nep-cta New Economics Papers
on All new papers
Issue of 2014‒09‒08
ten papers chosen by
Simona Fabrizi
Massey University

  1. Delayed Verification Mechanism for Dynamic Implementation By Olga Gorelkina
  2. Separating equilibrium in quasi-linear signaling games By Lee J.; Müller R.J.; Vermeulen A.J.
  3. Learning Tastes Through Social Interaction By Alice Hsiaw
  4. Get Rid of Unanimity: The Superiority of Majority Rule with Veto Power By Laurent Bouton; Aniol Llorente-Saguer; Fr�d�ric Malherbe
  5. Precluding Collusion in the Vickrey Auction By Olga Gorelkina
  6. The Signaling Role of Corporate Social Responsibility By Blumkin, Tomer; Margalioth, Yoram; Sharoni, Adi
  7. Handing Out Guns at a Knife Fight: Behavioral Limitations of Subgame-Perfect Implementation By Fehr, Ernst; Powell, Michael; Wilkening, Tom
  8. Sequential lending with dynamic joint liability in micro-finance By Shyamal Chowdhury; Prabal Roy Chowdhury; Kunal Sengupta
  9. Environmental Aspects of Resource Extraction Contracts By Hanna Krings
  10. Asymmetry of Information within Family Networks By De Weerdt, Joachim; Genicot, Garance; Mesnard, Alice

