nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒10‒22
twelve papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Pre-Auction Offers in Asymmetric First-Price and Second-Price Auctions By Kirkegaard, René; Per Baltzer Overgaard
  2. Evolution of the Relative Price of Goods and Services in a Neoclassical Model of Capital Accumulation By Vladimir Klyuev
  3. Competition in Indian Banking By A. Prasad; Saibal Ghosh
  4. Competition and Efficiency in Banking: Behavioral Evidence from Ghana By Johan Mathisen; Thierry D. Buchs
  5. Asset Mispricing Due to Cognitive Dissonance By Bernhard Eckwert; Burkhard Drees
  6. A Simple Business-cycle Model with Schumpeterian Features By Luís Costa; Huw Dixon
  7. Competition and Well-Being By Jordi Brandts; Arno Riedl; Frans van Winden
  8. Improving the Modeling of Couples' Labour Supply By Robert Breunig; Deborah A. Cobb-Clark; Xiaodong Gong
  9. How Many Winners Are Good to Have? On Tournaments with Sabotage By Christine Harbring; Bernd Irlenbusch
  10. Subjective Expectations Equilibrium in Economies with Uncertain Delivery By Joao Correia-da-Silva; Carlos Hervés-Beloso

  1. By: Kirkegaard, René; Per Baltzer Overgaard (Department of Economics, University of Aarhus, Denmark)
    Abstract: We consider “must-sell” auctions with asymmetric buyers. First, we study auctions with two asymmetric buyers, where the distribution of valuations of the strong buyer is “stretched” relative to that of the weak buyer. Then, it is known that ineffcient first-price auctions are more profitable for the seller than effcient second-price auctions. This is because the former favor the weak buyer. However, we show that the seller can do one better by augmenting the first-price auction by a pre-auction offer made exclusively to the strong buyer. Should the strong buyer reject the offer, the object is simply sold in an ordinary first-price auction. The result is driven by the fact that the unmodified first-price auction is too favorable to the weak buyer, and that the pre-auction offer allows some correction of this to the benefit of the seller. Secondly, we show quite generally that pre-auction offers never increase the profitability of second-price auctions, since they introduce the wrong kind of favoritism from the perspective of seller profits.
    Keywords: first-price and second-price auctions, asymmetric bidders, pre-auction offers.
    JEL: D44 D82
    Date: 2005–10–13
  2. By: Vladimir Klyuev
    Abstract: This paper provides an explanation for the secular increase in the price of services relative to that of manufactured goods that relies on capital accumulation rather than on an exogenous total factor productivity growth differential. The key assumptions of the two-sector, intertemporal optimizing model are relatively high capital intensity in the production of goods and limited cross-border capital mobility, allowing the interest rate to vary. With plausible parameterization, the model also predicts a decline in the employment share of the goods sector over time.
    Keywords: Capital accumulation , Capital flows , Capital goods , Consumer goods , Economic models ,
    Date: 2004–11–11
  3. By: A. Prasad; Saibal Ghosh
    Abstract: It is widely perceived that competition in the Indian banking sector has increased since the inception of the financial sector reforms in 1992. Using annual data on scheduled commercial banks for the period 1996-2004, the paper evaluates the validity of this claim in the Indian context. The empirical evidence reveals that the Indian banking system operates under competitive conditions and earns revenues as if under monopolistic competition.
    Keywords: Competition , Banking , India , Bank reforms ,
    Date: 2005–07–28
  4. By: Johan Mathisen; Thierry D. Buchs
    Abstract: This paper assesses the degree of bank competition and discusses efficiency with regard to banks' financial intermediation in Ghana. By applying panel data to variables derived from a theoretical model, we find evidence for a noncompetitive market structure in the Ghanaian banking system, which may be hampering financial intermediation. We argue that the structure, as well as the other market characteristics, constitutes an indirect barrier to entry thereby shielding the large profits in the Ghanaian banking system.
    Keywords: Competition , Banking , Ghana , Economic models ,
    Date: 2005–02–03
  5. By: Bernhard Eckwert; Burkhard Drees
    Abstract: The behavior of equity prices is analyzed in a general equilibrium model where agents have preferences not only over consumption but also (implicitly) over their beliefs. To alleviate cognitive dissonance, investors endogenously choose to ignore information that conflicts too much with their ex ante expectations. Depending on the new information that is released, systematic overvaluation and undervaluation of equity prices arise, as well as too much and too little equity price volatility. The distortion in the asset pricing process is closely related to the precision of the information.
    Date: 2005–01–28
  6. By: Luís Costa; Huw Dixon
    Abstract: We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new ‘prosperity plateau,’ but contractionary shocks only affect the market power of mature industries.
    Keywords: Entry; Hysteresis; Mark-up.
