nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒06‒13
ten papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Corruption By Banerjee, Abhijit; Hanna, Rema; Mullainathan, Sendhil
  2. The Tenuous Relationship between Effort and Performance Pay By Kvaløy, Ola; Olsen, Trond
  3. Robust utility maximization for L\'evy processes: Penalization and solvability By Daniel Hern\'andez-Hern\'andez; Leonel P\'erez-Hern\'andez
  4. The Distribution of Revealed Preferences under Social Pressure By Moti Michaeli; Daniel Spiro
  5. Credence goods markets, distributional preferences and the role of institutions By Dominik Erharter
  6. A Discounted Stochastic Game with No Stationary Nash Equilibrium By Yehuda (John) Levy
  7. Fall Back Equilibrium for 2 x n Bimatrix Games By Kleppe, J.; Borm, P.E.M.; Hendrickx, R.L.P.
  8. Bayesian Games with Unawareness and Unawareness Perfection By Meier, Martin; Schipper, Burkhard C.
  9. Epistemic Foundations of Game Theory By Bonanno, Giacomo
  10. General Properties of Long-Run Supergames. By Renault, Jérôme; Tomala, Tristan

  1. By: Banerjee, Abhijit (MIT); Hanna, Rema (Harvard University); Mullainathan, Sendhil (Harvard University)
    Abstract: In this paper, we provide a new framework for analyzing corruption in public bureaucracies. The standard way to model corruption is as an example of moral hazard, which then leads to a focus on better monitoring and stricter penalties with the eradication of corruption as the final goal. We propose an alternative approach which emphasizes why corruption arises in the first place. Corruption is modeled as a consequence of the interaction between the underlying task being performed by bureaucrat, the bureaucrat's private incentives and what the principal can observe and control. This allows us to study not just corruption but also other distortions that arise simultaneously with corruption, such as red-tape and ultimately, the quality and efficiency of the public services provided, and how these outcomes vary depending on the specific features of this task. We then review the growing empirical literature on corruption through this perspective and provide guidance for future empirical research.
    Date: 2012–05
  2. By: Kvaløy, Ola (UiS); Olsen, Trond (NHH)
    Abstract: When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.
    Keywords: .
    JEL: A10
    Date: 2012–06–01
  3. By: Daniel Hern\'andez-Hern\'andez; Leonel P\'erez-Hern\'andez
    Abstract: In this paper the robust utility maximization problem for a market model based on L\'evy processes is analyzed. The interplay between the form of the utility function and the penalization function required to have a well posed problem is studied, and for a large class of utility functions it is proved that the dual problem is solvable as well as the existence of optimal solutions. The class of equivalent local martingale measures is characterized in terms of the parameters of the price process, and the connection with convex risk measures is also presented.
    Date: 2012–06
  4. By: Moti Michaeli; Daniel Spiro
    Abstract: This paper studies theoretically the aggregate distribution of revealed preferences when heterogeneous individuals make the trade o? between being true to their real opinions and conforming to a social norm. We show that in orthodox societies, individuals will tend to either conform fully or ignore the social norm while individuals in liberal societies will tend to compromise between the two extremes. The model sheds light on phenomena such as polarization, alienation and hypocrisy. We also show that societies with orthodox individuals will be liberal on aggregate unless the social norm is upheld by an authority. This suggests that orthodoxy cannot be maintained under pluralism.
    Date: 2012–05
  5. By: Dominik Erharter
    Abstract: We study credence goods markets where an expert not only cares for her own monetary payoff, but also for the monetary payoff of her customer. We show how an expert with heterogeneous distributional preferences responds to monetary incentives in the absence of institutions, under liability and/or verifiability and identify optimal contracts for an expert with distributional preferences in each of these settings.
    Keywords: other-regarding preferences, credence good, institution, contract theory, industrial organization
    JEL: D63 D64 L13 L15 C72
    Date: 2012–06
  6. By: Yehuda (John) Levy
    Abstract: We present an example of a discounted stochastic game with a continuum of states, finitely many players and actions, and deterministic transitions, that possesses no measurable stationary equilibria, or even stationary approximate equilibria. The example is robust to perturbations of the payoffs, the transitions, and the discount factor, and hence gives a strong nonexistence result for stationary equilibria. The example is a game of perfect information, and hence it also does not possess stationary extensive-form correlated equilibrium. Markovian equilibria are also shown not to exist in appropriate perturbations of our example.
    Keywords: Stochastic Game, Discounting, Stationary Equilibrium
    Date: 2012–01–11
  7. By: Kleppe, J.; Borm, P.E.M.; Hendrickx, R.L.P. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: In this paper we provide a characterisation of the set of fall back equilibria for 2 x n bimatrix games. Furthermore, for this type of games we discuss the relation between the set of fall back equilibria and the sets of perfect, proper and strictly perfect equilibria. In order to do this we reformulate the existing characterizations for these three equilibrium concepts by the use of refinement-specific subgames.
    Keywords: game theory;fall back equilibrium;2 x n bimatrix game;equilibrium refinement.
    JEL: C72
    Date: 2012
  8. By: Meier, Martin (IHS Vienna); Schipper, Burkhard C. (University of CA, Davis)
    Abstract: Applying unawareness belief structures introduced in Heifetz, Meier, and Schipper (2012), we develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We apply Bayesian games with unawareness to investigate the robustness of equilibria to uncertainty about opponents' awareness of actions. We show that a Nash equilibrium of a strategic game is robust to unawareness of actions if and only if it is not weakly dominated. Finally, we discuss the relationship between standard Bayesian games and Bayesian games with unawareness.
    JEL: C70 C72 D80 D82
    Date: 2012–05
  9. By: Bonanno, Giacomo (University of CA, Davis)
    Abstract: This is the first draft of a chapter for the forthcoming Handbook of Epistemic Logic, edited by Hans van Ditmarsch, Joe Halpern, Wiebe van der Hoek and Barteld Kooi (College Publications). Contents: 1. Introduction 2. Epistemic Models of Strategic-Form Games 3. Semantic Analysis of Common Belief of Rationality 4. Syntactic Characterization of Common Belief of Rationality 5. Common Belief versus Common Knowledge 6. Probabilistic Beliefs and von Neumann- Morgenstern Payoffs 7. Dynamic Games with Perfect Information 8. The Semantics of Belief Revision 9. Common Belief of Rationality in Perfect-Information Games 10. Literature Review.
    Date: 2012–05
  10. By: Renault, Jérôme; Tomala, Tristan
    Date: 2011

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