nep-mic New Economics Papers
on Microeconomics
Issue of 2012‒06‒25
eighteen papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. The distribution of talent across contests By Ghazala Azmat; Marc Möller
  2. A foundation for strategic agenda voting By Jose Apesteguia; Miguel Ballester; Yusufcan Masatlioglu
  3. On the Private Provision of Public Goods on Networks By Nizar Allouch
  4. Asymmetric information and overeducation By Mendolicchio, Concetta; Paolini, Dimitri; Pietra, Tito
  5. The emergence of "fifty-fifty" probability judgements in a conditional Savage world By Alexander Zimper
  6. Approximate Knowledge of Rationality and Correlated Equilibria By Fabrizio Germano; Peio Zuazo-Garin
  7. Social Norms, Higher-Order Beliefs and the Emperor's New Clothes By Zaki Wahhaj
  8. A note on the equilibrium existence problem in discontinuous games By Idione Soza; Paulo Barelli
  9. Coalition Formation in Generalized Apex Games By Dominik Karos
  10. Revealed cardinal preference By Sákovics, József
  11. Baysian Model Averaging, Learning and Model Selection By Mitra, Kaushik; Evans, George W.; Honkapohja, Seppo
  12. Economy of referential preferences By Goucha, T
  13. Some remarks on restricted bargaining sets By Hervés-Estévez, Javier; Moreno-García, Emma
  14. Evolution towards efficient coordination in repeated games, preliminary version By Demichelis, Stefano
  15. Rules or consequences? The role of ethical mindsets in moral dynamics By Michael Bashshur; Gert Cornelissen; Marc Le Menestrel; Julian Rode
  16. Regulated Prices, Rent-Seeking, and Consumer Surplus By Jeremy Bulow; Paul Klemperer
  17. Anti-Social Behavior in Profit and Nonprofit Organizations By Auriol, Emmanuelle; Brilon, Stefanie
  18. Competition under Consumer Loss Aversion By Karle, Heiko; Peitz, Martin

  1. By: Ghazala Azmat; Marc Möller
    Abstract: Do the contests with the largest prizes attract the most able contestants? Do contestants avoid competition? In this paper we show that the distribution of abilities plays a crucial role in determining contest choice. Positive sorting exist only when the proportion of high ability contestants is sufficiently small. As this proportion increases, contestants shy away from competition and sorting decreases. Eventually, contests with smaller prizes attract stronger participants, i.e. there exists negative sorting. We test our theoretical predictions using a large panel data set containing contest choice over three decades. We use exogenous variation in the participation of highly able competitors to provide empirical evidence for the relationship between prizes and sorting.
    Keywords: contests, prize structure, ability, sorting
    JEL: D82 M52 D02
    Date: 2012–01
  2. By: Jose Apesteguia; Miguel Ballester; Yusufcan Masatlioglu
    Abstract: We offer complete characterizations of the equilibrium outcomes of two prominent agenda voting institutions that are widely used in the democratic world: the amendment, also known as the Anglo-American procedure, and the successive, or equivalently the Euro-Latin procedure. Our axiomatic approach provides a proper understanding of these voting institutions, and allows comparisons between them, and with other voting procedures.
    Keywords: Strategic Voting, Agendas, Committees, Institutions, Axioms
    JEL: C72 D02 D71 D72
    Date: 2012–02
  3. By: Nizar Allouch (Queen Mary, University of London, School of Economics and Finance)
    Abstract: This paper analyzes the private provision of public goods where consumers interact within a fixed network structure and may benefit only from their direct neighbors’ provisions. We present a proof for existence and uniqueness of a Nash equilibrium with general best-reply functions. Our uniqueness result simultaneously extends similar results in Bergstrom, Blume, and Varian (1986) on the private provision of public goods to networks and Bramoullé, Kranton, and D'Amours (2011) on games of strategic substitutes to nonlinear best-reply functions. In addition, we investigate the neutrality result of Warr (1983) and Bergstrom, Blume, and Varian (1986) whereby consumers are able to offset income redistributions and tax-financed government contributions. To this effect, we establish that the neutrality result has a limited scope of application beyond regular networks.
