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Abstract:
Much of the law and economics literature, including Bebchuk (1984) and Reinganum and Wilde (1986), explains settlement failure in bargaining as a consequence of asymmetric information. An alternative, non-strategic explanation found in Shavell (1982) suggests that settlement failure stems from excessive optimism. Final offer arbitration (FOA) in major league baseball provides an ideal setting for analyzing these theories since final offers, salaries and player statistics, which provide the fundamental facts for the case, are all readily available. If the informational theory is correct, final offer bidding behavior that appears aggressive should be associated with a superior outcome for the party making the offer. If the optimism theory is correct, an aggressive offer reflects undue optimism and should lead to an inferior final outcome for the party making the offer. Using data from 1990-93, we find strong evidence that arbitration stems from excessive optimism by players, and weaker evidence that clubs also exhibit excessive optimism. Excessive optimism appears to be more prevalent for those who lack previous experience with the arbitration process than for those who have previously been eligible.

Abstract:
In this paper, it is argued that the college textbook market provides a clear example of monopoly seeking as described by Tullock (1967, 1980). This behavior is also known as rent seeking. Since this market is important to students, this example of rent seeking will be of particular interest to them.

Rent seeking, college textbook market

Abstract:
As a result of public outrage over lower prescription drug prices in Canada, Congress passed legislation that would allow these drugs to be imported into the United States. The lower Canadian prices reflect price regulation. Opponents of allowing these imports have argued that the U.S. will import Canadian price controls and that profits of pharmaceutical companies will be hurt. In this paper, a model is developed in which a good sold in the foreign country is subject to a negotiated price which is determined in a Nash Bargaining game. When imports back into the home country are allowed, this negotiated price also becomes the domestic price. This causes the home firm to make fewer price concession in the Nash Bargaining game. Home firm profits are found to rise under the reimport regime for both of the demand functions analyzed in this paper.

Prescription drugs, Reimports, price controls, Canada

Abstract:
As a result of public outrage over lower prescription drug prices in Canada, Congress passed legislation that would allow these drugs to be imported into the United States. The lower Canadian prices reflect price regulation. Opponents of allowing these imports have argued that the U.S. will import Canadian price controls and that profits of pharmaceutical companies will be hurt. In this paper, a model is developed in which a good sold in the foreign country is subject to a negotiated price which is determined in a Nash Bargaining game. When imports back into the home country are allowed, this negotiated price also becomes the domestic price. This causes the home firm to make fewer price concession in the Nash Bargaining game. When the example of linear demand is analyzed, it is found that home firm profits are always higher when reimports are allowed.

prescription drug reimports, price regulation, Canada

Abstract:
We analyze contingency fees in the Reinganum and Wilde (1986) signaling model of litigation. The effect of contingency fees on settlement depends upon the details of the contingency fee contract and the nature of the informational asymmetry assumed in the model. Introducing bifurcated fee contracts where the contingency percentage is higher at trial changes the selection of disputes at trial, but has ambiguous effects on the overall dispute rate when an informed plaintiff makes the offer. For reasonable parameter values, it increases settlement in the model where the informed defendant makes the offer. Introduction of a unitary contingency fee in which the contingency percentage is the same in a pretrial settlement as at trial, unambiguously increases the incidence of trial in both variations of the signaling model. The interaction of fee shifting with contingency fees is also analyzed.

Contingency fees; Pretrial Settlement; Signaling

Abstract:
We consider models of pretrial negotiations where both costly voluntary disclosure and costly mandatory discovery are possible. When the uninformed party makes the final offer (the screening game), mandatory discovery will be utilized, if it is not very costly, but voluntary disclosure will not occur in the absence of a discovery procedure. When the informed party makes the final offer (the signaling game), mandatory discovery is never utilized, but voluntary disclosure will be utilized if it is not too costly to do so. Thus, mandatory discovery is effective in the information structure under which voluntary disclosure is not and vice versa. The results suggest that, taken together, the two institutions will lead to a great deal of information revelation and will significantly increase the probability of settlement.

