
on Microeconomics 
Issue of 2012‒10‒06
sixteen papers chosen by JingYuan Chiou IMT Lucca Institute for Advanced Studies 
By:  James Anton; Dennis Yao 
Abstract:  We examine a multiissue dynamic decisionmaking process that involves endogenous commitment. Our primary focus is on actions that impact delay, an extreme form of lack of commitment. Delay is strategically interesting when decision makers with asymmetric preferences face multiple issues and have limited resources for influencing outcomes. A delayed decision becomes part of the subsequent agenda, thereby altering the allocation of resources. The opportunity to delay decisions leads the players to act against their shortrun interests when they have strongly asymmetric preferences. Two classes of strategic activity emerge: focusing (reductions in delay) and pinning (increases in delay). We characterize these equilibria, explore how strategic delay alters the benefits to agenda setting, and develop implications for settings where bargaining is feasible. Our analysis applies directly to group, hierarchical, and coalitional decision making settings and illuminates a range of multimarket competitive interactions. 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1218&r=mic 
By:  Penélope Hernández (ERICES); Bernhard von Stengel (London School of Economics) 
Abstract:  This paper studies the stability of communication protocols that deal with transmission errors. We consider a coordination game between an informed sender and an uninformed decision maker, the receiver, who communicate over a noisy channel. The sender's strategy, called a code, maps states of nature to signals. The receiver's best response is to decode the received channel output as the state with highest expected receiver payoff. Given this decoding, an equilibrium or ``Nash code'' results if the sender encodes every state as prescribed. We show two theorems that give sufficient conditions for Nash codes. First, a receiveroptimal code defines a Nash code. A second, more surprising observation holds for communication over a binary channel which is used independently a number of times, a basic model of information transmission: Under a minimal ``monotonicity'' requirement for breaking ties when decoding, which holds generically, any code is a Nash code. 
Keywords:  senderreceiver game, communication, noisy channel 
JEL:  C72 D82 
Date:  2012–05 
URL:  http://d.repec.org/n?u=RePEc:dbe:wpaper:0912&r=mic 
By:  Heidhues, Paul; Rady, Sven; Strack, Philipp 
Abstract:  We consider two players facing identical discretetime bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing freerider problem is so severe that the equilibrium number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. These results generalize to more than two players whenever the success probability per period is not too high. In particular, this is the case when successes occur at the jump times of a Poisson process and the period length is sufficiently small. 
Keywords:  Strategic Experimentation; Bayesian Learning; Cheap Talk; TwoArmed Bandit; Information Externality. 
JEL:  C73 D83 
Date:  2012–09–25 
URL:  http://d.repec.org/n?u=RePEc:trf:wpaper:387&r=mic 
By:  R. Vijay Krishna; Philipp Sadowski 
Abstract:  We consider a decision maker who experiences transient preference shocks when faced with dynamic decision situations that involve intertemporal tradeoffs, such as those in consumption savings problems. We axiomatize a recursive representation of choice over infinite horizon consumption problems that features uncertain consumption utilities that evolve according to a subjective process that is iid. A generalization of the model introduces objective states of the world and accommodates persistent taste shocks that are transient, contingent on the state. In the corresponding representation the uncertainty about utilities depends on the exogenous state, which follows a subjective Markov process. The parameters of the representations, which are the subjective processes governing the evolution of beliefs over consumption utilities, and the discount factor, are uniquely identified from behavior. We characterize a natural notion of greater preference for flexibility in terms of a dilation of beliefs. 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1216&r=mic 
By:  David Dillenberger; Juan Sebastian Lleras; Philipp Sadowski; Norio Takeoka 
Abstract:  We study an individual who faces a dynamic decision problem in which the process of information arrival is unobserved by the analyst. We derive two utility representations of preferences over menus of acts that capture the individuals uncertainty about his future beliefs. The most general representation identifies a unique probability distribution over the set of posteriors that the decision maker might face at the time of choosing from the menu. We use this representation to characterize a notion of more preference for flexibility via a subjective analogue of Blackwells (1951, 1953) comparisons of experiments. A more specialized representation uniquely identifies information as a partition of the state space. This result allows us to compare individuals who expect to learn differently, even if they do not agree on their prior beliefs. We conclude by extending the basic model to accommodate an individual who expects to learn gradually over time by means of a subjective filtration. 
