nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒07‒21
eleven papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Endogenous public information and welfare By Vives, Xavier
  2. A large-market rational expectations equilibrium model By Vives, Xavier
  3. The Present and Future of Game Theory By Martin Shubik
  4. Rewarding my Self. Self Esteem, Self Determination and Motivations By Bruno, Bruna
  5. Subjective expected utility without preferences By Denis Bouyssou; Thierry Marchant
  6. Ambiguity aversion as a reason to choose tournaments By Christian Kellner; Gerhard Riener
  7. Multiattribute preference models with reference points By Denis Bouyssou; Thierry Marchant
  8. The Grand Experiment of Communism: Discovering the Trade-off between Equality and Efficiency By Etienne Farvaque; Alexander Mihailov; Alireza Naghavi
  9. On the Evolution of Collective Enforcement Institutions: Communities and Courts By Masten, S.E.; Prüfer, J.
  10. Contractual Structure and Endogenous Matching in Partnershipso By Maitreesh Ghatak; Alexander Karaivanov
  11. Measurement of consensus with a reference By José Carlos R. , Alcantud; Rocío, de Andrés; José Manuel, Cascón

  1. By: Vives, Xavier (IESE Business School)
    Abstract: This paper performs a welfare analysis of economies with private information when public information is endogenously generated and agents can condition on noisy public statistics in the rational expectations tradition. We find that equilibrium is not (restricted) efficient even when feasible allocations share similar properties to the market context (e.g., linear in information). The reason is that the market in general does not internalize the informational externality when public statistics (e.g., prices) convey information. Under strategic substitutability, equilibrium prices will tend to convey too little information when the "informational" role of prices prevails over its index of scarcity" role and too much information in the opposite case. Under strategic complementarity, prices always convey too little information. These results extend to the internal efficiency benchmark (accounting only for the collective welfare of the active players). However, received results-on the relative weights placed by agents on private and public information, when the latter is exogenous-may be overturned.
    Keywords: information externality; strategic complementarity and substitutability; asymmetric information; team solution; rational expectations; schedule competition; behavioral traders;
    Date: 2011–06–01
  2. By: Vives, Xavier (IESE Business School)
    Abstract: This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations equilibria are precluded without resorting to noise traders. The rate at which equilibria in finite replica markets with n traders approach the equilibrium in the continuum economy is 1 n , slower than the rate of convergence to price-taking behavior (1 n ); and the per capita welfare loss is dissipated at the rate 1 n , slower than the rate at which inefficiency due to market power vanishes (1 n2 ). The model admits a einterpretation in which behavioral traders coexist with rational traders, and it allows us to characterize the amount of induced mispricing.
    Keywords: adverse selection; information acquisition; double auction; multi-unit auctions; rate convergence; behavioral traders; complementarities;
    Date: 2011–05–07
  3. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: A broad nontechnical coverage of many of the developments in game theory since the 1950s is given together with some comments on important open problems and where some of the developments may take place. The nearly 90 references given serve only as a minimal guide to the many thousands of books and articles that have been written. The purpose here is to present a broad brush picture of the many areas of study and application that have come into being. The use of deep techniques flourishes best when it stays in touch with application. There is a vital symbiotic relationship between good theory and practice. The breakneck speed of development of game theory calls for an appreciation of both the many realities of conflict, coordination and cooperation and the abstract investigation of all of them.
    Keywords: Game theory, Application and theory, Social sciences, Law, Experimental gaming, conflict, Coordination and cooperation
    JEL: C7 C9
    Date: 2011–07
  4. By: Bruno, Bruna
    Abstract: The paper presents a model where the self esteem and the self determination mechanisms are explicitly modelled in order to explain how they affect the intrinsic motivation and its impact on individual choices. The aim is to reconcile different explanations (and consequences) of the motivation crowding theory in a unique theoretical framework where the locus of control is introduced in a one period maximisation problem and the intrinsic motivation is assumed as an exogenous psychological attitude. The analysis is based on the different effect of the self esteem mechanism on intrinsic motivation input oriented or output oriented. Results show that crowding out of intrinsic motivation depends on the self determination sensitivity and the individual belief about one’s own self.
    Keywords: intrinsic motivation; crowding out; self-esteem; self-determination.
    JEL: D11 D64 J22
    Date: 2011–07–13
  5. By: Denis Bouyssou (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - CNRS : UMR7024 - Université Paris Dauphine - Paris IX); Thierry Marchant (Department of Data Analysis - Ghent University)
    Abstract: This paper proposes a theory of subjective expected utility based on primitives only involving the fact that an act can be judged either "attractive" or "unattractive". We give conditions implying that there are a utility function on the set of consequences and a probability distribution on the set of states such that attractive acts have a subjective expected utility above some threshold. The numerical representation that is obtained has strong uniqueness properties.
