Division of the Humanities and Social Sciences

FUNDAMENTALS (all laboratory experimental)

1. Market Adjustment
   1.  Do large, multiple market systems equilibrate in some sense?
   2. If big systems do equilibrate, what is the process - how does it happen?
   
   

   The largest studied to date are general equilibrium systems with the major characteristics of international trade, meaning multiple countries, multiple production functions, multiple inputs, etc. The general competitive equilibrium works well to predict the asymptote of prices and allocations. Additional experiments focus on how markets react to risk where the general competitive equilibrium model also works well. The process at work in all cases appears to be the classical adjustment model in which the rates of changes of prices (scaled by price) is proportional to excess demand. We have hints that in the stable equilibrium cases, the adjustment process might incorporate aspects of the inverse of the Jacobian (a type of Newton adjustment process).

2. Information Transmission and Integration
   1. Does information become integrated into prices?
   2. If so how does it happen?
   
   

   The answer to the question is yes (depending on the market institutions). In the case of multiple "insiders", the process involves competition among the insiders that results in insiders submitting limit orders early in a process. These limit orders carry the information and formulate the process through which the information becomes aggregated and simultaneously transferred from insiders to non-insiders.

APPLICATIONS (all experimental)

1. Design of exotic mechanisms - Smart Market Applications

   Continuous combinatorial auction processes, both one sided and two sided are being applied to large scale field situations (Ford auction of leased vehicles to dealers, proposed sale of aquaculture by the Victoria government, Australia). Another project, a mechanism for coordinating profit centers to deal with the Corporate Average Fuel Efficiency regulation, is on its way to implementation inside Ford.

   The development of information aggregation mechanisms is continuing along successful lines. These are types of paramutuel betting processes that are used to collect information that is widely distributed in small amounts. Applications in the Australian film industry with industry participants predicting the opening weekend box office receipts of Shrek II, Spiderman II and Fahrenheit 911have been completed. In addition, the National Association of Business Economists have used the system to predict employment gains. Plans are underway to continue both applications.

2. Regulation

   Power producers have argued in the U.S. and Europe that large utilities should make public their demand for power before conducting procurement auctions. This is a highly contested issue by the utilities. Experiments have demonstrated that such a policy is not in the interest of the electricity consuming public.

   Congestion on the Mississippi River locks was explored experimentally with a recommendation for the implementation of a system of marketable priority permits for lock access was designed and experimentally tested. It is currently under consideration by the Corps of Engineers.