nep-mic New Economics Papers
on Microeconomics
Issue of 2004‒12‒12
forty-one papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The Electricity Market Game By Stephen Spear
  2. Spatial Competition in the Network Television Industry By Ronald Goettler; Ron Shachar
  3. Auctioning incentive contracts: application to welfare-to-work programs By Sander Onderstal; Pierre Koning
  4. Private interest in public tenders: no revenue, no efficiency and no social benefits By Konstantin Sonin
  5. Optimal Minimum Wage in a Competitive Economy. By Arantza Gorostiage; Juan F. Rubio-Ramírez
  6. Unique Supply Function Equilibrium with Capacity Constraints By Holmberg, Pär
  7. Productivity Spillovers of R&D in Sweden By Ejermo, Olof
  8. On the Desirability of an Efficiency Defense in Merger Control By Johan N. M. Lagerlof; Paul Heidhues
  9. Testable Restrictions of General Equilibrium Theory in Exchange Economies with Externalities By Andres Carvajal
  10. Individually-Rational Collective Choice under Random Preferences By Andres Carvajal
  11. Pre-Contractual Information Acquisition By Manuel Willington
  12. Stochastic Trends, Demographics and Demand Systems By Clifford Attfield
  13. A Comparison of the Translog and Almost Ideal Demand Models By Clifford Attfield
  14. Adverse Selection with individual- and joint-life annuities By Susanne Pech
  15. The Timing of Bets and the Favorite-Longshot Bias By Marco Ottaviani; Peter Norman Sørensen
  16. Continuous Cumulative Prospect Theory and Individual Asset Allocation By Greg B. Davies; Stephen E. Satchell
  17. Modelling Stochastic Relative Preferences By Petra M. Geraats
  18. The Economics of Technology Sharing: Open Source and Beyond By Josh Lerner; Jean Tirole
  19. Iterative Dominance and Sequential Bargaining By Christopher J. Tyson
  20. On Holders, Blades and Other Tie-In Sales By Alain Egli
  21. Transfers and Altruistic Punishments in Third Party Punishment Game Experiments. By Ottone, Stefania
  22. The Evolution of Socio-Economic Health inequalities in Spain: 1987-2001 By Pilar García Gómez; Ángel López
  23. Conflicts of Interest, Information Provision and Competition in Banking By Patrick Bolton; Xavier Freixas; Joel Shapiro
  24. Determinants of Organizational Form: Transaction Costs and Institutions in the European Trucking Industry By Benito Arruñada; Manuel González; Alberto Fernández
  25. Ethnic Polarization, Potential Conflict, and Civil Wars By José Garcia Montalvo; Marta Reynal
  26. Ethical Differentiation and Market Behavior: An Experimental Approach By Julian Rode; Robin Hogarth; Marc Le Menestrel
  27. Stochastic Uncoupled Dynamics and Nash Equilibrium By Sergiu Hart; Andreu Mas-Colell
  28. Nash Bargaining versus Market Outcomes By Nirvikar Singh
  29. Optimal two stage committee voting rules By Ian Ayres; Colin Rowat; Nasser Zakariya
  30. Normal Approximation of the Disrtibution of the Equilibrium Price in Markets with Random Demand and Supply By Martin Smid
  31. Scale, scope and entrepreneurship By George C. Bitros
  32. Weber-Fechner's Law and Demand Function By Kazuyasu Shigemoto
  33. The Potential Viability of Biomass Ethanol as a Renewable Fuel By Lanier Nalley; Darren Hudson
  34. Two-Sided Markets and Electronic Intermediaries By Bruno Jullien
  35. Income Distribution and Demand-induced Innovations By Reto Foellmi; Josef Zweimüller
  36. Games without Rules By Flavio Menezes; John Quiggin
  37. Nash Implementable Liability Rules for Judgement-Proof Injurers By Patrick González
  38. Strategy-Proofness and the Tops-Only Property By John A. Weymark
  39. General equilibrium theory and increasing returns : an alternative to the survival assumption By Jean-Marc Bonnisseau; Alexandrine Jamin
  40. Edgeworth and Lindahl-Foley equilibria of a general equilibrium model with private provision of pure public goods By Monique Florenzano; Elena Laureana Del Mercato
  41. Competitive growth in a life-cycle model : existence and dynamics By Hippolyte d'Albis; Emmanuelle Augeraud-Veron

  1. By: Stephen Spear
    Abstract: This paper examines the effects of imperfect competition in unregulated electricity markets from a general equilibrium perspective, and demonstrates that horizontal market power can explain both the large peak-period price spikes observed recently in California and elsewhere, and the marked reduction in additions to capacity that have also occurred during the transition to competitive markets.
