Showing papers by "Barry Nalebuff published in 1987"

Credible pretrial negotiation

Abstract: Pretrial negotiation is a structured environment in which to study bargaining with incomplete information. When a plaintiff believes that a defendant owes him damages, he may first attempt to reach a private settlement before resorting to a costly court-imposed judgment. A central issue in their negotiations is whether the plaintiff's threat to litigate is credible. It is possible for the plaintiff to undermine the credibility of his litigation threat by making a settlement demand that is insufficient. As a result, the plaintiff must raise his settlement demand to limit the amount of bad news he can learn if his offer is rejected. When this credibility constraint is binding, traditional comparative static results are reversed. In addition, even though the defendant is being sued, he wants the plaintiff's threat to be credible.

Testing in Models of Asymmetric Information

Abstract: This paper explores the role of testing in models of asymmetric information. We demonstrate conditions under which testing for underlying characteristics can overcome adverse selection problems and lead to a full-information competitive equilibrium. This paper provides a more general statement of Mirrlees result on the optimal use of infinite fines. Where testing cannot fully resolve the problems associated with asymmetric information, we outline the source of the difficulties. Our results, developed in the context of a labour market, can be directly extended to other environments. In problems with asymmetric information, testing to discover an agent's chosen action or underlying characteristics may significantly reduce the cost of moral hazard and adverse selection.

Puzzles: Choose a Curtain, Duel-ity, Two Point Conversions, and More

Abstract: In presenting economic puzzles, I have three goals in mind: some puzzles are chosen to stimulate research; others offer examples that will help undergraduate and graduate teaching; all should provide quality distractions during seminars. As usual, this feature begins with several speed puzzles, with answers provided at the end of the problems. Following are several longer puzzles, for which readers are challenged to submit their own answers. The responses will be discussed in a future issue.

Noisy Prisoners, Manhattan Locations, and More

Abstract: Each “Puzzles” will begin with a few speed problems These puzzles have answers provided in the same issue Puzzles 1 and 2 will give you a chance to get up to speed Then, we continue wit

Issues in the application of cost-benefit analysis to energy projects in developing countries*

Abstract: THE THEORY behind cost-benefit analysis is relatively well developed [see Little and Mirrlees (1968), (1974); Dasgupta, Marglin and Sen (1972); Mason and Merton (1984)], but its application to real world problems is not always easy. This paper considers the application of cost-benefit analysis to energy problems in oil-importing developing countries (OIDCs). The results are divided into four parts: Section 2 presents a methodology for handling uncertainty; Section 3 studies the implications of exhaustibility; Section 4 examines the externalities associated with exploration; Section 5 applies these tools in an analysis of the costs associated with importing oil. In Section 2 we begin with a discussion of the theoretical issues involved in cost-benefit analysis in the presence of uncertainty. Problems arise when there are conflicting estimates of a project's chance of success. The analysis must consider how the range of possible outcomes affects both the total risk borne in the economy and the income distribution. Uncertain future returns have to be appropriately discounted to the present. Projects which deplete exhaustible resources are irreversible and therefore the cost-benefit analysis must take into account the value of current reserves. In Section 3 Hotelling's rule is presented as the starting point for forming expectations about the price path of oil and other exhaustible energy resources. All project appraisals for programs ranging from new energy development to conservation or stockpiling are strongly influenced by the expected future price of energy, and oil in particular. Energy prices today and in the future depend on estimates of total world hydrocarbon reserves, their extraction costs, and the predicted availability of backstop technologies. Uncertainty about future reserves leads to variability in supplies and price, and causes an inefficiency in the intertemporal allocation of oil; depletion takes place more slowly in order to maintain flexibility in the event of worse-case scenarios. The gains from developing new energy supplies (and conservation) include lower prices, reduced vulnerability, and

Issues in the Application of Cost-Benefit Analysis to

Abstract: This paper develops a theoretical framework to evaluate the benefits and costs of energy projects in oil-importing developing countries. This is used to address various questions: How should the problems of energy dependency and vulnerability be reflected in a project appraisal? Are there externalities not captured in the market price of the resource? Should royalty values be included in cost-benefit calculations? Why do the real prices of exhaustible resources rise over time? Should several energy-development projects be done simultaneously? What are the true costs of stock piling oil? Is there a need for coordinating information gathering and project diversification across countries? Copyright 1987 by Royal Economic Society.