Showing papers in "Journal of Economic Behavior and Organization in 2001"

Are women really the "fairer" sex? Corruption and women in government

Abstract: Numerous behavioral studies have found women to be more trust-worthy and public-spirited than men. These results suggest that women should be particularly effective in promoting honest government. Consistent with this hypothesis, we find that the greater the representation of women in parliament, the lower the level of corruption. We find this association in a large cross-section of countries; the result is robust to a wide range of specifications.

Relative-income effects on subjective well-being in the cross-section

Abstract: Recent work suggests that a person’s subjective well-being (SWB) depends to a large degree on relative-income. Focusing on the underlying identification, this paper makes four contributions to this literature: it describes the aggregation problem with past studies, implements an estimation strategy to overcome this problem, finds micro-level evidence in support of the hypothesis that relative-income does matter in individual assessments of SWB, and uses cross-section estimates to replicate the aggregate time-series. The evidence further indicates that relative-income effects may be smaller at low income levels. The results are obtained from ordered probit techniques and the general social survey (GSS).

Making Sense of Institutions as a Factor Shaping Economic Performance

Abstract: There has recently been a resurgence of interest in how institutions affect economic performance. A review of this literature reveals that the concept of an “institution” means different things to different scholars, both within economics and across the social sciences. We discuss what factors unify the different definitions of institutions, and develop a concept of institutions useful for the analysis of economic performance, and economic growth in particular. Specifically, we develop the notion of institutions as standard “social technologies”. Economic growth results from the co-evolution of physical and social technologies.

A random nth-price auction

Abstract: Second-price auctions are designed to induce people to reveal their private preferences for a good. Laboratory evidence suggests that while these auctions do a reasonable job on aggregate, they fall short at the individual level, especially for bidders who are off-margin of the market-clearing price. Herein we introduce and explore whether a random nth-price auction can engage all bidders to bid sincerely. Our results first show that the random nth-price auction can induce sincere bidding in theory and practice. We then compare the random nth-price to the second-price auction. We find that the second-price auction works better on-margin, and the random nth-price auction works better off-margin. © 2001 Elsevier Science B.V. All rights reserved.

Do lending relationships matter?: Evidence from bank survey data in Germany

Abstract: Strong lending relationships between banks and small and medium-sized enterprises (SMEs) play a key role in the bank-based financial system of Germany. So far, they have been mainly described by the notion of a housebank and transactional features of long-term bank–customer relationships. In contrast, the present paper also considers interactional variables, which try to measure social relations between loan officer and firm manager. Using bank survey data, the relationship and interaction variables prove to affect loan prices, collateral requirements and credit availability.

Fair and square: the four sides of distributive justice

Abstract: Recent theoretical progress on inequity has left unresolved the crucial question of what constitutes equity. This paper proposes a positive theory of distributive justice, in a framework of inequity aversion, that depends on three general justice principles and context. The current study challenges the view of many previous inquiries that justice is context-specific and instead advances a theory in which justice is context-dependent: context matters, not because of the lack of general principles of justice, but due to its effect on the interpretation of those principles. Results from telephone interviews and written questionnaires are presented in support of the theory.

Firm size and productivity differential: theory and evidence from a panel of US firms

Abstract: The US industrial sector displays heterogeneity among firms on the basis of their size: smaller firms exhibit a higher profit rate, lower survival probability and difficulty in accessing the capital market. A simple theoretical model that generates these features based on private information regarding managerial actions at firm-level production is developed and tested. Using a large panel of publicly traded US firms, parameters of the production technology for large and small firms are estimated for the 1970–1989 period. The empirical results indicate that small firms are significantly more productive but also more risky than their large counterparts. The estimation results imply that the notion of a tradeoff between flexibility and efficiency be adjusted for the dimension of risk. Small firms facing market uncertainties, capital constraints and other challenges undertake actions that make them more efficient than large firms but is achieved at the cost of increasing their riskiness.

Equilibrium selection in a nonlinear duopoly game with adaptive expectations

Abstract: We analyze a nonlinear discrete time Cournot duopoly game, where players have adaptive expectations. The evolution of expected outputs over time is generated by the iteration of a noninvertible two-dimensional map. The long-run behavior is characterized by multistability, that is, the presence of coexisting stable consistent beliefs, which correspond to Nash equilibria in the quantity space. Hence, a problem of equilibrium selection arises and the long run outcome strongly depends on the choice of the players’ initial beliefs. We analyze the basins of attraction and their qualitative changes as the model parameters vary. We illustrate that the basins might be nonconnected sets and reveal the mechanism which is responsible for this often-neglected kind of complexity. The analysis of the global bifurcations which cause qualitative changes in the topological structure of the basins is carried out by the method of critical curves.

