Microeconomics
http://lists.repec.orgmailman/listinfo/nep-mic
Microeconomics
2016-05-28
Efficiency in Decentralized Markets with Aggregate Uncertainty
http://d.repec.org/n?u=RePEc:cca:wpaper:453&r=mic
We study efficiency in decentralized markets with aggregate uncertainty and one-sided private information. There is a continuum of mass one of uninformed buyers and a continuum of mass one of informed sellers. Buyers and sellers are randomly and anonymously matched in pairs over time, and buyers make the offers. We show that all equilibria become efficient as trading frictions vanish.
Braz Camargo
Dino Gerardi
Lucas Maestri
2016
Information Disclosure under Strategy-proof Voting Rules
http://d.repec.org/n?u=RePEc:bge:wpaper:904&r=mic
We consider collective decision problems where some agents have private information about alternatives and others don't. Voting takes place under strategy-proof rules. Prior to voting, informed agents may or may not disclose their private information, thus eventually influencing the preferences of those initially uninformed. We provide general conditions on the voting rules guaranteeing that informed agents will always be induced to disclose what they know. In particular, we apply this general result to environments where agent's preferences are restricted to be single-peaked or separable, and characterize the strategy-proof rules that ensure information disclosure in these settings.
Salvador Barberà
Antonio Nicolò
strategy-proofness, information disclosure, voting rules, Single-peaked preferences, Committees
2016-05
Moral Hazard, Bertrand Competition, and Natural Monopoly
http://d.repec.org/n?u=RePEc:pra:mprapa:70966&r=mic
In the traditional model of Bertrand price competition among symmetric firms, there is no restriction on the number of firms that are active in equilibrium. A symmetric equilibrium exists with the different firms sharing the market. I show that this does not hold if we preserve the symmetry between firms but introduce moral hazard with a customer-sensitive probability of exposure; competition necessarily results in a natural monopoly with only one active firm. Sequential price announcements and early adoption are some equilibrium selection mechanisms that help to pin down the identity of the natural monopolist. If we modify the standard Bertrand assumptions to introduce decreasing returns to scale, a natural oligopoly will emerge instead of a natural monopoly. The insights of the basic model are robust to many extensions.
Guha, Brishti
Bertrand competition, active firms, moral hazard, natural monopoly
2016-04-26
Generalized Subjective Lexicographic Expected Utility Representation
http://d.repec.org/n?u=RePEc:arx:papers:1605.07680&r=mic
We provide foundations for decisions in face of unlikely events by extending the standard framework of Savage to include preferences indexed by a family of events. We derive a subjective lexicographic expected utility representation which allows for infinitely many lexicographically ordered levels of events and for event-dependent attitudes toward risk. Our model thus provides foundations for models in finance that rely on different attitudes toward risk (e.g. Skiadas [9]) and for off-equilibrium reasonings in infinite dynamic games, thus extending and generalizing the analysis in Blume, Brandenburger and Dekel [3].
Hugo Cruz-Sanchez
2016-05
Coalitional Fairness with Participation Rates
http://d.repec.org/n?u=RePEc:sef:csefwp:442&r=mic
This paper investigates coalitional fairness in pure exchange economies with asymmetric information. We study allocations of resources which are immune from envy when comparisons take place between coalitions. The model allows negligible and non-negligible traders, only partially informed about the true state of nature at the time of consumption, to exchange any number, possibly infinite, of commodities. Our analysis is based on the Aubin approach to coalitions and cooperation, i.e. on a notion of cooperation allowing traders to take part in one or more coalitions simultaneously employing only shares of their endowments (participation rates). We introduce and study in detail the notion of coalition fairness with participation rates (or Aubin c-fairness) and show that flexibility in cooperation permits to recover the failure of fairness properties of equilibrium allocations. Our results provide applications to several market outcomes (ex-post core, fine core, ex-post competitive equilibria, rational expectations equilibria) and emphasize the consequences of the convexification effect due to participation rates for models with large traders and infinitely many commodities.
