Behavioral Economics Commons^™

Competitive Auction Markets In British Columbia, Peter Cramton, Susan Athey

Peter Cramton

US-Canada Softwood Lumber Trade Dispute, On behalf of British Columbia Ministry of Forests.

Future Targets And Multiple Equilibria, Ashok S. Guha, Brishti Guha

Research Collection School Of Economics

Multiple Pareto-rankable equilibria may obtain in an overlapping generations model where consumers save to reach a fixed target. Existence and uniqueness conditions are discussed. The model displays excess consumption sensitivity to current income and perfect old-age insurance.

The Auditor And The Firm: A Simple Model Of Corporate Cheating And Intermediation, Brishti Guha

Research Collection School Of Economics

We apply a game-theoretic model to the analysis of the recent spate of corporate scandals in which firms have cheated their investors, often with the aid of external auditors. We characterize the different types of equilibria that obtain for different parameter ranges in an auditor’s absence (the parameters we consider being early signal accuracy – a measure of transparency – and withdrawal costs – a measure of the liquidity of investments). We also analyze whether and under what conditions the presence of an informed auditor could lead to an improvement in the sense of honest behavior replacing cheating as the …

Honesty And Intermediation: Corporate Cheating, Auditor Involvement And The Implications For Development, Brishti Guha

Research Collection School Of Economics

We examine self-enforcing honesty in firm-investor relations in an imperfect public information game. Minimum firm size requirements and moral hazard limit ability to raise outside capital, yielding a floor on personal wealth required to enter entrepreneurship. Credible auditing could create efficiency gains. We propose mandatory disclosure of audit fees and an interpretation of international differences in shareholding patterns. We endogenize auditor-firm collusion and extortion by auditors. We embed our game-theoretic analysis in a general equilibrium model to generate unique equilibria that trace the impact of the distribution of wealth on the existence of the market and consequences for development.

The Case Of The Errant Executive: Management, Control And Firm Size In Corporate Cheating, Brishti Guha

Research Collection School Of Economics

Firm insiders – a manager and a board – face moral hazard in relation to their outside shareholders in a repeated game with asymmetric information and stochastic market outcomes. The manager determines whether or not outsiders are cheated; the board, whose objectives differ from those of outside shareholders, attempts to control the manager through compensation contracts and dismissal threats Since compensation determines the manager’s incentive to cheat, firms competing for outside capital publicly announce their managerial contracts. However, secret renegotiation between firm and manager is still possible: so outsiders guard against being cheated by limiting their total stake in any …

Games Suppliers And Producers Play: Upstream And Downstream Moral Hazard With Unverifiable Input Quality, Brishti Guha

Research Collection School Of Economics

We pin down the optimal relational contract between an input supplier and a final goods producer given a framework of bilateral moral hazard with variable but non-verifiable input quality. Given the inability of third parties to verify input quality, each party has an incentive to cheat the other by making a false claim about input quality. We derive the contract which (a) induces honest behavior and brings about the Pareto superior first-best outcome for the widest possible range of exogenous parameters, and (b) maximizes the Nash product of both parties’ payoffs subject to incentive compatibility. An interesting feature of the …

A Capacity Market That Makes Sense, Peter Cramton, Steven Stoft

Peter Cramton

We argue that a capacity market is needed in most restructured electricity markets, and present a design that avoids problems found in the early capacity markets. The proposed market only rewards capacity that contributes to reliability as demonstrated by its performance during hours in which there is a shortage of operating reserves. The capacity price responds to market conditions, increasing when and where capacity is scarce and decreasing to zero when and where it is sufficiently plentiful. Market power in the capacity market is addressed by basing the capacity price on actual capacity, rather than bid capacity, so generators cannot …

Comments On Doc Notice Of Preliminary Results Of Countervailing Duty Review, Peter Cramton, Susan Athey

Peter Cramton

US-Canada Softwood Lumber Trade Dispute, On behalf of British Columbia Ministry of Forests.