Relative payoffs and happiness: an experimental study

Abstract: Some c urrent utility models presume that people a re c oncerned with their r elative standing in a reference group. If this is true, do certain types care more about this than others? Using simple binary decisions and self-reported h appiness, we investigate both the prevalence of “difference aversion” and whether happiness levels influence the taste for social comparisons. Our decision tasks distinguish b etween a person’s desire to achieving the social optimum, equality or advantageous relative standing. Most people appear to disregard relative payoffs, instead typically making choices resulting in higher social payoffs. While we do not find a strong general correlation between happiness and concern for relative payoffs, we do observe that a willingness to lower another person’s payoff below one’s own (competitive preferences) seems correlated with unhappiness.

Innovation and reciprocal externalities: information transmission via job mobility ☆

Abstract: The phenomenon of “job-hopping”, frequent in environments such as Silicon Valley, challenges firms’ ability to protect their proprietary information. This paper presents a two-period model of a competitive industry where workers may capitalize on information acquired on the job by migrating to rival firms. Equilibrium is characterized by levels of R&D investment and job mobility. Several intriguing results are specified. First, higher mobility generally corresponds to greater overall technological progress. Furthermore, the equilibrium rate of job mobility never exceeds the socially efficient rate. Finally, due to the existence of opposing external effects, an efficient outcome can be approximated despite apparent incentive problems. The paper suggests that contractual clauses intended to restrict mobility act as a double-edged sword. While helping firms protect research investments, they also prevent the exchange of workers when such exchanges are both individually and socially beneficial

Some doubts about measuring self-interest using dictator experiments: the costs of anonymity

Abstract: Traditionally, economists have assumed self-interest governs economic choices. Recently, some social scientists and economists, especially those working in game theoretic and experimental areas, have begun to treat self-interest as a testable hypothesis. One important vehicle for evaluating self-interest has been a class of experiments called ‘dictator’ experiments. We believe that these experiments may have a flaw in their design which leads researchers to overstate, systematically , the role of self-interest in individuals’ motivations. Double-blind experiments, designed to create conditions of privacy and anonymity, may engender doubts in subjects regarding the existence of pairings and the disposition of any money they share. Moreover, subjects may view the experiment as a game. We test these conjectures using both traditional and modified dictator experiments.

On sympathy and games

Abstract: Standard game theory turns a blind eye toward social interaction between the players in a game. Hence, a given game offers the same set of equilibria regardless of the identities of the players and the specifics of the social context. The predictive value of game theory is severely limited as a result. This paper provides a formal treatment of games set in a context of social interaction. Based on the original insights of Adam Smith and other political economists and social psychologists, the innate human quality of sympathy is examined. The effect of sympathy in a game may be to transform the payoffs and lead to quite different choices in a setting of face-to-face play, play among friends, and play after finding interpersonal similarities.

Equitable choices in bargaining games with joint production

Abstract: In an experiment, we investigate two simple bargaining games with advance production: the ultimatum game and a symmetric demand game After first choosing individual production levels, the two players determine how the“pie” is to be distributed We determine several equity standards and propose a behavioral model which generates testable predictions While game theory explains the observed decisions rather poorly, our behavioral model is supported by the data

Testing for non-linear structure in an artificial financial market

Abstract: We present a stochastic simulation model of a prototype financial market. Our market is populated by both noise traders and fundamentalist speculators. The dynamics covers switches in the prevailing mood among noise traders (optimistic or pessimistic) as well as switches of agents between the noise trader and fundamentalist group in response to observed differences in profits. The particular behavioral variant adopted by an agent also determines his decision to enter on the long or short side of the market. Short-run imbalances between demand and supply lead to price adjustments by a market maker or auctioneer in the usual Walrasian manner. Our interest in this paper is in exploring the behavior of the model when testing for the presence of chaos or non-linearity in the simulated data. As it turns out, attempts to determine the fractal dimension of the underlying process give unsatisfactory results in that we experience a lack of convergence of the estimate. Explicit tests for non-linearity and dependence (the BDS and Kaplan tests) also give very unstable results in that both acceptance and strong rejection of IIDness can be found in different realizations of our model. All in all, this behavior is very similar to experience collected with empirical data and our results may point towards an explanation of why robustness of inference in this area is low. However, when testing for dependence in second moments and estimating GARCH models, the results appear much more robust and the chosen GARCH specification closely resembles the typical outcome of empirical studies.

