CONTRACT DESIGN AND SELF‐CONTROL WITH ASYMMETRIC INFORMATION

We study optimal contracting by a monopolistic seller of investment goods to a time‐inconsistent consumer and, in doing so, introduce asymmetric information to the model of DellaVigna and Malmendier (2004) . We find (1) the below‐marginal‐cost‐pricing rule may fail for a low‐value consumer; (2) the firm's profit is no longer unaffected by the consumer's short‐run impatience, as the latter is sophisticated. We find that there is an important threshold value of short‐run patience. When the consumer's short‐term patience is below this level, then, as the patience increases, the firm suffers. When the consumer's short‐run patience is above this threshold, then, as it increases, the firm benefits. Finally, we show that unlike monopoly, perfect competition with asymmetric information achieves the first‐best outcome. (JEL D03, D82, D91)     

SURVEY MEASURES OF FAMILY DECISION PROCESSES FOR ECONOMETRIC ANALYSIS OF SCHOOLING DECISIONS

In this article, we consider the collection of novel subjective data on family processes of schooling decisions. In particular, we review recent progress on survey measurement of expectations, information, and locus of decision of American families within the context of secondary schooling, and we discuss possible future developments by providing concrete examples from recent exploratory efforts. We argue that collection of data on adolescents' and parents' perceptions of the available school options and the application‐and‐admission rules, their subjective expectations about short‐ and long‐term consequences of alternative choices, and their assessments of the locus of decision making within families could greatly enhance economic modeling and contribute to effective econometric analysis of schooling decisions. (JEL C83, D19, D79, D83, D84, I21, I26, J24)     

DECEPTION AND POLITICAL PARTICIPATION: THEORY AND LABORATORY EVIDENCE

We model two‐candidate elections in which (1) voters are uncertain about candidates' attributes; and (2) candidates can inform voters of their attributes by sending advertisements. We compare between political campaigns with truthful advertising and campaigns in which there is a small chance of deceptive advertising. Our model predicts that voters should vote in‐line with an advertisement's information. We test our model's predictions using laboratory elections. We find, in the presence of even a small probability that an advertisement is deceptive, voters become substantially more likely to elect a “low‐quality” candidate. We discuss implications of this for existing models of voting decisions. (JEL C92, D72, D82)     

CAPS IN SEQUENTIAL CONTESTS

We study a sequential two‐stage all‐pay auction with two identical prizes. In each stage, the players compete for one prize and each player can win either one or two prizes. The designer may impose a cap on the players' bids in each of the stages. We analyze the equilibrium in this sequential all‐pay auction with bid caps and show that capping the players' bids is profitable for a designer who wishes to maximize the players' expected total bid. (JEL D44, D82, J31, J41)     

DOES WAL‐MART SELL INFERIOR GOODS?

I estimate the aggregate income elasticity of Wal‐Mart's and Target's revenues using quarterly data for 1997–2006. I find that Wal‐Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal‐Mart selling “inferior goods” in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal‐Mart's wares is ?0.5. (JEL L81, D12)     

DOES DELEGATION INCREASE WORKER TRAINING?

We model a principal‐firm offering training to its agent‐worker under two alternative organizational structures: integration, where the principal retains authority to overrule the investment project recommended by the worker; and delegation, where the principal cannot overrule the worker's preferred investment project. We assume that training reduces the worker's effort cost of assembling information about alternative projects' payoffs and identify the conditions under which delegation increases the profit‐maximizing intensity of training. Empirical estimates from matched employer–employee data show that workplaces delegating authority do provide more worker training. This result persists in two cross sections, in panel fixed‐effect estimates and, critically, in an instrumental variable exercise that also controls for establishment fixed effects. (JEL D21, D22, D23, M53, M54)     

OFFSHORE OUTSOURCING DECISION AND CAPITAL INTENSITY: FIRM‐LEVEL RELATIONSHIPS

In offshore sourcing, a firm chooses outsourcing to independent suppliers or in‐sourcing from own foreign direct investment (FDI) subsidiaries. Based on the firm‐level data on offshore make‐or‐buy decision covering all manufacturing industries, this paper compares averages, documents inter‐firm distributions, and estimates multinomial logit models of the firm's sourcing mode choice. As predicted by previous theoretical models, this paper directly confirms at the firm level that outsourcing firms tend to be substantially labor‐intensive compared with firms in‐sourcing from the same region, even after the firm's R&D intensity, firm size, or industry is controlled for. (JEL F23, L23, L24, L14)     

