Knowledge that Transforms

We investigate the "generalized second price" auction (GSP), a new mechanism which is used by search engines to sell online advertising that most Internet users encounter daily.GSP is tailored to its unique environment, and neither the mechanism nor the environment have previously been studied in the mechanism design literature.Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different.In particular, unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP.To analyze the properties of GSP in a dynamic environment, we describe the generalized English auction that corresponds to the GSP and show that it has a unique equilibrium.This is an ex post equilibrium that results in the same payoffs to all players as the dominant strategy equilibrium of VCG.

This paper develops a dynamic model of mismatch. Workers and jobs are randomly allocated to labor markets. Each market clears, but some have excess (unemployed) workers and some have excess (vacant) jobs. As workers and jobs switch markets, unemployed workers find vacancies and employed workers become unemployed. The model is quantitatively consistent with the business cycle frequency comovement of unemployment, vacancies, and the job finding rate and explains much of these variables' volatility. It can also address cyclicality in the separation rate into unemployment and duration dependence in the job finding rate. The results are robust to some nonrandom mobility.

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Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and political shocks. This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions - a “caution-effect” - making it more persistent over time. Thus, uncertainty will play a critical role in shaping the dynamics of R&D through the business cycle, and its response to technology policy. I also show that if firms are increasing their level of R&D then the effect of uncertainty will be negative, while if firms are reducing R&D then the effect of uncertainty will be positive.

Does attendance affect performance in college economics courses? David Romer (1993) found that attendance did contribute significantly to the academic performance of students in a large intermediate macroeconomics course that he taught in the fall of 1990. (See the Summer 1994, Journal of Economic Perspectives [vol. 8, no. 3, pp. 205-15] for numerous comments on Romer.) This conclusion held even after controlling for student motivation which, it may be argued, is the true factor determining performance and is only approximated by attendance. An earlier study by Kang Park and Peter Kerr (1990) found that attendance was a determinant of student performance in a money and banking course, but not as important as a student's GPA and the percentile rank on a college entrance exam. A study by Robert Schmidt (1983) reported that time spent attending lectures contributed positively to performance in a macroeconomic Principles course. On the other side of the ledger is evidence from Neil Browne et al. (1991) showing that students who did not attend a typically structured class with lectures did just as well on the Test of Understanding College Economics (TUCE) as those students who attended a standard microeconomic Principles course. They also reported, however, that those students who attended the lectures performed better on essay questions than those who did not. A similar study by Campbell McConnell and C. Lamphear (1969) found no significant difference in the performance of students with no classroom attendance vis-a-vis those attending class. Finally, Stephen Buckles and M. E. McMahon (1971) found attendance at lectures that simply explained material covered in reading assignments did not enhance students' understanding of economics. In this paper we present new evidence on the effects of class attendance on student performance. Our results pertain to the Principles of Economics course as it is taught in a two-semester sequence at a medium-size, comprehensive state university.