Zvika Neeman

Strategic Ambiguity in Electoral Competition

Many have observed that political candidates running for election are often purposefully expressing themselves in vague and ambiguous terms. In this paper, we provide a simple formal model of this phenomenon. We model the electoral competition between two candidates as a two-stage game. In the first stage of the game, two candidates simultaneously choose their ideologies, in the second stage, they simultaneously choose their levels of ambiguity. Ambiguity, although disliked by voters, may be sustained in equilibrium. More interestingly, we provide insight into the causes for ideological differentiation by showing that politicians may wish to differentiate themselves ideologically so that they can afford to become more ambiguous.

Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital

Poor families around the world spend a large fraction of their income consuming goods that do not appear to alleviate poverty, while saving at low rates. We suggest that individuals care about economic status and interpret this behaviour as conspicuous consumption intended to provide a signal about unobserved income. We show that if human capital is observable and correlated with income, then a signalling equilibrium in which poor individuals tend to spend a large fraction of their income on conspicuous consumption can emerge. This equilibrium gives rise to an increasing marginal propensity to save that might generate a poverty trap.

A Theory of Post-Civil War Democratization:

We model the transition from a chaotic status quo to a more orderly political regime as a two-stage game involving two warring factions and the citizens. The warring factions move first and decide the form of government by (1) inviting an external arbitrator, (2) choosing the people as arbitrator, i.e. democratizing or (3) maintaining the status quo. We analyze the conditions under which democracy is likely to emerge as the outcome of the game. We show that citizens prefer democracy because it generates a sociopolitical order that protects them against ‘banditry’ and expropriation. Because the citizens’ actions generate positive externalities, incentives for democratization are generated in part by the fact that protection against expropriation under democracy also indirectly benefits the warring factions.

BEHAVIORALLY OPTIMAL AUCTION DESIGN: EXAMPLES AND OBSERVATIONS

This paper begins to explore behavioral mechanism design, replacing equilibrium by a model based on “level-k” thinking, which has strong support in experiments. In representative examples, we consider optimal sealed-bid auctions with two symmetric bidders who have independent private values, assuming that the designer knows the distribution of level-k bidders. We show that in a first-price auction, level-k bidding changes the optimal reserve price and often yields expected revenue that exceeds Myerson’s (1981) bound; and that an exotic auction that exploits bidders’ non-equilibrium beliefs can far exceed the revenue bound. We close with some general observations about level-k auction design. (JEL: C72, C92)

Markets versus negotiations: An experimental investigation

We consider the consequences of competition between two types of experimental exchange mechanisms, a “decentralized bargaining” market, and a “centralized” market. It is shown that decentralized bargaining is subject to a process of “unraveling” in which relatively high value traders (buyers with a high willingness to pay and sellers with low costs) continuously find trading in the centralized markets more attractive until few opportunities for mutually beneficial trade remain outside the centralized marketplace.

Transparency, Appropriability and the Early State

We propose a general theory that explains the extent of the state and accounts for related institutions as byproducts of the states extractive technology. We posit further that this extractive technology is determined by the transparency of the production technology. This theory is applied to examine two principal phases in the evolution of the early state. First, we argue that the common explanation of the emergence of the state as a consequence of the availability of food surplus due to the Neolithic Revolution is flawed, since it ignores Malthusian considerations. In contrast, we suggest that what led to the emergence of the state was a transformation of the tax technology that was induced by the greater transparency of the new farming technology. We then apply our theory to explain key institutional features that distinguished ancient Egypt from ancient Mesopotamia, and, in particular, to explain their different land tenure regimes.

The Quality of Information and Incentives for Effort

We study the relationship between the precision of information about the performance of an agent in a market, and the incentives this agent has for exerting effort to produce high quality. We show that this relationship can be nonmonotonic. There exists an efficient plausible equilibrium that induces a threshold beyond which any further improvement in the precision of information weakens the agents incentive to produce high quality. Accordingly, both very accurate and very inaccurate signals about the agents performance may destroy its incentive to exert effort. A few applications of this result are discussed.

Ex post renegotiation-proof mechanism design

We study what kind of equilibria of which mechanisms are ex post renegotiation-proof (EPRP), i.e., robust against the possibility of ex post renegotiation under a variety of renegotiation procedures, and which social choice functions are EPRP implementable. In complete information environments with two agents only budget balanced Groves allocations are EPRP implementable, while with three or more agents – all ex post efficient allocations are. In environments with independent private values essentially only the budget balanced “Groves in expectations” allocations are EPRP implementable, while with three or more agents and correlated beliefs – all ex post efficient allocations are.

Geography, Transparency and Institutions

We propose a theory by which geographic attributes explain cross-regional institutional differences in : (1) the scale of the state, (2) the distribution of power within state hierarchy, and (3) property rights over land. The mechanism that underlies our theory concerns the states extractive capacity. In particular, we argue that the ability to appropriate revenue from the farming sector is affected by the transparency of farming which, in turn, is affected by geography and technology. We apply the theory to explain the differences between the institutions of Ancient Egypt, Southern Mesopotamia and Northern Mesopotamia

Does Information about Arbitrators’ Win/Loss Ratios Improve Their Accuracy?

This paper examines how providing litigants with information about arbitrators’ win/loss ratios affects arbitrators’ incentives in deciding the cases before them in an impartial and unbiased manner. We show that if litigants are informed about arbitrators’ past decisions, then arbitrators might want to make an incorrect decision when a correct decision would raise the suspicion that they are biased. Therefore, providing information about arbitrators’ past decisions might create adverse incentive effects and reduce the accuracy of arbitration. We compare the accuracy of arbitrators’ decisions under different arbitrator selection procedures and discuss the implications for the design of arbitration rules by arbitration and dispute resolution providers and by court-administered arbitration programs.