  1. By: Olga Gorelkina (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper introduces a virtually efficient mechanism in a setting with sequentially arriving agents who hold informative signals about future types. To reveal the information the principal organises betting on future type reports. An agent’s betting reward depends on how accurately the prior updated on his report predicts the type reports observed in the following period. The mechanism satisfies participation constraints and generates no deficit after any reported history.
    Keywords: Dynamic mechanisms, scoring rule, Bayesian learning, conjugate priors
    JEL: D71 D82 D84 D61
    Date: 2014–08
  2. By: Lee J.; Müller R.J.; Vermeulen A.J. (GSBE)
    Abstract: Using a network approach we provide a characterization of a separating equilibrium for standard signaling games where the senders payoff function is quasi-linear. Given a strategy of the sender, we construct a network where the node set and the length between two nodes are the set of the senders type and the difference of signaling costs, respectively. Construction of a separating equilibrium is then equivalent to constructing the length between two nodes in the network under the condition that the response of the receiver is a node potential.We show that, when the set of the senders type is finite, the collection of separating signaling functions forms a lower bounded lattice. We describe an algorithm to compute separating equilibrium strategies. When the set of the senders type is a real interval, shortest path lengths are antisymmetric and a node potential is unique up to a constant. A strategy of the sender in a separating equilibrium is characterized by some differential equation with a unique solution.Our results can be readily applied to a broad range of economic situations, such as the standard job market signaling model of Spence a model not captured by earlier papers and principal-agent models with production.
    Keywords: Noncooperative Games; Asymmetric and Private Information; Mechanism Design;
    JEL: C72 D82
    Date: 2014
  3. By: Alice Hsiaw (Department of Economics and Accounting, College of the Holy Cross)
    Abstract: This paper offers an information-based model of social interaction, and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly. Agents have uncertainty over their preferences but are aware that they are correlated with others’, so there exists an incentive to communicate with others in the population. When a firm’s good can be bundled with a coordination mechanism for its consumers, its value is endogenously determined due to a consumption externality. Although this mechanism increases total surplus, it is underprovided and consumer surplus decreases.
    Date: 2014–08
  4. By: Laurent Bouton (Georgetown University and NBER); Aniol Llorente-Saguer (Queen Mary University of London); Fr�d�ric Malherbe (London Business School)
    Abstract: A group of agents wants to reform the status quo if and only if this is Pareto improving. Agents have private information and may have common or private objectives, which creates a tension between information aggregation and minority protection. We analyze a simple voting system - majority rule with veto power (Veto) - that essentially resolves this tension, for it combines the advantageous properties of both majority and unanimity rules. We argue that our results shed new light on the evolution of voting rules in the EU institutions and could help to inform debates about policy reforms in cases such as juries in the US.
    Keywords: Unanimity rule, Veto power, Information aggregation, Pareto criterion, Constructive abstention
    JEL: D70
    Date: 2014–08
  5. By: Olga Gorelkina (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper studies collusion in one-shot auctions, where a buyer can bribe his competitors into lowering their bids. We modify the single-unit Vickrey auction to incite deviations from the designated-winner scenario and thus undermine collusion. The construction of mechanism does not require the knowledge of colluders’ identities or distributions of valuations, in which sense it is entirely detail-free.
    Keywords: Bidder collusion, detail-free auctions, Vickrey auction
    JEL: D82 C72 D44
    Date: 2014–08
  6. By: Blumkin, Tomer (Department of Economics, Ben-Gurion University); Margalioth, Yoram (The Buchmann Faculty of Law, Tel-Aviv University); Sharoni, Adi (Department of Economics, Ben-Gurion University)
    Abstract: We examine the role of CSR as a mechanism for private provision of public goods. We argue that corporations are using CSR to signal high product quality and demonstrate that signaling gives rise to an excessive level of contributions that offsets the positive externality, which causes the under-provision of public goods. We analyze the tax policy implications of such assertion. Accounting for this offset would call for a decrease in (and potentially elimination of) the subsidy offered to corporations engaged in CSR activities.
    Keywords: Signaling; Corporate Social Responsibility; Public Goods; Pigouvian Taxation *
    JEL: H20 H40 K30
    Date: 2014–07–30
  7. By: Fehr, Ernst (University of Zurich); Powell, Michael (Northwestern University); Wilkening, Tom (University of Melbourne)
    Abstract: The assumption that payoff-relevant information is observable but not verifiable is important for many core results in contract, organizational and institutional economics. However, subgame-perfect implementation (SPI) mechanisms – which are based on off-equilibrium arbitration clauses that impose fines for lying and the inappropriate use of arbitration – can be used to render payoff-relevant observable information verifiable. Thus, if SPI mechanisms work as predicted, they undermine the foundations of important economic results based on the observable but non-verifiable assumption. Empirical evidence on the effectiveness of SPI mechanisms is, however, scarce. In this paper we show experimentally that SPI mechanisms have severe behavioral limitations. They induce retaliation against legitimate uses of arbitration and thus make the parties reluctant to trigger arbitration. The inconsistent use of arbitration eliminates the incentives to take first-best actions and leads to costly disagreements such that individuals – if given the choice – opt out of the mechanism in the majority of the cases. Incentive compatible redesigns of the mechanism solve some of these problems but generate new ones such that the overall performance of the redesigned mechanisms remains low. Our results indicate that there is little hope for SPI mechanisms to solve verifiability problems unless they are made retaliation-proof and, more generally, robust to other-regarding preferences.
    Keywords: implementation theory, incomplete contracts, experiments
    JEL: D23 D71 D86 C92
    Date: 2014–08
  8. By: Shyamal Chowdhury; Prabal Roy Chowdhury; Kunal Sengupta
    Abstract: This paper develops a theory of sequential lending in groups in micro-finance that centers on the notion of dynamic incentives, in particular the simple idea that default incentives should be relatively uniformly distributed across time. In a framework that allows project returns to accrue over time (rather than at a single point), as well as strategic default, we show that sequential lending can help resolve problems arising out of coordinated default, thus improving project efficiency vis-a-vis individual lending. Inter alia, we also provide a justification for the use of frequent repayment schemes, as well as demonstrate that, depending on how it is manifested, social capital has implications for project efficiency and borrower default. We then examine the optimal choices for the MFI, demonstrating that the MFI opts for higher project sizes under group lending with limited collusion, and also provide a plausible explanation of the transition from group to individual lending.
    Keywords: collusion; coordinated default; dynamic incentives; group-lending; micro- finance; sequential financing; social capital; social sanctions
    Date: 2014–08
  9. By: Hanna Krings (University of Aachen)
    Abstract: This paper analyzes resource partnerships and their influence on the environmental quality in a resource-rich country by introducing incomplete contracts, imperfect property rights protection, and a lack of valuation for the environment by the government in the South. Employing numerical simulations, I determine the equilibrium extraction rate, the applied extraction technology, and the environmental quality in dependence of the state of democracy in the resource-rich country. In contrast to what one might expect, under certain circumstances it can be environmentally beneficial to have incomplete contracts that induce the utilization of a suboptimal technology for resource extraction. Further, reducing the holdup problem by shifting bargaining power to the North, is only desirable if the environmental quality in- creases with a better extraction technology.
    Keywords: Resource Extraction, Environment, North-South Trade
    JEL: F18 Q37 Q56
    Date: 2014
  10. By: De Weerdt, Joachim (Economic Development Initiatives); Genicot, Garance (Georgetown University); Mesnard, Alice (City University London)
    Abstract: This paper studies asymmetry of information and transfers within a unique data set of 712 extended family networks from Tanzania. Using cross-reports on asset holdings, we construct measures of misperception of income among all pairs of households belonging to the same network. We show that there is significant asymmetry of information and no evidence of major systematic over-evaluation or under-evaluation of income in our data, although there is a slight over-evaluation on the part of migrants regarding non-migrants. We develop a static model of asymmetric information that contrasts altruism, pressure and exchange as motives to transfer. The model makes predictions about the correlations between misperceptions and transfers under these competing explanations. Testing these predictions in the data gives support to the model of transfers under pressure or an exchange motive with the recipient holding all the bargaining power.
    Keywords: asymmetric information, transfers, pressure, exchange, altruism
    JEL: O12 O15 D12
    Date: 2014–08

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