Conflict, Evolution, Hegemony, and the Power of the State

In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their “exclusiveness” we find that these hegemonies will be inefficiently “extractive” in the sense of having inefficiently high taxes, high compensation for state officials, and low welfare.

Selection and Gratitude: Anonymity and gratitude

What kind of candidate is selected into a job when the principal has to appoint a committee to measure the candidate's ability and select a winner through a call specifying a wage for the job? In a model where the principal fixes the wage anticipating the committee's choice, under a rather natural assumption about the committee's objective we find that if the committee takes into account the candidate's gratitude a candidate with less than first best ability will be selected in equilibrium. First best selection is achieved if the committee is anonymous to the candidates. If the committee could also set the wage the first best candidate would be selected, but the principal would be worse off…

Evolving to the Impatience Trap: The Example of the Farmer-Sheriff Game

The literature on the evolution of impatience, focusing on one-person decision problems, finds that evolutionary forces favor the more patient individuals. This paper shows that in the context of a game, this is not necessarily the case. In particular, it offers a two-population example where evolutionary forces favor impatience in one group while favoring patience in the other. Moreover, not only evolution but also efficiency may prefer impatient individuals. In our example, it is efficient for one population to evolve impatience and for the other to develop patience. Yet, evolutionary forces move the wrong populations.

Awareness and partitional information structures

This is the first of two papers where we present a formal model of unawareness. We contrast unawareness with certainty and uncertainty. A subject is certain of something when he knows that thing; he is uncertain when he does not know it, but he knows he does not: he is consciously uncertain. On the other hand, he is unaware of something when he does not know it, and he does not know he does not know, and so on ad infinitum: he does not perceive, does not have in mind, the object of knowledge. The opposite of unawareness is awareness, which includes certainty and uncertainty. This paper has three main purposes. First, we formalize the concept of awareness, and introduce a symmetry axiom whic…

The Simpson paradox of school grading in Italy

Abstract Data from the 2003 OECD-PISA Survey for Italy reveal a striking difference in the relationship between students’ competence (as measured by PISA score in Mathematics) and school grades across regions: a competence level granting bare sufficiency in the North yields excellence grades in the South. This has spurred a lively debate on education policy in the country, based on the inference drawn from this evidence that grading practices are excessively different in the two areas. We show in this note that this inference overlooks a Simpson paradox hidden in the data. After a more careful analysis, the above inference is seen to be wrong. The crucial omitted variable is the school-leve…

Knowledge Transfer in R&D Outsourcing: an Incentive-Constrained View

Regression with imputed covariates: A generalized missing-indicator approach

A common problem in applied regression analysis is that covariate values may be missing for some observations but imputed values may be available. This situation generates a trade-off between bias and precision: the complete cases are often disarmingly few, but replacing the missing observations with the imputed values to gain precision may lead to bias. In this paper, we formalize this trade-off by showing that one can augment the regression model with a set of auxiliary variables so as to obtain, under weak assumptions about the imputations, the same unbiased estimator of the parameters of interest as complete-case analysis. Given this augmented model, the bias-precision trade-off may the…

Credit market failures and policy

In a simple model of the credit market, based on Stiglitz-Weiss (1981), equilibria are computed and optimal policies to correct market failures are characterized. Some widely applied policies, notably interest-rate subsidies and investment subsidies, are compared to theoretical optimum, and an alternative optimal policy is described which we argue is more robust to model misspecification. An insight on the trade-off between credit policy and infrastructural investment is also offered. A discussion of some aspects of regional policy in Italy's Mezzogiorno is finally presented as an application of the analysis.

Regression with Imputed Covariates: A Generalized Missing Indicator Approach

A common problem in applied regression analysis is that covariate values may be missing for some observations but imputed values may be available. This situation generates a trade-off between bias and precision: the complete cases are often disarmingly few, but replacing the missing observations with the imputed values to gain precision may lead to bias. In this paper we formalize this trade-off by showing that one can augment the regression model with a set of auxiliary variables so as to obtain, under weak assumptions about the imputations, the same unbiased estimator of the parameters of interest as complete-case analysis. Given this augmented model, the bias-precision trade-off may then…

Intervention and peace*

Abstract Intervention often does not lead to peace, but rather to prolonged conflict. Indeed, we document that it is an important source of prolonged conflicts. We introduce a theoretical model of the balance of power to explain why this should be the case and to analyse how peace can be achieved: either a hot peace between hostile neighbours or the peace of the strong dominating the weak. Non-intervention generally leads to peace after defeat of the weak. Hot peace can be achieved with sufficiently strong outside intervention. The latter is thus optimal if the goal of policy is to prevent the strong from dominating the weak.

