
on Microeconomics 
By:  Pierpaolo Battigalli; Simone CerreiaVioglio; Fabio Maccheroni; Massimo Marinacci 
Abstract:  We propose to bring together two conceptually complementary ideas: (1) selfconfi?rming equilibrium (SCE): at a rest point of learning dynamics in a game played recurrently, agents best respond to confi?rmed beliefs, i.e. beliefs consistent with the evidence they accumulate, and (2) ambiguity aversion: agents, coeteris paribus, prefer to bet on events with known rather than unknown probabilities, more generally, agents distinguish objective from subjective uncertainty, which is captured by their ambiguity attitudes. Using as a workhorse the ?smooth ambiguity model of Klibanoff, Marinacci and Mukerji (2005), we provide a de?nition of "smooth SCE" which generalizes the traditional concept of Fudenberg and Levine (1993a,b), called Bayesian SCE, and admits Waldean (maxmin) SCE as a limit case. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is simple: by playing the same "statusquo" strategy in a stable state an agent learns the implied objective probabilities of payoffs, but alternative strategies yield payoffs with unknown probabilities; keeping beliefs ?fixed, increased aversion to ambiguity makes such strategies less appealing. We rely on this core intuition to show that different notions of equilibrium are nested in a simple way, from ?ner to coarser: Nash, Bayesian SCE, Smooth SCE and Waldean SCE. We also prove some equivalence results, under special assumptions about the information structure. 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:igi:igierp:428&r=mic 
By:  A.W. Beggs 
Abstract:  This paper defines regular and weakly regular equilibria for monotone Bayesian games with onedimensional actions and types. It proves an index theorem and provides applications to uniqueness of equilibrium. It also provides analyses of stability with respect to perturbations and dynamic stability. 
Keywords:  Bayesian games, Monotone strategies, Index theory, Stability, Uniqueness, Regularity 
JEL:  C72 D83 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:oxf:wpaper:587&r=mic 
By:  Jeanne Hagenbach (Ecole Polytechnique  Ecole Polytechnique); Frédéric Koessler (PSE  ParisJourdan Sciences Economiques  CNRS : UMR8545  Ecole des Hautes Etudes en Sciences Sociales (EHESS)  Ecole des Ponts ParisTech  Ecole Normale Supérieure de Paris  ENS Paris  INRA, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics  Ecole d'Économie de Paris) 
Abstract:  We characterize sufficient conditions for full and decentralized disclosure of hard information in organizations with asymmetrically informed and self interested agents with quadratic loss functions. Incentive conflicts arise because agents have different (and possibly interdependent) ideal actions and different incentives to coordinate with each others. A fully revealing sequential equilibrium exists in the disclosure game if each player's ideal action is monotonic in types and types are independently distributed, but may fail to exist with nonmonotonic ideal actions or correlated types. When biases between players' ideal actions are constant across states, complete information is the Pareto dominant information structure. In that case, there is a fully revealing sequential equilibrium in which informational incentive constraints are satisfied expost, so it exists for all possible prior beliefs, even when players' types are correlated. This existence result applies whether information disclosure is private or public, and is extended to partial certifiability of information. 
Keywords:  Certifiable types ; Coordination ; Information disclosure ; Multidivisional organizations 
Date:  2011–12 
URL:  http://d.repec.org/n?u=RePEc:hal:psewpa:halshs00652279&r=mic 
By:  JeanMarc Bonnisseau (CES  Centre d'économie de la Sorbonne  CNRS : UMR8174  Université Paris I  Panthéon Sorbonne, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics  Ecole d'Économie de Paris); Lalaina Rakotonindrainy (CES  Centre d'économie de la Sorbonne  CNRS : UMR8174  Université Paris I  Panthéon Sorbonne, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics  Ecole d'Économie de Paris) 
Abstract:  We consider a standard overlapping generation economy with a simple demographic structure with a new cohort of agents at each period with an economic activity extended over two successive periods and finitely many firms active forever. The production possibilities are described by a sequence of production mapping and the main innovation comes from the fact that we allow for increasing returns to scale of more general type of nonconvexities. To describe the behavior of the firms, we consider lossfree pricing rules, which covers the case of the average pricing rule, the competitive behavior when the firms have convex production sets, and the competitive behavior with quantity constraints à la DehezDrèze. We prove the existence of an equilibrium under assumptions, which are at the same level of generality than the ones for the existence in an exchange economy. 
