Bringing game theory to hypothesis testing: Establishing finite sample bounds on inference

Small sample properties are of fundamental interest when only limited data is avail-able. Exact inference is limited by constraints imposed by speci.c nonrandomizedtests and of course also by lack of more data. These e¤ects can be separated as we propose to evaluate a test by comparing its type II error to the minimal type II error among all tests for the given sample. Game theory is used to establish this minimal type II error, the associated randomized test is characterized as part of a Nash equilibrium of a .ctitious game against nature.We use this method to investigate sequential tests for the di¤erence between twomeans when outcomes are constrained to belong to a given bounded set. Tests ofinequality and of noninferiority are included. We .nd that inference in terms oftype II error based on a balanced sample cannot be improved by sequential sampling or even by observing counter factual evidence providing there is a reasonable gap between the hypotheses.

An experimental study of adaptive behavior in an oligopolistic market game

We consider an oligopolistic market game, in which the players are competing firm in the same market of a homogeneous consumption good. The consumer side is represented by a fixed demand function. The firms decide how much to produce of a perishable consumption good, and they decide upon a number of information signals to be sent into the population in order to attract customers. Due to the minimal information provided, the players do not have a well--specified model of their environment. Our main objective is to characterize the adaptive behavior of the players in such a situation.

The persistence of abnormal returns at industry and firm levels

The present paper proposes a model for the persistence of abnormal returnsboth at firm and industry levels, when longitudinal data for the profitsof firms classiffied as industries are available. The model produces a two-way variance decomposition of abnormal returns: (a) at firm versus industrylevels, and (b) for permanent versus transitory components. This variancedecomposition supplies information on the relative importance of thefundamental components of abnormal returns that have been discussed in theliterature. The model is applied to a Spanish sample of firms, obtainingresults such as: (a) there are significant and permanent differences betweenprofit rates both at industry and firm levels; (b) variation of abnormal returnsat firm level is greater than at industry level; and (c) firm and industry levelsdo not differ significantly regarding rates of convergence of abnormal returns.

Subcontracting and vertical integration in the Spanish cotton industry

This paper examines changes in the organization of the Spanish cotton industry from 1720 to 1860 in its core region of Catalonia. As the Spanish cotton industry adopted the most modern technology and experienced the transition to the factory system, cotton spinning and weaving mills became increasingly vertically integrated. Asset specificity more than other factors explained this tendency towards vertical integration. The probability for a firm of being vertically integrated was higher among firms located in districts with high concentration ratios and rose with size and the use of modern machinery. Simultaneously, subcontracting predominated in other phases of production and distribution where transaction costs appears to be less important.

Setting the rules of the game: The choice of electoral systems in advanced democracies

The origins of electoral systems have received scant attention in the literature. Looking at the history of electoral rules in the advanced world in the last century, this paper shows that the existing wide variation in electoral rules across nations can be traced to the strategic decisions that the current ruling parties, anticipating the coordinating consequences of different electoral regimes, make to maximize their representation according to the following conditions. On the one hand, as long as the electoral arena does not change substantially and the current electoral regime serves the ruling parties well, the latter have no incentives to modify the electoral regime. On the other hand, as soon as the electoral arena changes (due to the entry of new voters or a change in their preferences), the ruling parties will entertain changing the electoral system, depending on two main conditions: the emergence of new parties and the coordinating capacities of the old ruling parties. Accordingly, if the new parties are strong, the old parties shift from plurality/majority rules to proportional representation (PR) only if the latter are locked into a 'non-Duvergerian' equilibrium; i.e. if no old party enjoys a dominant position (the case of most small European states)--conversely, they do not if a Duvergerian equilibrium exists (the case of Great Britain). Similarly, whenever the new entrants are weak, a non-PR system is maintained, regardless of the structure of the old party system (the case of the USA). The paper discusses as well the role of trade and ethnic and religious heterogeneity in the adoption of PR rules.

