nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒03‒06
eleven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Intra-firm Coordination and Horizontal Merger By Lilia Filipova; Peter Welzel
  2. Agent-Based Modelling: A Methodology for Neo-Schumpeterian Economics By Andreas Pyka; Giorgio Fagiolo
  3. Many-to-one Matching When Colleagues Matter By Pablo Revilla
  4. The Rules of Standard Setting Organizations: An Empirical Analysis By Benjamin Chiao; Josh Lerner; Jean Tirole
  5. The evolutionary theory of the firm: Routines, complexity and change By Werner Hölzl
  6. Informational Cascades Elicit Private Information By Olivier Gossner; Nicolas Melissas
  7. Base-Rate Neglect and Imperfect Information Acquisition By Philipp C. Wichardt; Pavlo R. Blavatskyy
  8. Learning in and about Games By Anke Gerber
  11. Efficiency and Consistency for Locating Multiple Public Facilities By Biung-Ghi Ju

  1. By: Lilia Filipova (University of Augsburg, Department of Economics); Peter Welzel (University of Augsburg, Department of Economics)
    Abstract: We examine the effects of ex post revelation of information about the risk type or the risk-reducing behavior of insureds in automobile insurance markets both for perfect competition and for monopoly. Specifically, we assume that insurers can offer a contract with information revelation ex post, i.e., after an accident has occurred, in addition to the usual second-best contracts. Under moral hazard this always leads to a Pareto-improvement of social welfare. For adverse selection we find that this is also true except when bad risks under self-selecting contracts received an information rent, i.e., under monopoly or under competition with cross-subsidization from low to high risks. Regulation can be used to establish Pareto-improvement also in these cases. Privacy concerns do not alter our positive welfare results.
    Keywords: information moral hazard, adverse selection, insurance
    JEL: D82 G22
    Date: 2005–02
  2. By: Andreas Pyka (University of Augsburg, Department of Economics); Giorgio Fagiolo (Laboratory of Economics and Management, Pisa (Italy))
    Abstract: Modellers have had to wrestle with an unavoidable trade-off between the demand of a general theoretical approach and the descriptive accuracy required to model a particular phenomenon. A new class of simulation models has shown to be well adapted to this challenge, basically by shifting outwards this trade-off: So-called agent-based models (ABMs henceforth) are increasingly used for the modelling of socio-economic developments. Our paper deals with the new requirements for modelling entailed by the necessity to focus on qualitative developments, pattern formation, etc. which is generally highlighted within Neo-Schumpeterian Economics and the possibilities given by ABMs.
    Keywords: Simulation, Neo-Schumpeterian Economics, Agents
    JEL: B52 O30
    Date: 2005–02
  3. By: Pablo Revilla (Universidad Pablo de Olavide)
    Abstract: This paper studies many-to-one matching markets in which each agent’s preferences not only depend on the institution that hires her, but also on the group of her colleagues, which are matched to the same institution. With an unrestricted domain of preferences the non-emptiness of the core is not guaranteed. We present some conditions on agents’ preferences which determine two possible situations. In both situations, at least one stable allocation exists. The first one reflects real-life situations in which the agents are more worried about an acceptable set of colleagues than the firm hiring them. The second one refers to markets in which a workers’ ranking is accepted by workers and firms in that market.
    Keywords: many-to-one matching, hedonic coalitions, stability.
    JEL: C78 D71
    Date: 2004
  4. By: Benjamin Chiao; Josh Lerner; Jean Tirole
    Abstract: This paper empirically explores the procedures employed by standard-setting organizations. Consistent with Lerner-Tirole (2004), we find (a) a negative relationship between the extent to which an SSO is oriented to technology sponsors and the concession level required of sponsors and (b) a positive correlation between the sponsor-friendliness of the selected SSO and the quality of the standard. We also develop and test two extensions of the earlier model: the presence of provisions mandating royalty-free licensing is negatively associated with disclosure requirements, and when there are only a limited number of SSOs, the relationship between concessions and user friendliness is weaker.
    JEL: L2 O3
    Date: 2005–02
  5. By: Werner Hölzl (Vienna University of Economics & B.A.)
    Abstract: This paper provides an overview on the evolutionary theory of the firm. The specific feature of the evolutionary approach is that it explains the adaptive behaviors of firms through the tension between innovation and selection. It is suggested that the evolutionary theory can provide a useful basis for a theory of the firm which is concerned with change over time and development.
