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.

Posterior Vertical Bite Reconstructions of Erosively Worn Dentitions and the "Stamp Technique" - A Case Series with a Mean Observation Time of 40 Months

PURPOSE In the present case series, the authors report on seven cases of erosively worn dentitions (98 posterior teeth) which were treated with direct resin composite. MATERIALS AND METHODS In all cases, both arches were restored by using the so-called stamp technique. All patients were treated with standardized materials and protocols. Prior to treatment, a waxup was made on die-cast models to build up the loss of occlusion as well as ensure the optimal future anatomy and function of the eroded teeth to be restored. During treatment, teeth were restored by using templates of silicone (ie, two "stamps," one on the vestibular, one on the oral aspect of each tooth), which were filled with resin composite in order to transfer the planned, future restoration (ie, in the shape of the waxup) from the extra- to the intraoral situation. Baseline examinations were performed in all patients after treatment, and photographs as well as radiographs were taken. To evaluate the outcome, the modified United States Public Health Service criteria (USPHS) were used. RESULTS The patients were re-assessed after a mean observation time of 40 months (40.8 ± 7.2 months). The overall outcome of the restorations was good, and almost exclusively "Alpha" scores were given. Only the marginal integrity and the anatomical form received a "Charlie" score (10.2%) in two cases. CONCLUSION Direct resin composite restorations made with the stamp technique are a valuable treatment option for restoring erosively worn dentitions.

The Face of Power

Objective: In humans and other animals, open, expansive postures (compared to contracted postures) are evolutionary developed expressions of power and have been shown to cause neuroendocrine and behavioral changes (Carney, Cuddy, & Yap, 2010). In the present study we aimed to investigate whether power postures have a bearing on the participant’s facial appearance and whether others are able to distinguish faces after “high power posing” from faces after “low power posing”. Methods: 16 models were photographed 4-5 minutes after having adopted high and low power postures. Two different high power and two different low power postures were held for 2 minutes each. Power-posing sessions were performed on two consecutive days. High and low power photographs of each model were paired and an independent sample of 100 participants were asked to pick the more dominant and the more likeable face of each pair. Results: Photographs that were taken after adopting high power postures were chosen significantly more often as being more dominant looking. There was no preference when asked to choose the more likeable photograph (chance level). A further independent sample rated each photograph for head tilt, making it unlikely that dominance ratings were caused merely by the posture of the head. Consistently, facial width-to-height ratio did not differ between faces after high and low power posing. Conclusions: Postures associated with high power affect facial appearance, leading to a more dominant looking face. This finding may have implications for everyday life, for instance when a dominant appearance is needed.

An intercontinental comparison of chironomid palaeotemperature inference models: Europe vs North America

Chironomid-temperature inference models based on North American, European and combined surface sediment training sets were compared to assess the overall reliability of their predictions. Between 67 and 76 of the major chironomid taxa in each data set showed a unimodal response to July temperature, whereas between 5 and 22 of the common taxa showed a sigmoidal response. July temperature optima were highly correlated among the training sets, but the correlations for other taxon parameters such as tolerances and weighted averaging partial least squares (WA-PLS) and partial least squares (PLS) regression coefficients were much weaker. PLS, weighted averaging, WA-PLS, and the Modern Analogue Technique, all provided useful and reliable temperature inferences. Although jack-knifed error statistics suggested that two-component WA-PLS models had the highest predictive power, intercontinental tests suggested that other inference models performed better. The various models were able to provide good July temperature inferences, even where neither good nor close modern analogues for the fossil chironomid assemblages existed. When the models were applied to fossil Lateglacial assemblages from North America and Europe, the inferred rates and magnitude of July temperature changes varied among models. All models, however, revealed similar patterns of Lateglacial temperature change. Depending on the model used, the inferred Younger Dryas July temperature decrease ranged between 2.5 and 6°C.

Transcriptional response to cardiac injury in the zebrafish: systematic identification of genes with highly concordant activity across in vivo models

BACKGROUND Zebrafish is a clinically-relevant model of heart regeneration. Unlike mammals, it has a remarkable heart repair capacity after injury, and promises novel translational applications. Amputation and cryoinjury models are key research tools for understanding injury response and regeneration in vivo. An understanding of the transcriptional responses following injury is needed to identify key players of heart tissue repair, as well as potential targets for boosting this property in humans. RESULTS We investigated amputation and cryoinjury in vivo models of heart damage in the zebrafish through unbiased, integrative analyses of independent molecular datasets. To detect genes with potential biological roles, we derived computational prediction models with microarray data from heart amputation experiments. We focused on a top-ranked set of genes highly activated in the early post-injury stage, whose activity was further verified in independent microarray datasets. Next, we performed independent validations of expression responses with qPCR in a cryoinjury model. Across in vivo models, the top candidates showed highly concordant responses at 1 and 3 days post-injury, which highlights the predictive power of our analysis strategies and the possible biological relevance of these genes. Top candidates are significantly involved in cell fate specification and differentiation, and include heart failure markers such as periostin, as well as potential new targets for heart regeneration. For example, ptgis and ca2 were overexpressed, while usp2a, a regulator of the p53 pathway, was down-regulated in our in vivo models. Interestingly, a high activity of ptgis and ca2 has been previously observed in failing hearts from rats and humans. CONCLUSIONS We identified genes with potential critical roles in the response to cardiac damage in the zebrafish. Their transcriptional activities are reproducible in different in vivo models of cardiac injury.