Collusive Practices in Repeated English Auctions: Experimental Evidence on Bidding Rings by Owen R. Phillips, Dale J. Menkhaus and Kalyn T. Coatney. Published in volume 93, issue 3, pages 965-979 of American Economic Review, June 2003
The use of modern microeconomics in policy is illustrated by the markets for spectrum, electricity, greenhouse-gas reductions, defense procurement, and Treasury bills. Further examples are antitrust divestiture rules, market-based redistribution, fishery conservation, and privatization. The limits of the use of theory are also discussed, by reference to China's economy-wide reforms. Lessons on the policy use of theory are drawn.
This paper synthesizes findings from an ongoing research program on learning in signaling games. The present paper focuses on cross-game learning- the ability of subjects to take what has been learned in one game and generalize it to related games- an issue that has been ignored in most of the learning literature. We begin by laying out the basic experimental design and recapitulating early results characterizing the learning process. We then report results from an initial experiment in which we find a surprising degree of positive cross-game learning, contrary to the predictions of commonly employed learning models and to the findings of cognitive psychologists. We next explore two features of the environment that help to explain when and why this positive transfer occurs. First, we examine the effects of abstract versus meaningful context, an issue that has been largely ignored by economists out of the belief that behavior is largely dictated by the deep mathematical structure of a game. In contrast, results from cognitive psychology suggest that behavior may well be sensitive to context employed. Our results show that the use of meaningful context serves as a catalyst for positive transfer. Second, we explore how play by two-person teams differs from play by individuals. The psychology literature is quite pessimistic about the ability of teams to beat a “truth wins ” standard based on performance of individuals. But teams easily surpass this norm in our cross-game experiment. We use the dialogues between team members to gain insight into how this transfer occurs, gaining direct confirmation for hypotheses generated by econometric analysis of earlier data. I. The Experimental Environment: Our experiments are based on a simplified version of Paul Milgrom and John Roberts ' (1982) entry limit pricing game. The game proceeds as follows: (1) Monopolists (Ms) observe their cost level- high (MH) or low (ML) cost- realized according to equal probabilities that are common knowledge. (2) Ms choose a quantity (output) whose payoff is contingent on the entrant’s (Es) response (see Table 1). (3) E sees this output, but not M’s type, and either enters or stays out. The asymmetric information, in conjunction with the fact that it is profitable to enter against MHs, but not against MLs, provides an incentive for strategic play (limit pricing).
"3rd of tha Month": Do Social Security Recipients Smooth Consumption Between Checks? by Melvin Stephens Jr.. Published in volume 93, issue 1, pages 406-422 of American Economic Review, March 2003
Presents an empirical analysis of the risk properties of human capital returns. Discussion on measures of human capital returns; Description of the mean-variance spanning methodology; Information on real human capital returns and U.S. equity index return for 1964 to 1996.
Governments use ‘green’ regulatory threat as an instrument to induce ‘voluntary’ pollution abatement by firms. If threats suffice to induce adequate reductions in emissions, they may save considerable implementation and monitoring costs. However, green regulatory threat can only induce emission reductions when firms find the threat credible and do not free-ride on other firms’ abatement effort. The effect of regulatory threat can be backed out from the data by conditioning abatement effort on firm characteristics.1 Theory suggests a measure of environmental exposure that combines a firm’s (1) composition and toxicity of emissions; (2) its size and pollution intensity; and (3) its location that determines the size of the population at risk. Furthermore, firms’ abatement effort is conditioned on whether they meet participation and incentive constraints determined by their unabated pollution intensity and unit abatement cost. Then firms’ position relative to other firms—their rung on the abatement ladder—determines their participation in abatement activity.
Trade Structure, Industrial Structure, and International Business Cycles by Marianne Baxter and Michael A. Kouparitsas. Published in volume 93, issue 2, pages 51-56 of American Economic Review, May 2003
Following the financial crises of the late 1990's an increasing number of emergingmarket countries have adopted a flexible exchange-rate regime and an inflation-targeting monetary-policy framework. This trend has generated a growing debate on the appropriate monetary-policy rule for "financially fragile" economies with thin and incomplete financial markets that are subject to highly volatile capital flows. Within this context, I examine the implications of alternative monetary-policy rules and the choice of instruments and targets in a small open economy with imperfect capital markets. I compare a benchmark efficient-markets model with a monetary-targeting regime and three different inflation-targeting rules: the Taylor rule, a CPI inflation-target rule, and a non-tradable inflation-target rule. Furthermore, I study how sensitive the results are to varying degrees of capital-market integration. In addressing this question of the "second best" policy, the paper resembles that of Michael Devereaux and Phillip Lane (2001), who study the role of financial accelerator effects on various monetary-policy rules. I adopt a small open-economy setup rather than a two-country framework. In contrast to most small open-economy models, however, this paper does not assume a zero current-account balance. Net foreign-asset holdings and capital flows affect real volatility through the interest-rate risk premium. Given the significant role the risk premium plays in the external borrowing costs for emerging markets, this channel may have important consequences for economic dynamics.
To address the economic significance of national border effects, this paper provides evidence on two fundamental questions: (1) Do large border effects arise because of high perceived-price wedges between foreign and domestic products, or because imports and domestic goods are very close substitutes?; and (2) If price wedges are important, do they reflect distortionary barriers to trade or do they arise from nondistortionary factors, such as differences in transactions costs or product characteristics? I conclude that, while border effects may imply barriers, welfare costs, and a role for policy, distortions are probably not as substantial as initial border results suggested.
We study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post-Bretton Woods period, using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables. In contrast with previous studies, we find that, for developing countries, less flexible exchange rate regimes are associated with slower growth, as well as with greater output volatility. For industrial countries, regimes do not appear to have any significant impact on growth. The results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature.