European Journal of Political Economy, Mar 1, 2000
ABSTRACT Recent theoretical work has incorporated assumptions that agents have preferences for re... more ABSTRACT Recent theoretical work has incorporated assumptions that agents have preferences for reciprocity, leading them to behave non-opportunistically in social interactions. There is extensive experimental evidence for the existence of such preferences. This paper explains the emergence of preferences for reciprocity in a population consisting of two types: “reciprocators” and “opportunists”. Unlike conventional evolutionary models, both types maximize their expected payoffs, given their preferences. The population proportions of these two types evolve from one generation to the next, according to their expected payoffs. It is shown that, under a variety of conditions, preferences for reciprocity can survive in the population.
Journal of Economic Behavior and Organization, 1996
Evolutionary models in economics have often been criticized for failing to allow for rational, ma... more Evolutionary models in economics have often been criticized for failing to allow for rational, majcimizing behavior. The present paper represents a step toward correcting this deficiency, by introducing rational actors into an evolutionary model of the finitely repeated Prisoners' Dilemma. At the same time, the model endogenizes the uncerteiinty postulated in the cleissic model of Kreps, et al. (1982), thus explaining cooperation by rational actors in the finitely repeated Prisoners' Dilemma. A testable implication of the model is that the level of voluntary cooperation in a society will be relatively high where geographical mobility is relatively low.
This paper suggests economic criteria for choosing among estimates of the value of time. Four ass... more This paper suggests economic criteria for choosing among estimates of the value of time. Four assumptions that are implicit in most models of the value of time are identified and discussed. The accuracy of an estimate of the value of time depends on whether the data and model underlying the estimate take into account the unrealistic nature of these assumptions, either by excluding observations for which the assumptions are especially incorrect or by modifying the model so that the assumptions may be relaxed.
This note reconsiders a theoretical result asserted to explain the success of group lending progr... more This note reconsiders a theoretical result asserted to explain the success of group lending programs in LDCs. It has been claimed that if groups are allowed to form themselves, risky and safe borrowers will sort themselves into relatively homogenous groups. This "positive assortative matching" can be exploited by lenders to solve an adverse selection problem that would otherwise undermine the effectiveness of such lending programs. This note shows that the positive assortative matching result does not necessarily hold if earlier models are extended to incorporate dynamic incentives.
ABSTRACT The interaction of selfish, rational actors in the provision of a public good is analyze... more ABSTRACT The interaction of selfish, rational actors in the provision of a public good is analyzed in an attempt to explain recent experimental findings as well as real-world cases of voluntary collective action. The model, which allows for more sophisticated behavior than that assumed by the conventional Cournot theory, predicts a higher level of collective action than that theory. The impacts of income effects and of the price elasticity of demand for the public good are given special emphasis. Copyright 1987 by The Review of Economic Studies Limited.
This paper analyzes the interaction between the success of group lending institutions and the sto... more This paper analyzes the interaction between the success of group lending institutions and the stock of social capital (modeled by the level of trust) in the community where the group lending programs are located. Agents play a finitely repeated "trust game" in parallel with a finitely repeated "microcredit game." There are two agent types: "regular" and "trustworthy," and these types are private information. Moral hazard problems are present in both games. The model shows that there are conditions under which the presence of trust as an equilibrium of the trust game can enhance the success of the group lending program. Similarly, there are conditions under which success of the group lending program can enhance the development of trust.
This paper develops a model of the strategic interaction of borrowers in the framework of group l... more This paper develops a model of the strategic interaction of borrowers in the framework of group lending, in an environment characterized by moral hazard. Unlike previous papers, monitoring by one group member of his or her peers is not a crucial feature of the model. Even without monitoring, repayment performance under group lending can compare favorably to such performance under individual liability. The effects of allowing monitoring and of changing group size are also investigated.
This paper revisits the conventional wisdom on the determinants of the success of microcredit pro... more This paper revisits the conventional wisdom on the determinants of the success of microcredit programs. The paper first develops a simple moral hazard model of borrowing in a group lending context, and then tests this model using data from a survey conducted in Bangladesh in 1991-92. One of the predictions of the moral hazard model, regarding the effect of group size on repayment performance, is rejected by the empirical evidence. The paper then develops an alternative approach, which is consistent with the observed effect of group size as well as the other empirical results.