Mandatory Discovery, Voluntary Disclosure, Civil Litigation

Abstract:
We introduce self-serving bias into the Bebchuk (1984) model in which trials result from asymmetric information and characterize the equilibrium. An increase in the self-serving bias of a defendant who receives an offer can, under some circumstances, reduce the incidence of trial. More typically, however, we find that an increase in the self-serving bias of either player increases the incidence of trial. An increase in the self-serving bias of a player who receives the offer has ambiguous effects on that player's welfare. Self-serving bias serves as a commitment mechanism not to accept offers which are too unfavorable, but players with such a bias typically end up in trial more often. For the player making the offer, we find that an increase in self-serving bias unambiguously lowers welfare.

Abstract:
We introduce self-serving bias into the Bebchuk (1984) model in which trials result from asymmetric information and characterize the equilibrium. An increase in the self-serving bias of a defendant who receives an offer can, under some circumstances, reduce the incidence of trial. More typically, however, we find that an increase in the self-serving bias of either player increases the incidence of trial. An increase in the self-serving bias of a player who receives the offer has ambiguous effects on that player's welfare. Self-serving bias serves as a commitment mechanism not to accept offers which are too unfavorable, but players with such a bias typically end up in trial more often. For the player making the offer, we find that an increase in self-serving bias unambiguously lowers welfare.

Abstract:
Recently a great deal of controversy has been generated from the salaries earned by head football coaches in the NCAA. On one level this seems odd since many figures in the world of sports and entertainment earn exceptionally high salaries. However, one important difference in the case of NCAA football is that the players themselves do not get paid. We develop a model which shows that a cartel agreement to not pay the players raises the coach's salary if some players choose where to play based on the identity of the coach. For some parameters, the gain in the coach's salary exceeds the loss in salary experienced by the player. On average, the agreement not to pay the players improves competitive balance.

NCAA Cartel, Collusion, Labor Market, Monopsony

Abstract:
We conduct an experimental analysis of bargaining under asymmetric information, where the dispute resolution mechanism can be interpreted either as a civil trial or conventional arbitration. In our treatment, we allow for credible and costless transmission of private information. Consistent with the theory, we find that plaintiffs with strong cases tend to reveal their private information to the defendant. As a result, this group of plaintiffs experiences a significant drop in their dispute rate under the treatment. We also consider a cheap talk treatment under which transmitted information is not credible. When cheap talk is allowed, transmitted messages are not entirely ignored, but there is no reduction in the dispute rate for plaintiffs with strong cases.

Abstract:
We introduce fairness into three models of pretrial settlement and find that it increases the incidence of trial in each. This is true despite the fact that the fairness taste parameter is common knowledge. In the standard model, the party who makes the final offer can extract essentially all of her bargaining partner's trial cost through this offer. A taste for fairness is reflected in the percentage of their own trial costs a party is willing to give up in accepting this final offer. In the Bebchuk (1984) and Reinganum and Wilde (1986) models a taste for fairness on the part of the defendant lowers the costs of rejected offers to the plaintiff and so increases the incidence of trial. In the Shavell (1982) model, a taste for fairness reduces and may eliminate the contract zone, thereby increasing the incidence of trial.

Pretrial Settlement, Fairness, Asymmetric Information

Abstract:
We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA the informed party has an incentive not to voluntarily reveal private information. Revealing this information allows the previously uninformed party to submit a superior offer to the arbitrator to the detriment of the informed party. Second, in a two-type model, the uninformed player may choose to arbitrate all cases, a result which never occurs in a simple litigation game. Such a strategy allows this player to commit to an offer in arbitration that is optimal against the entire distribution of types with whom he must bargain. Each player's offer directly affects the outcome of arbitration under FOA, and it is this feature that generates impediments to settlement that are not observed in a simple litigation game. Both impediments to settlement are removed if bargaining is allowed to take place after potentially binding offers have been submitted to the arbitrator.