Optimal Sequential Decision Architectures And The Robustness Of Hierarchies And Polyarchies, Winston T. H. Koh

Research Collection School Of Economics

This paper studies collective decision making in the context of a project selection model. We derive the optimal decision architecture in the presence of marginal decision costs, and investigate the circumstances under which the hierarchy and polyarchy emerge as optimal sequential architectures. Our analysis extends previous results on optimal organizational decision-making to a sequential setting, and further demonstrates the fragility of the hierarchy and polyarchy as optimal architectures.

The Prudent Village: Risk Pooling Institutions In Medieval English Agriculture, Gary Richardson

Gary Richardson

The prudent peasant mitigated the risk of crop failures by scattering his arable land throughout his village, Deirdre McCloskey argued, because alternative risksharing institutions did not exist. But, alternatives did exist, this essay concludes. Medieval English peasants formed two types of farmers’ cooperatives. Fraternities protected members from the perils of everyday life. Customary poor laws redistributed resources towards villagers beset by bad luck. In both institutions, the expectation of reciprocation motivated farmers with surpluses to aid neighbors with shortages.

Connections Between U.S. Consumer Magazine Cover Characteristics And Single Copy Sales Circulation, Stephanie C. Barlow

Honors Capstone Projects - All

In the realm of journalism, conventional wisdom suggests that magazine covers “sell” magazines at newsstands. This study explores this idea by looking at the econometric relationship between cover characteristics such as presence of people and “catch” words and single copy sales. Several significant characteristics influencing such sales are found. In addition, this study is based on a new data set developed by the author indicating various characteristics of numbers of magazine covers over a five-year time span.

Specifically, a set of 14 magazines were observed for 10 characteristics. The percentage of the presence of these characteristics on magazine covers over …

Household Demand, Network Externality Effects And Intertemporal Price Discrimination, Winston T. H. Koh

Research Collection School Of Economics

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination.

Corruption Across Countries And Regions: Some Consequences Of Local Osmosis, Raaj Sah

Research Collection School Of Economics

Large and persistent differences in corruption across comparable countries is a challenging research issue. Even more intriguing are such differences across regions within the same country, because the typically considered socioeconomic and governance characteristics are generally more similar across such regions than across different countries. This paper's principal theme is that individuals’ perceptions of their environments are influenced by the realities that they have faced in the past; these perceptions affect their current and future actions; which in turn influence the current and future realities. An articulation and analysis of these dynamics yields significant observations concerning individuals’ behavior and societal …

Household Demand, Network Externality Effects And Intertemporal Price Discrimination, Winston T. H. Koh

Research Collection School Of Economics

This paper examines the optimality of intertemporal price discrimination when network externality effects are present in the consumption of a durable good. We conduct our study in two settings. In a model with two household types, utilities are dependent on the cumulative proportion of households that have purchased the durable good. Next, in a model with a continuum of household types, we extend the analysis to the case where households consume both a durable good and a stream of non-durable goods. We show that in both settings, the presence of network externalities facilitates a sales strategy with intertemporal price discrimination. …

Bearing The Costs Of Human-Wildlife Conflict: The Challenges Of Compensation Schemes, Philip J. Nyhus, Steve A. Osofsky, Paul Ferraro, H Fischer, Francine Madden

Faculty Scholarship

No abstract provided.

Review Of Sweet Dreams: Philosophical Obstacles To A Science Of Consciousness, Leslie Marsh

Leslie Marsh

The question of how a physical system gives rise to the phenomenal or experiential (olfactory, visual, somatosensitive, gestatory and auditory), is considered the most intractable of scientific and philosophical puzzles. Though this question has dominated the philosophy of mind over the last quarter century, it articulates a version of the age-old mind–body problem. The most famous response, Cartesian dualism, is on Daniel Dennett’s view still a corrosively residual and redundant feature of popular (and academic) thinking on these matters. Fifteen years on from his anti-Cartesian theory of consciousness (Consciousness Explained, 1991), Dennett’s frustration with this tradition is still palpable. This …

Review Of The Proposed Reserve Markets In New England, Peter Cramton, Hung-Po Chao, Robert Wilson

Peter Cramton

New England Power Pool, Federal Energy Regulatory Commission.

