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Gender Pairing and Bargaining - Beware the Same Sex!

Matthias Sutter, Ronald Bosman, Martin Kocher, und Frans van Winden
2006. University of Cologne Working Paper
We study the influence of gender and gender pairing on economic decision making in an experimental two-person bargaining game where the other party?s gender is known to both actors. We find that (1) gender per se has no significant effect on behavior, whereas (2) gender pairing systematically affects behavior. In particular, we observe much more competition and retaliation and, thus, lower efficiency when the bargaining partners have the same gender than when they have the opposite gender. These findings are consistent with predictions from psychology. Implications of our results for real-world organizations are discussed. 


Neighborhood Information Exchange and Voter Participation: An Experimental Study

Jens Großer and Arthur Schram
2006. American Political Science Review 100(2), 235-248
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.

Neighborhood Information Exchange and Voter Participation: An Experimental Study


Market Design: A Selective Review

Thomas Kittsteiner and Axel Ockenfels
2006. Zeitschrift für Betriebswirtschaft, 5: 121-143 
We argue that the design of market and negotiation rules significantly affects outcomes, and that small design changes can have substantial consequences. We focus on three particular environments online markets, electricity markets and partnership dissolution mechanisms and show how a combined theoretical and empirical approach to market design research may help to improve the governance of markets and negotiations.


Social norms, third-party observation and third-party reward

Matthias Sutter, Peter Lindner, and Daniela Platsch
2006. University of Cologne Working Paper
This paper examines the influence of third-party observation and third-party reward on behavior in an experimental prisoner's dilemma (PD) game. Whereas the existing literature on third-party intervention as a means to sustain social norms has dealt almost exclusively with third-party punishment, we show that both third-party observation and third-party reward have positive effects on cooperation rates in an experimental PD game, compared to a treatment where no third party is involved. Note that any third-party intervention rests on the condition that the third party can observe others. Hence, we study first the importance of observability for social norm enforcement. The third-party observation-treatment implies a third person watching the actions of two subjects playing a PD game. Even though the two subjects remain anonymous, their actions are disclosed to the third-party. This rather weak form of observation already suffices to increase cooperation rates. In the third-party reward-treatment we allow the third-party to reward any of the two subjects. Adding the reward opportunity raises cooperation rates above those with third-party observation only. These results show that third-party punishment is not the only means of third-party intervention to enforce social norms of cooperation. Hence, the prevailing focus on third-party punishment does not seem warranted. 


Learning, Communication, and the Bullwhip Effect

Yan (Diana) Wu and Elena Katok
2006. Journal of Operations Management, 24(6), 839-850
We investigate the effect of learning and communication on the bullwhip effect in supply chains. Using the beer distribution game in a controlled laboratory setting, we test four behavioral hypotheses – bounded rationality, experiential learning, systems learning, and organizational learning – by systematically manipulating training and communication protocols. We find that order variability decreases significantly in a setting in which participants start with hands-on experience, and are then allowed to formulate team strategies collaboratively. This result indicates that while training may improve individuals’ knowledge and understanding of the system, it does not improve supply chain performance unless supply chain partners are allowed to communicate and share this knowledge. Our results indicate that the bullwhip effect is, at least in part, caused by insufficient coordination between supply chain partners.


Trust and trustworthiness across different age groups

Matthias Sutter and Martin Kocher
2006. Games and Economic Behavior, 59(2), 364-382
We examine the degree of trust and trustworthiness in an experimental trust game with 662 participants from six different age groups, ranging from 8 year olds to retired persons. Although both trust and trustworthiness have been identified as fundamental pillars for efficient economic interactions, economic research has devoted little attention to measuring their strength in different age groups. In our experiment subjects interact with members of the same age group. We find that trust increases almost linearly from early childhood to early adulthood, but stays rather constant within different adult age groups. Trustworthiness prevails in all age groups.

Trust and trustworthiness across different age groups


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

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

PDF Instruction and Appendix


Individual or team decision making - Causes and consequences of self-selection

Martin Kocher, Sabine Strauß, and Matthias Sutter
2006. Games and Economic Behavior 56, 259-270
Even though decision-making in small teams is pervasive in business and in private life, little is known about subjects' preferences with respect to individual and team decision-making and about the consequences of respecting these preferences. We report the results from an experimental beauty-contest game where subjects could endogenously choose their preferred way of decision-making. About 60% of subjects preferred to act in a team, and teams won the game significantly more often than individuals. Nevertheless, both individuals and team members were highly satisfied with their chosen role, but for different reasons.



