increases when supply becomes both stronger and more elastic. In contrast, price decreases when supply becomes both stronger and less elastic. An application to the interbank market suggests surprisingly specific measures to address elevated term rates and market breakdown. |
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Johan Almenberg, Artashes Karapetyan, Mental Accounting in the Housing Market, In: Working paper series / Institute for Empirical Research in Economics, No. No. 453, 2009. (Working Paper)
We identify a consumer bias with regard to different sources of debt-financing. Less salient debt may generate psychological benefits. This should be weighed against the possible economic costs of a suboptimal capital structure, but low levels of financial literacy make it unlikely that all households perceive the full economic costs. As a result there is a bias in favour of less salient debt. In a market with limited scope for arbitrage this consumer bias is likely to generate inefficiencies. We examine such a market in both theory and practice. The predictions of our model are given strong support by market data. |
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Jacob Goeree, Yuanchuan Lien, On the Impossibility of Core-Selecting Auctions, In: Working paper series / Institute for Empirical Research in Economics, No. No. 452, 2009. (Working Paper)
When goods are substitutes, the Vickrey auction produces efficient, core outcomes that yield competitive seller revenues. In contrast, with complements, the Vickrey outcome, while efficient, is not necessarily in the core and revenue can be very low. Non-core outcomes may be perceived as unfair since there are bidders willing to pay more than the winners' payments. Moreover, non-core outcomes render the auction vulnerable to defections as the seller can attract better offers afterwards. To avoid instabilities of this type, Day and Raghavan (2007) and Day and Milgrom (2007) have suggested to adapt the Vickrey pricing rule. For a simple environmentnwith private information, we show that the resulting auction format yields lower than Vickrey revenues and inefficient outcomes that are on average further from thencore than Vickrey outcomes. More generally, we prove that the Vickrey auction is the unique core-selecting auction. Hence, when the Vickrey outcome is not in the core, no Bayesian incentive-compatible core-selecting auction exists. Our results further imply that the competitive equilibrium cannot be implemented when goodsnare not substitutes. Moreover, even with substitutes, the competitive equilibrium can only be implemented when it coincides with the Vickrey outcome. |
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Beatrice Brunner, Andreas Kuhn, To Shape the Future: How Labor Market Entry Conditions Affect Individuals' Long-Run Wage Profiles, In: Working paper series / Institute for Empirical Research in Economics, No. No. 457, 2009. (Working Paper)
We study the long-run effects of initial labor market conditions on wages for a large sample of male individuals entering the Austrian labor market between 1978 and 2000. We find a robust negative effect of unfavorable entry conditions on starting wages. This initial effect turns out to be quite persistent and even though wages do catch up later on, large effects on lifetime earnings result. We also show that initial labor market conditions have smaller and less persistent effects for blue-collar workers than for white-collar workers. We further show that some of the long-run adjustment takes place through changes in job-mobility and employment patterns as well as in job tenure. Finally, we find that adjustments at the aggregate level are key to explain wages' adjustment process in the longer run. |
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Daniel Houser, Daniel Schunk, Joachim Winter, Distinguishing Trust from Risk: An Anatomy of the Investment Game, In: Working paper series / Institute for Empirical Research in Economics, No. No. 450, 2009. (Working Paper)
The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games. |
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Bruno Frey, Silke Humbert, Friedrich Schneider, What is Economics? Attitudes and views of German economists, In: Working paper series / Institute for Empirical Research in Economics, No. No. 451, 2009. (Working Paper)
Which schools of thought are favored by German economists? What makes a good economist and which economists have been most influential? These questions were addressed in a survey, conducted in the summer of 2006 among the members of the ‘Verein für Socialpolitik’, the association of German speaking economists. An econometric analysis is used to identify to what extent ideological preferences or personal factors determine the respondents’ answers. Our results suggest that German economists favor Neoclassics as a school of thought and appreciate the contributions of their Anglo-Saxon colleagues much more than their fellow compatriots’ contributions. Furthermore, a ‘good’ economist should have expertise in a certain field, as well as a broader knowledge of general economics. Some of the results can be compared to Colander (2008). The results indicate that graduate programs noted for their American style greatly influence a student’s opinion as to what attributesna good economist must have. |
