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Individual and collective choice and voting in common pool resource problems with heterogeneous actors

Magdalena Margreiter, Matthias Sutter, and Dennis Dittrich
2005. Environmental and Resource Economics, 32, 241-271

In this paper we investigate the effects of heterogeneity in common pool resource (CPR) problems. We examine whether heterogeneity impedes or facilitates coordination on an efficient use of a CPR by proposing and voting on allocation schemes. In a full information design we compare extractions and voting behavior in heterogeneous and homogeneous groups. If the CPR is extracted individually, we find no difference in efficiency between heterogeneous and homogeneous groups. However, when groups can vote on allocation schemes, homogeneous groups are more likely to reach an efficient agreement than heterogeneous groups.

 

 

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

Dirk Engelmann and Veronika Grimm
2005. University of Cologne, Working Paper Series in Economics, No. 22

We experimentally study behavior in a simple voting game where players have private information about their preferences. With random matching, subjects over- whelmingly 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 truth- ful representation and efficiency only if players can choose their partners.

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

 

 

Cooperation among Strangers with Limited Information about Reputation

Gary E. Bolton, Elena Katok and Axel Ockenfels
2005. Journal of Public Economics, 89(8): 1457-1468
 
We study the effect of social embeddedness on voter turnout by investigating the role of information about other voters’ decisions. We do so in a participation game, in which we distinguish between early and late voters. Each late voter is told about one early voter’s turnout decision. Cases are distinguished where the voters are allies (support the same group) or adversaries (with opposing preferences) and where they are uncertain about each other’s preferences. Our experimental results show that the social embeddedness matters: this information increases aggregate turnout by approximately 50%. The largest effect is observed for allies. Early voters strategically try to use their first mover position and late voters respond to this.

 

 

Die Liberalisierung des deutschen Strommarktes - ein Erfolgsmodell?

Felix Müsgens and Christian Growitsch
2005. Wirtschaft im Wandel, 12, 383-387

 

 

Konflikt und Kooperation

Axel Ockenfels
2005. Handelsblatt. December 9, 6

 

 

Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy

Gary Bornstein, Martin Kocher, Tamar Kugler, and Matthias Sutter
2005. Working Paper

We compared the behavior of groups and individuals in a two-person trust game. The first mover in this game, the sender, receives an endowment and can send any part of it to the responder; the amount sent is tripled, and the responder can then return to the sender any portion of the tripled sum. In a 2x2 design, the players in the roles of sender and responder were either individuals or groups of three players (who conducted face-to-face discussions to decide on a collective group strategy). We found that groups in the role of sender sent smaller amounts than individuals, and expected lower returns. In particular, groups sent nothing more often than individuals did (and were more likely to do so when the responder was another group). Groups and individuals in the role of responder returned on average the same fraction of the amount sent. Hence, we conclude that groups are less trusting than individuals, but just as trustworthy.

PDF Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy

 

 

The economics of restructuring the German electricity sector

Felix Müsgens and Christian Growitsch
2005. Zeitschrift für Energiewirtschaft 29(3), 221-230

 

 

Energiereport IV: Entwicklung des deutschen Elektrizitätsmarktes bis 2030

Michael Bartels, Markus Peek and Walter Schulz
2005. Zeitschrift für Energiewirtschaft, 3, 231-240

Dieser Beitrag basiert auf den Ergebnissen der kürzlich veröffentlichten Energieprognose für die Bundesrepublik Deutschland, welche vom Energiewirtschaftlichen Institut an der Universität zu Köln und der Prognos AG im Auftrag des Bundesministeriums für Wirtschaft und Arbeit erstellt wurde. Es werden die wichtigsten Prognoseaussagen für den deutschen Elektrizitätssektor zusammenfassend dargestellt und erläutert.