  2. By: Ronald Goettler; Ron Shachar
    Abstract: We present an empirical study of spatial competition and a methodology to estimate demand for products with unobservable characteristics. Using panel data, we estimate a discrete choice model with latent product attributes and unobserved heterogenous consumer preferences. Our application of the methodology to the network television industry yields estimates that are consistent with experts' views. Given our estimates, we compute Nash equilibria of a product location game, and find that firms' observed strategies (such as the degree of product differentiation) are generally optimal. Discrepancies between actual and optimal strategies reflect the networks' adherence to "rules of thumb," and possibly, bounded rationality behavior.
  3. By: Sander Onderstal; Pierre Koning
    Abstract: This paper applies the theory of auctioning incentive contracts to welfare-to-work programs. In several countries, the government procures welfare-to-work projects to employment service providers. In doing so, the government trades off adverse selection (the winning provider is not the most efficient one) and moral hazard (the winning provider shirks in his effort to reintegrate unemployed people). <P> We compare three simple auctions with the socially optimal mechanism and show that two of these auctions approximate the optimal mechanism if the number of providers is large. <P> Using simulations, we observe that competition between three bidders is already sufficient for the outcome of these auctions to reach 95% of the optimal level of social welfare.
    Keywords: adverse selection; auctions; incentive contracts; moral hazard; welfare-to-work programs
    JEL: D44 D82 J68
    Date: 2004–08
  4. By: Konstantin Sonin
    Abstract: When the goods are to be publicly tendered off and it is the task of the tender officials to determine some specific characteristics of the good, their privileged status allows them to manipulate the results of the tender. In particular, if the officials are interested in getting side-transfers from bidders instead of revenue maximization, they may choose a particular pattern of characteristics to favor some particular bidder. These side transfers (bribes) may potentially become very large, especially when bidders' preferences differ substantially. In Russia and some other transition economies that have experienced a rapid privatization with vast and heterogeneous assets being privatized, this problem is particularly severe. The paper explores — both theoretically and empirically — tender procedures which involve a set of additional conditions to be satisfied by the winner. The aim is to provide a framework for understanding revenue inefficiencies inherent in many auctions and tenders held in Russia during transition.
    JEL: D44
    Date: 2004–07–19
  5. By: Arantza Gorostiage (Unversidad del País Vasco); Juan F. Rubio-Ramírez (Federal Reserve Bank of Atlanta)
    Keywords: redistribution policy, minimum wage, Ramsey Problem
    JEL: E62 H21
    Date: 2004–12–02
  6. By: Holmberg, Pär (Department of Economics)
    Abstract: Consider a market where producers submit supply functions to a procurement auction — e.g. an electric power auction — under uncertainty, before demand has been realized. In the Supply Function Equilibrium (SFE), every firm commits to the supply function maximizing his expected profit given the supply functions of the competitors. The presence of multiple equilibria is one basic weakness of SFE. This paper shows that with (i) symmetric producers, (ii) inelastic demand, (iii) a reservation price, and (iiii) capacity constraints that bind with a positive probability, there is a unique symmetric SFE.
    Keywords: Supply function equilibrium; auction; oligopoly; capacity constraint; wholesale electricity market
    JEL: D43 D44 L11 L13 L94
    Date: 2004–11–24
  7. By: Ejermo, Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Although Sweden is one of the most R&D-intensive OECD-countries, the importance of R&D spillovers in the country has not been systematically analyzed. This paper employs a cross-sectional dataset of 264 R&D-performing Swedish firms from 1996-97. With this set, knowledge production functions are estimated, where industry groups are treated as subsamples. In addition, 160,614 non R&D-performing firms are used to examine the effects of R&D spillovers also among non R&D-performers. The estimations use three different weight methods for R&D that spills over from other industries: two input-output measures and a technology flow matrix in the spirit of Jaffe (1986). The results indicate that R&D-performing firms gain in Total Factor Productivity from their own R&D. In two of the three weighing matrices spillovers from R&D result in higher Total Factor Productivity among R&D-performers. Among non R&D-performers, the Total Factor Productivity effect of R&D-spillovers is robustly positive and significant across specifications. Examination of the social returns of R&D from specific industries, one at a time, on other industries does not reveal substantial social effects beyond the effect on the own firm. It is reasoned that the most likely reason for the small size of R&D-spillovers rests in the Swedish corporate structure, with most R&D being conducted by large multinationals.