SELLING TO BIASED BELIEVERS: STRATEGIES OF ONLINE LOTTERY TICKET VENDORS

We provide evidence that sellers respond to buyers' belief biases in a collective lottery betting market, by adopting sales strategies which cater to believers in the Hot Hand and Gambler's Fallacies. Lottery players on the buyer side tend to avoid buying tickets which are similar to the previous winning ticket, in accordance with the Gambler's Fallacy (Clotfelter and Cook 1993; Terrell 1994). At the same time, buyers tend to prefer purchasing tickets from previously winning sellers, despite the fully random nature of wins, in accordance with Hot‐Hand Fallacy (Croson and Sundali 2005). These behavioral biases provide an opportunity for ticket sellers to increase their expected profits by adjusting features of the lottery portfolios they sell. We find that sellers make changes to their portfolio size, commission rate, self‐purchase rate, and number choices in response to previous events, in ways that are consistent with responding to the Hot‐Hand Fallacy belief, and which also lend a degree of support for responding to the Gambler's Fallacy belief. Our results show evidence of participants in a market accommodating their choices to the biased beliefs of other participants in order to gain an advantage in expected profits. (JEL D01, D03, D81, L86)     

Family Factors Associated With Sixth‐Grade Adolescents' Math and Science Career Interests

This study tested a causal model, based on social cognitive career theory (SCCT; R. W. Lent, S. D. Brown, & G. Hackett, 1994, 2000), of math and science career interests among 6th‐grade adolescents (N = 318). Consistent with SCCT, it was found that career gender‐typing, mother's and father's support for pursuing math and science careers, as well as the structure of the family itself (2‐parent intact vs. single parent) predicted young adolescents' math self‐efficacy; career gender‐typing and mother's support predicted math outcome expectations; and math self‐efficacy and outcome expectations predicted math and science career interests. Counselor recommendations based on these findings are included.     

EDUCATION'S GAMBLING PROBLEM: EARMARKED LOTTERY REVENUES AND CHARITABLE DONATIONS TO EDUCATION

I examine the impact that lotteries introduced to support education have on voluntary contributions to education. State lotteries, and the causes they are introduced to support, are highly publicized. This provides the opportunity to assess whether donors are crowded‐out by government spending of which they are almost certainly aware. Using donor‐level survey data and nonprofits' tax returns, I find that donations to education‐related organizations fall with the introduction of a lottery. This result is driven by donors' response to the new (highly publicized) government revenue source (rather than a decrease in nonprofit fundraising efforts). (JEL D64, H3, H75)     

LOCUS OF CONTROL AND JOB TURNOVER

In this article, I investigate how a worker's locus of control, that is, the perception of control over daily events, affects job‐to‐job and job‐to‐nonemployment turnover. I find that an increase in internality—the degree to which respondents believe that the outcomes of their life events are determined by their own actions versus external factors—increases job‐to‐job transitions. In addition, the annual wage growth rate and the wage gains from job‐to‐job transitions increase with internality. The influence of the locus of control on job‐to‐nonemployment turnover, however, is insignificant on controlling for the worker's level of attained education. (JEL D83, J63)     

When alcohol withdrawal has to be treated on an inpatient basis

Contrary to popular belief, alcohol withdrawal does not have to be treated on an inpatient basis. Two cardinal signs — a history of alcohol‐withdrawal delirium or alcohol‐withdrawal seizures — indicate hospitalization. So do certain comorbidities. Most cases can indeed be treated on an outpatient basis, according to two top experts: Lorenzo Leggio, M.D., Ph.D., senior investigator with the joint National Institute on Alcohol Abuse and Alcoholism (NIAAA)‐National Institute on Drug Abuse (NIDA) Section on Clinical Psychoneuroendocrinology and Neuropsychopharmacology, and Mark Willenbring, M.D., founder and CEO of Alltyr in St. Paul, Minnesota and former director of the Division of Treatment and Recovery Research at NIAAA. However, even though it can be treated on an outpatient basis, it often isn't, and there's a good reason for that — better safe than sorry, to sum it up.     

The Influence of Gender,Generation Level,Parents' Education Level,and Perceived Barriers on the Educational Aspirations of Mexican American High School Students

A portion of social‐cognitive career theory (R. W. Lent, S. D. Brown, & G. Hackett, 1994) was tested by examining contextual factors related to the educational aspirations of 186 Mexican American high school students. A 3‐step hierarchical regression analysis was conducted to determine the influence of gender, generation level, parents' education level, and perceived educational barriers on educational aspirations. Results indicated that perceived educational barriers significantly predicted students' educational aspirations above and beyond the influence of gender, generation level, and parents' education level. Implications for Mexican American students' educational goals are provided.     