Time is money - Time pressure, incentives, and the quality of decision-making

Martin Kocher and Matthias Sutter
2006. Journal of Economic Behavior and Organization, 61(3), 375-392
Many decisions in economics and finance have to be made under severe time pressure. Furthermore, payoffs frequently depend on the speed of decision-making, like, for instance, when buying and selling stocks. In this paper, we examine the influence of time pressure and time-dependent incentive schemes on the quality of decision-making in an experimental beauty-contest game. We find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure. Interestingly, time-dependent payoffs under high time pressure lead to significantly quicker decision-making without reducing the quality of decisions.



Collusion mechanisms in procurement auctions: An experimental investigation

Jeannette Brosig, Werner Güth and Torsten Weiland
2006. Working Paper

Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors’ costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders’ profits.

PDF Collusion mechanisms in procurement auctions



Endogenous versus exogenous allocation of prizes in teams - Theory and experimental evidence

Matthias Sutter
2006. Labour Economics 13(5), 519-549
We present a model where compensation within a team is determined either exogenously by a third party or endogenously through a bargaining process among team members. In the exogenous case, we compare equal rewards with a tournament design. In the endogenous case, members compete in their efforts for the right to propose the distribution of the prize. Failure to reach an agreement on the proposal is costly and the role of proposer rotates in the order of members' efforts. We show in an experiment that tournaments induce higher efforts than equal rewards and that the influence of exogenously or endogenously allocating the prize depends on the specific bargaining rules in the endogenous case.



Do technology specific CO2-allocations distort investments?

Michael Bartels and Felix Müsgens
2006. International Association for Energy Economics (ed.). Proceedings of the 29th IAEE International Conference. 7-10 June, Potsdam/Germany
This paper analyses the effects of allocating CO2 permits to new power plants free of charge within a tradable permit system. We demonstrate that these free allocations distort investments. Furthermore, we distinguish the effects of a sector benchmark from a fuel benchmark, as both are common elements in EU member states national allocation plans. An empirical model for the European market is used to quantify the effects in a realistic framework.




Selling Shares to Retail Investors: Auction versus Fixed Price

Jürgen Bierbaum and Veronika Grimm
2006. Review of Economic Design 10(2), 85 - 112
We analyze the problem of selling shares of a divisible good to a large number of buyers when demand is uncertain. We characterize equilibria of two popular mechanisms, a fixed price mechanism and a uniform price auction, and compare the revenues. While in the auction truthful bidding is a dominant strategy, we find that bidders have an incentive to overstate their demand in the fixed price mechanism. For some parameter values this yields the surprising result that the fixed price mechanism outperforms the auction.



Voluntary versus compulsory solidarity - Theory and experiment

Werner Güth, Harrie Verbon, and Matthias Sutter
2006. JITE - Journal of Institutional and Theoretical Economics, 162, 347-363

We present an overlapping generations model with two interacting teams, where young team members earn an income, whereas old team members depend on either intra-team transfers from young members (voluntary solidarity) or tax-financed transfers (compulsory solidarity). We derive the individually and team-specific optimal decisions and present further behavioral hypotheses like the crowding out of voluntary by compulsory solidarity. We test our hypotheses in an experimental study and examine (1) whether raising taxes crowds out voluntary transfers, (2) how income distributions influence voluntary and compulsory solidarity, and (3) whether participants prefer more to less compulsory solidarity.

Voluntary versus compulsory solidarity - Theory and experiment



Bargaining among groups: the role of pre-play communication and the decision making design

Jeannette Brosig, Martin Kocher and Matthias Sutter
2006. Working Paper



Choosing the stick or the carrot? Endogenous institutional choice in social dilemma situations

Matthias Sutter, Stefan Haigner and Martin Kocher
2006. CEPR Discussion Paper No. 5497

We analyze an experimental public goods game in which group members can endogenously determine whether they want to supplement a standard voluntary contribution mechanism with the possibility of rewarding or punishing other group members. We find a large and positive effect of endogenous institutional choice on the level of cooperation in comparison to exogenously implemented institutions. This suggests that democratic participation rights enhance cooperation in groups. With endogenous choice, groups typically vote for the reward option, even though punishment is actually more effective in sustaining high levels of cooperation. Our results are evaluated against the predictions of social preference models.