Collusion Constrained Equilibrium

First published: 01 February 2018 This is an open access article licensed under the Creative Commons Attribution-NonCommercial License 4.0 (http://econtheory.org) We study collusion within groups in noncooperative games. The primitives are the preferences of the players, their assignment to nonoverlapping groups, and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibria that meet this requirement need not exist. We instead introduce the weaker notion of collusion constrained equilibrium. This allows groups to put positive probability on alternatives …

Interventions with Sticky Social Norms: A Critique

Abstract We study the consequences of policy interventions when social norms are endogenous but costly to change. In our environment, a group faces a negative externality that it partially mitigates through incentives in the form of punishments. In this setting, policy interventions can have unexpected consequences. The most striking is that when the cost of bargaining is high, introducing a Pigouvian tax can increase output—yet in doing so increase welfare. An observer who saw that an increase in a Pigouvian tax raised output might wrongly conclude that this harmed welfare and that a larger tax increase would also raise output. This counter-intuitive impact on output is demonstrated theore…

Selection by committee: Anonymity and gratitude

Abstract What kind of candidate is selected into a job when the principal has to appoint a committee to measure the candidates’ ability and select a winner? We find that if the committee takes into account the candidate’s gratitude towards them, a candidate with less than first best ability will be selected. A relevant exception may occur if the first best is the overall best candidate. First best selection is always achieved if the committee is anonymous to the candidates. If the committee is not detached enough from the candidates then delegation fares even worse than random selection.

Familial aggregation of tumors and detection of hereditary non-polyposis colorectal cancer in 3-year experience of 2 population-based colorectal-cancer registries.

The clinical data of 2 population-based registries, located in areas with different incidence rates of colorectal cancer, were used in order to assess the role of familial factors in the pathogenesis of these tumors. The occurrence of tumors in family members was investigated in 389 subjects with colorectal cancer registered in Modena (Northern Italy, an area characterized by a high incidence of colorectal malignancies) between 1984 and 1986; similar information was obtained in 213 patients with tumors of the large bowel registered in Ragusa (Sicily, Southern Italy, an area of similar magnitude and with low incidence rates for these tumors) in the 3-year period 1988 to 1990. In both series,…

School grading and institutional contexts

We study how the relationship between students' cognitive ability and their school grades depends on institutional contexts. In a simple abstract model, we show that unless competence standards are set at above-school level or the variation of competence across schools is low, students' competence valuation will be heterogeneous, with weaker schools inflating grades or flattening their dependence on competence, therefore reducing the information content and comparability of school grades. Using data from the OECD-PISA 2003 Survey, the model is applied to a sample of four countries, namely Australia, Germany, Italy, and the Netherlands. We find that in Australia, schools' heterogeneity does …

A Generalized Missing-Indicator Approach to Regression with Imputed Covariates

We consider estimation of a linear regression model using data where some covariate values are missing but imputations are available to fill in the missing values. This situation generates a tradeoff between bias and precision when estimating the regression parameters of interest. Using only the subsample of complete observations does not cause bias but may imply a substantial loss of precision because the complete cases may be too few. On the other hand, filling in the missing values with imputations may cause bias. We provide the new Stata command gmi, which handles such tradeoff by using either model reduction or Bayesian model averaging techniques in the context of the generalized miss…

Awareness and Partitional Informational Structures

We begin with an example to motivate the introduction of the concept of unawareness in models of information. There are a subject and two possible states of the world, σ and τ. At σ a certain fact p happens — it is true — and the subject sees it or hears it or anyhow perceives it, so that he knows it is true (in Geanakoplos [5] the subject is Sherlock Holmes’ assistant and fact p is ‘the dog barks’). At state τ fact p does not occur (it is false), and the subject not only does not see it or hear it etc.; but what is more, he does not even think of the possibility that it might: fact p is not present to the subject’s mind. What is an appropriate formal model for this story?

Unawareness and bankruptcy: A general equilibrium model

International audience; We present a consistent pure-exchange general equilibrium model where agents may not be able to foresee all possible future contingencies. In this context, even with nominal assets and complete asset markets, an equilibrium may not exist without appropriate assumptions. Specific examples are provided. An existence result is proved under the main assumption that there are sufficiently many states that all the agents foresee. An intrinsic feature of the model is bankruptcy, which agents may involuntarily experience in the unforeseen states.

