nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒04‒03
eleven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Determinants of Borrowing Limits on Credit Cards By Shubhasis Dey; Gene Mumy
  2. Testing for Market Power under the Two-Price System in the U.S. Copper Industry By Claudio Agostini
  3. Household Income Composition and Household Goods By Voynov, Ivan
  4. The buyer's option in multi-unit ascending auctions : the case of wine auctions at Drouot By Février Philippe; Roos William; Visser Michael
  5. Competition and Efficiency in Congested Markets By Daron Acemoglu; Asuman Ozdaglar
  6. Belief in a Just World and Redistributive Politics By Roland Benabou; Jean Tirole
  7. Patent Licensing from High-Cost Firm to Low-Cost Firm By Sougata Poddar; Uday Bhanu Sinha
  8. The Contributions from Firm Entry, Exit and Continuation to Labour Productivity Growth in New Zealand By David Law; Nathan McLellan
  9. The Market for Sweekstakes By Chew Soo Hong; Guofu Tan
  10. Optimal Partnership Contracts: Foundation and Duality By Harrison Cheng
  11. Inefficiency in Repeated Cournot Oligopoly Games By Harrison Cheng

  1. By: Shubhasis Dey; Gene Mumy
    Abstract: The difference between actual borrowings and borrowing limits alone generates information asymmetry in the credit card market. This information asymmetry can make the market incomplete and create ex post misallocations. Households that are denied credit could well turn out to be ex post less risky than some credit card holders who borrow large portions of their borrowing limits. Using data from the U.S. <em>Survey of Consumer Finances</em>, the authors find a positive relationship between borrower quality and borrowing limits, controlling for banks' selection of credit card holders and the endogeneity of interest rates. Their estimation reveals how interest rates have a negative influence on the optimal borrowing limits offered by banks.
    Keywords: Market structure and pricing; Econometric and statistical methods
    JEL: D4 D82 C3
    Date: 2005
  2. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado)
    Abstract: Before 1978, most of the U.S. domestic copper production and an important fraction of the imports were traded at a price set by the major U.S. producers. Simultaneously, the rest of the world was trading copper at prices determined in auction markets. This two-price system ended in 1978, when the largest U.S. producers began using the Comex price of refined copper as a benchmark for setting their prices. Using this regime shift I test empirically the competitive behavior of the US copper industry before 1978. The results show that copper prices were close to the ones predicted by a competitive model of the industry.
    Keywords: Copper Industry, Market Power
    JEL: D40 D43 L13 L61 L72
    Date: 2005–03
  3. By: Voynov, Ivan (Department of Sociology, Sofia University "St. Kliment Ohridski", Sofia, Bulgaria)
    Abstract: The paper focuses on the change in household income composition and the factors that determine it. The results bring additional knowledge about household poverty dynamics. Based on the collective approach to the family and the cooperative game theory it is constructed theoretical model of household income composition change. The change in income composition is a result from bargaining between household members in attempt to defend the most suitable for them income source. Decisive influence in the household income pattern bargaining have specific set of household goods. Through empirical analysis of European Community Household Panel 2003 data it is proved that the adoption of definite income compositions (with prevailing wages and salaries share and with prevailing social transfers share) is a result from the availability of specific set of household goods.
    Keywords: household income pattern; household goods ; cooperative game theory
    JEL: D D
    Date: 2005–03
  4. By: Février Philippe; Roos William; Visser Michael
    Abstract: This paper studies multi-unit ascending (English) auctions with a buyer’s option. The buyer’s option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines...) that are tested using a unique data set on wine auctions held at the Paris-based auction house Drouot. We also analyze why the buyer’s option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer’s option does not affect the seller’s revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time saving effect seems thus to be the primary purpose of the buyer’s option.
    Keywords: buyer's option, multi-unit ascending auctions, wine auctions
    JEL: D44
    Date: 2004–06
  5. By: Daron Acemoglu; Asuman Ozdaglar
    Abstract: We study the efficiency of oligopoly equilibria in congested markets. The motivating examples are the allocation of network flows in a communication network or of traffic in a transportation network. We show that increasing competition among oligopolists can reduce efficiency, measured as the difference between users' willingness to pay and delay costs. We characterize a tight bound of 5/6 on efficiency in pure strategy equilibria. This bound is tight even when the number of routes and oligopolists is arbitrarily large. We also study the efficiency properties of mixed strategy equilibria.