 

 

Energiereport IV, Die Entwicklung der Energiemärkte bis zum Jahr 2030 - Energiewirtschaftliche Referenzprognose

Walter Schulz, Michael Bartels, Christoph Gatzen, Dietmar Lindenberger, Felix Müsgens, Markus Peek, Andreas Seeliger, Dirk Steuber, Ralf Wissen, Peter Hofer, Almut Kirchner, Janina Scheelhaase and Michael Schlesinger
2005. Energiewirtschaftliches Institut an der Universität zu Köln (Hrsg.), München: Oldenbourg Industrieverlag

 

 

Fair Procedures: Evidence from Games Involving Lotteries

Gary E. Bolton, Jordi Brandts and Axel Ockenfels
2005. Economic Journal, 115: 1054-1076 
 
Procedures are the area where fairness arguably has its largest influence on modern societies. The experiments we report provide an initial characterization of that influence and suggest new interpretations for some well-known results. We find that procedural fairness is conceptually distinct from allocation fairness, although the evidence also indicates that the two are linked in important ways. Post hoc extension of one of the current models of fairness illustrates this link and implies that a deeper understanding of procedural fairness will require investigation of competing fairness norms.

 

 

An Experimental Analysis of Ending Rules in Internet Auctions

Dan Ariely, Axel Ockenfels and Alvin E. Roth
2005.  RAND Journal of Economics, 36(4): 890-907
 
A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

 

 

Bridging the Trust Gap in Electronic Markets: A Strategic Framework for Empirical Study

Gary E. Bolton, Elena Katok and Axel Ockenfels
2005. In Applications of Supply Chain Management and E-Commerce Research, eds. Joseph Geunes, Elif Akçali, Panos M. Pardalos, H. Edwin Romeijn, and Zuo-Jun Max Shen, 195-216. New York: Springer
 
Trust that suppliers and buyers will keep their word is a necessary ingredient to a well functioning marketplace. Nowhere is the issue trickier than for electronic markets, where transactions tend to be geographically diffuse and anonymous, putting them out of reach of the legal safeguards and the long-term relationships that built trust in the brick-and-mortar world. Many online platforms have turned to automated reputation systems as a way of giving traders a heads-up on who they are dealing with. Here we describe a strategic framework for thinking about these systems. We also present some lab data that provides an initial sense of effectiveness. We find that reputation has substantial positive effect, but not enough to be a close substitute for personal relationships; this is so even though our laboratory test abstracts away from many of the problems reputation systems must confront in the field. The evidence also suggests directions for improving automated reputation system performance.

 

 

Capacity Choice under Demand Fluctuation: The Impact of Market Structure

Veronika Grimm and Gregor Zoettl
2005. University of Cologne, Working Paper Series in Economics, No. 23
 
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.

 

 

The impact of competition on unilateral incentives to innovate

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

 

 

Communication, cooperation and collusion in team tournaments - An experimental study

Matthias Sutter and Christina Strassmair
2005. Working Paper
 
We study the effects of communication in an experimental tournament between teams. When teams, rather than individuals, compete for a prize there is a need for intra-team coordination in order to win the inter-team competition. Introducing communication in such situations may have ambiguous effects on effort choices. Intra-team communication may promote higher efforts by mitigating the internal free-rider problem. Inter-team communication may lead to collusion, thereby reducing efforts. In our experiment communication is possible through an electronic chat. Compared to a control treatment without communication, the possibility to exchange messages increases efforts significantly, most so when messages are restricted to members of the own team. When communication between teams is possible collusion arises. We use team members’ dialogues to explain these effects of communication.

 

 

Access to Commitment Devices Reduces Investment Incentives in Oligopoly

Veronika Grimm and Gregor Zoettl
2005. University of Cologne, Working Paper Series in Economics, No. 25

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 possibility to trade forwards reduces equilibrium investments.

PDF Access to Commitment Devices Reduces Investment Incentives in Oligopoly

 

 

Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments

Ben Greiner, Werner Güth, Ro'i Zultan
2005. University of Cologne, Working Paper Series in Economics, No. 18

To explain why pre-play communication increases cooperation in games, one refers to a) strategic causes such as efficient communication or reputation effects, and b) changes in the utilities due to social processes. Hitherto experimental support for both explanations is mixed and confounded. Our experimental design eliminates all strategic factors and allows to focus on the effects of communication processes. We clearly find social effects, but none of revealed anonymity or salient communication. The social processes invoked are very heterogeneous but not irregular for different communicators.