MANAGING R&D IN VERTICAL RELATIONSHIPS

We study the optimal strategy for research and development (R&D) in a buyer‐supplier relationship. The buyer chooses whether to (1) insource a cost‐reducing R&D to its own research‐subunit or to (2) outsource it to its manufacturing supplier. The buyer cannot observe the R&D effort in either case, but can better observe the R&D result when the R&D is conducted internally. According to our analysis, the buyer prefers insourcing R&D to mitigate information asymmetry when the R&D cost is either small or large. When the R&D cost is intermediate, however, the buyer prefers outsourcing R&D, and can achieve the full information outcome (first‐best outcome) despite the information asymmetry associated with outsourcing R&D. Moreover, the buyer's preference for outsourcing high‐cost R&D increases when the R&D is more likely to succeed or to generate significant cost reductions, or the R&D result is more difficult to predict. Our analysis provides a theoretical explanation for the increasing trend of outsourcing innovation to manufacturing suppliers. (JEL D82, L22, L23)     

AUCTIONS WITH RESALE OPPORTUNITIES: AN EXPERIMENTAL STUDY

We study first price asymmetric private value auctions with resale opportunities presented in seller's and buyer's markets. We offer experimental evidence on bidding behavior, prices, and resource allocation. Building upon the Hafalir and Krishna (2008) model, we find that bidders will bid higher in an auction if the resale market is a seller's market than a buyer's market. There is a price/revenue‐efficiency trade‐off established theoretically between these two resale regimes. In equilibrium, however, final efficiency is high irrespective of the resale market structure. Evidence of bid symmetrization and higher final efficiency is found in the buyer‐advantaged resale case. (JEL D44, C92)     

PEER EFFECTS IN A COMPETITIVE ENVIRONMENT: EVIDENCE FROM THE PGA TOUR

This study uses putting on the PGA TOUR to examine peer effects in a competitive setting. The nature of play in golf, in which players complete tasks in a discrete order with a group of randomly assigned peers, provides a unique opportunity to observe these effects among individuals competing in a high‐stakes tournament. Players have the chance both to learn from their peers, as well as to be psychologically impacted by peer success or failure. We find that learning by observing peers has a positive impact on a player's performance, while peer outcomes are negatively correlated with a player's own performance. (JEL D03, D83, L83)     

HAPPINESS,GROWTH, AND PUBLIC POLICY†

If society's goal is to increase people's feelings of well‐being, economic growth in itself will not do the job. Full employment and a generous and comprehensive social safety net do increase happiness. Such policies are arguably affordable not only in higher income nations but also in countries that account for most of the population of the less‐developed world. These conclusions are suggested by an analysis of a wide range of evidence on happiness in countries throughout the world. (JEL I31, I38, O21, F20, D60, E60)     

A DESIGNER'S CHOICE BETWEEN SINGLE‐PRIZE AND PARALLEL TOURNAMENTS

In this article, I theoretically and experimentally compare a designer's profits from two tournament designs. The first design is a standard winner‐take‐all tournament with a single prize. The second design features two winner‐take‐all (parallel) tournaments with different prizes where individuals choose which tournament to enter before competing. I develop a simple model that illustrates how the relative performances of these designs change as contestants' abilities differ. The theoretical model shows that the designer's profit is higher (lower) in the parallel tournament when contestants' abilities differ greatly (are similar). I complement these findings with experimental evidence. The experiments show that the parallel tournament is more profitable under high heterogeneity, whereas under low heterogeneity, the designer is better off with the single‐prize tournament. Furthermore, high‐ability agents under‐participate and low‐ability agents over‐participate in the high‐prize tournament relative to the theoretical prediction. (JEL C72, D82, J33, M51, M52)     

TO DETER OR TO MODERATE? ALLIANCE FORMATION IN CONTESTS WITH INCOMPLETE INFORMATION

We consider two players' choice about the formation of an alliance ahead of conflict in a framework with incomplete information about the strength of the potential ally. When deciding on alliance formation, players anticipate the self‐selection of other players and the informational value of own and other players' choices. In the absence of these signaling effects, strong players have an incentive to stand alone, which leads to a separating equilibrium. This separating equilibrium can be destabilized by deception incentives if beliefs are updated on the basis of endogenous alliance formation choices. Weak players may find it attractive to appear strong in order to deter competitors from positive effort choices. Strong players may find it attractive to appear weak in order to give their competitors a false sense of security and then beat them with little effort. Moreover, appearing weak allows players to free‐ride when alliances are formed. (JEL D72, D74)     

GROWTH AND CONVERGENCE WHEN TECHNOLOGY AND HUMAN CAPITAL ARE COMPLEMENTS

This article presents a model of endogenous growth, in which a firm's technology and a country's human capital stock are complementary in the production of output. Production technologies are created by costly research and development (R&D) and are owned by firms that can freely choose where in the world to produce. Both production and R&D have a positive effect on a country's human capital stock. While all countries typically grow at the same rate in the long run, they differ in their levels of human capital, per capita output, and the quality of the technologies that are used in production. A country's relative position in terms of productivity is history dependent. Countries that start out with a lower human capital stock or industrialize later end up with a lower per capita GDP in long‐term equilibrium. (JEL O4, O33, O47)