Abstract not found

Many researchers are concerned about the appropriateness of traditional research approaches and methodologies in the analysis of a digital economy. Using the Experimental Digital Economy (EDE), a new technology infrastructure that we have developed for a digital economy, we propose a new research methodology, a virtual field experiment, which makes it feasible and effective to test research hypotheses with the desired level of experimental controls and to probe successful business strategies in a real business world. Three summaries of research on a digital economy, like the efficiency of a digital market, the effectiveness of digital markets (posted-price markets and auctions), and the impact of quality certifications, address the implications of virtual field experiments. D 2002 Elsevier Science B.V. All rights reserved.

The natural experiment of voucher privatization in the Czech Republic is used to test whether prices that were adjusted in a limited number of discrete steps based primarily on the extent of excess demand or supply are able to fully reflect both public and private information. Early in the process, when prices reflected primarily book values determined from communist-era accounts, neither public nor private information was reflected in prices. Such information, however, did affect players ' bids. As the process continued and prices were adjusted in response to excess demand and supply, the market price reflected all available information, both public and private. This finding provides strong evidence supporting the conclusions of previous limited laboratory experiments that markets provide efficient price signals, even in the presence of a large number of both informed and uninformed traders. JEL classification:

Dubofsky, Donald House, Peter Locke, Shyam Sunder and participants in a seminar at the Commodity Futures Trading Commission and in sessions at the Financial Management Association and Economic Science Association meetings. Some of Dwyer’s initial work on this paper was completed while he was a visiting financial economist at the Commodity Futures Trading Commission. Gillette’s initial work on this paper was completed while she was a visiting scholar at the Federal Reserve Bank of Atlanta and she acknowledges research assistance from the Federal Reserve Bank of Atlanta and the

The futures market in West Texas Intermediate crude oil was introduced in 1983 with a posted-price cash market in which the posted price changed a few times a year. By 2002, the cash price changed almost daily. Evidence from producers ’ invoices shows that this initially low frequency of price changes reflects transactions prices. Using experiments, we show that the introduction of a futures market with prices set in auctions can aggregate information and result in greater price volatility in a spot market that has prices set by posted bids. This evidence supports the proposition that information not previously aggregated into the cash price for crude oil can explain greater variability of the cash price after the opening of the futures market. Does a futures market increase the variability of cash market prices, and if it does, is that good or bad? Futures markets can affect spot markets by allowing producers to hedge, providing liquidity to holders of the commodity, providing information about the future price, and facilitating coordination of producers ' decisions about future production. On a less positive note, there have been long-standing claims that futures markets adversely affect the spot market by increasing the variance of the spot price and producers ’ profits. Empirical studies have found mixed results on whether the spot market price varies more when there is a futures market (Mayhew 2000).