Real Market Transactions Research Articles

Communication and Bargaining Breakdown: An Empirical Analysis

Bargaining breakdown—whether as delay, conflict, or missing trade—plagues bargaining in environments with incomplete information. Can a bargaining environment that facilitates or restricts communication alleviate these costs? We exploit a unique opportunity to study this question using real market transactions: eBay Germany’s Best Offer platform. On May 23, 2016, the platform introduced unstructured communication allowing buyers and sellers on the desktop version of the site, but not the mobile app, to accompany price offers with a message. Using this natural experiment, our difference-in-differences approach documents a 14% decrease in the the rate of breakdown among compliers. Though adoption is immediate, the effect is not. We show, using text analysis, that the dynamics are consistent with repeat players learning how to use communication in bargaining, and that the messaging strategies of experienced sellers are correlated with successful bargaining.

Assessing the EU ETS with a bottom-up, multi-sector model

ABSTRACTThe European Emissions Trading System (EU ETS) is the central pillar of the EU response against climate change. This trading mechanism is considered, from the theoretical point of view, as the most cost-effective method to reduce GHG. However, previous studies show that the agents who participate in these markets may behave in a way that may lead to inefficient CO2 prices, creating doubts about the static and dynamic efficiency of the system. This article analyses these possible anomalies by first trying to model the ETS in a more realistic way, addressing some of the limitations of previous models, and second, by comparing the results with real market transactions. For this, a bottom-up, multi-sector model has been built, which represents the EU ETS in an integrated, cross-sectoral way, paying particular attention to the interactions among the most emissions intensive industries. The results show the benefits of this modelling approach and how it better reflects real market conditions. Some preliminary conclusions regarding the behaviour of the agents in the ETS market are also presented.POLICY RELEVANCELow allowance prices in the EU ETS have put into question the dynamic efficiency of the EU ETS system, prompting various ideas for structural reform. However, determining the right reform also requires estimating correctly how agents will respond to it. This article proposes a tool to realistically simulate the EU ETS under the assumption of rational agents, and compare it to real market outcomes, in order to understand better the behaviour of agents in this carbon market, and therefore how to design better policies.

Green Power Grids: How Energy from Renewable Sources Affects Networks and Markets.

The increasing attention to environmental issues is forcing the implementation of novel energy models based on renewable sources. This is fundamentally changing the configuration of energy management and is introducing new problems that are only partly understood. In particular, renewable energies introduce fluctuations which cause an increased request for conventional energy sources to balance energy requests at short notice. In order to develop an effective usage of low-carbon sources, such fluctuations must be understood and tamed. In this paper we present a microscopic model for the description and for the forecast of short time fluctuations related to renewable sources in order to estimate their effects on the electricity market. To account for the inter-dependencies in the energy market and the physical power dispatch network, we use a statistical mechanics approach to sample stochastic perturbations in the power system and an agent based approach for the prediction of the market players’ behavior. Our model is data-driven; it builds on one-day-ahead real market transactions in order to train agents’ behaviour and allows us to deduce the market share of different energy sources. We benchmarked our approach on the Italian market, finding a good accordance with real data.

When the crowd evaluates soccer players’ market values: Accuracy and evaluation attributes of an online community

Evaluating the value of athletes to determine whether they should be transferred from one club to another has become a major challenge for managers of sports teams. In the context of German soccer, aficionados have built a large online community that evaluates professional soccer players’ market values. The community has become the main source for reporting market values in the media and has a strong impact on sports economy: it is used in real market transactions and wage negotiations, indicating the power of crowd wisdom in the sports management context.This research describes the evaluation process of the community, investigates the accuracy of its estimated market values, and shows which attributes are most important for market-value evaluations. After demonstrating that the community's market-value estimates can predict actual transfer fees, we show that community evaluations can largely be explained by an econometric model that contains two blocks of determinants: variables that are directly related to players’ talent and variables that result from judgments by external sources (e.g., journalists). Reorganizing variables that were used in previous studies into two blocks (talent vs. external determinants) provides a more differentiated look at the popularity of players than recent literature on the “superstar phenomenon.”

