nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒04‒23
seventeen papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Approximate Revenue Maximization with Multiple Items By Sergiu Hart; Noam Nisan
  2. Efficient Auctions and Interdependent Types By Dirk Bergemann; Stephen Morris; Satoru Takahashi
  3. All-Pay Auctions vs. Lotteries as Provisional Fixed-Prize Fundraising Mechanisms By John Duffy
  4. The First-Order Approach when the Cost of Effort is Money By Marie-Cécile Fagart; Claude Fluet
  5. The interaction of explicit and implicit contracts: A signaling approach By Gürtler, Marc; Gürtler, Oliver
  6. The Role of Performance Appraisals in Motivating Employees By Jurjen J.A. Kamphorst; Otto H. Swank
  7. The Allocation of a Prize By Pradeep K. Dubey; Siddhartha Sahi
  8. Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly By Juan-José Ganuza; Jos Jansen
  9. Informing Consumers about their own Preferences By Peitz, Martin; Inderst, Roman
  10. Dynamic Coordination Via Organizational Routines By Andreas Blume
  11. Core Equivalences for Equilibria Supported by Non-linear Prices By Achille Basile; Maria Gabriella Graziano
  12. Revealed preference in a discrete consumption space By Matthew Polisson; John Quah
  13. The Nash Bargaining Solution and Interpersonal Utility Comparisons By Rachmilevitch, Shiran
  14. Discounted Stochastic Games with Voluntary Transfers By Sebastian Kranz
  15. On the Limit Equilibrium Payoff Set in Repeated and Stochastic Games By Johannes Horner; Satoru Takahashi; Nicolas Vieille
  16. Kantian Optimization, Social Ethos, and Pareto Efficiency By John E. Roemer
  17. Cooperation in Large Societies By Francesc Dilmé

  1. By: Sergiu Hart; Noam Nisan
    Date: 2012–04–14
  2. By: Dirk Bergemann; Stephen Morris; Satoru Takahashi
    Date: 2012–04–13
  3. By: John Duffy
    Abstract: We study two provisional fixed-prize mechanisms for funding public goods: an all-pay auction and a lottery. In our setting, the public good is provided only if the participants' contributions are greater than the fixed-prize value; otherwise contributions are refunded. We prove that in this provisional fixed prize setting, lotteries can outperform all-pay auctions in terms of expected public good provision. Specifically, we state conditions under which the provisional fixed prize all-pay auction mechanism generates zero public good provision, while the provisional fixed prize lottery mechanism generates positive public good provision. We test these predictions in a laboratory experiment where we vary the number of participants, the marginal per capita return (mpcr) on the public good and the mechanism for awarding the prize, either a lottery or an all-pay auction. Consistent with the theory, we find that the mpcr matters for contribution amounts under the lottery mechanism. However, inconsistent with the theory bids are always significantly higher than predicted and there is no significant difference in public good contributions under either mechanism. We suggest how a non-expected utility approach involving probability weighting can help to explain over-bidding in our experiment.
    JEL: C72 D44 H41
    Date: 2011–11
  4. By: Marie-Cécile Fagart; Claude Fluet
    Abstract: We provide sufficient conditions for the first-order approach in the principal-agent problem when the agent’s utility has the non-separable form u(y - c(a)) where y is the contractual payoff and c(a) is the money cost of effort. We first consider a decision-maker facing prospects which cost c(a) with distributions of returns y that depends on a. The decision problem is shown to be concave if the primitive of the cumulative distribution of returns is a convex function, a condition we call Concavity of the Cumulative Quantile (CCQ). Next we apply CCQ to the distribution of outcomes (or their likelihood-ratio transforms) in the principal-agent problem and derive restrictions on the utility function that validate the first-order approach. We also discuss a stronger condition, log-convexity of the distribution, and show that it allows binding limited liability constraints, which CCQ does not.
    Keywords: Principal-agent models, moral hazard, stochastic decision problem, quantile function, information systems
    JEL: D81 D82 D86
    Date: 2012
  5. By: Gürtler, Marc; Gürtler, Oliver
    Abstract: We analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals. Fair principals are willing to honor implicit agreements, whereas selfish principals are not. Principals are privately informed about their types. We investigate a separating equilibrium in which principals reveal their type through the contract o er to the agent. If this equilibrium is played, explicit and implicit contracts are substitutes. Since the agent learns the principal's type, a selfish principal has to rely on explicit incentives. A fair principal, by contrast, can effectively induce implicit incentives and hence does not need to use explicit incentives. Interestingly, if a selfish principal can rely on more effective explicit incentives, a fair principal becomes more likely to be able to separate from the selfish type and, hence, to make better use of implicit incentives. In this sense, there is a strategic complementarity between explicit and implicit incentives. --
    Keywords: explicit contracts,implicit contracts,separating equilibrium,substitutes,strategic,complementarity
    JEL: D82 D86 M52
    Date: 2012
  6. By: Jurjen J.A. Kamphorst (Erasmus University Rotterdam); Otto H. Swank (Erasmus University Rotterdam)
    Abstract: In many organizations, reward decisions depend on subjective performance evaluations. However, evaluating an employee's performance is often difficult. In this paper, we develop a model in which the employee is uncertain about his own performance and about the manager's ability to assess him. The manager gives an employee a performance appraisal with a view of affecting the employee's self perception, and the employee's perception of the manager's ability to assess performance. We examine how performance appraisals affect the employee's future performance. The predictions of our model are consistent with various empirical findings. These comprise (i) the observation that managers tend to give positive appraisals, (ii) the finding that on average positive appraisals motivate more than negative appraisals, and (iii) the observation that the effects of appraisals depend on the employee's perception of the manager's ability to assess performance accurately.
