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on Microeconomics |
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Issue of 2012‒12‒10
sixteen papers chosen by Jing-Yuan Chiou IMT Lucca Institute for Advanced Studies |
| By: | Breitmoser, Yves; Vorjohann, Pauline |
| Abstract: | In the canonical network model, the connections model, only three specific network structures are generically efficient: complete, empty, and star networks. This renders many plausible network structures inefficient. We show that requiring robustness with respect to stochastic transmission failures rehabilitates incomplete, circular network structures. Specifically, we show that near the "bifurcation" where both star and complete network are efficient in the standard connections model, star and complete network are generally inefficient as transmission failures become possible. As for four-player networks, we additionally show that the circle network is uniquely efficient and robust near this bifurcation. |
| Keywords: | communication network; information flow; stochastics; robustness; efficiency; connections model |
| JEL: | C70 D85 |
| Date: | 2012–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42862&r=mic |
| By: | Dentcheva, Darinka; Ruszczynski, Andrzej |
| Abstract: | We show that the main results of the expected utility and dual utility theories can be derived in a unified way from two fundamental mathematical ideas: the separation principle of convex analysis, and integral representations of continuous linear functionals from functional analysis. Our analysis reveals the dual character of utility functions. We also derive new integral representations of dual utility models. |
| Keywords: | Preferences; Utility Functions; Rank Dependent Utility Functions; Separation; Choquet Representation |
| JEL: | C0 |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42736&r=mic |
| By: | Anis Matoussi; Lambert Piozin; Dylan Possamai |
| Abstract: | The aim of this paper is twofold. First, we extend the results of [32] concerning the existence and uniqueness of second-order reflected 2BSDEs to the case of upper obstacles. Then, under some regularity assumptions on one of the barriers, similar to the ones in [9], and when the two barriers are completely separated, we provide a complete wellposedness theory for doubly reflected second-order BSDEs. We also show that these objects are related to non-standard optimal stopping games, thus generalizing the connection between DRBSDEs and Dynkin games first proved by Cvitani\'c and Karatzas [10]. More precisely, we show that the second order DRBSDEs provide solutions of what we call uncertain Dynkin games and that they also allow us to obtain super and subhedging prices for American game options (also called Israeli options) in financial markets with volatility uncertainty. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1212.0476&r=mic |
| By: | Hillebrand, Marten |
| Abstract: | This paper studies Markov Equilibria (ME) corresponding to recursive equilibria on natural state space in the stochastic OLG model extended to include non-additive utility, nonclassical production, and Markovian production shocks. Specifically, we provide sufficient conditions under which the ME in unique. It turns out that uniqueness for a large class of economies and that restrictions either on the consumption side or the production side alone are sufficient to garantuee this result. We also discuss additional properties such as continuity or smoothness of the equilibrium mappings and whether additional recursive or non-recursive euilibria exist. -- |
| Keywords: | Markov equilibrium : Uniqueness,Overlapping generations,Nonclassical production,Markovian production shocks |
| JEL: | C62 D51 E32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:46&r=mic |
| By: | Francesc Llerena (Universitat Rovira i Virgili - CREIP); Marina Nunez (Universitat de Barcelona); Carles Rafels (Universitat de Barcelona) (Universitat de Barcelona) |
| Abstract: | On the domain of two-sided assignment markets, the nucleolus is axiomatized as the unique solution that satisfies derived consistency (Owen, 1992) and complaint mono- tonicity on sectors size. As a consequence, we obtain a geometric characterization of the nucleolus by means of a strong form of the bisection property that characterizes the inter- section between the core and the kernel of a coalitional game in Maschler et al (1979). |
| Keywords: | core, assignment games, nucleolus, cooperative games |
| JEL: | C71 C78 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2012286&r=mic |
| By: | Larry G. Epstein; Shaolin Ji |
| Abstract: | This paper formulates a model of utility for a continuous time frame-work that captures the decision-maker’s concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are presented. First, we derive arbitrage-free pricing rules based on hedging arguments. Ambiguous volatility implies market incompleteness that rules out perfect hedging. Consequently, hedging arguments determine prices only up to intervals. However, sharper predictions can be obtained by assuming preference maximization and equilibrium. Thus we apply the model of utility to a representative agent endowment economy to study equilibrium asset returns. A version of the C-CAPM is derived and the effects of ambiguous volatility are described. <P> |
| Keywords: | ambiguity, option pricing, recursive utility, G-Brownian motion, robust stochastic volatility, sentiment, overconfidence, optimism., |
| Date: | 2012–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2012s-29&r=mic |
| By: | Zhang, Yuzhe |
| Abstract: | In this paper I provide a stopping-time-based solution to a long-term contracting problem between a risk-neutral principal and a risk-averse agent. The agent faces a stochastic income stream and cannot commit to the long-term contracting relationship. To compute the optimal contract, I also design an algorithm that is more efficient than value-function iteration. |
| Keywords: | Limited commitment; Risk sharing; Stopping time; Value-function iteration |
| JEL: | D86 C63 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42820&r=mic |
| By: | Jiri, Mazurek |
