Economic Theory Commons^™

The Dictatorial Public Goods Game, Gabriele Camera, Gary Charness, Nir Chemeya, Ro'i Zultan

ESI Working Papers

We propose a novel game, the Dictatorial Public Goods Game, to study the interplay between collective resource generation and centralized provision of public goods. After making choices in a standard Voluntary Contribution Mechanism (VCM), one player is selected from the group to administrate the contributions: either provide the public good or expropriate the collected resources for personal gain. We find that adding this centralized mechanism reduces efficiency compared to the standard VCM. Although higher contributions increase the material incentive to expropriate, they lead to more provision. Thus, pro-social choices in the contribution and in the provision stages act as …

Ecological Influences On Informal Property Rights: Experimental Evidence, Erik O. Kimbrough

Economics Faculty Articles and Research

This paper explores the possibility that informal property right systems evolve unique features as a function of the characteristics of the resources over which they are established. We develop an experimental environment that allows us to test this hypothesis by comparing the emergence of property in (virtual) land when resource yields are either high- or low-variance and renewable or non-renewable. Previous research suggests that high-variance resources may lead to relatively insecure claims to property. Intuition suggests that this may be amplified when those resources are renewable. The experiments confirm that informal property rights adapt to resource characteristics in a manner …

Incorporating Institutions And Ideology: Why Covid Didn't Change Anything, Cullen Kendrick

Departmental Honors & Graduate Capstone Projects

In this paper, I investigate the aftermath of the COVID-19 pandemic through an economic and philosophical lens to try and understand why government aid was removed. Looking at the problem as solely a structural issue, with Jurgen Habermas’ Between Facts and Norms and Douglas North’s Institutions, Institutional Change, and Economic Performance guiding my understanding, provides useful insights. Namely, how the informal and formal structures of society interact, and their cyclical nature. However, that perspective does not provide a complete picture. And so, I developed an understanding of ideology to investigate the origins of informal societal structures. To do this I …

Religion And Growth, Sascha O. Becker, Jared Rubin, Ludger Woessmann

ESI Working Papers

We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or …

Institutions And Opportunistic Behavior: Experimental Evidence, Antonio Cabrales, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal

ESI Working Papers

Risk mitigating institutions have long been used by societies to protect against opportunistic behavior. We know little about how they are demanded, who demands them or how they impact subsequent behavior. To study these questions, we run a large-scale online experiment where insurance can be purchased to safeguard against opportunistic behavior. We compare two different selection mechanisms for risk mitigation, the individual and the collective (voting). We find that, whether individual or collective, there is demand for riskmitigating institutions amongst high-opportunism individuals, while low-opportunism individuals demand lesser levels of insurance. However, high-opportunism individuals strategically demand lower insurance institutions when they …

Culture, Institutions & The Long Divergence, Alberto Bisin, Jared Rubin, Avner Seror, Thierry Verdier

ESI Working Papers

During the medieval and early modern periods the Middle East lost its economic advantage relative to the West. Recent explanations of this historical phenomenon— called the Long Divergence—focus on these regions’ distinct political economy choices regarding religious legitimacy and limited governance. We study these features in a political economy model of the interactions between rulers, secular and clerical elites, and civil society. The model induces a joint evolution of culture and political institutions converging to one of two distinct stationary states: a religious and a secular regime. We then map qualitatively parameters and initial conditions characterizing the West and …

A Theory Of Cultural Revivals, Murat Iyigun, Jared Rubin, Avner Seror

ESI Working Papers

Why do some societies have political institutions that support productively inefficient outcomes? And why does the political power of elites vested in these outcomes often grow over time, even when they are unable to block more efficient modes of production? We propose an explanation centered on the interplay between political and cultural change. We build a model in which cultural values are transmitted inter-generationally. The cultural composition of society, in turn, determines public good provision as well as the future political power of elites from different cultural groups. We characterize the equilibrium of the model and provide sufficient conditions for …

