nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒05‒22
sixteen papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Competitive Equilibrium in Markets for Votes By Alessandra Casella; Aniol Llorente-Saguer; Thomas R. Palfrey
  2. Centralized Allocation in Multiple Markets By Daniel Monte; Norovsambuu Tumennasan
  3. Market Power: How Does it Arise? How is it Measured? By Lawrence J. White
  4. Communication and competition By Jacob K. Goeree; Jingjing Zhang
  5. Strategic Tournaments By Ayala Arad; Ariel Rubinstein
  6. Bargaining over an Endogenous Agenda By Vincent Anesi; Daniel J. Seidmann
  7. Reciprocity in the Principal Multiple Agent Model By Giuseppe De Marco; Giovanni Immordino
  8. Promotion without Commitment: Signaling, Time Inconsistency and Decentralization of the Firm By Junichiro Ishida
  9. Sequential Disappearance of Reputations in Two-Sided Incomplete-Information Games By Ayca Ozdogan
  10. On the Continuous Equilibria of Affiliated-Value, All-Pay Auctions with Private Budget Constraints By Maciej H. Kotowski; Fei Li
  11. Ambiguity Revealed By Subir Bose; Matthew Polisson; Ludovic Renou
  12. Intertemporal Price Discrimination in Infinite Horizon By Lionel Wilner
  13. Lobbying as a Guard against Extremism By Zudenkova, Galina
  14. Optimal Regulation of Lumpy Investments By Zwart, G.; Broer, D.P.
  15. The Average Covering Tree Value for Directed Graph Games By Khmelnitskaya, A.; Selcuk, O.; Talman, A.J.J.
  16. Strategic Sharing of a Costly Network By Hernández, Penélope; Peris, Josep E.; Silva-Reus, José A.

  1. By: Alessandra Casella (Columbia University, NBER and CEPR); Aniol Llorente-Saguer (Max Planck Institute for Research on Collective Goods, Bonn); Thomas R. Palfrey (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We develop a competitive equilibrium theory of a market for votes. Before voting on a binary issue, individuals may buy and sell their votes with each other. We define the concept of ex ante vote-trading equilibrium, and show by construction that an equilibrium exists. The equilibriumwe characterize always results in dictatorship if there is any trade, and the market for votes generates welfare losses, relative to simple majority voting, if the committee is large enough or the distribution of values not very skewed. We test the theoretical implications by implementing a competitive vote market in the laboratory using a continuous open-book multi-unit double auction.
    Keywords: Experiments, voting, Markets, Vote Trading, Competitive Equilibrium
    JEL: C92 C72 D70 P16
    Date: 2012–02
  2. By: Daniel Monte (Department of Economics and Business, Aarhus University, Denmark); Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: The problem of allocating indivisible objects to different agents, where each individual is assigned at most one object, has been widely studied. Pápai (2000) shows that the set of strategy-proof, nonbossy, Pareto optimal and reallocation-proof rules are hierarchical exchange rules | generalizations of Gale's Top Trading Cycles mechanism. We study the centralized allocation that takes place in multiple markets. For example, the assignment of multiple types of indivisible objects; or the assignment of objects in successive periods. We show that the set of strategy-proof, Pareto efficient and nonbossy rules are sequential dictatorships, a special case of Pápai's hierarchical exchange rules.
    Keywords: Matching, Strategy-Proofness, Nonbossiness, Pareto efficiency
    JEL: C78 D61 D78 I20
    Date: 2012–05–10
  3. By: Lawrence J. White
    Date: 2012
  4. By: Jacob K. Goeree; Jingjing Zhang
    Abstract: Charness and Dufwenberg (American Economic Review, June 2011, 1211-1237) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their finding and check its robustness by introducing competition between agents. We find that communication and competition act as "substitutes:" communication raises efficiency in the absence of competition but lowers efficiency with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.
