ALBERT

Description: The interactions between on-the-job search and finding a job through social contacts are investigated in a Diamond–Mortensen–Pissarides search model with heterogeneous wages. Workers may find a job through their social contacts and on the formal market. The presence of social contacts increases the overall welfare in society as it rises the number of workers earning high wages and decreases the unemployment rate. However, unemployed workers finding a job through social ties earn lower wages on average than those who obtain a job on the formal market. This result follows from on-the-job search: employed workers pass only those offers on to their neighbors that pay (weakly) lower wages than their current wages earned. Despite the wage discount, unemployed workers still might find it beneficial to search via social ties because arrival rate of offers is higher for this channel than for the formal market when the number of neighbors is sufficiently large. There is a trade-off between unemployment duration and wages earned for workers obtaining a job via social ties.

Description: This paper analyzes simple models of editorial control. Starting from the framework developed by Krishna and Morgan (2001a), we analyze two-sender models of cheap talk where one or more of the senders has the power to veto messages before they reach the receiver. A characterization of the most informative equilibria of such models is given. It is shown that editorial control never aids communication and that for small biases in the senders’ preferences relative to those of the receiver, necessary and sufficient conditions for information transmission to be adversely affected are (i) that the senders have opposed preferences relative to the receiver and (ii) that both senders have powers of editorial control. It is shown that the addition of further senders beyond two weakly decreases information transmission when senders exercising editorial control are anonymous, and weakly increases information transmission when senders exercising editorial control are observed.

Description: This paper studies how incentives are affected by intention-based reciprocity preferences when the principal hires many agents. Our results describe the set of agents’ sensitivities to reciprocity required to sustain a given strategy profile. We also show that hiring reciprocal agents to implement a first- or a second-best contract will always benefit the principal if the strategy profile is symmetric. Instead, when the profile (first or second best) is asymmetric the principal’s interest might be better served by self-interested agents. We conclude the paper by clarifying when symmetric profiles are most likely to arise.

Description: In this paper, we provide theoretical predictions on the long-run behavior of an adaptive decision maker with foregone payoff information. In the model, the decision maker assigns a subjective payoff assessment to each action based on his past experience and chooses the action that has the highest assessment. After receiving a payoff, the decision maker updates his assessments of actions in an adaptive manner, using not only the objective payoff information but also the foregone payoff information, which may be distorted. The distortion may arise from “the grass is always greener on the other side” effect, pessimism/optimism or envy/gloating; it depends on how the decision maker views the source of the information. We first provide conditions in which the assessment of each action converges, in that the limit assessment is expressed as an average of the expected objective payoff and the expected distorted payoff of the action. Then, we show that the decision maker chooses the optimal action most frequently in the long run if the expected distorted payoff of the action is greater than the ones of the other actions. We also provide conditions, under which this model coincides with the experience-weighted attraction learning, stochastic fictitious play and quantal response equilibrium models, and thus this model provides theoretical predictions for the models in decision problems.

Description: The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream product development and commercialization. We consider development technologies that entail spillovers between rivals and assume that final-demand products are imperfect substitutes. When pool formation facilitates information sharing and spillovers in development, then decreases in the degree of product differentiation can adversely affect welfare by reducing the incentives towards product development and product market competition – even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents.

Description: The timing of moves in conventional games is deterministic. To better capture the uncertainty of many real world situations, we postulate a stochastic timing framework. The players get a revision opportunity at a pre-specified time (common to them) with some known probability (different across them). The probabilistic revisions resemble the Calvo (1983) timing widely used in macroeconomics, and by nesting the standard simultaneous move game and Stackelberg leadership they can serve as a “dynamic commitment” device. The analysis shows how the revision time and probabilities affect the outcomes in games with multiple and/or inefficient equilibria. Unsurprisingly, we show in the Battle of the sexes that commitment – low revision probability relative to the opponent – improves the player’s chances to uniquely achieve his preferred outcome (i.e. to dominate). What may, however, seem surprising is that the less committed (higher revision probability) player may dominate the game under some circumstances (for which we derive the necessary and sufficient conditions). This is in contrast to the intuition of Stackelberg leadership where the more committed player (leader) always does so. The paper then applies the framework to the strategic interaction between monetary and fiscal policies in the aftermath of the Global financial crisis. It is modelled as the Game of chicken in which a double-dip recession and deflation can occur when both policies postpone stimulatory measures – attempting to induce the other policy to carry them out. In order to link our theoretic results to the real world, we develop new indices of monetary and fiscal policy leadership (pre-commitment) and quantify them using institutional characteristics of high-income countries. This exercise shows that the danger of the undesirable deflationary scenario caused by a monetary–fiscal policy deadlock may be high in some major economies.

Description: This study investigates spatial price discrimination with two types of market competition – price competition and quantity competition – and two kinds of cross-relations between goods – substitutes and complements – with endogenous location choices in a barbell model. The results herein present that the maximum differentiation (end point agglomeration) is the unique location equilibrium with substitutes (complements), irrespective of what type of competition. We demonstrate that if the unit transportation rate is sufficiently high, then consumer surplus, profits, and social welfare are higher under price competition than under quantity competition for both substitutes and complements. This means that introducing a spatial barrier to competition generated through transportation costs may solve the problem of inconsistency from the conflict interests between consumers, firms, and a social planner.

Description: To investigate how group-contingent non-pecuniary preferences are affected when one group occupies a position of higher status than another group, experimental participants were divided into two trivially distinct groups and then one of the groups was randomly assigned “high status.” Control sessions were also conducted in which no status distinction was introduced. In all sessions, participants subsequently played two games governed by distinct social norms: a trust game and a cheap talk game where lying was possible. In the control sessions, norm compliance was higher in same-group interactions, consistent with previous research demonstrating that normative obligations are often parochial. In treatment sessions, parochialism vanished and was replaced by noblesse oblige: members of high status groups exhibited more norm compliance in all of their interactions. Finally, in game roles not governed by an unambiguous social norm, identity had no direct impact on behavior. Considered together, the results suggest that the channel through which social identity directly impacts behavior is norm compliance and that the nature of this impact depends crucially on the relationship between involved groups.