Institutions, Opportunism And Prosocial Behavior: Some Experimental Evidence, Antonio Cabrales, Irma Clots-Figueras, Roberto Hernán-González, Praveen Kujal

ESI Working Papers

Formal or informal institutions have long been adopted by societies to protect against opportunistic behavior. However, we know very little about how these institutions are chosen and their impact on behavior. We experimentally investigate the demand for different levels of institutions that provide low to high levels of insurance and its subsequent impact on prosocial behavior. We conduct a large-scale online experiment where we add the possibility of purchasing insurance to safeguard against low reciprocity to the standard trust game. We compare two different mechanisms, the private (purchase) and the social (voting) choice of institutions. Whether voted or purchased, we …

Kinship, Fractionalization And Corruption, Mahsa Akbari, Duman Bahrami-Rad, Erik O. Kimbrough

Economics Faculty Articles and Research

We examine the roots of variation in corruption across societies, and we argue that marriage practices and family structure are an important, overlooked determinant of corruption. By shaping patterns of relatedness and interaction, marriage practices influence the relative returns to norms of nepotism/favoritism versus norms of impartial cooperation. In-marriage (e.g. consanguineous marriage) generates fractionalization because it yields relatively closed groups of related individuals and thereby encourages favoritism and corruption. Out-marriage creates a relatively open society with increased interaction between non-relatives and strangers, thereby encouraging impartiality. We report a robust association between in-marriage practices and corruption both across countries and within …

Money Is More Than Memory, Maria Bigoni, Gabriele Camera, Marco Casari

ESI Working Papers

Impersonal exchange is the hallmark of an advanced society and money is one key institution that supports it. Economic theory regards money as a crude arrangement for monitoring counterparts’ past conduct. If so, then a public record of past actions—or memory—should supersede the function performed by money. This intriguing theoretical postulate remains untested. In an experiment, we show that the suggested functional equivalence between money and memory does not translate into an empirical equivalence: money removed the incentives to free ride, while memory did not. Monetary systems performed a richer set of functions than just revealing past behaviors.

Testing The Boundaries Of The Double Auction: The Effects Of Complete Information And Market Power, Erik O. Kimbrough

Economics Faculty Articles and Research

We report boundary experiments testing the robustness of price convergence in double auction markets for non-durable goods in which there is extreme earnings inequality at the competitive equilibrium (CE). Following up on a conjecture by Smith (1976a), we test whether the well-known equilibrating power of the double auction institution is robust to the presence of complete information about traders’ values and costs and the presence of symmetric market power. We find that complete information is insufficient to impede convergence to CE prices; however, introducing market power consistently causes prices to deviate from the CE, whether or not subjects possess complete …

The Ideological Roots Of Institutional Change, Murat Iyigun, Jared Rubin

ESI Working Papers

Why do some societies fail to adopt more efficient institutions in response to changing economic conditions? And why do such conditions sometimes generate ideological backlashes and at other times lead to transformative sociopolitical movements? We propose an explanation that highlights the interplay--or lack thereof--between new technologies, ideologies, and institutions. When new technologies emerge, uncertainty results from a lack of understanding how the technology will fit with prevailing ideologies and institutions. This uncertainty discourages investment in institutions and the cultural capital necessary to take advantage of new technologies. Accordingly, increased uncertainty during times of rapid technological change may generate an ideological …

Information Effects In Uniform Price Multi-Unit Dutch Auctions, Joy A. Buchanan, Steven Gjerstad, David Porter

Economics Faculty Articles and Research

We design a multi-unit descending-price (Dutch) auction mechanism that has applications for resource allocation and pricing problems. We address specific auction design choices by theoretically and experimentally determining optimal information disclosure along two dimensions. Bidders are either informed of the number of bidders in the auction, or know that it is one of two possible sizes; they also either know the number of units remaining for sale or are unaware of how many units have been taken by other bidders. We find that revealing group size decreases bids, and therefore revenue, if units remaining are not shown. When group size …