Let the Dummy Talk! - Unilateral Communication and Discrimination in Three-Person Dictator Experiments

 

 

Interdependenzen zwischen Elektrizitätserzeugung und Erdgasversorgung unter Berücksichtigung eines europäischen CO2-Zertifikatehandels: Ausgewählte Ergebnisse einer iterativen Modellkopplung

Michael Bartels and Andreas Seeliger
2005. Zeitschrift für Energiewirtschaft, 2, 135-143

Aktuelle Studien prognostizieren einen spürbaren Anstieg des Erdgasverbrauchs in Europa. Ein starker Verbrauchszuwachs wird vor allem in der Elektrizitätswirtschaft vermutet. Auf Basis von Kostenminimierungsmodellen quantifiziert dieser Artikel in zwei Szenarien die Zunahme der Erdgasverstromung in Westeuropa. Wechselwirkungen zwischen Erdgasnachfrage und Erdgaspreisen werden durch iterative Verknüpfung zwischen einem Stromangebotsmodell und einem Erdgasangebotsmodell explizit berücksichtigt.

 

 

Individuals and teams in UMTS-license auctions

Matthias Sutter, Martin Kocher, and Sabine Strauß
2005. Working Paper

We examine bidding behavior of individuals and teams in an experimental auction which resembles UMTS-license auctions. Even though in reality teams – rather than individuals – were the bidding agents, experimental studies on bidding in auctions have so far relied on individual bidders. Our results show that teams stay on average longer in an (ascending sealed-bid English) auction and pay significantly higher prices than individuals. Consequently, teams make smaller profits and suffer more often from the winner’s curse. The auction’s efficiency is nevertheless higher with teams, since the bidders with the highest valuation are more likely to win the auction when teams bid rather than individuals.

PDF Individuals and teams in UMTS-license auctions

 

 

Causes, consequences, and cures of myopic loss aversion - An experimental investigation

Gerlinde Fellner and Matthias Sutter
2005. Working Paper

Myopic loss aversion (MLA) has been established as one prominent explanation for the equity premium puzzle. In this paper we address two issues related to the effects of MLA on risky investment decisions. First, we assess the relative impact of feedback frequency and investment flexibility (via the investment horizon) on risky investments. Second, given that we observe higher investments with a longer investment horizon, we examine conditions under which investors might endogenously opt for a longer investment horizon in order to avoid the negative effects of MLA on investments. We find in our experimental study that investment flexibility seems to be at least as relevant as feedback frequency for the effects of myopic loss aversion. When subjects are given the choice to opt for a long or short investment horizon, there is no clear preference for either. Yet, if subjects face a default horizon (either long or short), there is rather little switching from the one to the other horizon, showing that a default might work to attenuate the effects of MLA. However, if subjects switch, they are more often willing to switch from the long to the short horizon than vice versa, suggesting a preference for higher investment flexibility.

PDF Causes, consequences, and cures of myopic loss aversion - An experimental investigation

 

 

Auswirkungen des Windenergieausbaus auf Struktur und Kosten der Stromerzeugung in Deutschland

Michael Bartels, Christoph Gatzen, Markus Peek, and Ralf Wissen
2005. In: Zeitschrift für Energiewirtschaft, 1, 3-10

Dieser Beitrag befasst sich mit den Auswirkungen des weiteren Ausbaus der Windenergie auf die Anforderungen an den konventionellen Kraftwerkspark, auf die Stromerzeugung und auf die Kosten der Stromerzeugung, welche im Rahmen der dena-Netzstudie untersucht wurden.

 

 

Sind die Gesetze des Wettberbs auf dem Strommarkt außer Kraft gesetzt? - Analyse der Strompreisentwicklung auf dem Großhandelsmarkt in Deutschland

Christoph Gatzen, Axel Ockenfels, and Markus Peek
2005. Energiewirtschafltiche Tagesfragen, 55(11): 4-11.

