Ranking Asymmetric Auctions using the Dispersive Order

The revenue ranking of asymmetric auctions with two heterogenous bidders is examined. The main theorem identifies a general environment in which the first-price auction is more profitable than the second-price auction. By using mechanism design techniques, the problem is simplified and several extensions are made possible. Roughly speaking, the first-price auction is more profitable when the strong bidder's distribution is flatter and more disperse than the weak bidder's distribution. These sufficient conditions turn out to have appealing geometric and economic interpretations. The theorem applies to certain environments with multi-dimensional types. It is also possible, for the first time, to extend the ranking to auctions with reserve prices and to auctions with more bidders. Implications for contests architecture and other auction formats are also pursued.Asymmetric Auctions, Convex Transform Order, Dispersive Order, Multi-dimensional types, Revenue Ranking, Star order.

Incomplete Information and Rent Dissipation in Deterministic Contests

In a deterministic contest or all-pay auction, all rents are dissipated when information is complete and contestants are identical. As one contestant becomes "stronger", that is, values the prize more, total expenditures are known to decrease monotonically. Thus, asymmetry among contestants reduces competition and rent dissipation. Recently, this result has been shown to hold for other, non-deterministic, contest success functions as well, thereby suggesting a certain robustness. In this paper, however, the complete information assumption is shown to be crucial. With incomplete information -- regardless of how little -- total expenditures in a deterministic two-player contest increase when one contestant becomes marginally stronger, starting from a symmetric contest. In fact, both contestants expend resources more aggressively; with complete information, neither of them do so.All-pay auctions, Asymmetric auctions, Rent seeking.

Outsourcing and Skill Imports: Foreign High-Skilled Workers on H-1B and L-1 Visas in the United States

This working paper looks in detail at the H-1B and L-1 visa programs for temporary employment in the United States. Based on official data from the US Citizenship and Immigration Services and the US Department of State, H-1B and L-1 visa issuance rapidly increased in the late 1990s, followed by a marked slowdown after 2001. This points to the highly cyclical nature of both visa programs. Indian nationals and immigrants working in computer-related occupations dominate the H1-B and L-1 population in the United States, but these two groups are also found to be the most cyclical segment, with very large declines in inflows after 2001. The total population of H-1B visaholders in 2003 is estimated to range between 387,000 and 746,000, of which 160,000 to 306,000 were Indian nationals. As all data on H-1B/L-1 visaholders are gross numbers and gross jobs data for comparable categories are absent, the extent of the impact of these visa programs on the US labor market cannot be gauged precisely. A broad range of US industries and educational institutions are found to be employing H-1B recipients, with the IT industry being the dominant sector. Evidence of aggressive wage-cost cutting, including paying H-1B recipients only the legally mandated 95 percent of the prevailing US wage, is found among some H-1B employers, although no systematic abuse of the system is present.Outsourcing, offshoring, high-skilled labor, immigration, H1B/L-1 visas

Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe

Conventional wisdom holds that the United States is a country of low taxes and small government, while the European countries have much larger governments with a higher tax burden. Fully measuring the role of government in a society, however, requires more than a comparison of tax burdens or the gross size of government spending in GDP terms. A proper accounting of the total share of national economic output allocated to governmental tasks and social expenditures in the United States and Europe calls this supposed transatlantic difference into question. European countries do have a much higher tax burden than the United States. However, healthcare and educational services, including tertiary education, are overwhelmingly provided by the government in Europe, while in the United States these services are much more often provided through the private sector. When private-sector spending on education and healthcare are combined with total government spending, the share of GDP allocated to these typically governmental functions in the United States is nearly identical to that in most European countries. Likewise, European countries have much higher levels of public social expenditures than the United States, but when the tax treatment of social benefits and tax breaks targeted to social purposes are considered, total public and private-sector social expenditures in the United States and Europe are quite similar. Thus there is very little difference between the United States and Europe in the share of resources allocated to governmental tasks and social expenditures, with the exception of much higher US private-sector healthcare expenditures. There is, however, little empirical evidence that higher private-sector US healthcare spending produces noticably better healthcare outcomes. Equal existing total levels of expenditures suggests that reform of US social and economic institutions does not require greater total resources, but instead an adjustment of how and to what purposes these resources are allocated. The more extensive provision of frequently tax-benefitted governmental and social services indirectly through the private sector in the United States further shields recipient groups from the public scrutiny usually given to direct government transfers. Similarly, tax-benefitted indirect services provision may explain why Americans are more hostile to higher taxes than Europeans, who generally receive these services as a direct quid pro quo from their governments and are thus likely more disposed to paying taxes.

