
on Microeconomics 
Issue of 2012‒05‒08
seventeen papers chosen by JingYuan Chiou IMT Lucca Institute for Advanced Studies 
By:  Gollier, Christian 
Abstract:  We examine the characteristics of the optimal insurance contract under linear transaction cost and an ambiguous distribution of losses. Under the standard expected utility model, we know from Arrow (1965) that it contains a straight deductible. In this paper, we assume that the policyholder is ambiguityaverse in the sense of Klibanoff, Marinacci and Mukerji (2005). The optimal contract depends upon the structure of the ambiguity. For example, if the set of possible priors can be ranked according to the monotone likelihood ratio order, the optimal contract contains a disappearing deductible. We also show that the policyholder’s ambiguity aversion can reduce the optimal insurance coverage. 
Keywords:  Deductible, risksharing, ambiguity, monotone likelihood ratio order 
JEL:  D81 G22 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:ide:wpaper:25812&r=mic 
By:  SaintPaul, Gilles (TSE) 
JEL:  A11 E6 
Date:  2012–04–04 
URL:  http://d.repec.org/n?u=RePEc:tse:wpaper:25747&r=mic 
By:  Simone CerreiaVioglio; Fabio Maccheroni; Massimo Marinacci; Luigi Montrucchio 
Abstract:  We give a general integral representation theorem (Theorem 6) for nonadditive functionals de?ned on an Archimedean Riesz space X with order unit. Additivity is replaced by a weak form of modularity, or equivalently dual comonotonic additivity, and integrals are Choquet integrals. Those integrals are de?ned through the Kakutani [8] isometric identi?cation of X with a C (K) space. We further show that our novel notion of dual comonotonicity naturally generalizes and characterizes the notions of comonotonicity found in the literature when X is assumed to be a space of functions. 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:igi:igierp:432&r=mic 
By:  Bhaskar, Venkataraman 
Abstract:  We study dynamic moral hazard, with symmetric ex ante uncertainty and learning. Unlike Holmstrom's career concerns model, uncertainty pertains to the difficulty of the job rather than the general talent of the agent, so that contracts are required to provide incentives. Since effort is privately chosen, the agent can always cause a misalignment of beliefs between the principal and himself, by shirking. We show that such a misalignment is always profitable for the agent, and must be dissuaded by providing more high powered incentives. However, high powered incentives in the future only aggravate the incentive problem today, so that the problem is compounded as the interaction becomes longer. We also study the benefits of long term contracts with full commitment, and the role of random effort choice. 
Keywords:  learning; moral hazard 
JEL:  D83 D86 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:cpr:ceprdp:8948&r=mic 
By:  Segev, Ella; Sela, Aner 
Abstract:  We study multistage sequential allpay contests (auctions) where heterogeneous contestants are privately informed about a parameter (ability) that affects their cost of effort. We characterize the subgame perfect equilibrium of these multistage sequential allpay contests and analyze the effect of the number of contestants, their types, and their order on the expected highest effort. 
Keywords:  Allpay auctions; Sequential contests 
JEL:  D44 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:cpr:ceprdp:8949&r=mic 
By:  Bettina Klose (University of Zurich); Dan Kovenock (Economic Science Institute, Chapman University) 
Abstract:  This article investigates the impact of the distribution of preferences on equilibrium behavior in conflicts that are modeled as allpay auctions with identitydependent externalities. In this context, we define centrists and radicals using a willingnesstopay criterion that admits preferences more general than a simple ordering on the line. Through a series of examples, we show that substituting the auction contest success function for the lottery contest success function in a conflict may alter the relative expenditures of centrists and radicals in equilibrium. Extremism, characterized by a higher per capita expenditure by radicals than centrists, may persist and lead to a higher aggregate expenditure by radicals, even when they are relatively small in number. Moreover, we show that centrists may in the aggregate expend zero, even if they vastly outnumber radicals. Our results demonstrate the importance of the choice of the institutions of conflict, as modeled by the contest success function, in determining the role of extremism and moderation in economic, political, and social environments. 
Keywords:  Conflict, Allpay Auction, Identitydependent Externalities, Radicalism, Extremism, Contest Success Function. 