Achille Basile
Maria Gabriella Graziano
Ciro Tarantino
Aubin coalitions; Fairness; Asymmetric information; Core; Rational expectations equilibria; Lyapunov convexity theorem
2016-05-17
Preferences and Social Influence
http://d.repec.org/n?u=RePEc:boc:bocoec:912&r=mic
Interaction between decision makers may affect their preferences. We consider a setup in which each individual is characterized by two sets of preferences: his unchanged core preferences and his behavioral preferences. Each individual has a social influence function that determines his behavioral preferences given his core preferences and the behavioral preferences of other individuals in his group. Decisions are made according to behavioral preferences. The paper considers different properties of these social influence functions and their effect on equilibrium behavior. We illustrate the applicability of our model by considering decision making by a committee that has a deliberation stage prior to voting.
Chaim Fershtman
Uzi Segal
Risk aversion, social influence, behavioral preferences
2016-05-20
Buying frenzies in durable-goods markets
http://d.repec.org/n?u=RePEc:ehl:lserod:56704&r=mic
We explain why a durable-goods monopolist would like to create a shortage during the launch phase of a new product. We argue that this incentive arises from the presence of a second-hand market and uncertainty about consumers׳ willingness to pay for the good. Consumers are heterogeneous and initially uninformed about their valuations but learn about them over time. Given demand uncertainty, first period sales may result in misallocation and lead to active trading on the secondary market after the uncertainty is resolved. Trading on the second-hand market will generate additional surplus. This surplus can be captured by the monopolist ex-ante because consumers are forward-looking, and the price they are willing to pay incorporates the product׳s resale value. As a consequence, when selling to uninformed consumers, the monopolist faces the trade-off between more sales today and a lower profit margin. Specifically, because the product׳s resale value is negatively related to the stock of the good in the second-hand market, selling more units today will result in a lower equilibrium price of the product. Therefore, the monopolist may find it optimal to create a shortage and ration consumers to the second period. We characterize conditions under which the monopolist would like to restrict sales and generate buying frenzies.
Ting Liu
Pasquale Schiraldi
buying frenzies; second-hand market; durable goods; consumer uncertainty
2014-08
Characterizing Revealing and Arbitrage-Free Financial Markets
http://d.repec.org/n?u=RePEc:tac:wpaper:2015-2016_9&r=mic
Radner (Econometrica 47: 655-678, 1979) introduces a general equilibrium model of asymmetric information where "agents have a 'model' or 'expectations' of how equilibrium prices are determined". They would only infer private information of other agents from comparing actual prices and price forecasts with their theoritical values at a price revealing equilibrium. De Boisdeffre (Economic Theory Bulletin 4(1), 2016) shows that agents having private anticipations and no price model may still update their beliefs from observing trade on financial markets, until all arbitrage is precluded. The informational refinement consists in successively eliminating anticipations, which would do on actual markets. This model is consistent with all kinds of assets and uncountably many forecasts. We now study markets, which preclude arbitrage, and show the information markets may convey depends on the span of asset payoffs in agents' commonly expected states. We provide conditions, under which markets are non informative, or, typically, partially of fully revealing.
Lionel de BOISDEFFRE
anticipations, inference, perfect foresight, rational expectations, financial markets, asymmetric information, arbitrage
2016-05
A Folk Theorem with Codes of Conduct
http://d.repec.org/n?u=RePEc:cla:levarc:786969000000001323&r=mic
Juan I Block
David K Levine
2016-05-15
Candidate valence in a spatial model with entry
http://d.repec.org/n?u=RePEc:ucy:cypeua:05-2016&r=mic
This paper studies electoral competition between two purely office-motivated and heterogeneous (in terms of valence) established candidates when entry of a lower-valence third candidate is anticipated. In this model, when the valence asymmetries among candidates are not very large, there always exists an essentially unique pure strategy equilibrium and it is such that: a) the high valence established candidate offers a more moderate platform than the low valence established candidate, b) the entrant locates between the two established candidates and nearer to the high valence established candidate and, surprisingly, c) both established candidates receive equal vote-shares. We also show that the platforms that the two established candidates choose in this equilibrium constitute a local equilibrium in the extension of the game in which the third candidate is expected to enter the race with any non-degenerate probability.
