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.

Privacy Panel: Usable and Quantifiable Mobile Privacy

The ever increasing popularity of apps stems from their ability to provide highly customized services to the user. The flip side is that in order to provide such services, apps need access to very sensitive private information about the user. This leads to malicious apps that collect personal user information in the background and exploit it in various ways. Studies have shown that current app vetting processes which are mainly restricted to install time verification mechanisms are incapable of detecting and preventing such attacks. We argue that the missing fundamental aspect here is a comprehensive and usable mobile privacy solution, one that not only protects the user's location information, but also other equally sensitive user data such as the user's contacts and documents. A solution that is usable by the average user who does not understand or care about the low level technical details. To bridge this gap, we propose privacy metrics that quantify low-level app accesses in terms of privacy impact and transforms them to high-level user understandable ratings. We also provide the design and architecture of our Privacy Panel app that represents the computed ratings in a graphical user-friendly format and allows the user to define policies based on them. Finally, experimental results are given to validate the scalability of the proposed solution.

[Effects of tobacco use on systemic health: relevant information for dentistry (II)--part 2: cardiovascular diseases and public health issues]

This is the sixth and concluding part of a series of publications from the Swiss task force named "Smoking - Intervention in the private dental office" on the topic "tobacco use and dental medicine". The focus of this review is the effects of smoking for the development of atherosclerosis as pathohistological correlate for acute coronary syndrome (ACS), arterial occlusive disease, and cerebrovascular diseases (stroke). Additionally, a causal relationship between tobacco use and an increased rate for complications during pregnancy and child birth will be discussed. Next to causal therapy of local and systemic diseases in general, an emphasis must be given to tobacco use prevention and cessation. Finally, important public health issues concerning smoking and tobacco use will be demonstrated, and options to improve the current situation will be presented.

[Effects of tobacco use on general health: relevant information for dentistry (I)--part 1: pulmonary diseases and other malignancies]

This fifth part of a series of publications from the Swiss task force named "Smoking--Intervention in the private dental office" on the topic "tobacco use and dental medicine" focuses on the effects of tobacco use on general health. A significant increase of tobacco use associated morbidity and mortality for many cardiovascular and pulmonary diseases has been well documented in the literature. In this review, the epidemiologic background as well as the pathophysiological fundamentals for tobacco-mediated pulmonary diseases is presented, focusing especially on chronic obstructive pulmonary disease (COPD) and lung cancer. In addition, a causal relationship between nicotine abuse and an increased carcinoma incidence for other malignancies but lung cancer will be discussed. Regarding the evidence in the present literature, it is undisputable that smoking is the most preventable cause for COPD and lung cancer.

Book Review: Regulating Code : Good Governance and Better Regulation in the Information Age

Digital technologies have profoundly changed not only the ways we create, distribute, access, use and re-use information but also many of the governance structures we had in place. Overall, "older" institutions at all governance levels have grappled and often failed to master the multi-faceted and multi-directional issues of the Internet. Regulatory entrepreneurs have yet to discover and fully mobilize the potential of digital technologies as an influential factor impacting upon the regulability of the environment and as a potential regulatory tool in themselves. At the same time, we have seen a deterioration of some public spaces and lower prioritization of public objectives, when strong private commercial interests are at play, such as most tellingly in the field of copyright. Less tangibly, private ordering has taken hold and captured through contracts spaces, previously regulated by public law. Code embedded in technology often replaces law. Non-state action has in general proliferated and put serious pressure upon conventional state-centered, command-and-control models. Under the conditions of this "messy" governance, the provision of key public goods, such as freedom of information, has been made difficult or is indeed jeopardized.The grand question is how can we navigate this complex multi-actor, multi-issue space and secure the attainment of fundamental public interest objectives. This is also the question that Ian Brown and Chris Marsden seek to answer with their book, Regulating Code, as recently published under the "Information Revolution and Global Politics" series of MIT Press. This book review critically assesses the bold effort by Brown and Marsden.

Spatial-temporal clustering of companion animal enteric syndrome: detection and investigation through the use of electronic medical records from participating private practices

SUMMARY There is interest in the potential of companion animal surveillance to provide data to improve pet health and to provide early warning of environmental hazards to people. We implemented a companion animal surveillance system in Calgary, Alberta and the surrounding communities. Informatics technologies automatically extracted electronic medical records from participating veterinary practices and identified cases of enteric syndrome in the warehoused records. The data were analysed using time-series analyses and a retrospective space-time permutation scan statistic. We identified a seasonal pattern of reports of occurrences of enteric syndromes in companion animals and four statistically significant clusters of enteric syndrome cases. The cases within each cluster were examined and information about the animals involved (species, age, sex), their vaccination history, possible exposure or risk behaviour history, information about disease severity, and the aetiological diagnosis was collected. We then assessed whether the cases within the cluster were unusual and if they represented an animal or public health threat. There was often insufficient information recorded in the medical record to characterize the clusters by aetiology or exposures. Space-time analysis of companion animal enteric syndrome cases found evidence of clustering. Collection of more epidemiologically relevant data would enhance the utility of practice-based companion animal surveillance.