Stigler's Model Research Articles

Public-Sector Honesty and Corruption: Field Evidence from 40 Countries

Abstract This study presents a theoretical model of honest behavior in the public sector (public-sector honesty) and its relationship with corruption. We test this model empirically by utilizing and extending a unique data set of honest behavior of public- and private-sector workers across 40 countries, gathered in a field experiment conducted by Cohn et al. (N = 17,303). We find that public-sector honesty is determined by country-level societal culture and public-sector culture; public-sector honesty predicts corruption levels, independently from the effect of incentive structures—in line with the Becker–Stigler model. We find no support for a global mean difference in honest behavior between public- and private-sector workers, alongside substantive cross-country variation in sector differences in honest behavior. The emphasis assigned to honesty of public-sector workers within each country appears to be locally determined by the prevailing public-sector culture. These results imply that beyond cross-national variation in the scope of publicness, it is very content may vary across countries. Lastly, the results of this study consistently fail to support the selection thesis, and we discuss the practical implications of this result for anticorruption policy.

Information exchange in cartels

AbstractAntitrust authorities view the exchange of information among firms regarding costs, prices, or sales as anticompetitive. Such exchanges allow competitors to closely monitor each other, thereby facilitating collusion. But the exchange of aggregate information, perhaps via a third party, is legal. The logic is that collusion is difficult if the identity of a price‐cutting firm cannot be ascertained. Here, we examine this logic using Stigler's model of secret price cuts. We first identify circumstances such that when no information exchange is possible, collusion is difficult. We then show that if firms' aggregate sales are made public, nearly perfect collusion is possible.

Constrained Fixed Sample Search

We consider a version of the Stigler model of fixed sample price search, where consumer utility depends on whether or not at least one sampled price fulfils a pre-set target.

Electoral Proximity and the Political Involvement of Bureaucrats: A Natural Experiment in Argentina, 1904

In this paper, I use a slightly modified version of the Becker–Stigler model of corrupt behavior to explain bureaucratic political involvement. Since bureaucrats prefer higher rewards and not to support losing candidates, we expect them to become politically involved near elections – when rewards are expected to be higher, and information more abundant. Taking advantage of a natural experiment, I employ differences-in-means and differences-in-differences techniques to estimate the effect of electoral proximity on the political involvement of justices of the peace in the city of Buenos Aires in 1904. I find a large, positive, and highly local effect of electoral proximity on their political involvement, with no appreciable impact in the months before or after elections.

Consumer Desired Price Modeling – Case Study on the RCBS Market

This paper is focused on the information asymmetry problem. When the consumer has a market overview then the optimal product can be chosen more or less easily. We model more realistic situation where the consumer does not have a market overview and so the process of search has to be performed. The harder the search is the higher information asymmetry is. The aim of the paper is to find if the information asymmetry prevents the consumer to find optimal product and if yes then to model what price rational consumer will choose. For this purpose we reworked Stigler's model into the model more suitable for the small market needs. We used this model on the retail core banking services to individuals in the Czech Republic. On this market the information asymmetry was found within the European Union research as well as within our own research. We find that information asymmetry prevents even low search cost user the optimal price choice, we are abstracting from the influence of scattered knowledge, advertisement etc. However for more than half of the products on this market it is rational to search fo r the better price and so to generate positive savings. Also we state that information asymmetry is mostl y caused by variable costs on search that express the task of a final price determination.

What Can We Learn from Education Production Studies?

The results of a Becker–Peltzman–Stigler model of local school district decision-making yields biased or inconsistent efficiency measures when some school outputs are not measured. Empirical investigation of data for 95 Tennessee counties in the 1999–2000 academic year finds that Data Envelopment Analysis (DEA) efficiency measures, and efficiency rankings based on those measures, are highly sensitive to changes in the number of output measures used. An artifact of the DEA process causes increasing correlation of efficiency scores with the inverse of per pupil expenditures as outputs increase. Hence, high-stakes policy initiatives should not be based on such scores.

