nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒10‒15
ten papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Generalized reduced-form auctions: a network-flow approach By Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
  2. A reinforcement learning approach to solving incomplete market models with aggregate uncertainty By Andrei Jirnyi; Vadym Lepetyuk
  3. A Note on the Value of Residual Claimancy with Competing Vertical Hierarchies By Riccardo Martina; Salvatore Piccolo
  4. The Multi-item Bisection Auction By Erlanson, Albin
  5. Truth-Telling and Trust in Sender-Receiver Games with Intervention By Mehmet Y. Gurdal; Ayca Ozdogan; Ismail Saglam
  6. Optimally Empty Promises and Endogenous Supervision By David A. Miller; Kareen Rozen
  7. Inverse Elasticity Rule in a Production Efficiency Problem By Anthony Hannagan; Hideo Konishi
  8. Loss-Based Risk Measures By Rama Cont; Romain Deguest; Xuedong He
  9. The Implications of Risk and Uncertainty Aversion in Public Goods Games By Veronika Nemes; Lata Gangadharan
  10. A Simple Approach for Organizing Behavior and Explaining Cooperation in Repeated Games By Asen Ivanov; Douglas D. Davis; Korenok Oleg

  1. By: Yeon-Koo Che; Jinwoo Kim; Konrad Mierendorff
    Abstract: We develop a network-flow approach for characterizing interim-allocation rules that can be implemented by ex post allocations. The network method can be used to characterize feasible interim allocations in general multi-unit auctions where agents face hierarchical capacity constraints. We apply the method to solve for an optimal multi-object auction mechanism when bidders are constrained in their capacities and budgets.
    Keywords: Reduced-form auctions, network-flow approach, Gale’s demand theorem, hierarchy of capacity constraints
    JEL: D44
    Date: 2011–09
  2. By: Andrei Jirnyi (Kellogg School of Management); Vadym Lepetyuk (Universidad de Alicante)
    Abstract: We develop a method of solving heterogeneous agent models in which individual decisions depend on the entire cross-sectional distribution of individual state variables, such as incomplete market models with liquidity constraints. Our method is based on the principle of reinforcement learning, and does not require parametric assumptions on either the agents' information set, or on the functional form of the aggregate dynamics.
    Keywords: Heterogeneous agents, macroeconomics, dynamic programming, reinforcement learning.
    JEL: C63 C68 E20
    Date: 2011–09
  3. By: Riccardo Martina (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Napoli Federico II and CSEF)
    Abstract: In this short paper we study a competing vertical hierarchies model where the allocation of residual claimancy is endogenous and is determined jointly with production and contractual decisions. We .nd a set of circumstances in which the (equilibrium) allocation of residual claimancy is affected by competition in a non trivial manner. More precisely, although revenue-sharing contracts foster agents. (non-contractible) surplus enhancing effort, we show that competing principals dealing with exclusive and privately informed agents might still prefer to retain a share of the surplus from production when dealing with inefficient types. This is because reducing the surplus share of inefficient types reduces the information rent given up to efficient types. Hence, the equilibrium allocation of residual claimancy follows a pro-cyclical rule.
    Keywords: Adverse selection, residual claimancy, vertical hierarchies
    Date: 2011–09–01
  4. By: Erlanson, Albin (Department of Economics, Lund University)
    Abstract: This paper proposes an iterative sealed-bid auction for selling multiple heterogeneous items with unit-demand agents. It generalizes the single item bisection auction (Grigorieva Et. al, 2007) to the environment with multiple heterogeneous items. We show that it elicits a minimal amount of information on preferences required to find the Vickrey-Clark-Groves outcome (Clarke, 1971, Groves, 1973, Vickrey, 1961), when there are two items for sale and an arbitrary number of agents.
