Concerns for relative performance are integrated into a model of contractual renegotiation in bilateral trade. It is shown that concernsnfor relative performance do never impede efficient trade. Moreover, conditional on renegotiation to occur, concerns for relative performance tend to mitigate material rent expropriation. However, concerns for relative performance make the occurrence of renegotiation more likely, and may thereby lead to underinvestment even in very optimistic environments. The analysis suggests an explanation for the occurrence of the Druzhba pipeline conflictnbetween Russia and Belarus in January 2007.
In the course of history a large number of politicians has been assassinated. A rationalnchoice analysis is used to distinguish the expected marginal benefits of killing, and the marginal cost of attacking a politician. The comparative analysis of various equilibria helps us to gain insights into specific historical events.nThe analysis suggests that – in addition to well-known security measures – an extension of democracy, a rule by a committee of several politicians, more decentralization via the division of power and federalism, and a strengthening of civil society significantly reduce politicians’ probability of being attacked and killed.
This paper investigates the effectiveness of two instruments designed to defer termination in the centipede game: an insurance against termination by the opponent, and an option to offer the opponent a bonus for not terminating the game. The rational prediction in both cases is passing until close to the end. Empirically, however, only the bonus option is used by the subjects. The results indicate that subjects readily understand the strategic effect of the bonus, which, once offered, renders passing until close to the end the strictly dominant strategy for both players. Yet, they fail to realise the slightly more involved strategic signal entailed in the insurance, namely that passing until close to the end is a strictly dominant strategy for an insured player. In order to further investigate this effect, we propose a simple behavioural model based on level-k thinking and show that it is largely consistent with the data.
This paper argues that politicians are overprotected. The costs of politicalnassassination differ systematically depending on whether a private or a public point of view is taken. A politician attributes a very high (if not infinite) cost to his or her survival. The social cost of political assassination is much smaller as politicians are replaceable. Conversely, the private cost of the security measures is low fornpoliticians, its bulk – including time loss and inconvenience – is imposed on taxpayers and the general public. The extent of overprotection is larger in dictatorial than in democratic countries.
Economic research offers two traditional ways of analyzing decision making under risk. One option is to compare the goodness of fit of different decision theories using the samenmodel of stochastic choice. An alternative way is to vary models of stochastic choicencombining them with only one or two decision theories. This paper proposes to look at the bigger picture by comparing different combinations of decision theories and modelsnof stochastic choice. We select a menu of seven popular decision theories and embedneach theory in five models of stochastic choice including tremble, Fechner and randomnutility model. We find that the estimated parameters of decision theories differnsignificantly when theories are combined with different models. Depending on the selected model of stochastic choice we obtain different ranking of decision theories with regard to their goodness of fit to the data. The fit of all analyzed decision theories improves significantly when they are embedded in a Fechner model of heteroscedastic truncated errors (or random utility model in a dynamic decision problem).
This paper provides field experimental evidence on the prevalence and determinants ofndiscrimination and in-group favoritism in trust decisions. We observe choices of aboutn1,000 inhabitants of the city of Zurich who take part in a sequential trust game, in whichnfirst movers can condition their investments on the residential districts of second movers.nOur main results can be summarized as follows: First movers discriminate significantly in their investment choices, i.e., strangers receive different investments depending on thendistrict they live in. The systematics of the discrimination pattern is underlined by data from an additional newspaper study, where participants correctly guessed the outcome of the study. In terms of district characteristics two factors seem to be key for a district'snreputation: while expected trustworthiness of a district increases in the socio-economicnstatus it decreases in the degree of ethnic heterogeneity. Observed discrimination is notnjust based on mistaken stereotypes but can at least partly be classified as statistical discrimination. This can be inferred from the fact that, on a district level, both expected return on investment and actual investments are positively correlated with actual backntransfers. First movers correctly anticipate different levels of trustworthiness and discriminate accordingly. Furthermore, we provide evidence of in-group favoritism, i.e., peoplentrust strangers from their own district significantly more than strangers from other dis-ntricts. Finally, we discuss individual determinants of discrimination and in-group favoritism.
We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish goodnborrowers from bad ones, because borrowers may exogenously switch locations.nLenders, however, are also engaged in spatial competition, and lose market power by sharing information with close competitors. Our results suggest that more asymmetric information in the credit market increases information sharing behavior significantly. Stronger competition between lenders reduces information sharing, but its impact seems to be only of second order importance.
This paper documents a marked increase in international consumption risk sharing throughout the recent globalization period. Unlike earlier studies that have found it difficult to document a consistent effect of financial globalization on international consumption comovements, we make use of the information implicit in the relative levels of consumption and output to measure long-run risk sharing among OECD countries and US federal states.nWe derive our empirical setup from a deliberately simplistic model in which countries can trade perpetual claims to each other's output (Shiller securi-nties). Our framework allows us to distinguish between two channels of risk sharing: ex ante diversification that leads to income smoothing through cap-nital income flows and ex-post consumption smoothing through savings and dissavings. The model successfully replicates the patterns of income andnconsumption smoothing observed in both U.S. state-level and international data. The increase in international consumption risk sharing is closely associated with the decline in international portfolio home bias. While capital income flows remain relatively limited as a channel of risk sharing at businessncycle frequencies, we find that better international portfolio diversification has led to a considerable increase in capital income flows at medium and long horizons.
"Consider a society where all agents initially play ""fair"" and one agent invents a ""cheating"" strategy such as doping in sports. Whichnfactors determine the success of the new cheating strategy? In order to study this question we consider an evolutionary game with local information. Three factors determine the imitation dynamics of thenmodel: the location and the type of the innovator, the distribution of types, and the information available to the agents. In particular wenfind that the economy is more likely to end up in a state where all agents cheat if the innovator is of low type or when the agents arenmaximally segregated."
Applying stochastic frontier analysis, we estimate the importance of sports in society as technical efficiency of countries in the production ofnOlympic success since the 1950s. Our measures of success are medal shares and a broader concept including Olympic diplomas. Following Bernard andnBusse (2004), population and GDP are used as inputs. While the impact of GDP is always positive, we show that the sign of the population effect depends on wealth and population size of a country.nThe results show that the spread of importance is very wide over time, across countries, gender, and sports. These differences can be seen asncaused by differences in financial support, training methods, organization, or culture. Using the method proposed by Battese and Coelli (1995), we confirm the result well documented in the literature that planned economies and host countries are more successful than others in terms of Olympic successn(e.g. Bernard and Busse, 2004). The method allows to shed light on important aspects of recent sport history, such as the consequences of thenbreakdown of the former Soviet Union.
