Department of Economics

: Biased Contests For Symmetric Players; In a biased contest, one of the players has an advantage in the winner determination process. We characterize a novel class of biased contest success functions pertaining to such contests and provide necessary and sufficient conditions for zero bias to be a critical point of arbitrary objectives satisfying certain symmetry restrictions. We, however, challenge the common wisdom that unbiased contests are always optimal when contestants are symmetric ex ante or even ex post. We show that contests with arbitrary favorites, i.e., biased contests of symmetric players, can be optimal in terms of various objectives such as expected aggregate effort, the probability to reveal the stronger player as the winner or expected effort of the winner. (C) 2016 Elsevier Inc. All rights reserved., Keywords: discrimination, information, games, affirmative-action, Aggregate effort, allocation efficiency, Biased contest, Biased contest success function, handicaps, incentives, Predictive power, rent-seeking, selection contests, tournaments, Winner's effort, Publication Note: The publisher's version of record is available at https://doi.org/10.1016/j.geb.2016.02.003

: Binary Response Panel Data Models With Sample Selection And Self-selection; We consider estimating binary response models on an unbalanced panel, where the outcome of the dependent variable may be missing due to nonrandom selection, or there is self-selection into a treatment. In the present paper, we first consider estimation of sample selection models and treatment effects using a fully parametric approach, where the error distribution is assumed to be normal in both primary and selection equations. Arbitrary time dependence in errors is permitted. Estimation of both coefficients and partial effects, as well as tests for selection bias, are discussed. Furthermore, we consider a semiparametric estimator of binary response panel data models with sample selection that is robust to a variety of error distributions. The estimator employs a control function approach to account for endogenous selection and permits consistent estimation of scaled coefficients and relative effects., Keywords: health, tests, regression, variables, endogeneity, least-squares estimation, Publication Note: The publisher's version of record is available at https://doi.org/10.1002/jae.2592

: Comparison of health utility weights among elderly patients receiving breast-conserving surgery plus hormonal therapy with or without radiotherapy.; The selection of the most appropriate treatment combinations requires the balancing of benefits and harms of these treatment options as well as the patients' preferences for the resulting outcomes. This research aimed at estimating and comparing the utility weights between elderly women with early stage hormone receptor positive (HR+) breast cancer receiving a combination of radiotherapy and hormonal therapy after breast conserving surgery (BCS) and those receiving a combination of BCS and hormonal therapy. The Surveillance, Epidemiology, and End Results (SEER) linked with Medicare Health Outcomes Survey (MHOS) was used as the data source. Health utility weights were derived from the VR-12 health-related quality of life instrument using a mapping algorithm. Descriptive statistics of the sample were provided. Two sample t-tests were performed to determine potential differences in mean health utility weights between the two groups after propensity score matching. The average age at diagnosis was 72 vs. 76 years for the treated and the untreated groups, respectively. The results showed an inverse relationship between the receipt of radiotherapy and age. Patients who received radiotherapy had, on average, a higher health utility weight (0.70; SD = 0.123) compared with those who did not receive radiotherapy (0.676; SD = 0.130). Only treated patients who had more than two comorbid conditions had significantly higher health utility weights compared with patients who were not treated. The mean health utility weights estimated for the radiotherapy and no radiotherapy groups can be used to inform a comparative cost-effectiveness analysis of the treatment options. However, the results of this study may not be generalizable to those who are outside a managed care plan because MHOS data is collected on managed care beneficiaries., Keywords: Breast cancer, Comparative effectiveness research, Health utility weight, Radiotherapy, Grant Number: HHSN261201000140C, HHSN261201000035C, P20 MD006738, G12 MD007582, HHSN261201000035I, HHSN261201000034C, U58 DP003862, Publication Note: This NIH-funded author manuscript originally appeared in PubMed Central at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5344798.

