Economic Theory 

About: Economic Theory is an academic journal published by Springer Science+Business Media. The journal publishes majorly in the area(s): General equilibrium theory & Public finance. It has an ISSN identifier of 0938-2259. Over the lifetime, 2576 publications have been published receiving 71885 citations. The journal is also known as: Economic theory (Berlin. Print).

Contest success functions

Abstract: Tournaments, conflict, and rent-seeking have been modelled as contests in which participants exert effort to increase their probability of winning a prize. A Contest Success Function (CSF) provides each player's probability of winning as a function of all players' efforts. In this paper the additive CSF employed in most contests is axiomatized, with an independence from irrelevant alternatives property as the key axiom. Two frequently used functional forms are also axiomatized: one in which winning probabilities depend on the ratio of players' efforts and the other in which winning probabilities depend on the difference in efforts.

Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness

Abstract: This paper explores whether generosity in experiments is truly evidence of concern for desirable social outcomes. We conduct an experiment using a binary version of the dictator game. We introduce several treatments in which subjects are able to leave the relationship between their actions and resulting outcomes uncertain, either to themselves or to another subject influenced by those actions, thus giving subjects the moral “wiggle room” to behave self-interestedly. We find significantly less generous behavior in these manipulations, relative to a baseline in which the relationship between actions and outcomes is transparent. We conclude that many subjects behave fairly in the baseline case mainly because they intrinsically dislike appearing unfair, either to themselves or others.

Log-concave probability and its applications

Abstract: In many applications, assumptions about the log-concavity of a probability distribution allow just enough special structure to yield a workable theory. This paper catalogs a series of theorems relating log-concavity and/or log-convexity of probability density functions, distribution functions, reliability functions, and their integrals. We list a large number of commonly-used probability distributions and report the log-concavity or log-convexity of their density functions and their integrals. We also discuss a variety of applications of log-concavity that have appeared in the literature.

A simple model for study of the determination of the price level and the interaction of monetary and fiscal policy

Abstract: A representative-agent model with money holdings motivated by transactions costs, a fiscal authority that taxes and issues debt, no production, and a convenient functional form for agents' utility is presented. The model can be solved analytically, and illustrates the dependence of price determination on fiscal policy, the possibility of indeterminacy, even stochastic explosion, of the price level in the face of a monetary policy that holdsM fixed, and the possibility of a unique, stable price level in the face of a monetary policy that simply pegs the nominal interest rate at an arbitrary level. In a rational expectations, market-clearing equilibrium model with a costlessly-produced fiat money that is useful in transactions, the following things are true under broad assumptions. - A monetary policy that fixes the money stock may (depending on the transactions technology) be consistent with indeterminacy of the price level—indeed with stochastically fluctuating, explosive inflation. - A monetary policy that fixes the nominal interest rate, even if it holds the interest rate constant regardless of the observed rate of inflation or money growth rate, may deliver a uniquely determined price level. - The existence and uniqueness of the equilibrium price level cannot be determined from knowledge of monetary policy alone; fiscal policy plays an equally important role. Special case models with interest-bearing debt and no money are possible, just as are special cases with money and no interest-bearing debt. In each the price level may be uniquely determined. Determinacy of the price level under any policy depends on the public's beliefs about what the policy authority would do under conditions that are never observed in equilibrium. These points are not new. Eric Leeper [1991] has made most of them within a single coherent model. Woodford [1993], in a representative agent cash-in-advance model, has displayed the possibility of indeterminacy with a fixed quantity of money and the possibility of uniqueness with an interest-rate pegging policy. Aiyagari and Gertler [1985] use an overlapping generations model to make many of the points made in this paper, without discussing the possibility of stochastic sunspot equilibria. Sargent and Wallace [1981] and Obstfeld [1983] have also discussed related issues. This paper improves on Leeper by moving beyond his analysis of local linear approximations to the full model solution, as is essential if explosive sunspot equilibria are to be distinguished from explosive solutions to the Euler equations that can be ruled out as equilibria. It improves on the other cited work by pulling together into the context of one fairly transparent model discussion of phenomena previously discussed in isolation in very different models. We study a representative agent model in which there is no production or real savings, but transactions costs generate a demand for money. The government costlessly provides fiat money balances, imposes lump-sum taxes, and issues debt, but has no other role in the economy. We make restrictive assumptions about the form of the utility function and the form of a transactions cost term in the budget constraint. The model could be extended to include production, capital accumulation, non-neutral taxation, productive government expenditure, and a more general utility function without affecting the conclusions discussed in this paper. Indeed the model I informally matched to data in an earlier paper [1988] makes some such extensions. While such an extended model is more realistic, it is harder to solve. The version in my earlier paper [1988] was solved numerically and simulated. The bare-bones model of this paper allows an explicit analytic solution that may make its results easier to understand.

The all-pay auction with complete information

Abstract: In a (first price) all-pay auction, bidders simultaneously submit bids for an item. All players forfeit their bids, and the high bidder receives the item. This auction is widely used in economics to model rent seeking, RD asymmetric equilibria imply higher expected revenues than the symmetric equilibrium.