Keywords:  Overlapping generation model, increasing returns to scale, lossfree pricing rules, equilibrium, existence. 
Date:  2011–11 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs00654013&r=mic 
By:  Michel Grabisch (CES  Centre d'économie de la Sorbonne  CNRS : UMR8174  Université Paris I  Panthéon Sorbonne, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics  Ecole d'Économie de Paris) 
Abstract:  The core of a cooperative game on a set of players $N$ is one of the most popular concepts of solution. When cooperation is restricted (feasible coalitions form a subcollection $\cF$ of $2^N$), the core may become unbounded, which makes its usage questionable in practice. Our proposal is to make the core bounded by turning some of the inequalities defining the core into equalities (additional efficiency constraints). We address the following mathematical problem: can we find a minimal set of inequalities in the core such that, if turned into equalities, the core becomes bounded? The new core obtained is called the restricted core. We completely solve the question when $\cF$ is a distributive lattice, introducing also the notion of restricted Weber set. We show that the case of regular set systems amounts more or less to the case of distributive lattices. We also study the case of weakly unionclosed systems and give some results for the general case. 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:hal00650964&r=mic 
By:  Jan Zabojnik (Queen's University) 
Abstract:  This paper models two key roles of subjective performance evaluations: their incentive role and their feedback role. The paper shows that the feedback role makes subjective pay feasible even without repeated interaction, as long as there exists some verifiable measure of performance. It also shows that while subjective pay is helpful, it cannot achieve full efficiency. However, fully efficient incentives are achievable if the firm can commit to a forced distribution of evaluations and employs a continuum of workers. With a small number of workers, a forced distribution is valuable only if the verifiable measure is poor. 
Keywords:  Subjective Evaluations, Performance Feedback, Optimal Contracts 
JEL:  D82 D86 M52 
Date:  2011–11 
URL:  http://d.repec.org/n?u=RePEc:qed:wpaper:1283&r=mic 
By:  Giuseppe Russo (University of Salerno and CSEF) 
Abstract:  Decisions on joint funding of continuous public goods between two agents often involve heterogeneous targets. We introduce loss functions in a contribution game in order to study the effect of this conflict. Unlike Varian (1994), joint contribution occurs only if the players’ targets are sufficiently close and the sequential game reduces free riding problems, while total contribution is higher in the simultaneous game. 
Keywords:  Public Goods, Intergovernmental Relations 
JEL:  H41 H77 
Date:  2011–12–20 
URL:  http://d.repec.org/n?u=RePEc:sef:csefwp:302&r=mic 
By:  Ohad Kadan (Washington University in St. Louis  Olin School of Business); Philip J. Reny (University of Chicago  Department of Economics); Jeroen Swinkels (Northwestern University  Kellogg School of Management) 
Abstract:  We provide general conditions under which principalagent problems admit mechanisms that are optimal for the principal. Our result covers as special cases those in which the agent has no private information –i.e., pure moral hazard –as well as those in which the agent’s only action is a participation decision – i.e., pure adverse selection. We allow multidimensional actions and signals, as well as both …nancial and non…nancial rewards. Beyond measurability, we require no a priori restrictions on the space of mechanisms. Consequently, our optimal mechanisms are optimal among all measurable mechanisms. A key to obtaining our result is to permit randomized mechanisms. We also provide conditions under which randomization is unnecessary. 
Date:  2011–01 
URL:  http://d.repec.org/n?u=RePEc:bfi:wpaper:2011002&r=mic 
By:  GonzalezAlcon, C.; Borm, P.E.M.; Hendrickx, R.L.P. (Tilburg University, Center for Economic Research) 
Abstract:  This paper introduces the class of 2 Ã— 2 Ã— 2 trimatrix games with identical anonymous bestreplies. For this class a complete classification on the basis of the Nash equilibrium set is provided. 
Keywords:  trimatrix games;Nash equilibrium;bestreply correspondences;symmetric games. 