: Competition in a Posted-Salary Matching Market under Private Information; We study a posted-salary labor market in which firms engage in salary competition. Firms' preferences over workers are private information, creating uncertainty about competitive pressure for different workers. We consider a baseline 2-firm, 2-worker model, then extend the analysis to larger markets by replicating the baseline. We characterize the unique Bayesian-Nash equilibrium, in which each firm type chooses a distributional strategy with interval support in the salary space. The main result shows that competition is localized, in the sense that firm types with a common most preferred worker choose non-overlapping, adjacent supports. We also provide numerical results to show that the equilibrium strategies in finite replicated markets converge to the corresponding equilibrium strategies in a market with a continuum of firms and workers., Keywords: Bayesian games, posted salary, price-competition, replicated markets, salary competition, stability, two-sided markets, Publication Note: The publisher’s version of record is available at http://www.dx.doi.org/10.1515/bejte-2015-0022

: Contests with Group Size Uncertainty; In many contest situations, the number of participants is not observable at the time of investment. We design a laboratory experiment to study individual behavior in Tullock (lottery) contests with group size uncertainty. There is a fixed pool of n potential players, each with independent probability of participating. We independently manipulate each of the parameters and test the implied comparative statics predictions. Our results provide considerable support for the theory, both in terms of comparative statics and point predictions. Most surprisingly, we find no evidence of overbidding in treatments where there is a nontrivial probability that group size is one. This stands in stark contrast to the robust overbidding observed in experimental contests with deterministic group size. We propose a one-parameter model that incorporates nonlinear probability weighting and a modified version of joy of winning, which we call Constant Winning Aspirations (CWA), and show that it neatly organizes all of our results., Keywords: Contest, Group size uncertainty, Experiment, Overbidding, Probability weighting, Joy of winning, Constant winning aspirations, Publication Note: This is a published article of Games and Economic Behavior published by Elsevier. The publisher verison can be accessed at https://doi.org/10.1016/j.geb.2017.07.008.

: Creative Destruction; The creative destruction inherent in a capitalist economy enables entrepreneurial individuals to get ahead, but threatens those who want to stay ahead. Those who want to get ahead benefit from the continual evolution that characterizes a market economy, whereas those who want to stay ahead prefer stability and want to establish institutions that preserve the status quo. Those who want to stay ahead push for government regulations, subsidies, differential tax benefits, and other politically generated protections that preserve the status quo and inhibit creative destruction. Long-established firms have an advantage in doing so because they tend to have more financial resources to devote to rent-seeking, and often have long-standing political connections. To prevent capitalist institutions from being undermined by those who want to stay ahead requires a robust entrepreneurial class that can give those who want to get ahead sufficient political influence to counter those who want to stay ahead., Capitalism, Creative destruction, Cronyism, Entrepreneurship, Joseph Schumpeter, The publisher's version of record is availible at https://doi.org/10.1007/s11138-020-00523-8

: Experimental Study Of Democracy Breakdown, Income And Inequality; Many empirical studies investigate the relationships between economic development, inequality, and democracy survival; however, establishing causal links with naturally occurring cross-country data is problematic. We address this question in a laboratory experiment, where in democracy citizens can invest in profitable projects and vote on income taxation. In the alternative regime-autocracy-efficient investment levels and equitable redistribution are implemented exogenously, but there is a risk of resources being partially expropriated. Citizens can voluntarily switch from democracy to autocracy by a majority vote, which mimics recent historical examples, where voters voluntarily delegate political powers to an autocrat in exchange for a promise of high taxation and redistribution. We find that the likelihood of democracy breakdown increases with the degree of inequality but does not vary with productivity. The link between productivity and democracy survival depends critically on the degree of sophistication of the median voter., Keywords: preferences, Productivity, Democracy breakdown, economic-development, Experiment, games, Inequality, political instability, public-goods, transitions, Voting, Publication Note: The publisher's version of record is available at https://doi.org/10.1007/s10683-016-9490-3