This paper surveys the theoretical and empirical literature on group lending programs in developi... more This paper surveys the theoretical and empirical literature on group lending programs in developing countries, with a focus on the determinants of repayment performance.
This paper models self-enforcing agreements and the evolution of preferences for reciprocity when... more This paper models self-enforcing agreements and the evolution of preferences for reciprocity when all agents are rational, Bayesian optimisers. In this 'indirect' evolutionary model, player types are defined not by their strategies, but by their preferences. The paper studies the evolution of a community consisting of 'opportunists', who maximise material payoffs, and 'reciprocators', who prefer joint cooperation to exploiting their opponents. Players are randomly matched to play a finitely repeated Prisoner's Dilemma game. In the unique evolutionary equilibrium, the reciprocators cooperate throughout their careers, and the opportunists cooperate up to, but not including, the last stage of their careers.
This note reconsiders a theoretical result asserted to explain the success of group lending progr... more This note reconsiders a theoretical result asserted to explain the success of group lending programs in LDCs. It has been claimed that if groups are allowed to form themselves, risky and safe borrowers will sort themselves into relatively homogenous groups. This "positive assortative matching" can be exploited by lenders to solve an adverse selection problem that would otherwise undermine the effectiveness of such lending programs. This note shows that the positive assortative matching result does not necessarily hold if earlier models are extended to incorporate dynamic incentives.
The authors develop a model of strategic work interactions in collective enterprises explaining t... more The authors develop a model of strategic work interactions in collective enterprises explaining the following observation: the Israeli kibbutz, in which net collective output is distributed equally, has been an economic success, while the Soviet kolkhoz, in which net output traditionally was divided according to relative work input, has been a failure. In contrast, the conventional Cournot-Nash theory of collective enterprises predicts superoptimal output in the kolkhoz, while in the kibbutz, the free-fider problem is predicted to lead to suboptimal effort. Their theory predicts Pareto optimal work effort in the kibbutz and suboptimal effort in the kolkhoz. Copyright 1989 by Royal Economic Society.
Sources of specification as well as measurement error in previous estimates of the value of time ... more Sources of specification as well as measurement error in previous estimates of the value of time are examined in this paper, and a new set of estimates avoiding these errors is presented. The sources of specification error being analyzed are: (1) failure to take account of drivers' uncertainty in making their choices between alternative routes or modes, which was found empirically to bias the value of time estimate 50 percent or more; (2) the differential in comfort and similar intangible characteristics between two modes; and (3) the inability to account for cross-time substitutions by travelers in peak-hour conditions. Ways of avoiding these sources of error are suggested and implemented. The choice between "reported" and "measured" data is reexamined , with an emphasis on random rather than systematic perception errors by travelers.
ABSTRACT This paper presents a model of the emergence of cooperative social norms in a society co... more ABSTRACT This paper presents a model of the emergence of cooperative social norms in a society composed exclusively of rational agents. Following Kreps et al. [Kreps, D.M., Milgrom, P., Roberts, J., Wilson, R., 1982. Rational cooperation in the finitely repeated Prisoners’ Dilemma. Journal of Economic Theory 27, 245–252], opportunistic agents are assumed to uphold cooperative norms in order to maintain reputations for being trustworthy — reputations which are necessary in order to find partners in mutually beneficial market and non-market transactions. Unlike the model of Kreps et al. [Kreps, D.M., Milgrom, P., Roberts, J., Wilson, R., 1982. Rational cooperation in the finitely repeated Prisoners’ Dilemma. Journal of Economic Theory 27, 245–252], however, the present model endogenizes agents’ prior beliefs regarding their partners’ type, rather than introducing these priors by assumption. The model is supported by evidence from an international micro-data set on family behavior.
Journal of Economic Behavior and Organization, Jun 1, 1986
Abstract A new approach to explaining voluntary collective action, emphasizing strategic interact... more Abstract A new approach to explaining voluntary collective action, emphasizing strategic interactions of actors in their contributions to the provision of a public good, is tested experimentally. The results support this approach, and tend to reject the conventional, Cournot theory of the provision of public goods. Among the findings are a positive interaction between individual contributions to the provision of a public good, and a U-shaped time trend in combined contributions.
This paper applies a model of the demand for public goods to explain cross-sectional differences ... more This paper applies a model of the demand for public goods to explain cross-sectional differences in public allocations to agricultural research in the United States. The model postulates that demanders of agricultural research on the state level--primarily farmers ...