Keywords:  Subjective learning, partitional learning, preference for flexibility, resolution of uncertainty, valuing more binary bets, subjective filtration 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:duk:dukeec:1217&r=mic 
By:  Sacha BourgeoisGironde (IJN  Institut JeanNicod  CNRS : UMR8129  Ecole Normale Supérieure de Paris  ENS Paris  Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM  Laboratoire d'Économie Moderne  Université Paris II  PanthéonAssas : EA4442); Anne Corcos François Pannequin (LEM  Laboratoire d'Économie Moderne  Université Paris II  PanthéonAssas : EA4442) 
Abstract:  In this article, we focus on two types of "aversion" which we deem essential aspects of the notion of trust: betrayal aversion (social) and ambiguity aversion (a special case of aversion to uncertainty). Based on trustgames studies in experimental economics and neuroeconomics, our main goal is to assess the conceptual, behavioral and neurobiological connections between betrayal and ambiguity aversions. From a social and individual psychological point of view the bottom line of our trusting behavior could be our general aversion to ambiguous signals. We approach social trust in the terms of a phenomenon based on uncertainty aversion.Specifically, a reduction of the perceived uncertainty of a social interaction tends to build up a trusting climate conducive to trade by decreasing betrayal aversion.We hypothesize that betrayal aversion and ambiguity aversion bear such a negative correlation. Focusing on this potential negative correlation our approach clearly differs from more positive accounts of trust centred on altruism. 
Keywords:  trust game  betrayal aversion  ambiguity aversion  neuroeconomics 
Date:  2012–11–25 
URL:  http://d.repec.org/n?u=RePEc:hal:journl:ijn_00734564&r=mic 
By:  Miyazaki, Kentaro; Takekuma, ShinIchi 
Abstract:  Irreducible exchange economies in which consumers’ preferences are satiable and nonordered are considered. A general existence theorem of dividend quasiequilibrium is proved and by the theorem the existence of Walras equilibrium is proved under weak assumptions of nonsatiation. 
Keywords:  dividend equilibrium, Walras equilibrium, irreducibility, satiation 
JEL:  C62 D11 D41 D51 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:hit:econdp:201205&r=mic 
By:  SeongHoon Kim; Seongman Moon 
Abstract:  In a manysector production economy where each sectorâ€™s output is used as input for every sector, a general equilibrium implies zero profit for everyone, whereas one market in excess demand implies positive profits for all others in their partial equilibrium. If more than one market is stuck in excess demand, every market allows positive profits. 
Keywords:  Walras' Law, InputOutput, Sectoral Disequilibria, Profits 
JEL:  D59 E19 F41 
Date:  2012–07–01 
URL:  http://d.repec.org/n?u=RePEc:san:cdmawp:1208&r=mic 
By:  Joaquin GomezMinambres (Economic Science Institute, Chapman University); Eric Schniter (Economic Science Institute, Chapman University) 
Abstract:  We study a dynamic model of selfcontrol where the history of one's decisions (understood as emotions) has influence on subsequent decision making. We propose that effort and regret are emotions produced by previous decisions to either resist or yield to temptation, respectively. When recalled, these emotions affect an individual's preferences, in turn affecting selfcontrol decision at a particular point in time. Our model provides a unified explanation for several empirical regularities puzzling economists and cognitive scientists. We explain nonstationary consumption paths characterized by compensatory indulgence and restraint cycles, why the amplitude of consumption cycles increases with foresight and decreases with emotional memory, and, finally, we show how unavoidable options that might show up on one's menu influence choices, consequent emotions, consumption paths, and preferences for commitment. 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1220&r=mic 
By:  Eugenio Peluso (Department of Economics (University of Verona)); Alain Trannoy (EHESS, GREQAMIDEP, Marseille) 
Abstract:  Consider the most simple problem in microeconomics, a maximization problem with an additive separable utility function over bundles of two goods which provide equal sat isfaction to an agent. Although simple, this framework allows for a very wide range of applications, from the ArrowDebreu contingent claims case to the risksharing problem, including standard portfolio choice, intertemporal individual consumption, demand for in surance and tax evasion. We show that any Engel curve can be generated through such a simple program and the necessary and suffi cient restrictions on the demand system to be the outcome of such a maximisation process. Moreover, we identify three classes of utility function that generate nonlinear sharing rules. The gap between the two expen diture shares increases in absolute, average or marginal terms with the total amount of wealth, depending on whether DARA, DRRA and convex risk tolerance are considered. The extension of the different results to the case of more than two goods is provided. 
