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2020

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Articles 1 - 19 of 19

Full-Text Articles in Other Economics

Identity Politics, Clientelism, And Public Goods Provision: Theory And Evidence, Rohit Ticku, Raghul S. Venkatesh Apr 2020

Identity Politics, Clientelism, And Public Goods Provision: Theory And Evidence, Rohit Ticku, Raghul S. Venkatesh

ESI Working Papers

We study how identity politics determines clientelism and provision of public goods in representative democracies. Parties cultivate vote banks—a group of voters who vote along identity lines — in exchange for clientelistic transfers, and provide public goods to nonpartisan voters. There is ex-post identity formation among non-partisans that depends on the party in power. This generates an asymmetry in ex-post conflict payoff for the majority identity. The main theoretical result proposes a new mechanism for clientelism and rent seeking that is driven by identity politics. We further show that asymmetry in identity payoffs i) increases investment in conflict when the ...


The Classical Theory Of Supply And Demand, Sabiou M. Inoua, Vernon L. Smith Mar 2020

The Classical Theory Of Supply And Demand, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

This paper introduces and formalizes the classical view on supply and demand, which, we argue, has an integrity independent and distinct from the neoclassical theory. Demand and supply, before the marginal rev-olution, are defined not by an unobservable criterion such as a utility func-tion, but by an observable monetary variable, the reservation price: the buyer’s (maximum) willingness to pay (WTP) value (a potential price) and the seller’s (minimum) willingness to accept (WTA) value (a potential price) at the marketplace. Market demand and supply are the cumulative distri-bution of the buyers’ and sellers’ reservation prices, respectively. This WTP-WTA classical ...


Let’S Chat... When Communication Promotes Efficiency In Experimental Asset Markets, Brice Corgnet, Mark Desantis, David Porter Mar 2020

Let’S Chat... When Communication Promotes Efficiency In Experimental Asset Markets, Brice Corgnet, Mark Desantis, David Porter

ESI Working Papers

The growing prevalence of stock market chat rooms and social media suggests communication between traders may affect market outcomes. Using data from a series of laboratory experiments, we study the causal effect of trader communication on the price efficiency of markets. We show that communication allows markets to convey private information more effectively. This effect is most pronounced when the communication platform publicizes a reputation score that might identify a person as not being truthful. This illustrates the need for market designers to consider social interactions when designing market institutions to leverage the social motives that foster information aggregation.


The Law And Economics Of Risk Regulation, Cary Coglianese Feb 2020

The Law And Economics Of Risk Regulation, Cary Coglianese

Faculty Scholarship at Penn Law

Law plays a central role in the management of risk in society. The rules adopted by regulatory agencies now affect nearly every facet of the economy, and as such regulation has motivated a substantial body of academic research. Law and economics research on regulation has, first, demonstrated the normative justification for governmental intervention in the marketplace based on the concept of market failure. Second, political economy research on regulation has shown how, as a positive matter, interest groups, political movements, and public pressure affect the stringency of such regulation, sometimes more than any normative rationale for regulation. Third, risk regulation ...


An Empirical Study Of The Sentiment Capital Asset Pricing Model, Soroush Ghazi, Mark Schneider Feb 2020

An Empirical Study Of The Sentiment Capital Asset Pricing Model, Soroush Ghazi, Mark Schneider

ESI Working Papers

What is market sentiment? This paper takes a new approach to this question and de- rives a formula for market sentiment as a function of the risk-free rate, the price/dividend ratio, and the conditional stock market volatility. The formula is derived from a representative agent with a prospect theory probability weighting function. We estimate the model and find that our sentiment measure correlates positively with the leading sentiment indexes. The model matches the equity premium while generating a low and stable risk-free rate with low risk aversion. We also apply the model to explain other anomalies for the aggregate ...


Categorical Salience Theory, Mark Schneider, Cary Deck, Patrick Dejarnette Feb 2020

Categorical Salience Theory, Mark Schneider, Cary Deck, Patrick Dejarnette

ESI Working Papers

Monetary lotteries are the overwhelmingly predominant tool for understanding decisions under risk. However, many real-world decisions concern multidimensional out- comes involving different goods. Recent studies have tested whether people treat multidimensional risky choices in the same manner as unidimensional monetary lotteries and found that choices over consumer goods are less risk-averse and more consistent with expected utility theory than choices over monetary lotteries. While these puzzling results cannot be explained by any standard model of decision making, we demonstrate that these findings are predicted by a salience-based model of category-dependent preferences that also explains the classic anomalies for choices under ...