    Keywords: Cheap talk, adverse selection, competition, guilt aversion, lie aversion, inequality aversion, reciprocity
    JEL: C92
    Date: 2012–05
  5. By: Ayala Arad; Ariel Rubinstein
    Date: 2012–05–11
  6. By: Vincent Anesi (University of Nottingham); Daniel J. Seidmann (University of Nottingham)
    Abstract: We present a model of bargaining in which a committee searches over the policy space, successively amending the default by voting over proposals. Bargaining ends when proposers are unable or unwilling to amend the existing default, which is then implemented. We characterize the policies which can be implemented from any initial default in a pure strategy stationary Markov perfect equilibrium for an interesting class of environments including multi-dimensional and infinite policy spaces. Minimumwinning coalitions may not form, and the set of equilibrium policies may be unaffected by a change in the set of proposers. The set of stable policies (which are implemented, once reached as default) forms a weakly stable set; and conversely, any weakly stable set is supported by some equilibrium. If the policy space is well ordered then the committee implements the ideal policy of the last proposer in a subset of a weakly stable set. However, this result does not generalize to other cases, allowing us to explore the effects of protocol manipulation. Variations in the quota and in the number of proposers may have surprising effects on the set of stable decisions. We also show that equilibria of our model are contemporaneous perfect ?-equilibria of a related model of repeated implementation with an evolving default; and that stable decisions in semi-Markovian equilibria form the largest consistent set.
    Keywords: bargaining, evolving default, stable set
    JEL: C78 D71 D72
    Date: 2011–09
  7. By: Giuseppe De Marco (Università di Napoli Parthenope and CSEF); Giovanni Immordino (Università di Salerno and CSEF)
    Abstract: This paper studies how incentives are affected by intention-based reciprocity preferences when the principal hires many agents. Our results describe the agents' psychological attitudes required to sustain a given strategy profile. We also show that hiring reciprocal agents to implement a first or a second-best contract will always benefit the principal if the strategy profile is symmetric. When instead the profile (first or second-best) is asymmetric the principal's best interest might be better served by self-interested agents. We conclude the paper by clarifying when symmetric profiles are most likely to arise.
    Keywords: reciprocity, many agents, psychological games
    JEL: C72 D03 D86
    Date: 2012–05–10
  8. By: Junichiro Ishida
    Abstract: This paper explores the consequences and implications of the "dual role of promotion" in an environment where a firm must simultaneously achieve two distinct goals -- assignment and incentive provision -- via the strategic use of promotions. We argue that the efficient promotion rule is generally not implementable, as it necessarily entails time-inconsistent objectives: the firm is always tempted ex post to promote the worker with the highest upside potential rather than the one with the highest output. This ex post bias towards the assignment role of promotion leads to inefficient task choices where too many workers are induced to work on the difficult task to signal their productivities. The framework identifies the costs and benefits of decentralization, in relation to factors such as the levels of human and social capital, the degree of market competition, firm size, and distance to the technology frontier, and provides predictions that are in line with recent empirical evidence.
    Date: 2012–05
  9. By: Ayca Ozdogan
    Date: 2012–05
  10. By: Maciej H. Kotowski (Harvard Kennedy School); Fei Li (Department of Economics, University of Pennsylvania)
    Abstract: We consider all-pay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealed-bid, all-pay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders and we investigate its properties. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endownments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two mechanisms is generally not possible.
    Keywords: All-Pay Auction, War of Attrition, Budget Constraints, Common Values, Private Values, Affiliation, Contests
    JEL: D44
    Date: 2012–04–23
  11. By: Subir Bose; Matthew Polisson; Ludovic Renou
    Abstract: We derive necessary and suffcient conditions for data sets composed of state-contingent prices and consumption to be consistent with two prominent models of decision making under ambiguity: variational preferences and smooth ambiguity. The revealed preference conditions for the maxmin expected utility and subjective expected utility models are characterized as special cases.
