Browsing by Author "Chen, Yan"

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Constitutional Secession Clauses
(1993) Chen, Yan; Ordeshook, Peter C.
"Taking the view that constitutions are devices whereby people coordinate to specific equilibria in circumstances that allow multiple equilibria, we show that a constitutional secession clause can serve as such a device and, therefore, that such a clause is more than an empty promise or an ineffectual threat. Employing a simple three-person recursive game, we establish that under certain conditions, this game possesses two equilibria - one in which a disadvantaged federal unit secedes and is not punished by the other units in the federation, and a second equilibrium in which this unit does not secede but is punished if it chooses to do so."
The Groves-Ledyard Mechanism: An Experimental Study of Institutional Design
(1993) Chen, Yan; Plott, Charles R.
"The Groves-Ledyard mechanism theoretically can solve the 'free-rider' problem in public good provision. Two questions are of overriding importance in implementing the mechanism. The first is related to the actual Performance of the mechanism in general. The second is the choice of a 'punishment parameter', 7, which is the only paxameter that is available for those that may want to actually use the mechanism. Thus the determination of the role of this variable on mechanism Performance is fundamental for any advances along the lines of actual implementation. In studying the Groves-Ledyard mechanism, we show that the punishment parameter, 7 plays a crucial role in the Performance of the mechanism. By using 7 = 1 and 100, we show that under the higher punishment parameter, the Groves-Ledyard equilibrium is chosen much more frequently; a higher level of the public good is provided and emciency is higher. By examining two behavioral models. we show that a higher 7 leads to an increase in the probability of an individual choosing a best response predicted by the model. The parameter, 7 alone explains nearly 70% of the data in both the Cournot and the Carlson-Auster behavioral model. We also found that convergence to Cournot behavior is faster and more stable under a high 7 than under a low 7."
Learning and Incentive Compatible Mechanisms for Public Goods Provision: An Experimental Study
(1996) Chen, Yan; Tang, Fang-Fang
"This is the first systematic experimental study of the comparative performance of two incentive compatible mechanisms for public goods provision: the Basic Quadratic mechanism by Groves and Ledyard (7 = 1 and 7 = 100) and the Paired-Difference mechanism by Walker. Both mechanisms are Nash-efficient and balanced vvith the same dimensions of message space, and the latter has one advantage over the former in that in equilibrium it is individually rational. However, our experiments demonstrate that the actual Performance of the Basic Quadratic mechanism under a high punishment parameter is far better than the Basic Quadratic mechanism under a low punishment parameter, which, in turn, is better than the Paired-Difference mechanism, evaluated in terms of System efficiency, close to Pareto optimal level of public goods provision, convergence to stage game equilibrium and stability. From this we draw some lessons for mechanism design: Standard considerations, such as incentive compatibility, individual rationality and balanced budget, are not enough to guarantee that these desirable properties can actually be obtained in a dynamic process with human subjects. Other disequilibrium aspects, such as deviation costs which impose incentives for subjects to learn to play their equilibrium strategies, and deviation sensitivity which can either amplify or diminish noise in a system, are also important to induce good dynamics and stability. To understand principles of individual learning behavior, we estimated three static and four dynamic learning models. Variants of the stimulus response models outperform the generalized fictitious play model. The comparative Performance of the three variants of the Stimulus response models are statistically indistinguishable."
Optimal Choice of Privatizing State-Owned Enterprises: A Political Economic Model
(1992) Chen, Yan
"We study the choice of a maximizing Bureaucrat over privatization policies and their effects on consumer welfare in a transition economy. We study a Bureaucrat whose objective function is maximizing a surplus budget subject to the constraint of staying in office, and a Bureaucrat who maximizes popularity/consumer welfare subject to the constraint of a balanced budget. Other things being equal, both types of Bureaucrat will privatize the sector (firms) with the least market power and the most subsidy first. This is the 'cheapest' way to privatize state- owned enterprises. Also, it is shown that it is relatively easier and faster to privatize in a less democratic society."
Veto Games: Spatial Committees under Unanimity Rule
(1993) Chen, Yan; Ordeshook, Peter C.
"There exists a large literature on two-person bargaining games and distribution games (or divide-the-dollar games) under simple majority rule, where in equilibrium a minimal winning coalition takes full advantage over everyone else. Here we extend the study to an n-person veto game where players take turns proposing policies in an n-dimensional policy space and everybody has a veto over changes in the status quo. Briefly, we find a Nash equilibrium where the initial proposer offers a policy in the intersection of the Pareto optimal set and the Pareto superior set that gives everyone their continuation values, and punishments are never implemented. Comparing the equilibrium outcomes under two different agendas - sequential recognition and random recognition - we find that there are advantages generated by the order of proposal under the sequential recognition rule. We also provide some conditions under which the players will prefer to rotate proposals rather than allow any specific policy to prevail indefinitely."