Final Offer Arbitration, Voluntary Transmission of Private Information, Settlement

Abstract:
We investigate policy reform in a model in which there are both rent seeking and lobbying activities. These two activities involve similar skills, so a reform which reduces rents will cause a shift into lobbying. Also, lobbying is subject to a free-rider problem, so the marginal return to the industry from lobbying may greatly exceed an individual firm's return to lobbying. Thus, the shift into lobbying which results from a reduction in available rents may lead to a large increase in transfers to the lobbying industry. Under some circumstances, it is possible for a reform which reduces available rents to increase the total of rents plus transfers to the industry.

Lobbying, Rent Seeking, Reform, Free-Rider Problem

Abstract:
It is widely accepted that the character of U.S. business cycles has changed in the post World War II era. In particular, as measured by the NBER business cycle dates, business expansions have grown from an average of 26.5 months in the prewar period to 51.5 months in the post-war period. Meanwhile, the length of contractions has fallen from 21.2 months prewar to 10.4 months in the post war era. While the changed character of the U.S. business cycle is generally accepted, the explanation for this change is not.

World War II provides a convenient breakpoint in data set on business cycles, but in fact this choice is somewhat arbitrary. In this paper, we allow the data to choose the breakpoint. Following Diebold and Rudebusch (AER 1992) we conduct a nonparametric test to check for a break in the data. However, we vary the date at which we break the sample and compute a test statistic for each proposed break. The proposed date for which the probability of a break in the data set is maximized is chosen as the date for the which the break in the data occurred.

For expansions, we find that March 1933 marks the breakpoint in the data. In April of 1933, the United States left the gold standard. Thus, the break in the series on business cycle expansions coincides with a major economic event that itself is theoretically consistent with this change in behavior. In particular, the timing of these two events is consistent with macroeconomic models in which there is a short-run nonneutrality of money and in which discretionary monetary policy has some scope for reducing business cycle fluctuations.

We use NBER business cycle dates in conducting our analysis, but we check the robustness of our results by using an alternative set of business cycle dates.

Abstract:
In the standard model of a rent-seeking contest, firms optimally employ resources in an attempt to win the contest and obtain the rent. Typically, it is assumed that these resources may be hired at any desired level at some fixed, exogenous per-unit cost. In many real-world rent-seeking contests, however, these resources consist of scarce, talented individuals. We model a rent-seeking contest in which the talent available for employment is scarce and in which the rent obtained from winning the contest may also differ from participant to participant. Talent scarcity leads to preemptive hiring by the player receiving the larger rent. In the traditional analysis, as the size of the rents converges, the levels of effort and the probability of winning also converge. By contrast, when talent is scarce, the player receiving the larger rent hires it all and wins the contest with probability 1. This is true even if the difference in rents is small. Interestingly, this outcome may be Pareto-inferior to the outcome associated with the interior Nash equilibrium. We also characterize the condition under which talent ceases to be scarce. For a simple rent-seeking game, this requires at least 50% more talent than is employed at the interior Nash equilibrium.

Rent-seeking, labor market, lobbying, preemptive hiring

Abstract:
The effect of changes in industry structure on the ability to maintain a cooperative level of tariff lobbying are analyzed in a repeated game setting in which a simple trigger strategy is the enforcement mechanism. The difficulty of maintaining cooperation is identified with the minimum discount factor necessary for the maintenance of cooperation. Factors which increase this critical value of the discount parameter are said to make cooperation more difficult. Some changes in industry structure which reduce measured concentration have ambiguous effects, while others may make cooperation among a given group of firms more likely.

Abstract:
The effect of changes in industry structure on the ability to maintain a cooperative level of tariff lobbying are analyzed in a repeated game setting in which a simple trigger strategy is the enforcement mechanism. The difficulty of maintaining cooperation is identified with the minimum discount factor necessary for the maintenance of cooperation. Factors which increase this critical value of the discount parameter are said to make cooperation more difficult. Some changes in industry structure which reduce measured concentration have ambiguous effects, while others may make cooperation among a given group of firms more likely.

