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Abstract:
In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who don't bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers' outside option less attractive, reducing the incentive to compete for price takers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.

Bargaining, Price takers, List Price, Consumer Surplus, Posted Price, Consumer Welfare, Outside Option, Negotiation

Abstract:
In contrast to the bulk of the campaign finance literature that highlights political action committee (PAC) contributions and single donations, this paper emphasizes soft money and the rationale for dual contributions. Employing a formal model of unregulated contributions and political access, we show that donors will rationally choose to contribute to both political parties. While the parties accept these dual contributions, they lead to an imbalance between the benefits of contributions and the costs of providing access. This race to acquire unlimited soft money leads to a situation where the parties agree to campaign finance reform legislation.

campaign finance, campaign finance reform, campaign funding, political funding, party funding, party finance, donations, political donations, access, political access, dual contributions, politcal action committee, soft money, campaign finance legislation

Abstract:
We model the behavior of agents who care about receiving what they feel they deserve in a two-player rank-order tournament. Perceived entitlements are sensitive to how hard an agent has worked relative to her rival, and agents are loss averse around their meritocratically determined endogenous reference points. In a fair tournament sufficiently large desert concerns drive identical agents to push their effort levels apart in order to end up closer to their reference points on average. In an unfair tournament, where one agent is advantaged, the equilibrium is symmetric in the absence of desert, but asymmetric in the presence of desert. We find that desert concerns can undermine the standard conclusion that competition for a fixed supply of status is socially wasteful and explain why, when the distribution of output noise is fat-tailed, an employer might use a rank-order incentive scheme.

Desert, Equity, Tournament, Loss Aversion, Reference-Dependent Preferences, Reference Point, Psychological Game Theory, Status, Relative Performance Evaluation

Abstract:
We evaluate the use of public tests of varying toughness by a principal who wants to convince agents that she is worth endorsing. Counter-intuitively, we find that extreme types of test are optimal when the principal can condition prices on the test result. The toughest test maximizes the impact of a pass, the softest test maximizes the probability of passing, while the precision of agents’ private information determines which test is best. Applications abound, for example in industrial organization (firm and consumers), labor economics (job applicant and employers), political economy (politician and voters) and elsewhere.

tests, public test, test toughness, test decision, product launch, endorsements, reviewers, certification, Bayesian learning, information transmission, information, bias, marketing, monopoly, pricing

Abstract:
We analyze the incentives to disclose intermediate research results during the course of a patent contest. Despite knowledge spillovers, the leading innovator sometimes discloses to signal commitment to the project, and so potentially inducing a rival’s exit. Surprisingly, when development costs are low the leading innovator does not need to disclose to induce the same strategic deterrence effect as that which arises from disclosure. Taking into account wasteful duplication of R&D effort, a patent office can increase welfare by choosing the probability of granting a contested patent and so altering the proportion of rivals that the leading innovator deters.

Disclosure, Signalling, Intermediate Research Results, Intermediate Research, Multi-Step Research, Spillovers, R&D, Patent, Patent Office, Patent Policy, Patent Contest, Knowledge, Knowledge Spillovers, Information Spillovers, Information, Development Cost, Exit, Strategic Deterrence, Deterrence

Abstract:
We consider a principal-agent problem where the principal wishes to be endorsed by a sequence of agents, but cannot truthfully reveal type. In the standard "herding" model, the agents learn from each other’s decisions, which can lead to cascades on a given decision when later agents’ private information is swamped. We augment the standard model to allow the principal to subject herself to a test designed to provide public information about her type. She must decide how tough a test to attempt from a continuum of test types, which involves trading off the higher probability of passing an easier test against the greater impact from passing a tougher test. We find that the principal will always choose to be tested, and will prefer a tough test to a neutral or easy one.

herding, cascade, learning, herd manipulation, tests, information transmission, endorsement, sequential decisions, public test, tough test

Abstract:
We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival's effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.

disappointment aversion, loss aversion, reference-dependent preferences, reference point adjustment, expectations, tournament, real effort experiment, slider task

Abstract:
We analyze the incentives to disclose intermediate research results during the course of a patent contest. Despite knowledge spillovers, the leading innovator sometimes discloses to signal commitment to the project, and so potentially inducing a rival's exit. Surprisingly, when development costs are low the leading innovator does not need to disclose to induce the same strategic deterrence effect as that which arises from disclosure. Taking into account wasteful duplication of R&D effort, a patent office can increase welfare by choosing the probability of granting a contested patent and so altering the proportion of rivals that the leading innovator deters.