Conflict, Evolution, Hegemony, and the Power of the State

In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their “exclusiveness” we find that these hegemonies will be inefficiently “extractive” in the sense of having inefficiently high taxes, high compensation for state officials, and low welfare.

Uninformed Traders in European Stock Markets

A fully informed agent bets with an uninformed over the capital gains of an asset. A divide-and-choose idea is adapted to induce both trade and revelation of information, but in equlibrium the uninformed buys high and sells low if he is downside risk averse. The result may be seen as an informed-price-maker counterpart of some findings of Glosten-Milgrom (1985) and Kyle (1985) on uninformed agents trading in financial markets.

Trade Associations: Why Not Cartels?

First published: 30 September 2020 The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elasticity. The group discipline which works in the case of lobbying can be effective in sustaining a cartel only if increasing output is sufficiently costly ‐ otherwise the incentive to deviate is too great. The theory helps organizing a number of stylized facts within a common framework. This article has been accept…

Conflict and the Evolution of Societies

The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that maximize free resources. These free resources are the output available to society after deducting the payments necessary for subsistence and for the incentives needed to induce production, and the other claims to production such as transfer payments and resources absorbed by elites. We develop the evolutionary underpinnings of this model, and examine the implications of free resource …

State power and conflict driven evolution

The goal of this chapter is to examine the implications of the evolution of social organizations due to external competition. There are a variety of models of external competition. Models such as Ely (2002) examine voluntary migration - these models tend to efficient outcomes as people are drawn to locations with high per capita income. Historically, however, institutional success has not been through voluntary immigration into the arms of welcoming richer neighbors. Rather people and institutions have generally spread through invasion and conflict: the Carthaginians did not emigrate to Rome. Large institutional change has often occurred in the aftermath of the disruption caused by warfare …

Lezioni di macroeconomia

Il volume presenta la macroeconomia classica di base: vengono esposti la teoria della crescita di Solow e il modello AS-AD classico nei tre mercati: lavoro, beni/fondi e moneta. Il capitolo finale invita alla macro microfondata attraverso l'analisi di un'economia a due periodi e delle relative scelte intertemporali di consumatori e imprese. Il risultato è un'esposizione del core della macroeconomia classica. Costante enfasi è posta sul fatto che la materia studia gli equilibri, e su come le forze di mercato si muovono quando l'economia è fuori dall'equilibrio

A note on preference for flexibility

A result of Kreps (1979) on preference for flexibility is extended from two to three periods (formally from preferences over sets to preferences over sets of sets). An intuitively easier route to Kreps' original result is also presented, making the proof essentially ready for use in a decision theory class.

The need for standards in students’ grading

Survival of the Weakest: Why the West Rules

We study a model of institutions that evolve through conflict. We find that one of three configurations can emerge: an extractive hegemony, a balance of power between extrac-tive societies or a balance of power between inclusive societies -the latter being most conducive to innovation. As extractive societies are assumed to have an advantage in head to head confrontations we refer to this latter possibility as the survival of the weakest. Our contention is that the reason that the West "rules" can be traced back to two events both taking place in China: the invention of the cannon, which made possible the survival of the weakest in Europe; and the arrival of Genghis Khan, which led to the s…

Peer Discipline and Incentives Within Groups

We investigate how a collusive group can sustain non-Nash actions by enforcing internal discipline through costly peer punishment. We give a simple and tractable characterization of schemes that minimize discipline costs while preserving incentive compatibility. We apply the model to a public goods contribution problem. We find that if the per-capita benefit from the public good is low, then regardless of whether peer discipline is feasible or not only small groups will contribute to the good. If the public good benefit is significant but peer discipline is infeasible it remains the case that only small groups contribute. On the other hand, if the public good benefit is significant but peer…

Unawareness and Partitional Information Structures

Abstract We claim first that simple uncertainty is not an adequate model of a subject's ignorance, because a major component of it is the inability to give a complete description of the states of the world, and we provide a formal model of unawareness. In Modica and Rustichini (1994) we showed a difficulty in the project, namely that without weakening of the inference rules of the logic one would face the unpleasant alternative between full awareness and full unawareness. In this paper we study a logical system where non full awareness is possible, and prove that a satisfactory solution to the problem can be found by introducing limited reasoning ability of the subject. A determination theo…

