nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒08‒15
seven papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Dynamic model of procrastination By Vrany, Martin
  2. The (sub-)optimality of the majority rule By Schmitz, Patrick W.; Tröger, Thomas
  3. Ambiguity Aversion and Absence of Trade By Alain Chateauneuf; Luciano De Castro
  4. Core and Equilibria under ambiguity By Luciano De Castro; Marialaura Pesce; Nicolas Yannelis
  5. Competitive Equilibria of Economies with a Continuum of Consumers and Aggregate Shocks By Jianjun Miao
  6. Trilateral Contract and the Hold-up Problem By Regine Oexl
  7. Affiliation, Equilibrium Existence and Revenue Ranking of Auctions By Luciano De Castro

  1. By: Vrany, Martin
    Abstract: Procrastination is the notorious tendency to postpone work for tomorrow. This paper presents a formal model of procrastination based on expectations and prospect theory, which differs signficantly from the prevalent model of O’Donoghue and Rabin. Subject is assumed to work on a task for distant reward which depends on the number of periods actually spent working, where the subject faces varying op- portunity costs of working each period before the deadline. In order to assess a hypothesis that procrastination is an evolved and stable habit, the model is rendered dynamic in that past decisions and circumstances affect the present. The model is first explored via qualitative analysis and simulations are performed to further reveal its functionality.
    Keywords: procrastination; dynamic inconsistency; intertemporal choice; prospect theory; hyperbolic discounting; expectations
    JEL: D0 D81 D84 D90 J22
    Date: 2010–10–14
  2. By: Schmitz, Patrick W.; Tröger, Thomas
    Abstract: We consider collective choice from two alternatives. Ex ante, each agent is uncertain about which alternative she prefers, and may be uncertain about the intensity of her preferences. An environment is given by a probability distribution over utility vectors that is symmetric across agents and neutral across alternatives. In many environments, the majority voting rule maximizes agents' ex-ante expected utilities among all anonymous and dominant-strategy implementable choice rules. But in some environments where the agents' utilities are stochastically correlated, other dominant-strategy choice rules are better for all agents. If utilities are stochastically independent across agents, majority voting is ex-ante optimal among all anonymous and incentive-compatible rules. We also compare rules from an interim viewpoint.
    Keywords: majority rule
    JEL: D72
    Date: 2011–06
  3. By: Alain Chateauneuf; Luciano De Castro
    Abstract: What is the effect of ambiguity aversion on trade? Although in a Bewley's model ambiguity aversion always lead to less trade, in other models this is not always true. However, we show that if the endowments are unambiguous then more ambiguity aversion implies less trade, for a very general class of preferences. The reduction in trade caused by ambiguity aversion can be as severe as to lead to no-trade. In an economy with MEU decision makers, we show that if the aggregate endowment is unanimously unambiguous then every Pareto optima allocation is also unambiguous. We also characterize the situation in which every unanimously unambiguous allocation is Pareto optimal. Finally, we show how our results can be used to explain the home-bias effect. As a useful result for our methods, we also obtain an additivity theorem for CEU and MEU decision makers that does not require comonotonicity JEL Code: D51, D6, D8
    Keywords: no-trade results, ambiguity aversion, Pareto optimality.
    Date: 2011–04–01
  4. By: Luciano De Castro; Marialaura Pesce; Nicolas Yannelis
    Abstract: This paper introduces new core and Walrasian equilibrium notions for an asymmetric information economy with non-expected utility preferences. We prove existence and incentive compatibility results for the new notions we introduce.
    Date: 2011–03–07
  5. By: Jianjun Miao
    Abstract: This paper studies competitive equilibria of a production economy with aggregate productivity shocks. There is a continuum of consumers who face borrowing constraints and individual labor endowment shocks. The dynamic economy is described in terms of sequences of aggregate distributions. The existence of sequential competitive equilibria is proven and a recursive characterization is established. In particular, it is shown that for any sequential competitive equilibrium, there exists a payoff equivalent sequential competitive equilibrium that is generated by a suitably defined recursive equilibrium with state variables including continuation value.
    Keywords: competitive equilibrium, recursive equilibrium, aggregate distribution, heterogeneity, incomplete markets
    JEL: D50 D52 E20
    Date: 2011
  6. By: Regine Oexl (Università di Padova)
    Abstract: We present a novel solution for the hold up problem, when more than two parties are involved. The case we consider is a company selling identical products to two buyers that have a common interest in inducing the seller to make a quality enhancing investment. We show that a trilateral contract may provide the correct incentives to restore optimal efficiency. The contract induces a coalition proof Nash equilibrium and holds under complete as well as incomplete information. The extension to more than two buyers is straightforward.
    Keywords: Multilateral Contract, Trilateral Contract, Hold-up Problem.
    JEL: L14 D82
    Date: 2011–01
  7. By: Luciano De Castro
    Abstract: Affiliation has been a prominent assumption in the study of economic models with statistical dependence. Despite its large number of applications, especially in auction theory, affiliation has limitations that are important to be aware of. This paper shows that affiliation is a restrictive condition and the intuition usually given for its adoption may be misleading. Also, other usual justifications for affiliation are not compelling. Moreover, some implications of affiliation — namely, equilibrium existence in first-price auctions and the revenue dominance of second-price auctions — do not generalize to other definitions of positive dependence. JEL Classification Numbers: C62, C72, D44, D82.
    Keywords: affiliation, positive dependence, statistical dependence of types, conditional independence, de Finetti’s theorem, minimally informative random variable, auctions, pure strategy equilibrium, revenue ranking.
    Date: 2010–12–01

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