JEL:  C72 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2011138&r=mic 
By:  Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M. (Tilburg University, Center for Economic Research) 
Abstract:  We compare communication about private information to communication about actions in a one shot 2person public good game with private information. The informed player, who knows the exact return from contributing and whose contribution is unobserved, can send a message about the return or her contribution. Theoretically, messages can elicit the uninformed player's contribution, and allow the informed player to freeride. The exact language used is not expected to matter. Experimentally, however, we find that freeriding depends on the language: the informed player freerides less, and thereby lies less frequently, when she talks about her contribution than when she talks about the return. Further experimental evidence indicates that it is the promise component in messages about the contribution that leads to less freeriding and less lying. 
Keywords:  Information transmission;lying;communication;experiment. 
JEL:  C72 D82 D83 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2011139&r=mic 
By:  Flesch J.; Kuipers J.; Schoenmakers G.; Vrieze K. (METEOR) 
Abstract:  We prove the existence of a subgameperfect epsilonequilibrium, for every epsilon> 0, in a classof multiplayer games with perfect information, which we call free transition games. The noveltyis that a nontrivial class of perfect information games is solved for subgameperfection, withmultiple nonterminating actions, in which the payoff structure is generally not semicontinuous.Due to the lack of semicontinuity, there is no general rule of comparison between the payoffsthat a player can obtain by deviating a large but finite number of times or, respectively,infinitely many times. We introduce new techniques to overcome this difficulty. Our constructionrelies on an iterative scheme which is independent of epsilon and terminates in polynomial timewith the following output: for all possible histories h, a pure action a(1,h) or in some cases twopure actions a(2,h) and b(2,h) for the active player at h. The subgameperfect epsilonequilibriumthen prescribes for every history h that the active player plays a(1,h) with probability 1 orrespectively plays a(2,h) with probability 1delta and b(2,h) with probability delta. Here, deltais arbitrary as long as it is positive and small compared to epsilon, so the strategies can bemade “almost” pure. 
Keywords:  mathematical economics; 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2011047&r=mic 
By:  Can Burak; Storcken Ton (METEOR) 
Abstract:  Collective decisions are modeled by preference correspondences (rules). In particular, we focus ona new condition: "update monotonicity" for preference rules. Although many socalled impossibilitytheorems for the choice rules are based on or related to monotonicity conditions, this appealingcondition is satisfied by several nontrivial preference rules. In fact, in case of pairwise,Pareto optimal, neutral, and consistent rules; the KemenyYoung rule is singled out by thiscondition. In case of convex valued, Pareto optimal, neutral and replication invariant rules;strong update monotonicity implies that the rule equals the union of preferences which extend allpreference pairs unanimously agreed upon by k agents, where k is related to the number ofalternatives and agents. In both cases, it therewith provides a charaterization of these rules. 
Keywords:  microeconomics ; 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:dgr:umamet:2011048&r=mic 
By:  Bonanno, Giacomo (University of CA, Davis) 
Abstract:  We discuss a number of conceptual issues that arise in attempting to capture, in dynamic games, the notion that there is "common understanding" among the players that they are all rational. 
Date:  2011–11 
URL:  http://d.repec.org/n?u=RePEc:ecl:ucdeco:1111&r=mic 
By:  O’Callaghan, Patrick (University of Warwick) 
Abstract:  Suppose a decisionmaker is willing to make statements of the form : I prefer to choose alternative a when in context p, than to choose alternative b when in context q”. Contexts p and q may refer to given probability distributions over a set of states, and b and c to alternatives such as: “turn left” or “turn right” at a junction. In such decision problems, the set of alternatives is discrete and there is a continuum of possible contexts. I assume there is a is a mixture operation on the space of contexts (eg. convex combinations of lotteries), and propose a model that defines preferences over a collection of mixture spaces indexed by a discrete set. The model yields a spectrum of possibilities: some decisionmakers are well represented by a standard von Neumann–Morgenstern type of utility function; whilst for others, utility across some or all the mixture spaces is only ordinally comparable. An application to the decision problem of Karni and Safra (2000) leads to a generalization, and shows that statedependence and comparability are distinct concepts. A final application provides a novel way modeling incomplete preferences and explaining the Allais paradox. 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:wrk:warwec:973&r=mic 
By:  Junichiro Ishida; ChiaHui Chen 
Abstract:  A group of individuals, with a potential conflict of interest, face a choice among alternatives. There is a network externality such that the chosen alternative yields value only if sufficiently many individuals get on board. Their preferences for each alternative and the benefit derived from a successfully formed network are known only privately and might vary between the players who determine whether to make their choices early or late. We characterize the equilibrium timing of adoption as well as the efficient timing which maximizes the total expected payoff. We also show that the efficient timing of adoption can be implemented by a simple fee scheme. The analysis gives an insight into why consensus is often hardwon in some societies and suggests a potential role of social norms in improving the efficiency. 
