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on Evolutionary Economics |
| By: | Guido Tabellini |
| Abstract: | Does culture have a causal effect on economic development? The data on European regions suggest that it does. Culture is measured by indicators of individual values and beliefs, such as trust and respect for others, and confidence in individual self-determination. To isolate the exogenous variation in culture, I rely on two historical variables used as instruments: the literacy rate at the end of the XIXth century, and the political institutions in place over the past several centuries. The political and social history of Europe provides a rich source of variation in these two variables at a regional level. The exogenous component of culture due to history is strongly correlated with current regional economic development, after controlling for contemporaneous education, urbanization rates around 1850 and national effects. Moreover, the data do not reject the over-identifying assumption that the two historical variables used as instruments only influence regional development through culture. The indicators of culture used in this paper are also strongly correlated with economic development and with available measures of institutions in a cross-country setting. |
| Keywords: | culture, economic development, trust, literacy, institutions |
| JEL: | F10 N13 O10 P10 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1492&r=evo |
| By: | Pastine, Tuvana |
| Abstract: | In an observational learning environment rational agents may mimic the actions of the predecessors even when their own signal suggests the opposite. In case early movers’ signals happen to be incorrect society may settle on a common inefficient action, resulting in an inefficient informational cascade. This paper models observational learning in continuous time with endogenous timing of moves. This is the first paper with homogenous access to information that gives an analytical approximation for the probability of inefficient cascades. This permits the analysis of comparative statics results. In contrast to the general impression in the literature, the effect of an increase in signal quality on the likelihood of an inefficient cascade is shown to be non-monotonic. If agents do not have strong priors, an increase in signal quality may lead to a higher probability of inefficient herding. The analysis also suggests that markets with quick response to investment decisions, such as financial markets, are more prone to inefficient collapses. |
| Keywords: | comparative statics; herd manipulation; herding |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5120&r=evo |
| By: | Francois, Patrick |
| Abstract: | Despite the potential for free-riding, workers motivated by ‘making a difference’ to the mission or output of an establishment may donate labour to it. When the establishment uses performance related compensation (PRC), these labour donations closely resemble a standard private provision of public goods problem, and are not rational in large labour pools. Without PRC, however, the problem differs significantly from a standard private provision of public goods situation. Specifically, in equilibrium: there need not be free-riding, decisions are non-monotonic in valuations, and contribution incentives are significant even in large populations. When PRC is not used, the establishment tends to favour setting low wages which help to select a labour force driven by concern for the firm’s output. Expected output can actually fall with the wage in this situation. For sufficiently high levels of risk aversion, performance related pay can yield less expected output than when compensation is output independent. |
| Keywords: | incentive schemes; privately provided public goods; public sector employment; voluntarism |
| JEL: | H11 H41 H83 J45 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5158&r=evo |
| By: | Ed Hopkins; Josef Hofbauer; Michel Benaim |
| Abstract: | We investigate games whose Nash equilibria are mixed and are unstable under fictitious play-like learning processes. We show that when players learn using weighted stochastic fictitious play and so place greater weight on more recent experience that the time average of play often converges in these “unstable” games, even while mixed strategies and beliefs continue to cycle. This time average is related to the best response cycle first identified by Shapley (1964). For many games, the time average is close enough to Nash equilibrium to create the appearance of convergence to equilibrium. We discuss how these theoretical results may help to explain data from recent experimental studies of price dispersion. |
| Keywords: | Games, Learning, Best Response Dynamics, Stochastic Fictitious Play, Mixed Strategy Equilibria, TASP. |
| JEL: | C72 C73 D84 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:135&r=evo |
| By: | Ziv Gorodeisky |
| Abstract: | We consider stability properties of equilibria in stochastic evolutionary dynamics. In particular, we study the stability of mixed equilibria in strategic form games. In these games, when the populations are small, all strategies may be stable. We prove that when the populations are large, the unique stable outcome of best-reply dynamics in 2 x 2 games with a unique Nash equilibrium that is completely mixed is the mixed equilibrium. The proof of this result is based on estimating transition times in Markov chains. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp397&r=evo |