In Defense of Europe's Grand Bargain

The current European economic crisis is principally fiscal in nature. During the weekend of May 8-9, 2010, European leaders crafted a very important and constructive political "grand bargain" between EU member states and the European Central Bank (ECB) with far reaching, positive implications for the credibility of the European Union's fiscal policy framework and the long-term sustainability of European government finances. There is no chance that the eurozone will break up as a result of the current economic crisis and in the long term from the effects of the grand bargain. Leaving the euro will come at catastrophic cost to any nation that tries to do so out of economic weakness. If Greece is ultimately forced to default on its debts, it is certain the Greek government would want to do it within the eurozone. As such, a Greek default poses no risk to the composition of the eurozone, which considering that a German departure is equally unlikely is a secure monetary union. Kirkegaard suggests a set of required next steps for Europe: (1) European governments must immediately begin to address the lingering uncertainties surrounding the capital adequacy of the eurozone banking system; (2) it is crucial that eurozone governments, particularly among the Southern members, deliver expeditiously on the austerity and not least structural reform commitments recently made; and (3) the eurozone should consider introducing a potential "carrot" for members that successfully manage to put their government finances on a sustainable path. This carrot could come in the form of a future common "Maastricht bond," similar to the often suggested "eurobond," but open only to eurozone member s that actually adhere to the Maastricht Treaty debt stock criteria of a maximum level of government debt of 60 percent over an entire business cycle. A successfully launched pan-European Maastricht bond, backed by the credibility of years of painfully endured austerity measures across a sufficient number of participating member states, could achieve a scale and market depth not far off today's US treasury market. A Maastricht bond could consequently pose the first serious threat to an increasingly fragile US treasury market as the "global safe haven" asset.

Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff!

Offshoring and offshore outsourcing is increasingly affecting the EU-15, both in the manufacturing and services sectors. While no official statistics exist for the scope of the phenomenon, industry experts and press surveys point to a relatively limited extent of perhaps up to 2 percent of the workforce as affected. Offshoring and offshore outsourcing, similar to other trade, creates both domestic winners and losers. The EU-15 countries have the potential to become net beneficiaries from offshoring and offshore outsourcing, if they go ahead and implement the EU Lisbon Agenda with respect to labor market reforms and worker-skill upgrading. Furthermore, EU governments should take steps to promote the mobility of the workforce by increasingly linking social benefits to the willingness to move for work, thereby combating their archipelago of high unemployment enclaves, and to reform EU regional aid by shifting it from infrastructure spending to human capital investment.Offshoring, Outsourcing, Multinational Companies, European Union, Public Regulation, Labor Markets, Regional Aid

How Europe Can Muddle Through Its Crisis

Europe's financial market contagion is infecting systemically important eurozone members, causing a rise in demands that European policymakers make greater strides toward solutions. While Jacob Funk Kirkegaard believes that the European Union will do "whatever it takes" to save the euro and the eurozone, he argues that powerful political constraints prevent EU leaders from making optimal decisions. Europe can get through the current crisis by producing a compromise among member states in the form of a permanent European Stability Mechanism (ESM) with an option to issue a conditional Eurobond, which would aid eurozone members suffering asymmetric economic shocks in return for taking domestic reforms to return to a sustainable fiscal path. An ESM with a conditional Eurobond option offers a less clear-cut solution than a full fiscal union, a straightforward Eurobond, European Central Bank money-printing, or a breakup of the eurozone.