nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒09‒16
seventeen papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Advocacy and Dynamic Delegation By Ralph Boleslavsky; Tracy R. Lewis
  2. On the Smooth Ambiguity Model: A Reply By Peter Klibanoff; Massimo Marinacci; Sujoy Mukerji
  4. Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process By Ralph Boleslavsky; Maher Said
  5. Sharing the surplus in games with externalities within and across issues By Effrosyni Diamantoudi; Inés Macho-Stadler; David Pérez-Castrillo; Licun Xue
  6. Re-Thinking Reputation By Andrew Mell
  7. Equilibrium and Strategic Communication in the Adverse Selection Insurance Model By Gerald D. Jaynes
  8. Endogenous Competition Alters the Structure of Optimal Auctions By Ronald M Harstad
  9. An Efficient Multi-Item Dynamic Auction with Budget Constrained Bidders By Talman, A.J.J.; Yang, Z.F.
  10. Learning More by Doing Less By Ralph Boleslavsky; Christopher Cotton
  11. On the Existence of a Ramsey Equilibrium with Endogenous Labor Supply and Borrowing Constraints By Stefano Bosi; Cuong Le Van
  12. Naïve and capricious: Stumbling into the ring of self-control conflict By Kristian Ove R. Myrseth; Conny Wollbrant
  13. Cooperative games with incomplete information: Some open problems By Françoise Forges; Roberto Serrano
  14. Impossibilities of Paretian Social Welfare Functions for Infinite Utility Streams with Distributive Equity By Sakamoto, Norihito
  15. No-Envy, Efficiency, and Collective Rationality By Sakamoto, Norihito
  16. Inner Core, Asymmetric Nash Bargaining Solutions and Competitive Payoffs By Sonja Brangewitz; Jan-Philip Gamp
  17. Afriat's Theorem and Some Extensions to Choice under Uncertainty By Diewert, Erwin

  1. By: Ralph Boleslavsky (Department of Economics, University of Miami); Tracy R. Lewis (Fuqua School of Business, Duke University)
    Abstract: An advocate for a special interest provides information to an uninformed planner for her to consider in making a sequence of important decisions. Although the advocate may have valuable information for the planner, it is is also known that the advocate is biased and will distort his advice if necessary to influence the planner's decision. Each time she repeats the problem, however, the planner learns about the accuracy of the advocate's recommendation, mitigating some of the advocate's incentive to act in a self-serving manner. We propose a theory of dynamic delegation to explain why planners do  sometimes rely on information provided by advocates in making decisions. The interaction takes place in two phases, a communication phase, followed by a sequence of decisions and learning by the planner. We ∑first establish that the capability to delegate dynamically is a necessary condition for influential communication in this setting, and characterize the optimal dynamic delegation policy. Next, we show that a planner may prefer to consult an an advocate rather than a neutral adviser. Finally, we demonstrate how an advocate gains influence with a decision maker by making his preferences for actions unpredictable. Our results have implications for a variety of real world interactions including regulation, organization, and whistleblowing.
    Keywords: Delegation, Advocates, Cheap Talk
    JEL: D82 D86
    Date: 2011
  2. By: Peter Klibanoff; Massimo Marinacci; Sujoy Mukerji
    Abstract: We find that Epstein (2010)'s Ellsberg-style thought experiments pose, contrary to his claims, no paradox or difficulty for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005). Not only are the thought experiments naturally handled by the smooth ambiguity model, but our reanalysis shows that they highlight some of its strengths compared to models such as the maxmin expected utility model (Gilboa and Schmeidler (1989)). In particular, these examples pose no challenge to the model's foundations, interpretation of the model as affording a separation of ambiguity and ambiguity attitude or the potential for calibrating ambiguity attitude in the model.
    Date: 2011
  3. By: Marco Faravelli; Randall Walsh
    Date: 2011–09–08
  4. By: Ralph Boleslavsky (Department of Economics, University of Miami); Maher Said (Olin Business School, Washington University in St. Louis)
    Abstract: We examine a model of long-term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves. In addition, her realized values are also her private information. We characterize the profit-maximizing long-term contract offered by a monopolist in this setting. This optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher real- ized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time (eventually leading to inefficient early termination of the re- lationship). Moreover, the menu choices differ by future generosity, with more costly (up- front) plans guaranteeing greater quantity provision in the future. Thus, the seller screens buyers in the initial period, and then progressively screens additional buyers so as to re- duce the information rents paid in future periods.
    Keywords: Asymmetric information, Dynamic mechanism design, Long-term contracts, Term life insurance, Sequential screening.