Unawareness, Priors and Posteriors

Abstract. This note contains first thoughts on awareness of unawareness in a simple dynamic context where a decision situation is repeated over time. The main consequence of increasing awareness is that the model the decision maker uses, and the prior which it contains, becomes richer over time. The decision maker is prepared to this change, and we show that if a projection-consistency axiom is satisfied unawareness does not affect the value of her estimate of a payoff-relevant conditional probability (although it may weaken confidence in such estimate). Probability-zero events however pose a challenge to this axiom, and if that fails, even estimate values will be different if the decision …

Evolution of impatience: The example of the Farmer-Sheriff game

The literature on the evolution of impatience, focusing on one-person decision problems, often finds that evolutionary forces favor the more patient individuals. This paper shows that in games where equilibrium involves threat of punishment there are forces generating an evolutionary advantage to the impatient. In particular, it offers a two-population example where evolutionary forces favor impatience in one group while favoring patience in the other. Moreover, efficiency may also favor impatient individuals. In our example, it is efficient for one population to evolve impatience and for the other to develop patience. Yet, evolutionary forces move the opposite direction. Fil: Levine, David…

Damned If You Do and Damned If You Don’t: Two Masters

Available online: 05 June 2018 We study common agency problems in which two principals (groups) make costly commitments to incentives that are conditioned on imperfect signals of the agent's action. Our framework allows for incentives to be either rewards or punishments. For our basic model we obtain a unique equilibrium, which typically involves randomization by both principals. Greater similarity between principals leads to more aggressive competition. The principals weakly prefer punishment to rewards, sometimes strictly. With rewards an agent voluntarily joins both groups with punishment it depends on whether severe punishments are feasible and cheap for the principals. We study whether…

Dynamics in stochastic evolutionary models

We characterize transitions between stochastically stable states and relative ergodic probabilities in the theory of the evolution of conventions. We give an application to the fall of hegemonies in the evolutionary theory of institutions and conflict, and illustrate the theory with the fall of the Qing dynasty and the rise of communism in China.

Disequazioni e grafici per l'analisi matematica

Il presente è un testo di supporto che lo studente può usare (da solo o seguendo un docente) per familiarizzare con i calcoli attraverso la risoluzione di disequazioni, per sviluppare la visione geometrica dei problemi e per sviluppare la capacità di costruire dimostrazioni. Copre numeri (assiomaticamente), disequazioni, trigonometria, geometria, composizione e inversione di funzioni.

A Neo2 bayesian foundation of the maxmin value for two-person zero-sum games

A joint derivation of utility and value for two-person zero-sum games is obtained using a decision theoretic approach. Acts map states to consequences. The latter are lotteries over prizes, and the set of states is a product of two finite sets (m rows andn columns). Preferences over acts are complete, transitive, continuous, monotonie and certainty-independent (Gilboa and Schmeidler (1989)), and satisfy a new axiom which we introduce. These axioms are shown to characterize preferences such that (i) the induced preferences on consequences are represented by a von Neumann-Morgenstern utility function, and (ii) each act is ranked according to the maxmin value of the correspondingm × n utility …

Model averaging estimation of generalized linear models with imputed covariates

a b s t r a c t We address the problem of estimating generalized linear models when some covariate values are missing but imputations are available to fill-in the missing values. This situation generates a bias-precision trade- off in the estimation of the model parameters. Extending the generalized missing-indicator method proposed by Dardanoni et al. (2011) for linear regression, we handle this trade-off as a problem of model uncertainty using Bayesian averaging of classical maximum likelihood estimators (BAML). We also propose a block model averaging strategy that incorporates information on the missing-data patterns and is computationally simple. An empirical application illustrates our…

The whip and the Bible : punishment versus internalization

First published online: 27 August 2021 A variety of experimental and empirical research indicate that prosocial behavior is important for economic success. There are two sources of prosocial behavior: incentives and preferences. The latter, the willingness of individuals to “do their bit” for the group, we refer to as internalization, because we view it as something that a group can influence by appropriate investment. This implies that there is a trade-off between using incentives and internalization to encourage prosocial behavior. By examining this trade-off we shed light on the connection between social norms observed inside the laboratory and those observed outside in the field. For ex…

E' possibile coniugare formazione della persona e lavoro?

Co-movement of public spending in the G7

Abstract The size of government in the G7 countries in the last fifty years follows a common pattern (see the left panel of Fig. 1 below): it grows in the first three decades, and then turns flat at the beginning of the nineties, for all countries alike. We highlight this common pattern in a dynamic factor model, and argue that a satisfactory explanation for it would be desirable.