JEL:  D72 D74 C72 D44 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1210&r=mic 
By:  Le Breton, Michel; Sudhölter, Peter; Zaporozhets, Vera 
Abstract:  In this paper, we analyze the equilibrium of a sequential gametheoretical model of lobbying, due to Groseclose and Snyder (1996), describing a legislature that vote over two alternatives, where two opposing lobbies compete by bidding for legislators?votes. In this model, the lobbyist moving ?rst su¤ers from a second mover advantage and will make an o¤er to a panel of legislators only if it deters any credible counterreaction from his opponent, i.e., if he anticipates to win the battle. This paper departs from the existing literature in assuming that legislators care about the consequence of their votes rather than their votes per se. Our main focus is on the calculation of the smallest budget that the lobby moving ?rst needs to win the game and on the distribution of this budget across the legislators. We study the impact of the key parameters of the game on these two variables and show the connection of this problem with the combinatorics of sets and notions from cooperative game theory. 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:ide:wpaper:25804&r=mic 
By:  Rey, Patrick (TSE); Salant, David (TSE) 
Abstract:  We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society. 
Keywords:  Intellectual property, licensing policy, vertical integration, patent pools. 
JEL:  L4 L5 O3 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:ide:wpaper:25793&r=mic 
By:  Andrew Clausen; Carlo Strub 
Abstract:  We study general dynamic programming problems with continuous and discrete choices and general constraints. The value functions may have kinks arising (1) at indifference points between discrete choices and (2) at constraint boundaries. Nevertheless, we establish a general envelope theorem: firstorder conditions are necessary at interior optimal choices. We only assume differentiability of the utility function with respect to the continuous choices. The continuous choice may be from any Banach space and the discrete choice from any nonempty set. 
Keywords:  Envelope theorem, differentiability, dynamic programming, discrete choice, nonsmooth analysis 
JEL:  C61 E20 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:zur:econwp:062&r=mic 
By:  Dieter Balkenborg (Department of Economics, School of Business and Economics, University of Exeter); Josef Hofbauer (Department of Mathematics, University of Vienna); Christoph Kuzmics (Bielefeld University) 
Abstract:  This paper provides an indepth study of the (most) refined best reply correspondence introduced by Balkenborg, Hofbauer, and Kuzmics (2012). An example demonstrates that this correspondence can be very different from the standard best reply correspondence. In twoplayer games, however, the refined best reply correspondence of a given game is the same as the best reply correspondence of a slightly modified game. The modified game is derived from the original game by reducing the payoff by a small amount for all pure strategies that are weakly inferior. Weakly inferior strategies, for twoplayer games, are pure strategies that are either weakly dominated or are equivalent to a proper mixture of other pure strategies. Fixed points of the refined best reply correspondence are not equivalent to any known Nash equilibrium refinement. A class of simple communication games demonstrates the usefulness and intuitive appeal of the refined best reply correspondence. 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:bie:wpaper:466&r=mic 
By:  Pintér, Miklós 
Abstract:  Ely and Peski (2006) and Friedenberg and Meier (2010) provide examples when changing the type space behind a game, taking a "bigger" type space, induces changes of Bayesian Nash Equilibria, in other words, the Bayesian Nash Equilibrium is not invariant under type morphisms. In this paper we introduce the notion of strong type morphism. Strong type morphisms are stronger than ordinary and conditional type morphisms (Ely and Peski, 2006), and we show that Bayesian Nash Equilibria are not invariant under strong type morphisms either. We present our results in a very simple, finite setting, and conclude that there is no chance to get reasonable assumptions for Bayesian Nash Equilibria to be invariant under any kind of reasonable type morphisms. 
Keywords:  Games with incomplete information; Bayesian Nash Equilibrium; Type space 
JEL:  D80 C72 
Date:  2011 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:38499&r=mic 
By:  Michel Grabisch (CES  Centre d'économie de la Sorbonne  CNRS : UMR8174  Université Paris I  Panthéon Sorbonne); Yukihiko Funaki (School of political science and economics, Waseda University  Waseda University) 
Abstract:  The coalition formation problem in an economy with externalities can be adequately modeled by using games in partition function form (PFF games), proposed by Thrall and Lucas. If we suppose that forming the grand coalition generates the largest total surplus, a central question is how to allocate the worth of the grand coalition to each player, i.e., how to find an adequate solution concept, taking into account the whole process of coalition formation. We propose in this paper the original concepts of scenariovalue, processvalue and coalition formation value, which represent the average contribution of players in a scenario (a particular sequence of coalitions within a given coalition formation process), in a process (a sequence of partitions of the society), and in the whole (all processes being taken into account), respectively. We give also two axiomatizations of our coalition formation value. 