The Coevolution of Morality and Legal Institutions - An indirect evolutionary approach

Werner Güth and Axel Ockenfels
2005. Journal of Institutional Economics 1, 155-174
 
Moral behavior and legal institutions coevolve. While evolutionary game theory has often analyzed the evolution of moral behavior within given institutional rules, it has not examined the coevolution of moral preferences and different institutional aspects of the decision environment. By an indirect evolutionary approach, we analyze the coevolution of moral preferences (in the sense of trustworthiness) and legal institutions like court rulings and legal insurance. We find that preference detection capabilities crowd in morality and can thus render useless the role of courts and legal insurance as public institutions. Legal institutions become crucial for the emergence of morality, however, when information about preference types is not available. This holds true even when courts do not have superior detection capabilities than other agents.

 

 

Endogenous group formation: the role of promises and lies

Jeannette Brosig, Magdalena Margreiter and Joachim Weimann
2005. FEMM Working Paper Series 13, University of Magdeburg

Recent experimental findings suggest that the opportunity for endogenous group formation significantly affects the provision of public goods. In these studies the group formation is based on information about past contributions. However, in reality it is often difficult to obtain such information reliably. We investigate whether communication can help to find the optimal group composition. Using two treatments that vary with regard to the type of reported behavior on which group formation decisions are based (past behavior vs. intended future behavior), we observe that subjects are quite successful in finding the most cooperative group formation. However, significant differences in the content of the communication leading to the group formation decisions could be observed.

PDF Endogenous group formation

 

 

A Stress Test of Fairness Measures in Models of Social Utility

Gary E. Bolton and Axel Ockenfels
2005. Economic Theory, 25(4): 957-982 
 
Current social utility models posit fairness as a motive for certain types of strategic behavior. The models differ, however, with respect to how fairness is measured. Distribution models measure fairness in terms of relative payoff comparisons. Reciprocal-kindness models measure fairness in terms of gifts given and gifts received. Reference points play an important role in both measures, but the reference points in reciprocal-kindness models are conditioned on the actions available to players, whereas those in distributive models are not. Data from an ultimatum game experiment that stress tests the kindness measure is consistent with the distributive measure. Data from an experiment that stress tests the distributive measure is inconsistent with the distributive measure, but moves in the direction opposite that implied by the kindness measure. A measure that combines relative payoff comparisons with a reference point conditioned on feasible actions provides a first approximation to our data.

 

 

Team decision making under risk and myopic loss aversion

Matthias Sutter
2005. Working Paper

Myopic loss aversion has been put forward by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Several studies have shown that myopic loss aversion is, indeed, a persistent phenomenon in individual decision making under risk. We examine in an experimental study whether investment decisions of teams are equally affected by myopic loss aversion and whether teams make different decisions than individuals. Our major findings are that (1) team decisions are also characterized by myopic loss aversion, and that (2) teams invest higher amounts than individuals do. We discuss several implications of these findings.

PDF Team decision making under risk and myopic loss aversion

 

 

The decision maker matters. Individual versus team behavior in experimental beauty-contest games

Martin Kocher and Matthias Sutter
2005. Economic Journal 115, 200-223

Economics has devoted little attention so far as to whether the type of decision maker matters for economic decisions. However, many important decisions like those on monetary policy or a company's business strategy are made by (small) groups rather than an individual. We compare behaviour of individuals and small groups in an experimental beauty-contest game. Our findings suggest that groups are not smarter decision makers per se, but that they learn faster than individuals. When individuals compete against groups, the latter significantly outperform the former in terms of payoff.

 

 

Impulse Balance Equilibrium and Feedback in First Price Auctions

Axel Ockenfels and Reinhard Selten
2005. Games and Economic Behavior, 51: 155-170
 
Experimental sealed-bid first-price auctions with private values in which feedback on the losing bids is provided yield lower revenues than auctions where this feedback is not given. The concept of weighted impulse balance equilibrium, which is based on a principle of ex-post rationality and incorporates a concern for social comparison, captures the data.

