We derive a necessary and sufficient condition for the existence of equilibria with only two active players in the all-pay auction with complete information and identity-dependent externalities. This condition shows that the generic equilibrium of the standard all-pay auction is robust to the introduction of "small" identity-dependent externalities. In general, however, the presence of identity-dependent externalities invalidates well-established qualitative results concerning the set of equilibria of the first-price all-pay auction with complete information. With identity-dependent externalities equilibria are generally not payoff equivalent, and identical players may earn different payoffs in equilibrium. These observations show that Siegel’s (2009) results characterizing the set of equilibrium payoffs in all-pay contests, including the all-pay auction as a special case, do not extend to environments with identity-dependent externalities. We further compare the all-pay auction with identity-dependent externalities to the first-price winner-pay auction with identity-dependent externalities. We demonstrate that the equilibrium payoffs of the all-pay auction and winner-pay auction cannot be ranked unambiguously in the presence of identity-dependent externalities by providing examples of environments where equilibrium payoffs in the all-pay auction dominate those in the winner-pay auction and vice versa.
This paper analyzes whether hosting the most prestigious European cultural event, the European Capital of Culture, has an impact on regional economic development or the life satisfaction of the local population. Concerning the economic impact, we show that European Capitals are hosted in regions with above average GDP per capita, but do not causally affect the economic development in a significant way. Even a positive impact on GDP per capita would not imply a positive impact on individual utility or social welfare of the regional population. Surprisingly, using difference-in-difference estimations, a negative effect on the well-being of the regional population is found during the event. Since no effect is found before the event, reverse causality and positive anticipation can be ruled out. The negative effect during the event might result from dissatisfaction with the high levels of public expenditure, transport disruptions, general overcrowding or an increase in housing prices.
We assess the role of financial linkages in the transmission of sovereign risk in the Euro Crisis. Building on the narrative approach by Romer and Romer (1989), we use
financial news to identify structural shocks in a vector autoregressive model of daily sovereign CDS premia for eleven European countries. To estimate how these shocks
transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that exposure to Greek sovereign debt and the debt of
Greek banks constitute important transmission channels. All else being equal, the transmission rate to the country with the greatest exposure to Greece (1.22 percent of GDP) has been roughly 46 percent higher than the rate to the country with the least exposure (0.08 percent of GDP).
This paper investigates empirically how similarity of demand structures - approximated by similarity of income distributions - affects trade patterns along both the extensive and intensive margin. The idea that similarity of demand structures intensifies trade goes back to the well-known Linder hypothesis. Based on a sample of 102 countries, I find that bilateral trade volumes are increasing in the overlap of two countries income distributions. This effect is driven by both the extensive and intensive margin. I establish two novel measures of income similarity - the average income level of the overlap area and the range of incomes for which two distributions overlap - and document that both are important determinants of bilateral trade margins. My analysis shows that the positive relationship between similarity of income distributions and bilateral trade margins is present at the aggregate and disaggregate level of trade flows.
We modify the provision point mechanism by introducing reward money, which is distributed among the contributors in proportion to their contributions only when the provision point is not reached. In equilibrium, the provision point is always reached as competition for reward money and preference for the public good induce sufficient contributions. In environments without aggregate uncertainty, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, there is a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems.
This paper describes and analyzes research on the dynamics of long-term care and suggests directions for the literature to make progress. We discuss sources and causes of dynamics including inertia/state dependence (confounded by unobserved heterogeneity); match-specific effects; and costs of changing caregivers. We comment on causes of dynamics including learning/human capital accumulation; burnout; and game-playing. We suggest how to deal with endogenous geography; dynamics in discrete and continuous choices; and equilibrium issues (multiple equilibria, dynamic equilibria). Next, we evaluate the advantages of different potential data sources (NLTCS, PSID, AHEAD/HRS, SHARE, ELSA) and identify first order data problems including noisy measures of wealth and family structure. We suggest some methods to handle econometric problems such as endogeneity (work, geography) and measurement error. Finally, we discuss potential policy implications of dynamics including the effect of dynamics on parameter estimates and direct policy implications of inertia (implications for family welfare, parent welfare, child welfare, and cost of government programs).
In this paper we analyze R&D collaboration networks in industries where firms are competitors in the product market. Firms’ benefits from collaborations arise by sharing knowledge about a cost-reducing technology. By forming collaborations, however, firms also change their own competitive position in the market as well as the overall market structure. We analyze incentives of firms to form R&D collaborations with other firms and the implications of these alliance decisions for the overall network structure. We provide a general characterization of both equilibrium networks and endogenous production choices, and compare it to the efficient network architecture. We also allow for firms to differ in their technological characteristics, investigate how this affects their propensity to collaborate and study the resulting network architecture.
Despite the social importance of awards, they have been largely disregarded by academic research in economics. This paper investigates whether a specific, yet important, award in economics, the John Bates Clark Medal, raises recipients’ subsequent research activity and status compared to a synthetic control group of nonrecipient scholars with similar previous research performance. We find evidence of positive incentive and status effects that raise both productivity and citation levels.
Many governments subsidize regional rail service as an alternative to road traffic. This paper assesses whether increases in service frequency reduce road traffic externalities. We exploit differences in service frequency growth by procurement mode following a railway reform in Germany to address endogeneity of service growth. Increases in service frequency reduce the number of severe road traffic accidents, carbon monoxide, nitrogen monoxide, nitrogen dioxide pollution and infant mortality. Placebo regressions with sulfur dioxide and ozone yield no effect. Service frequency growth between 1994 and 2004 improves environmental quality by an amount that is worth approximately 28-40 % of total subsidies. An analysis of household behavior shows that the effects of railway services on outcome variables are driven by substitution from road to rail.