Abstract:
Asymmetric information on preferences is a potentially important explanation of bargaining failure. Preferences are not directly observable and information about preferences may be difficult to credibly establish to a bargaining partner. Unobserved preferences which may be relevant for pretrial bargaining include the degree of risk aversion, the degree of litigiousness, and a taste for fairness. These contrast with fact based explanations such as asymmetric information on the probability of a finding for the plaintiff at trial or on the extent of the plaintiff's damages. In this paper, we show that there is an important difference between informational asymmetries which are fact based and those which are preference based. In particular, with a fact based asymmetry, the standard bargaining model predicts trials regardless of whether the uninformed party or the informed party makes the offer. By contrast, under the preference based explanation, disputes are only predicted in the model in which the uninformed party makes the offer. We illustrate this point in a simple model of pretrial bargaining.

Pretrial Bargaining, Civil Litigation, Asymmetric Information, Risk Preferences

Abstract:
We extend the signaling model of Reinganum and Wilde (1986) by allowing for the possibility of negative expected value (NEV) suits. If filing costs are positive, then there exists a separating equilibrium such that plaintiffs with NEV suits choose not to file. By making the filing decision endogenous, we are able to derive new insights on the effects of fee shifting and contingency fees in the signaling model.

Signaling, Pretrial Settlement, Negative Expected Value Suits

Abstract:
Recent work by Pecorino (1998, 1999) and Esteban and Ray (2001) has called into question one of the central propositions of Olson (1965) relating public good provision to group size. Pecorino addresses this issue in a repeated game context, while Esteban and Ray introduce a technology under which there is an increasing marginal cost of effort in providing the public good in a framework that allows credit market imperfections and non monetary contributions. In this paper we analyze the robustness of these results to a simple, but realistic extension of the respective models. In particular, we consider small fixed costs of participation which must be borne by potential contributors before their contributions can have a marginal impact on provision of the public good. If the public good is nonrival, then the results of Pecorino and Esteban and Ray are robust to the consideration of these fixed costs. However, if the public good is fully rival (but nonexcludable), then the existence of small fixed participation costs will generally restore one of Olson's central propositions: public goods will fail to be provided in large groups.

Collective action, public goods, group size, repeated games

Abstract:
It is commonly believed that a monetary policy that targets the price level reduces the long-term variability of the price level but only at the cost of increased variability in both inflation and output. This paper shows that this result may not hold so long as increases in the real rate of interest cause decreases in aggregate demand. In particular it is shown that the one-step-ahead variance of output and inflation are lower under price-level targeting than under inflation targeting. Further, it is shown that the variance of inflation about its target value can be lower under price-level targeting than under inflation targeting. This increased stability under price level targeting works through an interest rate channel not previously identified in the literature on price-level and inflation targeting.

price level targeting, inflation targeting, price stability, output stability, monetary policy

Abstract:
In the standard model, provision of a pure public good is increasing in group size if it is a normal good. I develop a model of public good provision in which private goods are supplied in a monopolistically competitive market. In this context, increases in the size of the group are increases in the population of a society. I find that increases in population lead to reduced public good provision. The reason is quite simple: As population increases, the number of private goods available for consumption also increases. This raises the marginal utility of income and increases the opportunity cost of contributing to the public good.

Public Goods, Monopolistic Competition, Group Size, Growth

Abstract:
Several authors have reported finding a negative correlation between prices and output for the U.S. in the post WW II data. This paper presents a simple aggregate supply and demand model to show that this correlation may reflect the actions of an optimizing monetary policy maker rather than the relative sizes of the aggregate demand and supply shocks which hit the economy. Because the optimizing policy maker seeks to offset fully the effects of aggregate demand shocks, when the policy maker views these shocks with greater precision, the observed correlation of prices and output falls and can become negative. Importantly, our model is consistent with the observed changed in the price-output correlation between the pre WW II and post WW II periods.

optimal monetary policy, price-output correlation

Abstract:
Morgan (2000) has shown that lotteries are potentially an effective mechanism for the provision of public goods. In particular, he has shown that lotteries lead to a level of provision above the level provided by the voluntary contributions mechanism. In this paper, we analyze the effect of group size on public good provision under the lottery mechanism. We consider the lottery model with identical consumers and then compute comparative statics with respect to group size. For a pure public good, the lottery performs quite well as public good provision is found to increase in group size, even when the lottery prize is held constant. By contrast, for fully rival public goods, per capita provision is found to decrease in group size, even when the lottery prize is proportional to group size. Further, the per capita level of provision will approach 0 when group size is sufficiently large.