    JEL: C73 D82 D86
    Date: 2011
  5. By: Effrosyni Diamantoudi; Inés Macho-Stadler; David Pérez-Castrillo; Licun Xue
    Abstract: We consider environments in which agents can cooperate on multiple issues and externalities are present both within and across issues. We propose a way to extend (Shapley) values that have been put forward to deal with externalities within issues to games where there are externalities within and across issues. We characterize our proposal through axioms that extend the Shapley axioms to our more general environment.
    Keywords: externalities, cooperative game theory, Shapley value, linked issues.
    JEL: C71 D62
    Date: 2011–08–01
  6. By: Andrew Mell
    Abstract: Economic models of reputation make strong assumptions about the information available to players. In particular, it is assumed that they know the entire history of the game to date. Such models can seldom reproduce the cycling of reputations we observe in the real world. We build a model of reputation with more realistic assumptions about the partial knowledge of the history that would be available and how it might be used. This new approach can explain cycles in reputations.
    Keywords: Reputation, monitoring, expectations formation
    JEL: D82 D84
    Date: 2011
  7. By: Gerald D. Jaynes
    Date: 2011–09–03
  8. By: Ronald M Harstad
    Abstract: Potential bidders respond to a sellerfs choice of auction mechanism for a common-value or affiliated-values asset by endogenous decisions whether to incur an information-acquisition cost (and observe a private estimate), or forgo competing. Privately informed participants decide whether to incur a bid-preparation cost and pay an entry fee, or cease competing. Auction rules and information flows are quite general; participation decisions may be simultaneous or sequential. The resulting revenue identity for any auction mechanism implies that optimal auctions are allocatively efficient; a nontrivial reserve price is revenue-inferior. Optimal auctions are otherwise contentless: any auction that sells without reserve becomes optimal by adjusting any one of the continuous, spanning parameters, e.g., the entry fee. Sellerfs surplus-extracting tools are now substitutes, not complements. Many econometric studies of auction markets are seen to be flawed in their identification of the number of bidders.
    Date: 2011–09
  9. By: Talman, A.J.J.; Yang, Z.F. (Tilburg University, Center for Economic Research)
    Abstract: An auctioneer wishes to sell several heterogeneous indivisible items to a group of potential bidders. Each bidder has valuations over the items but faces a budget constraint and may therefore not be able to pay up to his valuations. In such markets, a competitive equilibrium typically fails to exist. We develop a dynamic auction and prove that the auction always finds a core allocation in finitely many rounds. The core allocation consists of an assignment of the items and its associated supporting price vector.
    Keywords: Dynamic auction;budget constraint;core.
    JEL: D44
    Date: 2011
  10. By: Ralph Boleslavsky (Department of Economics, University of Miami); Christopher Cotton (Department of Economics, University of Miami)
    Abstract: A principal must decide whether to implement each of two independent proposals (e.g., earmark requests, policy reforms, grant funding) of unknown quality. Each proposal is represented by an agent who advocates by producing evidence about quality. Although the principal prefers the most-informative evidence, agents strategically choose less-informative evidence to maximize the probability the principal implements their proposals. In this setting, we show how limited capacity (i.e., the ability of the principal to implement at most one of the two proposals) can motivate agents to produce more-informative evidence in an effort to convince the principal that their proposal is better than the alternative. We derive reasonable conditions under which the principal prefers limited capacity to unlimited capacity.
    Keywords: Strategic search, Evidence production, Persuasion, Lobbying.
    JEL: D72 D78 D83 L15
    Date: 2011
  11. By: Stefano Bosi (THEMA); Cuong Le Van (CNRS, CES, Exeter University, Paris School of Economics, VCREME.)
    Abstract: In this paper, we study the existence of an intertemporal equilibrium in a Ramsey model with heterogenous discounting, elastic labor supply and borrowing constraints. Applying a fixed-point argument by Gale and Mas-Colell (1975), we prove the existence of an equilibrium in a truncated bounded economy. This equilibrium is also an equilibrium of any unbounded economy with the same fundamentals. Finally, we prove the existence of an equilibrium of an infinite-horizon economy as a limit of a sequence of truncated economies. On the one hand, our paper generalizes Becker et al. (1991) because of the elastic labor supply and, on the other hand, Bosi and Seegmuller (2010) because of a proof of global existence. Our methodology can be applied to other Ramsey models with different market imperfections.
    Keywords: Existence of equilibrium, Ramsey model, heterogeneous agents,endogenous labor supply, borrowing constraint.
