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This paper studies how social structure — the pattern of social links that connect individuals in a community — affects labor markets. Under competing views on the role of networks, social structures that discourage network hiring could improve or hinder labor market performance. We test these competing views using data on marriage networks in 15,000 villages, combined with labor force survey data. Using regressions analyses and an instrumental variable strategy, we find that individuals living in more socially fragmented villages are less likely to work in family firms, more likely to use formal job search strategies, invest more in education and earn higher wages. Social fragmentation thus discourages network hiring and improves labor market performance. These results survive 384 combinations of robustness checks. We further provide direct evidence against reverse causality. [ABSTRACT FROM AUTHOR]

We examine whether a concentrated interbank market stimulates bank collusion or monopolistic pricing towards enhancing performance. We explore this nexus by incorporating the role of bank conduct into the structure–performance paradigm. The results show that the interbank market structure provides a channel for banks to collude and engage in monopolistic pricing in the market for bank and business loans to consequently increase bank performance. Further, while the interbank market structure is both profit and cost efficient for non-conglomerate banks, it is cost efficient for foreign banks. Hence, collusion and other anti-competitive behaviours in the interbank market may exacerbate incentives for foreign and non-conglomerate bank entry. We also explored the theoretical and policy implications of these findings. Our results are robust to alternative measures of market structure, bank conduct and performance, and the use of a wide range of specifications and econometric models. [ABSTRACT FROM AUTHOR]

We conduct a market experiment with the opportunity for sellers to send a nonbinding advertisement of their product quality, and examine the effects of including a reputation aggregation system for sellers in these markets. In order to closely match the setting of real life markets, we conduct a laboratory experiment designed to resemble an online marketplace. We find substantial efficiency gains from the addition of the ratings system, but not enough to obtain fully efficient market outcomes. These efficiency gains come primarily through a decrease in false advertising behavior by the sellers as they compete to build reputations, raising the level of trust in the market. We structurally examine the formation of reputations by the sellers (with and without ratings) and the effect of these reputations on the decisions of buyers and sellers in the market. Using bipartite networks of transaction data, we quantify the effects of ratings in encouraging trustworthiness and supporting diverse, connected, and high quality markets. [ABSTRACT FROM AUTHOR]

• Overall waiting times fell but less so in hospitals facing more pre-reform competition • Hip and knee replacement patients in hospitals with more rivals faced higher waits • Waiting time variation within small geographical areas increased with competition • Competition had a pro-poor effect on the concentration of waiting times by SES deprivation • Healthcare competition can have unintended effects like longer, more dispersed waits We use a quasi difference-in-difference approach to examine whether the 2006 relaxation of constraints on patient choice of hospital in the English National Health Service (NHS) affected waiting times inequalities for three common elective treatments (coronary bypass, hip replacement and knee replacement) in hospitals which faced more potential competition (number of rivals) before the choice reform was introduced relative to those which faced less competition. After the 2006 choice reform hospitals which had more rivals before 2006 had longer waits for hip and knee replacement, with one additional rival increasing the median waiting time by 2.5% and 4.0%, and the 75th quantile waiting time by 4.2% and 7.1%. There was no effect on waiting times for coronary bypass patients up to the 75th quantile of the wait distribution. The choice reform and market structure had no effect on the standard deviation of waiting times within hospitals but did increase waiting time variation within small geographical areas. Older hip replacement patients had shorter waits pre-choice reform but the gradient disappeared after it and was not affected by market structure. Before the choice reform, more deprived patients had longer waits but post-reform there was no deprivation gradient in waiting times, and the reduction in the gradient was not affected by pre-reform market structure. Overall, the results suggest that the choice reform led to longer and more dispersed waiting times in more competitive areas but deprivation related inequity was smaller in the post-choice period. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between competition and efficiency in a labor market in which worker effort is not observed by firms, workers have private information about their productivity, and workers overestimate their productivity (overconfidence). Firms solve a contracting problem that involves trade-offs between efficiency, rent-extraction, exploitation of overconfidence, and competing with other firms for the services of workers. Regardless of the degree of competition, high-type effort is overincentivized, while low-type effort is non-monotonic in the degree of competition and may be at, above, or below the efficient level, depending on the degree of competition and distribution of types in the market. Efficiency losses are strictly positive, non-monotonic in the degree of competition, and are minimized in monopsony if low types are common enough, whereas an intermediate degree of competition minimizes efficiency losses otherwise. Worker preferences over market structures and the effects of debiasing workers on market efficiency are also discussed. • Firms contract with workers to produce a good. • Workers have private information, take hidden actions, and are overconfident. • Market competition varies continuously between perfect competition and monopsony. • Contractual distortions vary in the degree of market competition. • Market efficiency is non-monotonic in the degree of market competition. [ABSTRACT FROM AUTHOR]

• Sectoral inflation persistence is negatively correlated with market concentration. • A model with monopolistic competition under quadratic utility is introduced. • The model explains the empirical pattern if it allows imperfect common knowledge. • Both structures of market and information matter for inflation persistence. Previous studies have stressed that inflation dynamics exhibit substantial dispersion across sectors. Using US producer price data, we present evidence that sectoral inflation persistence is negatively correlated with market concentration, which is difficult to reconcile with the prediction of the standard model of monopolistic competition. To better explain the data, we incorporate imperfect common knowledge into the monopolistic competition model introduced by Melitz and Ottaviano (2008). In the model, pricing complementarity among firms increases as market concentration decreases. Because higher pricing complementarity generates greater inflation persistence, our model successfully replicates the observed negative correlation between inflation persistence and market concentration across sectors. [ABSTRACT FROM AUTHOR]