    Keywords: Interindustry R&D spillovers; total factor productivity; rate of return to R&D; Sweden
    JEL: D24 H41 L60 O31
    Date: 2004–11–29
  8. By: Johan N. M. Lagerlof (Department of Economics, Royal Holloway, University of London); Paul Heidhues (WZB Berlin)
    Abstract: We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.
    Keywords: lobbying, rent seeking, asymmetric information, disclosure, ef- ficiency gains, antitrust.
    JEL: D72 D82 K21 L40
    Date: 2004–10
  9. By: Andres Carvajal (Yale University and Royal Holloway, University of London)
    Abstract: The theory of general equilibrium was criticized for its apparent lack of testable implications, as seemingly implied by the results of Sonnenschein, Mantel and Debreu in the Seventies. This view was challenged by the results of Brown and Matzkin (1996), which showed the existence of testable restrictions on the equilibrium manifold of exchange economies. This paper studies a problem similar to the one posed by Brown and Matzkin, for the case of general equilibrium in the presence of externalities. The natural definition of equilibrium in such case is the Nash-Walras equilibrium concept. I first consider the case of strategic externalities, where I assume that each player chooses a consumption bundle, subject to some budget, and a strategy from a continuous domain, and where the utility of each individual depends on his consumption and on the strategies chosen by all the players. I also consider the case of consumption externalities, in which each individual’s utility depends on his consumption of all commodities and on the consumption of some particular commodity by all individuals. The results obtained here are rather negative in that they point towards the unfalsifiability of the equilibrium hypothesis. Under the assumption that one can observe individual choices for the externality, I find that there exist some extremely mild testable restrictions. This, however, is not a pure extension of the Brown-Matzkin result, since some individual decisions are assumed to be observed. If there is no information on individual choices, I find that the equilibrium concept imposes no testable restrictions. This occurs unless one imposes further assumptions, such as weak separability.
    Keywords: Nash-Walras equilibrium, externalities, revealed preferences, testable restrictions
    JEL: D12 D50 D62
    Date: 2004–11
  10. By: Andres Carvajal (Yale University and Royal Holloway, University of London)
    Abstract: In this paper I consider the following problem: there is a collection of exogenously given socially feasible sets, and for each one of them, each one of a group of individuals chooses from an individually feasible set. The fact that the product of the individually feasible sets is larger than the socially feasible set notwithstanding, there arises no conflict between individuals. Assuming that individual preferences are random, I here characterize collective choices in terms of the way in which individual preferences must co-vary in order to explain them. I do this by combining standard revealed preference theory and its counterpart under random preferences. I also argue that there exist collective choices that cannot be rationalized, and hence that the individual rationality assumption can be refuted.
    Keywords: Revealed preference, random utility, collective choice, individual rationality
    JEL: D70 D74 D12
    Date: 2004–11
  11. By: Manuel Willington (ILADES-Georgetown University, Universidad Alberto Hurtado)
    Abstract: We consider a principal-agent model in which the agent may acquire costly infor-mation about his e¤ort costs before he accepts a contract. The model departs from the literature in two ways: (1) the information is 'hard' in the sense that it can be credibly communicated, and (2) the parties are unable to commit to not renegotiate their contract. When the cost of acquiring information is low, the optimal contract induces information acquisition. In this case the contract is renegotiated and leaves the agent no rent. When the information cost is higher, the optimal contract induces the agent not to acquire information. In this case, if the cost is not too high, quantities are ine¢cient and the agent may receive rent. If the cost is yet higher, the contract again yields e¢cient quantities and leaves the agent no rent. These results hold also if parties can commit themselves not to renegotiate.
    Keywords: Information Acquisition, Hard Information, Renegotiation.
    JEL: D82 D83
    Date: 2004–09
  12. By: Clifford Attfield
    Abstract: Techniques for determining the number of stochastic trends generating a set of non-stationary panel data are applied to budget shares for a number of commodity groups from the Family Expenditure Survey (FES) for the UK for the years 1973-2001. It is argued that some stochastic trends in macro data are generated by the aggregation of fixed demographic effects in the micro data. From cross section data, fixed effect coefficients are estimated which incorporate both age and income distribution effects. The estimated coefficients are combined with age proportion variables to form a set of I(1) indices for broad commodity groups which are then incorporated into a system of aggregate demand equations. The equations are estimated and tested in a non-stationary time series setting.
