Negotiating climate cooperation
Axel Ockenfels und Klaus Schmidt
2020. Working paper.
International climate cooperation needs to be negotiated among sovereign countries. The key to cooperation, and to countervail free riding, is reciprocity. Using game theory and a human subject experiment, we show that reciprocity can be built into the negotiation design. Human players negotiating a reciprocal common commitment are substantially more successful in promoting cooperation than when negotiating individual commitments. Moreover, focusing on a uniform common commitment strongly facilitates agreement, as compared to negotiating a vector of commitments, one for each player. Because a carbon price is a natural candidate for a uniform common commitment, our findings suggest that international climate negotiations should focus on reciprocal carbon pricing. Economists advocate carbon pricing for its cost efficiency, yet the role of carbon pricing for promoting cooperation could be at least as important.
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The Aversion to Monetary Incentives for Behavioral Change
Keywords: Aversion to Incentives, Information, Repugnance, Charity experiment.
Abstract: In this paper, I study an aversion to monetary incentives to make other people change their behavior. Particularly, I provide evidence that monetary incentives are disliked because they are powerful in changing what people do but not why they do it besides for money. In an experiment, one group of participants decides about interventions which try to change others’ behavior. Between treatments, I vary whether the intervention consists of convincing information or monetary incentives. I find that participants consider monetary incentives as more effective in changing behavior than informative interventions. Nonetheless, they are less willing to intervene by monetary incentives compared to informative interventions to foster their preferred outcome. A comprehensive set of elicited beliefs supports the idea that this aversion to incentives stems from incentives’ lack of changing one’s reason to act.
Link zum Artikel: The Aversion to Monetary Incentives for Behavioral Change
Das Klimaschutzprogramm der Bundesregierung: Eine Wende der deutschen Klimapolitik?
Ottmar Edenhofer, Matthias Kalkuhl und Axel Ockenfels
2020. Perspektiven der Wirtschaftspolitik.
Keywords: Klimaschutzgesetz, CO2-Preis, Emissionshandel, internationale Kooperation, Klimawandel, Klimapolitik, EU, Deutschland
Abstract: Das Klimaschutzgesetz hat einen Paradigmenwechsel eingeleitet: den Einstieg in eine CO2-Bepreisung als künftiges Leitinstrument der Klimapolitik. Auf den ersten Blick ist der CO2-Preis unter einer Fülle von Fördermaßnahmen und ordnungsrechtlichen Regelungen verschüttet, deren Wirksamkeit und Kosten höchst unsicher sind. Der CO2-Preis ist aber so angelegt, dass er langfristig das dominante Instrument einer europäisch harmonisierten Klimapolitik werden kann. Der angedeutete Paradigmenwechsel der deutschen Klimapolitik öffnet damit die Tür, die europäische und internationale Kooperation zu stärken. Dazu ist es aber notwendig, neben der europäischen auch die globale Klimapolitik neu auszurichten. Auch dort sollten sich die Verhandlungen statt auf nationale Mengenziele auf CO2-Preise konzentrieren. Die erforderliche Kooperation wird möglich, wenn die Regierungen Transferzahlungen strategisch und reziprok nutzen. So könnte die Effektivität der Klimapolitik erhöht werden und es ließen sich die entstehenden Verteilungskonflikte entschärfen.
Bringing the efficiency of electricity market mechanisms to multimodal mobility across congested transportation systems
Arash Beheshtian, R.Richard Geddes, Omid M.Rouhani, Kara M. Kockelman, Axel Ockenfels, Peter Cramton und Wooseok Do
2020. Transportation Research Part A 131. pp. 58-69
Keywords: Mobility as a service, Market design, Congestion pricing
Abstract: A central challenge facing Mobility as a Service (MaaS) is mispricing of its a core input: the use of scarce road space. A transparent real-time market for road use is essential for MaaS to reach its full potential. We focus on how network-wide, real-time markets for road use support MaaS, and how such markets can be developed.
