Fair Divisions as Attracting Nash Equilibria of Simple Games

We consider the problem of allocating a finite number of divisible homogeneous goods to N = 2 individuals, in a way which is both envy-free and Pareto optimal. Building on Thomson (2005 Games and Economic Behavior), a new simple mechanism is presented here with the following properties: a) the mechanism fully implements the desired divisions, i.e. for each preference profile the set of equilibrium outcomes coincides with the set of fair divisions; b) the set of equilibria is a global attractor for the best-reply dynamics. Thus, players myopically adapting their strategies settle down in an fair division. The result holds even if mixed strategies are used.Fair divisions, envy-free, implementation, best reply dynamics

The Hidden Effect of Rules: Behavioural consequences of Obligations

How formal institutions (e.g. laws and public policies) affect human behaviour represents a crucial issue in economic analysis. Formal rules are defined as obligations backed by incentives. The economic literature has largely studied the role of material incentives in shaping individual behaviour. Yet, the role of obligations, i.e. what formal rules ask people to do or not to do, remains a black box. In this paper we run a public good game to analyze the behavioural effects of obligations. We find experimental evidence that obligations can affect cooperative behaviour both by coordinating conditional co-operators’ beliefs on others’ behaviour and by directly affecting social preferences. Our results shed a new light on the behavioural channels through which formal rules can affect individual behaviour and suggest the opportunity to broaden the scope of analysis in order to better understand the effects of institutions on economic outcomes.Beliefs, Human Behaviour, Incentives, Obligations, Preferences, Public Good Game.

The Social Multiplier of Tax Evasion: Evidence from Italian Audit Data

We investigate the role of individual interdependencies in tax evasion, arising from congestion on the auditing resources available to local tax authorities. Identification exploits a novel method based on comparison of the variance of individual behavior — concealed income in this case — at different levels of aggregation, within different subpopulations (Graham, 2008). This method allows us to mitigate some of the most severe problems that surround identification of neighbourhood effects, at the cost of identifying restrictions that arise naturally from our model. We employ a unique dataset of tax audits to about 75,000 self-employed individuals in Italy. Surprisingly, this sample is not statistically different from a random sample of taxpayers. We find a social multiplier of about 3, meaning that the equilibrium response to a shock that induces an exogenous variation in mean concealed income — such as tougher or looser tax enforcement — is about three times the initial average responsesocial interactions, social multiplier, tax evasion, tax compliance, excess variance

Law and Behaviours in Social Dilemmas: Testing the Effect of Obligations on Cooperation

Laws consist of two components: the ‘obligations’ they express and the ‘incentives’ designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time.Obligation, Incentives, Public Good Game, Experiments.

Law and Behaviours in Social Dilemmas: Testing the Effect of Obligations on Cooperation

Laws consist of two components: the 'obligations' they express and the 'incentives' designed to enforce them.In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas.The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions.Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation.Nonetheless, obligations per se cannot sustain cooperation over time.Incentives;Obligations;Public Good Game;Social Dilemma

Indirect Effects of a Policy Altering Criminal Behaviour: Evidence from the Italian Prison Experiment

We exploit the Collective Clemency Bill passed by the Italian Parliament in July 2006 to evaluate the indirect effects of a policy that randomly commutes actual sentences to expected sentences for 40 percent of the Italian prison population. We estimate the direct and indirect impact of the residual sentence – corresponding to a month less time served in prison associated with a month of expected sentence – at the date of release on individual recidivism. Using prison, nationality and region of residence to construct reference groups of former inmates, we find large indirect effects of this policy. In particular, we find that the reduction in the individuals’ recidivism due to an increase in their peers’ residual sentence is at least as large as their response to an increase in their own residual sentence. From this result we estimate a social multiplier in crime of 2.Crime, Natural Experiment, Indirect Effects of Policies, Social Interactions

Indirect Effects of a Policy Altering Criminal Behaviour: Evidence from the Italian Prison Experiment

We exploit the Collective Clemency Bill passed by the Italian Parliament in July 2006 to evaluate the indirect effects of a policy that randomly commutes actual sentences to expected sentences for 40 percent of the Italian prison population. We estimate the direct and indirect impact of the residual sentence – corresponding to a month less time served in prison associated with a month of expected sentence – at the date of release on individual recidivism. Using prison, nationality and region of residence to construct reference groups of former inmates, we find large indirect effects of this policy. In particular, we find that the reduction in the individuals' recidivism due to an increase in their peers’ residual sentence is at least as large as their response to an increase in their own residual sentence. From this result we estimate a social multiplier in crime of 2.crime, social interactions, indirect effects

The timing and funding of CHAPS sterling payments

Real-time gross settlement (RTGS) systems such as CHAPS Sterling require large amounts of liquidity to support payment activity. To meet their liquidity needs, RTGS participants borrow from the central bank or rely on incoming payments from other participants. Both options can prove costly -- the latter in particular if participants delay outgoing payments until incoming ones arrive. This article presents an empirical analysis of the timing and funding of payments in CHAPS. The authors seek to identify the factors driving the intraday profile of payment activity and the extent to which incoming funds are used as a funding source, a process known as liquidity recycling. They show that the level of liquidity recycling in CHAPS is high and stable throughout the day, and attribute this result to several features of the system. First, the settlement of time-critical payments provides liquidity to the system early in the settlement day; this liquidity can be recycled for the funding of less urgent payments. Second, CHAPS throughput guidelines provide a centralised coordination mechanism, in effect limiting any tendency toward payment delay. Third, the relatively small direct membership of CHAPS facilitates coordination between members, for example, through the use of bilateral net sender limits. Coordination encourages banks to maintain a relatively constant flux of payments throughout the day. The authors also argue that the high level of recycling helps to reduce liquidity risk, and that the relatively smooth intraday distribution of payments serves to mitigate operational risk associated with highly concentrated payment activity. They note, however, that the benefits of liquidity recycling are not evenly distributed between members of CHAPS.Payment systems ; Bank liquidity ; Risk ; Electronic funds transfers