: Health Divided

: I Paid A Bribe; Theoretical and empirical research on corruption has flourished in the last three decades; however, identifying successful anti-corruption policies remains a challenge. In this paper we ask whether bottom-up institutions that rely on voluntary and anonymous reports of bribe demands, such as the I paid a bribe website first launched in India in 2010, could act as effective anti-corruption tools, and, if this is the case, whether and how their effectiveness could be improved. We overcome measurement and identification problems by addressing our research questions in the laboratory. Our results show that the presence of a reporting platform like the I paid a bribe website may be insufficient to systematically lower bribery. A more effective platform is one where posts disclose specific information about the size of the bribes and the location of their requestors, i.e., a platform that could serve as a search engine for the least corrupt officials, especially if posting is restricted to service recipients. Our results also show that while citizens rarely post false information, lying by officials, when allowed to post on the platform, is widespread. (C) 2017 Elsevier B.V. All rights reserved., Keywords: Experiment, aversion, consumer search, costs, Crowdsourcing, ebay, Extortionary corruption, field experiment, indonesia, Information sharing, people, price dispersion, reputation, reviews, Publication Note: The publisher's version of record is available at https://doi.org/10.1016/j.euroecorev.2017.02.003

: Immigrant assimilation and male labor market inequality; At the height of the US civil rights movement in the mid-1960s, foreign-born persons were less than 1 % of the African-American population (Kent, Popul Bull, 62:4, 2007). Today, 16 % of America's African diaspora workforce consists of first-or second-generation immigrants and 4 % is Hispanic. Intergenerational improvement is an important source of wage convergence of black immigrants. Unskilled immigrants who arrive in the USA as children and adolescents experience substantial wage assimilation, especially Caribbean-English and African-English immigrants. But both unskilled immigrants arriving as adults and all skilled immigrants fail to catch up to the wage status of either native-born whites or native-born African-Americans. After living in the USA for 9-15 years, first-generation black immigrants will have wage penalties at least as large as native-born African-Americans. The immigration process selects black immigrants who have or who would have achieved middle income or higher status in their country of origin. As such, black immigrants tend to have above average observable characteristics. Nevertheless, black immigrants do not obtain wage assimilation equal to native-born non-Hispanic white male workers., Keywords: African, africans, america, Assimilation, Black immigrants, Caribbean, cohort quality, Discrimination, earnings, Hispanic, Immigration, race, united-states, Publication Note: The publisher’s version of record is available at https://doi.org/10.1186/s40176-016-0065-z

: In Wrong Anticipation - Miscalibrated Beliefs between Germans, Israelis, and Palestinians; The reconcilability of actions and beliefs in inter-country relationships, either in business or politics, is of vital importance as incorrect beliefs on foreigners' behavior can have serious implications. We study a typical inter-country interaction by means of a controlled laboratory investment game experiment in Germany, Israel and Palestine involving 400 student participants in total. An investor has to take a risky decision in a foreign country that involves transferring money to an investee/allocator. We found a notable constellation of calibrated and un-calibrated beliefs. Within each country, transfer standards exist, which investees correctly anticipate within their country. However, across countries these standards differ. By attributing the standard of their own environment to the other countries investees are remarkably bad in predicting foreign investors' behavior. The tendency to ignore this potential difference can be a source of misinterpreting motives in cross-country interaction. Foreigners might perceive behavior as unfavorable or favorable differentiation, even thoughunknown to them-investors actually treat fellow-country people and foreigners alike., Keywords: behavioral-experiments, cooperation, cultural interaction, game, Reciprocity, small-scale societies, social-exchange, Trust, trustworthiness, united-states, Publication Note: The publisher’s version of record is available at https://doi.org/10.1371/journal.pone.0156998