    Keywords: Ambiguity; revealed preference; maxmin; variational preferences; expected utility; smooth; uncertainty
    Date: 2012–04
  12. By: Lionel Wilner (CREST)
    Keywords: intertemporal price discrimination, durable-good monopoly, nonlinear pricing, non-transferability
    JEL: C61 D21 D42
    Date: 2011–11
  13. By: Zudenkova, Galina
    Abstract: This paper analyzes endogenous lobbying over a unidimensional policy issue. Individuals differ in policy preferences and decide either to join one of two opposite interest lobbies or not to take part in lobbying activities. Once formed, lobbies make contributions to the incumbent government in exchange for a policy favor as in a common-agency model. An equilibrium occurs only if no lobby member would prefer his lobby to cease to exist. I show the existence of an equilibrium with two organized lobbies. Individuals with more extreme preferences are more likely to join lobbying activities. Therefore, the lobbyists are rather extremists than moderates. However, the competition between those extreme lobbies results in a more moderate policy outcome relative to that initially preferred by the pro- or anti-policy government. Lobbies therefore guard against extremism, while acting as moderators of the government's preferences. JEL classification: D72. Keywords: common agency; endogenous lobbying; extremism.
    Keywords: Lobbisme, Grups de pressió, 32 - Política,
    Date: 2012
  14. By: Zwart, G.; Broer, D.P. (Tilburg University, Tilburg Law and Economics Center)
    Abstract: When a monopolist has discretion over the timing of infrastructure investments, regulation of post-investment prices interferes with incentivizing socially optimal investment timing. In a model of regulated lumpy investment under uncertainty, we study regulation when the regulator can condition price caps on investment timing. We analyse optimal regulation when there is asymmetric information on investment costs and regulation has to respect a budget constraint. We show that optimal regulation involves a price cap that decreases as a function of the monopolist's chosen investment time.
    Keywords: investment under uncertainty;asymmetric information;optimal regulation;budget constraint.
    JEL: D81 D82 L51
    Date: 2012
  15. By: Khmelnitskaya, A.; Selcuk, O.; Talman, A.J.J. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We introduce a single-valued solution concept, the so-called average covering tree value, for the class of transferable utility games with limited communication structure represented by a directed graph. The solution is the average of the marginal contribution vectors corresponding to all covering trees of the directed graph. The covering trees of a directed graph are those (rooted) trees on the set of players that preserve the dominance relations between the players prescribed by the directed graph. The average covering tree value is component efficient and under a particular convexity-type condition is stable. For transferable utility games with complete communication structure the average covering tree value equals to the Shapley value of the game. If the graph is the directed analog of an undirected graph the average covering tree value coincides with the gravity center solution.
    Keywords: TU game;directed communication structure;marginal contribution vector;Myerson value;average tree solution;stability.
    JEL: C71
    Date: 2012
  16. By: Hernández, Penélope (Departamento de Análisis Económico and ERI-CES. University of Valencia .); Peris, Josep E. (Universitat d'Alacant. Departament de Mètodes Quantitatius i Teoría Econòmica); Silva-Reus, José A. (Universitat d'Alacant. Departament de Mètodes Quantitatius i Teoría Econòmica and Instituto Universitario Desarrollo Social y Paz (IUDESP))
    Abstract: We s tudy minimum cost spanning tree problems for a given set of users connected to a source. We propose a rule of sharing such that each user may pay her cost for such a tree plus an additional amount to the others users . A reduction of her cost appears as a compensation from the other users. Our first result states the existence of a sharing such that no agent is willing to choose a different tree from the minimum cost tree (mcst) offered by Prim’s algorithm. Therefore, the mcst emerges as both a social and individual optimal solu tion. Given a sharing system, we implement the above solution as a subgame perfect equilibrium of a sequential game where players decide sequentially with whom to connect. Moreover , the proposed solution is at the core of the monotone cooperative game associated with a minimal cost spanning tree problem.
    Keywords: Minimum cost spanning tree; cost allocation; subgame perfect equilibrium
    JEL: C71 D63 D70
    Date: 2012–05–09

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