Do hostile mergers destroy jobs

Abstract: This paper provides a systematic empirical analysis of the employment effects of hostile takeovers in the United Kingdom for the period 1983–1996. It finds no evidence for distinguishing between friendly and hostile acquisitions in terms of their impact on labour demand. Indeed, each type of transaction appears to have an immediate negative impact on labour demand, equivalent to about 7.5 percent of the pre-merger level. However, the paper does find that the absolute number of employees falls substantially, along with output, in the hostilemerger case alone. This appears to be the consequence of a high level of post-merger divestment that distinguishes hostile transactions.

On the validity of utility statements: standard theory versus Duesenberry’s

Abstract: The two theories are evaluated relatively with respect to empirical adequacy. It is shown that utility statements derived within the standard approach cannot be related to experience. Contrary to what seems generally believed, revealed preference theory fails to make the widely accepted behavioristic utility concept ordinally measurable. It is argued that the concept of utility as subjective well-being (happiness or satisfaction) is not only theoretically superior, but also measurable from survey information with sufficient precision. If utility is understood as subjective well-being, the available data discredit the standard theory and fully support Duesenberry’s approach.

Design and Evaluation of an Economic Experiment via the Internet

Abstract: The paper investigates whether Internet experiments are an appropriate alternative to traditional laboratory experiments. For an economic experiment of individual decision making results obtained over the Internet are compared to results obtained in the laboratory using exactly the same software. Of particular interest are differences in individual behavior. Our main findings are: (1) running our own experiment on the Internet and in the laboratory generated similar data when economic decision behavior is concerned. (2) Variance in economic decision behavior is generally higher on the Internet experiment. (3) Decision times are shorter on the Internet. (4) Internet software provides a helpful platform for implementing economic experiments. The paper also reports on design challenges and how we have solved them.

Read This Paper Later: Procrastination with Time-Consistent Preferences

Abstract: A model of time-consistent procrastination is developed to assess the extent to which the observed behavior is compatible with rational behavior. When a finite work requirement must be completed by a deadline, the remaining time for leisure is an exhaustible resource. With a positive rate of time preference, the optimal allocation of this resource results in more hours spent working (and fewer in leisure) the closer the deadline. Key qualitative findings of psychological studies of academic procrastination are consistent with the standard natural resource management principles implied by the model, when suitably adapted to task aversiveness, uncertainty, and multiple deadlines. However, quantitatively, the fully rational model appears to require an extremely high rate of time preference or elasticity of intertemporal substitution to generate serious procrastination; furthermore, it cannot explain undesired procrastination.

The new institutional economics and the theory of the firm

Abstract: Concepts of importance in the literature of the New Institutional Economics, such as transaction costs and bounded rationality, have been used to extend the standard neoclassical model of the firm, but the hybrid models created have failed to provide adequate explanations of enterprise behavior. An alternative, “neoinstitutional,” model of the firm is developed in the paper that differs from the pure neoclassical model and hybrid models in respect to both the nature of the solution it yields and the process by which it reaches a solution. The neoinstitutional firm cannot be expected to achieve either the hypothetical allocative efficiency promised by the frictionless neoclassical model, or the relatively efficient (constrained Pareto optimal) solutions predicted by the largely frictionless hybrid models. The orthodox marginal rules of neoclassicism can only be used to solve lower-level problems that appear within the firm.

Agency costs, asset specificity, and the capital structure of the firm

Abstract: We develop a dynamic model that incorporates the insights of both the agency cost and asset specificity literature about corporate finance. In general, we find that neither can be ignored, and that the optimal capital structure minimizes agency cost and asset specificity considerations. A key finding is that the conditions most favorable for reducing transaction costs due to asset specificity are the same as those for reducing the agency costs of debt. Empirically, we find that agency costs and asset specificity are significant determinants of a firm’s capital structure in the transportation equipment and the printing and publishing industries.

Faculty Participation in University Governance and the Effects on University Performance

Abstract: This paper examines the relationship between faculty participation in university decision-making and university performance. Using an aggregated measure of faculty participation, McCormick and Meiners [The Journal of Law and Economics 31 (1989) 423] find that increased faculty control in decision-making is associated with lower levels of institutional performance. Building on the existing university governance literature, this paper argues that the optimal level of faculty participation varies by decision type. Disaggregating the data by faculty participation into different decision types produces results that are consistent with this hypothesis. Increased faculty participation may be good or bad; the effects vary by the type of decisions in which faculty participate.