 

 

Interdependenzen zwischen Elektrizitätserzeugung und Erdgasversorgung unter Berücksichtigung eines europäischen CO2-Zertifikatehandels

Michael Bartels and Andreas Seeliger
2005. Tagungsband der 4. Internationalen Energiewirtschaftstagung (IEWT 2005), Wien
 
Aktuelle Studien prognostizieren einen spürbaren Anstieg des Erdgasverbrauchs in Europa. Da mit Ausnahme von Großbritannien und den Niederlanden kein EU-Mitgliedsland über nennenswerte eigene Erdgasvorkommen verfügt, impliziert dies eine steigende Importabhängigkeit. 
Ein starker Verbrauchszuwachs wird vor allem in der Elektrizitätswirtschaft vermutet, während der Zuwachs in den übrigen Sektoren von geringerer Bedeutung ist. Dabei wird der internationale CO2- Zertifikatehandel eine der Hauptdeterminanten für strukturelle Veränderungen der europäischen Stromwirtschaften sein. 
Aufgrund der vergleichsweise niedrigen Emissionen können Erdgaskraftwerke an Bedeutung gewinnen. Voraussetzung hierfür ist eine mengen- und preismäßig adäquate Versorgung mit Erdgas. Gängige Studien verschiedener Institutionen gehen in ihren Analysen häufig von exogenen Erdgaspreisen aus. Der Wechselwirkung zwischen Gasnachfrage und Gaspreisen wird in der Regel durch Sensitivitätsuntersuchungen Rechnung getragen. Unser Aufsatz soll folgende zentrale Fragestellungen behandeln:

  •  Welche Auswirkungen hat der Zertifikatehandel auf die Erdgasnachfrage im Kraftwerksbereich?
  •  Welche Konsequenzen ergeben sich hieraus für die Erdgasversorgung Europas?
  •  Welchen Einfluss hat eine steigende Erdgasnachfrage auf die Kosten der Gasversorgung (und hieraus abgeleitete Erdgaspreise)?

 

 

Are four heads better than two? An experimental beauty-contest game with teams of different size

Matthias Sutter
2005. Economics Letters 88, 41-46

We examine the influence of team size on decision making in a beauty-contest experiment. Teams with four members outperform teams with two members and single persons significantly, whereas the latter two types of decision makers do not differ.

 

 

On the impact of real effort and emotions in power-to-take experiments

Ronald Bosman, Matthias Sutter and Frans van Winden
2005. Journal of Economic Psychology 26, 407-429

This paper elaborates on and extends the experimental work on the power-to-take game of Bosman & van Winden (2002). In this game, one player (the take authority) can claim any part of the endowment of another player (take rate). Then, the latter player can respond by destroying any part of her or his endowment. We examine whether agents behave differently if their own earnings are at stake ('effort') or a budget allocated to them by the experimenter ('no-effort'). A key feature of this work is that emotions and their behavioral significance are measured. Our main findings are: (1) responders destroy more often and a greater amount on aggregate with no-effort; (2) responders frequently choose an intermediate amount of destruction with no-effort, in contrast with the all or nothing finding for effort; (3) the behavior of take authorities does not depend on effort; (4) responders expect substantially lower take rates with no-effort; (5) actual as well as expected take rates have a significant effect on the probability of destruction, both in case of effort and no-effort; (6) emotional factors explain these results.

 

 

Tax evasion and state productivity - An experimental study

Werner Güth, Sabine Strauß, and Matthias Sutter
2005. Metroeconomica 56, 85-100

In an overlapping generations-experiment with multiple families participants can support their parents directly and thereby reduce their tax burden or rely on tax-financed old age support. State productivity is captured by the factor with which total tax revenues are multiplied to determine old age support. This factor is systematically varied from 0.75 to 1.25. Tax payments depend on declared endowment. Tax evasion is possible, but monitored. Our results suggest that state productivity neither influences direct support of own parents nor tax evasion. The main effect is that rich endowment triggers relatively low support of own parents and high (and more frequent) tax evasion