| By: | Gil Kalai; Shmuel Safra |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp398&r=evo |
| By: | Roland Bénabou (Princeton University, CEPR, NBER and IZA Bonn); Jean Tirole (Institut d’Economie Industrielle (IDEI), GREMAQ, CERAS and MIT) |
| Abstract: | We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed and this "overjustification effect" can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify settings that are conducive to multiple social norms and those where disclosing one’s generosity may backfire. Finally, we analyze the choice by public and private sponsors of incentive levels, their degree of confidentiality and the publicity given to agents’ behavior. Sponsor competition is shown to potentially reduce social welfare. |
| Keywords: | altruism, rewards, motivation, esteem, crowding out, overjustification effect, identity, social norms, morals, greed, psychology |
| JEL: | D64 D82 H41 Z13 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1695&r=evo |
| By: | Ernst Fehr (University of Zurich); Jean-Robert Tyran (Department of Economics, University of Copenhagen) |
| Abstract: | There is abundant evidence that many individuals violate the rationality assumptions routinely made in economics. However, powerful evidence also indicates that violations of individual rationality do not necessarily refute the aggregate predictions of standard economic models that assume full rationality of all agents. Thus, a key question is how the interactions between rational and irrational people shape the aggregate outcome in markets and other institutions. We discuss evidence indicating that strategic complementarity and strategic substitutability are decisive determinants of aggregate outcomes. Under strategic complementarity, a small amount of individual irrationality may lead to large deviations from the aggregate predictions of rational models, whereas a minority of rational agents may suffice to generate aggregate outcomes consistent with the predictions of rational models under strategic substitutability. |
| Keywords: | bounded rationality; strategic interaction; strategic complementarity |
| JEL: | D50 D84 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0509&r=evo |
| By: | B. Douglas Bernheim; Antonio Rangel |
| Abstract: | This paper has two goals. First, we discuss several emerging approaches to applied welfare analysis under non-standard ("behavioral") assumptions concerning consumer choice. This provides a foundation for Behavioral Public Economics. Second, we illustrate applications of these approaches by surveying behavioral studies of policy problems involving saving, addiction, and public goods. We argue that the literature on behavioral public economics, though in its infancy, has already fundamentally changed our understanding of public policy in each of these domains. |
| JEL: | D0 D1 D6 D9 H0 H1 H4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11518&r=evo |
| By: | Bruce Sacerdote; David Marmaros |
| Abstract: | We examine how people form social networks among their peers. We use a unique dataset that tells us the volume of email between any two people in the sample. The data are from students and recent graduates of Dartmouth College. First year students interact with peers in their immediate proximity and form long term friendships with a subset of these people. This result is consistent with a model in which the expected value of interacting with an unknown person is low (making traveling solely to meet new people unlikely), while the benefits from interacting with the same person repeatedly are high. Geographic proximity and race are greater determinants of social interaction than are common interests, majors, or family background. Two randomly chosen white students interact three times more often than do a black student and a white student. However, placing the black and white student in the same freshman dorm increases their frequency of interaction by a factor of three. A traditional "linear in group means" model of peer ability is only a reasonable approximation to the ability of actual peers chosen when we form the groups around all key factors including distance, race and cohort. |
| JEL: | J0 J2 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11530&r=evo |
| By: | Dorothee Schmidt (Department of Economics, Johannes Gutenberg University of Mainz, Germany) |
| Abstract: | In recent debates, morality or social norms have been proposed as an instrument to reduce conflict behavior. As the argument goes, moral people will not engage in socially not-tolerated behavior or, less so than amoral people. Analyzing this question in the framework of contest theory, we find that if morality can discriminate between appropriation and defense, it is an effective instrument to lower socially unwanted behavior and support the enforcement of property rights. If it cannot discriminate between these different conflict efforts, strategic effects due to a one-sided increase in morality might actually lead to total increased conflict effort in the economy. |
| Keywords: | Contests, property right enforcement, morality, education |
| JEL: | D72 D74 I20 K42 Z13 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2005_12&r=evo |