
on Microeconomics 
By:  Paolo Ghirardato; Marciano Siniscalchi 
Abstract:  This paper considers local and global multipleprior representations of ambiguity for preferences that are (i) monotonic, (ii) Bernoullian, i.e. admit an affine utility representation when restricted to constant acts, and (iii) locally Lipschitz continuous. We do not require either Certainty Independence or Uncertainty Aversion. We show that the set of priors identified by Ghirardato, Maccheroni, and Marinacci (2004)’s ‘unambiguous preference’ relation can be characterized as a union of Clarke differentials. We then introduce a behavioral notion of ‘locally better deviation’ at an act, and show that it characterizes the Clarke differential of the preference representation at that act. These results suggest that the priors identified by these preference statements are directly related to (local) optimizing behavior. 
Keywords:  Ambiguity, Optimization, Robustness, Derivative. 
JEL:  D81 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:cca:wpaper:255&r=mic 
By:  Jose Apesteguia; Miguel A. Ballester 
Abstract:  We propose a rule of decisionmaking, the sequential procedure guided by routes, and show that three influential boundedly rational choice models can be equivalently understood as special cases of this rule. In addition, the sequential procedure guided by routes is instrumental in showing that the three models are intimately related. We show that choice with a statusquo bias is a refinement of rationalizability by game trees, which, in turn, is also a refinement of sequential rationalizability. Thus, we provide a sharp taxonomy of these choice models, and show that they all can be understood as choice by sequential procedures. 
Keywords:  Individual rationality, Bounded rationality, Behavioral economics. 
JEL:  D01 
Date:  2012–02 
URL:  http://d.repec.org/n?u=RePEc:upf:upfgen:1309&r=mic 
By:  Arthur Charpentier; Alfred Galichon; Marc Henry 
Abstract:  We revisit Machina's local utility as a tool to analyze attitudes to multivariate risks. Using martingale embedding techniques, we show that for nonexpected utility maximizers choosing between multivariate prospects, aversion to multivariate mean preserving increases in risk is equivalent to the concavity of the local utility functions, thereby generalizing Machina's result in [18]. To analyze comparative risk attitudes within the multivariate extension of rank dependent expected utility of [10], we extend Quiggin's monotone mean and utility preserving increases in risk and show that the useful characterization given in [17] still holds in the multivariate case. <P> 
Keywords:  local utility, multivariate risk aversion, multivariate rank dependent utility, pessimism, multivariate BickelLehmann dispersion, 
Date:  2012–06–01 
URL:  http://d.repec.org/n?u=RePEc:cir:cirwor:2012s17&r=mic 
By:  George W. Evans; Seppo Honkapohja; Thomas Sargent; Noah Williams 
Abstract:  Agents have two forecasting models, one consistent with the unique rational expectations equilibrium, another that assumes a timevarying parameter structure. When agents use Bayesian updating to choose between models in a selfreferential system, we find that learning dynamics lead to selection of one of the two models. However, there are parameter regions for which the nonrational forecasting model is selected in the longrun. 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, selfreferential systems. 
JEL:  D83 D84 C52 C11 
Date:  2012–01–25 
URL:  http://d.repec.org/n?u=RePEc:san:cdmawp:1203&r=mic 
By:  Larbi Alaoui 
Abstract:  There are many situations in which individuals have a choice of whether or not to observe eventual outcomes. In these instances, individuals often prefer to remain ignorant. These contexts are outside the scope of analysis of the standard von NeumannMorgenstern (vNM) expected utility model, which does not distinguish between lotteries for which the agent sees the final outcome and those for which he does not. I develop a simple model that admits preferences for making an observation or for remaining in doubt. I then use this model to analyze the connection between preferences of this nature and riskattitude. This framework accommodates a wide array of behavioral patterns that violate the vNM model, and that may not seem related, prima facie. For instance, it admits selfhandicapping, in which an agent chooses to impair his own performance. It also accommodates a status quo bias without having recourse to framing effects, or to an explicit definition of reference points. In a political economy context, voters have strict incentives to shield themselves from information. In settings with otherregarding preferences, this model predicts observed behavior that seems inconsistent with either altruism or selfinterested behavior. 
