We use experimental markets to test the Datar, Feltham, and Hughes (DFH) 1991 model of entrepreneur choice of auditor and retained ownership in initial public offerings (IPOs). DFH predict that entrepreneurs use retained ownership to signal IPO value and substitute high‐quality auditors for retained ownership to signal value as the risk of the IPO increases. Given the mixed support for DFH from archival research, we conduct experimental markets that directly operationalize the model's decision variables, which permits a direct test of whether the model is descriptively valid. In addition, our market setting provides a strong test of this theory by including an alternative Nash equilibrium also present in field settings, one in which only auditor quality is used by entrepreneurs to signal IPO value. Our results suggest that DFH predict entrepreneur behavior in baseline markets where both computerized investors and auditors are programmed to price consistently with the DFH equilibrium. However, the DFH model does not describe behavior when “robot” investors are replaced with human investors in the market. The results suggest that entrepreneurs and investors strategically interact in a manner that leads them away from the DFH equilibrium and toward the alternative Nash equilibrium behavior of entrepreneurs with high‐value assets hiring high‐quality auditors irrespective of IPO risk. Our results imply that the DFH model has limited descriptive validity, document the importance of strategic behavior on market equilibrium formation, and suggest that the mixed results found in prior DFH‐based field studies may reflect the model's low descriptive validity.

R. Byrne, A. Charnes, W. W. Cooper, K. Kortanek, A Chance-Constrained Approach to Capital Budgeting with Portfolio Type Payback and Liquidity Constraints and Horizon Posture Controls, The Journal of Financial and Quantitative Analysis, Vol. 2, No. 4 (Dec., 1967), pp. 339-364

In practice one does not expect conflicting agents to move instantaneously to an equilibrium. Instead the final equilibrium is often the consequence of "disequilibrium dynamics". This paper, through the use of local game theory, introduces a general framework for disequilibrium dynamics based on the existence of adjustment costs. The analysis is presented within the context of oligopoly theory and shows that the existence of adjustment costs will in many cases result in a unique equilibrium at which market shares are inversely proportional to these costs. This paper also introduces two new solution concepts for n-person normal form games.

Several recent papers have developed partial or complete characterization of classes of social decision functions in terms of constructs based upon the associated collections of decisive sets. Hansson (1976) interpreted Arrow’s impossibility theorem in terms of the associated ultrafilter of decisive sets. Brown (1973) extended this correspondence to the case of acyclic choice functions and prefilters. To deal with the multiplicity of social decision functions having the same collection of decisive sets, Brown restricted the class of social decision functions while Ferejohn and Fishburn (1979) and Blau and Brown (1980) added structure to the collections of decisive sets, and thereby obtained a characterization of certain social decision functions.

Journal Article The Elasticity of Derived Net Supply and a Generalized Le Chatelier Principle Get access W. E. Diewert W. E. Diewert University of British Columbia Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 1, January 1981, Pages 63–80, https://doi.org/10.2307/2297121 Published: 01 January 1981 Article history Received: 01 August 1977 Accepted: 01 March 1980 Published: 01 January 1981

Journal Article Symmetry Conditions for Market Demand Functions Get access W. E. Diewert W. E. Diewert University of British Columbia Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 3, April 1980, Pages 595–601, https://doi.org/10.2307/2297310 Published: 01 April 1980 Article history Received: 01 January 1977 Accepted: 01 August 1979 Published: 01 April 1980

Journal Article Arbitration of Two-party Disputes under Uncertainty Get access Robert W. Rosenthal Robert W. Rosenthal Bell Telephone Laboratories, Inc. Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 45, Issue 3, October 1978, Pages 595–604, https://doi.org/10.2307/2297260 Published: 01 October 1978 Article history Received: 01 September 1976 Accepted: 01 June 1977 Published: 01 October 1978

Journal Article Reaction Functions as Nash Equilibria Get access James W. Friedman James W. Friedman University of Rochester Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 43, Issue 1, February 1976, Pages 83–90, https://doi.org/10.2307/2296602 Published: 01 February 1976 Article history Received: 01 January 1974 Accepted: 01 April 1975 Published: 01 February 1976