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.

Balancing Control and Coaching in CSO Governance : A Paradox Perspective on Board Behavior

How can governance of civil society organizations be conceptualized more adequately by accounting for the dual and simultaneous requirements of controlling and coaching in board behavior? Empirically, we seem to agree that effective governance of a civil society organization is crucial to its sustained viability. Conceptually, however, we observe a lack of consensus on how to best conceptualize CSO governance. By critically juxtaposing two major theoretical lenses to conceptualize governance, namely agency and stewardship theory, we identify a number of challenges conceptualizing board-management relations that deserve our attention. While agency theory privileges controlling behavior, stewardship theory emphasizes the coaching behavior of boards. The purpose of this paper is to offer a concept of governance that is informed by a paradox perspective advancing a subtler, more adequate conceptualization of board governance that accounts for the often conflicting demands on CSO governance. Drawing on a longitudinal interpretive case study, we exemplify our propositions empirically. The paper concludes with discussing the implications of our argument for CSO governance research and practice.

[Smoking and digestive tract: a complex relationship. Part 2: Intestinal microblota and cigarette smoking]

The digestive tract is colonized from birth by a bacterial population called the microbiota which influences the development of the immune system. Modifications in its composition are associated with problems such as obesity or inflammatory bowel diseases. Antibiotics are known to influence the intestinal microbiota but other environmental factors such as cigarette smoking also seem to have an impact on its composition. This influence might partly explain weight gain which is observed after smoking cessation. Indeed there is a modification of the gut microbiota which becomes similar to that of obese people with a microbiotical profile which is more efficient to extract calories from ingested food. These new findings open new fields of diagnostic and therapeutic approaches through the regulation of the microbiota.

Cosmogenic activation of xenon and copper

Rare event search experiments using liquid xenon as target and detection medium require ultra-low background levels to fully exploit their physics potential. Cosmic ray induced activation of the detector components and, even more importantly, of the xenon itself during production, transportation and storage at the Earth's surface, might result in the production of radioactive isotopes with long half-lives, with a possible impact on the expected background. We present the first dedicated study on the cosmogenic activation of xenon after 345 days of exposure to cosmic rays at the Jungfraujoch research station at 3470m above sea level, complemented by a study of copper which has been activated simultaneously. We have directly observed the production of 7Be, 101Rh, 125Sb, 126I and 127Xe in xenon, out of which only 125Sb could potentially lead to background for a multi-ton scale dark matter search. The production rates for five out of eight studied radioactive isotopes in copper are in agreement with the only existing dedicated activation measurement, while we observe lower rates for the remaining ones. The specific saturation activities for both samples are also compared to predictions obtained with commonly used software packages, where we observe some underpredictions, especially for xenon activation.

Spatio-temporal co-ordination of RhoA, Rac1 and Cdc42 activation during prototypical edge protrusion and retraction dynamics

The three canonical Rho GTPases RhoA, Rac1 and Cdc42 co-ordinate cytoskeletal dynamics. Recent studies indicate that all three Rho GTPases are activated at the leading edge of motile fibroblasts, where their activity fluctuates at subminute time and micrometer length scales. Here, we use a microfluidic chip to acutely manipulate fibroblast edge dynamics by applying pulses of platelet-derived growth factor (PDGF) or the Rho kinase inhibitor Y-27632 (which lowers contractility). This induces acute and robust membrane protrusion and retraction events, that exhibit stereotyped cytoskeletal dynamics, allowing us to fairly compare specific morphodynamic states across experiments. Using a novel Cdc42, as well as previously described, second generation RhoA and Rac1 biosensors, we observe distinct spatio-temporal signaling programs that involve all three Rho GTPases, during protrusion/retraction edge dynamics. Our results suggest that Rac1, Cdc42 and RhoA regulate different cytoskeletal and adhesion processes to fine tune the highly plastic edge protrusion/retraction dynamics that power cell motility.