Keywords:  Cakeeating problem; sharing rules; concavity; convex risk tolerance 
JEL:  D11 D81 D90 G12 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:ver:wpaper:26/2012&r=mic 
By:  Sébastien Courtin; Mathieu Martin; Bertrand Tchantcho (THEMA, Universite de CergyPontoise; THEMA, Universite de CergyPontoise; University of Yaounde I) 
Abstract:  A wellknown result in Social Choice theory is the following: every scoring rule (positional rules) violates Condorcet consistency. A rule is Condorcet consistent when it selects the alternative that is preferred to every other alternative by a majority of individuals. In this paper, we investigate some limits of this negative result. We expose the relationship between a weaker version of the Condorcet consistency principle and the scoring rules. Our main objective is then to study the condition on the quota that ensure that positional rules (simple and sequential) satisfy this principle. 
Keywords:  Positional rules (Simple and Sequential) . Condorcet Consistency . qmajority 
JEL:  D71 D72 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:ema:worpap:201236&r=mic 
By:  Sébastien Courtin; Boniface Mbih; Issofa Moyouwou (THEMA, Universite de CergyPontoise; University of Caen basseNormandie; University of Yaounde I) 
Abstract:  A Condorcet social choice procedure elects the candidate that beats every other candidate under simple majority when such a candidate exists. The reinforcement axiom roughly states that given two groups of individuals, if these two groups select the same alternative, then this alternative must also be selected by their union. Condorcet social choice procedures are known to violate this axiom. Our goal in this paper is to put this important voting theory result into perspective. We then proceed by evaluating how frequently this phenomenon is susceptible to occur. 
Keywords:  Condorcet procedures • Reinforcement axiom • Likelihood • Impartial culture • Impartial anonymous culture 
JEL:  D71 
Date:  2012 
URL:  http://d.repec.org/n?u=RePEc:ema:worpap:201237&r=mic 
By:  Athanasios Geromichalos (Department of Economics, University of California Davis) 
Abstract:  I study a directed search model of oligopolistic competition, extended to incorporate general capacity constraints, congestion effects, and pricing based on expost realized demand. I show that as long as any one of these ingredients is present, the Bertrand paradox will fail to hold. Hence, I argue that, despite the emphasis that has been placed by the literature on sellers’ capacity constraints as a resolution to the paradox, the existence of such constraints is only a subcase of a general class of environments where the paradox fails. More precisely, Bertrand’s paradox will not arise whenever the buyers’ expected utility from visiting a specific seller is decreasing in that seller’s realized demand. 
Keywords:  Directed Search, Bertrand Paradox, Capacity Constraints, Congestion Effects, Statecontingent Pricing 
JEL:  C78 D43 L13 
Date:  2012–09–25 
URL:  http://d.repec.org/n?u=RePEc:cda:wpaper:1221&r=mic 
By:  Christian Bayer; Bezirgen Veliyev 
Abstract:  We consider the problem of optimizing the expected logarithmic utility of the value of a portfolio in a binomial model with proportional transaction costs with a long time horizon. By duality methods, we can find expressions for the boundaries of the notraderegion and the asymptotic optimal growth rate, which can be made explicit for small transaction costs. Here we find that, contrary to the classical results in continuous time, the size of the notraderegion as well as the asymptotic growth rate depend analytically on the level of transaction costs, implying a linear first order effect of perturbations of (small) transaction costs. We obtain the asymptotic expansion by an almost explicit construction of the shadow price process. 
Date:  2012–09 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1209.5175&r=mic 
By:  Duddy, Conal 
Abstract:  We consider two noshow paradoxes, in which a voter obtains a preferable outcome by abstaining from a vote. One arises when the casting of a ballot that ranks a candidate in first causes that candidate to lose the election. The other arises when a ballot that ranks a candidate in last causes that candidate to win. We show that when there are at least four candidates and when voters may express indifference, every voting rule satisfying Condorcet's principle must generate both of these paradoxes. 
Keywords:  Condorcet; no show; paradox; abstention; voting; participation; positive involvement; negative involvement 
JEL:  D7 D71 
Date:  2012–09–24 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:41527&r=mic 
By:  Béal, Sylvain; Rémila, Eric; Solal, Philippe 
Abstract:  We introduce new axioms for the class of all TUgames with a fixed but arbitrary player set, which require either invariance of an allocation rule or invariance of the payoff assigned by an allocation rule to a specified subset of players in two related TUgames. Comparisons with other axioms are provided. These new axioms are used to characterize the Shapley value, the equal division rule, the equal surplus division rule and the Banzhaf value. The classical axioms of efficiency, anonymity, symmetry and additivity are not used. 
Keywords:  uniform addition invariance ; uniform transfer invariance ; Shapley value ; equal division rule ; equal surplus division rule ; Banzhaf value 
JEL:  C71 
Date:  2012–09–24 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:41530&r=mic 