Eric Rasmusen's Recent Papers (15 April 2008)

Abstracts and downloads of all my published and unpublished papers are at http://rasmusen.org/pubabs.htm and http://rasmusen.org/unpubabs.htm. Business Economics and Public Policy, Kelley School of Business, Indiana University. (812) 855-9219, Erasmuse@Indiana.edu. I am on leave at Nuffield College, Oxford University until July 2008. (01865) 554-163.

  • "Career Concerns and Ambiguity Aversion." Why do people have ambiguity aversion, preferring, a gamble with a 50\% chance of success to one whose expected probability of success is 50\% but where that 50\% is an unbiased estimate? The answer modelled here, in the spirit of the career concerns literature, is learning: a risk-averse person does not wish observers to learn whether he is good or bad at estimating probabilities. He therefore prefers a gamble with objective probabilities. In tex and pdf ( http://www.rasmusen.org/papers/ambiguity-rasmusen.pdf).

  • "Some Common Confusions about Hyperbolic Discounting." There is a lot of confusion over what ``hyperbolic discounting'' means. I try to clear up that confusion. In tex and pdf ( http://www.rasmusen.org/special/hyperbolic-rasmusen.pdf).

  • "Internalities and Paternalism: Applying the Compensation Criterion to Multiple Selves across Time " One reason to call an activity a vice and suppress it is that it reduces a person's future happiness more than it increases his present happiness. Gruber \& Koszegi (2001) show how a vice tax can increase a person's welfare in a model of multiple selves with hyperbolic preferences across time. An interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing. The puzzles that intrapersonal altruism raises, however, lend support to using the ``Marshallian'' wealth maximization criterion of Friedman (1988) instead of the Kaldor- Hicks criterion. In tex and pdf ( http://www.rasmusen.org/papers/internality-rasmusen.pdf).

    "Economic Regulation and Social Regulation". A long-standing book project, in the style of my JLS Desecration paper. Economic regulation. This is generally efficient only for a narrow range of activities and is subject to abuse by private parties who can profit from it. Social regulation is another area of government regulation, but one where the presumptive efficiency of laissez faire disappears, because market imperfections are more common and capture by special interests is less profitable. http://rasmusen.org/papers/social.pdf

    "Quality-Maintaining Profits and Reputation." Can above- cost prices give firms enough incentive to keep quality high? In the reputation model of Klein & Leffler (1981), firms refrain from cutting quality (or price) because if they did, they would forfeit future profits. Something similar can happen even in a static setting. First, if there are discerning consumers who can observe quality, firms do not want to lose their business. Second, if all consumers can sometimes but not always spot flaws, firms do not want to lose the business of those who would spot them on a given visit. Third, if the law provides some penalty for fraud, but not enough to make it entirely unprofitable, firms may prefer selling high quality at high prices to low quality at high prices but with some chance of punishment. http://www.rasmusen.org/papers/quality-rasmusen.pdf

    "Coordination in Entry" (with Young-Ro Yoon). Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly; if second, he can prevent imitation. The more accurate the informed player's information the more he wants to delay. The less accurate, the more he wants to move first to foreclose a market. If the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market unserved. http://rasmusen.org/papers/entry-rasmusen-yoon.pdf

    "A Reputation Model of Quality in North-South Trade." Countries have different comparative advantages in quality. These might be due to technological differences, or to reputation differences of the sort described in Klein & Leffler (1981). Reputation differences are particularly interesting, since good reputations are a form of ``social capital'' that is amenable to modelling. They can explain why firms in these industries like to export even if the foreign price is no higher than the domestic one, and why governments would like to have large ``high-value'' sectors. http://rasmusen.org/papers/trade-rasmusen.pdf

