REWARDS, EXPERIENCE AND DECISION COSTS IN FIRST PRICE AUCTIONS

Consistent with a model of asymmetric risk aversion, subjects in first price auctions consistently bid above the risk neutral Nash prediction. It has been argued that this is due to low opportunity cost of deviating from the risk neutral bid. We increase opportunity cost (and payoff levels) by factors of 0, 1, 5, 10, and 20, from the normal levels generating payoffs up to $250 for risk neutral subjects and observe an insignificant increase in the slope of individual bid functions. The RMSE of bids declines significantly. This is consistent with a reward/decision cost model of bidding behavior.     

IMMATERIAL REWARDS AND SANCTIONS IN A VOLUNTARY CONTRIBUTION EXPERIMENT

In this article, we compare the causes and effects of immaterial rewards and sanctions on cooperation in a voluntary contribution experiment. It appears that both rewards and sanctions increase contributions (and that rewards are more effective than sanctions) only when subjects interact repeatedly within the same group. The effect is, however, insignificant, which could be due to the higher variance in presence of rewards and sanctions. Furthermore, it is evidenced that rewards have some negative effect on the future contribution for both the imposer and the imposed when the partner matching is applied, but both rewards and sanctions have mainly positive effects under the stranger matching. Thus it seems that the recipient of the feedback takes the message as a reliable external evaluation of her contribution only under the stranger matching protocol when the strategic use of feedback can largely be excluded. (JEL C92, H41)     

BASHING AND COERCION IN MONETARY POLICY

Political pressure, or "bashing," by the administration is typically believed to be one way that the administration can coerce an otherwise independent central bank into following the administration's preferred monetary policy path. This paper develops a model for analyzing this type of policy "cooperation" and demonstrates that bashing the central bank creates uncertainty on the part of private agents with regard to future policy actions, which translates into real wage and output variability. Hence, although beneficial to the administration, political pressure creates uncertainty and thus economic instability.     

BEHAVIORAL FOUNDATIONS OF RECIPROCITY: EXPERIMENTAL ECONOMICS AND EVOLUTIONARY PSYCHOLOGY

Laboratory experiments have generally supported the theorem that, in classical property rights environments, noncooperative behavior in markets yields efficient social outcomes. Experiments, however, regularly fail to support the game theoretic prediction of noncooperative behavior in small-group strategic interaction and in large-group public good environments. In these two types of experiments subjects frequently achieve more efficient social outcomes–they collect more money from the experimenter–than noncooperative game theory predicts. Many subjects in these experiments exhibit reciprocity even in single-play games. Evolutionary psychologists hypothesize that humans have evolved mental algorithms for identifying and punishing cheaters in social exchange. ( JEL A11, A12, B41, C70, C72, C92)     

DELIBERATION AND LEARNING IN MONETARY POLICY COMMITTEES

We use records from Federal Open Market Committee (FOMC) meetings to investigate the importance of deliberation and learning in monetary policy decision making in the period from 1970 to 1978 when Arthur Burns served as Chairman. We first propose a model of Bayesian learning in which FOMC members learn from each other as they sequentially reveal their policy preferences in a committee meeting. Then, as an alternative, we investigate a model in which members defer to an emerging consensus. Neither model is supported by the data, suggesting that within‐meeting deliberation might have had little effect on the quality of monetary policy decisions in the Burns era. (JEL E520, E580)     

DISEQUILIBRIUM EXCHANGE IN BARTER AND MONETARY ECONOMIES

This article compares the relative performances of barter and monetary arrangements at fixed disequilibrium prices. The decentralized functioning of the two systems is described, and their "fix-price" equilibria compared. It is shown that, while the fix-price equilibria will be more difficult to obtain in the barter economy, they are more efficient than in the monetary economy where disequilibrium "effective demand failures" appear.     

MONETARY INTEGRATION, INFLATION CONVERGENCE AND OUTPUT SHOCKS IN THE EUROPEAN MONETARY SYSTEM

Studies on monetary convergence in Europe have reached mixed conclusions, raising questions about whether the European Monetary System failed to expedite convergence, or whether convergence requires redefining. A definition of convergence is explored that conditions monetary policy on factors affecting real exchange rates. Inflation rates have converged, while unconditional monetary policies have not. Once conditioning factors are considered, much of the gap between inflation and monetary convergence is explained. Differences in output trends do not explain the gap, while velocity variability does. (JEL F33)     

THE EFFECT OF REWARDS AND SANCTIONS IN PROVISION OF PUBLIC GOODS

A growing number of field and experimental studies focus on the institutional arrangements by which individuals are able to solve collective action problems. Important in this research is the role of reciprocity and institutions that facilitate cooperation via opportunities for monitoring, sanctioning, and rewarding others. Sanctions represent a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero-sum transfer from participants giving to those receiving rewards. We contrast reward and sanction institutions in regard to their impact on cooperation and efficiency in the context of a public goods experiment . ( JEL C92)     