Ökonomische Auswirkungen alternativer Laufzeiten von Kernkraftwerken in Deutschland

Dietmar Lindenberger, Ralf Wissen, Michael Bartels, Bernhard Hillebrand and Hans-Georg Buttermann
2006. VGB Power Tech, 5, 67-70

Die Auswirkungen längerer Laufzeiten der bestehenden Kernkraftwerke (KKW) im Vergleich zu den Regelungen unter dem – bestehenden – Ausstiegsgesetz werden behandelt. Im einzelnen werden die Auswirkungen längerer KKW-Laufzeiten auf die Entwicklung der deutschen Kraftwerkskapazitäten, der Stromerzeugung, des Brennstoffverbrauchs und der Brennstoffimporte, die resultierenden CO2-Emissionen, die Kosten der Stromerzeugung und Strompreise sowie die damit verbundenen sektoralen und gesamtwirtschaftlichen Produktions- und Beschäftigungseffekte untersucht.

Ökonomische Auswirkungen alternativer Laufzeiten von Kernkraftwerken in Deutschland



Entwicklung der Stromversorgung bis 2030 - Rolle des Erdgases

Michael Bartels, Markus Peek, and Walter Schulz
2006. Gas, Wasser, Abwasser, 5, 367-374



Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction

Axel Ockenfels and Alvin E. Roth
2006. Games and Economics Behavior, 55: 297-320 
In second price Internet auctions with a fixed end time, such as those on eBay, many bidders submit their bids in the closing minutes or seconds of an auction. We propose an internet auction model, in which very late bids have a positive probability of not being successfully submitted, and show that late bidding in a fixed deadline auction can occur at equilibrium in auctions both with private values and with uncertain, dependent values. Late bidding may also arise out of equilibrium, as a best reply to incremental bidding. However, the strategic advantages of late bidding are severely attenuated in auctions that apply an automatic extension rule such as auctions conducted on Amazon. Field data show that there is more late bidding on eBay than on Amazon, and this difference grows with experience. We also study the incidence of multiple bidding, and its relation to late bidding.



Planning of the grid integration of wind energy in Germany onshore and offshore up to the year 2020

Michael Bartels, Christoph Gatzen, Ralf Wissen u.a.
2006. International Journal of Global Energy Issues 25(3/4), 257-275



Communication channels and induced behavior

Jeannette Brosig
2006. Zeitschrift für Betriebswirtschaft, Special Issue 05/06, 99-120



Let's talk about bidding! - Coordination mechanisms in procurement auctions

Jeannette Brosig, Torsten Weiland and Werner Güth
2006. FEMM Working Paper Series 18, University of Magdeburg



Experimental evidence on the appropriateness of non-monotone incentive contracts

Jeannette Brosig and Christian Lukas
2006. Research Paper Series 15, Thurgauer Wirtschaftsinstitut
Non-monotone contracts, which can well represent the theoretically optimal choice of a contracting problem, are often deemed as non-plausible labor contracts and attention is (therefore) confined to monotone if not linear contracts. In this paper we test the incentive effects of non-monotone contracts in a simple principal-agent setting. Principals select either a monotone or a non-monotone contract, both are incentive compatible, and agents then decide which effort level to choose. The results show that principals do select the non-monotone contract, agents virtually never reject the non-monotone contract and they expend that effort level which is desired by principals.



Division in Lots and Competition in Procurement Auctions

Veronika Grimm, Riccardo Pacini, Giancarlo Spagnolo, and Matteo Zanza
2006. In: N. Dimitri, G. Piga, and G. Spagnolo eds., Handbook of (e-) Procurement, Cambridge University Press
Division in lots is one of the procurer’s most crucial decisions. The number and the size of lots directly influences competition in the tendering process and thereby the procurer’s budget and the quality of supply. This paper focuses on the effects the division of procurements into multiple lots has on competition in the short and in the long run. Short-run competition is affected mainly through two channels: the number of participants and the participants’ behaviour. Both depend on market structure and procurement design. We discuss the relationship between the number of lots, participation, competition, and potential collusion in competitive procurement, and propose two simple indices that allow to evaluate how competition responds to an increase of the number of lots. Competition in a single competitive tendering process (static competition) determines the outcome in terms of price and quality today. The level of market competition in the long run, however, is not so obviously related to the static one. In certain sectors, maximizing competition in the short-run might have negative effects on the level of competition in the long run. We discuss how current procurement design may affect entry and exit of firms over time, and thereby the number of participants to future procurements. We show that sometimes strong competition today may imply weak competition tomorrow.



