infonet-economy

We consider a regulator's choice between environmentally motivated emissions taxes and output taxes. We investigate how the optimal instrument depends on the monitoring cost function, the firm's technology, and on social preferences regarding output and environmental quality. Pure emissions taxes are usually not optimal with monitoring costs. Pure output taxes are optimal under sufficiently high monitoring costs, sufficiently limited options for emission reduction by means other than output reduction, and sufficiently high substitutability of the output. Finally, conditions for the optimality of mixed taxes are given.

Auctions are generally not efficient when the object’s expected value depends on
private and common value information. We report a series of first-price auction
experiments to measure the degree of inefficiency that occurs with financially
motivated bidders. While some subjects fall prey to the winner’s curse, they
weigh their private and common value information in roughly the same manner
as rational bidders, with observed efficiencies close to predicted levels. Increased
competition and reduced uncertainty about the common value positively
affect revenues and efficiency. The public release of information about the
common value also raises efficiency, although less than predicted.

A quantal response specifies choice probabilities that are smooth, increasing functions of expected payoffs. A quantal response equilibrium has the property that the choice distributions match the belief distributions used to calculate expected payoffs. This stochastic generalization of the Nash equilibrium provides strong empirical restrictions that are generally consistent with data from laboratory experiments with human subjects. We define the concept of regular quantal response equilibrium and discuss several applications from the recent literature.

Ending violent international conflicts requires understanding the causal factors that perpetuate them. In the Israeli–Palestinian conflict, Israelis and Palestinians each tend to see themselves as victims, engaging in violence only in response to attacks initiated by a fundamentally and implacably violent foe bent on their destruction. Econometric techniques allow us to empirically test the degree to which violence on each side occurs in response to aggression by the other side. Prior studies using these methods have argued that Israel reacts strongly to attacks by Palestinians, whereas Palestinian violence is random (i.e., not predicted by prior Israeli attacks). Here we replicate prior findings that Israeli killings of Palestinians increase after Palestinian killings of Israelis, but crucially show further that when nonlethal forms of violence are considered, and when a larger dataset is used, Palestinian violence also reveals a pattern of retaliation: (i) the firing of Palestinian rockets increases sharply after Israelis kill Palestinians, and (ii) the probability (although not the number) of killings of Israelis by Palestinians increases after killings of Palestinians by Israel. These findings suggest that Israeli military actions against Palestinians lead to escalation rather than incapacitation. Further, they refute the view that Palestinians are uncontingently violent, showing instead that a significant proportion of Palestinian violence occurs in response to Israeli behavior. Well-established cognitive biases may lead participants on each side of the conflict to underappreciate the degree to which the other side's violence is retaliatory, and hence to systematically underestimate their own role in perpetuating the conflict.

The aim of the present paper is to assess the effects of altered dopamine (DA) transmission on the functional connectivity among brain regions mediating aversive conditioning in humans. To this aim, we analyzed a previous published data set from a double-blind design combined with functional magnetic resonance imaging (fMRI) recordings in which healthy volunteers were randomly assigned to one of three drug groups: amphetamine (an indirect DA agonist), haloperidol (DA D2 receptor antagonist), and placebo. Participants were exposed to an aversive classical conditioning paradigm using cutaneous electrical stimulation as the unconditioned stimulus (US), and visual cues as the conditioned stimuli (CS) where one colour (CS+) was followed by the US in 33% of the trials and another colour (CS-) had no consequences. All participants reported awareness of stimulus contingencies. Group analysis of fMRI data revealed that the left ventral striatum (VS) and amygdala activated in response to the CS+ in all the three groups. Because of their activation patterns and documented involvement in aversive conditioning, both regions were used as seeds in the functional connectivity analysis. To constrain the functional networks obtained to relate to the conditioned response, we also correlated seed activity with the Galvanic Skin Response (GSR). In the placebo group, the right ventral tegmental area/substantia nigra (VTA/SN), bilateral caudate, right parahippocampal gyrus, left inferior parietal lobule (IPL), bilateral postcentral gyrus, bilateral middle frontal (BA 46), orbitofrontal, and ventromedial prefrontal cortices (PFC, BA 10/11) correlated with the VS and amygdala seeds in response to the CS+ compared to the CS-. Enhancing dopamine transmission via amphetamine was associated with reduced task differences and significant functional connectivity for both CS+ and CS- conditions between the left VS seed and regions modulated by DA, such as the left VTA/SN, right caudate, left amygdala, left middle frontal gyrus (BA 46), and bilateral ventromedial PFC (BA 10). Blocking dopamine transmission via haloperidol was associated with significant functional connectivity across an alternate network of regions including the left amygdala seed and the right insula, the left ACC (BA 24/32), bilateral IPL (BA 40), precuneus (BA 7), post-central gyrus, middle frontal gyrus (BA 46), and supplementary motor area (SMA, BA 6) to the CS+ versus the CS-. These data provide insight into the distinct effects of DA agents on the functional connectivity between striatal, limbic, and prefrontal areas.

Adaptive behavior often exploits generalizations from past experience by applying them judiciously in new situations. This requires a means of quantifying the relative importance of prior experience and current information, so they can be balanced optimally. In this study, we ask whether the brain generalizes in an optimal way. Specifically, we used Bayesian learning theory and fMRI to test whether neuronal responses reflect context-sensitive changes in ambiguity or uncertainty about experience-dependent beliefs. We found that the hippocampus expresses clear ambiguity-dependent responses that are associated with an augmented rate of learning. These findings suggest candidate neuronal systems that may be involved in aberrations of generalization, such as over-confidence.

Any occasional changes in the acoustic environment are of potential importance for survival. In humans, the preattentive detection of such changes generates the mismatch negativity (MMN) component of event-related brain potentials. MMN is elicited to rare changes ('deviants') in a series of otherwise regularly repeating stimuli ('standards'). Deviant stimuli are detected on the basis of a neural comparison process between the input from the current stimulus and the sensory memory trace of the standard stimuli. It is, however, unclear to what extent animals show a similar comparison process in response to auditory changes. To resolve this issue, epidural potentials were recorded above the primary auditory cortex of urethane-anesthetized rats. In an oddball condition, tone frequency was used to differentiate deviants interspersed randomly among a standard tone. Mismatch responses were observed at 60-100 ms after stimulus onset for frequency increases of 5% and 12.5% but not for similarly descending deviants. The response diminished when the silent inter-stimulus interval was increased from 375 ms to 600 ms for +5% deviants and from 600 ms to 1000 ms for +12.5% deviants. In comparison to the oddball condition the response also diminished in a control condition in which no repetitive standards were presented (equiprobable condition). These findings suggest that the rat mismatch response is similar to the human MMN and indicate that anesthetized rats provide a valuable model for studies of central auditory processing.