Friedel Bolle

Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity

Abstract Because of the special nature of electricity (instantaneous production and consumption, quick and partly stochastic fluctuations of demand), the production decisions on a hypothetical spot market have to be automated. We model this automation by assuming that the instruments of competition are the supply functions of the producers. Three oligopoly models (games among the producers) are investigated and, in every case, a continuum of solutions is found. These solutions allow for tacit collusion among the producers. When they select the symmetric solution with the highest profits, then an increasing number of producers does not necessarily imply that the aggregate profits converge to zero. When the customers have to pay constant prices then joint profit maximization (the monopoly solution) is an equilibrium. When the consumers have to pay spot prices, with an increasing number of producers, prices converge to marginal costs. This convergence is slow, however, if the fluctuations of demand are small.

Distributional concerns: equity- or efficiency-oriented?

Abstract This paper provides experimental evidence that in binary-choice dictator games the majority of participants are efficiency rather than equity-oriented — even if their own payoff is reduced by the respective choice. Therefore, altruistic and — as a consequence — reciprocal motives need to be modelled explicitly if we aim to predict behavior in experiments correctly.

High reward experiments without high expenditure for the experimenter

Abstract The relevance of economic experiments is often doubted because the incentives are far smaller than in real situations. In this article it is suggested to give all the money which a researcher has to his disposal to one randomly selected subject (or at most a few subjects). It is investigated theoretically and experimentally whether or not such a randomized reward is equivalent to a reward given to all subjects. In the theoretical investigation conditions are derived under which the reward structures are equivalent. In an experiment in which these conditions were fulfilled the (cheap) randomized reward structure and the (expensive) deterministic reward structure did not make the subjects behave differently.

Rewarding Trust: An Experimental Study

The issue of trust has recently attracted growing attention in research on work relations, capital – owner relations, cultural influences on the economic structures of different countries, and other topics. This paper analyzes a simple experiment on trust and the reward of trust. Mr A is endowed with DM 80. He decides to trust Ms B (and give her his money) or not. Ms B is able to double the sum of money (if she gets it) and can then decide to give back as much as she likes. In an experiment, 76% of subjects A decided to trust. The average reward they received was DM 79.2 which is not significantly different from DM 80, the value of mistrust; nor was the average reward different from the average expectations of subjects A, i.e. a weak variant of the Rational Expectations Hypothesis is supported. In the paper we also look for differences between trusting and mistrusting A-subjects, for behavioral norms, and other determinants of rewards.

Is altruism evolutionarily stable? And envy and malevolence?: Remarks on Bester and Güth

In a convincing analysis of the conditions and strength of altruism, Bester and Guth [Journal of Economic Behavior & Organization, Vol. 34, 1998, 193-209] unfortunately restrict the interpretation of their results. Their paper provides us with an analysis of the conditions and strength of malevolence (or envy) as well.

On Love and Altruism

Welfare interdependencies between individuals are sometimes expressed as consumption externalities and sometimes as utility externalities. Besides the question of whether it is possible to decide between these approaches on the basis of observations, the connection of the approaches is rather interesting. The derivation of consumption externalities from utility externalities is nontrivial and allows far-reaching interpretations. Widespread love within a group has strong positive effects; widespread hate has surprisingly little consequences. Common “friends” as well as common “enemies” can cause altruistic (efficient) behavior within a group. There are also implications for reciprocal behavior.

Competition with supply and demand functions

Abstract If economic agents have to determine in advance their supply or demand in reaction to different market prices we may assume that their strategic instruments are supply or demand functions. The best examples for such markets are the spot markets for electricity in England and Wales, in Chile, in New Zealand, in Scandinavia and perhaps elsewhere. A further example is computerized trading in stock markets, financial markets, or commodity exchanges. The functional form of equilibria is explicitly determined in this paper. Under a certain condition, equilibria exist for every finite spread of (stochastic) autonomous demand, i.e. demand from small, non-strategically acting consumers. Contrary to competition with supply functions alone, however, there is no tendency for market prices to converge to 0 if the spread of autonomous demand increases infinitely. Lower bounds of market prices can be computed instead.

A Price is a Signal: On Intrinsic Motivation, Crowding-Out and Crowding-In

If a previously unpaid activity (e.g. donating blood) is paid, then we often observe that this activity is reduced. In this paper, it is hypothesized that the price offered is taken as a proxy for the “value�? of the activity. Depending on how the actor valued the activity previously, crowding-out or crowding-in is implied, an effect with or without persistence after stopping the payment. The model can be adapted to a number of similar situations, including those where a high price signals high costs instead of high values. Our “naïve�? explanation is confronted with Bènabou and Tiroles (2003) Principal-Agent model. A questionnaire study supports our basic hypothesis as well as some of the derived consequences, and contradicts Bènabou and Tiroles model.

On the Oligopolistic Extraction of Non-renewable Common-Pool Resources

In recent literature the extraction of common-pool resources ha s been discussed under the aspect of whether or not they can be used efficiently when a finite number of agents has access to the resource. The objective of this paper is the derivation of a necessary equilibrium condition in a simple model. This condition has severe consequences for existence propositions in papers of M.C. Kemp and N.V. Long_(1980), J. McMillan and H.W. Sinn_(1984), and J.F. Reinganum and N.L. Stokey_(1985). Copyright 1986 by The Review of Economic Studies Limited.

Why to Buy Your Darling Flowers: On Cooperation and Exploitation

Trusting in someones cooperation is often connected with the danger of being exploited. So it is important that signals are exchanged which make it probable enough that the potential partner is reliable. Such signals must be too expensive for partners who are planning to abuse the trust they are given but cheap enough for those who wish to initiate a long-term cooperation. In a game theoretical model, it is shown that such signals could consist of presents given before the partnership starts. These presents must be more expensive than the advantage of a one-period exploitation but smaller than the profit from a long-term partnership. In order to prevent that the receiver only collects presents, and that she is not interested in a firm partnership, these gifts should be of low value for her. Flowers are the prototype of such presents but usually not the only and not the most important signal of this kind. Nor is the partnership between men and women the only example of cooperative relations which are endangered by exploitation – but of all exploitation stories this one is most often narrated.