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  • 1
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    Zurich: University of Zurich, Department of Economics
    Publication Date: 2018-06-28
    Description: Charness and Dufwenberg (American Economic Review, June 2011, 1211-1237) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their finding and check its robustness by introducing competition between agents. We find that communication and competition act as substitutes: communication raises efficiency in the absence of competition but lowers efficiency with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.
    Keywords: C92 ; ddc:330 ; cheap talk ; adverse selection ; competition ; guilt aversion ; lie aversion ; inequality aversion ; reciprocity ; Asymmetrische Information ; Kommunikation ; Adverse Selektion ; Prinzipal-Agent-Theorie ; Verhaltensökonomik ; Spieltheorie ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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  • 2
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    Zurich: University of Zurich, Department of Economics
    Publication Date: 2018-06-28
    Description: We use laboratory experiments to test for one of the foundations of the rational voter paradigm - that voters respond to probabilities of being pivotal. We exploit a setup that entails stark theoretical effects of information concerning the preference distribution (as revealed through polls) on costly participation decisions. The data reveal several insights. First, voting propensity increases systematically with subjects' predictions of their preferred alternative's advantage. Consequently, pre-election polls do not exhibit the detrimental welfare effects that extant theoretical work predicts. They lead to more participation by the expected majority and generate more landslide elections. Finally, we investigate subjects' behavior in polls and identify when Bandwagon and Underdog Effects arise.
    Keywords: C92 ; D02 ; D72 ; ddc:330 ; Collective Choice ; Polls ; Strategic Voting ; Wahlverhalten ; Neue politische Ökonomie ; Test ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 3
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    Bonn: Institute for the Study of Labor (IZA)
    Publication Date: 2015-05-22
    Description: This paper reports the results of a laboratory experiment on network formation among heterogeneous agents. The experimental design extends the basic Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. We consider treatments where agents' types are common knowledge and treatments where agents' types are private information. In all treatments, the (efficient) equilibrium network has a star structure. We find that with homogeneous agents, equilibrium predictions fail completely. In contrast, with heterogeneous agents stars frequently occur, often with the high-value or low-cost agent in the center. Stars are not borne but rather develop: in treatments with a high-value agent, the network's centrality, stability, and efficiency all increase over time. Our results suggest that agents' heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.
    Keywords: C72 ; C91 ; C92 ; D01 ; D85 ; ddc:330 ; network formation ; stars ; heterogeneity ; laboratory experiments ; Netzwerk ; Soziales Netzwerk ; Test ; Asymmetrische Information ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 4
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    Amsterdam and Rotterdam: Tinbergen Institute
    Publication Date: 2016-04-21
    Description: 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.
    Keywords: ddc:330 ; Auktionstheorie ; Informationseffizienz ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 5
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    Amsterdam and Rotterdam: Tinbergen Institute
    Publication Date: 2016-04-21
    Description: The objects for sale in most auctions possess both private and common value elements. This salient feature has not yet been incorporated into a strategic analysis of equilibrium bidding behaviour. This paper reports such an analysis for a stylised model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value has a negative effect on efficiency. Information provided by the seller decreases uncertainty, which raises efficiency and seller's revenues. Efficiency and revenues are also higher when more bidders enter the auction.
    Keywords: C72 ; D44 ; ddc:330 ; Auctions ; inefficiencies ; information disclosure ; competition ; Auktionstheorie ; Informationsökonomik ; Wettbewerb ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 6
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    Milano: Fondazione Eni Enrico Mattei (FEEM)
    Publication Date: 2018-11-15
    Description: This paper reports results from a laboratory experiment on network formation among heterogeneous agents. The experimental design extends the Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. Furthermore, agents’ types may be common knowledge or private information. In all treatments, the (efficient) equilibrium network has a “star” structure. With homogeneous agents, equilibrium predictions fail completely. In contrast, with heterogeneous agents stars frequently occur, often with the high-value or low-cost agent in the center. Stars are not born but rather develop: with a high-value agent, the network’s centrality, stability, and efficiency all increase over time. Probit estimations based on best-response behaviour and other-regarding preferences are used to analyze individual linking behavior. Our results suggest that heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.