Review Of The Proposed Reserve Markets In New England, Peter Cramton, Hung-Po Chao, Robert Wilson

Peter Cramton

ISO New England proposes reserve markets designed to improve the existing forward reserve market and improve pricing during real-time reserve shortages. We support all of the main elements of the proposal. For example, we agree that little is gained by allowing reserve availability bids in the day-ahead market. Doing so greatly increases the complexity of the market without the prospect of more efficient pricing. Rather, offline reserves are most efficiently priced and awarded well in advance, as is done by the improved forward reserve market.

Law And Behavioral Biology, Owen D. Jones, Timothy H. Goldsmith

Vanderbilt Law School Faculty Publications

Society uses law to encourage people to behave differently than they would behave in the absence of law. This fundamental purpose makes law highly dependent on sound understandings of the multiple causes of human behavior. The better those understandings, the better law can achieve social goals with legal tools. In this Article, Professors Jones and Goldsmith argue that many long held understandings about where behavior comes from are rapidly obsolescing as a consequence of developments in the various fields constituting behavioral biology. By helping to refine law's understandings of behavior's causes, they argue, behavioral biology can help to improve law's …

Profit Maximization Versus Disadvantageous Inequality: The Impact Of Self-Categorization, Stephen M. Garcia, Avishalom Tor, Max H. Bazerman, Dale T. Miller

Journal Articles

Choice behavior researchers (e.g., Bazerman, Loewenstein, & White, 1992) have found that individuals tend to choose a more lucrative but disadvantageously unequal payoff (e.g., self—$600/other—$800) over a less profitable but equal one (e.g., self—$500/other—$500); greater profit trumps interpersonal social comparison concerns in the choice setting. We suggest, however, that self-categorization (e.g., Hogg, 2000) can shift interpersonal social comparison concerns to the intergroup level and make trading disadvantageous inequality for greater profit more difficult. Studies 1–3 show that profit maximization diminishes when recipients belong to different social categories (e.g., genders, universities). Study 2 further implicates self-categorization, as selfcategorized individuals tend to …

The Microfoundations Of Standard Form Contracts: Price Discrimination Vs. Behavioral Bias, Jonathan Klick

All Faculty Scholarship

Standard form contracts, or contracts of adhesion, appear to provide contradictory evidence for the operation of bargaining in the markets where they are common. Non-negotiated contract terms that seemingly benefit sellers to the detriment of buyers call into question the efficiency implications of the Coase Theorem, which forms the foundation of positive law and economics. Proponents of the behavioral school of law and economics have suggested that behavioral biases, observed in experimental contexts, provide the most plausible explanation for standard form contracts. However, price discrimination might provide a more parsimonious explanation for abusive terms in contracts. If there is heterogeneity …

Assessing The State Of Black America In Terms Of Black Buying Power From 1990 To Present, Samina J. Mcgill

Seton Hall University Dissertations and Theses (ETDs)

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Private Information And Market Movements: New Evidence From The Wednesday Closings Of 1968, Thomas Berry

Thomas D Berry

No abstract provided.

Economic Growth, Saving And Investment, Safdar Khan

Safdar Khan

Extract:
Despite an evident slowdown in major economies around the global amidst a sustained rise in international oil prices, the domestic economy surpassed its growth target by a wide margin for the third consecutive year, witnessing a growth rate of 8.4 percent in FY05, the highest during the last two decades (see Figure 2.1 & 2.2).

Bearing The Costs Of Human-Wildlife Conflict: The Challenges Of Compensation Schemes, Philip J. Nyhus, Steve A. Osofsky, Paul Ferraro, H Fischer, Francine Madden

Philip J. Nyhus

No abstract provided.