    Keywords: Demand Equations, Age Demographics, Stochastic Trends.
    JEL: C1 C3 D1
    Date: 2004–04
  13. By: Clifford Attfield
    Abstract: A version of the Translog demand system is compared with the Almost Ideal demand model within a time series setting, where variables are nonstationary, by testing both models for the theoretical demand propositions of 'homogeneity, symmetry and negativity' and by comparing out of sample forecasting performance. Demographic age and income distributional effects are included in both models.
    Keywords: Demand Equations, Age Demographics, Nonstationarity.
    JEL: C1 C3 D1
    Date: 2004–07
  14. By: Susanne Pech (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: This paper includes couples on the demand side and analyses their implications on the problem of adverse selection in the annuity market. First, we examine the pooling equilibrium for individual-life annuities and show that in the presence of couples the rate of return on individuallife annuities is lower in case that couples do not have the advantage of joint consumption of "family public goods" as well as in case of a logarithmic utility function. Second, we examine the market for joint-life annuities. Due to their higher chance that only one partner survives to the retirement, couples with short-lived partners put more weight on the survivor benefit than couples with at least one longer-lived partner. This fact is used by annuity companies to separate couples according to their partners' life-expectancies. Hence, we find that only a separating equilibrium may exist. These results are obtained in a framework where couples are mandated to buy joint-life annuities and only single persons buy individual-life annuities. When relaxing this assumption by allowing couples to choose between individual- and joint-life annuities, we find that in equilibrium couples with long-lived partners buy individual-life annuities, while couples with short-lived partners buy joint-life annuities. However, couples with one long-lived and one short-lived partner may decide for either type of annuities, depending on the exogenous parameters. Accordingly, we identify two different types of equilibria.
    Keywords: annuity market; uncertain lifetime; adverse selection; equilibrium
    JEL: D13 D82 D91 G22
    Date: 2004–11
  15. By: Marco Ottaviani (London Business School); Peter Norman Sørensen (Institute of Economics, University of Copenhagen)
    Abstract: In parimutuel betting markets, it has been observed that proportionally too many bets are placed on longshots, late bets are more informative than early bets, and a sizeable fraction of bets are placed early. We propose an explanation for these facts based on equilibrium incentives of privately informed rational bettors, who profit from betting against bettors with recreational motives. We show that small rational bettors who act on private information have an incentive to wait until the last minute, and then bet without access to the information of the others. Once the distribution of bets is revealed, the longshot is recognized to be less likely to win than was originally thought. When acting on common information instead, bettors have an incentive to place early bets in order to preempt others from exploiting the same information.
    Keywords: parimutuel betting; favorite-longshot bias; private information; timing
    JEL: D82 D83 D84 G13
    Date: 2004–11
  16. By: Greg B. Davies; Stephen E. Satchell
    Abstract: We implement the Cumulative Prospect Theory (CPT) framework (Tversky and Kahneman 1992) into a model of individual asset allocation, building on earlier work by Hwang and Satchell (2003) where they derive explicit formulae for the asset allocation decision using a loss aversion utility function. We apply Prelec’s probability weighting function (1998) to continuous distributions and derive the formulae for the optimal asset allocation between risky and safe assets. US equity returns data are used to examine the feasible parameter space. The earlier results of Hwang and Satchell are confirmed and the more complex model is compatible with observed equity proportions. The parameters are highly interconnected, but feasible combinations indicate that more inverse-S shaped deviations from linear probability weightings are associated with lower risk taking behaviour.
    Keywords: Cumulative Prospect Theory, asset allocation, non-linear decisions weights
    JEL: G11 D81
    Date: 2004–11
  17. By: Petra M. Geraats
    Abstract: Stochastic relative preferences are prevalent in the literature, but it appears that modeling them is not trivial. This paper establishes that common stochastic specifications alter average relative preferences, which could induce spurious effects. A simple solution is presented that provides an unbiased specification that parameterizes pure white noise shocks to relative preferences. The importance of the results is illustrated by some instructive examples from consumer choice, monetary policy and micro- founded business cycle models.
    Keywords: stochastic preferences, preference uncertainty
    JEL: D1 D8 E2 E5
    Date: 2004–11
  18. By: Josh Lerner; Jean Tirole
    Abstract: This paper reviews our understanding of the growing open source movement. We highlight how many aspects of open source software appear initially puzzling to an economist. As we have acknowledge, our ability to answer confidently many of the issues raised here questions is likely to increase as the open source movement itself grows and evolves. At the same time, it is heartening to us how much of open source activities can be understood within existing economic frameworks, despite the presence of claims to the contrary. The labor and industrial organization literatures provide lenses through which the structure of open source projects, the role of contributors, and the movement's ongoing evolution can be viewed.
