Bounds On Treatment Effects On Transitions

Date: 2011-03-18
By: Ridder, Geert (University of Southern California,)
Vikström, Johan (Uppsala Center for Labor Studies)
This paper considers the definition and identification of treatment effects on conditional transition probabilities. We show that even under sequential random assignment only the instantaneous average treatment effect is point identified. Because treated and control units drop out at different rates, randomization only ensures the comparability of treatment and controls at the time of randomization, so that long run average treatment effects are not point identified. Instead we derive informative bounds on these average treatment effects. Our bounds do not impose (semi)parametric restrictions, as e.g. proportional hazards, that would narrow the bounds or even allow for point identification. We also explore various assumptions such as monotone treatment response, common shocks and positively correlated outcomes.
Keywords: Partial identification; duration model; randomized experiment; treatment effect
JEL: C14

Capturing Preferences Under Incomplete Scenarios Using Elicited Choice Probabilities

Date: 2011-03-24
By: Herriges, Joseph A.
Bhattacharjee, Subhra
Kling, Catherine L.
Manski (1999) proposed an approach for dealing with a particular form respondent uncertainty in discrete choice settings, particularly relevant in survey based research when the uncertainty stems from the incomplete description of the choice scenarios. Specifically, he suggests eliciting choice probabilities from respondents rather than their single choice of an alternative. A recent paper in IER by Blass et al. (2010) further develops the approach and presents the first empirical application. This paper extends the literature in a number of directions, examining the linkage between elicited choice probabilities and the more common discrete choice elicitation format. We also provide the first convergent validity test of the elicited choice probability format vis-\`a-vis the standard discrete choice format in a split sample experiment. Finally, we discuss the differences between welfare measures that can be derived from elicited choice probabilities versus those that can obtained from discrete choice responses.
Keywords: discrete choice; Elicited Choice Probabilities
JEL: C25

Repeated moral hazard and contracts with memory: A laboratory experiment

Date: 2011-02
By: Nieken, Petra
Schmitz, Patrick W
This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals may prefer to offer contracts with memory.
Keywords: Laboratory experiment; Repeated moral hazard; Sequential hidden actions
JEL: D82

Cooperation limitations under a one-time threat of expulsion and punishment

Date: 2011-03
By: Aaron Lowen (Grand Valley State University)
Pamela Schmitt (United States Naval Academy)
We examine the role one-time threats of expulsion and punishment have on voluntary contributions in a public goods game. This paper extends the work of Cinyabuguma, Page, and Putterman (2005), who find that the threat of expulsion in every period raises contributions to near Pareto Optimal levels. In our experiments, participants played in 15-round sessions where they were allowed to vote to remove other subjects only after round 5 and in one design also voted whether to punish the remaining subjects after round 10. We find that the additional threat of punishment not only increased the contributions of participants before the punishment vote, but also resulted in the expulsion of participants who had contributed more than in the no punishment treatment. Efficiency with expulsion is 58.07% without punishment, and 57.13% with punishment, including the cost for voting and punishment. Our findings indicate that the threat of expulsion as a sanctioning mechanism may not be helpful for public good provision unless expulsion can occur in every period, the threat of costly punishment increases contributions with little impact on efficiency, and that standards for inclusion rise when later punishment is available.

Experiments with the Traveler’s Dilemma: Welfare, Strategic Choice and Implicit Collusion

Date: 2011-03-23
By: Kaushik Basu (Department of Economics, Cornell University)
Leonardo Becchetti (University of Rome “Tor Vergata")
Luca Stanca (University of Milan – Bicocca)
This paper investigates behavior in the Traveler’s Dilemma game and isolates deviations from textbook predictions caused by differences in welfare perceptions and strategic miscalculations. It presents the results of an experimental analysis based on a 2×2 design where the own and the other subject’s bonus-penalty parameters are changed independently. We find that the change in own bonus-penalty alone entirely explains the effect on claims of a simultaneous change in one’s own and the other’s bonus-penalty. An increase in the other subject’s bonus-penalty has a significant negative effect on claims when the own bonus-penalty is low, whereas it does not have a significant effect when the own bonus-penalty is high. We also find that expected claims are inconsistent with actual claims in the asymmetric treatments. Focusing on reported strategies, we document substantial heterogeneity and show that changes in choices across treatments are largely explained by risk aversion.