Critical comparison of several order-book models for stock-market fluctuations

Far-from-equilibrium models of interacting particles in one dimension are used as a basis for modelling the stock-market fluctuations. Particle types and their positions are interpreted as buy and sell orders placed on a price axis in the order book. We revisit some modifications of well-known models, starting with the Bak-Paczuski-Shubik model. We look at the four decades old Stigler model and investigate its variants. One of them is the simplified version of the Genoa artificial market. The list of studied models is completed by the models of Maslov and Daniels et al. Generically, in all cases we compare the return distribution, absolute return autocorrelation and the value of the Hurst exponent. It turns out that none of the models reproduces satisfactorily all the empirical data, but the most promising candidates for further development are the Genoa artificial market and the Maslov model with moderate order evaporation.

Functional regulation

The modern theory of the demand for regulation, first presented in George Stigler's influential 1971 paper ‘The Theory of Economic Regulation’ is applied to financial regulation, using Japan's Ministry of Finance as a specific example. A new approach to financial regulation recently proposed for the U.S., the ‘functional regulation’ of the title, is also described and appraised in the light of the Stigler model.

Dynamic Macroeconomic Theory

Introduction References and Suggested Readings PART I REAL DYNAMIC MACROECONOMIC MODELS 1. Dynamic Programming A General Intertemporal Problem A Recursive Problem Bellman's Equations Nonstochastic Examples The Optimal Linear Regulator Problem Stochastic Control Problems Examples of Stochastic Control Problems The Stochastic Linear Optimal Regulator Problem Dynamic Programming and Lucas's Critique Dynamic Games and the Time Inconsistency Phenomenon Conclusions Exercises References and Suggested Readings 2. Search Nonnegative Random Variables Stigler's Model of Search Sequential Search for the Lowest Price Mean-Preserving Spreads Increases in Risk and the Reservation Price Intertemporal Job Search Waiting Times Firing Jovanovic's Matching Model Conclusions Exercises References and Suggested Readings 3. Asset Prices and Consumption Hall's Random Walk Theory of Consumption The Random Walk Theory of Stock Prices Lucas's Model of Asset Prices Mehra and Prescott's Finite-State Version of Lucas's Model Asset Pricing More Generally The Modigliani-Miller Theorem Government Debt and the Ricardian Proposition Remarks on Testing and Estimation Conclusions Exercises References and Suggested Readings PART II MONETARY ECONOMICS AND GOVERNMENT FINANCE 4. Currency in the Utility Function The Price of Inconvertible Government Currency in Lucas's Tree Model Issues and Models in Monetary Economics Government Debt in the Utility Function Government Currency in the Utility Function Seignorage and the Optimum Quantity of Currency A Neutrality Proposition Conclusions References and Suggested Readings 5. Cash-in-Advance Models A One-Country Model Fisher Equations Inflation-Indexed Government Debt Interactions of Monetary and Fiscal Policies Interest on Reserves A Two-Country Model Exchange Rate Indeterminacy Conclusions Exercises References and Suggested Readings 6. Credit and Currency with Long-Lived Agents The Physical Setup Optimal Allocations Competitive Equilibrium A Digression on the Balances of Trade and Payments The Ricardian Doctrine about Taxes and Government Debt The Model with Valued Currency and No Private Debt An Interventionist Optimal Monetary Equilibrium Townsend's Turnpike Interpretation Conclusions Exercises References and Suggested Readings 7. Credit and Currency with Overlapping Generations The Overlapping-Generations Model The Ricardian Doctrine about Taxes and Government Debt Again A Ricardian Proposition Currency, Bonds, and Open-Market Operations Computing Equilibria Interpretations as Currency Equilibria Optimality Four Examples on Inflation and Its Causes Seignorage and the Laffer Curve Dynamics of Seignorage Forced Saving International Exchange Rates Conclusions Exercises References and Suggested Readings 8. Government Finance in Stochastic Overlapping-Generations Models The Economy Some Examples A General Irrelevance Theorem Wallace's Modigliani-Miller Theorem for Open-Market Operations Chamley and Polemarchakis's Neutrality Theorem Interpretation as a Constant Fiscal Policy Indexed Government Bonds A Ricardian Proposition Further Irrelevance Theorems Conclusions Exercises References and Suggested Readings Appendix. Functional Analysis for Macroeconomics Metric Spaces and Operators First-Order Linear Difference Equations A Formula of Hansen and Sargent A Quadratic Optimization Problem in R A Discounted Quadratic Optimization Problem Predicting a Geometric Distributed Lead of a Stochastic Process Discounted Dynamic Programming A Search Problem Exercises References and Suggested Readings Index

