Psychological pressure in competitive environments: Evidence from a randomized natural experiment

Much like cognitive abilities, emotional skills can have major effects on performance and economic outcomes. This paper studies the behavior of professionalsubjects involved in a dynamic competition in their own natural environment. Thesetting is a penalty shoot-out in soccer where two teams compete in a tournamentframework taking turns in a sequence of five penalty kicks each. As the kicking order is determined by the random outcome of a coin flip, the treatment and control groups are determined via explicit randomization. Therefore, absent any psychological effects, both teams should have the same probability of winning regardless of the kicking order. Yet, we find a systematic first-kicker advantage. Using data on 2,731 penalty kicks from 262 shoot-outs for a three decade period, we find that teams kicking first win the penalty shoot-out 60.5% of the time. A dynamic panel data analysis shows that the psychological mechanism underlying this result arises from the asymmetry in the partial score. As most kicks are scored, kicking first typically means having the opportunity to lead in the partial score, whereas kicking second typically means lagging in the score and having the opportunity to, at most, get even. Having a worse prospect than the opponent hinders subjects' performance.Further, we also find that professionals are self-aware of their own psychological effects. When a recent change in regulations gives winners of the coin toss the chance to choose the kicking order, they rationally react to it by systematically choosing to kick first. A survey of professional players reveals that when asked to explain why they prefer to kick first, they precisely identify the psychological mechanism for which we find empirical support in the data: they want to lead in the score inorder to put pressure on the opponent.

The structural dynamics of US output and inflation: What explains the changes?

We examine the dynamics of US output and inflation using a structural time varyingcoefficient VAR. We show that there are changes in the volatility of both variables andin the persistence of inflation. Technology shocks explain changes in output volatility,while a combination of technology, demand and monetary shocks explain variations inthe persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policyshocks. Hours and labor productivity always increase in response to technology shocks.

Composition of electricity generation portfolios, pivotal dynamics and market prices

We use a simulation model to study how the diversification of electricity generation portfoliosinfluences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.

On Rothschild-Stiglitz as competitive pooling

Dubey and Geanakoplos [2002] have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild-Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is unique.We prove that their uniqueness result is not a consequence of the framework, but rather of their definition of refined equilibria. When other types of perturbations are used, the model allows for many pooling allocations to be supported as such: in particular, this is the case for pooling allocations that Pareto dominate the separating equilibrium.

Minimum price variations, time priority and quotes dynamics

We analyze the impact of a minimum price variation (tick) and timepriority on the dynamics of quotes and the trading costs when competitionfor the order flow is dynamic. We find that convergence to competitiveoutcomes can take time and that the speed of convergence is influencedby the tick size, the priority rule and the characteristics of the orderarrival process. We show also that a zero minimum price variation is neveroptimal when competition for the order flow is dynamic. We compare thetrading outcomes with and without time priority. Time priority is shownto guarantee that uncompetitive spreads cannot be sustained over time.However it can sometimes result in higher trading costs. Empiricalimplications are proposed. In particular, we relate the size of thetrading costs to the frequency of new offers and the dynamics of theinside spread to the state of the book.

Consumer choice in competitive location models: Formulations and heuristics

A new direction of research in Competitive Location theory incorporatestheories of Consumer Choice Behavior in its models. Following thisdirection, this paper studies the importance of consumer behavior withrespect to distance or transportation costs in the optimality oflocations obtained by traditional Competitive Location models. To dothis, it considers different ways of defining a key parameter in thebasic Maximum Capture model (MAXCAP). This parameter will reflectvarious ways of taking into account distance based on several ConsumerChoice Behavior theories. The optimal locations and the deviation indemand captured when the optimal locations of the other models are usedinstead of the true ones, are computed for each model. A metaheuristicbased on GRASP and Tabu search procedure is presented to solve all themodels. Computational experience and an application to 55-node networkare also presented.

Foreign ownership and productivity dynamics

In analyzing the distinctive contribution of foreign subsidiaries anddomestic firms to productivity growth in aggregate Belgian manufacturing,this paper shows that foreign ownership is an important source of firmheterogeneity affecting productivity dynamics. Foreign firms havecontributed disproportionately large to aggregate productivity growth,but more importantly reallocation processes differ significantly betweenthe groups of foreign subsidiaries and domestic firms.

Tracking the invisible hand: Convergence of double auctions to competitive equilibrium

Economics is the science of want and scarcity. We show that want andscarcity, operating within a simple exchange institution (double auction),are sufficient for an economy consisting of multiple inter--related marketsto attain competitive equilibrium (CE). We generalize Gode and Sunder's(1993a, 1993b) single--market finding to multi--market economies, andexplore the role of the scarcity constraint in convergence of economies to CE.When the scarcity constraint is relaxed by allowing arbitrageurs in multiple markets to enter speculative trades, prices still converge to CE,but allocative efficiency of the economy drops. \\Optimization by individual agents, often used to derive competitive equilibria,are unnecessary for an actual economy to approximately attain such equilibria.From the failure of humans to optimize in complex tasks, one need not concludethat the equilibria derived from the competitive model are descriptivelyirrelevant. We show that even in complex economic systems, such equilibriacan be attained under a range of surprisingly weak assumptions about agentbehavior.