    JEL: L8 O3
    Date: 2004–12
  19. By: Christopher J. Tyson (Nuffield College, Oxford University, UK)
    Abstract: A new game theoretic analysis of finite horizon, complete information bargaining is advanced. The extensive form reflects an attempt to model unstructured negotiations, in which the negotiants can gain no artificial advantage from the details of the bargaining protocol. Conditions are identified under which the game is dominance solvable in the sense that iterative deletion of weakly dominated strategies selects a unique outcome. These conditions serve to preclude embedded static bargaining problems of the sort that have historically been deemed indeterminate, thereby ensuring that the dynamic problems analyzed will be resolvable without imposing any particular static theory.
    Keywords: coalition, core, iterative dominance, temporal monopoly
    JEL: C78 D71 D74
    Date: 2004–08–27
  20. By: Alain Egli
    Abstract: Tie-in sales have a bad image because of anti-competitive effects. Notably, tying contracts allow monopolists to carry over monopoly power into markets where they meet competition. Most of the literature assumes a firm being monopolist in one market and facing competition in another. In contrast, we analyze two firms which both are monopolists in one market and competitors in the other. Under such a symmetric structure tying has competitive effects. Tie-in sales may increase the consumers’ expected utility. By tying their products, the firms insure consumers against uncertain future demand
    Keywords: Tie-in sales; leverage theory of tying; competition; expected utility
    JEL: D21 D31 D43 L11
    Date: 2004–07
  21. By: Ottone, Stefania
    Abstract: Our research is a variant of the third party punishment game. In particular, we want to test whether players have heterogeneous preferences; the levels of the sanction and of the transfer are proportional to the unfairness of the Dictator; the change of the role influences the Observer’s reaction to unfair behavior; players’ decision to punish the Dictator and/or to help the Receiver depends on how costly their intervention is.
    JEL: A12 A13 C72 C91 D63 D64
    Date: 2004–12
  22. By: Pilar García Gómez; Ángel López
    Abstract: This paper reports an analysis of the evolution of income related health inequalities in Spain over the period 1987-2001. We use recently developed methods in order to cardinalise and model self assessed health within a regression framework, decompose the sources of inequality and explain the observed differences between 1987 (one year after the 1986 General Health Act was approved) and 2001 (the latest available representative data on health for the Spanish population). The results show that the period has witnessed a reduction in income related health inequality. The driver of such reduction has been the weakening of the income health gradient, which lends support to the hypothesis that the important health policy reforms implemented over the period have been successful in the objective of reducing socio-economic inequalities in health. Our results also suggest that actions aimed at improving the health of those with low levels of education and of those who are not actively participating in the labor market would lead to further reductions in income related health inequality.
    Keywords: Health inequalities, decomposition analysis, Spain
    JEL: D63 I12 C21
    Date: 2004–03
  23. By: Patrick Bolton; Xavier Freixas; Joel Shapiro
    Abstract: In some markets, such as the market for drugs or for financial services, sellers have better information than buyers regarding the matching between the buyer's needs and the good's actual characteristics. Depending on the market structure, this may lead to conflicts of interest and/or the underprovision of information by the seller. This paper studies this issue in the market for financial services. The analysis presents a new model of competition between banks, as banks' price competition influences the ensuing incentives for truthful information revelation. We compare two different firm structures, specialized banking, where financial institutions provide a unique financial product, and one-stop banking, where a financial institution is able to provide several financial products which are horizontally differentiated. We show first that, although conflicts of interest may prevent information disclosure under monopoly, competition forces full information provision for sufficiently high reputation costs. Second, in the presence of market power, one-stop banks will use information strategically to increase product differentiation and therefore will always provide reliable information and charge higher rices than specialized banks, thus providing a new justification for the creation of one-stop banks. Finally, we show that, if independent financial advisers are able to provide reliable information, this increases product differentiation and therefore market power, so that it is in the interest of financial intermediaries to promote external independent financial advice.