Investment Incentives in Procurement Auctions: An Experiment

Veronika Grimm, Friederike Mengel, Giovanni Ponti and Lari Arthur Viianto
2006. Experimental Economics for Antitrust Policy

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 Procurement Auctions: An Experiment



Online Auctions

Axel Ockenfels, David Reiley and Abdolkarim Sadrieh
2006. In Handbooks in Information Systems, ed. Terrence J. Hendershott, 571-628. North Holland: Elsevier
The economic literature on online auctions is rapidly growing, because the enormous amount of freely available field data and the emergence of numerous innovative auction design features on auction platforms such as eBay have created excellent research opportunities. In this article, we survey the theoretical, empirical and experimental research on bidding strategies including the timing of bids and winner's curse effects) and seller strategies (including reserve price policies and the use of buy-now options) in online auctions, as well as some of the literature dealing with online auction design (including the stopping rule and multi-object auction rules).



Vom Nutzen zusätzlicher Information auf Märkten mit unterschiedlich informierten Händlern - Eine experimentelle Studie

Jürgen Huber, Michael Kirchler and Matthias Sutter
2006. zfbf - Zeitschrift für betriebswirtschaftliche Forschung, 58, 188-211
In diesem Aufsatz berichten wir die Ergebnisse eines ökonomischen Experiments, in dem der Nutzen zusätzlicher Information für die Gewinne beim Handeln auf Finanzmärkten mit zwei unterschiedlichen Preisbildungsmechanismen untersucht wird. Die Methode der experimentellen Ökonomik erlaubt eine kontrollierte Variation des Informationsniveaus einzelner Händler. Unabhängig vom Preisbildungsmechanismus zeigt sich, dass zusätzliche Information lediglich bei relativ hohem Informationsniveau einen signifikant positiven Grenznutzen hat. Bei relativ geringem Informationsniveau hingegen hat zusätzliche Information keinen statistisch signifikanten Einfluss auf die Handelsgewinne.



Measuring productivity of research in economics. A cross-country study using DEA

Martin Kocher, Mikulas Luptacik, and Matthias Sutter
2006. Socio-Economic Planning Sciences, 40(4), 314-332
We measure productivity in leading edge economic research by using data envelopment analysis (DEA) for a sample of 21 OECD countries. Publications in 10 top journals of economics from 1980-1998 are taken as research output. Inputs are measured by R&D expenditure, the number of universities with economics departments and (as an uncontrollable variable) population. Under constant returns-to-scale the USA emerges as the only efficient country. Under variable returns-to-scale the efficiency frontier is defined by the USA, Ireland and New Zealand. With the exception of the USA, all the countries in our sample display increasing returns-to-scale, and thus have the potential to raise their efficiency by scaling up their research activities.



Marktdesign in der Energiewirtschaft

Felix Müsgens and Axel Ockenfels
2006. In Umwelt und Energie, eds. Wolfgang Franz, Hans Jürgen Ramser, and Manfred Stadler, 247-272. Tübingen: Mohr Siebeck



An Experimental Analysis of Voting in the Stability and Growth Pact in EMU

Bernd Irlenbusch, Matthias Sutter
2006. Public Choice, 129, 417-434



Modelling Dynamic Constraints in Electricity Markets and the Costs of Uncertain Wind Output

Müsgens, Felix and Neuhoff, Karsten
2006. EPRG Working Paper 05/14, Cambridge, UK

Building on models that represent inter-temporal constraints in the optimal production deci-sions for electricity generation, the paper analysis the resulting costs and their impact on prices during the day. We linearise the unit commitment problem to facilitate the interpreta-tion of shadow prices. Analytic research gives insights for a system with one technology and numeric implementation provides results for the German power system. The model is ex-panded to a stochastic optimisation with recourse. The model is used to calculate the cost of wind uncertainty and the value of updating wind forecasts.