Date:  2011–12 
URL:  http://d.repec.org/n?u=RePEc:dpr:wpaper:0826&r=mic 
By:  Kris De Jaegher; Robert van Rooij 
Abstract:  This paper combines a literature overview of existing literature in gametheoretic pragmatics, with new models that fill some voids in the literature. We start with an overview of signaling games with a conflict of interest between sender and receiver, and show that the literature on such games can be classified into models with direct, costly, noisy and imprecise signals. We then argue that this same subdivision can be used to classify signaling games with common interests, where we fill some voids in the literature. For each of the signaling games treated, we show how equilibrium refinement arguments and evolutionary arguments can be interpreted in the light of pragmatic inference. 
Keywords:  Signaling games, pragmatics, equilibrium refinements, evolutionary game theory 
JEL:  D82 D83 
Date:  2011–12 
URL:  http://d.repec.org/n?u=RePEc:use:tkiwps:1125&r=mic 
By:  Jacob K. Goeree; Alexey Kushnir 
Abstract:  An important result in convex analysis is the duality between a closed convex set and its support function. We exploit this duality to develop a novel geometric approach to mechanism design. For a general class of social choice problems we characterize the feasible set, which is closed and convex, and its support function. We next provide a geometric interpretation of incentive compatibility and refine the support function to include incentive constraints using arguments from majorization theory. The optimal mechanism can subsequently be derived from the support function using Hotelling's lemma. We first assume that values are linear in types and types are independent, private, and onedimensional. For this environment we provide a simple geometric proof that Bayesian and dominant strategy implementation are equivalent by showing that the feasible sets that remain after imposing either type of incentive constraints coincide. Furthermore, we derive the optimal mechanism for any social choice problem and any linear objective, including revenue and surplus maximization. As an illustration, we determine the optimal multiunit auction for a class of value functions that exhibit decreasing marginal valuations. Other types of constraints, such as capacity constraints and budget balancedness, can be interpreted geometrically as well, which facilitates a unified approach to a range of social choice problems, including auctions, bargaining, and public goods provision. We discuss how our geometric approach extends to environments with value interdependencies, nonlinear valuations, and correlated or multidimensional types. Specifically, we illustrate that with interdependent valuations the equivalence between Bayesian and dominant strategy implementation breaks down, and our approach naturally produces the secondbest outcomes for both types of incentive constraints. 
Keywords:  Convex sets, support functions, majorization, Hotelling's lemma, mechanism design, revenue equivalence, BICDIC equivalence, multiunit auctions, bargaining, public goods provision, capacity constraints, budget balance, interdependent values, second best efficiency 
JEL:  D44 
Date:  2011–12 
URL:  http://d.repec.org/n?u=RePEc:zur:econwp:056&r=mic 
By:  Sergiu Hart; Philip J. Reny 
Date:  2011–12–21 
URL:  http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000326&r=mic 
By:  Dunia LópezPintado (Department of Economics, Universidad Pablo de Olavide; CORE, Université catholique de Louvain); Juan D. MorenoTernero (Department of Economics, Universidad Pablo de Olavide; CORE, Université catholique de Louvain) 
Abstract:  We study optimal wage schemes for teams, under the presence of budget constraints, in a model in which agents’ effort decisions are mapped into the probability of the team’s success. We show that (firstbest) efficiency can only be attained with complex contracts that are vulnerable to ex post manipulations and offequilibrium path violations of the budget constraints. Within the domain of simple (and budgetbalanced) contracts, an interesting scheme, which treats equal members of the team unequally, emerges as optimal 
Keywords:  Team production, budget constraints, efficiency, manipulability, impartiality 
JEL:  C70 D23 D78 
Date:  2011–12 
URL:  http://d.repec.org/n?u=RePEc:pab:wpaper:11.11&r=mic 
By:  Matthias Kräkel 
Abstract:  Participants of dynamic competition games may prefer to play with the rules of the game by systematically withholding e¤ort in the beginning. Such behavior is referred to as sandbagging. I consider a twoperiod con test between heterogeneous players and analyze potential sandbagging of highability participants in the first period. Such sandbagging can be ben eficial to avoid secondperiod matches against other highability opponents. I characterize the conditions under which sandbagging leads to a coordina tion problem, similar to that of the battleofthe sexes game. Moreover, if players' abilities have a stronger impact on the outcome of the firstperiod contest than e¤ort choices, mutual sandbagging by all highability players can arise. 