    Keywords: Conflicts of interest, information provision, one-stop
    JEL: D43 D82 G20 L15
    Date: 2004–06
  24. By: Benito Arruñada; Manuel González; Alberto Fernández
    Abstract: We explain why European trucking carriers are much smaller and rely more heavily on owner-operators (as opposed to employee drivers) than their US counterparts. Our analysis begins by ruling out differences in technology as the source of those disparities and confirms that standard hypotheses in organizational economics, which have been shown to explain the choice of organizational form in US industry, also apply in Europe. We then argue that the preference for subcontracting over vertical integration in Europe is the result of European institutions—particularly, labor regulation and tax laws—that increase the costs of vertical integration.
    Keywords: Transaction costs, governance, hybrids, transportation
    JEL: D23 L14 L22 L92
    Date: 2004–06
  25. By: José Garcia Montalvo; Marta Reynal
    Abstract: This paper analyzes the relationship between ethnic fractionalization, polarization, and conflict. In recent years many authors have found empirical evidence that ethnic fractionalization has a negative effect on growth. One mechanism that can explain this nexus is the effect of ethnic heterogeneity on rent-seeking activities and the increase in potential conflict, which is negative for investment. However the empirical evidence supporting the effect of ethnic fractionalization on the incidence of civil conflicts is very weak. Although ethnic fractionalization may be important for growth, we argue that the channel is not through an increase in potential ethnic conflict. We discuss the appropriateness of indices of polarization to capture conflictive dimensions. We develop a new measure of ethnic heterogeneity that satisfies the basic properties associated with the concept of polarization. The empirical section shows that this index of ethnic polarization is a significant variable in the explanation of the incidence of civil wars. This result is robust to the presence of other indicators of ethnic heterogeneity, other sources of data for the construction of the index, and other data structures.
    Keywords: Ethnic diversity, conflict, indices of diversity
    JEL: D74 D72 Z12 D63
    Date: 2004–07
  26. By: Julian Rode; Robin Hogarth; Marc Le Menestrel
    Abstract: We constructed triopolistic experimental markets where producers set prices. One producer’s costs were higher than the others. In two experiments, costs were attributed to compliance with ethical guidelines. In the third, no justification was provided. Consumers paid premia for the ethically differentiated product and even larger premia if they did not know the producers’ 'ethical' costs. Individual differences were important (students of business/economics paid smaller premia than others). We also provide evidence consistent with a large attitude-behavior gap for ethical consumption. Finally, we speculate about the observed 'demand function' for ethics and emphasize the potential of experimental methodology for understanding contextual effects in market settings
    Keywords: Fair trade, ethical premia, price competition, contextual effects
    JEL: A13 B41 D43 D46
    Date: 2004–10
  27. By: Sergiu Hart; Andreu Mas-Colell
    Abstract: In this paper we consider dynamic processes, in repeated games, that are subject to the natural informational restriction of uncoupledness. We study the almost sure convergence to Nash equilibria, and present a number of possibility and impossibility results. Basically, we show that if in addition to random moves some recall is introduced, then successful search procedures that are uncoupled can be devised. In particular, to get almost sure convergence to pure Nash equilibria when these exist, it su±ces to recall the last two periods of play.
    Keywords: Uncoupled, Nash equilibrium, stochastic dynamics, bounded recall
    JEL: C7 D83
    Date: 2004–10
  28. By: Nirvikar Singh (University of California, Santa Cruz)
    Abstract: This paper compares the NBS and market outcomes in a simple n-person economy. It shows how the two outcomes differ with respect to responsiveness to differences in risk aversion, endowments, and market positions.
    JEL: C78
    Date: 2004–12–07
  29. By: Ian Ayres (Yale Law School); Colin Rowat (University of Birmingham); Nasser Zakariya (FAS, Harvard University)
    Abstract: We study option management by committee. Analysis is illustrated by tenure decisions. Our innovations are two-fold: we treat the committee's problem as one of social choice, not of information aggregation; and we endogenise the outside option: rejecting a candidate at either the probationary or tenure stage return the committee to a candidate pool. For committees with N members, we find three key results: (1) a candidate's fate depends only on the behaviour of two `weather-vane' committee members - generalised median voters; (2) enthusiastic assessments by one of these weather-vanes may harm a candidate's chances by increasing others' thresholds for hiring him; and (3) sunk time costs may lead voters who opposed hiring a candidate to favour tenuring him, even after a poor probationary performance. We also characterise the optimal voting rule when N=2. A patient or perceptive committee does best with a (weak) majority at the hiring stage and unanimity at the tenure stage. An impatient or imperceptive committee does best under a double (weak) majority rule. If particularly impatient or imperceptive, this rule implies that any hire is automatically tenured. Perversely, the performance of a patient, imperceptive committee improves as its perceptiveness further declines.