    Keywords: Bisection Auction; Multi-item; Unit-demand; Sealed-bid
    JEL: C72 D44
    Date: 2011–10–07
  5. By: Mehmet Y. Gurdal; Ayca Ozdogan; Ismail Saglam
    Date: 2011–10
  6. By: David A. Miller (University of California, San Diego); Kareen Rozen (Cowles Foundation, Yale University)
    Abstract: We study optimal contracting in a team setting with peer monitoring and moral hazard. This environment reflects stylized characteristics of production environments with complex tasks: agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write performance-based clauses into explicit contracts. Incentives are provided informally, using wasteful punishments like guilt and shame, or slowed promotion. These features give rise to optimal contracts with "empty promises" and endogenous supervision structures. Agents make promises that they don’t necessarily intend to keep, leading to the optimal concentration of supervisory responsibility in the hands of one or two agents.
    Keywords: Partnership, Teams, Moral hazard, Monitoring, Supervision, Costly punishments
    JEL: C72 D86
    Date: 2011–10
  7. By: Anthony Hannagan (Boston College); Hideo Konishi (Boston College)
    Abstract: Diamond and Mirrlees (1971) and Dasgupta and Stiglitz (1972) show that production efficiency is achieved under the optimal commodity tax when profit income is zero. Here, we consider the simplest possible model to analyze production efficiency in the presence of profit income: a tax reform problem in an economy with a representative consumer, two goods, and two firms with decreasing returns to scale technologies. We show that differentiating a uniform producer tax according to the inverse elasticity rule, while keeping government revenue constant, reduces additional distortions caused by the presence of profit income and improves social welfare.
    Keywords: production efficiency, inverse elasticity, profit income
    JEL: H21
    Date: 2011–06–30
  8. By: Rama Cont (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Pierre et Marie Curie - Paris VI - Université Paris Diderot - Paris 7, Center for Financial Engineering, Columbia University - Columbia University); Romain Deguest (EDHEC RIsk Institute - École des hautes études commerciales du Nord (EDHEC)); Xuedong He (Center for Financial Engineering, Columbia University - Columbia University)
    Abstract: Starting from the requirement that risk measures of financial portfolios should be based on their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We characterize loss-based risk measures by a representation theorem and give examples of such risk measures. We then discuss the statistical robustness of estimators of loss-based risk measures: we provide a general criterion for qualitative robustness of risk estimators and compare this criterion with sensitivity analysis of estimators based on influence functions. Finally, we provide examples of statistically robust estimators for loss-based risk measures.
    Keywords: risk measure, coherent risk measure, Fenchel-Legendre transform, Choquet capacity
    Date: 2011
  9. By: Veronika Nemes (Centre for Energy and Environmental Markets, The University of New South Wales and Victorian Government Department of Sustainability and Environment.); Lata Gangadharan (Department of Economics, Monash University)
    Abstract: In this paper we examine how individuals behave in situations of risk and uncertainty in public and private goods context. We find that subjects are willing to pay a much higher amount to find out information relating to the probabilities of providing the private good than information relating to the public good even if this information has greater consequences for the individual in he public goods context. We find strong support for the free-rider hypothesis and extend it to cases when risk and uncertainty are present. We find that subjects treat risks and uncertainties associated with the provision of private good and public good differently.
    Date: 2011–06
  10. By: Asen Ivanov (Department of Economics, VCU School of Business); Douglas D. Davis (Department of Economics, VCU School of Business); Korenok Oleg (Department of Economics, VCU School of Business)
    Abstract: We introduce a novel approach for organizing behavior and explaining cooperation in repeated games. Our approach is based on the idea that players differ according to an inherent propensity to cooperate that systematically affects behavior and cooperation levels. We formulate the empirical implications of this idea and test them in the lab. Our data support our approach. Our main conclusions are: (i) players’ strategies in a repeated game can be ranked along a single dimension, (ii) this ranking remains stable across repeated games, and (iii) the composition of a group, in terms of its players’ propensities, strongly affects cooperation levels.
    Keywords: repeated games, cooperation, experiment
    JEL: D74 C92
    Date: 2011–05

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