European Journal of Political Economy, Mar 1, 2000
ABSTRACT Recent theoretical work has incorporated assumptions that agents have preferences for re... more ABSTRACT Recent theoretical work has incorporated assumptions that agents have preferences for reciprocity, leading them to behave non-opportunistically in social interactions. There is extensive experimental evidence for the existence of such preferences. This paper explains the emergence of preferences for reciprocity in a population consisting of two types: “reciprocators” and “opportunists”. Unlike conventional evolutionary models, both types maximize their expected payoffs, given their preferences. The population proportions of these two types evolve from one generation to the next, according to their expected payoffs. It is shown that, under a variety of conditions, preferences for reciprocity can survive in the population.
Journal of Economic Behavior and Organization, 1996
Evolutionary models in economics have often been criticized for failing to allow for rational, ma... more Evolutionary models in economics have often been criticized for failing to allow for rational, majcimizing behavior. The present paper represents a step toward correcting this deficiency, by introducing rational actors into an evolutionary model of the finitely repeated Prisoners' Dilemma. At the same time, the model endogenizes the uncerteiinty postulated in the cleissic model of Kreps, et al. (1982), thus explaining cooperation by rational actors in the finitely repeated Prisoners' Dilemma. A testable implication of the model is that the level of voluntary cooperation in a society will be relatively high where geographical mobility is relatively low.
This paper suggests economic criteria for choosing among estimates of the value of time. Four ass... more This paper suggests economic criteria for choosing among estimates of the value of time. Four assumptions that are implicit in most models of the value of time are identified and discussed. The accuracy of an estimate of the value of time depends on whether the data and model underlying the estimate take into account the unrealistic nature of these assumptions, either by excluding observations for which the assumptions are especially incorrect or by modifying the model so that the assumptions may be relaxed.
This note reconsiders a theoretical result asserted to explain the success of group lending progr... more This note reconsiders a theoretical result asserted to explain the success of group lending programs in LDCs. It has been claimed that if groups are allowed to form themselves, risky and safe borrowers will sort themselves into relatively homogenous groups. This "positive assortative matching" can be exploited by lenders to solve an adverse selection problem that would otherwise undermine the effectiveness of such lending programs. This note shows that the positive assortative matching result does not necessarily hold if earlier models are extended to incorporate dynamic incentives.
ABSTRACT The interaction of selfish, rational actors in the provision of a public good is analyze... more ABSTRACT The interaction of selfish, rational actors in the provision of a public good is analyzed in an attempt to explain recent experimental findings as well as real-world cases of voluntary collective action. The model, which allows for more sophisticated behavior than that assumed by the conventional Cournot theory, predicts a higher level of collective action than that theory. The impacts of income effects and of the price elasticity of demand for the public good are given special emphasis. Copyright 1987 by The Review of Economic Studies Limited.
This paper analyzes the interaction between the success of group lending institutions and the sto... more This paper analyzes the interaction between the success of group lending institutions and the stock of social capital (modeled by the level of trust) in the community where the group lending programs are located. Agents play a finitely repeated "trust game" in parallel with a finitely repeated "microcredit game." There are two agent types: "regular" and "trustworthy," and these types are private information. Moral hazard problems are present in both games. The model shows that there are conditions under which the presence of trust as an equilibrium of the trust game can enhance the success of the group lending program. Similarly, there are conditions under which success of the group lending program can enhance the development of trust.
This paper develops a model of the strategic interaction of borrowers in the framework of group l... more This paper develops a model of the strategic interaction of borrowers in the framework of group lending, in an environment characterized by moral hazard. Unlike previous papers, monitoring by one group member of his or her peers is not a crucial feature of the model. Even without monitoring, repayment performance under group lending can compare favorably to such performance under individual liability. The effects of allowing monitoring and of changing group size are also investigated.
This paper revisits the conventional wisdom on the determinants of the success of microcredit pro... more This paper revisits the conventional wisdom on the determinants of the success of microcredit programs. The paper first develops a simple moral hazard model of borrowing in a group lending context, and then tests this model using data from a survey conducted in Bangladesh in 1991-92. One of the predictions of the moral hazard model, regarding the effect of group size on repayment performance, is rejected by the empirical evidence. The paper then develops an alternative approach, which is consistent with the observed effect of group size as well as the other empirical results.
This paper surveys the theoretical and empirical literature on group lending programs in developi... more This paper surveys the theoretical and empirical literature on group lending programs in developing countries, with a focus on the determinants of repayment performance.