Asset pricing with idiosyncratic risk and overlapping generations

A number of existing studies have concluded that risk sharing allocations supported by competitive, incomplete markets equilibria are quantitatively close to first-best. Equilibrium asset prices in these models have been difficult to distinguish from those associated with a complete markets model, the counterfactual features of which have been widely documented. This paper asks if life cycle considerations, in conjunction with persistent idiosyncratic shocks which become more volatile during aggregate downturns, can reconcile the quantitative properties of the competitive asset pricing framework with those of observed asset returns. We begin by arguing that data from the Panel Study on Income Dynamics support the plausibility of such a shock process. Our estimates suggest a high degree of persistence as well as a substantial increase in idiosyncratic conditional volatility coincident with periods of low growth in U.S. GNP. When these factors are incorporated in a stationary overlapping generations framework, the implications for the returns on risky assets are substantial. Plausible parameterizations of our economy are able to generate Sharpe ratios which match those observed in U.S. data. Our economy cannot, however, account for the level of variability of stock returns, owing in large part to the specification of its production technology.

The structural dynamics of output growth and inflation: some international evidence

We examine the dynamics of output growth and inflation in the US, Euro area and UK using a structural time varying coefficient VAR. There are important similarities in structural inflation dynamics across countries; output growth dynamics differ. Swings in the magnitude of inflation and output growth volatilities and persistences are accounted for by a combination of three structural shocks. Changes over time in the structure of the economy are limited and permanent variations largely absent. Changes in the volatilities of structural shocks matter.

Supply chain management as a competitive advantage in the Spanish grocery sector

Adversarial relationships have long dominated business relationships,but Supply Chain Management (SCM) entails a new perspective. SCM requiresa movement away from arms-length relationships toward partnership stylerelations. SCM involves integration, co-ordination and collaborationacross organisations and throughout the supply chain. It means that SCMrequires internal (intraorganisational) and external (interorganisational)integration. This paper analyses the relationship between internal andexternal integration processes, their effect on firms performance andtheir contribution to the achievement of a competitive advantage.Performance improvements are analysed through costs, stock out and leadtime reductions. And, the achievement of a better competitive positionis measured by comparing the firm s performance with its competitors performance. To analyse this, an empirical study has been conducted inthe Spanish grocery sector.

Diffusion with delayed informational spillovers

I study the relation between the delay in the transmission of spilloversof information and diffusion. When a firm enters or innovates it benefitsfrom the information it gets by observing past entry. Delays in the processof receiving the information reduce the benefits of the spillover and affectthe entry process.I derive the effects this delay has on diffusion, on the dynamics of priceand cost of entry, and on efficiency. I explain why, when spillovers ofinformation are delayed, a zero profit condition requires an initial set ofentrants bigger than zero. I also illustrate how an S-shaped diffusion curvecan be generated. I show that competitive equilibrium entails a slowergeneration of information relative to the social optimum and how a socialplanner can improve efficiency.

A note on the convergence to competitive equilibria in economies with moral hazard

We examine the conditions under which competitive equilibria can beobtained as the limit, when the number of strategic traders getslarge, of Nash equilibria in economies with asymmetric informationon agents' effort and possibly imperfect observability of agents'trades. Convergence always occur when either effort is publiclyobserved (no matter what is the information available tointermediaries on agents' trades); or effort is private informationbut agents' trades are perfectly observed; or no information at allis available on agents' trades. On the other hand, when eachintermediary can observe its trades with an agent, but not theagent's trades with other intermediaries, the (Nash) equilibriawith strategic intermediaries do not converge to any of thecompetitive equilibria, for an open set of economies. The source ofthe difficulties for convergence is the combination of asymmetricinformation and the restrictions on the observability of tradeswhich prevent the formation of exclusive contractual relationshipsand generate barriers to entry in the markets for contracts.

Inflation and output dynamics with firm-owned capital

We model firm-owned capital in a stochastic dynamic New-Keynesian generalequilibrium model à la Calvo. We find that this structure impliesequilibrium dynamics which are quantitatively di¤erent from the onesassociated with a benchmark case where households accumulate capital andrent it to firms. Our findings therefore stress the importance ofmodeling an investment decision at the firm level in addition to ameaningful price setting decision. Along the way we argue that the problemof modeling firm-owned capital with Calvo price-setting has not been solvedin a correct way in the previous literature.

Incorporating waiting time in competitive location models: Formulations and heuristics

In this paper we propose a metaheuristic to solve a new version of the Maximum CaptureProblem. In the original MCP, market capture is obtained by lower traveling distances or lowertraveling time, in this new version not only the traveling time but also the waiting time willaffect the market share. This problem is hard to solve using standard optimization techniques.Metaheuristics are shown to offer accurate results within acceptable computing times.