    Keywords: C72 ; C92 ; D82 ; D85 ; ddc:330 ; Network Formation ; Experiment ; Heterogeneity ; Private Information ; Netzwerk ; Soziales Netzwerk ; Test ; Asymmetrische Information ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 7
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    Zurich: University of Zurich, Department of Economics
    Publication Date: 2018-06-28
    Description: We employ laboratory methods to study stability of competitive equilibrium in Scarf's economy (International Economic Review, 1960). Tatonnement theory predicts that prices are globally unstable for this economy, i.e. unless prices start at the competitive equilibrium they oscillate without converging. Anderson et al. (Journal of Economic Theory, 2004) report that in laboratory double auction markets, prices in the Scarf economy do indeed oscillate with no clear sign of convergence. We replicate their experiments and confirm that tatonnement theory predicts the direction of price changes remarkably well. Prices are globally unstable with adverse effects for the economy's efficiency and the equitable distribution of the gains from trade. We also introduce a novel market mechanism where participants submit demand schedules and prices are computed using Smale's global Newtonian dynamic (American Economic Review, 1976). We show that for the Scarf economy, submitting a competitive schedule, i.e. a set of quantities that maximize utility taking prices as given, is a weakly dominant strategy. The resulting outcome corresponds to the unique competitive equilibrium of the Scarf economy. In experiments that employ the schedule market, prices do not oscillate but instead converge quickly to the competitive equilibrium. Besides stabilizing prices, the schedule market is more efficient and results in highly egalitarian outcomes.
    Keywords: C92 ; D50 ; ddc:330 ; scarf economy ; tatonnement ; global Newtonian dynamic ; instability ; general equilibrium ; market design ; Tauschwirtschaft ; Marktmechanismus ; Allgemeines Gleichgewicht ; Gleichgewichtsstabilität ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 8
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    Zurich: University of Zurich, Department of Economics
    Publication Date: 2018-06-28
    Description: An important result in convex analysis is the duality between a closed convex set and its support function. We exploit this duality to develop a novel geometric approach to mechanism design. For a general class of social choice problems we characterize the feasible set, which is closed and convex, and its support function. We next provide a geometric interpretation of incentive compatibility and refine the support function to include incentive constraints using arguments from majorization theory. The optimal mechanism can subsequently be derived from the support function using Hotelling's lemma. We first assume that values are linear in types and types are independent, private, and one-dimensional. For this environment we provide a simple geometric proof that Bayesian and dominant strategy implementation are equivalent by showing that the feasible sets that remain after imposing either type of incentive constraints coincide. Furthermore, we derive the optimal mechanism for any social choice problem and any linear objective, including revenue and surplus maximization. As an illustration, we determine the optimal multi-unit auction for a class of value functions that exhibit decreasing marginal valuations. Other types of constraints, such as capacity constraints and budget balancedness, can be interpreted geometrically as well, which facilitates a unified approach to a range of social choice problems, including auctions, bargaining, and public goods provision. We discuss how our geometric approach extends to environments with value interdependencies, non-linear valuations, and correlated or multi-dimensional types. Specifically, we illustrate that with interdependent valuations the equivalence between Bayesian and dominant strategy implementation breaks down, and our approach naturally produces the second-best outcomes for both types of incentive constraints.
    Keywords: D44 ; ddc:330 ; convex sets ; support functions ; majorization ; Hotelling's lemma ; mechanism design ; revenue equivalence ; BIC-DIC equivalence ; multi-unit auctions ; bargaining ; public goods provision ; capacity constraints ; budget balance ; interdependent values ; second best efficiency ; Mechanismus-Design-Theorie ; Öffentliche Güter ; Allokation ; Verhandlungstheorie ; Bayes-Statistik ; Neue politische Ökonomie ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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  • 9
    Publication Date: 2018-06-28
    Description: We consider a standard social choice environment with linear utilities and independent, one-dimensional, private values. We provide a short and constructive proof that for any Bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents. We demonstrate the usefulness and applicability of our approach with several examples. Finally, we show that the equivalence between Bayesian and dominant strategy implementation breaks down when utilities are non-linear or when values are interdependent, multi-dimensional, or correlated.
    Keywords: ddc:330 ; Abstimmungsregel ; Bayes-Statistik ; Mechanismus-Design-Theorie ; Neue politische Ökonomie ; Theorie
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
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