We introduce intention-based social preferences into mechanism design. We explore information structures that differ with respect to what is commonly known about the weight that agents attach to reciprocal kindness. When the designer has no information on reciprocity types, implementability of an incentive-compatible social choice function is guaranteed if it satisfies an additional insurance property. By contrast, precise information on reciprocity types may imply that all efficient social choice functions are implementable. We show how these results extend to a two-dimensional mechanism design setting where the agents have private information about their material payoff types and their reciprocity types. We also provide a systematic account of the welfare implications of intentionality.
Many statistical applications require an estimate of a covariance matrix and/or its inverse. Whenthe matrix dimension is large compared to the sample size, which happens frequently, the samplecovariance matrix is known to perform poorly and may suffer from ill-conditioning. There alreadyexists an extensive literature concerning improved estimators in such situations. In the absence offurther knowledge about the structure of the true covariance matrix, the most successful approachso far, arguably, has been shrinkage estimation. Shrinking the sample covariance matrix to amultiple of the identity, by taking a weighted average of the two, turns out to be equivalent tolinearly shrinking the sample eigenvalues to their grand mean, while retaining the sampleeigenvectors. Our paper extends this approach by considering nonlinear transformations of thesample eigenvalues. We show how to construct an estimator that is asymptotically equivalent toan oracle estimator suggested in previous work. As demonstrated in extensive Monte Carlosimulations, the resulting bona fide estimator can result in sizeable improvements over the samplecovariance matrix and also over linear shrinkage.
This article studies several attributes of a firm's long-run decisions about organizational structure, attributes that affect the firm's short-run innovative activity. We focus on flexibility, which lowers the future costs of implementing innovations, and research capabilities, which improve the future opportunities for innovation. We consider two dimensions of innovation: demand-enhancing (product) and cost-reducing (process). These two types of innovation are complementary in terms of increasing the firm's net revenue in the short run. The complementarities between the firm's short-run decision variables then lead to complementarities between its long-run decisions about product and process flexibility and research capabilities.
Rules on abuse of dominance are used to find a balance between three objectives: 1) ensuring enough competition between firms in order to force them to be efficient and to compete on merit, 2) allowing a certain degree of profitability so that companies have incentives to become more efficient, and 3) achieving an equal distribution of wealth and business opportunities among different sectors of society. While the discussion in developed countries focuses on the first two aspects in order to maximize innovation and growth, developing countries may also want to consider the third dimension and include the reduction of inequality and poverty as objectives of abuse of dominance laws. But even the relationship between the first two aspects tends to vary among regions, because investment depends on factors that differ between developing and developed countries. These factors sometimes contradict each other and it is crucial to find a sound balance between them. Firstly, since developing economies often have smaller markets and, therefore, a lower equilibrium number of firms that can exploit economies of scale and operate efficiently, markets in developing countries are more likely to be concentrated. Furthermore, entry barriers tend to be higher and capital markets are often less developed, which causes obstacles for firms trying to compete with a dominant company. Secondly, large firms play a different role regarding their investment activity in developing countries than they do in more developed economies. Established firms can be important for less developed economies to have a sufficiently high level of investment in production. In such countries, the benefits of increased investments may outweigh efficiency losses that can arise from a more lax treatment of dominant firm conduct. Thirdly, distributional aspects may be especially important for developing countries. Smaller firms, which often represent poorer sectors of society, may have to be given better chances to compete against large dominant companies. Competition law can be used for such public interest issues, but it is crucial that the law gives clear guidance on how these objectives should be balanced against other objectives such as efficiency. The comparison of the EU and the US regarding abuse of dominance shows that significant differences exist even among developed countries. One reason for the disparity is differing assumptions about what types of conduct are harmful and how difficult it is to differentiate them from other conduct. The 'access to market principle' of the EU arises from the assumption that restrictions of market access are harmful to the economy and that a harmful conduct can be distinguished from other, not harmful, conduct. On the other hand, the 'non-intervention principle' of the US is based on the assumption that the distinction of such conduct is difficult, that there is great danger of prohibiting behaviour that is efficient and that the unnecessary prohibition of efficient conduct is severe. One conclusion from the comparison is that these assumptions should be analysed and be grounded on the economic reality. How likely and severe errors of competition authorities are can, for example, be assessed in an analysis of past decisions and their effects on the economy. Support of developing countries' competition authorities in analysing their own cases and the impact of their decisions on the economy would therefore be valuable.
We used event-related potentials (ERPs) in a crossmodal stimulus-response compatibility paradigm to identify modality-independent aspects of rule processing and cued response facilitation. Participants responded to a lateralized target with the ipsilateral (compatible) or contralateral (incompatible) hand. Cue-target modality and cue-target order were manipulated. The cue preceded the target in half of the trials, and the target preceded the cue in the other half. For half of the participants, a visual cue signalled the response rule to an auditory target, while in other half, an auditory cue signalled the response rule to a visual target. Behavioural results showed a significant cue facilitation effect with response times faster for trials when the cue preceded the target, regardless of cue-target modality. The overall fastest response times were obtained in auditory cue-visual target trials. We performed groupwise independent component analysis of the cortical potentials and identified two modality-independent spatiotemporal patterns related to experimental effects. The first pattern, which resembled the early part of a contingent-negative waveform, was associated with response rule processing, regardless of cue-target presentation order and modality. The second pattern showed amplitude modulations that were dependent on stimulus modality. However, this pattern also correlated with faster response times only when the cue preceded the target and regardless of cue-target modality. Source analysis suggested that the response rule processing pattern originated from the posterior parietal, motor and cingulate regions. The pattern associated with the cue-first facilitation effect originated from cingulate and medial frontal regions. The effects carried by both patterns showed temporal overlap in the interval between the first and second stimulus presentation, but with differences in their relation to response rule processing and behavioural facilitation.
This chapter applies a comparative view to evaluate initiatives and referendums in the context of Constitutional change. Instruments of direct democratic decision making are compared to those of a purely representative democratic system in which members of parliament decide Constitutional issues like basic rights, the scope of democratic decision making and market exchange, the organization of government and the judiciary, and the federal structure of the country. Section 2 briefly describes aspects of direct democratic decision making that we deem critical from a Constitutional economics perspective. In particular, we hint to changes in the political process if citizens are directly involved through initiatives and referendums.
Decision-making can be broken down into several component processes: assigning values to stimuli under consideration, selecting an option by comparing those values, and initiating motor responses to obtain the reward. Although much is known about the neural encoding of stimulus values and motor commands, little is known about the mechanisms through which stimulus values are compared, and the resulting decision is transmitted to motor systems. We investigated this process using human fMRI in a task where choices were indicated using the left or right hand. We found evidence consistent with the hypothesis that value signals are computed in the ventral medial prefrontal cortex, they are passed to regions of dorsomedial prefrontal cortex and intraparietal sulcus, implementing a comparison process, and the output of the comparator regions modulates activity in motor cortex to implement the choice. These results describe the network through which stimulus values are transformed into actions during a simple choice task.
