American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Set-Asides and Subsidies in Auctions SusanAtheyStanford U DominicCoeyStanford U JonathanLevinStanford U 1 27 Set-asides and subsidies are used extensively in government procurement and resource sales. We analyze these policies in an empirical model of US Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales used for estimation, and when we predict (out-of-sample) outcomes for small business set-asides. Our estimates suggest that restricting entry substantially reduces efficiency and revenue, although it increases small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, with little efficiency cost. We explain these findings by connecting to the theory of optimal auction design. (JEL D44, H57, L73, Q23) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.1 10.1257/mic.5.1.1 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Revealed Preference in a Discrete Consumption Space MatthewPolissonU Leicester and IFS, London John K.-H.QuahU Oxford 28 34 We show that an agent maximizing some utility function on a discrete (as opposed to continuous) consumption space will obey the generalized axiom of revealed preference (GARP), so long as the agent obeys cost efficiency. Cost efficiency will hold if there is some good, outside the set of goods being studied by the modeler, that can be consumed by the agent in continuous quantities. An application of Afriat's Theorem then guarantees that there is a strictly increasing utility function on the discrete consumption space that rationalizes price and demand observations. (JEL D11) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.28 10.1257/mic.5.1.28 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Decentralized Deterrence, with an Application to Labor Tax Auditing EdoardoDi PortoU Rome "La Sapienza" NicolaPersicoNorthwestern U NicolasSahuguetMontreal, Canada 35 62 This paper studies a new strategic auditing game in which atomistic auditors maximize the success rate of audits, and provides a method to calibrate its parameters based on audit data. Calibrating the model to Italian auditing data, we provide an estimate of tax evasion based on (non-random) audit data alone. Counterfactual simulation of the model quantifies the costs and benefits of alternative auditing policies. We compare decentralized enforcement with a counterfactual "commitment policy," and compute the loss from the former. (JEL H25, H26, M42) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.35 10.1257/mic.5.1.35 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article On the Relationship between Preferential and Multilateral Trade Liberalization: The Case of Customs Unions KamalSaggiVanderbilt U AlanWoodlandU New South Wales Halis MuratYildizRyerson U 63 99 This paper compares equilibrium outcomes of two games of trade liberalization. In the Bilateralism game, countries choose whether to liberalize trade preferentially via a customs union (CU ), multilaterally, or not at all. The Multilateralism game is a restricted version of the Bilateralism game in that countries cannot form CUs and can only undertake non-discriminatory trade liberalization. When countries have symmetric endowments, global free trade is the only stable equilibrium of both games. Allowing for endowment asymmetry, we isolate circumstances where the option to form CUs helps further the cause of multilateral liberalization as well as where it does not. (JEL F12, F13) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.63 10.1257/mic.5.1.63 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Measuring the Efficiency of an FCC Spectrum Auction Jeremy T.FoxU MI PatrickBajariU MN 100 146 We propose a method to structurally estimate the deterministic component of bidder valuations in FCC spectrum auctions, and apply it to the 1995-1996 C block auction. We base estimation on a pairwise stability condition: two bidders cannot exchange two licenses in a way that increases the sum of their valuations. Pairwise stability holds in some theoretical models of simultaneous ascending auctions under intimidatory collusion and demand reduction. Pairwise stability results in a matching game approach to estimation. We find that a system of four large regional licenses would raise the allocative efficiency of the C block outcome by 48 percent. (JEL D44, D45, H82, L82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.100 10.1257/mic.5.1.100 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Social Learning with Coarse Inference AntonioGuarinoU College London PhilippeJehielParis School of Economics and U College London 147 74 We study social learning by boundedly rational agents. Agents take a decision in sequence, after observing their predecessors and a private signal. They are unable to make perfect inferences from their predecessors' decisions: they only understand the relation between the aggregate distribution of actions and the state of nature, and make their inferences accordingly. We show that, in a discrete action space, even if agents receive signals of unbounded precision, there are asymptotic inefficiencies. In a continuous action space, compared to the rational case, agents overweight early signals. Despite this behavioral bias, eventually agents learn the realized state of the world and choose the correct action. (JEL D82, D83) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.147 10.1257/mic.5.1.147 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article The Welfare Effects of Use-or-Lose Provisions in Markets with Dominant Firms IanGaleGeorgetown U Daniel P.O'BrienUS Federal Trade Commission 175 93 A use-or-lose provision requires that firms employ a certain minimum fraction of their productive capacity. Variants have been used by regulators in the airline and wireless communications industries, among others. A typical stated objective is to limit capacity hoarding, thereby increasing aggregate output and welfare. When the dominant firm is more efficient than fringe firms, we find that imposing a use-or- lose provision induces the dominant firm to acquire capacity from the fringe, which causes aggregate output to fall. When the dominant firm is less efficient than the fringe, aggregate output rises. In both cases, total surplus may rise or fall. (JEL D43, K21, L13, L93) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.175 10.1257/mic.5.1.175 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Competition and the Use of Foggy Pricing Eugenio J.MiraveteU TX 194 216 Firms engage in foggy pricing when the menu of tariff options aims at profiting from consumer mistakes. The analysis of this paper concludes that the transition from monopoly to competition in the early US cellular telephone industry does not generally foster the use of such deceptive strategies. I offer three alternative measures to account for the fogginess of the menu of options offered by cellular carriers. All results are robust to the existence of uncertainty regarding future consumption at the time of choosing a particular tariff option, as well as to consumers' heterogeneity with respect to cellular telephone usage. (JEL D03, L11, L12, L13, L96) http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.194 10.1257/mic.5.1.194 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 5 1 February 2013 http://www.aeaweb.org/issue.php?journal=MIC&volume=5&issue=1 Journal Article Front Matter i v http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.i 10.1257/mic.5.1.i