Abstract: The goal of this paper is to propose a simple paradigm for understanding rent seeking and corruption in the growth context. We develop an endogenous growth model where entrepreneurs, as intermediate-good producers, may engage in rent-seeking activities. The latter are defined by the following properties: (i) their internal effect is positive; (ii) their external effect is negative; and (iii) they use real resources. Our formulation may be viewed as a parable for theft and fraud; organized crime; industrial espionage; lobbying and policy influence; misgovernance, institutional inefficiency, tax evasion, etc. The economy is shown to fall into a trap of high rent seeking/corruption and low growth. Agents' perceptions about the external effects of rent seeking, and the complementarity or substitutability of intermediate inputs, are crucial. Contrary to conventional wisdom, higher returns to capital and more competition can be detrimental for welfare and growth, as they induce more rent seeking/corruption. Finally, our paradigm yields insights into the relationship of R&D, politicoeconomic equilibrium, income distribution, and growth, as well as the design of tax/growth policies in the presence of rent seeking/corruption.

Abstract: This paper provides experimental evidence that in binary-choice Dictator Games the majority of participants are efficiency rather than equity-oriented - even if their own payoff is reduced by the respective choice. Therefore, altruistic and – as a consequence – reciprocal motives need to be modelled explicitly if we aim to predict behavior in experiments correctly.

Abstract: This experimental paper examines two contract rules with respect to their implications for the willingness to cooperate in one-shot environments. The first - non-incentive compatible - contract is designed as a three-stage ‘Centipede Game’. Under this design, used as a benchmark, only players who exhibit the intrinsic motivation of trust and reciprocity are willing to cooperate. Contracts were completed when two players of this type were matched. Under the second - incentive compatible - contract, designed as ‘Indenture Game’, the share of cooperative outcomes was almost tripled indicating that reciprocal and selfish types of players were motivated to cooperate in the Indenture Game.

Abstract: Reciprocity seems to be the decisive behavioral rule which results in successful cooperation or deterrence. In this paper, a dynamic model is proposed where reciprocity causes changes in altruistic (or malevolent) ties. Steady states exist but are not unique. Often general cooperation (solidarity) or a situation of a war of each against all others are possible states. In an example, the evolutionary stable strength of solidarity actions is derived.

Abstract: In enforcing policy measures under incomplete information neither an individual nor a collective penalty may generate sufficient incentive compatibility. Individual monitoring may be avoided, while collective penalties may lead to multiple Nash-equilibria. In this paper it is shown that by combining elements of both kind of penalties these problems are solved: circumventing monitoring devices does not pay and multiple Nash-equilibria are excluded. Socially optimal behavior is selected as unique Nash-equilibrium.

Abstract: The usual analysis of monopolistic markets focuses merely on the seller´s behavior. In this paper, we interpret the relationship between seller and buyers as a multiple Ultimatum Bargaining Game. We show that a profit maximizing monopolist may not sell at Cournot Price. When buyers are committed to reject price offers leading to an unfair split of the surplus, a monopolist will have to reduce the sales price substantially. However, as the number of consumers increases the common propensity to punish a monopolist for charging Cournot Prices is similar to the private provision of a public good. Therefore, in the case of many consumers, price taking behavior might emerge unless there are strong enough solidarity effects among the consumers.

Abstract: Unregulated credit markets will not finance the majority of unemployed people when these aim to receive a loan for running their own business. In the US an optimal policy mix reduces the entry barriers such that the most promising self-employment business-plans are self-selected and financed via a secondary credit market. By this tool workless persons get a second chance which opens the possibility for self-employment. In Germany a similar approach is missing. The existing policy tools in the finance area are not designed to open a second chance.

Abstract: A series of experiments compares bargaining behavior in a Rubinstein game under three different settings: no arbitration, conventional and final offer arbitration. Under no arbitration disputes with zero payoffs were around 10%, while the pie was equally split in less than half of the cases. Under conventional arbitration - where the arbitrator is free in choosing his award - every third negotiation ended in dispute giving incidence for a modified chilling effect. Under final offer arbitration – where the arbitrator has to award to the bargainers either one of their final offers - there was only a small increase of disputes while equal split agreements have doubled to 80%, an outcome which can be described as ’destiny effect’. The experiment shows final offer arbitration, though having lower dispute rates, to interfere more with bargaining behavior than conventional arbitration where the bargaining behavior was similar to the no-arbitration treatment. Under final offer arbitration, negotiators adjust their bargaining strategy to the arbitrator´s expected award.

Abstract: The aim of Kritikos and Bolle [1998] was to analyze the institution of the Indenture Game within today´s institutional setting. Unfortunately, Holt bases his rejoinder on a historical occurrence with a different institutional context. This explains why his rejoinder is inconsistent.