Failing to Provide Public Goods: Why the Afghan Army Did Not Fight

The theory of public goods is mainly about the difficulty in paying for them. Our question here is this: Why might public goods not be provided, even if funding is available? We use the Afghan Army as our case study. We explore this issue using a simple model of a public good that can be provided through collective action and peer pressure, by modeling the self-organization of a group (the Afghan Army) as a mechanism design problem. We consider two kinds of transfer subsidies from an external entity such as the U.S. government. One is a Pigouvian subsidy that simply pays the salaries, rewarding individuals who provide effort. The second is an output/resource multiplier (the provision of mil…

Government Size, the Role of Commitments*

We explore the hypothesis that long-term commitments affect the dynamics of government expenditure. With the aid of a simple median-voter model we interpret the pattern of increasing-then-constant tax rates observed in OECD countries in the second half of the last century: persistence of public expenditure and a lower bound on new interventions will push government size upward, and preferences of the electorate put a halt to this growth at some point. In this view, the fiscal policy variable is seen to consist of only a part of the total expenditure, the rest being predetermined by its past level.

Grading Across Schools

Abstract This paper reports some facts about grading standards across a varied sample of 16 countries participating in the 2003 OCSE-PISA Survey. Our main finding is that in all countries except Ireland and the USA there is conspicuous heterogeneity in standards across schools (Table 3, Figures 1 & 2). In most of the countries where heterogeneity is present a grading-on-a-curve practice emerges, with grading standards increasing with average competence of the school's students (Table 4, Figures 3 & 4). Where this phenomenon is more pronounced, it may be related to existence of a tracking (as opposed to comprehensive) school system (Table 5, Figure 5).

Size, fungibility, and the strength of lobbying organizations

Available online: 12 January 2017 How can a small special interest group successfully get an inefficient transfer at the expense of a much larger group with many more resources available for lobbying? We consider a simple model of agenda setting where two groups of different size lobby a politician over a transfer from one group to the other, and the group which sets the agenda can choose the size of the proposed transfer. The groups have resources which are used to pay the politician and to overcome the public goods problem within the group. Our key result is that which group prevails in the agenda setting game depends crucially on whether the transfers can also be used to pay the politici…

Conflict and the Evolution of Societies

The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that maximize free resources. These free resources are the output available to society after deducting the payments necessary for subsistence and for the incentives needed to induce pro- duction, and the other claims to production such as transfer payments and resources absorbed by elites. We develop the evolutionary underpinnings of this model, and examine the implications of free resourc…

A note on comparative downside risk aversion

International audience; We provide comparative global conditions for downside risk aversion, which are similar to the ones studied by Ross for risk aversion. We define a coefficient of downside risk aversion, and study its local properties.

Government size, the role of commitments

We explore the hypothesis that long-term commitments affect the dynamics of government expenditure. With the aid of a simple median-voter model we interpret the pattern of increasing-then-constant tax rates observed in OECD countries in the second half of the last century: persistence of public expenditure and a lower bound on new interventions will push government size upward, and preferences of the electorate put a halt to this growth at some point. In this view, the fiscal policy variable is seen to consist of only a part of the total expenditure, the rest being predetermined by its past level.

Dynamics in stochastic evolutionary models

First published: 01 February 2016 We characterize transitions between stochastically stable states and relative ergodic probabilities in the theory of the evolution of conventions. We give an application to the fall of hegemonies in the evolutionary theory of institutions and conflict, and illustrate the theory with the fall of the Qing dynasty and the rise of communism in China. We are especially indebted to Juan Block for his many comments and suggestions. We would also like to thank Drew Fudenberg, Kevin Hasker, Matt Jackson, Peyton Young, and five anonymous referees. We are grateful to NSF Grant SES-08-51315 and to the MIUR PRIN 20103S5RN3 for financial support.

Anti-Malthus: Conflict and the Evolution of Societies

The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that generate large amount of free resources and direct these towards state power. Free resources are the output available to society after deducting the payments necessary for subsistence and for the incentives needed to induce production, and the other claims to production such as transfer payments and resources absorbed by elites. We develop the evolutionary underpinnings of this model,…

Collusion constrained equilibrium

We study collusion within groups in non-cooperative games. The primitives are the preferences of the players, their assignment to non-overlapping groups and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibria that meet this requirement need not exist. We instead introduce the weaker notion of collusion constrained equilibrium. This allows groups to put positive probability on alternatives that are suboptimal for the group in certain razor's edge cases where the set of incentive compatible plans changes discontinuously. These collusion constrained e…

``Open Source without Free-Riding''