    Keywords: intertemporal strategic voting, real options, social choice, heterogenous priors, tenure
    JEL: C73 D71 D72 D80 G12
    Date: 2004–12–09
  30. By: Martin Smid (Institute of Information Theory & Automation of the Academy of Sciences of the Czech Republic)
    Abstract: In the paper, the asymptotic distribution of the equilibrium price in markets with the random demand and supply is described. Two special cases - the one with smooth demand and supply curves and the one with jump demand and supply curves - are studied. It is found that in both the cases the fluctuations of the price vanish at the rate O(n^{-1/2}) as the number of the agents n tends to infinity. Finally, a normal approximation of the distribution of the equilibrium price is suggested.
    Keywords: equilibrium price, random demand, random supply, asymptotic distribution, normal approximation
    JEL: C6 D5 D9
    Date: 2004–11–28
  31. By: George C. Bitros (Athens University of Economics & Business)
    Abstract: To exploit the economies of scale and scope in multi-product technologies, enterprises in advanced capitalist countries grew in the last 150 years in three directions. By substituting in the place of traditional entrepreneurs professional managers, they developed organisational capabili-ties to co-ordinate effectively activities that were widely dispersed geographically and function-ally. They promoted rapid innovation by resorting to systematic Research and Development ef- forts. And, finally, they enhanced control over their markets by introducing innovations whose application required large-scale investment. In the course of these transformations the material standards in the respective countries rose to unprecedented levels. But simultaneously they led to losses in market co-ordination be-cause these transformations increased market imperfections. As a result the economies of scale and scope appear to be negatively related to the ratio of co-ordination to innovation in the econ-omy. Hence, to the extent that policy makers strive to achieve the priorities of citizens, they are advised to allow for the implications of this relationship to the best of available information.
    Keywords: Entrepreneurship, co-ordination, innovation, economies of scale and scope.
    JEL: D1 D2 D3 D4
    Date: 2004–11–22
  32. By: Kazuyasu Shigemoto (Tezukayama University)
    Abstract: We apply the Weber-Fechner's law, which represents the relation between the magnitude of physical stimulus and the magnitude of psychological sense in human being, to the utility function. We conclude that the utility function of n-types of goods is of separable type u(x_1,x_2,...,x_n)=u_1(x_1)+u_2(x_2)+...+u_n(x_n), which gives the relation of the demand function in the form p_i=d u_i/d x_i. The explicit quantitative form of each utility function, which is suggested by the Weber-Fechner's law, becomes u_i(x_i)=A_i log (x_i/x(0)_i). Then we obtain each demand function in the familiar form p_i=A_i/x_i.
    Keywords: Weber-Fechner's law, utility function, demand function
    JEL: D1 D2 D3 D4
    Date: 2004–12–02
  33. By: Lanier Nalley (Mississippi State University); Darren Hudson (Mississippi State University)
    Abstract: Much attention has been paid to alternative fuel sources of late. Ethanol has been a politically popular alternative fuel additive and has recently been pushed to the forefront as a leading replacement to MTBE as an oxygenate. This paper examines the potential markets for ethanol, including biomass ethanol, and discusses the strengths and weaknesses of different oxygenate products. We find that the market for ethanol is tenuous and dependent on government support at this time. Biomass ethanol is more expensive to produce, but does have the advantage of being able to be produced near petroleum refineries, thus reducing transport costs, compared to other sources of ethanol.
    Keywords: biomass, ethanol
    JEL: D1 D2 D3 D4
    Date: 2004–12–08
  34. By: Bruno Jullien
    Abstract: The object of this paper is to discuss on-line intermediation from the perspective of two-sided markets. It builds a simple model of the intermediation activity when trading partners are involved in a commercial relationship and uses it to illustrate some of the results that emerge in the two-sided market literature, as well as to discuss some new aspects. The first part concentrates on a monopoly intermediation service and discusses both efficient pricing and monopoly pricing. The second part discusses the nature of competition between intermediaries, addressing issues as competitive crosssubsidies, multi-homing or tying.
    Keywords: intermediation, two-sided market, network, cross-subsidy, tying
    JEL: D40 D85 L12 L13 L14 L40
    Date: 2004
  35. By: Reto Foellmi; Josef Zweimüller
    Abstract: We utilize Schmookler’s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are determined by the income distribution. We show how a change in the distribution of income affects the incentive to innovate and hence long-run growth. In general, less inequality tends to discourage the incentive to innovate, but this depends on the nature of the redistribution.
