Protection in government procurement auctions

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.Discrimination against foreign bidders in procurement auctions has typically been achieved by price preferences, that is, a policy of accepting a range of higher prices from a domestic firm over a lower price from a foreign firm. We demonstrate that in the bidding game, each level of protection via a price preference can be achieved by an equivalent tariff. When government welfare depends only on net expenditures, this equivalence carries over to the government’s decision. As such, agreements to eliminate price preferences may be unsuccessful unless accompanied by tariff limitations. On the other hand, if tariff collection is costly, then even without tariff limits banning price preferences lowers protection and increases global welfare.The authors acknowledge that this paper is produced as part of the project “Globalization, Investment and Services Trade (GIST) Marie Curie Initial Training Network (ITN)” funded by the European Commission under its Seventh Framework Programme - Contract No. FP7-PEOPLE-ITN-2008-211429

Information Aggregation in Arrow-Debreu Markets: An Experiment

This is the author accepted manuscript. The final version is available from Springer Verlag via the DOI in this record.Studies of experimental and betting markets have shown that markets are able to efficiently aggregate information dispersed over many traders. We study information aggregation in Arrow-Debreu markets using a novel information structure. Compared to previous studies, the information structure is more complex, allows for heterogeneity in information among traders – which provides insights into the way in which information is gradually disseminated in the market – and generates situations in which all traders hold identical beliefs over the traded assets’ values, thus providing a harsh stress test for belief updating. We find little evidence for information aggregation and dissemination in early rounds. Nonetheless, after traders gain experience with the market mechanism and structure, prices converge to reveal the true state of the world. Elicited post-market beliefs reveal that markets are able to efficiently aggregate dispersed information even if individual traders remain uninformed, consistent with the marginal trader hypothesis

Decision Making With Risk-Based Weather Warnings

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.We study decisions under different weather warning systems that vary in format and/or information conveyed using a laboratory experiment. Participants have to decide between a safe but costly option (spending to protect from a storm) and a risky option (of not spending for protection). We ran three treatments based upon the severe weather warning system for the UK that the Met Office has been using since 2011, using a risk matrix to communicate the impact and likelihood of an event. In Treatment 1, participants received a colored table with a check in the box of the matrix that showed the likelihood and impact level of the warning. In Treatment 2, participants only had the colored table without a check in the exact box, but with the color of the warning communicated. In Treatment 3, participants only had the color of the warning communicated without seeing the associated table. Overall our work shows that while increasing the information with content of warnings is usually beneficial and increases the trust in the warning system. it must be done with caution since better decisions (judged by higher profits) are not always made with an increase of information

Cooperation through Coordination in Two Stages

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this recordEfficient cooperation often requires coordination, such that exactly one of two players takes an available action. If the decisions whether to pursue the action are made simultaneously, then neither or both may acquiesce leading to an inefficient outcome. However, inefficiency may be reduced if players move sequentially. We test this experimentally by introducing repeated two-stage versions of such a game where the action is individually profitable. In one version, players may wait in the first stage to see what their partner did and then coordinate in the second stage. In another version, sequential decision-making is imposed by assigning one player to move in stage one and the other in stage two. Although there are fewer cooperative decisions in the two-stage treatments, we show that overall subjects coordinate better on efficient cooperation and on avoiding both acquiescing. Yet, only some pairs actually achieve higher profits, while the least cooperative pairs do worse in the two-stage games than their single-stage counterparts. For these, rather than facilitating coordination, the additional stage invites unsuccessful attempts to disguise uncooperative play, which are met with punishment

An introduction to a critique of Bernheim & Sprenger (2020) and a response by the authors

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record

Two-stage contests with preferences over style

This is the final version. Available on open access from Springer via the DOI in this recordMany grant applications have a preliminary stage where only a select group are invited to submit a full application. Similarly, procurement contracts by governments are often awarded through a two-stage procedure. We model and analyze such environments where the designer cares about the style of the application as well as its quality. The designer has the option of choosing an initial stage, where contestants can enter and learn about their desirability while the designer learns about their style. We determine closed form solutions for equilibrium outcomes and designer payoffs and use this to analyze whether or not a second stage is desirable, different rules for deciding who will advance, and whether or not to communicate the number of contestants that qualify for the second stage.Author accepted manuscript replaced with published version by Caroline Huxtable on 2021-10-1

When Costly Voting is Beneficial

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.We present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote. When there is a zero cost to voting, all voters vote and hence all values are counted equally regardless of how high they may be. By having a cost to voting, only those with high enough values would choose to incur this cost. We show that, by adding this cost, welfare may be enhanced even when the cost of voting is wasteful. Such an e§ect occurs when there is both a large enough density of voters with low values and the expected value of voters is high enough

Manipulation and (mis)trust in prediction markets

This is the author accepted manuscript. The final version is available from INFORMS via the DOI in this recordMarkets are increasingly used as information aggregation mechanisms to predict future events. If policy makers and managers use markets to guide policyandmanagerialdecisions,interestedpartiesmayattempttomanipulate the market in order to influence decisions. We study experimentally the willingness of managers to base decisions on market information under the shadow of manipulation. We find that when there are manipulators in the market, managers under-utilize the information revealed in prices. Furthermore, mere suspicion of manipulation erodes trust in the market, leading to the implementation of suboptimal policies—even without actual manipulation.International Foundation for Research in Experimental EconomicsNational Science Foundation of Chin

Altering Wait Time Information to Reduce A&E Overcrowding

This is the final versionUniversity of Exeter Economics Department Discussion Papers SeriesA&E overcrowding is an important problem since many are not seen in a sufficiently quick time. There is evidence that the situation can be improved without adding additional resources by diverting would-be A&E patients to alternative centres of urgent care, for example, Minor Injury Units (MIUs). The aim of this paper is to investigate how access to information on waiting times may influence decision making. We collect laboratory data where subjects are offered a choice between receiving treatment at A&E and MIU. The subjects face a random delay at the A&E but a known wait at the MIU. We manipulate the information that the subjects receive from the probabilities (risk) of the different waiting times at the A&E from known probabilities to merely a vague indication of the waiting time (ambiguity). We find that subjects demonstrate a strong preference for the A&E. Subjects display risk neutrality for the A&E waiting time but are ambiguity averse when waiting times are relatively short and ambiguity-seeking when waiting times are relatively long. This indicates that perhaps partial revelation of waiting times may be optimal. Our research will inform stakeholder decision-making at the operational level (such as individual UK National Health Service (NHS) Trusts) about strategy regarding the release of timing information.Torbay Medical Research FundEconomic and Social Research Council (ESRC)University of ExeterSouth West Academic Health Services Networ

Why do investment banks buy put options from companies?

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this recordCompanies have collected billions in premiums from privately sold put options written on their own stock. It is puzzling that counterparties, investment banks, would agree to make such transactions with better-informed companies which have extraordinary ability to time the market as documented by Jenter et al. (2011). To resolve this puzzle, we develop a model that shows that investment banks, by offering to buy put options from better-informed parties, receive private information about issuing companies. Our model also incorporates the practice of firms (such as Microsoft) of sometimes repurchasing their own put options and thus providing additional private information to investment banks. Empirically, we find support for our theory from an abnormal 9% increase in the stock prices and a 40% increase in the trading volumes around the put sales. Examination of 13D filings reveals that trading by upper management insiders cannot completely account for the change in volum