Collective Action, Public Goods, Group Size, Lotteries

Abstract:
It is well established that the provision of a pure public good is increasing in group size if the good is normal. What I show is that if the good exhibits even a small degree of rivalry, then the individual level of consumption of the public good falls to 0 in a large group. Thus, a strong version of the Olson hypothesis applies to anything other than an pure public good. Technically, what is important is the nature of the public good as the group size grows large. If the good approaches a pure public good in the limit, we will not obtain a strong version of the Olson hypothesis, but if the commodity exhibits any degree of rivalry in the limit, then we do obtain a strong version of his hypothesis.

Public Goods, Group Size, Olson Hypothesis

Abstract:
We embed an ultimatum game in a stylized legal bargaining framework. This changes the framing of the standard ultimatum game in several ways, but also moves the bargaining closer to what is found in some naturally occurring settings. In this context, the ultimatum game is played over the joint surplus which is achieved from settlement as compared to a dispute. In our embedded ultimatum game, the median offer contains only 7% of the joint surplus from settlement. When we replicate the simple ultimatum game, we find that 50% of the joint surplus is contained in the median offer.

Ultimatum Game, Experimental Bargaining, Civil Litigation

Abstract:
Small U.S. states are over-represented in the Senate and over-weighted in the electoral college. Atlas et al. (1995) have drawn attention to the effect of the over-representation of small states in the Senate by showing that per capita federal expenditure is positively related to per capita representation in the Senate. Our data cover a later period and are disaggregated into five spending categories compared to the three considered by Atlas et al. In addition, we consider a broader set of political control variables in our regression equation. We confirm the most important result of Atlas et al., which is that state-level federal expenditure is positively related to per capita senate representation for that state. The effect is strongest for procurement spending. By contrast, we find evidence against their result that per capita representation in the House is positively related to per capita federal expenditure.

We include a variety of other political control variables in our analysis, and several of these variables are significant in a subset of our expenditure equations. Electoral votes is another variable which is a function of state size. Electoral votes are negatively associated with spending in several categories, with coefficients indicating that the overall effect is large. This reinforces the small state effect stemming from Senate representation.

We find evidence that states which voted for the sitting president receive less spending per capita compared to states the sitting president lost by a narrow margin. Some other political variables are found to be both statistically and economically significant, but in each case, only for a subset of the spending equations.

Senate representation, small state effect in federal spending, political determinants of Federal expenditure

Abstract:
Olson (1965) argues that some large groups can overcome the free-rider problem through by-product lobbying. The by-product firm sells a private good to potential members of the interest group and finances lobbying with its profits. Others argue that by-product lobbying firms cannot survive competition with for-profit firms, since this would compete away monopoly rents, leaving the firm unable to lobby. In a model of monopolistic competition, I show that the by-product firm can enter the market and earn enough profits to exceed the noncooperative level of lobbying. This is true despite the free entry of for-profit firms.

By-product lobbying, Free-rider Problem, Collective Action

Abstract:
Olson (1965) has argued that one way large groups overcome the free-rider problem is through by-product lobbying. The by-product firm sells a private good to potential members of the interest group and finances lobbying with its profits. It has been argued that by-product lobbying firms cannot survive competition with for-profit firms, since this would compete away monopoly rents, leaving the firm unable to lobby. In a model of monopolistic competition, I show that the by-product firm can enter the market, and earn enough profits to exceed the noncooperative level of lobbying. This is true despite the free entry of for-profit firms. A model of Bertrand competition is also analyzed. This paper provide strong theoretical support for the argument that by-product lobbying firms can successfully compete against for-profit firms.

