Knowledge that Transforms

In 1797 Johann Wolfgang von Goethe sold a manuscript through a second‐price auction. We investigate Goethe's motivation in the context of the late eighteenth century's book market and relate it to modern auction theory.

This paper examines an empirical regularity found in many societies: that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education. We examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it. We show that the implicit economic model assumes myopia. The intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data. We produce an alternative choice‐theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions.

Private providers of public goods, such as charities, invariably enlist fund‐raisers to organize and collect contributions. Common in charitable fund‐raising is seed money, either from a government grant or from a group of “leadership givers,” that launches the fund drive and generates additional gifts. This paper provides a theoretical basis for fund‐raisers and seeds to charity. The primary assumption is that there is a range of increasing returns at low levels of provision of the public good. It is shown that fund‐raisers have a natural and important role, and that sometimes only a small amount of seed money can grow into a substantial charity.

This paper examines lending by a Genoese‐led cartel to philip II of Spain (1556–98) from the perspective of theory on sovereign debt. Models in this literature suggest that the Genoese linked specie deliveries from Spain to the Low Countries to lending in order to create a penalty to enforce their loans. The king tried to renege, the Genoese applied the penalty, and the king ultimately repaid: When the episode is used to examine theory, the Crown's observed debt ceiling and estimates of its cost of enduring the penalty and its ability to repay are in line with predctions of Bulow and Rogoff. The nature of the penalty has the flavor of Gole and Kehoe's model; its observation on the “path of play” is suggestive of Atkeson's model.

The anomaly is concerned with the observation that in multiple item auctions of identical objects, prices tend to decline over time. I show that in the case of wine auctions, which have been analyzed frequently, the anomaly is likely to be caused by the fact that most bids are entered by absentees, who use nonoptimal bidding strategies. Therefore, wine auctions can hardly be used to illustrate the standard multiple‐object auction model.

In this paper, we provide a conceptual framework for understanding the phenomenon of exclusive dealing, and we explore the motivations for and effects of its use. For a broad class of models, we characterize the outcome of a contracting game in which manufacturers may employ exclusive dealing provisions in their contracts. We then apply this characterization to a sequence of specialized settings. We demonstrate that exclusionary contractual provisions may be irrelevant, anticompetitive, or efficiency‐enhancing, depending on the setting. More specifically, we exhibit the potential for anticompetitive effects in noncoincident markets (i. e., markets other than the ones in which exclusive dealing is practiced), and we explore the potential for the enhancement of efficiency in a setting in which common representation gives rise to incentive conflicts. In each instance, we describe the manner in which equilibrium outcomes would be altered by a ban on exclusive dealing. We demonstrate that a ban may have surprisingly subtle and unintended effects.

An increase in the size (scale) of an economy increases the total quantity of rents that can be captured by successful innovators, which, in equilibrium, should lead to a rise in innovative activity. Conventional wisdom and the theoretical predictions of models of endogenous innovation suggest that this increased research effort should lead to more rapid growth. As noted by Charles Jones, this prediction is at odds with the postwar experience of the OECD, where the growth of the market has indeed led to an increased R & D effort that, however, has been translated into stagnat or declining growth rates. Drawing on the remarkable insights of the museum curator Seabury C. Gilfillan, this paper modifies models of endogenous innovation to allow for the possibility that a rise in the profitability of innovative activity could lead to an increased variety of differentiated solutions to similar problems. An increased variety of technologies (e.g., an increase in the number and types of contraceptives) will increase the level of utility of the average consumer. If, however, continued improvement of this increased variety of technologies requires increased research input, a rise in the scale of the market could raise the equilibrium quantity of R & D without increasing the economy's growth rate.

It is argued that changes in workers' budget sets cannot explain the dramatic increases in civilian work in the United States during World War II. Although money wages grew during the period, wartime after‐tax real wages were lower than either before or after the war. Evidence from the 1940s also appears to be inconsistent with other pecuniary explanations such as wealth effects of government policies, intertemporal substitution induced by asset prices, unfulfilled expectations, and changes in the nonmarket price of time. Although untested and relatively undeveloped, nonpecuniary models of behavior are tempting explanations for wartime work.

Over last two decades punitiveness of juvenile justice system has declined substantially relative adult courts. During that same time period juvenile violent rates have grown almost twice as quickly as adult crime rates. This paper examines degree to which those two empirical observations are related, finding that changes in relative punishments can account for 60 percent of differential growth rates in juvenile and adult violent between 1978 and 1993. Juvenile offenders appear be at least as responsive sanctions as adults. Moreover, sharp changes in criminal involvement with transition from juvenile adult court suggest that deterrence, rather than simply incapacitation important role. There does not, however, appear be a strong relationship between the punitiveness of juvenile justice system that a cohort faces and extent of involvement for that cohort later in life.

To test whether naturally occurring markets can be strategically manipulated, $500 and $1,000 bets were made, then canceled, at horse racing tracks. The net effects of these costless temporary bets give clues about how market participants react to information large bets might contain. The bets moved odds on horses visibly (compared to matched‐pair control horses with similar prebet odds) and had a slight tendency to draw money toward the horse that was temporarily bet, but the net effect was close to zero and statistically insignificant. the results suggest that some bettors inferred information from bets and others did not, and their reactions roughly canceled out.