    Keywords: Public Goods, Uniqueness Of Nash Equilibrium, Network Games, Neutrality, Bonacich Centrality, Main Eigenvalue
    JEL: C72 D31 H41
    Date: 2012–05
  4. By: Mendolicchio, Concetta (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Paolini, Dimitri; Pietra, Tito
    Abstract: "We consider an economy where production may use labor of two different skill levels. Workers are heterogeneous and, by investing in education, self-select into one of the two skills. Ex-ante, when firms choose their investments in physical capital, they do not know the level of human capital prevailing in the labor market they will be active in. We prove existence and constrained inefficiency of competitive equilibria, which are always characterized by overeducation. An increase in total expected surplus can be obtained by shrinking, at the margin, the set of workers investing in high skill. This can be implemented by imposing taxes on the cost of investing in high skill or by imposing a progressive labor earning tax." (Author's abstract, IAB-Doku) ((en))
    Keywords: ökonomische Theorie, Humankapital, Bildungsinvestitionen, Gleichgewichtstheorie
    JEL: J24 H2
    Date: 2012–06–14
  5. By: Alexander Zimper
    Abstract: This paper models the empirical phenomenon of persistent “…fifty-…fifty ”probability judgements within a dynamic non-additive Savage framework. To this purpose I construct a model of Bayesian learning such that an agent’s probability judgement is characterized as the solution to a Choquet expected utility maximization problem with respect to a conditional neo-additive capacity. Only for the non-generic case in which this capacity degenerates to an additive probability measure, the agent’s probability judgement coincides with the familiar estimate of a Bayesian statistician who minimizes a quadratic (squared error) loss function with respect to an additive posterior distribution. In contrast, for the generic case in which the capacity is non-additive, the agent’s probability judgements converge through Bayesian learning to the unique fuzzy probability measure that assigns a 0:5 probability to any uncertain event.
    Keywords: Non-additive measures, Learning, Decision analysis, Economics
    Date: 2012
  6. By: Fabrizio Germano; Peio Zuazo-Garin
    Abstract: We extend Aumann's theorem (Aumann, 1987) in deriving correlated equilibria as a consequence of common priors and common knowledge of rationality by explicitly allowing for non-rational behavior. We replace the assumption of common knowledge of rationality with a substantially weaker notion, p-belief of rationality, where agents believe the other agents are rational with probabilities p or more. We show that behavior in this case constitutes a constrained correlated equilibrium of a doubled game satisfying certain p-belief constraints and characterize the topological structure of the resulting set of p-rational outcomes. We establish continuity in the parameters p and show that, for p sufficiently close to one, the p-rational outcomes are close to the correlated equilibria and, with high probability, supported on strategies that survive the iterated elimination of strictly dominated strategies. Finally, we extend Aumann and Dreze's theorem (Aumann and Dreze, 2008) on rational expectations of interim types to the broader p-rational belief systems, and also discuss the case of non-common priors.
    Keywords: Correlated equilibrium, approximate common knowledge, bounded rationality, p-rational belief system, common prior, information, noncooperative game
    JEL: C72 D82 D83
    Date: 2012–06
  7. By: Zaki Wahhaj
    Abstract: The use of social sanctions against behaviour which contradicts a set of informal rules is often an important element in the functioning of informal institutions in traditional societies. In the social sciences, sanctioning behaviour has often been explained in terms of the internalisation of norms that prescribe the sanctions (e.g. Parsons 1951) or the threat of new sanctions against those who do not follow sanctioning behaviour (e.g. Akerlof 1976). We propose an alternative mechanism for maintaining a credible threat of social sanctions, showing that even in a population where individuals have not internalised a set of social norms, do not believe that others have internalised them, do not believe that others believe that others have internalised these norms, etc., up to a finite nth order, collective participation in social sanctions against behaviour which contradict the norms is an equilibrium if such beliefs exist at higher orders. The equilibrium can persist even if beliefs change over time, as long as the norms are believed to have been internalised at some finite nth order. The framework shows how precisely beliefs must change for the equilibrium to unravel and social norms to evolve.
