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Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve

Peter Funk, Bettina Kromen
University of Cologne, Working Paper Series in Economics No. 29, 2006

JEL codes: E24, E31, O31, O42

Keywords: Inflation; price rigidity; endogenous growth; employment; long-run Phillips curve

This model analyses the interaction between inflation and the long-run levels of employment and output growth in a Schumpeterian growth model with quality improving innovations under nominal price rigidity. At the unique REE steady state equilibrium, both employment and growth are hump-shaped functions of money growth peaking at positive inflation rates. This is due to four effects of money growth under rigidity: Erosion of its relative price through inflation and the optimal initial mark-up set in anticipation of this influence a firm’s profits. Dispersion in relative prices causes inefficient production while the change in the average mark-up influences aggregate demand.

PDF Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve

 

Bad luck vs. self-inflicted neediness – An experimental investigation of gift giving in a solidarity game

Nadja Trhal, Ralf Radermacher
University of Cologne, Working Paper Series in Economics No. 28, 2006

JEL codes: C91, D63

Keywords: solidarity game; self-inflicted neediness; responsibility; procedural utility

We experimentally examine the impact of self-inflicted neediness on the solidarity behavior of subjects. In one treatment in our solidarity experiment all subjects face the same probability of becoming needy, in the other treatment subjects have the choice between a secure payment and a lottery including a certain probability of becoming needy. Then we ask all subjects how much they will give to losers in their group thus investigating if people are willing to give the same gifts whether or not subjects are responsible for inequality in payoffs. We found evidence for allocative as well as for procedural utility concerns.

PDF Bad luck vs. self-inflicted neediness – An experimental investigation of gift giving in a solidarity game

 

Sequential versus Bundle Auctions for Recurring Procurement

Veronika Grimm
University of Cologne, Working Paper Series in Economics No. 27, 2006

JEL codes: D44, H57, D92

Keywords: Sequential auctions; bundling; stochastic scale effects; procurement

We compare sequential and bundle procurement auctions in a framework of successive procurement situations, where current success positively or negatively affects future market opportunities. We find that in bundle auctions procurement cost is lower and less risky than in sequential standard auctions, but still higher than in the optimal sequential auction. Only a sequential second price auction leads to the efficient outcome.

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Investment Incentives in Auctions: An Experiment

Veronika Grimm, Friederike Mengel, Giovanni Ponti, Lari Arthur Viianto
University of Cologne, Working Paper Series in Economics No. 26, 2006

JEL codes: D44, C91

Keywords: Auctions; Investment Incentives; Asymmetric Auctions; Experimental Economics

We experimentally analyze first and second price auctions where one bidder can achieve a comparative advantage by investment prior to the auction. We find that, as predicted by theory, bidders invest more often prior to second price auctions than prior to first price auctions. In both auction formats bidding is more aggressive than the equilibrium prediction. However, bidding is closer to equilibrium than in control treatments where the comparative advantage is exogenous.

PDF Investment Incentives in Auctions: An Experiment

 

Access to Commitment Devices Reduces Investment Incentives in Oligopoly

Veronika Grimm, Gregor Zoettl
University of Cologne, Working Paper Series in Economics No. 25, 2006

JEL codes: D43, L13

Keywords: Investment incentives; commitment devices; oligopoly; demand fluctuations; forward markets

In this paper we analyze incentives to invest in capacity prior to a sequence of Cournot spot markets with varying demand. We compare equilibrium investment in the absence and in presence of the possibility to trade on forward markets. We find that the access to strategic devices (such as forward contracts as analyzed by Allaz and Vila (1993), or, equivalently strategic delegation as analyzed by Fershtman and Judd (1987) or Vickers (1985)) prior to spot market competition reduces equilibrium investments.

PDF Access to Commitment Devices Reduces Investment Incentives in Oligopoly

 

Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation

Dirk Engelmann, Veronika Grimm
University of Cologne, Working Paper Series in Economics No. 24, 2006

JEL codes: D44, C91

Keywords: Multi-Unit Auctions; Demand Reduction; Experimental Economics

We present laboratory experiments of five different multi-unit auction mechanisms. Two units of a homogeneous object were auctioned off among two bidders with flat demand for two units. We test whether expected demand reduction occurs in open and sealed-bid uniform-price auctions. Revenue equivalence is tested for these auctions as well as for the Ausubel, the Vickrey and the discriminatory sealed-bid auction. Furthermore, we compare the five mechanisms with respect to the efficient allocation of the units.

PDF Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation

 

Capacity Choice under Uncertainty: The Impact of Market Structure

Veronika Grimm, Gregor Zoettl
University of Cologne, Working Paper Series in Economics No. 23, 2006

JEL codes: D43, L13, D41, D42, D81

Keywords: Investment incentives; demand uncertainty; cost uncertainty; Cournot competition; First Best; Second Best; capacity obligations; spot market regulation

We analyze a market game where firms choose capacities under uncertainty about future market conditions and make output choices after uncertainty has unraveled. We show existence and uniqueness of equilibrium under imperfect competition and provide an intuitive characterization of equilibrium investment. We show that investment in oligopoly, in the first and second best solution can be unambiguously ranked, in particular investment incentives are highest in the First Best solution and lowest under imperfect competition. We finally demonstrate that intervention of a social planer only at the production stage leads to strategic uncertainty at the investment stage and moreover decreases total investment below the level obtained under imperfect competition.

PDF Capacity Choice under Uncertainty: The Impact of Market Structure

 

Overcoming Incentive Constraints? The (In-)effectiveness of Social Interaction

Dirk Engelmann, Veronika Grimm
University of Cologne, Working Paper Series in Economics No. 22, 2006

JEL codes: A13, C72, C91, C92, D64, D72, D80

Keywords: Experimental Economics; Mechanism Design; Implementation; Linking; Bayesian Equilibrium; Efficiency

We experimentally study behavior in a simple voting game where players have private information about their preferences. With random matching, subjects overwhelmingly follow the dominant strategy to exaggerate their preferences. Applying the linking mechanism suggested by Jackson and Sonnenschein (2005) captures nearly all achievable efficiency gains. Repeated interaction leads to significant gains in truthful representation and efficiency only if players can choose their partners.

PDF Overcoming Incentive Constraints? The (In-)effectiveness of Social Interaction

 

Herding, Social Preferences and (Non-) Conformity

Luca Corazzini, Ben Greiner
University of Cologne, Working Paper Series in Economics No. 21, 2005

JEL codes: C92, D31, D81

Keywords: herding; information cascades; conformity; non-conformity; laboratory experiments

We study the role of social preferences and conformity in explaining herding behavior in anonymous risky environments. In an experiment similar to information cascade settings, but with no private information, we find no evidence for conformity. On the contrary, we observe a significant amount of non-conforming behavior, which cannot be attributed to errors.

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The impact of competition on unilateral incentives to innovate

Nadja Trhal
University of Cologne, Working Paper Series in Economics No. 20, 2005

JEL codes: D4, L1, O31

Keywords: innovation incentives; market structure; Cournot competition

We investigate the impact of the degree of competition in a Cournot market on one firm's unilateral incentives to invest in R&D. Applying comparative static analyses we get different predictions depending on the magnitude of the innovation efficiency parameter alpha. Even inner solutions arose. For alpha->1 the comparative statics predicate that incentives to invest in R&D are strongest in a monopoly whereas for smaller alpha the optimal market structure for unilateral innovation varies depending on the cost level.

PDF The impact of competition on unilateral incentives to innovate