The Effects of Heat Acclimation Followed by Sleep Deprivation on Perceived Exertion, Thirst, and Thermal Sensations in Exercising Males

Subjects were tested while walking on a tradmill for 11 days in a row at sub-maximal levels for 90 minutes the heat. After the 10th day, subjects were kept awake for 24 hours before being tested in a state of sleep deprivation on the 11th day. Subjects rated their perceived exertion, thirst levels, and thermal sensations at regular intervals before, during, and after exercise each day. The changes in RPE, thirst, and thermal sensations were examined to determine the progression of heat acclimation and to observe changes in the subjects' perceived workloads. While subjects were significantly less thirsty on day 10 than when beginning the study on day 1, no significant changes occured in regards to thermal sensations or RPE values. On the 11th day, these variables were again observed in order to examine the effects of sleep deprivation on the adaptations of heat acclimation. After 28 hours of sleep loss, subjects rated themselves as feeling significantly more thristy after exercise than they had on day 10, yet again there was no significant change in thermal sensations or RPE values. Throughout the study, RPE and thermal sensation ratings seemed to be closely linked while sensations of thirst fluctuated independently.

Conditional expression of Sry, and Wnt4 by gene-targeting: Studies in sexual and skeletal development

Sry and Wnt4 cDNAs were individually introduced into the ubiquitously-expressed Rosa26 ( R26) locus by gene targeting in embryonic stem (ES) cells to create a conditional gene expression system in mice. In the targeted alleles, expression of these cDNAs should be blocked by a neomycin resistance selection cassette that is flanked by loxP sites. Transgene expression should be activated after the blocking cassette is deleted by Cre recombinase. ^ To test this conditional expression system, I have bred R26-stop- Sry and R26-stop-Wnt4 heterozygotes with a MisRII-Cre mouse line that expresses Cre in the gonads of both sexes. Analysis of these two types of bigenic heterozygotes indicated that their gonads developed normally like those of wild types. However, one XX R26-Sry/R26-Sry; MisR2-Cre/+ showed epididymis-like structures resembling those of males. In contrast, only normal phenotypes were observed in XY R26-Wnt4/R26-Wnt4; MisR2-Cre /+ mice. To interpret these results, I have tested for Cre recombinase activity by Southern blot and transcription of the Sry and Wnt4 transgenes by RT-PCR. Results showed that bigenic mutants had insufficient activation of the transgenes in their gonads at E12.5 and E13.5. Therefore, the failure to observe mutant phenotypes may have resulted from low activity of MisR2-Cre recombination at the appropriate time. ^ Col2a1-Cre transgenic mice express Cre in differentiating chondrocytes. R26-Wnt4; Col2a1-Cre bigenic heterozygous mice were found to exhibit a dramatic alteration in growth presumably caused by Wnt4 overexpression during chondrogenesis. R26-Wnt4; Col2a1-Cre mice exhibited dwarfism beginning approximately 10 days after birth. In addition, they also had craniofacial abnormalities, and had delayed ossification of the lumbar vertebrate and pelvic bones. Histological analysis of the growth plates of R26-Wnt4; Col2a1-Cre mice revealed less structural organization and a delay in onset of the primary and secondary ossification centers. Molecular studies confirmed that overexpression of Wnt4 causes decreased proliferation and early maturation of chondrocytes. In addition, R26-Wnt4; Col2a1-Cre mice had decreased expression of vascular endothelial growth factor (VEGF), suggesting that defects in vascularization may contribute to the dwarf phenotype. Finally, 9-month-old R26-Wnt4; Col2a1-Cre mice had significantly more fat cells in the marrow cavities of their metaphysis long bones, implying that long-term overexpression of Wnt4may cause bone marrow pathologies. In conclusion, Wnt4 was activated by Col2a1-Cre recombinase and was overexpressed in the growth plate, resulting in aberrant proliferation and differentiation of chondrocytes, and ultimately leads to dwarfism in mice. ^

Liberalization, Ownership, and Efficiency in Indian Banking: A Nonparametric Approach

This paper empirically estimates and analyzes various efficiency scores of Indian banks during 1997-2003 using data envelopment analysis (DEA). During the 1990s India's financial sector underwent a process of gradual liberalization aimed at strengthening and improving the operational efficiency of the financial system. It is observed, none the less, that Indian banks are still not much differentiated in terms of input or output oriented technical efficiency and cost efficiency. However, they differ sharply in respect of revenue and profit efficiencies. The results provide interesting insight into the empirical correlates of efficiency scores of Indian banks. Bank size, ownership, and the fact of its being listed on the stock exchange are some of the factors that are found to have positive impact on the average profit efficiency and to some extent revenue efficiency scores are. Finally, we observe that the median efficiency scores of Indian banks in general and of bigger banks in particular have improved considerably during the post-reform period.