    Keywords: social norms; higher-order belief; social sanctions; community enforcement; dynamics of norms; institutional change
    JEL: D01 D02 D83 Z10
    Date: 2012–06
  8. By: Idione Soza (School of Economics, The University of Queensland); Paulo Barelli
    Abstract: In this note we prove an equilibrium existence theorem for games with discontinuous pay- offs and convex and compact strategy spaces. It generalizes the classical result of Reny (1999) [Econometrica 67, p. 1029-1056], as well as the recent paper of McLennan, Monteiro, and Tourky (2011) [Econometrica 79, p. 1643-1664]. Our condition is simple and easy to verify. Importantly, an example of a spatial location model shows that our conditions allow for eco- nomically meaningful payoff discontinuities, that are not covered by other conditions in the literature.
    Date: 2012
  9. By: Dominik Karos (Department of Economics and Statistics, Saarland University)
    Abstract: The class of games with one apex player is generalized to the class of games with a collection of apex sets. These simple games, together with a power index, canonically induce a hedonic coalition formation game. A monotonicity property of solutions is introduced and its meaning for the induced hedonic game is analyzed. Necessary and sufficient conditions for the existence of core stable partitions are stated and core stable partitions are characterized.
    Keywords: Apex Games, Core Stability, Hedonic Games, Strong Monotonicity
    JEL: C71
    Date: 2012–05
  10. By: Sákovics, József
    Abstract: I prove that as long as we allow the marginal utility for money (lambda) to vary between purchases (similarly to the budget) then the quasi-linear and the ordinal budget-constrained models rationalize the same data. However, we know that lambda is approximately constant. I provide a simple constructive proof for the necessary and sufficient condition for the constant lambda rationalization, which I argue should replace the Generalized Axiom of Revealed Preference in empirical studies of consumer behavior. 'Go Cardinals!' It is the minimal requirement of any scientifi c theory that it is consistent with the data it is trying to explain. In the case of (Hicksian) consumer theory it was revealed preference -introduced by Samuelson (1938,1948) - that provided an empirical test to satisfy this need. At that time most of economic reasoning was done in terms of a competitive general equilibrium, a concept abstract enough so that it can be built on the ordinal preferences over baskets of goods - even if the extremely specialized ones of Arrow and Debreu. However, starting in the sixties, economics has moved beyond the 'invisible hand' explanation of how -even competitive- markets operate. A seemingly unavoidable step of this 'revolution' was that ever since, most economic research has been carried out in a partial equilibrium context. Now, the partial equilibrium approach does not mean that the rest of the markets are ignored, rather that they are held constant. In other words, there is a special commodity -call it money - that reflects the trade-offs of moving purchasing power across markets. As a result, the basic building block of consumer behavior in partial equilibrium is no longer the consumer's preferences over goods, rather her valuation of them, in terms of money. This new paradigm necessitates a new theory of revealed preference.
    Date: 2012
  11. By: Mitra, Kaushik; Evans, George W.; Honkapohja, Seppo
    Abstract: Agents have two forecasting models, one consistent with the unique rational expectations equilibrium, another that assumes a time-varying parameter structure. When agents use Bayesian updating to choose between models in a self-referential system, we find that learning dynamics lead to selection of one of the two models. However, there are parameter regions for which the non-rational forecasting model is selected in the long-run. A key structural parameter governing outcomes measures the degree of expectations feedback in Muth's model of price determination.
    Keywords: Learning dynamics, Bayesian model averaging, grain of truth, self-referential systems,
    Date: 2012
  12. By: Goucha, T
    Abstract: In this paper we introduce basic notions of new economic model where preference relations on commodities set are represented by a group action on Euclidean space instead of utility function. Conditions that ensure the existence of individual demand functions and a general equilibrium in the setting of exchange economy are examined.
    Keywords: General equilibrium; Preference Relations; Group theory
    JEL: D50 D51 C62
    Date: 2012–05–12
  13. By: Hervés-Estévez, Javier; Moreno-García, Emma
    Abstract: We analyze bargaining mechanisms for allocating resources in atomless econo- mies. We provide results proving that it is not necessary to consider the forma- tion of all coalitions in order to obtain the bargaining sets. This is shown under restrictions of different nature, triggering different equivalence results. In addi- tion, several counterexamples state boundaries for the possibility of extending and generalizing our results.