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Christoph Brunner, Colin F Camerer, Jacob Goeree, A Correction and Re-Examination of 'Stationary Concepts for Experimental 2 x 2 Games', In: Working paper series / Institute for Empirical Research in Economics, No. No. 437, 2009. (Working Paper)
Selten and Chmura (American Economic Review, June 2008, 98(3), 938-966) recently reported experimental laboratory results for 2 x 2 games with unique mixed-strategy equilibria used to compare Nash equilibrium with four other stationary concepts: quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium, and impulse balance equilibrium. They conclude that impulse balance equilibrium performs best, and, in particular, significantly outperforms quantal response equilibrium. We reanalyze their data and correct some errors. The reanalysis shows that Nash clearly fits worst but the four other concepts perform about equally well. It is surprising that four models, which are so conceptually different, are so close in accuracy, and following Selten and Chmura's suggestion, we report new analysis of previous experiments on 2 x 2 games with unique mixed-strategy equilibria. These additional tests show the importance of the loss aversion that is hardwired into impulse balance equilibrium: when the other non-Nash stationary concepts are augmented with loss aversion they outperform impulse balance equilibrium. |
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Jacob Goeree, Yuanchuan Lien, An Equilibrium Analysis of the Simultaneous Ascending Auction, In: Working paper series / Institute for Empirical Research in Economics, No. No. 428, 2009. (Working Paper)
We analyze the dynamic simultaneous ascending auction (SAA), which was pioneered by the US Federal Communications Commission (FCC) in 1994 and has since become the standard to conduct large-scale, large-stakes spectrum auctions around the world. We consider an environment where local bidders, each interested in a single item, compete against one or more global bidders with super-additive values for combinations of items. In the SAA, competition takes place on an item-by-item basis, which creates an exposure problem for global bidders - when competing aggressively for a package, a global bidder may incur a loss when winning only a subset. We characterize the Bayes-Nash equilibria of the SAA, evaluate the impact of the exposure problem on revenue and efficiency, and compare its performance to that of the benchmark Vickrey-Clarke-Groves (VCG) mechanism. We show that individual and social incentives are aligned in the SAA in the sense that bidders' drop-out levels maximize expected welfare. Unlike the VCG mechanism, however, the SAA is not fully efficient because when a bidder drops out, information about others' values has been only partially revealed. Like the VCG mechanism, the SAA exhibits perverse revenue properties: due to the exposure problem, the SAA may result in non-core outcomes where local bidders obtain items at very low prices, and seller revenue can be decreasing in the number of bidders. Moreover, the SAA may result in lower revenues than the VCG mechanism. Finally, when the number of items grows large, the SAA and VCG mechanisms become (efficiency and revenue) equivalent. |
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Jacob Goeree, Charles A Holt, Karen Palmer, Wiliam Shobe, Dallas Burtraw, An Experimental Study of Auctions versus Grandfathering to Assign Pollution Permits, In: Working paper series / Institute for Empirical Research in Economics, No. No. 429, 2009. (Working Paper)
We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot market should erase inefficiencies due to initial mis-allocations.nIn the experiment, high emitters exercise market power in the spot market and permit holdings under grandfathering remain skewed towards high emitters. Furthermore, the opportunity costs of “free” permits are fully “passed through.” In the auction, the majority of permits are won by low emitters, reducing the need for spot-market trading. Auctions generate higher consumer surplus and slightly lower product prices in the laboratory markets. Moreover, auctions eliminate the large “windfall profits” that are observed in the treatmentnwith free, grandfathered permit allocations. |
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Jacob Goeree, Leeat Yariv, An Experimental Study of Jury Deliberation, In: Working paper series / Institute for Empirical Research in Economics, No. No. 438, 2009. (Working Paper)
We study the effects of deliberation on collective decisions. In a series of experiments, we vary groups' preference distributions (between common and conflicting interests) and the institutions by which decisions are reached (simple majority, two-thirds majority, and unanimity). When deliberation is prohibited, different institutions generate significantly different outcomes, tracking the theoretical comparative statics. Deliberation, however, significantly diminishes institutional differences and uniformly improves efficiency. Furthermore, communication protocols exhibit an array of stable attributes: messages are public, consistently reveal private information, provide a good predictor for ultimate group choices, and follow particular (endogenous)nsequencing. |