The Spanish motor industry in the first third of the 20th Century: A lost opportunity

The Spanish automobile industry had a late start. Although the country proved capable of short production runs of high-quality vehicles during the first third of the century it never managed to build up its own industry, unlike Great Britain, France, or Italy. What then, were the critical shortcomings that prevented the establishment of large Spanish motor manufacturers? Put another way, why did all of the companies set up during the first half-century fail to survive? This paper attempts to shed some light on these questions, employing a wide-ranging analysis of both internal and external factors affecting the industry. A feeble internal market, lack of resources and production factors are usually adduced as reasons, as are Spain's general economic backwardness and the role played by the public authorities. However, this paper mainly focuses on the internal factors concerning company strategy and organisation. A comparison with the Italian case helps put the traditional arguments in proper perspective and highlights those covering business strategies. Finally, we argue that a broad range of factors needs to be analysed to fully understand why Spain failed to establish a motor industry.

The use of derivatives in the Spanish mutual fund industry

We study the use of derivatives in the Spanish mutual fund industry. The picture that emerges from our analysis is rather negative. In general, the use of derivatives does not improve the performance of the funds. In only one out of eight categories we find some (very weak and not robust) evidence of superior performance. In most of the cases users significantly underperform non users. Furthermore, users do not seem to exhibit superior timing or selectivity skills either, but rather the contrary. This bad performance is only partially explained by the larger fees funds using derivatives charge. Moreover,we do not find evidence of derivatives being used for hedging purposes. We do find evidence of derivatives being used for speculation. But users in only one category exhibit skills as speculators. Finally, we find evidence of derivatives being used to manage the funds cash inflows and outflows more efficiently.

State and industry in the 1940s: The Spanish automobile industry

The decade of the 1940s was one of the darkest periods in the country's history, with years of famine, repression, general misery, and impoverishment of all aspects of national life ranging from culture to the economy. During those years plans were made to establish a Spanish motor industry once the Civil War had come to an end in 1939. It seemed a propitious moment for private enterprise and various foreign motor companies presented proposals for manufacturing their entire vehicle range, from cars to trucks. However, the government plans were for a State monopoly, a policy which meant that any private projects which did not contemplate the regime taking management decisions were rejected out of hand. From 1941 onwards, any new initiative was required to meet the plans set by INI. The main argument running through this paper is that one can only understand the development of the modern Spanish motor industry if one grasps the haggling between motor companies and government regarding market entry and the impact of the regime's autarchic policies in the 1940s.

Social value orientation as a moral intuition: Decision-making in the dictator game

We studied the decision making process in the Dictator Game and showed that decisions are the result of a two-step process. In a first step, decision makers generate an automatic, intuitive proposal. Given sufficient motivation and cognitive resources, they adjust this in a second, more deliberated phase. In line with the social intuitionist model, we show that one s Social Value Orientation determines intuitive choice tendencies in the first step, and that this effect is mediated by the dictator s perceived interpersonal closeness with the receiver. Self-interested concerns subsequently leadto a reduction of donation size in step 2. Finally, we show that increasing interpersonal closeness can promote pro-social decision-making.

R&D in the pharmaceutical industry: A world of small innovations

It is commonly argued that in recent years pharmaceutical companies have directed theirR&D towards small improvements of existing compounds instead of more risky drastic innovations. In this paper we show that the proliferation of these small innovations is likely to be linked to the lack of market sensitivity of a part of the demand to changes in prices. Compared to their social contribution, small innovations are relatively more profitable than large ones because they are targeted to the smaller but more inelastic part of the demand. We also study the effect of regulatory instruments such as price ceilings, copayments and reference prices and extend the analysis to competition in research.

