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Heterogeneity and Partnership Dissolution Mechanisms: Theory and Lab Evidence

Thomas Kittsteiner, Axel Ockenfels and Nadja Trhal
2012. Economic Letters, 117, 394–396.
We experimentally compare two partnership dissolution mechanisms, the widely-used buy-sell clause and the winner’s bid auction. While standard theory does well in organizing many laboratory patterns, it does not easily capture that many subjects bid valuations, especially in the buy-sell clause. As a result of this behavior, the buy-sell clause weakly outperforms the auction with respect to efficiency.

Beyond the need to boast: Cost concealment incentives and exit in Cournot oligopoly

Jos Jansen
2012. Research in Economics, 66, 239-245.

This paper studies the incentives for production cost disclosure in an asymmetric Cournot oligopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitors from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firms is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.

Wege zu einer wirksamen Klimapolitik

Achim Wambach, Friedrich Breyer, Roman Inderst, Axel Ockenfels, Carl Christian von Weizsäcker et al.
2012. Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Technologie, Zeitschrift für Energiewirtschaft, 36, 1-7.

Wege zu einer wirksamen Klimapolitik

Balancing Power Markets in Germany: Timing Matters

Felix Müsgens, Axel Ockenfels and Markus Peek
2012. Zeitschrift für Energiewirtschaft, 36: 1-7.

This paper analyzes timing issues on the German balancing power market. We focus the analysis on the length of the bidding period, i.e. the length of the time period a supplier has to provide balancing power capacities, and the question of how far before the beginning of a bidding period the auction should be carried out. We show that different load levels require different plants for the optimal provision of balancing power. In a longer bidding period, the power plants that have the lowest average cost in the bidding period are unlikely to be efficient in all hours of the bidding period. Hence, shortening bidding periods can increase efficiency. Furthermore, we show that an early commitment on a power plant’s mode of operation (when uncertainty about resulting spot prices is still relatively high) also reduces efficiency. This suggests that the auction should be held relatively close to the beginning of the bidding period. Furthermore, we discuss some advantages of a liquid real time market.

Behavioral economic engineering

Gary E. Bolton and Axel Ockenfels
2012. Journal of Economic Psychology, 33(3), 665-676.

Economic engineering is the science of designing real-worl institutions and mechanisms that align individual incentives and behavior with the underlying goals. This paper discusses why behavioral economic engineering is a promising research field, how behavioral phenomena may affect economic engineering, and the role of theory and laboratory experiments for behavioral economic engineering in practice. We provide examples, many from our own work.

Managers and Students as Newsvendors

Gary E. Bolton, Axel Ockenfels and Ulrich Thonemann
2012. Management Science, 58(12), 2225-2233.

We compare how experienced procurement managers and students solve the newsvendor problem. We find that managers broadly exhibit the same kind of pull-to-center bias as do students. Also, managers use information and task-training no better than students. The performance of managers is positively affected by the level of their education and their level in the organizational hierarchy. We discuss implications for theory and for how ordering might be improved in practice.

Managers and Students as Newsvendors - Online Appendix

Internet Auctions

Ben Greiner, Axel Ockenfels and Abdolkarim Sadrieh
2012. In: The Oxford Handbook of the Digital Economy, M. Peitz and J. Waldfogel (eds.), Oxford: Oxford University Press.

Hiding behind a small cake' in a newspaper dictator game

Axel Ockenfels and Peter Werner
2012. Journal of Economic Behavior and Organization, 82(1), 82-85.

We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper “Welt am Sonntag”, employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', indicating that beliefs directly enter the social utility function. 

The Dynamic Interplay of Inequality and Trust - An Experimental Study

Ben Greiner, Axel Ockenfels and Peter Werner
2012. Journal of Economic Behavior & Organization, 81(2), 355-365.

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.

Economics and design of capacity markets for the power sector

Peter Cramton and Axel Ockenfels
2012. Zeitschrift für Energiewirtschaft, 36(2), 113-134.

Capacity markets are a means to assure resource adequacy. The need for a capacity market stems from several market failures the most prominent of which is the absence of a robust demand-side. Limited demand response makes market clearing problematic in times of scarcity. We present the economic motivation for a capacity market, present one specific market design that utilizes the best design features from various resource adequacy approaches analyzed in the literature, and we discuss other instruments to deal with the problems. We then discuss the suitability of the market for Europe and Germany in particular.

Economics and design of capacity markets for the power sector

Negotiating reputations

Axel Ockenfels and Paul Resnick
2012. In: The Oxford Handbook of Economic Conflict Resolution, Gary Bolton, and Rachel Croson (eds.), Oxford: Oxford University Press.

Reputation information is useful to make markets and negotiations function when there is a threat of moral hazard or adverse selection. But what happens when the reputation information itself is endogenously provided? We explore the role of feedback provision as a lever in negotiations over the surplus from trade, and the impact of its negotiated status on the functioning of the reputation system. Throughout, we summarize evidence from laboratory experiments and field data from eBay.

Menschen und Märkte: Die Wirtschaftswissenschaft als Ingenieurwissenschaft

Axel Ockenfels and Achim Wambach
2012. Orientierungen zur Wirtschafts- und Gesellschaftspolitik, 134(4), 55-60.
(A translation "Men and Markets: Economics as Engineering Science" appeared in the Journal of European Economy, 12(1), March 2013, 107-116.)

So wird aus Wissenschaft Wirklichkeit

Axel Ockenfels
2012. Welt am Sonntag. 21 October, 43.

The Agen­cies Me­thod for Co­ali­ti­on For­ma­ti­on in Ex­pe­ri­men­tal Games

John F. Nash, Rosemarie Nagel, Axel Ockenfels and Reinhard Selten
2012. Pro­cee­dings of the Na­tio­nal Aca­de­my of Sci­en­ces, 109(50), 20358-20363.

In society, power is often transferred to another person or group. A previous work studied the evolution of cooperation among robot players through a coalition formation game with a non-cooperative procedure of acceptance of an agency of another player. Motivated by this previous work, we conduct a laboratory experiment on finitely repeated three-person coalition formation games. Human players with different strength according to the coalition payoffs can accept a transfer of power to another player, the agent, who then distributes the coalition payoffs. We find that the agencies method for coalition formation is quite successful in promoting efficiency. However, the agent faces a tension between short-term incentives of not equally distributing the coalition payoff and the long-term concern to keep cooperation going. In a given round, the strong player in our experiment often resolves this tension approximately in line with the Shapley value and the nucleolus. Yet aggregated over all rounds, the payoff differences between players are rather small, and the equal division of payoffs predicts about 80% of all groups best. One reason is that the voting procedure appears to induce a balance of power, independent of the individual player's strength: Selfish subjects tend to be voted out of their agency and are further disciplined by reciprocal behaviors.

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