Keywords:  ecoordination problem, dynamic contest, heterogeneous contestants, withholding e¤ort 
JEL:  C72 D72 
Date:  2011–11 
URL:  http://d.repec.org/n?u=RePEc:bon:bonedp:bgse12_2012&r=mic 
By:  Tan, Fangfang; Xiao, Erte 
Abstract:  This paper investigates how punishment promotes cooperation when the punishment enforcer is a third party independent of the implicated parties who propose the punishment. In a prisoner's dilemma experiment, we find an independent third party vetoes not only punishment to the cooperators but punishment to the defectors as well. Compared with the case when the implicated parties are allowed to punish each other, both the cooperation rate and the earnings are lower when the enforcement of punishment requires approval from an independent third party. 
Keywords:  Social dilemmas; third party; punishment; cooperation; experiment 
JEL:  D63 C92 C72 
Date:  2011–12–21 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:35473&r=mic 
By:  Barlo, Mehmet; Ozdogan, Ayca 
Abstract:  This study analyzes a continuoustime Nagent Brownian hiddenaction model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justi¯cation for the use of linear contracts, as in Holmstrom and Milgrom (1987), we consider a variant of its generalization given by Sung (1995), into which collusion and renegotiation possibilities among agents are incorporated. In this model, we prove that there exists a linear and stationary optimal compensation scheme which is also immune to collusion and renegotiation. 
Keywords:  Principalagent problems; moral hazard; linear contracts; continuoustime model; Brownian motion martingale method; collusion;; renegotiation; team 
JEL:  D86 D82 C61 C73 
Date:  2011–12–13 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:35548&r=mic 
By:  Barlo, Mehmet; Carmona, Guilherme 
Abstract:  In order to remedy the possible loss of strategic interaction in nonatomic games with a societal choice, this study proposes a refinement of Nash equilibrium, strategic equilibrium. Given a nonatomic game, its perturbed game is one in which every player believes that he alone has a small, but positive, impact on the societal choice; and a distribution is a strategic equilibrium if it is a limit point of a sequence of Nash equilibrium distributions of games in which each player's belief about his impact on the societal choice goes to zero. After proving the existence of strategic equilibria, we show that all of them must be Nash. Moreover, it is displayed that in many economic applications, the set of strategic equilibria coincides with that of Nash equilibria of large finite games. 
Keywords:  Strategic equilibrium; Games with a continuum of players; Equilibrium distributions 
JEL:  C72 
Date:  2011–12–13 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:35549&r=mic 
By:  Liu, Taoxiong; Zhou, Bihua 
Abstract:  We propose an extended principalagent model considering employee commitment and describe how to motivate committed agent, who not only shows regard for his own income but also cares the organizational benefit. The principal also would like to provide support to such an agent and his utility depends on both the final profit and the payoff to the agent. There are some interesting insights into the characteristic of optimal contracts: First, commitment is an effective motivator and committed employee needs less monetary inducement to perform his job well than one who not. More specifically, undifferentiated pay is sufficient in incentivizing committed agent to implement high effort in some cases. Second, commitment and wage differential are substitutable to each other in the optimal incentive compensation design. Third, commitment is not always good for organizational efficiency when the increase in employee commitment relies on the principal’s support. Our model's finding is consistent with employee incentive in some organizations, and also help to incentive mechanism design under wages differential constraints and understanding excessive compensation. 
Keywords:  Commitment; Organizational support; Optimal Incentive; Contract 
JEL:  D23 J33 
Date:  2011–12–08 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:35550&r=mic 