A Capital Asset Pricing Model With Market Sentiment, Mark Schneider, Manuel A. Nunez Feb 2020

A Capital Asset Pricing Model With Market Sentiment, Mark Schneider, Manuel A. Nunez

ESI Working Papers

We derive a capital asset pricing model with market sentiment from a representative agent that exhibits two basic behavioral biases – ambiguity aversion and positive skewness preference. The asset pricing formula generalizes the classical CAPM by accounting for model uncertainty, positive skewness, disaster risk, and market sentiment, thereby linking four strands of the literature. We apply the Market Sentiment CAPM to provide a unified explanation for the beta anomaly and three other market anomalies, and to predict how they are affected by sentiment. The Market Sentiment CAPM provides a theoretical foundation for the pricing of sentiment in the cross-section of returns.


Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González Feb 2020

Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González

ESI Working Papers

We study several solutions to shirking in teams that trigger social incentives by reshaping the workplace social context. Using an experimental design, we manipulate social pressure at work by varying the type of workplace monitoring and the extent to which employees engage in social interaction. This design allows us to assess the effectiveness as well as the popularity of each solution. Despite similar effectiveness in boosting productivity across solutions, only organizational systems involving social interaction (via chat) were at least as popular as a baseline treatment. This suggests that any solution based on promoting social interaction is more likely to ...


Adam Smith’S Theory Of Value: A Mathematical Statement Of His Market Price Discovery Process, Sabiou M. Inoua, Vernon L. Smith Feb 2020

Adam Smith’S Theory Of Value: A Mathematical Statement Of His Market Price Discovery Process, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

The relevance of Adam Smith for understanding human morality and sociality is generally accepted; witness the growing interest that his work is stimulating among scholars of various academic backgrounds (philosophers, political theorists, sociologists, economists). But, paradoxically, Adam Smith’s theory of economic value enjoys a less prominent stature today among economists, who, while they view him as the ‘father of modern economics’, considered him more as having had the right intuitions about a market economy than as having developed the right concepts and the technical tools for studying it. Yet the neoclassical tradition failed to provide a satisfactory theory of ...


Working Too Much For Too Little: Stochastic Rewards Cause Work Addiction, Brice Corgnet, Simon Gaechter, Roberto Hernán González Feb 2020

Working Too Much For Too Little: Stochastic Rewards Cause Work Addiction, Brice Corgnet, Simon Gaechter, Roberto Hernán González

ESI Working Papers

People are generally assumed to shy away from activities generating stochastic rewards, thus re-quiring extra compensation for handling any additional risk. In contrast with this view, neurosci-ence research with animals has shown that stochastic rewards may act as a powerful motivator. Applying these ideas to the study of work addiction in humans, and using a new experimental paradigm, we demonstrate how stochastic rewards may lead people to continue working on a re-petitive and effortful task even after monetary compensation becomes saliently negligible. In line with our hypotheses, we show that persistence on the work task is especially pronounced when the ...


News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua Jan 2020

News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua

ESI Publications

Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account for these regularities, notably agent-based models, which mimic the two empirical laws through a complex mix of nonlinear mechanisms such as traders switching between trading strategies in highly nonlinear way. This paper explains the two regularities simply in terms of traders’ attitudes towards news, an explanation that follows from the very traditional dichotomy of financial market participants ...


Comovement And Instability In Cryptocurrency Markets, Pierangelo De Pace, Jayant Rao Jan 2020

Comovement And Instability In Cryptocurrency Markets, Pierangelo De Pace, Jayant Rao

Pomona Economics

We analyze the correlations of daily price returns for nine major cryptocurrencies between April 2013 and November 2018 and estimate their evolution using bivariate and multivariate modelling approaches. We detect pronounced time variation and fid these correlations to be generally increasing between early 2017 and late 2018. We then adopt a right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior (statistical instability) in the time series of the Network Value to Transactions (NVT) ratio (a measure of the dollar value of cryptocurrency transaction activity relative to its network value) of six ...


Principles Of Microeconomics, Ernesto Garcia Iii Jan 2020

Principles Of Microeconomics, Ernesto Garcia Iii

Open Educational Resources

No abstract provided.


