Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

Verbs as Linguistic Markers of Agency - The Social Side of Grammar

Basic grammatical categories may carry social meaning irrespective of their semantic content. In a set of four studies, we demonstrate that verbs – a basic linguistic category present and distinguishable in most languages – are related to the perception of agency, a fundamental dimension in social perception. In an archival analysis on actual language use in Polish and German, we found that targets stereotypically associated with high agency (men and young people) are presented in the immediate neighborhood of a verb more often than non-agentic social targets (women and old people). Moreover, in three experiments using a pseudo-word paradigm, verbs (but not adjectives and nouns) were consistently associated with agency (but not communion). These results provide consistent evidence that verbs, as grammatical vehicles of action, are linguistic markers of agency. In demonstrating meta-semantic effects of language, these studies corroborate the view of language as a social tool and of language as an integral part of social perception.

Video-based quantification of body movement during social interaction indicates the severity of negative symptoms in patients with schizophrenia

In schizophrenia, nonverbal behavior, including body movement, is of theoretical and clinical importance. Although reduced nonverbal expressiveness is a major component of the negative symptoms encountered in schizophrenia, few studies have objectively assessed body movement during social interaction. In the present study, 378 brief, videotaped role-play scenes involving 27 stabilized outpatients diagnosed with paranoid-type schizophrenia were analyzed using Motion Energy Analysis (MEA). This method enables the objective measuring of body movement in conjunction with ordinary video recordings. Correlations between movement parameters (percentage of time in movement, movement speed) and symptom ratings from independent PANSS interviews were calculated. Movement parameters proved to be highly reliable. In keeping with predictions, reduced movement and movement speed correlated with negative symptoms. Accordingly, in patients who exhibited noticeable movement for less than 20% of the observation time, prominent negative symptoms were highly probable. As a control measure, the percentage of movement exhibited by the patients during role-play scenes was compared to that of their normal interactants. Patients with negative symptoms differed from normal interactants by showing significantly reduced head and body movement. Two specific positive symptoms were possibly related to movement parameters: suspiciousness tended to correlate with reduced head movement, and the expression of unusual thought content tended to relate to increased movement. Overall, a close and theoretically meaningful association between the objective movement parameters and the symptom profiles was found. MEA appears to be an objective, reliable and valid method for quantifying nonverbal behavior, an aspect which may furnish new insights into the processes related to reduced expressiveness in schizophrenia.

Short-Term Effects of Social Exclusion at work and Worries on Sleep

The present study investigated short-term effects of daily social exclusion at work on various indicators of sleep quality and tested the mediating role of work-related worries using a time-based diary study with ambulatory assessments of sleep quality. Ninety full-time employees participated in a 2-week data collection. Multilevel analyses revealed that daily workplace social exclusion and work-related worries were positively related to sleep fragmentation in the following night. Daily social exclusion, however, was unrelated to sleep onset latency, sleep efficiency and self-reported sleep quality. Moreover, worries did not mediate the effect of social exclusion at work on sleep fragmentation. Theoretical and practical implications of the results are discussed.

Challenges for Participatory Conservation in Times of Global Change: Lessons from a Comparative Analysis and New Developments

Participatory approaches to conservation have been applied worldwide by governments and non-governmental organisations. However, results from a comparative analysis of the impacts of global change on management issues in 13 protected areas in Africa, Latin America, Asia, and Europe show that in many cases the involvement of local people has remained limited, and economic gains for local livelihoods have been limited or non-existent. Viewed from a ‘new institutionalist’ perspective and focusing on power relations and ideologies, the results of this study carried out within the framework of the Swiss National Centre of Competence in Research (NCCR) North-South show that in African cases local people do not feel part of the process and, therefore, become disengaged. In Asia, and even more so in Latin America, local indigenous peoples and their leaders support protected areas as a means to gain political rights over areas threatened by immigration. The European (Swiss) case is the only one where political rights and economic incentives present a context in which participation is of direct interest to local people. Meanwhile, recent debates on new global conservation developments in the context of climate change policy indicate a growing tendency to treat conservation as a commodity. We argue that this can have problematical effects on efforts to devolve power to the local level in the context of conservation.