nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒07‒25
seven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  2. The role of networks in collective action with costly communication. By Christian R. Jaramillo H.
  3. Innovation races: An experimental study on strategic research activities By Uwe Cantner; Andreas Nicklisch; Torsten Weiland
  4. Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics By Martin Hellwig
  5. Monopoly Prices versus Ramsey-Boiteux Prices: Are they "similar", and: Does it matter? By Felix Höffler
  6. The Role of Rivalry. Public Goods versus Common-Pool Resources By Frank P. Maier-Rigaud; Jose Apesteguia
  7. Nonlinear Incentive Provision in Walrasian Markets: A Cournot Convergence Approach By Martin Hellwig

  1. By: Paolo Angelini (Bank of Italy, Economic Research Department); Andrea Generale (Bank of Italy, Economic Research Department)
    Abstract: We address the question in the title using survey-based measures of financial constraints, as opposed to the proxies typically used in the literature. We find that in our dataset of Italian firms, those declaring to be financially constrained are smaller and younger than the others. However, the size distribution of non constrained firms is significantly skewed, and virtually overlaps with the FSD for the entire sample. Similar conclusions are drawn from the analysis of a large subsample comprising very young firms. These results are broadly confirmed using several non survey-based proxies of financial constraints, and over a second large sample including firms from OECD and non OECD countries. The analysis of the latter dataset suggests that financial constraints are a relatively more serious problem in developing countries. We conclude that financial constraints cannot be the main determinant of the FSD evolution over time, especially in financially developed economies.
    Keywords: firm size distribution, financial constraints.
    JEL: L11
    Date: 2005–06
  2. By: Christian R. Jaramillo H.
    Abstract: Individuals frequently contribute their resources voluntarily to provide public goods. This paper models the manner in which the linkage between members in a community influences the likelihood of such actions through spontaneous activism in networks. The model I use abstracts from the issue of free-riding behavior by means of small deviations from standard preferences. Instead, it concentrates on the communication aspect of provision through collective action. The solution concept is Nash equilibrium. I find that the likelihood of efficient provision of a discrete public good in random social networks increases very rapidly for parameter values where the network experiences a phase transition and large-scale decentralized activism becomes feasible. As a result, the model shows that successful coordination may be more readily achieved the larger the population is, provided its members are sufficiently connected. In contrast with previous results in the literature, this results holds even as the size of the population increases without bound, and it is consistent with the existence of largescale activism in large populations.
    Keywords: Collective Action
    JEL: D70
    Date: 2005–06–25
  3. By: Uwe Cantner; Andreas Nicklisch; Torsten Weiland
    Abstract: In an experimental setting, firms in a duopoly market engage in a patent tournament and compete for profit-enhancing product advancements. The firms generate income by matching exogenously defined demand preferences with an appropriately composed product portfolio of their own. Demand preferences are initially unknown and first need to be revealed by an investigation of the possible product variations. The better firms approximate demand preferences, the higher their profits. In the ensuing innovation race, firms interact through information spillovers resulting from the imperfect appropriability of research successes. In the random period of the experiment, the continuity of the search process is disturbed by an exogenous shock that affects both the supply and demand side and again spurs research competition. Firms may henceforth explore an enlarged product space in attempting to match the equally modified demand preferences. In our analysis, we explore the behavioral regularities of agents who are engaged in innovation activities. As a key element we test to what extend relative economic performance exercises a stimulating effect on the implementation of innovation and imitation strategies.
    Keywords: Innovation, Imitation, Patent Tournament, Trial and Error Process
    JEL: D81 O31
    Date: 2005–07
  4. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.
    Keywords: Optimal Income Taxation, Public Goods, Public-Sector Pricing, Multidimensional Mechanism Design, Ramsey-Boiteux Pricing
    JEL: D82 H20 H40
    Date: 2004–11
  5. By: Felix Höffler (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: Ramsey-Boiteux prices and monopoly prices are frequently regarded as being similar. This might suggest that, in particular in network industries with large fixed costs, sometimes monopoly pricing is close to the Ramsey-Boiteux second best and welfare superior to imperfectly regulated prices. This paper tries to specify what is meant by "being similar", and it analyzes the welfare implications that can be drawn from comparing both sets of prices. Interdependence of demand and the impact of competition are discussed. We reinforce the view that monopoly prices are usually not "similar", and even if they are, this implies no positive welfare judgments on monopoly pricing.
    Keywords: Ramsey Pricing, Regulation, Access Pricing, Termination
    JEL: L33 L50 L94
    Date: 2005–04
  6. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Jose Apesteguia
    Abstract: Despite a large theoretical and empirical literature on public goods and common-pool resources, a systematic comparison of these two types of social dilemmas is lacking. In fact, there is considerable confusion about these two types of dilemma situations. As a result, they are often treated alike. In this paper we argue that the degree of rivalry is the fundamental difference between the two games. We show that rivalry implies that both games cannot be represented by the same game theoretic structure. Fur-thermore, we experimentally study behavior in a quadratic public good and a quadratic common-pool resource game with identical Pareto opti-mum but divergent interior Nash equilibria. The results show that partici-pants clearly perceive the differences in rivalry. Aggregate behavior in both games starts relatively close to Pareto efficiency and converges to the respective Nash equilibrium.
  7. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled as Cournot monopolists or oligopolists. The other agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers’ net trades. When there are many agents to share the insurance buyer’s risk, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers, equilibria fail to exist or are bounded away from being second-best.
    Keywords: Insurance, Moral Hazard, Incentive Contracting, Walrasian Markets, Rational-Expectations, Cournot Equilibrium
    JEL: D50 D62 D80

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