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Full-Text Articles in Other Economics

Exchange In The Absence Of Legal Enforcement: Reputation And Multilateral Punishment Under Uncertainty, Aidin Hajikhameneh, Jared Rubin Aug 2017

Exchange In The Absence Of Legal Enforcement: Reputation And Multilateral Punishment Under Uncertainty, Aidin Hajikhameneh, Jared Rubin

ESI Working Papers

Prinicpal-agent problems can reduce gains from exchange available in long distance trade. One solution to mitigate this problem is multilateral punishment, whereby groups of principals jointly punish cheating agents by giving them bad reputations. But how does such punishment work when there is uncertainty regarding whether an agent actually cheated or was just the victim of bad luck? And how might such uncertainty be mitigated—or exacerbated—by nonobservable, pro-social behavioral characteristics? We address these questions by designing a simple modified trust game with uncertainty and the capacity for principals to employ multilateral punishment. We find that a modest amount ...


A Study Of The Triggers Of Conflict And Emotional Reactions, Michael Caldera, Michael T. Mcbride, Matthew W. Mccarter, Roman M. Sheremeta Apr 2017

A Study Of The Triggers Of Conflict And Emotional Reactions, Michael Caldera, Michael T. Mcbride, Matthew W. Mccarter, Roman M. Sheremeta

ESI Publications

We study three triggers of conflict and explore their resultant emotional reactions in a laboratory experiment. Economists suggest that the primary trigger of conflict is monetary incentives. Social psychologists suggest that conflicts are often triggered by fear. Finally, evolutionary biologists suggest that a third trigger is uncertainty about an opponent’s desire to cause harm. Consistent with the predictions from economics, social psychology, and evolutionary biology, we find that conflict originates from all three triggers. The three triggers differently impact the frequency of conflict, but not the intensity. Also, we find that the frequency and intensity of conflict decrease positive ...


The Ideological Roots Of Institutional Change, Murat Iyigun, Jared Rubin Apr 2017

The Ideological Roots Of Institutional Change, Murat Iyigun, Jared Rubin

ESI Working Papers

Why do some societies fail to adopt more efficient institutions in response to changing economic conditions? And why do such conditions sometimes generate ideological backlashes and at other times lead to transformative sociopolitical movements? We propose an explanation that highlights the interplay--or lack thereof--between new technologies, ideologies, and institutions. When new technologies emerge, uncertainty results from a lack of understanding how the technology will fit with prevailing ideologies and institutions. This uncertainty discourages investment in institutions and the cultural capital necessary to take advantage of new technologies. Accordingly, increased uncertainty during times of rapid technological change may generate an ideological ...


Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez May 2016

Mean-Dispersion Preferences With A Specific Dispersion Function, Mark Schneider, Manuel Nunez

ESI Working Papers

A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this note, working in the Anscombe- Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. Given the representation ...


The "Play-Out" Effect And Preference Reversals: Evidence For Noisy Maximization, Joyce E. Berg, John Dickhaut, Thomas A. Rietz Oct 2013

The "Play-Out" Effect And Preference Reversals: Evidence For Noisy Maximization, Joyce E. Berg, John Dickhaut, Thomas A. Rietz

Accounting Faculty Articles and Research

In this paper, we document a "play-out" effect in preference reversal experiments. We compare data where preferences are elicited using (1) purely hypothetical gambles, (2) played-out, but unpaid gambles and (3) played-out gambles with truth-revealing monetary payments. We ask whether a model of stable preferences with random errors (e.g., expected utility with errors) can explain the data. The model is strongly rejected in data collected using purely hypothetical gambles. However, simply playing-out the gambles, even in the absence of payments, shifts the data pattern so that noisy maximization is no longer rejected. Inducing risk preferences using a lottery procedure ...


Illiquid Saving And Wealth Accumulation Under Uncertainty, Jaime Ruiz-Tagle Jan 2011

Illiquid Saving And Wealth Accumulation Under Uncertainty, Jaime Ruiz-Tagle

Jaime Ruiz-Tagle

When saving cannot be used to buffer contemporary uncertain shocks it becomes illiquid saving. This paper shows that illiquid saving can explain why rich people save more even when the only purpose of wealth accumu- lation is to finance future consumption. From our simulations we conclude that this saving behaviour determines that the level of uncertainty relative to the level of wealth determines if the individual is able to accumulate wealth or if he will reduce his wealth permanently. We find that for a given level of uncertainty, there is a wealth threshold below which the individual gets trapped because ...