    Keywords: theory of the firm, complexity, routines, change of routines
    Date: 2005–02
  6. By: Olivier Gossner; Nicolas Melissas
    Abstract: We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely affects the credibility of cheap talk messages. Next, we show how an informational cascade makes thruthtelling incentive compatible. A separating equilibrium only exists for high surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender’s information, the higher her incentives to truthfully reveal her private information. <br> <br> <i>ZUSAMMENFASSUNG - (Informationskaskaden bei Investitionsentscheidungen) <br> Wir modellieren eine zweistufige dynamische Investitionsentscheidung mit Informationsexternalitäten und ‚Cheap Talk’. Dabei können wir zunächst zeigen, dass die Glaubwürdigkeit von 'Cheap Talk'-Aussagen darunter leidet, wenn die Investitionsentscheidung von solchen Informationen beeinflusst wird, die sich eher aus dem Handeln der Mitakteure als durch ihre verbalen Bekundungen ableiten. Dann zeigen wir, dass Informationskaskaden, die alle Akteure dieselbe Handlung aufgrund öffentlicher Information ohne Berücksichtigung ihrer privaten Informationen ausführen lassen, dazu führen, das Offenbaren der wahren Präferenzen der Investoren - optimistisch oder pessimistisch - anreizkompatibel zu machen. Vergleicht man Projekte mit niedrigen und hohen Überschüssen, existiert ein Trenngleichgewicht nur bei letzteren, so dass glaubwürdige Kommunikation eher über Worte als über Taten funktioniert. Will ein sozialer Planer die Investitionsentscheidungen beeinflussen, kann er sowohl durch eine Subventionierung als auch durch eine Besteuerung der Investitionen die Wohlfahrt vergrößern.</i>
    Keywords: Gravity Cheap Talk, Information Externality, Informational Cascades, Social Learning, Herd Behaviour
    JEL: D62 D83
    Date: 2004–12
  7. By: Philipp C. Wichardt; Pavlo R. Blavatskyy
    Abstract: Base-rate neglect is a robust experimental finding that individuals do not update their prior beliefs according to the Bayes' rule and, typically, underestimate their posterior probabilities. Another empirical finding is that individuals often do not acquire information even when there are no strategic considerations and the cost of new information is justifiable economically. This paper combines these two different fields of research. Specifically, it is demonstrated that base-rate neglect may lead to imperfect information acquisition. An application to the pricing of new financial assets as well as general implications for the socially optimal pricing of information are discussed.
    Keywords: Bayes' rule, base-rate neglect, decision making, information acquisition
    JEL: C91 D83
  8. By: Anke Gerber
    Abstract: We study finitely repeated 2 / 2 normal form games, where players have incomplete information about their opponents’ payoffs. In a laboratory experiment we investigate whether players (a) learn the game they are playing, (b) learn to predict the behavior of their opponent, and (c) learn to play according to a Nash equilibrium of the repeated game. Our results show that the success in learning the opponent’s type depends on the characteristics of the true game. The learning success is much higher for games with pure strategy Nash equilibria than for games with a unique mixed strategy Nash equilibrium, and it is higher for games with symmetric pure strategy Nash equilibria than for games with asymmetric equilibria. Moreover, subjects learn to predict the opponents’ behavior very well. However, they rarely play according to a Nash equilibrium and we observe no correlation between equilibrium play and learning about the game.
    Keywords: Learning, game theory, incomplete information, experiments
    JEL: C72 C92 D83
  9. By: Bernard Cornet (Department of Economics, The University of Kansas); Lionel De Boisdeffre (CERMSEM, Maison des Sciences Economiques, Universite de Paris 1)
    Abstract: In a financial economy with asymmetric information and incomplete markets, we study how agents, having no model of how equilibrium prices are determined, may still refine their information by eliminating sequentially ¡°arbitrage state(s)¡±, namely, the state(s) which would grant the agent an arbitrage, if realizable.
    Keywords: Arbitrage, incomplete markets, asymmetric information, information revealed by prices.
    JEL: D52
    Date: 2005–02
  10. By: Bernard Cornet (Department of Economics, The University of Kansas); Mihaela Topuzu (CERMSEM, Universite de Paris I)
    Abstract: This paper considers an exchange economy with a measure space of agents and consumption externalities, which take into account two possible external eects in consumers¡¯ preferences: the dependence upon prices and other agents¡¯ consumptions, respectively, as in Greenberg et al. [12] and Khan and Vohra [15] (see also Balder [4] for a general discussion). This allows to cover a general model of reference coalitions externalities, in which the agents¡¯ preferences are influenced by the global (or the mean) consumption of the agents in the finitely many reference coalitions. Our paper provides a general existence theorem of equilibria that extends previous results by Schmeidler [21], in the case of fixed reference coalitions and Noguchi [17], for a more particular concept of reference coalitions.
    Keywords: Externalities, Reference coalitions, Measure space of agents, Equilibrium.
    JEL: D62 D51 H23
    Date: 2005–02
  11. By: Biung-Ghi Ju (Department of Economics, The University of Kansas)
    Abstract: In the problem of locating multiple public facilities studied by Barbera and Bevia (2002), we offer simple necessary and sufficient conditions for effciency, decentralizability of efficient decisions in a game of community division and local public goods provision, and a constructive algorithm for efficient and consistent decisions.
    Keywords: Efficiency; Consistency; Self-selection consistency; No-envy; Local stability; Diversity; Strong Nash equilibrium; Community division; Location
    Date: 2005–02

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