In our proposed network-management scheme, roadway tolls (for entire trips – from origin to destination) are determined in a two-stage market hosted by an independent system operator or “ISO”. Service providers purchase the product (the right to use a series of road segments at a reasonably specific time of day) in the day-ahead market. In real-time, the market becomes physical and operates under the principle of open access: road capacity cannot be withheld in real time and its use is determined by users’ decisions, guided by prices and suggested routings. Real-time road-use prices are computed using clearing prices that balance real-time supply and demand. Those with pre-paid slots can be paid to delay their travel, to create space for high bidders during periods of suddenly low capacity or unexpectedly high demand. Such policies and programs can avoid excessive congestion, provide reliable travel times, and keep traffic moving, especially as automation makes car and truck travel easier.
Such policies are critical in helping cities and regions avoid gridlock. They ensure that travelers internalize congestion externalities, while enabling MaaS and other transport providers to deliver higher-quality mobility service for all travelers. Thoughtful marriage of week-ahead, day-ahead and real-time road pricing for travelers on congested networks can deliver efficient transportation systems that save time and energy, while providing signals for optimal infrastructure investment.
An oTree-Based Flexible Architecture for Financial Market Experiments
Eric M. Aldrich, Hasan Ali Demirci und Kristian López Vargas
2019. Journal of Behavioral and Experimental Finance, pp. 1-24.
Keywords: Market design, Experimental finance, Algorithmic trading, Laboratory experiments, Economic software
Abstract: This document presents an architecture for experiments in finance. The architecture builds on oTree, a modern platform for behavioral experiments, allowing for sophisticated economic environments, market institutions, and trader strategies. The system supports both continuous-and discrete-time markets, and allows for communication latencies at time resolutions of 10–20 ms. Such precise communication latencies facilitate the experimental study of high-frequency trading. The architecture also modularizes its main components, which makes the system flexible, portable, and scalable.
Link zum Artikel: An oTree-Based Flexible Architecture for Financial Market Experiments
Attention and Selection Effects
Sandro Ambuehl, Axel Ockenfels und Colin Stewart
2019. Working Paper.
Keywords: experiment, rational inattention, repugnant transactions, incentives.
Abstract: Many transactions involve uncertain but learnable consequences. Who responds more to incentives to participate, individuals who find it easier to learn about consequences or those for whom it is more difficult? We show theoretically and experimentally that incentives disproportionately attract those with high learning costs. These participants’ decisions rest on worse information, rendering ex post regret more likely. Selection based on learning costs is substantially more pronounced than selection on risk preferences in many of our treatments. Our results apply to a wide range of economic transactions and, moreover, highlight a conflict between participation incentives and ethical principles of informed consent.
Link zum Artikel: Attention and Selection Effects
Die Mutter aller Kooperationsprobleme
Axel Ockenfels und Christoph M. Schmidt
2019. Zeitschrift für Wirtschaftspolitik 68(2), pp. 122-130
Abstract: The discussion of climate policy received new impetus in the spring of 2019. Since then the topic has dominated the public discourse in Germany. The Fridays for Future movement continues to generate considerable pressure on policy makers. In addition, scientists emphasize in rare interdisciplinary unanimity both how urgent a radical renewal in climate policy would be, and that a uniform price for greenhouse gas emissions is the indispensable core element of the necessary reforms in Germany and Europe. One central aspect of climate policy is, however, often overlooked in all this: climate protection is essentially an international problem of cooperation. For climate change, it does not matter where greenhouse gases are emitted. The success of national climate policy must therefore be judged by whether it contributes to establishing international cooperation to reduce global greenhouse gas emissions.
Link zum Artikel: Die Mutter aller Kooperationsprobleme
Direct pricing accommodates moral behavior
Axel Ockenfels, Peter Werner und Ottmar Edenhofer
2019. Working paper.
Abstract: To measure how moral behavior interacts with pricing regimes, we conduct highly controlled experiments in which trading creates pollution. We compare indirect pricing (a cap-and-trade mechanism in our experiment) and direct pricing (a tax) in an otherwise equivalent setting in which ‘producers’ are incentivized to emit CO2. ‘Judges’ decide on central trading parameters that may restrict socially harmful activities. Profit-maximization predicts the same producer behavior, not affected by CO2 externalities. Yet, we find a significant share of producers refraining from emitting CO2 at all. Even though judges restrict behavior in similar ways across mechanisms, direct pricing is more effective to accommodate moral behavior than capping pollution.