Dimitrios Xefteris
electoral competition; entry; candidate valence
2016-05
Competition for the access to and use of information in networks
http://d.repec.org/n?u=RePEc:mse:cesdoc:16033&r=mic
In a network formation framework, where payoffs reflect an agent's ability to access information from direct and indirect contacts, we integrate negative externalities due to connectivity associated with two types of effects: competition for the access to information, and rivalrous use of information. We consider two separate models to capture the first and the second situations, respectively. In the first model, we assume that information is a non-rivalrous good but that there is competition for the access to information, for example because an agent with many contacts must share his time between them and thus has fewer opportunities to pass on information to each particular contact. The main idea is that the probability that each neighbor receives the information decreases with the number of contacts the sender has. In the second model, we assume that there is not competition for the access to information but that the use of information is rivalrous. In this case, it is assumed that when people receive the information before me, the harmful effect is greater than when others receive the information at the same time as myself. Our results concern pairwise stability and efficiency in both models and allow us to compare and contrast the effects of two kinds of competition for information
Philipp Möhlmeier
Agnieszka Rusinowska
Emily Tanimura
network formation; connections model; information; negative externalities; pairwise stability; efficiency
2016-04
Excessive Competition for Headline Prices
http://d.repec.org/n?u=RePEc:cpr:ceprdp:11284&r=mic
When firms' shrouding of charges, as in Gabaix and Laibson (2006), meets with consumers' salient thinking, as in Bordalo et al. (2013), this can have severe welfare implications. The ensuing excessive competition for headline prices tends to inefficiently bias consumers' choice towards low-quality products, which is compounded when firms react and reduce quality beyond what would be cost efficient. As more intense shopping leads to a greater pass through of shrouded charges into lower headline prices, which aggravates the problem, competition policy is no substitute for consumer protection policy. While in our model all consumers are potential victims of salient thinking and shrouded charges, salient thinking becomes effective only for those who are attentive to different offers. Attentive consumers are likely to show ex-post regret and they can be ex-ante worse off, even though their choice set is larger. The combination of shrouding and salient thinking can sufficiently disadvantage high-quality firms so as to make them willing to educate consumers and unshroud all charges. While there is no unshrouding on equilibrium, high-quality firms' threat of unshrouding may sufficiently discipline firms to make efficient product choices.
Inderst, Roman
Obradovits, Martin
attention; hidden fees; price competition; salience; shopping; shrouded charges; unshrouding
2016-05
When perfectionism becomes willpower
http://d.repec.org/n?u=RePEc:bol:bodewp:wp1050&r=mic
Perfectionism can be healthy: striving for perfection requires the ability to selfregulate, namely willpower. This paper formalizes the intuitive relation between healthy perfectionism and willpower in the presence of temptation. The value of a menu of options for an individual with limited willpower corresponds to the lower bound of the value assigned to the same menu by a perfectionist, when temptation and perfectionism intensities are free to vary. Moreover, the higher the perfectionism strive, the higher the willpower. The relation between overwhelming temptation and the Strotz model is a particular case of the result. When there is uncertainty about temptation, we generalize Dekel and Lipman (2012) providing conditions such that a preference is represented by a random willpower representation, if and only if, it has an equivalent random perfectionism representation.
D. Pennesi
2016-01
Investment, Adverse Selection and Optimal Redistributive Taxation
http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16005&r=mic
I study a credit market with adverse selection as a signalling game. I show that in the least-costly separating equilibrium, entrepreneurs of high-quality projects may over-or under-invest compared to the social optimum to signal their type. I then examine a simple budget-balanced tax-subsidy scheme applied by the government. At a first sight, the tax-subsidy scheme seems to benefit entrepreneurs of low-quality projects and harm entrepreneurs of high-quality projects because the former are cross-subsidised by the latter. Nonetheless, this result does not necessarily hold if entrepreneurs can pledge the subsidy as collateral. In that case, taxes can improve social welfare by either decreasing or increasing aggregate investment depending on whether entrepreneurs of high-quality projects over-or under-invest in equilibrium. Keywords : Adverse selection investment taxes welfare
Dosis, Anastasios
Adverse selection; investment; taxes; welfare;
2016-02-17
Recursive utility maximization under partial information
http://d.repec.org/n?u=RePEc:arx:papers:1605.05802&r=mic
This paper concerns the recursive utility maximization problem under partial information. We first transform our problem under partial information into the one under full information. When the generator of the recursive utility is concave, we adopt the variational formulation of the recursive utility which leads to a stochastic game problem and a characterization of the saddle point of the game is obtained. Then, we study the K-ignorance case and explicit saddle points of several examples are obtained. At last, when the generator of the recursive utility is smooth, we employ the terminal perturbation method to characterize the optimal terminal wealth.