By-product lobbying, free-rider problem, collective action

Abstract:
We conduct a bargaining experiment where the dispute resolution mechanism can be interpreted as a civil trial or conventional arbitration. The game involves a take-it-or-leave-it bargaining structure, and therefore contains an embedded ultimatum game. The sum of the dispute costs is constant, and in the baseline these costs are symmetric. A within-session treatment introduces an asymmetric distribution of dispute costs. We find that offers are roughly half way between the offer predicted by a model of narrow rationality and an offer which equally splits the surplus resulting from settlement. Based on the empirical rejection behavior, the optimal offer contains approximately 1/6 of the joint surplus from settlement. There is some evidence of higher dispute rates when the cost of a dispute are asymmetrically distributed.

experimental bargaining, civil litigation, arbitration, fairness

Abstract:
Rodrik (1995) notes that trade regimes tend to be biased towards import protection, while the standard political economy models either yield no prediction on the bias of the trade regime or predict, counter-factually, a bias towards the export sector. This constitutes an important shortcoming in the political economy of trade literature. In this paper, the Grossman and Helpman (1994) Protection for Sale model is extended by adding government expenditure. This expenditure may be financed via a combination of tariff revenue and a distorting wage tax. In addition to the government expenditure, export subsidies need to be financed either via tariff revenue or a distorting wage tax. With this addition, plausible values of the model's parameters yield import protection bias.

Abstract:
Rodrik (1995) notes that trade regimes tend to be biased towards import protection. Meanwhile, the standard political economy models either yield no prediction on the bias of the trade regime, or predict, counterfactually, a bias towards the export sector. Rodrik argues that import protection bias in developing countries might be explained by the revenue effects of the two policies. In this paper, the Grossman and Helpman (1994) "Protection for Sale" model is extended by adding government expenditure. This expenditure may be financed via a combination of tariff revenue and a distorting income tax. In addition to the government expenditure, export subsidies need to be financed either via tariff revenue or a distorting wage tax. With this addition to the model, plausible values of the model's parameters yield import protection bias.

Endogenous Trade Policy, Import Protection Bias, Protection for Sale Model

Abstract:
Using data from Backus and Kehoe (1992) we establish the existence of a positive relationship between the price-output correlation and the variance of output. This is consistent with the idea that reductions in the magnitude of aggregate demand shocks have been the dominant cause of changes in the price-output correlation across countries and across time. By contrast, changes in the magnitude of aggregate supply shocks would impart a negative relationship between the price-output correlation and the variance of output. We also consider and rule out the possibility that a steepening of the aggregate supply curve is the cause of the negative price-output correlation in the postwar era. In the postwar period the variance of output and the price-output correlation both fell compared to the pre-WW II period. We argue that both these changes are likely the result of a more effective monetary policy.

Price-Output Correlation, Variance of Output, Business Cycle

Abstract:
Under Rule 68, a defendant may submit a pretrial offer of judgment to the plaintiff. If the plaintiff refuses this offer and later receives a smaller award at trial, the defendant's court costs subsequent to the offer are shifted to the plaintiff. We analyze Rule 68 in a game theoretic setting in which trials may result from an informational asymmetry: the defendant is the informed party, and bargaining may take place after the defendant submits an offer of judgment to the plaintiff. Rule 68 may encourage settlement through this offer of judgment by prompting partial revelation of privately held information.

Abstract:
Olson (1965) argues that some large groups can overcome the free-rider problem through by-product lobbying. The by-product firm sells a private good to potential members of the interest group and finances lobbying with its profits. George Stigler (1974) argued that by-product lobbying firms cannot survive competition with for-profit firms, since this would compete away monopoly rents, leaving the firm unable to lobby. Pecorino (2001) showed that by-product firms can survive in a monopolistically competitive market structure if they use their profits to provide a pure public good. In this paper, I show that by-product lobbying will fail if the public good provided by the firm exhibits even a small degree of rivalry, and the group size is sufficiently large. This suggests that Stigler is right in the circumstances under which by-product lobbying is most relevant.

By-Product Lobbying, Free-Rider Problem, Collective Action

Abstract:
One argument for forcing governments to pay compensation for regulatory takings is that they will tend to over regulate if compensation is not paid. In this paper, a model is developed in which there are two groups in society, one of which bears all of the costs of regulation. Regulation provides (potentially unequal) benefits to both groups. In the absence of compensation, a biased government will not choose the efficient level of regulation. If taxes are non-distorting, a compensation rule can be designed to achieve the first best outcome. The optimal rule always involves a positive degree of compensation regardless of the direction of the government bias. If the government is biased in favor of the regulated group, then compensation will increase the level of the regulation. When taxes are distortionary, the first best outcome cannot be achieved, and the optimal level of compensation may be 0.