    Keywords: Bargaining sets; coalitions; core; veto mechanism
    JEL: D11 D41 D51 D00
    Date: 2012–06–10
  14. By: Demichelis, Stefano
    Abstract: We show that in long repeated games- or in infinitely repeated games with discount rate close to one- payoffs corresponding to evolutionary stable sets are asymptotically efficient, as intuition suggests. Actions played at the beginning of the game are used as messages that allow players to coordinate on Pareto optimal outcomes in the following stages. Strategies following some simple and intuitive "behavioral maxims" are shown to be able to drive out inefficient ones from a population. The result builds a bridge between the theory of repeated games and that of communication games that will be further investigated.
    Keywords: Repeated Games; Evolution; Communication; Efficiency
    JEL: C7
    Date: 2012–06–07
  15. By: Michael Bashshur; Gert Cornelissen; Marc Le Menestrel; Julian Rode
    Abstract: Recent research on the dynamics of moral behavior has documented two contrasting phenomena - moral consistency and moral balancing. Moral balancing refers to the phenomenon whereby behaving (un)ethically decreases the likelihood of doing so again at a later time. Moral consistency describes the opposite pattern - engaging in (un)ethical behavior increases the likelihood of doing so later on. Three studies support the hypothesis that individuals' ethical mindset (i.e., outcome-based versus rule-based) moderates the impact of an initial (un)ethical act on the likelihood of behaving ethically in a subsequent occasion. More specifically, an outcome-based mindset facilitates moral balancing and a rule-based mindset facilitates moral consistency.
    Keywords: moral balancing, moral consistency, ethical mindsets, ethical behavior
    JEL: C91 D03
    Date: 2012–01
  16. By: Jeremy Bulow (Graduate School of Business, Stanford University, USA); Paul Klemperer (Nuffield College, Oxford University)
    Abstract: Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone ensures that a price control always reduces consumer surplus in an otherwise-competitive market with convex demand if supply is more elastic than demand; or with log-convex demand (e.g., constantelasticity) even if supply is inelastic. The same results apply whether rationed goods are allocated by costless lottery, or whether costly rent-seeking and/or partial decontrol mitigates the inefficiency. Our analysis exploits the observation that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve.
    Keywords: Price Control, Rationing, Allocative Efficiency, Microeconomic Theory, Marginal Revenue, Minimum Wage, Rent Control, Consumer Welfare, Rent Seeking
    JEL: D45 D61 D6
    Date: 2012–03–01
  17. By: Auriol, Emmanuelle; Brilon, Stefanie
    Abstract: Two types of intrinsically motivated workers are considered: "good" workers care about the mission of an organization, whereas "bad" workers derive pleasure from destructive behavior. While missionoriented organizations take advantage of the intrinsic motivation of good workers, they are more vulnerable than profit-oriented organizations to anti-social behavior: bad workers only join them to behave badly. To prevent this, monitoring has to go up in the mission-oriented sector, while the incentives for good behavior stay the same. In the profit-oriented sector, by contrast, both monitoring and bonus payments for good behavior increase to control the damage caused by bad workers. As a result, in equilibrium bad workers are generally working in the for-profit sector where they behave like "normal" people, while good workers self select into the mission-oriented sector.
    Keywords: candidate selection; motivated agents; non-profit; sabotage
    JEL: D21 D23 L31
    Date: 2012–03
  18. By: Karle, Heiko; Peitz, Martin
    Abstract: We address the effect of contextual consumer loss aversion on firm strategy in imperfect competition. Consumers are fully informed about match value and price at the moment of purchase. However, some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match—value and price distribution, while others are perfectly informed all the time. We show that, in duopoly, a larger share of informed consumers leads to a less competitive outcome if the asymmetry between firms is sufficiently large and that narrowing the set of products which consumers consider leads to a more competitive outcome.
    Keywords: Contextual loss aversion , reference-dependent utility , behavioral industrial organization , imperfect competition , product differentiation
    JEL: D83 L13 L41 M37
    Date: 2012

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