Kong-Pin Chen

Migration, Family, and Risk Diversification

This paper proposes a formal model of migration in which workers are heterogeneous and markets are stochastically correlated. We derive and characterize the optimal migration pattern of a family. It is shown to depend on differences in expected earnings, costs of migration, income risks, and more importantly market correlations. We show that migration can take place even when migrants earn less abroad and, more surprisingly, when earnings in the foreign country are riskier for every member of the family. Moreover, it may well be an optimal arrangement to have only dependents migrate, thus rationalizing the recent dependent-oriented migration flows from places like Hong Kong and Taiwan. We also provide some evidence in support of our theory.

Strategic Voting in Open Primaries

The purpose of an open primary is to incorporate more moderate votes into the primary elections. This intention may backfire when nonparty members strategically participate in the primary, and the result of an open primary might become even more extreme than when nonparty members are not allowed to participate. Realizing this, the party members might also vote strategically to counter-react. If this occurs, then it might actually coordinate the votes of the partys supporters. The effect of strategic voting behavior on the result of a primary depends on the size of the party, turnout rate of nonparty members, the positions of the candidates and the proportion of voters who vote strategically. Strategic voting behavior can sometimes improve social welfare. Copyright 2002 by Kluwer Academic Publishers

A dynamic model of auctions with buy-it-now: theory and evidence

In the ascending‐price auctions with Yahoo!‐type buy‐it‐now (BIN), we characterize and derive the closed‐form solution for the optimal bidding strategy of the bidders and the optimal BIN price of the seller when they are both risk‐averse. The seller is shown to be strictly better off with the BIN option, while the bidders are better off only when their valuation is high enough. The theory also implies that the expected transaction price is higher in an auction with an optimal BIN price than one without a BIN option. This prediction is confirmed by our data collected from Taiwans Yahoo! auctions.

Judicial Torture as a Screening Device

Judicial torture to extract information or to elicit a confession was a common practice in pre-modern societies, both in the east and the west. This paper proposes a positive theory for judicial torture. It is shown that torture reflects the magistrate’s attempt to balance type I and type II errors in the decision-making, by forcing the guilty to confess with a higher probability than the innocent, and thereby decreases the type I error at the cost of the type II error. Moreover, there is a non-monotonic relationship between the superiority of torture and the informativeness of investigation: when investigation is relatively uninformative, an improvement in technology used in the investigation actually lends an advantage to torture so that torture is even more attractive to the magistrates; however, when technological progress reaches a certain threshold, the advantage of torture is weakened, so that a judicial system based on torture becomes inferior to one based on evidence. This result can explain the historical development of the judicial system.

Dynamic Buy-Price English Auction

This paper extends the results in Hidvegi et al. (2006) to the case when the number of bidders is common knowledge in an English auction with buy-out. In that case when some bidders drop out, the remaining bidders have to update their information, and change the threshold auction price at which they are willing to buy out accordingly. We explicitly model the information-updating process during auction and the implied recursive nature of the optimal buy-out strategy. Using a recursive equation linking the value functions for n- and (n+1)-bidder cases, we completely characterize the dynamic optimal buy-out strategy. It is shown that the bidders will postpone buy-out (by waiting until the aution price is higher) when some of them drop out.

How Did Workers Fare in Labor Mediation – An Empirical Assessment from Taiwan

Using newly collected data on labor disputes in Taiwan, we study how laborers fare in labor mediation. Our strongest result is that in the cases involving small claims, workers obtained a substantially high portion of their claim, a result unlikely to occur if those laborers had to resort to litigation. Overall, our study indicates that labor mediation is effective in helping the financially disadvantaged individual workers to obtain substantial recovery from their employers.

Judicial Torture as War of Attrition

By modeling judicial torture as a war of attrition, the paper derives the optimal strategies of the magistrate and the accused defendant as functions of their characteristics and the nature of uncertainty. Torture can occur as an equilibrium outcome in which both parties take costly actions to overcome informational barriers. Whether the magistrate will torture, and its result if he does, is shown to depend on how he evaluates the loss of type II error against the torturees pain, his belief on how likely it is that the defendant is guilty, and the defendants disutility of being tortured relative to the legal penalty of crime.

Bidding Strategies in Internet Parallel Auctions

This paper proposes a simple model for multiple second-price auctions which run parallel to each other, in the sense that though they might not begin or end at the same time, they have certain periods of overlap. We characterize the equilibrium bidding strategy of the buyers and the equilibrium price of each auction. Last-minute bids arise naturally in the equilibrium. We show that, except for the last auction, the maximum price a buyer is willing to pay is less than his valuation, and that the ex ante expected transaction prices are identical for all auctions. A simple empirical test is also performed to verify the theoretical implication of the model.

A Dynamic Model of Auctions with Buy-Out Options: Theory and Evidence

The paper considers an ascending price auction with two bidders, in which the buyers are given the additional option to obtain the object immediately by paying a fixed price (the buy-out price). We completely characterize the optimal bidding strategy of the bidder and the optimal buy-out price of the seller. We show that the more risk-averse a buyer, the earlier he is willing to buy out the object. Moreover, the sellers optimal buy-out price is decreasing in the his own degree of risk-aversion, and increasing in that of the buyer. The expected transaction price and the expected utility of the seller are higher with the buy-out option. Finally, contrary to the usual ascending price auctions, the longer it takes for an item to be sold, the lower is its transaction price. All the theoretical predictions are confirmed in the data we collect from Taiwans Yahoo! auction site.