Shaolin Ji
Xiaomin Shi
2016-05
Coalitional Extreme Desirability in Finitely Additive Economies with Asymmetric Information
http://d.repec.org/n?u=RePEc:pra:mprapa:71084&r=mic
We prove a coalitional core-Walras equivalence theorem for an asymmetric information exchange economy with a finitely additive measure space of agents, finitely many states of nature, and an infinite dimensional commodity space having the Radon-Nikodym property and whose positive cone has possibly empty interior. The result is based on a new cone condition, firstly developed in Centrone and Martellotti (2015), called coalitional extreme desirability. As a consequence, we also derive a new individualistic core-Walras equivalence result.
Bhowmik, Anuj
Centrone, Francesca
Martellotti, Anna
Asymmetric information; Coalitional economies; Core-Walras equivalence; Extremely desirable commodity; Finitely additive measure; Walrasian expectation equilibria; Private core; Radon-Nikodym property.
2016-05-04
The Political Agenda Effect and State Centralization
http://d.repec.org/n?u=RePEc:nbr:nberwo:22250&r=mic
We provide a potential explanation for the absence of, and unwillingness to create, centralized power in the hands of a national state based on the political agenda effect. State centralization induces citizens of different backgrounds, interests, regions or ethnicities to coordinate their demands in the direction of more general-interest public goods, and away from parochial transfers. This political agenda effect raises the effectiveness of citizen demands and induces them to increase their investments in conflict capacity. In the absence of state centralization, citizens do not necessarily band together because of another force, the escalation effect, which refers to the fact that elites from different regions will join forces in response to the citizens doing so. Such escalation might hurt the citizen groups that have already solved their collective action problem (though it will benefit others). Anticipating the interplay of the political agenda and escalation effects, under some parameter configurations, political elites strategically opt for a non-centralized state. We show how the model generates non-monotonic comparative statics in response to the increase in the value or effectiveness of public goods (so that centralized states and public good provision are absent precisely when they are more beneficial for society). We also suggest how the formation of a social democratic party may sometimes induce state centralization (by removing the commitment value of a non-centralized state), and how elites may sometimes prefer partial state centralization.
Daron Acemoglu
James A. Robinson
Ragnar Torvik
2016-05
Determining influential models
http://d.repec.org/n?u=RePEc:mse:cesdoc:16038&r=mic
We consider a model of opinion formation based on aggregation functions. Each player modifies his opinon by arbitrarily aggregating the current opinion of all players. A player is influential for another player if the opinion of the first one matters for the latter. A generalization of influential player to a coalition whose opinion matters for a player is called influential coalition. Influential players (coalitions) can be graphically represented by the graph (hypergraph) of influence, and the convergence analysis is based on properties of the hypergraphs of influence. In the paper, we focus on the practical issues of applicability of the model w.r.t. the standard opinion formation framework driven by the Markov chain theory. For the qualitative analysis of convergence, knowing the aggregation functions of the players is not required, but one only needs to know the influential coalitions for every player. We propose simple algorithms that permit to fully determine the influential coalitions. We distinguish three cases: the symmetric decomposable model, the anonymous model, and the general model
Michel Grabisch
Agnieszka Rusinowska
social network; opinion formation; aggregation function; influential coalition; algorithm
2016-04
Coordinating R&D efforts for quality improvement along a supply chain
http://d.repec.org/n?u=RePEc:bol:bodewp:wp1054&r=mic
The optimal design of two-part tariffs is investigated in a dynamic model where two firms belonging to the same supply chain invest in R&D activities to increase the quality of the final product. It is shown that the replication of the vertically integrated monopolist’s performance can be attained using a TPT in which the fee is a linear function of either the upstream R&D effort or product quality itself. The possibility of relying on R&D figures appearing in the upstream firm’s balance sheet is desirable as quality enhancement might not be observable or verifiable.