BIDDING BEHAVIOR AND DECISION COSTS IN FIELD EXPERIMENTS

Whether rationality of economic behavior increases with expected payoffs and decreases with the cognitive cost it takes to formulate an optimal strategy remains an open question. We explore these issues with field data, using individual bids from sealed-bid auctions in which we sold nearly $10,000 worth of sports cards. Our results indicate that stakes do indeed matter, as high-priced ($70) cards produced more of the theoretically predicted strategic behavior than did lower-priced ($3) cards. We find additional evidence consistent with the importance of cognitive costs, as subjects more experienced with sports card auctions exhibited a greater tendency to behave strategically than did less experienced bidders.     

MONETARY POLICY AND ENDOWMENT RISK IN A LIMITED PARTICIPATION MODEL

A limited participation model is constructed to study the risk‐sharing role of monetary policy. A fraction of households exchange money for interest‐bearing government nominal bonds in the asset market and the government injects money through open market operations. In equilibrium, money is nonneutral and monetary policy redistributes consumption across households. Without idiosyncratic endowment risk, monetary policy becomes a perfect risk‐sharing tool, but with idiosyncratic endowment risk, it is not. The Friedman rule is not optimal in general. (JEL E4, E5)     

THE TIMING OF MARKETS AND MONETARY TRANSFERS IN CASH-IN-ADVANCE ECONOMIES

In cash-in-advance models, do the timing of markets and the timing of the monetary transfer affect equilibrium money demand? The timing of markets generates different individual money demands; however, under the common assumption that agents are identical, these differences do not affect the behavior of equilibrium real balances. In contrast, the timing of the monetary transfer has important implications for agent's information sets; these implications can influence the equilibrium characteristics of real balances.     

JOB VALUES, REWARDS, AND WORK CONDITIONS AS FACTORS IN JOB SATISFACTION AMONG MEN AND WOMEN

Sex differences in job satisfaction are explored utilizing data from the National Opinion Research Center (NORC) General Social Surveys, 1974–1982. Theoretically, differences in job satisfaction are accounted for by job rewards, job values, work conditions, and individual attributes. This study confirms that women receive significantly fewer job rewards than men, have significantly different job conditions, and possess slightly different work values. However, there is no difference in job satisfaction between women and men. As a consequence, these factors may not affect levels of job satisfaction, or men's and women's job satisfaction may be determined by different determinants. Alternatively, the relative level of these factors compared to one's past or expected levels may be more important than absolute levels. The multiple regression analyses reveal that similar determinants influence women's and men's job satisfaction, but that the determinants operate differently. Age and occupational prestige were significant predictors in both full models. Moreover, for both men and women a sense that one's personal situation is improving is more important than concrete rewards.     

THE BOOKER DECISION AND DISCRIMINATION IN FEDERAL CRIMINAL SENTENCES

I test how federal criminal sentences changed after the Supreme Court decision U.S. v. Booker changed the sentencing guidelines from “mandatory” to “advisory.” Conditional on final guideline cell, results show Booker significantly reduced sentences, especially for women and defendants with a terminal high school degree, but less so for college graduates. This suggests discrimination among federal judges. When accounting for judges' control over final offense level, evidence regarding high school graduates and college graduates is unchanged, but evidence that sentences fell for women and the default group weakens substantially. This latter result suggests, perhaps, a new methodology by which judges applied offense levels and guideline‐conditional sentences post‐Booker.     

ECONOMIES OF SCALE IN BANKING,INDETERMINACY, AND MONETARY POLICY

This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Financial intermediation is embedded into a standard flexible‐price monetary model, and provides deposits (inside money) that substitute with currency to purchase consumption. The results indicate that equilibrium indeterminacy does not depend on a large degree of ES in intermediation nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any positive degree of ES, while policies targeting nominal rates eliminate indeterminacy for all degrees of ES. (JEL C62, E44, E52)     

LENDING RELATIONSHIPS AND MONETARY POLICY

Financial intermediation and bank spreads are the important elements in the analysis of business cycle transmission and monetary policy. We present a simple framework that introduces lending relationships, a relevant feature of financial intermediation that has been so far neglected in the monetary economics literature, into a dynamic stochastic general equilibrium model with staggered prices and cost channels. Our main findings are (a) banking spreads move countercyclically generating amplified output responses, (b) spread movements are important for monetary policymaking even when a standard Taylor Rule is employed, (c) modifying the policy rule to include a banking spread adjustment improves stabilization of shocks and increases welfare when compared to rules that only respond to output gap and inflation, and finally (d) the presence of strong lending relationships in the banking sector can lead to indeterminacy of equilibrium forcing the Central Bank to react to spread movements. (JEL E44, E52, G21)