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on Contract Theory and Applications |
| By: | Andrea Gallice |
| Abstract: | A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders. |
| Keywords: | Lowest unique bid auctions; Signals; Bounded rationality. |
| JEL: | D44 C72 D82 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:112&r=cta |
| By: | Andrea Galeotti; Christian Ghiglino; Francesco Squintani |
| Abstract: | We introduce a tractable model of cheap talk among players located on networks. In our model, a player can send a message to another player if and only if he is linked to him. We derive a sharp equilibrium and welfare characterization which reveals two basic insights. In equilibrium, the willingness of a player to communicate with a neighbor decreases with the number of opponents who communicate with the neighbor. The ex-ante equilibrium welfare of every player increases not only with the number of truthful reports transmitted in the network, but also when truthful reports are more evenly distributed across players. We apply our findings to the analysis of homophily in communities, to organization design, and to the study of endogenous network formation. Communication across communities decreases as communities become larger, and communication may be asymmetric: From large communities to small ones. In our set up, fully decentralized organizations maximize all players’ welfare. Further, decentralized networks, where information may flow asymmetrically, endogenously form in equilibrium. Finally, we introduce the possibility of public communication in networks, and identify conditions under which public communication Pareto dominates private communication. |
| Date: | 2009–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:668&r=cta |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis à vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems. |
| Keywords: | Acquisitions; Entrepreneurship; Innovation; Venture Capital |
| JEL: | G24 L10 L20 M13 O30 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0783&r=cta |
| By: | Jorge M. Streb; Gustavo F. Torrens |
| Abstract: | Political budget cycles (PBCs) result from the credibility problems that office-motivated incumbents face under asymmetric information, due to their temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit debt, crucial for aggregate PBCs to take place. Since the budget process under separation of powers typically requires that the legislature authorize new debt, divided government can make these fisscal rules credible. Commitment is undermined either by unified government or by imperfect compliance with the budget law. When divided government affects efficiency, voters must trade off electoral distortions and government competence. |
| Keywords: | political budget cycles, discretion, uniffied government, rules, credibility, separation of powers, divided government |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:395&r=cta |