Spot market mechanism design and competitivity issues in electric power

Abstract: The performance of a sealed bid-offer and an open display real time uniform price double auction in a three-node radial network and compared in terms of efficiency, price competitivity and the distribution of surplus over a demand cycle. We also compare three versus six independent generation companies who own the same aggregate portfolio assets. The environment provides a stressful market for wholesale buyers on-peak (the competitive price is above resale value) and for baseload generator units off-peak (the competitive price is less than cost). Three firms are as competitive as six under sealed bid-offer, but not the double auction.

A clue to the paradox of happiness.

Abstract: This paper presents evidence from the 1976 survey of Americans’ mental health that married altruists are more likely to report themselves very happy than people with other personality dispositions, if family income and family size are held constant. Altruistic husbands exhibit diminishing marginal utility from children, as do all wives, regardless of personality. Data on the allocation of time for child-care account for the gender and personality differences in happiness. It is hypothesized that the paradox of happiness in the US is attributable to a decline in the percentage of altruists in the population.

Herd behavior of Japanese economists

Abstract: This paper analyzes herding by Japanese macroeconomic forecasters. We find that Japanese forecasters herd together regardless of their age. In comparison, Lamont (1995) finds that older American forecasters stop herding.

Mode, size, and location of foreign direct investments and industry markups

Abstract: Several studies find that inward foreign direct investment (FDI) raises host industries’ competition and productivity using aggregate FDI measures: the monetary flows or the change in the industries’ foreign production share. Yet FDI flows are composed of many individual, heterogeneous investments. Reflecting this heterogeneity, I ask how the average traits of the individual investments that constitute the FDI flow further affect the host. While the results show that inward FDI does heighten competition for US manufacturing industries in 1987–1991, price–cost markups fall even more when foreign investments locate further away from incumbent industry, which is consistent with endogenous location choice.

The life-cycle of a microfinance institution: the Irish loan funds

Abstract: Ireland’s loan funds were a long-lived, self-sustaining, large-scale microfinance organization that made millions of loans, without collateral, to the poor. During the first 100 years of their life-cycle, a period of growth ending in the 1840s, they adapted constantly and obtained improvements to their legal structure because they were complementary to the banking system and seen as effective in relieving poverty. In their 2nd century, they became ossified, in part because of competition with commercial banks. The loan funds provide an example of sustainable microfinance under harsh economic conditions and illustrate how organizations change incrementally and, when successful, alter their institutional framework.

No return, no refund: an analysis of deposit-refund systems

Abstract: Firms and governments in developed economies frequently employ deposit-refund systems to promote return and reuse of product packages and containers. We analyze a model of monopoly facing heterogeneous consumers in which recycling (package return by consumers) generates an external benefit. It is shown that when consumer’s preferences over recycling differ, the monopolist can price discriminate between consumers leading to socially suboptimal recycling. In the absence of any externalities, the analysis can be viewed as a model of couponsor mail-in rebateswhich work as price-discrimination devices. The role of government subsidies and additional deposits to eliminate suboptimal recycling is also analyzed. Finally, the model is extended to incorporate hustling, i.e., allowing consumers to recycle packages discarded by other consumers. © 2001 Elsevier Science

A Keynesian macroeconometric framework for the analysis of monetary policy rules

Abstract: In the framework of a Keynesian based monetary macro model, we study the implications of targeting monetary aggregates or targeting the interest rate as two alternative monetary policy rules. Whereas the former targets the inflation rate indirectly, through the control of the money supply, the latter, also called the Taylor rule, implies direct inflation targeting. Our monetary macro model exhibits: asset market clearing, disequilibrium in the product and labor markets, sluggish price and quantity adjustments, two Phillips curves for the wage and price dynamics and expectations formation which represents a combination of adaptive and forward looking behavior. The parameters of different model variants are estimated partly through single equation and partly through subsystem estimations for US quarterly time series data 1960.1–1995.1. With the estimated parameters system simulations for the two monetary policy rules are performed. Although the two rules have slightly different stability properties, we show that discretionary monetary policy, i.e. policy that responds to the state of macro variables, has stabilizing effects. We also show that our model with either of the two rules generate in terms of impulse response functions roughly the same responses to shocks as one obtains from standard VAR studies.

An experimental test of a predator–prey model of appropriation

Abstract: Grossman and Kim’s [Predation and production. In: Garfinkel, M.R., Skaperdas, S. (Eds.), The Political Economy of Conflict and Appropriation. Cambridge University Press, New York, 1996, pp. 57–71] predator–prey model predicts that as the effectiveness of offense against defense increases, the equilibrium appropriation effort will change from zero to full to partial predation. We test the model experimentally over a sequence of eight decision periods. The data show a clear and substantial convergence to equilibrium outcomes, with most movement occurring in the first several periods.