    "Price Discrimination between Retailers with and without Market Power" (with Barick Chung). Suppose a monopolist manufacturer sells at two prices to retailers in small towns and large cities. To prevent retailers’ arbitrage, the manufacturer needs to set the wholesale price difference smaller than the transportation cost. With linear pricing the retail price for towns will be even higher than that in double marginalization; and with a two-part tariff, the wholesale price for towns will be above marginal cost. http://rasmusen.org/papers/retailers-chung-rasmusen.pdf

    "Prosecutors' Choices of Prosecution and Conviction Rates; Theory and Evidence" (with Manu Raghav and J. Mark Ramseyer). An empirical study using U.S. local data on prosecutor budgets, crime rates, prosecution rates, and trial win rates. http://rasmusen.org/papers/prosecutors-raghav-ramseyer-rasmusen.pdf

    "Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records, " and "Public and Private Firm Compensation Compared: Evidence from Japanese Tax Returns, " (with Minoru Nakazato and J. Mark Ramseyer). An empirical study of how CEO income varies with size, governance, and profitability of firms. ( http://rasmusen.org/papers/exec/exec.htm

    "The Industrial Organization of the Japanese Bar," (with Minoru Nakazato and J. Mark Ramseyer). An empirical study of how lawyer incomes vary geographically, by college, by age at start of career and by experience. http://rasmusen.org/papers/jpnbar.nakazato.ramseyer.rasmusen.pdf

    "The Parking Lot Problem." (with Maria Arbatskaya and Kaushik Mukhopadhaya ).If there is queueing for an underpriced good, the queueing can eat up the entire surplus, eliminating the social value of the good. There is a discontinuity in social welfare between ``enough'' and ``not enough'' for goods such as parking spaces. If there is uncertainty in the number of demanders, the amount of the good should be set well in excess of the mean demand. http://rasmusen.org/papers/parking-rasmusen.pdf

    "Norms in Law and Economics" (with Richard McAdams), Handbook of Law and Economics, volume 2, Elsevier, 2007. A survey article. http://rasmusen.org/papers/norms.pdf

    Games and Information, 4th Edition, Published in October 2006. Some major changes: more problems, a totally revamped auctions chapter, revised mechanism design. http://rasmusen.org/GI/index.html

    "When Does Extra Risk Strictly Increase the Value of Options?" The Review of Financial Studies, 20(5): 1647-1667 (September 2007). Existing theorems merely say that increasing the riskiness of the underlying asset does not reduce the value of call options. This paper looks at necessary and sufficient conditions for increases in riskiness to strictly increase option value. http://rasmusen.org/papers/options_rasmusen.pdf

    "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," in the BE Press journal, Advances in Theoretical Economics, Vol. 6: No. 1, Article 7 (2006). http://www.bepress.com/bejte/advances/vol6/iss1/art7. Bidders have to decide whether and when to incur the cost of estimating their own values in auctions. This can explain sniping-- flurries of bids late in auctions with deadlines-- as the result of bidders trying to avoid stimulating other bidders into examining their bid ceiling more carefully.

    "Recruitment into Managed Courts during Political Chaos: Japan in the 1990s," (with J. Mark Ramseyer). The Journal of Comparative Economics, 35(2): 329-345 (June 2007). http://www.rasmusen.org/papers/lawyer-quality-ramseyer-rasmusen.doc

    "The Case for Managed Judges: Learning from Japan after the Political Upheaval of 1993," (with J. Mark Ramseyer) University of Pennsylvania Law Review, 154(6): 1879-1930 (June 2006). http://www.rasmusen.org/published/rasmusen-06-ramseyer-jpn1993.pdf

    Notes, no papers: "The Concealment Argument: Why Christians Should Be Agnostics," Logic and Biblical evidence suggest that God wishes that some but not all humans become convinced of His existence and desires. If so, this suggests that attempts to either prove or disprove such things as God's existence, past miracles, or present supernatural intervention are doomed to failure, because God could and would take care to evade any such efforts. ``Perfect Price Discrimination.'' Why perfect price discrimination might not be all that profitable. "Belief in God: A Game Theory Approach. "