I compare the efficiency of different equilibria reached in a credit rating game that allows for communication between the issuer and two credit rating agencies (CRAs) prior to disclosing ratings. CRAs observe private signals that correlate with asset quality and can learn about each other's signals by exchanging messages with the issuer. Conflicts of interest lead CRAs to provide biased ratings. When issuer messages are informative about signals, CRAs find it optimal to selectively offer biased ratings based on issuer messages. Messages are informative when the issuer discloses high ratings from both CRAs and profits more from increasing issuance than from selling its worst assets. The equilibrium in which only one CRA provides ratings leads to the highest efficiency when average asset quality is low, agency signals frequently disagree and asset payoffs are skewed. [ABSTRACT FROM AUTHOR]

This paper studies optimal allocation of control rights in collective organizations where members are heterogeneous across their opportunity costs and knowledgeability (expertise). Three results are established. First, members' heterogeneity is costly as it makes communication coarse and hampers decision making. Second, efficient allocation of control rights entails granting the decision rights to the members who are more (less) inclined to implement projects when the market is (not) ripe with profitable projects. This result, however, requires that members with the control rights are highly knowledgeable. Third, governance structure determines who bears the cost of heterogeneity, whereas the market determines who benefits from it. Members shouldering the costs should be compensated to be willing to join the collective organization. Governance structure and the market are therefore intertwined. Consequently, efficient allocation of control rights might not be viable. One implication is that it is unlikely that junior members have decision authority in heterogeneous partnerships. Another implication is that the viability of collective entrepreneurships is problematic in many settings. [ABSTRACT FROM AUTHOR]

We develop a theoretical model to study how changes in the durability of the goods affect prices of stolen goods, the incentives to steal and the equilibrium crime rate. When studying the production of durable goods, we find that the presence of crime affects consumer and producer surplus and thus their behaviour, market equilibrium, and, in turn, the social optimum. Lower durability of goods reduces the incentive to steal those goods, thus reducing crime. When crime is included in the standard framework of durable goods, the socially optimal durability level is lower. When considering different stealing technologies, perfect competition either over-produces durability or produces zero (minimum) durability. The monopolist under-produces durability. The model has a clear policy implication: the durability of goods, and the market structure for those goods, can be an effective instrument to reduce crime. In particular, making the durability of a good contingent upon that good being stolen is likely to increase welfare. We also study the incentives to develop and use this optimal technology. [ABSTRACT FROM AUTHOR]

In order to demonstrate that nonlinear tax systems may have surprising and potentially undesirable side effects, we develop an evolutionary market entry model in which firms decide on the basis of past profit opportunities whether or not to enter a competitive market. Our main focus is on the case of a proportional tax on positive profits. Such a piecewise-linear tax scheme induces a kink in the firms’ profit functions, and may lead to abrupt changes in a market's dynamics, coexisting attractors and hysteresis problems. Since these phenomena can also be observed in more general models, a proper understanding of their basic mechanism may be helpful to explain the intricate behavior of many economic systems. [ABSTRACT FROM AUTHOR]

We investigate the role of physician agency in determining health care supply and patient outcomes. We show that an increase in health care supply due to a change in private physician incentives has a theoretically ambiguous impact on patient welfare. The increase can reflect either induced demand for ineffective care or a reduction in prior rationing of effective care. Furthermore, physician market structure matters in determining the welfare effects of changes in private physician incentives. We then analyze a change to Medicare fees that caused physicians to increase their provision of chemotherapy. We find that this increase in treatment improved patient survival, extending median life expectancy for lung cancer patients by about 18%. Consistent with the model, we find that while the treatment response was larger in less concentrated markets, survival improvements were larger in more concentrated markets. [ABSTRACT FROM AUTHOR]

This study conducts experiments to determine the modes of communication that are able to produce and sustain collusion and how the efficacy of communication depends on market structure. Two communication treatments are considered: non-binding price announcements and unrestricted written communication. We find that price announcements are conducive to coordinating on a high price but only under duopoly and when firms are symmetric. The standard experimental finding that collusion without communication is rare when there are more than two firms is shown to be robust to allowing firms to make price announcements. When firms are asymmetric, price announcements do result in higher prices but there is little evidence that firms are coordinating their behavior. When firms are allowed to engage in unrestricted written communication, coordination on high prices occurs for all market structures. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms. [ABSTRACT FROM AUTHOR]

Does the type of posterior feedback affect how people decide in one-shot environments? We revisit this question in first-price auction markets. We consider three feedback types: minimal (only knowing whether winning or not), loser (also knowing the winning bid) and winner (knowing the second highest bid if winning). Filiz-Ozbay and Ozbay (2007) find that loser as opposed to minimal or winner feedback increases bids. We use three novel protocols and additionally replicate theirs. Using a sample of 624 subjects, we find that bidders’ ex ante knowledge of posterior feedback type has no systematic effect on the average bid/value ratios. [ABSTRACT FROM AUTHOR]