Cheating in a Duopoly Supergame

THIS PAPER examines an approach to oligopoly theory, first proposed in a relatively neglected paper by GeorgeJ. Stigler [ I 964]. Suppose that the firms in an oligopoly have achieved, tacitly or explicitly, a collusive agreement, and that open defection, in a sense to be made more precise below, does not pay. Given that the other firms observe the agreenient, it pays any one of them to cheat, that is, to make secret price cuts to selected buyers in order to secure sales it may not otherwise have made. Stigler then sets out to define the likely extent of the gain a cheat can make without detection and to relate this to observable market parameters. This would allow prediction of the probable incidence of cheating in a market and hence of the effectiveness of the collusive agreement. Stigler first argues that in a purely deterministic world, there could be no scope for cheating. Each firm's sales could be fully anticipated and any deviation from the expected level would be immediate evidence of cheating, which becomes, in effect, open defection. Implicit in this, of course, is the assumption that firms can observe each others' outputs at negligible cost-a reasonable assumption which will be maintained throughout the rest of this paper. If the world is not in fact deterministic, then scope for cheating may arise. Suppose that in each period any one buyer buys from any one seller with a probability between zero and one. Then, each seller's sales in each period are a random variable and it is possible that a seller may attribute to chance a well above average sales level which in fact was due to cheating. In deciding whether to accept this, the other sellers are involved in hypothesis testing and the critical level of this test will determine how far a cheat dare go. Stigler's development of this idea in a formal model is open to a number of specific criticisms. McKinnon [ I 966] criticized the excessively simplistic decision-theoretic basis of Stigler's model. In deciding whether a rival has gained above average sales by cheating or simply by chance, a firm is assumed to use a standard significance test with conventional critical levels, the choice of which is entirely unexplained in the model. There is also an unnecessary separation of tests according to the precise source of the buyers won by cheating-previous customers of the cheat, other firms' customers or newly-

Search and Market Equilibrium

This paper presents an answer, not found in the literature, to Rothschild's criticism that search models are unsatisfactory until they provide an explanation of price dispersion. The search models of Stiler and McCall are closed by explaining the firm's optimal decision-making problem. Then the existence of an equilibrium distribution of prices is established for both models. The analysis shows that price dispersion is supported and explained by a dispersion of production costs. The Stigler model shows that the variance of the price distribution increases while the McCall model shows that the variance eventually decreases with the intensity of search.

On Probabilistic Models of Consumer Search for Information

I. Introduction, 38. — II. Review and development of Stigler's original model, 39. — III. The effect of dependence among the prices offered, 44. — IV. The sequential rule for Stigler's model, 45. — V. Implications and comments, 49.

Economic competition and political competition: Comments and corrections

When public expenditures for local services are determined by a referendum process, it is impossible to tell a priori whether increasing the proportion of nonusers increases or decreases the voting equilibrium [1,2]. For a given tax price and income nonusers have a lower demand than users for local services, but the tax price of local services to users is lowered by the presence of nonusers. Stigler [3] therefore asks an empirically interesting question when he seeks to ascertain the influence of Catholic parochial school parents on expenditures per public school pupil. This reply shows that Stigler's use of arithmetic averages for state-wide data probably biases his regression coefficients, and that an alternative specification provides a more powerful test of Stigler's model. Following Stigler let us assume that the demand function for expenditures per public school child is Cobb-Douglas and that all families within a given political jurisdiction pay the same taxes. Letting si denote the proportion of voting families who use the public schools in district i, Ti taxes per family desired by an "average" user, yi the income of an "average"user, and P the cost per "quality" unit of education (assumed constant across observations), Stigler shows that