    JEL: E62 L13 L16
  7. By: Jordi Brandts (Institut d'Anàlisi Econòmica (CSIC), Barcelona); Arno Riedl (University of Maastricht and IZA Bonn); Frans van Winden (Tinbergen Institute and University of Amsterdam)
    Abstract: This paper experimentally studies the effects of competition in an environment where people's actions can not be contractually fixed. We find that, in comparison with no competition, the presence of competition does neither increase efficiency nor does it yield any gains in earnings for the short side of the exchange relation. Moreover, competition has a clearly negative impact on the disposition towards others and on the experienced well-being of those on the long side. Since subjective well-being improves only for those on the short side competition contributes to larger inequalities in experienced well-being. All in all competition does not show up as a positive force in our environment.
    Keywords: competition, happiness, well-being, laboratory experiment, emotions, market interaction
    JEL: A13 C92 D30 J50 M50
    Date: 2005–09
  8. By: Robert Breunig (Australian National University); Deborah A. Cobb-Clark (Australian National University and IZA Bonn); Xiaodong Gong (Australian National University and IZA Bonn)
    Abstract: We study the work hours of Australian couples, using a neoclassical labour-supply model in which couples choose from a small, realistic set of possible wife-husband working hour combinations We introduce three improvements to this standard model. First, we allow partners' preferences about non-market time to be correlated. We also correct the estimates to account for the fact that we estimate the non-observable wage rates of individuals who do not work. Lastly, we allow each individual's preferences for non-market time to be correlated with her or his wage rate. These changes, which substantially enhance the realism of the standard, discretized labour-supply model, also have an important impact on the results. We estimate the model using HILDA data and find wage elasticities of labour supply - 0.26 for men and 0.50 for women - that are twice as large as those found without these three innovations. Using simulation methods, we then analyze the expected impact of the 2005/06 Australian tax reform. As a result of the tax cuts, we expect working hours to increase by 1.7 per cent for both men and women and household after-tax incomes to increase by approximately $60 per week on average. For families with two wage earners, each earning between $25,000 and $55,000 per year, our model predicts an after-tax increase in income of $38 after accounting for these labour supply effects - much larger than the Australian Government's own prediction of $12, which does not allow for labour supply effects.
    Keywords: family labour supply, Australia, simulated maximum likelihood, discretized structural model
    JEL: C51 D10 J22
    Date: 2005–09
  9. By: Christine Harbring (University of Cologne); Bernd Irlenbusch (London School of Economics and IZA Bonn)
    Abstract: From an employer's perspective a tournament should induce agents to exert productive activities but refrain from destructive ones. We experimentally test the predictive power of a tournament model which suggests that - within a reasonable framework - productive and destructive activities are not influenced neither by the number of agents taking part in the tournament nor by the fraction of the winner prizes. Our results clearly confirm that sabotage in tournaments indeed occurs. While tournament size has virtually no effect on behavior, a balanced fraction of winner and loser prizes seems to particularly enhance productive activities.
    Keywords: relative performance evaluation, personnel economics, sabotage, experiments
    JEL: D23 J33 L23 C72
    Date: 2005–09
  10. By: Joao Correia-da-Silva (Faculdade de Economia, Universidade do Porto); Carlos Hervés-Beloso (Univ. Vigo)
    Abstract: In economies with uncertain delivery, agents trade their endowments for lists instead of bundles. A list specifies a set of bundles such that the agent has the right to receive one of them. In this paper, with continuity conditions on private beliefs about the bundle that will be delivered, we establish existence of a subjective expectations equilibrium.
    Keywords: Private information, Uncertain delivery, Subjective expectations equilibrium, General equilibrium, Incomplete information, Real options.
    JEL: C62 D51 D82
    Date: 2005–10
  11. By: Peter W. De Langen (Erasmus University); Athanasios A. Pallis (University of the Aegean)
    Abstract: Intra-port competition is widely regarded as beneficial, for the competitiveness of ports, for local and national economies and for consumers and exporting industries. The aim of the paper is to analyse the benefits resulting from the presence of intra-port competition. Even though this issue has been addressed before, a thorough and complete overview of the effects of intra-port competition, enabling conditions for intra-port competition and policies in case of lacking intra-port competition are absent. The paper presents first a short overview of previous studies dealing with intra-port competition. Second, it discusses the two main arguments underlying the benefits of intra-port competition. In this context, attention is given to the relation between intra-port and inter-port competition. Third, the paper examines the conditions under which these arguments are valid and intra-port competition can be introduced. Possible policy responses to limited or absent intra-port competition are discussed in this section as well. Fourth, the need to introduce effects of intra-port competition in port modelling is briefly. Finally, the paper presents empirical evidence of the effects of intra-port competition.
    Keywords: ports, intra-port competition, regulation, port policies
    JEL: L
    Date: 2005–10–17
  12. By: Bernard Lebrun (Department of Economics, York University)
    Abstract: If the value cumulative distribution functions are log-concave at the highest lower extremity of their supports of the first-price auction in the asymmetric indepent private values model.
    JEL: D44
    Date: 2004–05

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