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.

The impact of associational life on trust in local institutions: a comparison of 57 Swiss municipalities

In this paper, we evaluate the impact of associational life on individual political trust in 57 Swiss municipalities. Our hierarchical regression models show that individual political trust is not only affected by individual associational membership but also by the exchange between associations and local political authorities in a community. In other words, if political authorities and associations are linked at the community level, citizens will place more trust in their local institutions. Furthermore, we find clear evidence for the rainmaker hypothesis: our results show that the positive effect of a vibrant connection between associational life and local politics on political trust is not solely confined to the associational members themselves, but rather indicate that the structure of the local civic culture fosters political trust among members and non-members at the same time. However, the internal democratic processes of associations have no effect on individuals’ trust in local political institutions.

Economic Rights, Human Development Effort and Institutions

This paper focuses on the link between economic rights and institutions. Simple analysis of data is used to demonstrate countries' human development effort in advancing economics rights of the citizens. A country's human development effort is evaluated on the basis of the well-being of the poorest members of the society. An analysis of data reveals that there is a wide variation in countries' pro-poor stance. While it is accepted that positive rights are pro-poor, this paper argues that so too are negative economic rights and in fact the two are complements rather than substitutes. Classifying countries into human development income deficit and human development effort deficit, it is demonstrated that a large number of countries could achieve higher welfare levels for the poor if they improved on bother positive and negative economic rights. The paper attempts to explain variations in the observed commitment to economic rights by focusing on pro-poor institutions. The basic thesis advanced in the paper is that pro-poor policies are more likely to be implemented and sustained in those institutions where power is sufficiently diffused such that even the poor have leverage over policy outcomes. The paper focuses on how institutions impact on power diffusion and therefore the adoption of pro-poor growth and policies. The failure of countries to adopt pro-poor growth and policies is attributed to institutional failures manifested in concentration of power. The policy recommendations emanating from the analysis focus on institutional reforms to enhance power diffusion. These policies include enlarging the political space through democratization, strengthening institutions and capacity to fight corruption and improve transparency, and bringing the government closer to the people through appropriate design and implementation of decentralization schemes. Some recent examples of improvements in economic rights following power diffusion are provided.

Le partage politique de l'Afrique d'après les transactions internationales les plus récentes : (1885 à 1888)

par Émile Banning

Na 1 Nachlass Max Horkheimer, 652 - Vorlesungen: "National Socialism", "Autoritarian doctrines and modern European institutions", "Eclipse of Reason" (p. IX 35a.1-2-IX 36.1-5b)

"National Socialism": 1. Ankündigung einer Vorlesungsreihe November/Dezember 1941 von: Herbert Marcuse, A.R.L. Gurland, Franz Neumann, Otto Kirchheimer, Frederick Pollock. a) als Typoskript verfielfältigt, 1 Blatt, b) Typoskript, 1 Blatt; 2. Antwortbrief auf Einladungen zur Vorlesungsreihe, von Neilson, William A.; Packelis, Alexander H.; Michael, Jerome; McClung Lee, Alfred; Youtz, R.P.; Ginsburg, Isidor; Ganey, G.; Nunhauer, Arthur. 8 Blätter; "Autoritarian doctrines and modern European institutions" (1924): 1. Vorlesungs-Ankündigung Typoskript, 2 Blatt; 2. Ankündigungen der Vorlesungen von Neumann, Franz L.: "Stratification and Dominance in Germany"; "Bureaucracy as a Social and Political Institution", Typoskript, 2 Blatt; 3. Evans, Austin P.: 1 Brief (Abschrift) an Frederick Pollock, New York, 26.2.1924; "Eclipse of Reason", Fünf Vorlesungen 1943/44:; 1. I. Lecture. a) Typoskript mit eigenhändigen Korrekturen, 38 Blatt b) Typoskript, 29 Blatt c) Typoskript mit eigenhändigen und handschriftlichen Korrekturen, 31 Blatt d) Teilstück, Typoskript mit eigenhändigen Korrekturen, 2 Blatt e) Entwürfe, Typoskript mit eigenhändigen Korrekturen, 6 Blatt; 2. II. Lecture. a) Typoskript mit eigenhändigen Korrekturen, 27 Blatt, b) Typoskript mit handschriftlichen Korrekturen, 37 Blatt; 3. III. Lecture. Typoskript mit eigenhändigen Korrekturen, 27 Blatt; 4. IV. Lecture. Typoskript mit eigenhändigen Korrekturen, 23 Blatt; 5. V. Lecture. a) Typoskript mit eigenhändigen Korrekturen, 25 Blatt, b) Teilstücke, Typoskript mit eigenhändigen und handschriftlichen Korrekturen, 3 Blatt;