American Obesity: Rooted In Uncertainty, Institutions And Public Policy, James Woodward

Theses and Dissertations--Public Policy and Administration

Despite the efforts of policymakers, medical professionals, and other stakeholders, obesity and related health problems show no signs of receding from their record-high rates. Public policy has largely taken the form of consumer advice, (e.g., USDA’s Dietary Guidelines). Since consumers bear most of the costs associated with their obesity, the goal of obesity prevention appears to be incentive-compatible, prima facie. That is, there is no a priori case for much further policy intervention unless existing advice is deficient or consumers’ exhibit systematically poor decision-making.

My review of the literature shows that scholars have long conveyed a consistent narrative regarding …

State Failure And Political Instability: The Impact Of Educational Attainment In Africa, Jesse D. Neugarten

Undergraduate Economic Review

I investigate the role of educational attainment on state failure and political stability across the African continent. For the empirical analysis, I estimate a Linear Probability Model (LPM) for State Failure by Ordinary Least Squares (OLS). I hypothesize that differences in educational attainment in Africa can explain differences in political stability and state failure. Furthermore, I believe that this effect has persisted over time and that early educational attainment in the late colonial and early independence era is a significant determinant of state affairs in more recent times. I find that early secondary educational attainment explains higher state stability, while …

Game-Theoretic Foundations Of Monetary Equilibrium, Gabriele Camera, Alessandro Gioffré

Economics Faculty Articles and Research

According to theory, money supports trade in a world without enforcement and, in particular, in large societies, where gift-exchange is unsustainable. It is demonstrated that, in fact, monetary equilibrium breaks down in the absence of adequate enforcement institutions and it collapses as societies that lack external enforcement grow large. This unique result is derived by unveiling the existence of a tacit enforcement assumption in the literature that explains the advantages from monetary exchange, and by integrating monetary theory with the theory of repeated games and social norms.

Institutions, The State, And Economic Development: An Analysis And Evaluation Of Ha-Joon Chang's Critique Of The Dominant Discourse And His Thoughts On State-Led Development Theory, Luke M. Jackson

Electronic Theses and Dissertations

This paper examines two distinct schools of thought on how to best spur economic activity in developing economies. Mainstream economists, like Hernando De Soto and Douglass North, argue private property rights and free markets, and the institutions which nourish and protect them, are the primary driver of economic growth. Heterodox economists, led by prominent author and economist Ha-Joon Chang, acknowledge institutions play an important role in inducing economic activity but challenge the notion institutions are the primary driver of development. They argue targeted state-led investment and regulation are as important, if not more important, than protecting market freedom and private …

Information Effects In Multi-Unit Dutch Auctions, Joy A. Buchanan, Steven Gjerstad, David Porter

ESI Working Papers

We design a multi-unit descending-price (Dutch) auction mechanism that has applications for resource allocation and pricing problems. We address specific auction design choices by theoretically and experimentally determining optimal information disclosure along two dimensions. Bidders are either informed of the number of bidders in the auction, or know that it is one of two possible sizes; they also either know the number of units remaining for sale or are unaware of how many units have been taken by other bidders. We find that revealing group size decreases bids, and therefore revenue, if units remaining are not shown. When group size …

Are Credit Unions In Ecuador Achieving Economies Of Scale?, Nick A. Marchio

Economics Honors Projects

This study tests the assertion that membership growth in credit unions is constrained by their unique structural features, such as their non-profit mission and member-based ownership. Although these features enhance inclusiveness, existing theory suggest that they work against efficiency when membership grows too diffuse. To address this issue, this study uses a model that takes into account existing theory on constrained-optimization in credit unions and theory on the adverse effects of diffuse ownership. Using data on 36 public credit unions in Ecuador, the empirical analysis finds evidence that credit unions can achieve economies of scale despite their problematic structural features. …