When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predictions in the minimum-effort game in the laboratory under parameter configurations which lead to an inefficient low-effort equilibrium for subjects with no group identity. For those with a salient group identity, consistent with our theory, we find that learning leads to ingroup coordination to the efficient high-effort equilibrium. Additionally, our theoretical framework reconciles findings from a number of coordination game experiments. (JEL C71, C91, D71)

This study clarifies the conditions under which learning in games produces convergence to Nash equilibria in practice. We experimentally investigate the role of supermodularity, which is closely related to the more familiar concept of strategic complementarities, in achieving convergence through learning. Using a game from the literature on solutions to externalities, we find that supermodular and “near-supermodular” games converge significantly better than those far below the threshold of supermodularity. From a little below the threshold to the threshold, the improvement is statistically insignificant. Increasing the parameter far beyond the threshold does not significantly improve convergence.

We present a laboratory experiment that measures the effects of induced group identity on social preferences. We find that when participants are matched with an ingroup member, they show a 47 percent increase in charity concerns and a 93 percent decrease in envy. Likewise, participants are 19 percent more likely to reward an ingroup match for good behavior, but 13 percent less likely to punish an ingroup match for misbehavior. Furthermore, participants are significantly more likely to choose social-welfare-maximizing actions when matched with an ingroup member. All results are consistent with the hypothesis that participants are more altruistic toward an ingroup match. (JEL C91, D03, Z13)

In this paper, we examine the effect of labor unions on bank performance during the recent financial crisis. Empirical evidence from the 314 largest global banks indicates that the stock returns and profitability of unionized banks are higher, and the default probabilities are lower than non-unionized banks. Moreover, unionized banks have lower tail risk in their stock returns, more tangible equity, more liquid assets, and better quality lending before the crisis than non-unionized banks. These finding show that unionized banks operate more conservatively and engage in less risk-taking. Our results imply that union preferences can shape the risk culture of banks.

We show that socially responsible firms use cash as a commitment device to honor implicit commitments to stakeholders. Firms with better social performance hold higher cash balances, especially for firms with social performance related to stakeholders or requiring cash spending. This relation is also stronger for firms that benefit more from social performance, e.g., firms that face more competition in product and labor markets. Social performance related to stakeholders or requiring cash spending increases the marginal value of cash.

This paper investigates a class of matching problems—the assignment of indivisible items to agents where some agents have prior claims to some of the items. As a running example, we will refer to the indivisible items as houses. House allocation problems are not only of theoretical interest, but also of practical importance. A house allocation mechanism assigns a set of houses (or offices, tasks, etc.) to prospective tenants, allotting at most one house to each tenant. Rents are exogenously given and there is no medium of exchange, such as money. In general some houses will have existing tenants, some houses will be empty, and some applicants for housing will be new (e.g., freshmen). The canonical examples are assignment of college students to dormitory rooms and public housing units. Other examples are assignment of offices and tasks to individuals. Many universities in the United States employ some variant of a mechanism called the random serial dictatorship with squatting rights (RSD) to allocate dormitory rooms. Each existing tenant can either keep her house or enter the applicant pool. Each applicant is randomly

Each year approximately 10 million high school seniors in China compete for 6 million seats through a centralized college admissions system. Within the last decade, many provinces have transitioned from a "sequential" to a "parallel" mechanism to make their admissions decisions. In this study, we characterize a parametric family of application-rejection assignment mechanisms, including the sequential, deferred acceptance, and parallel mechanisms in a nested framework. We show that all of the provinces that have abandoned the sequential mechanism have moved toward less manipulable and more stable mechanisms. We also show that existing empirical evidence is consistent with our theoretical predictions.

Using a sample of banks from 56 countries, this paper investigates the lending behavior of government banks during the crisis of 2008, and its association with bank performance and the economy. Contrary to the traditional wisdom, we find that government banks can play a beneficial role under certain circumstances. Government banks have higher loan growth rates than private banks during the crisis. In countries with low corruption, the increased lending by government banks is associated with better bank performance and more favorable GDP and employment growth in the crisis period. In contrast, the results for countries with high corruption are more consistent with the political view: the increased lending by government banks is associated with underperformance relative to private banks, and creates no beneficial effects on either GDP growth or employment.