Distribution and Dynamics in a Simple Tax Regime Transition

We examine transitions between excise tax and license fee regimes in the laboratory. The regimes have matched equilibrium Marshallian surplus, but license fees generate more tax revenue. The license fees are large “avoidable costs,” known to hamper competitive equilibrium convergence. With moderately experienced subjects, the prolonged transition to the license fee equilibrium has these features: (1) Prices below equilibrium levels, resulting in firm losses; (2) Marshallian surplus above equilibrium levels; and (3) transitional windfalls for the tax authority. With highly experienced subjects, license fees lead to the instability and lower seller profits and efficiency observed in past avoidable cost markets.Tax Regime Transitions, Avoidable Costs, Double Auctions, Experimental Methods.

Off-Floor Trading, Disintegration and the Bid-Ask Spread in Experimental Markets

This article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid-ask spread in double-auction trading. The opportunity to trade off floor is then introduced. Off-floor trading is greater in the environment with a wider bid-ask spread, increases with block trading, and increases still more with increasing subject experience. Finally, we find that the preponderance of off-floor trades are inside the bid-ask spread, supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid-ask spread without revealing publicly a willingness to make price concessions

Call versus continuous auctions: An experimental study of market organization.

The results from 17 new experiments and 19 previously reported experiments are compared in an investigation of call and continuous auctions. The call auction used is the computerized PLATO sealed bid/offer (SBO), uniform price auction. The continuous auction used is the PLATO double auction (DA), a computerized version of the "open outcry" double auction. The SBO call auction has temporal consolidation of market orders and has limited information about trading activity. The continuous DA auction is characterized by sequential bilateral trades, and trading information (bids, offers, and prices) is publicly displayed. The paper first explores the effect of multiple crossings per trading period in the SBO call auction. Next, a comparison of SBO and DA is made, based on market experiments using flow supply and demand schedules. The institutional comparison is then extended to experimental asset markets. The results imply the following. First, multiple calls per period increase the efficiency of the SBO call auction, relative to one call per period, but they also induce greater misrepresentation of costs and values in the first crossing each period. Buyers and sellers also withhold units from the first crossing in a further attempt to gain strategic advantage. However, neither the withholding nor the misrepresentation appears to have any substantial influence on price. Second, the SBO auction with two calls per period is as efficient as the DA auction. In markets with a random competitive equilibrium (CE) each period, the SBO auction does a better job than DA at tracking the random CE price. Thus the SBO auction is equally as efficient as the DA, and has the further attributes of lower price volatility and greater privacy. Third, in laboratory asset markets, the SBO auction exhibits price bubbles similar to those observed in DA markets. Price dynamics in the two institutions are comparable, despite the stark differences in order flow and information dissemination

An Analysis of Human Risk Aversion and Irrationality in Driving

Morgan Williams is a rising junior in Economics and Mathematics, and mentored by Mark Van Boening, Ph.D., Professor of Economics

Fairness in an Embedded Ultimatum Game

We embed an ultimatum game in a stylized legal bargaining framework. This changes the framing of the standard ultimatum game in several ways but also moves the bargaining closer to what is found in some naturally occurring settings. In this context, the ultimatum game is played over the joint surplus, which is achieved from settlement rather than a dispute. In our embedded ultimatum game, the median offer contains only 8 percent of the joint surplus from settlement. When we replicate the simple ultimatum game, we find that 50 percent of the joint surplus is contained in the median offer. (c) 2010 by The University of Chicago. All rights reserved..

Bargaining and Information: An Empirical Analysis of A Multistage Arbitration Game.

We conduct an experimental analysis of final offer arbitration (FOA) with differentially informed players. Under FOA, the arbitrator must choose one of the two submitted offers. In our control, the uninformed player makes an offer to the informed player prior to the submission of offers to the arbitrator. The treatment allows negotiation after offers are submitted to the arbitrator. Because these offers are potentially binding, they may transmit privately held information and, thereby, lower the dispute rate. We find that allowing negotiation in the face of potentially binding offers lowers the dispute rate by 27 percentage points. Copyright 2001 by University of Chicago Press.

Exogenous Uncertainty Increases the Bid–Ask Spread in the Continuous Double Auction

This chapter focuses on the exogenous uncertainty increases the bid–ask spread in the continuous double auction. These experiments demonstrate that exogenous uncertainty can increase the bid–ask spread in the continuous double auction. This chapter observes greater mean and median spreads, and a greater probability of a large spread in double auctions with randomly shifting perperiod supply and demand than in double auctions with constant supply and demand. These results, and many others, demonstrate that even in the absence of transaction cost or information asymmetry, positive bid–ask spreads are observed and wider spreads are observed when there is greater uncertainty in the environment. A measurement problem associated with the prediction is that contracts may and often do occur without a defined bid–ask spread or before that spread has a chance to narrow. Thus, a bid may be entered and accepted before an ask price is established