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Christoph Brunner, Jacob Goeree, Charles A Holt, John O Ledyard, An Experimental Test of Flexible Combinatorial Spectrum Auction Formats, In: Working paper series / Institute for Empirical Research in Economics, No. No. 431, 2009. (Working Paper)
"This paper reports laboratory experiments that evaluate the performance of a flexible packagebidding format developed by the FCC, in comparison with other combinatorial formats. In general, the interest of policy makers in combinatorial auctions is justified by the laboratory data; when value complementarities are present, package bidding yields improved performance. We find clear differences among the combinatorial auction formats, however, both in terms of efficiency and seller revenue. Notably, the combinatorial clock provides the highest revenue. The FCC’s flexible package bidding format performed worse than the alternatives, which is one of the main reasons why it was not implemented." |
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Patrick Eugster, Michèle Sennhauser, Peter Zweifel, Capping Risk Adjustment?, In: Working paper series / Socioeconomic Institute, No. No. 915, 2009. (Working Paper)
When premiums are community-rated, risk adjustment (RA) serves to mitigate competitive insurers’ incentive to select favorable risks. However, unless fully prospective, it also undermines their incentives for efficiency. By capping its volume, one may try to counteract this tendency, exposing insurers to some financial risk. This in term runs counter the quest to refine the RA formula, which would increase RA volume. Specifically, the adjuster, ”Hospitalization or living in a nursing home during the previous year” will be added in Switzerland starting 2012. This paper investigates how to minimize the opportunity cost of capping RA in terms of increased incentives for risk selection. |
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Michelle S. Sovinsky, John C Ham, Daniela Iorio, Caught in the bulimic trap? Persistence and state dependence of bulimia among young women, In: Working paper series / Institute for Empirical Research in Economics, No. 447, 2012. (Working Paper)
Eating disorders are an important and growing health concern, and bulimia nervosa (BN) accounts for the largest fraction of eating disorders. Health consequences of BN are substantial and especially serious given the increasingly compulsive nature of the disorder. However, remarkably little is known about the mechanisms underlying the persistent nature of BN. Using a unique panel data set on young women and instrumental variable techniques, we document that unobserved heterogeneity plays a role in the persistence of BN, but strikingly up to two thirds is due to true state dependence. Our results, together with support from the medical literature, provide evidence that bulimia should be considered an addiction. Our findings have important implications for public policy since they suggest that the timing of the policy is crucial: preventive educational programs should be coupled with more intense (rehabilitation) treatment at the early stages of bingeing and purging behaviors. Our results are robust to different model specifications and identifying assumptions. |
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Dallas Burtraw, Jacob Goeree, Charles A Holt, Erica Myers, Karen Palmer, William Shobe, Collusion in Auctions for Emissions Permits: An Experimental Study, In: Working paper series / Institute for Empirical Research in Economics, No. No. 434, 2009. (Working Paper)
Environmental markets have several institutional features that provide a new context for the use of auctions and that have not been studied previously. This paper reports on laboratory experiments testing three auction forms — uniform and discriminatory price sealed-bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both with and without explicit communication. The clock appears to facilitate successful collusion, both because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity). |
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Joseph P Romano, Azeem M Shaikh, Michael Wolf, Consonance and the Closure Method in Multiple Testing, In: Working paper series / Institute for Empirical Research in Economics, No. No. 446, 2009. (Working Paper)
Consider the problem of testing s hypotheses simultaneously. In order to deal with the multiplicity problem, the classical approach is to restrict attention to procedures that control the familywise error rate (FWE). Typically, it is known how to construct tests of the individual hypotheses, and the problem is how to combine them into a multiple testing procedure that controls the FWE. The closure method of Marcus et al. (1976), in fact, reduces the problem of constructing multiple test procedures which control the FWE to the construction of single tests which control the usual probability of a Type 1 error. The purpose of this paper is to examine the closure method with emphasis on the concepts of coherence and consonance. It was shown by Sonnemann and Finner (1988) that any incoherent procedure can be replaced by a coherent one which is at least as good. The main point of this paper is to show a similar result for dissonant and consonant procedures. We illustrate the idea of how a dissonant procedure can be strictly improved by a consonant procedure in the sense of increasing the probability of detecting a false null hypothesis while maintaining control of the FWE. We then show how consonance can be used in the construction of some optimal maximin procedures. |