: In Wrong Anticipation - Miscalibrated Beliefs between Germans, Israelis, and Palestinians.; The reconcilability of actions and beliefs in inter-country relationships, either in business or politics, is of vital importance as incorrect beliefs on foreigners' behavior can have serious implications. We study a typical inter-country interaction by means of a controlled laboratory investment game experiment in Germany, Israel and Palestine involving 400 student participants in total. An investor has to take a risky decision in a foreign country that involves transferring money to an investee/allocator. We found a notable constellation of calibrated and un-calibrated beliefs. Within each country, transfer standards exist, which investees correctly anticipate within their country. However, across countries these standards differ. By attributing the standard of their own environment to the other countries investees are remarkably bad in predicting foreign investors' behavior. The tendency to ignore this potential difference can be a source of misinterpreting motives in cross-country interaction. Foreigners might perceive behavior as unfavorable or favorable differentiation, even though-unknown to them-investors actually treat fellow-country people and foreigners alike., Publication Note: This NIH-funded author manuscript originally appeared in PubMed Central at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4911115.

: Progressive Democracy; The state must expend resources to credibly threaten the use of force, and the actual use of force is more costly than just exercising the threat. A population that views itself as prey to a predatory state will resist the state's demands and will not produce much that the state can appropriate. The predatory state will be more successful if it can convince its citizens that the state's activities are in the public interest, which will enhance voluntary compliance with the state's mandates and lessen the need for the state to invest resources in overt coercion. The ideology of "Progressive Democracy" encourages citizens to cooperate with the state, and legitimizes the state's predatory activities. The ideology of Progressivism justifies the imposition of costs on some for the benefit of others. The ideology of democracy implies that when a democratic government does this, it is acting in the public interest., Contractarianism, Democracy, Political ideology, Politics as exchange, Predatory state, Progressivism, The publisher's version of record is availible at https://doi.org/10.1007/s11127-019-00637-z

: Self-employment Among Women; This paper presents an estimation approach that addresses the problems of sample selection and endogeneity of fertility decisions when estimating the effect of young children on women's self-employment. Using data from the National Longitudinal Survey of Youth 1979, 1982-2006, we find that ignoring self-selection and endogeneity leads to underestimating the effect of young children. Once both sources of biases are accounted for, the estimated effect of young children roughly triples when compared to uncorrected results. This finding is robust to several changes in the specification and to the use of a different dataset., Keywords: selection, family, labor, endogeneity, fertility, business, entrepreneurship, likelihood estimation, married-women, panel-data models, Publication Note: The publisher’s version of record is available at https://doi.org/10.1002/jae.2596

: Silence is Golden; Numerous experimental studies have found that teams outperform individuals on intellective problems by a large degree. This result is intuitively appealing, as teams can benefit from sharing insights. However, much of this literature considers a task that involves a single clear insight. We instead analyze experiments comparing the performance of individuals and teams of four subjects at solving a series of challenging logic puzzles, where the solution involves a series of incremental steps. Contrary to the existing literature, team performance is statistically indistinguishable from that of individuals when there is no cost to sending a message. Frictions resulting from both congestion and incorrect suggestions substantially derail the solution process for teams. If we impose a very small cost of communication on teams, the performance of teams improves. Underlying these results is a robust negative relationship between frequency of communication and team performance. Using a straightforward prediction exercise, we show that performance would have improved dramatically if the best member of each team had been asked to solve the puzzles alone rather than forming a team., Keywords: Communication, Inexpensive talk, Team performance, Puzzles, Experiment, Publication Note: This is a working paper.

: Silence is Golden; We conduct experiments comparing the performance of individuals and teams of four subjects in solving two rather different tasks. The first involves nonograms (numerical logic puzzle). Here the solution requires a series of incremental steps. The second task uses CRT-type questions, which require a single, specific insight. Contrary to the existing literature, team performance in both tasks is statistically indistinguishable from that of individuals when there is no cost to sending a message. If a tiny message cost is imposed, team performance improves and becomes statistically better than that of individuals, although still worse than previous research on teams would have suggested. Message costs reduce the quantity of messages but increase the quality, specifically the mix of good and bad suggestions. The improved quality of communication with message costs allows teams to outperform individuals., Keywords: Communication, inexpensive talk, team performance, puzzles, experiment

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