    JEL: D43 C62
    Date: 2005–03
  6. By: Roland Benabou; Jean Tirole
    Abstract: International surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate. At the same time, social ethnographies and experiments by psychologists demonstrate individuals' recurrent struggle with cognitive dissonance as they seek to maintain, and pass on to their children, a view of the world where effort ultimately pays off and everyone gets their just deserts. This paper offers a model that helps explain: i) why most people feel such a need to believe in a "just world"; ii) why this need, and therefore the prevalence of the belief, varies considerably across countries; iii) the implications of this phenomenon for international differences in political ideology, levels of redistribution, labor supply, aggregate income, and popular perceptions of the poor. The model shows in particular how complementarities arise endogenously between individuals' desired beliefs or ideological choices, resulting in two equilibria. A first, "American" equilibrium is characterized by a high prevalence of just-world beliefs among the population and relatively laissez-faire policies. The other, "European" equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state. More generally, the paper develops a theory of collective beliefs and motivated cognitions, including those concerning "money" (consumption) and happiness, as well as religion.
    JEL: D31 D72 D80 E62
    Date: 2005–03
  7. By: Sougata Poddar (National University of Singapore); Uday Bhanu Sinha (Indian Statistical Institute)
    Abstract: In the literature of patent licensing, most of the studies are done where new technology is transferred from a cost-efficient firm (patentee) to a less efficient firm (licensee). However, R&D intensive firms are usually based in high wage countries whereas the cost-efficient firms are based in low wage countries. As a result R&D intensive firms are not necessarily the most cost -efficient firms in the industry, although in most cases they are the patentee firms. Given this backdrop, we study a situation of patent licensing where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production to its cost-efficient rival. We look for optimal licensing arrangements in this environment. This framework also provides a platform to bridge the literature on external and internal patentees.
    Keywords: licensing, fixed fee, royalty, two-part tariff, quantity competition, Innovation
    JEL: D43 D45 L13
  8. By: David Law; Nathan McLellan (New Zealand Treasury)
    Abstract: This paper evaluates the contributions from firm entry, exit and continuation to labour productivity growth in New Zealand over the period 1995 to 2003. Decomposition techniques developed by Griliches and Regev (1995) and by Foster, Haltiwanger and Krizan (1998) are employed. Results suggest significant heterogeneity across both industries and firms. Most entering firms’ initial level of labour productivity is below the industry average but grows rapidly thereafter. Continuing firms generally add to industry labour productivity growth. On average exiting firms experience stagnant or declining labour productivity in the years leading up to their death, and when they eventually die most have below average labour productivity compared to their industry. This pattern persists even at a highly disaggregated industry level and indicates that firm turnover has positively contributed to labour productivity growth in New Zealand.
    Keywords: Firm Performance; Entry; Exit; Turnover; Mobility; Labour Productivity; New Zealand
    JEL: D21
    Date: 2005–04
  9. By: Chew Soo Hong; Guofu Tan
    Abstract: This paper studies the market for monopolistically supplied sweepstakes. We derive equilibrium demands for fixed-prize and variable-prize sweepstakes and determine the profit maximizing prize level and payout ratio respectively. It can be profitable to offer each type of sweepstake when there are large enough number of weighted utility consumers who have constant absolute risk attitudes, are strictly averse to small as well as symmetric risks, and display longshot preference behavior. Moreover, for the variable-prize sweepstake, the supplier will generally find it profitable to combine sweepstakes from two populations, o?ering a single sweepstake to the combined population. This corroborates the recent spate of mergers of smaller state lotteries into larger ones.
    Keywords: Sweepstakes, risk aversion, longshot preference behavior, weighted utility model, Nash equilibrium
    JEL: D40 D80 L1 H40
    Date: 2004–10
  10. By: Harrison Cheng
    Abstract: We use the duality in linear programming to solve the problem of optimal contracts with moral hazards. We show the importance of allowing the partners to throw away outputs under some contingencies. A two-step procedure is used to find the optimal contracts. The first step minimizes the loss from undistributed outputs, and in the second step, a second best solution is found. A characterization of the optimal contracts in 2-by-2-by-2 partnership games is o?ered. Such contracts implement an optimal strategy profile which either has no incentive cost to implement or is near a pure strategy profile.
    Keywords: optimal sharing contracts, partnership games, moral hazards, duality, linear programming
    JEL: D23 D8
    Date: 2004–08
  11. By: Harrison Cheng
    Abstract: A widely accepted view says that Folk Theorem holds in the repeated Cournot oligopoly games with imperfect price signals satisfying generic conditions. We show that this view is not justi- fied. We argue that maintaining asymptotic joint monopoly outcome is not possible with noisy price signals. When firms have the choice of increasing outputs at equilibrium as a deviation strategy, it is not possible to maintain such collusive outcome, even if the discount rate is close to 1.
    Keywords: Oligopoly, ineffciency, repeated games, imperfect price signal, Folk Theorem
    JEL: D23 D8
    Date: 2005–01

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