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Experiments in high-frequency trading: comparing two market institutions
Eric M. Aldrich und Kristian López Vargas
2019. Experimental Economics, pp. 1-31.
Keywords: Market design, Auctions, High-frequency trading, Continuous double auction, Frequent batch auction.
Abstract: We implement a laboratory financial market where traders can access costly technology that reduces communication latency with a remote exchange. In this environment, we conduct a market design study on high-frequency trading: we contrast the performance of the newly proposed frequent batch auction (FBA) against the continuous double auction (CDA), which organizes trades in most exchanges worldwide. Our evidence suggests that, relative to the CDA, the FBA exhibits (1) less predatory trading behavior, (2) lower investments in low-latency communication technology, (3) lower transaction costs, and (4) lower volatility in market spreads and liquidity. We also find that transitory shocks in the environment have substantially greater impact on market dynamics in the CDA than in the FBA.
Link zum Artikel: Experiments in high-frequency trading: comparing two market institutions
Market Design, Human Behavior and Management
Yan Chen, Peter Crampton, John A. List und Axel Ockenfels
2019. Working paper.
Abstract: We review past research and forecast future directions on how the rapidly growing areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback system design in online markets, matching market design in education, and the design of labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior mechanisms in practice.
Link zum Artikel: Market Design, Human Behavior and Management
Sandro Ambuehl, B. Douglas Bernheim und Axel Ockenfels
2019. CESifo Working Paper No. 7762.
Keywords: paternalism, libertarianism, welfare economics, experiment, false consensus bias.
Abstract: We study experimentally when, why, and how people intervene in others' choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs frequently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. We consider several hypotheses concerning CAs' motives. A conventional behavioral welfarist acts as a correctly informed social planner; a mistakes-projective paternalist removes options she wishes she could reject when choosing for herself; an ideals-projective paternalist seeks to align others' choices with her own aspirations. Ideals-projective paternalism provides the best explanation for interventions in the laboratory and rationalizes support for actual paternalistic policies.
Link zum Artikel: Projective Paternalism
Using Technology to Eliminate Traffic Congestion
Peter Cramton, R. Richard Geddes und Axel Ockenfels
2019. Journal of Institutional and Theoretical Economics (JITE), Vol. 175, No.1, pp. 126-139.
Keywords: congestion pricing, dynamic road pricing, transport market design.
Abstract: Traffic congestion is a pervasive worldwide problem. We explain how to harness existing technologies together with new methods in time-and-location markets to eradicate traffic congestion along with its attendant social harms. Our marketdesign for road use builds on congestion pricing and models of efficient pricing in the electricity sector. The market maximizes the value of a transport network through efficient scheduling, routing, and pricing of road use. Privacy and equity concerns are addressed. Transparent price information provides essential infor-mation for efficient long-term investment in transport.
Link zum Artikel: Using Technology to Eliminate Traffic Congestion
Personal Information Disclosure under Competition for Benefits: Is Sharing Caring?
Viola Ackfeld und Werner Güth
2019. Working paper.
Keywords: Personal information disclosure, Incentives, Social pressure, Experiment.
Abstract: Personal information is shared extensively every day, partly in exchange for benefits or as a reaction to other people’s information sharing. In this paper, we experimentally in- vestigate these two motives by analyzing the interaction of peer comparison and incentives to disclose potentially privacy-sensitive information. We find that information sharing is higher under incentives, and further increases under peer comparison. This effect is driven by those initially disclosing less, who additionally report to feel more compelled to reveal information. Our results provide an explanation for the current information sharing trend while pointing to a potentially neglected side effect.
Order Protection through Delayed Messaging
Eric M. Aldrich und Daniel Friedman
2018. Working Paper.
Keywords: Market design, high-frequency trading, continuous double auction, IEX, labexperiments.
Abstract: Several financial exchanges recently introduced messaging delays (e.g., the 350 microseconddelay at IEX and NYSE American) to protect ordinary investors from high-frequency traderswho exploit stale orders. To capture the impact of such delays, we propose a simple parametricmodel of the continuous double auction market format. The model features a discrete pricegrid and pegged orders, and is solved in closed form. It shows how messaging delay can in-deed lower transactions costs but typically increases queuing costs. Some of the model’s manycomparative static predictions are testable in the field and others are testable in a laboratory environment.
Link zum Artikel: Order Protection through Delayed Messaging