Keywords:  game theory; coalition formation; games in partition function form; Shapley value 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs00690696&r=mic 
By:  Le Breton, Michel; MorenoTernero, Juan D.; Savvateev, Alexei; Weber, Shlomo 
Abstract:  This article studies a model of coalition formation for the joint production (and finance) of public projects, in which agents may belong to multiple coalitions. We show that, if projects are divisible, there always exists a stable (secessionproof) structure, i.e., a structure in which no coalition would reject a proposed arrangement. When projects are indivisible, stable allocations may fail to exist and, for those cases, we resort to the least core in order to estimate the degree of instability. We also examine the compatibility of stability and fairness on metric environments with indivisible projects. To do so, we explore, among other things, the performance of several wellknown solutions (such as the Shapley value, the nucleolus, or the DuttaRay value) in these environments. 
JEL:  C71 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:ide:wpaper:25807&r=mic 
By:  Bordes, G.; Laffond, G.; Le Breton, Michel (IDEITSE) 
Abstract:  In this note, we use the technique of option sets to sort out the implications of coalitional strategyproofness in the spatial setting. We also discuss related issues and open problems. 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:ide:wpaper:25810&r=mic 
By:  Andersson , Tommy (Department of Economics, Lund University); Ehlers, Lars (Université de Montréal); Svensson, LarsGunnar (Department of Economics, Lund University) 
Abstract:  We consider competitive allocation rules for problems where a number of indivisible objects and a fixed amount of money is allocated among a group of agents. It is known that in “large” economies, such rules are almost incentive compatible meaning that any agent can only profitably gain from manipulation by e. In “small” economies, we identify under classical preferences the competitive allocations where any agent can profitably gain from manipulation in monetary terms at most by e with e being minimal. If preferences are quasilinear, then we can find a competitive allocation rule such that for any problem, all agents can gain by exactly e from manipulation. 
Keywords:  eIncentive Compatibility; Competitive Equilibrium; BudgetBalance; Indivisibilities. 
JEL:  C71 C78 D63 D71 D78 
Date:  2012–04–25 
URL:  http://d.repec.org/n?u=RePEc:hhs:lunewp:2012_008&r=mic 
By:  Jonathan Halket 
Abstract:  We define and prove the existence of an equilibrium for Bewleystyle models of heterogeneous agents in incomplete markets with discrete and continuous choices. Our sample model also features endogenous price volatility across many markets (locations) but still has a steady state equilibrium with a finitedimensional state space. Our proof of existence uses Kakutani’s Fixed Point Theorem and does not require the set of households that are indifferent between two discrete choices to be measure zero. 
Date:  2012–03–01 
URL:  http://d.repec.org/n?u=RePEc:esx:essedp:711&r=mic 
By:  Jaume GarciaSegarra (Department of Economics, Universitat Jaume I); Miguel GinesVilar (Department of Economics, Universitat Jaume I) 
Abstract:  Several bargaining solutions could fail to capture advantage from having sets closer to the same utopia point. If the whole frontier of the set is improved maintaining the same utopia point, these solutions outcome remains stagnant at the same point. We called this phenomena the stagnation effect. In order to reflect the idea that if the bargaining set is improved maintaining the same utopia point, then, the solution should also be improved, we introduce the utopia continuity axiom. We propose and characterize, for nagent problems, the family of the individually strict monotonic solutions. This family is a common subset of the family of the strongly monotonic solutions characterized by Thomson and Myerson (1980)[8] and the individually monotonic solutions characterized by Peters and Tijs (1984)[4] and (1985)[5]. 
Keywords:  Bargaining, Axiomatization, Efficiency, Monotonicity. 
JEL:  C78 D74 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:jau:wpaper:2012/10&r=mic 