Financial Markets Incompleteness And Inequality Over The Life-Cycle, Jaime Ruiz-Tagle Jan 2011

Financial Markets Incompleteness And Inequality Over The Life-Cycle, Jaime Ruiz-Tagle

Jaime Ruiz-Tagle

This paper addresses the relevance of contemporary uncertainty under in- complete markets in explaining wealth and consumption inequality when preferences are homogeneous. We explore the role of illiquid saving (saving that cannot be used to buffer contemporary shocks) generated by contempo- rary uncertainty, and a cost of liquidating saving, in generating differences in saving behaviour between initially-rich and initially-poor in a numerically solved life-cycle model. We observe that the existence of a risk premium significantly increases the ability of the households to accumulate wealth to finance their consumption, even under high risk aversion. We find that there is increasing consumption ...


Group Cooperation Under Uncertainty, Min Gong, Joanne Baron, Howard Kunreuther Dec 2009

Group Cooperation Under Uncertainty, Min Gong, Joanne Baron, Howard Kunreuther

Operations, Information and Decisions Papers

Previous research has shown an ‘interindividual-intergroup discontinuity effect’: intergroup interactions generally lead to less cooperative outcomes than interindividual interactions. We replicate the discontinuity effect in the deterministic prisoner’s dilemma, but find that groups are more cooperative than individuals in a stochastic version of the game. Three major factors that underlie the usual discontinuity effect are reduced in the stochastic environment: greed, fear, and persuasion power. Two group mechanisms are proposed to explain the reversed discontinuity effect: the motivation to avoid guilt and blame when making decisions that affect others’ welfare, and the social pressure to conform to certain norms ...


Securing The Border From Invasives: Robust Inspections Under Severe Uncertainty, L. Joe Moffitt, John K. Stranlund, Craig D. Osteen Jan 2009

Securing The Border From Invasives: Robust Inspections Under Severe Uncertainty, L. Joe Moffitt, John K. Stranlund, Craig D. Osteen

PERI Working Papers

Two important features of agricultural quarantine inspections of shipping containers for invasive species at U.S. ports of entry are the general absence of economic considerations and the severe uncertainty that surrounds invasive species introductions. In this article, we propose and illustrate a method for determining an inspection monitoring protocol that addresses both issues. An inspection monitoring protocol is developed that is robust in maximizing the set of uncertain outcomes over which an economic performance criterion is achieved. The framework is applied to derive an alternative to Agricultural Quarantine Inspection (AQI) for shipments of fruits and vegetables as currently practiced ...


A Safety Valve For Emissions Trading, John K. Stranlund Jan 2009

A Safety Valve For Emissions Trading, John K. Stranlund

PERI Working Papers

This paper considers the optimal design of an emissions trading program that includes a safety valve tax that allows pollution sources to escape the emissions cap imposed by the aggregate supply of emissions permits. I demonstrate that an optimal hybrid emissions trading/emissions tax policy involves a permit supply that is strictly less than under a pure emissions trading scheme and a safety valve tax that exceeds the optimal pure emissions tax as long as expected marginal damage is an increasing function. While the expected level of emissions under a hybrid policy may be more or less than under pure ...


To Outsource Or Not To Outsource In An Integrated World, E. Kwan Choi Jan 2007

To Outsource Or Not To Outsource In An Integrated World, E. Kwan Choi

Economics Publications

This paper investigates outsourcing decision under certainty and uncertainty. When the production activity can be fragmented into two or more processes, an integrated firm must be competitive in each of the fragmented processes. There are gains from outsourcing when factor prices differ between countries. When factor prices are not equalized internationally, a firm may outsource the process which uses its scarce source intensively. If the cost of outsourcing is lower in the foreign country, full outsourcing occurs under certainty. However, even if the outside supplier has a cost advantage, uncertainty in outsourcing cost ensures that partial outsourcing is optimal for ...


Information In Ultimatum Games: An Experimental Study, Rachel Croson Aug 1996

Information In Ultimatum Games: An Experimental Study, Rachel Croson

Operations, Information and Decisions Papers

This study reports on an experiment using variations of the ultimatum game. The experiment controls the amount and type of information known to the responder in the game. In two treatments, she knows both the absolute (money) and relative (fairness) payoffs from an offer. In the other two, she knows either only the absolute or only the relative payoffs. The predictions of four models for these treatments are tested: subgame-perfection, Bolton's comparative equilibrium, Ochs and Roth's absolute threshold, and Ochs and Roth's percentage threshold hypothesis.