Takings, Regulation, Compensation

Abstract:
With the election of 1994, the Republican party gained control of both houses of the U.S. Congress for the first time since 1954. In this paper, we analyze whether this change in party control had significant effects on the determinants of federal spending at the state level. To perform this analysis, we utilize panel data on federal spending, at the state level, over the years 1983-2004. We allow for a break in the sample to analyze whether the political determinants of state level spending differed after the election of 1994. There is little evidence that a presence in the house or senate majority yields positive spending effects prior to the election of 1994, but a positive spending effect does emerge after the Republican takeover. Surprisingly, there is evidence that spending became more redistributive (measured at the state level) in the later period.

Political Determinants of Federal Expenditure, Party Politics, Senate Representation

Abstract:
We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA, the informed party has an incentive to conceal private information about the expected outcome in arbitration from his bargaining partner. Revealing this information allows the previously uninformed party to submit a more advantageous offer to the arbitrator to the detriment of the informed party. Second, in a two-type model, the uninformed player may choose to arbitrate all cases, a result which never occurs in a simple litigation game. Each player's offer directly affects the outcome of arbitration under FOA, and it is this feature that generates impediments to settlement that are not observed in a simple litigation game. Both impediments to settlement are removed if bargaining is allowed to take place after potentially binding offers have been submitted to the arbitrator.

Abstract:
As a result of Title IX, there has been a large increase in participation of women in college sports, while men’s participation has remained roughly constant. Using a standard contest success function, we analyze the resource allocation decision between women’s and men’s sports before and after the Title IX regulation is imposed. If the number of women’s and men’s sports is held constant, the model predicts an increase in resources devoted to women’s sports which is matched by a one-for-one decrease in resources devoted to men’s sports after Title IX is implemented. Since this prediction is counterfactual, we next consider the possibility that women’s sports are added and men’s sports dropped. We find that one possible response to Title IX is an increase in resources devoted to women’s sports with no change in resources devoted to men’s sports.

Title IX, Gender Equity, Sports Contest

Abstract:
Richard Epstein has argued that, in a fairly broad range of circumstances, governments should pay compensation for regulatory actions which impose costs on a subset of society. I develop a model in which there are two groups, one of whom benefits from a regulation, and one of whom bears the costs. A potentially biased government sets the level of the regulation, and this government may also redistribute income across the two social groups via the tax system. When taxes are nondistortionary, the government chooses the efficient level of the regulation in order to maximize wealth, and then uses the tax system to distribute this wealth according to its own biased preferences. If the government is forced to pay compensation for the costs of the regulation, it simply undoes this via the tax-transfer system. When taxes are distortionary, the government may not choose the wealth maximizing level of the regulation when compensation is not paid. It turns out, however, that societal wealth is monotonically decreasing in the degree of compensation to be paid, so that the optimal level of compensation is zero.

takings, regulation, compensation, redistribution

Abstract:
Under the standard summation technology, pure public goods can be provided via the direct contributions mechanism, even in an arbitrarily large group. However, if the public good exhibits any degree of rivalry, individual consumption of the public good will fall to zero as group size grows large. Thus, the direct contributions mechanism is not robust to the introduction of rivalry. By contrast, Morgan's (2000) lottery mechanism is robust to the introduction of rivalry when the lottery prize is proportional to group size. The lottery mechanism can provide public goods in a large group when the public good exhibits a degree of rivalry, provided that the degree of rivalry is not too high. This suggests that the lottery mechanism can provide a broader range of public goods in a large group than the direct contributions mechanism.

Collective Action, Public Goods, Group Size, Lotteries

Abstract:
We analyze the effect of group size on public good provision under the Morgan (2000) lottery mechanism. For a pure public good, the lottery performs quite well as public good provision is found to increase in group size, even when the lottery prize is held constant. By contrast, for fully rival public goods, per capita provision is found to decrease in group size, even when the lottery prize is proportional to group size. Further, the per capita level of provision will approach zero when group size is sufficiently large.