    JEL: C62 D31 D91
    Date: 2011
  12. By: Kristian Ove R. Myrseth (ESMT European School of Management and Technology); Conny Wollbrant (University of Gothenburg)
    Abstract: We model self-control conflict as a stochastic struggle of an agent against a visceral influence, which impels the agent to act sub-optimally. The agent holds costly pre-commitment technology to avoid the conflict altogether and may decide whether to procure pre-commitment or to confront the visceral influence. We examine naïve expectations for the strength of the visceral influence; underestimating the visceral influence may lead the agent to exaggerate the expected utility of resisting temptation, and so mistakenly forego pre-commitment. Our analysis reveals conditions under which higher willpower – and lower visceral influence – reduces welfare. We further demonstrate that lowering risk aversion could reduce welfare. The aforementioned results call into question certain policy measures aimed at helping people improve their own behavior.
    Keywords: self-control, temptation, inter-temporal choice, pre-commitment
    JEL: D01 D69 D90
    Date: 2011–09–01
  13. By: Françoise Forges (l'Université Paris-Dauphine); Roberto Serrano (Brown University and IMDEA Social Sciences Institute)
    Abstract: This is a brief survey describing some of the recent progress and open problems in the area of cooperative games with incomplete information. We discuss exchange economies, cooperative Bayesian games with orthogonal coalitions, and issues of cooperation in non-cooperative Bayesian games.
    Keywords: strategic externalities; informational externalities; exchange economies; cooperative games with orthogonal coalitions; non-cooperative bayesian games
    JEL: C71 C72 D51 D82
    Date: 2011–09–01
  14. By: Sakamoto, Norihito
    Abstract: This paper examines the logical relationship between distributive equity and efficiency in aggregating infinite utility streams. Our main results show that there exist social welfare functions which satisfy the axioms of Pigou-Dalton Transfer Principle and a weak version of efficiency, but there exists no social welfare function which satisfies all of the distributive equity requirements and Weak Pareto Principle at the same time. Thus, we can prove that no Paretian ranking can satisfy the numerical representability and all of the distributive equity properties in the setting of intertemporal social choice.
    Date: 2011–08
  15. By: Sakamoto, Norihito
    Abstract: We consider the problem of a fair collective choice function (fair CCF) which maps each profile of extended preference orderings into the set of fair social states (the set consists of alternatives which are both Pareto efficient and envy-free) when such a set exists. Our main objective is to examine compatibility of fair social choices with collective rationality. We formulate desirable properties of collective rationality, and look for CCFs satisfying them. Next, we show that there is no CCF that satisfies most of the choice-consistency properties and a simple concept of fairness simultaneously. Moreover, we reveal that there exists no collective choice function that selects efficient and envy-free states cannot be rationalized by a social preference relation.
    Date: 2011–08
  16. By: Sonja Brangewitz (Institute of Mathematical Economics, Bielefeld University); Jan-Philip Gamp (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We investigate the relationship between the inner core and asymmetric Nash bargaining solutions for n-person bargaining games with complete information. We show that the set of asymmetric Nash bargaining solutions for different strictly positive vectors of weights coincides with the inner core if all points in the underlying bargaining set are strictly positive. Furthermore, we prove that every bargaining game is a market game. By using the results of Qin (1993) we conclude that for every possible vector of weights of the asymmetric Nash bargaining solution there exists an economy that has this asymmetric Nash bargaining solution as its unique competitive payoff vector. We relate the literature of Trockel (1996, 2005) with the ideas of Qin (1993). Our result can be seen as a market foundation for every asymmetric Nash bargaining solution in analogy to the results on non-cooperative foundations of cooperative games.
    Keywords: Inner Core, Asymmetric Nash Bargaining Solution, Competitive Payoffs, Market Games
    JEL: C71 C78 D51
    Date: 2011–08
  17. By: Diewert, Erwin
    Abstract: The first part of the paper reviews the methodology developed by Sydney Afriat for determining whether a finite set of price and quantity data are consistent with utility maximizing behavior by a consumer. Some extensions of his basic model to models of consumer behavior where the structure of preferences is restricted in some way are also explained. Examples of special structures are homotheticity, separability and quasilinearity of the utility function. The second half of the paper is devoted to developing Afriat type consistency tests for expected and nonexpected utility maximizing behavior.
    Keywords: Revealed preference theory, Afriat inequalities, nonparametric approach to demand theory, homotheticity, separability, quasilinearity, testing for max
    Date: 2011–09–01

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