Keywords:  Value of information, uncertainty, recursive utility, doubt, unobserved outcomes, unresolved lotteries 
JEL:  D03 D80 D81 D64 
Date:  2012–04 
URL:  http://d.repec.org/n?u=RePEc:upf:upfgen:1313&r=mic 
By:  Schottmuller, C.; Boone, J. (Tilburg University, Center for Economic Research) 
Abstract:  Abstract: Many optimal contracting papers use quasilinear preferences. To exclude stochastic mechanisms they impose a (sufficient) condition on how the curvature of an agent's objective function varies with type. We show with quasilinear preferences that an optimal deterministic outcome without bunching implies that stochastic mechanisms are not optimal (without any additional assumptions). 
Keywords:  stochastic mechanisms;contract theory;quasilinear preferences. 
JEL:  D82 H21 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:dgr:kubcen:2012047&r=mic 
By:  Anne LayneFarrar (Compass Lexecon); Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros); Jorge Padilla (Compass Lexecon) 
Abstract:  This paper studies the effects of a Standard Setting Organization (SSO) imposing a licensing cap for patents incorporated into a standard. In particular, we evaluate the \Incremental Value" rule as a way to reward firms that contribute technology to a standard. This rule has been proposed as a means of avoiding patent holdup of licensing firms by granting patent holders compensation equal to the value that their technology contributes to the standard on an exante basis, as compared to the next best alternative. Our analysis shows that even in contexts where this rule is efficient from an expost point of view, it induces important distortions in the decisions of firms to innovate and participate in the SSO. Specifically, firms being rewarded according to this rule will inefficiently decide not to join the SSO, under the expectation that their technology becomes expost essential at which point they may negotiate larger payments from the SSO. 
Keywords:  Intellectual property, standard setting organizations, licensing, incremental value. 
JEL:  L15 L24 O31 O34 
Date:  2012–02 
URL:  http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2012_1203&r=mic 
By:  Ernesto Savaglio; Stefano Vannucci 
Abstract:  It is shown that a social choice rule f : X<sup>N</sup> ? X as defined on a bounded distributive lattice (X, ) is strategyproof on the set of all profiles of unimodal total preorders on X if and only if it can be represented as an iterated median of projections and constants. The equivalence of individual and coalitional strategyproofness that is known to hold in more specialized unimodal domains fails in such a more general setting. 
JEL:  D71 
Date:  2012–06 
URL:  http://d.repec.org/n?u=RePEc:usi:wpaper:642&r=mic 
By:  Philippe Choné (CrestLEI); Laurent Linnemer 
Abstract:  We study the exclusionary properties of nonlinear pricing by dominant firms in a static environment. Optimal price schedules are nonlinear when the rivals’ sensitivity to competitive pressure varies with the “contestable share” of the market. When buyers can dispose of unconsumed units at no cost, and thus might purchase units they do not need, dominant firms are prevented from placing too much pressure on rivals, which limits the extent of inefficient exclusion. When disposal costs are large and sensitivity to competitive pressure is not monotonic in the contestable share, optimal price schedules may be locally decreasing and highly nonlinear 
Keywords:  Inefficient exclusion, buyer opportunism, disposal costs, quantity rebates, incomplete information 
JEL:  L12 L42 D82 D86 
Date:  2012–06 
URL:  http://d.repec.org/n?u=RePEc:crs:wpaper:201211&r=mic 
By:  Antonio Nicita; Simone Sepe 
Abstract:  Many real world transactions occur in a common agency environment in which an agent interacts with several principals having competing interests. The holdup literature, however, has so far neglected to investigate common agency transactions. In this paper, we consider the holdup problem that arises in a context where there are a monopolistic seller and multiple buyers on the one side and all the parties on the other are required to make specific selfinvestments. Our contribution is twofold. First, we show that absent initial contracts (i.e., preliminary agreements) between the parties, total efficiency increases when the buyers act competitively using implicit contractual coordination, i.e., contractual menus. Second, we show that introducing initial simple contracts allows parties to reach the first best only under cooperative common agency. Absent this machinery, competition among the principals emerges as a more efficient governance structure for common agency in incomplete transactions. 
Keywords:  incomplete contracts, common agency, mechanism design 
JEL:  K12 L22 J41 C70 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:usi:wpaper:636&r=mic 