Perceptual mapping of practical ethics along the value chain: A multiple correspondence analysis with industry and cultural indices as supplementary variables

This paper presents findings from a study investigating a firm s ethical practices along the value chain. In so doing we attempt to better understand potential relationships between a firm s ethical stance with its customers and those of its suppliers within a supply chain and identify particular sectoral and cultural influences that might impinge on this. Drawing upon a database comprising of 667 industrial firms from 27 different countries, we found that ethical practices begin with the firm s relationship with its customers, the characteristics of which then influence the ethical stance with the firm s suppliers within the supply chain. Importantly, market structure along with some key cultural characteristics were also found to exert significant influence on the implementation of ethical policies in these firms.

Employee referrals and the inter-industry wage structure

This paper investigates the role of employee referrals in the labor market.Using an original data set, I find that industries that pay wage premia andhave characteristics associated with high-wage sectors rely mainly on employeereferrals to fill jobs. Moreover, unemployment rates are higher in industries which use employee referrals more extensively. This paper develops an equilibrium matching model which can explain these empirical regularities. Inthis model, the matching process sorts heterogeneous firms and workers into two distinct groups: referrals match "good" jobs to "good" workers, while formalmethods (e.g., newspaper ads and employment agencies) match less-attractive jobs to disadvantaged workers. Thus, well-connected workers who learn quickly aboutjob opportunities use referrals to jump job queues, while those who are less well placed in the labor market search for jobs through formal methods. The split of firms and workers between referrals and formal search is, however, not necessarily efficient. Congestion externalities in referral search imply that unemployment would be closer to the optimal rate if firms and workers 'at themargin' searched formally.

Processes and consequences in business ethical dilemmas: The oil industry and climate changes

This paper proposes a framework to examine business ethical dilemmas andbusiness attitudes towards such dilemmas. Business ethical dilemmas canbe understood as reflecting a contradiction between a socially detrimentalprocess and a self-interested profitable consequence. This representationallows us to distinguish two forms of behavior differing by whetherpriority is put on consequences or on processes. We argue that theseforms imply very different business attitudes towards society:controversial or competitive for the former and aligned or cooperativefor the latter. These attitudes are then analyzed at the discursive level in order to address the question of good faith in businessargumentation, i.e. to which extent are these attitudes consistent withactual business behaviors. We argue that consequential attitudes mostlyinvolve communication and lobbying actions aiming at eluding the dilemma.Therefore, the question of good faith for consequential attitudes liesin the consistency between beliefs and discourse. On the other hand,procedural attitudes acknowledge the dilemma and claim a change of theprocess of behavior. They thus raise the question of the consistencybetween discourses and actual behavior. We apply this processes/consequencesframework to the case of the oil industry s climate change ethical dilemmawhich comes forth as a dilemma between emitting greenhouse gases and making more profits . And we examine the different attitudes of two oilcorporations-BP Amoco and ExxonMobil-towards the dilemma.

Theimpact of industry collaboration on research: Evidence from engineering academics in the UK

We study the impact of university-industry research collaborations on academicoutput, in terms of productivity and direction of research. We report findings froma longitudinal dataset on all the researchers from the engineering departments inthe UK in the last 20 years. We control for the endogeneity caused by the dynamicnature of research and the existence of reverse causality. Our results indicate thatresearchers with industrial links publish significantly more. Productivity, though,is higher for low levels of industry involvement. Moreover, growing ties with theindustry skew research towards a more applied approach.

Estimating cross-industry cross-country models using benchmark industry characteristics

International industry data permits testing whether the industry-specific impact of cross-countrydifferences in institutions or policies is consistent with economic theory. Empirical implementationrequires specifying the industry characteristics that determine impact strength. Most of the literature has been using US proxies of the relevant industry characteristics. We show that usingindustry characteristics in a benchmark country as a proxy of the relevant industry characteristicscan result in an attenuation bias or an amplification bias. We also describe circumstances allowingfor an alternative approach that yields consistent estimates. As an application, we reexamine theinfluential conjecture that financial development facilitates the reallocation of capital from decliningto expanding industries.