Abstract:
In the standard model, provision of a pure public good is increasing in group size if it is a normal good. I develop a model of public good provision in which private goods are supplied in a monopolistically competitive market. In this model, group size corresponds to population. I find that increases in population lead to reduced public good provision. The reason is quite simple: as population increases, the number of private goods available for consumption also increases. This raises the marginal utility of income and increases the opportunity cost of contributing to the public good.

Abstract:
Several empirical papers have established the fact of a negative price-output correlation for the United States in the post WWII era. Much of this work appears to interpret the sign of this correlation under the assumption that monetary policy is passive. This paper uses a simple aggregate supply and demand model to examine how an optimizing monetary policy affects the price-output correlation. The model is capable of explaining why the price-output correlation in the United States is positive with prewar data but negative with postwar data. The model implies that a negative price-output correlation can emerge under an optimal policy only if policymakers are concerned with both inflation and output and the underlying economy is one in which both demand and supply shocks affect output. The model implies that a negative price-output correlation is inconsistent with real-business cycle models, while a positive correlation does not necessarily support the use of neo-Keynesian models.

Optimal Monetary Policy, Price-output correlation

Abstract:
Andreoni (1998) shows that a small amount of seed money from the government can generate substantial additional private donations towards the provision of a public good, when there is a threshold level of provision below which no benefits are achieved. We argue that Andreoni's solution can be extended to a mechanism where refunds are possible. We then argue that a greater bang per buck may be achieved if the seed money is targeted to cover the administrative costs of providing refunds.

Public Goods, Seed Money, Threshold Level of Provision

Abstract:
We conduct an experimental analysis of final offer arbitration (FOA) with differentially informed players. Under FOA, the arbitrator must choose one of the two submitted offers. In our control, the uninformed player makes an offer to the informed player prior to the submission of offers to the arbitrator. The treatment allows negotiation after offers are submitted to the arbitrator. Because these offers are potentially binding, they may transmit privately held information and, thereby, lower the dispute rate. We find that allowing negotiation in the face of potentially binding offers lowers the dispute rate by 27 percentage points.

Bargaining, Asymmetric Information, Final Offer Arbitration, Dispute Resolution

Abstract:
Froeb and Kobayashi (1996) find that endogenous expenditure decisions at trial tend to eliminate an exogenously given jury bias. For interior solutions, they find the initial bias to be totally eliminated. We find, however, that once the participation constraint of the plaintiff and defendant are taken into account, strong priors by the jury tend to deteriorate the quality of the cases which are filed by the plaintiff and defended by the defendant. We also explore an alternative form for jury bias, and find that it is generally non neutral with respect to the trial outcome. We find further that the use of the English rule may compound the effects of a strong jury bias.

Abstract:
Under Rule 68, a defendant may submit a pretrial offer of judgment to the plaintiff. If the plaintiff refuses this offer and later receives a smaller award at trial, the defendant's court costs subsequent to the offer are shifted to the plaintiff. We analyze Rule 68 in a game theoretic setting where trials may result from an informational asymmetry in which the defendant is the informed party. We find that Rule 68 may help to encourage settlement through the offer of judgment which may partially reveal privately held information. However, the effectiveness of Rule 68 in encouraging settlement depends upon the amount of fees subject to shifting. Increasing the fees subject to shifting has an ambiguous effect on settlement, but taking the extent of fee shifting as given, settlement rates are always higher with Rule 68 than without it. The structure of the model and the key results are contrasted with Spier (1994).

Abstract:
Individuals engaged in rent seeking accumulate sector specific human capital through learning-by-doing. If agents specialize, small reforms of the trade regime may fail to reduce the level of the rent-seeking activity. The size of the reform necessary to induce movement out of rent seeking is increasing in the time that controls have been in place. If rent seeking and production are complementary activities, agents will not specialize in either, and will fully respond to a small reform of the trade regime. This is true even though they accumulate human capital specific to rent seeking.