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Christian Ewerhart, Cournot Oligopoly and Concavo-Concave Demand, In: Working paper series / Institute for Empirical Research in Economics, No. No. 427, 2009. (Working Paper)
The N-firm Cournot model with general technologies is reviewed to derive generalized and unified conditions for existence of a pure strategy Nash equilibrium. Tight conditions are formulated alternatively (i) in terms of concavity of two-sided transforms of inverse demand, or (ii) as linear constraintsnon the elasticities of inverse demand and its first derivative. These conditions hold, in particular, if a firm’s marginal revenue decreases in other firms’ aggregate output, or if inverse demand is logconcave. The analysis relies on lattice-theoretic methods, engaging both cardinal and ordinal notions of supermodularity. As a byproduct, a powerful test for strict quasiconcavitynis obtained. |
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Jacob Goeree, Theo Offermann, Randolph Sloof, Demand Reduction and Preemptive Bidding inMulti-Unit License Auctions, In: Working paper series / Institute for Empirical Research in Economics, No. No. 430, 2009. (Working Paper)
Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants fromnthe market. We consider an environment where both demand reduction and preemptivenbidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry imposes a (large) negative externality on incumbents. As a result, the ascending auction performsnworse than the discriminatory auction both in terms of revenue and efficiency, while entrants.chances are similar across the two formats. |
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Andreas Kuhn, Demand for Redistribution, Support for the Welfare State, and Party Identification in Austria, In: Working paper series / Institute for Empirical Research in Economics, No. No. 440, 2009. (Working Paper)
This paper describes subjective wage inequality and the demand for redistribution in Austrianusing individuals' estimates of occupational wages from the International Social SurveynProgram. Although these estimates differ widely across individuals, the data clearly show that most individuals would like to decrease wage inequality, relative to the level of inequality which they perceive to exist. The empirical analysis also shows that the demand for redistribution is strongly associated not only with variables describing self-interested motives for redistribution, but also with perceptions of and social norms with respect to inequality. Further, the demand for redistribution is a strong predictor for whether annindividual is supportive of redistribution by the state. On the other hand, however, I find almost no evidence for an empirical association between the demand for redistribution and individuals' party identification. |
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Michelle S. Sovinsky, Eric Helland, Do research joint ventures serve a collusive function?, In: Working paper series / Institute for Empirical Research in Economics, No. 448, 2012. (Working Paper)
Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of 34% among telecommunications firms, 33% among computer and semiconductor manufacturers, and 27% among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function. |
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Kenneth C Wilbur, Michelle S. Sovinsky, Geert Ridder, Effects of Advertising and Product Placement on Television Audiences, In: Working paper series / Institute for Empirical Research in Economics, No. No. 449, 2009. (Working Paper)
Digital video recorder proliferation and new commercial audience metrics are making television networks’ revenues more sensitive to audience losses from advertising. There is currently limited understanding of how traditional advertising and product placement affectntelevision audiences. We estimate a random coefficients logit model of viewing demand for television programs, wherein time given to advertising and product placement plays a role akinnto the “price” of consuming a program. Our data include audience, advertising, and program characteristics from more than 10,000 network-hours of prime-time broadcast television from 2004 to 2007. We find that the median effect of a 10% rise in advertising time is a 15% reduction in audience size. We find evidence that creative strategy and product category are importantndeterminants of viewer response to advertising. When we control for program episode quality,nwe find that product placement time decreases viewer utility. In sum, our results imply thatnnetworks should give price discounts to those advertisers whose ads are most likely to retain viewers’ interest throughout the commercial break. |
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