Citizen-Consumers Wanted: Revitalizing The American Dream In The Face Of Economic Recessions, 1981-2012, Gokcen Coskuner-Balli Jan 2020

Citizen-Consumers Wanted: Revitalizing The American Dream In The Face Of Economic Recessions, 1981-2012, Gokcen Coskuner-Balli

Business Faculty Articles and Research

This article brings sociological theory of governmentality to bear on a longitudinal analysis of American presidential speeches to theorize the formation of the citizen-consumer subject. The 40-year historical analysis which expands through four economic recessions and the presidential terms of Ronald Reagan, William J. Clinton, George W. Bush, and Barack Hussein Obama, illustrates the ways in which the national mythology of American Dream myth has been linked to the political ideology of the state to create the citizen-consumer subject in the United States. The quantitative and qualitative analysis of the data demonstrates first, the consistent emphasis on responsibility as a ...


All-Offender Ignition Interlock Laws & Dui Arrest Rates, Kathleen E. Soper Jan 2020

All-Offender Ignition Interlock Laws & Dui Arrest Rates, Kathleen E. Soper

School of Arts & Sciences Theses

This research examines whether all-offender ignition interlock laws cause statistically significant decreases in DUI arrest rates. Data consist of state and county-level arrest totals over a 16-year period. A difference-in-differences regression model with fixed effects for entity and time is used for the analysis. Results are inconclusive.


All Pay Quality-Bids In Score Procurement Auctions, Dan Kovenock, Jingfeng Lu Jan 2020

All Pay Quality-Bids In Score Procurement Auctions, Dan Kovenock, Jingfeng Lu

ESI Working Papers

In this paper, we study score procurement auctions with all-pay quality bids. A supplier’s score is the difference between his quality and price bids. The supplier with the highest score wins and gets paid his own price bid. The procurer’s payoff is the difference between the winner’s quality and the procurer’s payments to the suppliers. Equilibrium quality and price bids are solved without first obtaining the corresponding equilibrium scores. We find that quality bids, the suppliers’ payoffs and the procurer’s payoff do not depend on whether price bids are made contingent on quality bids. Compared ...


Rationally Inattentive Savers And Monetary Policy Changes: A Laboratory Experiment, Andrea Civelli, Cary Deck, Antonella Tutino Jan 2020

Rationally Inattentive Savers And Monetary Policy Changes: A Laboratory Experiment, Andrea Civelli, Cary Deck, Antonella Tutino

ESI Working Papers

We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward ...


Reconsidering Rational Expectations And The Aggregation Of Diverse Information In Laboratory Security Markets, Brice Corgnet, Cary Deck, Mark Desantis, Kyle Hampton, Erik O. Kimbrough Jan 2020

Reconsidering Rational Expectations And The Aggregation Of Diverse Information In Laboratory Security Markets, Brice Corgnet, Cary Deck, Mark Desantis, Kyle Hampton, Erik O. Kimbrough

ESI Working Papers

The ability of markets to aggregate dispersed information is a cornerstone of economics and finance. In a seminal experiment, Plott and Sunder (1988) offer support for the rational expectations hypothesis. However, recent laboratory experiments have called into question the robustness of those initial results. In this paper, we offer the first attempt to directly replicate key findings of the original study. Failing to replicate their results, the post-study probability that market performance is better described by rational expectations than the prior information (Walrasian) model is low. Given this result, we introduce a new treatment that implements a market structure consistent ...


An Experimental Comparison Of News Vending And Price Gouging, Zuzana Brokesova, Cary Deck, Jana Peliova Jan 2020

An Experimental Comparison Of News Vending And Price Gouging, Zuzana Brokesova, Cary Deck, Jana Peliova

ESI Working Papers

The newsvendor problem is a workhorse model in operation management research. We introduce a related game that operates in the price dimension rather than the inventory dimension: the price gouging game. Using controlled laboratory experiments, we compare news vending and price gouging behavior. We replicate the standard pull-to-center effect for news vending and find that the equivalent pattern occurs with price gouging. Further, we find that the pull-to-center is asymmetric both for newsvendors and price gougers. More broadly, the experimental results reveal that choices are similar across the theoretically isomorphic games, suggesting that observed behavior in newsvendor experiments is representative ...