Beating Irrationality: Does Delegating to IT Alleviate the Sunk Cost Effect?

We investigate the impact of delegating decision making to information technology (IT) on an important human decision bias—the sunk cost effect. To address our research question, we use a unique data set containing actual market transaction data for approximately 7,000 pay-per-bid auctions. In contrast with the laboratory experiments of previous related studies, our research presents the unique advantage of investigating the effects of IT-enabled automated bidding agents on the occurrence of a decision bias in real market transactions. We identify normatively irrational decision scenarios and analyze consumer behavior in these situations. Our findings show that participants with a higher behavioral investment are more likely to violate the assumption of normative economic rationality because of the sunk cost effect. More importantly, we observe that the delegation of auction participation, i.e., actual bidding, to IT significantly reduces the occurrence of the sunk cost effect in subsequent decisions made by the same individual. We can attribute this reduction to the comparably lower behavioral investments incurred by auction participants who delegate their bidding to IT. In particular, by mitigating different contributors of behavioral investments, delegating to IT reduces the likelihood of the occurrence of the sunk cost effect by more than 50%.This paper was accepted by Sandra Slaughter, information systems.

Beating Irrationality: Does Delegating to IT Alleviate the Sunk Cost Effect?

We investigate the impact of delegating decision making to information technology (IT) on an important human decision bias – the sunk cost effect. To address our research question, we use a unique dataset containing actual market transaction data for approximately 7,000 pay-per-bid auctions. In contrast with the laboratory experiments of previous related studies, our research presents the unique advantage of investigating the effects of IT-enabled automated bidding agents on the occurrence of a decision bias in real market transactions. We identify normatively irrational decision scenarios and analyze consumer behavior in these situations. Our findings show that participants with a higher behavioral investment are more likely to violate the assumption of normative economic rationality due to the sunk cost effect. More importantly, we observe that the delegation of auction participation, i.e., actual bidding, to IT significantly reduces the occurrence of the sunk cost effect in subsequent decisions made by the same individual. We can attribute this reduction to the comparably lower behavioral investments incurred by auction participants who delegate their bidding to IT. In particular, by mitigating different contributors of behavioral investments, delegating to IT reduces the likelihood of the occurrence of the sunk cost effect by more than 50%.

Does the Coase theorem hold in real markets? An application to the negotiations between waterworks and farmers in Denmark

The Coase theorem depends on a number of assumptions, among others, perfect information about each other's payoff function, maximising behaviour and zero transaction costs. An important question is whether the Coase theorem holds for real market transactions when these assumptions are violated. This is the question examined in this paper. We consider the results of Danish waterworks' attempts to establish voluntary cultivation agreements with Danish farmers. A survey of these negotiations shows that the Coase theorem is not robust in the presence of imperfect information, non-maximising behaviour and transaction costs. Thus, negotiations between Danish waterworks and farmers may not be a suitable mechanism to achieve efficiency in the protection of groundwater quality due to violations of the assumptions of the Coase theorem. The use of standard schemes or government intervention (e.g. expropriation) may, under some conditions, be a more effective and cost efficient approach for the protection of vulnerable groundwater resources in Denmark.

GENERAL EQUILIBRIUM OF A REGIONAL ECONOMY WITH A FINANCIAL SECTOR–PART I: AN ACCOUNTING FRAMEWORK WITH BUDGET AND BALANCE SHEET LINKAGES

ABSTRACT. An accounting framework is presented that can be used as a basis for a regional general equilibrium economic model that meaningfully incorporates both real and financial activity. The accounting framework describes a circular flow from regional income to credit base, and back to regional income, including the balance of payments identity. Both real market transactions and capital stock changes are explicitly recognized. Linkages between real activity flows and sectoral balance sheets are highlighted. Financial activity is recognized as a service, and all assets are assumed to be valued at market prices.