    Keywords: Subjective Expected Utility ; Conjoint Measurement
    Date: 2011–06–14
  6. By: Christian Kellner (University of Bonn); Gerhard Riener (University of Jena and Max-Planck Institute of Economics, Jena)
    Abstract: We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. When output distributions are uncertain, models of ambiguity aversion suggest that tournaments may become more attractive than independent wage contracts, in contrast to the case where output distributions are known. We do so by presenting agents with a choice between tournaments and independent contracts, which are designed in a way that under uncertainty about output distribution (that is, under ambiguity), ambiguity averse agents should typically prefer tournaments, while ambiguity neutral agents prefer independent contracts, independent of their degree of risk aversion. This is the case, because the tournament removes all ambiguity about the equilibrium wages. We compare the share of participants who choose the tournament under ambiguity with the share of participants choosing the tournament in a control treatment, where output distributions are know. As the theory predicts, we find indeed that under ambiguity the share of agents who choose the tournaments is higher than in the case of known output distributions.
    Keywords: Ambiguity aversion, tournaments, Ellsberg urn, contract design
    JEL: D01 D81 M55
    Date: 2011–07–11
  7. By: Denis Bouyssou (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - CNRS : UMR7024 - Université Paris Dauphine - Paris IX); Thierry Marchant (Department of Data Analysis - Ghent University)
    Abstract: In the context of multiple attribute decision making, preference models making use of reference points in an ordinal way have recently been introduced in the literature. This text proposes an axiomatic analysis of such models, with a particular emphasis on the case in which there is only one reference point. Our analysis uses a general conjoint measurement model resting on the study of traces induced on attributes by the preference relation and using conditions guaranteeing that these traces are complete. Models using reference points are shown to be a particular case of this general model. The number of reference points is linked to the number of equivalence classes distinguished by the traces. When there is only one reference point, the in- duced traces are quite rough, distinguishing at most two distinct equivalence classes. We study the relation between the model using a single reference point and other preference models proposed in the literature.
    Date: 2011–05–31
  8. By: Etienne Farvaque (Department of Economics, University of Lille 1); Alexander Mihailov (Department of Economics, University of Reading); Alireza Naghavi (Department of Economics, Unioversity of Bologna)
    Abstract: This paper aims to explain the rise and fall of communism by exploring the interplay between economic incentives and social preferences in different economic systems. We introduce inequality-averse and inefficiency-averse agents responding to economic incentives and transmitting their ideology as they are affected by evolving outcomes. We analyze their conflict through the interaction between leaders with economic power and followers with ideological determination. The socioeconomic dynamics of our model generate a pendulum-like switch from markets to a centrally-planned economy abolishing private ownership, and back to restoring market incentives. The grand experiment of communism is thus characterized to have led to the discovery of a trade-off between equality and efficiency at the scale of alternative economic systems.
    Keywords: capitalism, communism, inequality, inefficiency, ideological transmission, economic transititions
    JEL: C72 D31 D63 D74 D83 P51
    Date: 2011–06–30
  9. By: Masten, S.E.; Prüfer, J. (Tilburg University, Center for Economic Research)
    Abstract: Impersonal exchange has been a major driver of economic development. But transactors with no stake in maintaining an ongoing relationship have little incentive to honor deals. Therefore, all economies have developed institutions to support honest trade and realize the gains of impersonal exchange. We analyze the relative capacities of communities (or social networks) and courts to secure cooperation among heterogeneous, impersonal transactors. We find that communities and courts are complementary in the sense that they tend to support cooperation for different sets of transactions but that the existence of courts weakens the effectiveness of community enforcement. By relating the effectiveness of enforcement institutions to changes in the cost and risks of long-distance trade, driven in part by improvement in shipbuilding methods, our analysis also provides an explanation for the emergence of the medieval Law Merchant and its subsequent supersession by state courts.
    Keywords: Institutions;Contract Enforcement;Communities;Courts;Social Networks;Law Merchant;Lex Mercatoria;Commercial Revolution.
    JEL: D02 D71 N43 P48
    Date: 2011
  10. By: Maitreesh Ghatak; Alexander Karaivanov
    Abstract: We analyze optimal contracts and optimal matching patterns in a simple model of partnership where there is a double-sided moral hazard problem and potential partners differ in their productivity in two tasks. It is possible for one individual to accomplish both tasks (sole production) and there are no agency costs associated with this option but partnerships are a better option if comparative advantages are significant. We show that the presence of moral hazard can reverse the optimal matching pattern relative to the first best, and that even if partnerships are optimal for an exogenously given pair of types, they may not be observed in equilibrium when matching is endogenous, suggesting that empirical studies on agency costs are likely to underestimate their extent by focusing on the intensive margin and ignoring the extensive margin.
    Keywords: Endogenous matching, partnerships, contractual structure
    JEL: D21 D23 D82 D12 Q15
    Date: 2011–02
  11. By: José Carlos R. , Alcantud; Rocío, de Andrés; José Manuel, Cascón
    Abstract: In this work we contribute to the formal analysis of the measurement of consensus in a society. Instead of approaching the topic from an absolute perspective we are concerned with a practical application: the proposal of a decision mechanism with respect to which consensus is measured. Surprisingly this produces a powerful unifying model, a restriction of which is deeply analysed. We also study the axiomatic properties of particular expressions for consensus with various salient social rules as a reference.
    Keywords: Consensus; coherence; measurement; Borda rule; Copeland rule
    JEL: D71
    Date: 2011–07–11

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