Sanctions that Signal: an Experiment.

Date: 2011-03
By: Roberto Galbiati
Karl Schlag
Joel van der Weele
Sanctions are a means to provide incentives towards more pro-social behavior. Yet their implementation can be a signal that past behavior was undesirable. We investigate experimentally the importance of the informational content of the choice to sanction. We place this in a context of a coordination game to focus attention on beliefs and information and less on intrinsic or pro-social motivations. We compare the eect of sanctions that are introduced exogenously by the experimenter to that of sanctions which have been actively chosen by a subject who takes the role of a fictitious policy maker with superior information about the previous eort of the other players. We nd that cooperative subjects perceive actively chosen sanctions as a negative signal which eliminates for them the incentive eect of sanctions.
JEL: C92

An Experimental Dynamic Public Goods Game with Carryover

Date: 2011-02
By: Kurtis Swope (United States Naval Academy)
Pamela Schmitt (United States Naval Academy)
John Cadigan (Gettysburg College)
Patrick Wayland (United States Navy)
We examine voluntary contributions in a two-stage public good experiment with ‘carryover.’ In two treatments, each subject’s second stage endowment is determined by the return from the public good in the first stage. We manipulate payoffs across these treatments so that, relative to our no-carryover baseline, earnings from either Nash play or Pareto Optimal play are held constant. The remaining two treatments maintain a constant endowment in each stage, but vary the marginal per capita return (MPCR) to contributions in the second stage. Our results indicate that carryover increases first stage contributions. Our implementation of carryover enables us to examine the effects of changing endowments and MPCR’s with a wider variety of parameter values than in the existing literature. Consistent with these studies, we find that MPCR and endowment effects are important determinants of subject contributions to the group account. While stage 1 contributions tend to increase in the presence of carryover, efficiency levels across both stages fall relative to the baseline due to the high potential payoffs from complete contribution in the second stage (due to higher endowments or MPCR levels).

No trade, one-way or two-way trade?

Date: 2011-03
By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
Pierre M. Picard (CREA, University of Luxembourg (Luxembourg) and CORE, Université catholique de Louvain (Belgium))
Jacques-François THISSE (CORE, Université catholique de Louvain (Belgium), Université du Luxembourg, CEPR, and RIEB, Kobe University)
We study how the level of trade costs and the intensity of competition can explain the existence of two-way, one-way or no trade within the same industry. As trade costs decrease from very high to very low values, the economy moves from autarky to a regime of two-way trade, through a regime of one-way trade from the larger to the smaller country. Trade is less likely when the economy gets more competitive. Finally once capital is mobile across countries, the market delivers an outcome in which capital is too much concentrated in the large country.
Keywords: trade regime; country asymmetry; capital mobility
JEL: F12

Emotions and Chat in a Financial Markets Experiment

Date: 2011-03-01
By: Shaun P. Hargreaves Heap (University of East Anglia)
Daniel John Zizzo (University of East Anglia)
This paper examines experimentally two common conjectures in the popular literature on financial markets: that they are swayed by emotion and that they behave like a ‘crowd’. We find consistent evidence that deviations of prices from fundamental value depend on the emotion of excitement and on the presence of independently identified ‘irrational’ traders. Other than through ‘irrational’ traders, there is no evidence, however, that non-price communication (‘chat’) influences prices. Subjects with an economics background make better traders.
Keywords: asset bubbles; cheap talk; emotions; noise traders; behavioral finance.
JEL: C91