    Keywords: Subjective Performance Appraisal; Credibility; Cheap Talk
    JEL: M52 M54 D82 D83
    Date: 2012–04–10
  7. By: Pradeep K. Dubey; Siddhartha Sahi
    Date: 2012–04–13
  8. By: Juan-José Ganuza; Jos Jansen
    Abstract: By using general information structures and precision criteria based on the dispersion of conditional expectations, we study how oligopolists' information acquisition decisions may change the effects of information sharing on the consumer surplus. Sharing information about individual cost parameters gives the following trade-off in Cournot oligopoly. On the one hand, it decreases the expected consumer surplus for a given information precision, as the literature shows. On the other hand, information sharing increases the firms' incentives to acquire information, and the consumer surplus increases in the precision of the firms' information. Interestingly, the latter effect may dominate the former effect.
    Keywords: Information acquisition, information sharing, information structures, oligopoly, consumer surplus
    JEL: D82 D83 L13 L40
    Date: 2012–04–18
  9. By: Peitz, Martin; Inderst, Roman
    Abstract: We analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences, e.g., about their future demand for a utility such as electricity or telecommunication. When more consumers become informed, we show that this benefits also those consumers who remain uninformed, as it reduces the firm’s incentives to extract information rent. By reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage, policy can further improve welfare, as contracts become more efficient. The last observation stands in contrast to earlier findings by Crémer and Khalil (American Economic Review 1992), where all consumers are uninformed.
    Keywords: Nonlinear pricing , price discrimination , monopolistic screening , information acquisition
    JEL: D42 D82 L12
    Date: 2012
  10. By: Andreas Blume
    Date: 2011–01
  11. By: Achille Basile (Università di Napoli Federico II and CSEF); Maria Gabriella Graziano (Università di Napoli Federico II and CSEF)
    Abstract: The goal of this paper is to provide some new cooperative characterizations and optimality properties of competitive equilibria supported by non-linear prices. The general framework is that of economies whose commodity space is an ordered topological vector space which need not be a vector lattice. The central notion of equilibrium is the one of personalized equilibrium introduced by Aliprantis, Tourky and Yannelis (2001). Following Herves-Beloso and Moreno-Garcia (2008), the veto power of the grand coalition is exploited in the original economy and in a suitable family of economies associated to the original one. The use of Aubin coalitions allows us to connect results with the arbitrage free condition due to non-linear supporting prices. The use of rational allocations allows us to dispense with Lyapunov convexity theorem. Applications are provided in connection with strategic market games and economies with asymmetric information.
    Keywords: Non-linear supporting prices, ordered vector spaces, personalized equilibrium, rational allocation, Edgeworth equilibrium, Aubin core, robustly efficient allocation
    JEL: C62 C71 D46 D51 D61
    Date: 2012–04–11
  12. By: Matthew Polisson (Institute for Fiscal Studies and University of Leicester); John Quah
    Abstract: <p>We show that an agent maximizing some utility function on a discrete (as opposed to continuous) consumption space will obey the generalized axiom of revealed preference (GARP) so long as the agent obeys cost efficiency. Cost efficiency will hold if there is some good, outside the set of goods being studied by the modeler, that can be consumed by the agent in continuous quantities. An application of Afriat's Theorem then guarantees that there is a strictly increasing utility function on the discrete consumption space that rationalizes price and demand observations in that space.</p>
    Date: 2012–03
  13. By: Rachmilevitch, Shiran (Department of Economics, University of Haifa)
    Abstract: Bargaining theory has a conceptual dichotomy at its core: according to one view, the utilities in the bargaining problem are meaningless numbers (v-N.M utilities), while according to another view they do have concrete meaning (willingness to pay). The former position is assumed by the Nash and Kalai-Smorodinsky solutions, and the latter is assumed by the egalitarian, utilitarian, and equal-loss solutions. In this paper I describe a certain form of equivalence between the set consisting of the former solutions and the set consisting of the latter. This equivalence is the result of an attempt to bridge the gap between the aforementioned views; utilizing this equivalence, I derive a new axiomatization of the Nash solution.
    Keywords: Bargaining; interpersonal utility comparisons; Nash solution
    JEL: D63 D71
    Date: 2012–02–06
  14. By: Sebastian Kranz
    Date: 2012–04–13
  15. By: Johannes Horner; Satoru Takahashi; Nicolas Vieille
    Date: 2012–04–13
  16. By: John E. Roemer
    Date: 2012–04–13
  17. By: Francesc Dilmé (Department of Economics, University of Pennsylvania)
    Abstract: Consider the following situation involving two agents who belong to a large society. One of the agents needs help to avoid a big loss. The other agent may either incur a low cost to help him or do nothing. If agents do not recognize each other, providing incentives for socially optimal behavior (helping) is, in general, very difficult. We use a repeated anonymous random matching setting in a large society to understand how, in the previous situation, help may take place in equilibrium. We find explicit equilibria that, unlike other models proposed in the literature, feature smooth aggregate behavior over time and robustness to many perturbations, such as the presence of behavioral types or trembles. We consider the joint limit of increasing the size of the society and making it more interactive (or patient.) Under this limit, our equilibria resemble the tit-for-tat strategy for the prisoner’s dilemma, introducing some small probability of forgiveness. The model is also applied to bilateral trade, where the mechanism used to spread deviations is transmissive instead of contagious. The smooth evolution of the aggregate variables over time makes the model suitable for empirical work.
    Keywords: Cooperation, Many Agents, Repeated Game, Unilateral Help
    JEL: D82 C73 D64
    Date: 2012–03–26

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