L. Lambertini
2016-02
Existence of financial equilibrium with differential information: the no-arbitrage characterization
http://d.repec.org/n?u=RePEc:mse:cesdoc:16025&r=mic
In the classical approach to asymmetric information, agents are all endowed with a price model à la Radner (Econometrica 47: 655-678, 1979). That is, they are assumed to know exactly how equilibrium prices are determined and would only infer information from markets with reference to that price model. Radner (1979) showed that, under asymmetric information, equilibrium only existed generically in this setting. We now drop that so-called "rational expectation" assumption and study the existence of financial equilibrium when assets are numeraire. We show the existence of equilibrium is, then, characterized by the no-arbitrage condition on financial markets, as in De Boisdeffre (Econ Theory 31: 255-269, 2007), where assets are nominal. This result extends Geanakoplos-Polemarchakis' (Essays in Honor of K.J. Arrow, Starr & Starrett ed., Cambridge UP Vol. 3, 65-96, 1986) to the case of asymmetric information. Contrasting with Radner's, it shows that asymmetric and asymmetric information economies can be treated as two applications of a same model, where they share similar properties
Lionel De Boisdeffre
general equilibrium; asymmetric information; arbitrage; existence
2016-03
Democracy for Polarized Committees: The Tale of Blotto's Lieutenants
http://d.repec.org/n?u=RePEc:nbr:nberwo:22231&r=mic
In polarized committees, majority voting disenfranchises the minority. Allowing voters to spend freely a fixed budget of votes over multiple issues restores some minority power. However, it also creates a complex strategic scenario: a hide-and-seek game between majority and minority voters that corresponds to a decentralized version of the Colonel Blotto game. We offer theoretical results and bring the game to the laboratory. The minority wins as frequently as theory predicts, despite subjects deviating from equilibrium strategies. Because subjects understand the logic of the game — minority voters must concentrate votes unpredictably — the exact choices are of secondary importance, a result that vouches for the robustness of the voting rule to strategic mistakes.
Alessandra Casella
Jean Francois Laslier
Antonin Macé
2016-05
Supermodular Correspondences
http://d.repec.org/n?u=RePEc:oxf:wpaper:795&r=mic
Abstract: Supermodular functions are widely used in economics to model complementarity. For example, a firm's production function is supermodular if the marginal productivity of each factor increases with the usage of other factors. This in turn guarantees that when the price of a factor falls, the firm's demand for all factors increase. We generalise the notion of supermodular functions so the concept is also applicable to correspondences. Supermodular correspondences arise naturally in a variety of settings. To illustrate the use of the concept and our results, we apply them to study, amongst other things, the optimising behaviour of firms producing multiple output goods and of agents with ambiguity aversion.
Pawel Dziewulski
John Quah
supermodular correspondence, monotone comparative statics, multi- output production, ambiguity aversion
2016-04-15
Convex Hedging in Incomplete Markets
http://d.repec.org/n?u=RePEc:arx:papers:1604.08070&r=mic
In incomplete financial markets not every contingent claim can be replicated by a self-financing strategy. The risk of the resulting shortfall can be measured by convex risk measures, recently introduced by F\"ollmer, Schied (2002). The dynamic optimization problem of finding a self-financing strategy that minimizes the convex risk of the shortfall can be split into a static optimization problem and a representation problem. It follows that the optimal strategy consists in superhedging the modified claim $\widetilde{\varphi}H$, where $H$ is the payoff of the claim and $\widetilde{\varphi}$ is the solution of the static optimization problem, the optimal randomized test. In this paper, we will deduce necessary and sufficient optimality conditions for the static problem using convex duality methods. The solution of the static optimization problem turns out to be a randomized test with a typical $0$-$1$-structure.
Birgit Rudloff
2016-04