nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒12‒05
four papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Survival and long-run dynamics with heterogeneous beliefs under recursive preferences By Jaroslav Borovicka
  2. Inefficiencies in the sale of ideas: theory and empirics By Marie-Laure Allain; Emeric Henry; Margaret Kyle
  3. Learning and Collusion in New Markets with Uncertain Entry Costs By Francis Bloch; Simona Fabrizi; Steffen Lippert
  4. Optimal multiple stopping problem and financial applications By Imene Ben Latifa; J. Frederic Bonnans; Mohamed Mnif

  1. By: Jaroslav Borovicka
    Abstract: I study the long-run behavior of a two-agent economy where agents differ in their beliefs and are endowed with homothetic recursive preferences of the Duffie-Epstein-Zin type. When preferences are separable, the economy is dominated in the long run by the agent whose beliefs are relatively more precise, a result consistent with the market selection hypothesis. However, recursive preference specifications lead to equilibria in which both agents survive, or to ones where either agent can dominate the economy with a strictly positive probability. In this respect, the market selection hypothesis is not robust to deviations from separability. I derive analytical conditions for the existence of nondegenerate long-run equilibria, and show that these equilibria exist for plausible parameterizations when risk aversion is larger than the inverse of the intertemporal elasticity of substitution, providing a justification for models that combine belief heterogeneity and recursive preferences.
    Keywords: Consumption (Economics)
    Date: 2011
  2. By: Marie-Laure Allain (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Emeric Henry (Sciences Po - Department of Economics); Margaret Kyle (TSE - Toulouse School of Economics - Toulouse School of Economics)
    Abstract: The sale of ideas (e.g. through licensing) facilitates vertical specialization and the division of labor between research and development. This specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an idea should assume development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the idea and where this asymmetry decreases as the product is developed, the seller of the idea may delay the sale to the more efficient firm, thus incurring higher development costs. We obtain a condition for the equilibrium timing of the sale and examine how factors such as the intensity of competition between potential buyers influence it. Empirical analysis of licensing contracts signed between firms in the pharmaceutical industry supports our theoretical predictions.
    Keywords: Innovation, Licensing, Market structure, Bargaining, Pharmaceuticals, Biotechnology.
    Date: 2011–11–08
  3. By: Francis Bloch (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Simona Fabrizi (Massey University - SIERC); Steffen Lippert (University of Otago - Department of Economics)
    Abstract: This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.
    Keywords: Learning; Preemption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty
    Date: 2011–11–08
  4. By: Imene Ben Latifa (LAMSIN - Laboratoire de Modélisation Mathématique et Numérique dans les Sciences de l'Ingénieur - ENIT); J. Frederic Bonnans (INRIA Saclay - Ile de France - Commands - INRIA - CNRS : UMR7641 - Polytechnique - X - ENSTA ParisTech, CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS : UMR7641); Mohamed Mnif (LAMSIN - Laboratoire de Modélisation Mathématique et Numérique dans les Sciences de l'Ingénieur - ENIT)
    Abstract: In their paper [2], Carmona and Touzi have studied an optimal multiple stopping time problem in a market where the price process is continuous. In this paper, we generalize their results when the price process is allowed to jump. Also, we generalize the problem associated to the valuation of swing options to the context of jump diffusion processes. Then we relate our problem to a sequence of ordinary stopping time problems. We characterize the value function of each ordinary stopping time problem as the unique viscosity solution of the associated Hamilton-Jacobi-Bellman Variational Inequality.
    Keywords: Optimal multiple stopping ; swing option ; jump diffusion process ; Snell envelop ; viscosity solution.
    Date: 2011–11–19

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