This paper models self-enforcing agreements and the evolution of preferences for reciprocity when... more This paper models self-enforcing agreements and the evolution of preferences for reciprocity when all agents are rational, Bayesian optimisers. In this 'indirect' evolutionary model, player types are defined not by their strategies, but by their preferences. The paper studies the evolution of a community consisting of 'opportunists', who maximise material payoffs, and 'reciprocators', who prefer joint cooperation to exploiting their opponents. Players are randomly matched to play a finitely repeated Prisoner's Dilemma game. In the unique evolutionary equilibrium, the reciprocators cooperate throughout their careers, and the opportunists cooperate up to, but not including, the last stage of their careers.
This note reconsiders a theoretical result asserted to explain the success of group lending progr... more This note reconsiders a theoretical result asserted to explain the success of group lending programs in LDCs. It has been claimed that if groups are allowed to form themselves, risky and safe borrowers will sort themselves into relatively homogenous groups. This "positive assortative matching" can be exploited by lenders to solve an adverse selection problem that would otherwise undermine the effectiveness of such lending programs. This note shows that the positive assortative matching result does not necessarily hold if earlier models are extended to incorporate dynamic incentives.
The authors develop a model of strategic work interactions in collective enterprises explaining t... more The authors develop a model of strategic work interactions in collective enterprises explaining the following observation: the Israeli kibbutz, in which net collective output is distributed equally, has been an economic success, while the Soviet kolkhoz, in which net output traditionally was divided according to relative work input, has been a failure. In contrast, the conventional Cournot-Nash theory of collective enterprises predicts superoptimal output in the kolkhoz, while in the kibbutz, the free-fider problem is predicted to lead to suboptimal effort. Their theory predicts Pareto optimal work effort in the kibbutz and suboptimal effort in the kolkhoz. Copyright 1989 by Royal Economic Society.
Sources of specification as well as measurement error in previous estimates of the value of time ... more Sources of specification as well as measurement error in previous estimates of the value of time are examined in this paper, and a new set of estimates avoiding these errors is presented. The sources of specification error being analyzed are: (1) failure to take account of drivers' uncertainty in making their choices between alternative routes or modes, which was found empirically to bias the value of time estimate 50 percent or more; (2) the differential in comfort and similar intangible characteristics between two modes; and (3) the inability to account for cross-time substitutions by travelers in peak-hour conditions. Ways of avoiding these sources of error are suggested and implemented. The choice between "reported" and "measured" data is reexamined , with an emphasis on random rather than systematic perception errors by travelers.
ABSTRACT This paper presents a model of the emergence of cooperative social norms in a society co... more ABSTRACT This paper presents a model of the emergence of cooperative social norms in a society composed exclusively of rational agents. Following Kreps et al. [Kreps, D.M., Milgrom, P., Roberts, J., Wilson, R., 1982. Rational cooperation in the finitely repeated Prisoners’ Dilemma. Journal of Economic Theory 27, 245–252], opportunistic agents are assumed to uphold cooperative norms in order to maintain reputations for being trustworthy — reputations which are necessary in order to find partners in mutually beneficial market and non-market transactions. Unlike the model of Kreps et al. [Kreps, D.M., Milgrom, P., Roberts, J., Wilson, R., 1982. Rational cooperation in the finitely repeated Prisoners’ Dilemma. Journal of Economic Theory 27, 245–252], however, the present model endogenizes agents’ prior beliefs regarding their partners’ type, rather than introducing these priors by assumption. The model is supported by evidence from an international micro-data set on family behavior.
Journal of Economic Behavior and Organization, Jun 1, 1986
Abstract A new approach to explaining voluntary collective action, emphasizing strategic interact... more Abstract A new approach to explaining voluntary collective action, emphasizing strategic interactions of actors in their contributions to the provision of a public good, is tested experimentally. The results support this approach, and tend to reject the conventional, Cournot theory of the provision of public goods. Among the findings are a positive interaction between individual contributions to the provision of a public good, and a U-shaped time trend in combined contributions.
This paper applies a model of the demand for public goods to explain cross-sectional differences ... more This paper applies a model of the demand for public goods to explain cross-sectional differences in public allocations to agricultural research in the United States. The model postulates that demanders of agricultural research on the state level--primarily farmers ...
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Papers by Joel M. Guttman