    Keywords: inequality, growth, demand composition, price distortion
    JEL: O15 O31 D30 D40 L16
  36. By: Flavio Menezes (Australian National University); John Quiggin (Department of Economics, University of Queensland)
    Abstract: We introduce the notion of an outcome space, in which strategic interactions are embedded. This allows us to investigate the idea that one strategic interaction might be an expanded version of another interaction. We then characterize the Nash equilibria arising in such extensions and demonstrate a folk-type theorem stating that any individually rational element of the outcome space is a Nash equilibrium.
    Keywords: game theory
    JEL: C71
    Date: 2004–07
  37. By: Patrick González
    Abstract: I provide a complete characterization of Nash implementable allocations of spending in prevention by judgement-proof injurers. This characterization is used to identify the optimal rule that allows for the maximum total spending in prevention. The optimal rule amounts to apply the negligence rule to the “deep-pocket” (or the “victim”), that is the injurer who responds the most to monetary incentives under the strict liability rule, and the strict liability rule to everybody else. <P>Je développe une caractérisation complète des allocations de dépenses en prévention par des justiciables à la responsabilité limitée pouvant être mises en place en équilibre de Nash. Cette caractérisation est employée afin d'identifier la règle optimale permettant un maximum de dépenses en prévention. La règle optimale se résume à appliquer la règle de négligence au plus riche (le «deep-pocket» ou la «victime», selon l'interprétation), soit le justiciable qui répond le mieux aux incitations monétaires sous la règle de négligence, et la règle de responsabilité stricte à tous les autres.
    Keywords: negligence rule, limited liability, multiple injurers, Nash implementation, règle de négligence, responsabilité limitée, multiples justiciables, mise en place en équilibre de Nash
    JEL: D78 H23 K13
    Date: 2004–11–01
  38. By: John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: A social choice function satisfies the tops-only property if the chosen alternative only depends on each person's report of his most-preferred alternatives on the range of this function. On many domains, strategy-proofness implies the tops-only property, provided that the range of the social choice function satisfies some regularity condition. The existing proofs of this result are model specific. In this article, a general proof strategy is proposed for showing that a strategy-proof social choice function satisfies the tops-only property when everyone has the same set of admissible preferences.
    Keywords: Social Choice, strategy-proofness, option sets, tops-only property
    JEL: D71 D82
    Date: 2004–04
  39. By: Jean-Marc Bonnisseau (CERMSEM); Alexandrine Jamin (CERMSEM)
    Abstract: Existence results for equilibria in economies under increasing returns to scale, fixed costs, or showing more general types of non convexity in the production sector, strongly rest on a crucial condition, known as the survival assumption. This assumption is unsatisfactory in the sense that it poses a condition on the set of production equilibria, an endogeneous variable. We propose here conditions on the firms characteristics, notably on the firms' pricing behaviour, under which the equilibrium existence can be proved.
    Keywords: General Equilibrium Theory, increasing returns, survival assumption
    JEL: C62 C67 D21 D51
    Date: 2004–02
  40. By: Monique Florenzano (CERMSEM); Elena Laureana Del Mercato (Universitˆ degli Studi di Salerno)
    Abstract: In this paper, we propose a definition of Edgeworth equilibrium for a private ownership production economy with possibly infinitely many private goods and a finite number of pure public goods. We show that Edgeworth equilibria exist and can be decentralized as Lindahl-Foley equilibria, whatever be the dimension of the private goods space. Existence theorems for Lindahl-Foley equilibria are a by-product of our results.
    Keywords: Production economy, public goods, Edgeworth equilibrium, Lindhal equilibrium, proper economy
    JEL: D46 D51 H21 H41
    Date: 2004–07
  41. By: Hippolyte d'Albis (EUREQua); Emmanuelle Augeraud-Veron (LMA et EUREQua)
    Abstract: In this paper, the dynamic behavior of the capital growth rate is analyzed using an overlapping-generations model with continuous trading and finitely lived agents. Assuming a technology satisfying constant returns to capital, the equilibrium growth rate is piecewise-defined by functional differential equations with both delayed and advanced terms. The existence of a solution expressed as a series of exponentials crucially depends on the initial wealth distribution among cohorts. Upon existence, the dynamics of the capital growth rate has a saddle-point trajectory that converges to a unique steady-state. Along the transition path, the growth rate exhibits exponentially decreasing oscillations.
    Keywords: Overlapping-generations models, endogenous growth, functional differential equations of mixed type
    JEL: D50 D90
    Date: 2004–02

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