| Abstract: | Many real-world decision making situation are associated with uncertainty regarding future state of the World. Traditionally, in such situation different (and discrete) scenarios – future states of nature – are considered. This domain of decision making is denoted as decision making under risk. However, limitation to some set of discrete scenarios is somewhat unnatural as future reality might not choose one of considered scenarios, but some other scenario or a scenario in between. The aim of this paper is to propose a more natural approach with continuum states of nature, where all scenarios expressed by their probability density function from some reasonable interval are taken into consideration. The approach is illustrated by a numerical example and is compared with the corresponding decision making under risk with discrete states of nature. |
| Keywords: | continuous states of nature; decision making under risk; scenario; utility function |
| JEL: | D81 |
| Date: | 2012–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42856&r=mic |
| By: | Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Giorgio Rodano (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") |
| Abstract: | In many strategic settings comparing the payo¤s obtained by players under full cooperation to those obtainable at a sequential (Stackelberg) equilibrium can be crucial to determine the nal outcome of the game. This happens, for instance, in repeated games in which players can break cooperation by acting sequentially, as well as in merger games in which rms are allowed to sequence their actions. Despite the relevance of these and other applications, no fully-edged comparisons betwen collusive and sequential payo¤s have been performed so far. In this paper we show that even in symmetric duopoly games the ranking of cooperative and sequential payo¤s can be extremely variable, particularly when the consuete linear demand assumption is relaxed. Not surprisingly, the degree of strategic complementarity and substitutability of playersactions (and, hence, the slope of their best-replies) appears decisive to determine the ranking of collusive and sequential payo¤s. Some applications to endogenous timing are discussed. |
| Keywords: | Sequential Payoffs; Collusion; Duopoly Games |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:aeg:report:2012-06&r=mic |
| By: | Sjaak Hurkens |
| Abstract: | Calculating explicit closed form solutions of Cournot models where firms have private information about their costs is, in general, very cumbersome. Most authors consider therefore linear demands and constant marginal costs. However, within this framework, the nonnegativity constraint on prices (and quantities) has been ignored or not properly dealt with and the correct calculation of all Bayesian Nash equilibria is more complicated than expected. Moreover, multiple symmetric and interior Bayesian equilibria may exist for an open set of parameters. The reason for this is that linear demand is not really linear, since there is a kink at zero price: the general ''linear'' inverse demand function is P (Q) = max{a - bQ, 0} rather than P (Q) = a - bQ. |
| Keywords: | Cournot, Private Information, Bayesian Nash equilibrium |
| JEL: | C72 D43 D82 |
| Date: | 2012–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:924.12&r=mic |
| By: | James J. Anton; Gary Biglaiser; Nikolaos Vettas |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000614&r=mic |
| By: | Sergio Currarini (Department of Economics, Universita' degli Studi di Venezia & University of Bristol); Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") |
| Abstract: | We consider a class of symmetric games with externalities across coalitions and show that, under certain regularity conditions, restricting the deviating power to majority guarantees the existence of core-stable allocations. We also show that if majorities can extract resources from minorities, stability requires a supermajority rule, whose threshold is increasing in the extraction power. |
| Keywords: | Majority Rule, Supermajority, Externalities, Core |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:aeg:report:2012-01&r=mic |
| By: | Umut Mert Dur (University of Texas at Austin); M. Utku Ünver (Boston College) |
| Abstract: | We introduce a new class of matching problems that mimics the tuition exchange programs employed by colleges in the US to enable the dependents of their eligible faculty to use their tuition benefits at other participating institutions. Each participating college has to maintain a balance between exported and imported students; a negative balance with exports exceeding imports is generally penalized by suspension from the program. On the other hand, these programs function through decentralized markets that make it difficult to sustain a balance. We show that any unbalanced market equilibrium respecting stability causes a race to the bottom by discouraging negative–balance colleges from exchange. To correct this failure, we propose a new centralized mechanism, two–sided top trading cycles (2S-TTC), a variant of the well–known TTC mechanism. This is the first time a one–sided matching mechanism has been modified for a two–sided market. This mechanism selects a balanced–efficient matching that cannot be manipulated by students and it respects internal priority bylaws of colleges regarding dependent eligibility. Moreover, it makes full participation a dominant strategy for colleges, thus encouraging exchange. We also show that 2S-TTC is the unique optimal mechanism fulfilling these objectives. There also exist tuition co-ops where maintaining a one–to–one balance is not the first objective. For these programs, to minimize imbalance while respecting stability, we also propose a new flexible mechanism with desirable properties. |
| Keywords: | Market Design, Matching Theory, Tuition Exchange, Balanced Exchange, Two–sided Matching, Two–sided Top Trading Cycles |
| JEL: | C71 C78 D71 D78 |
| Date: | 2012–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:815&r=mic |
| By: | Moawia Alghalith |
| Abstract: | We present new stochastic differential equations, that are more general and simpler than the existing Ito-based stochastic differential equations. As an example, we apply our approach to the investment (portfolio) model. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1211.5819&r=mic |
| By: | Coenen, Michael; Jovanovic, Dragan |
| Abstract: | We analyze a constrained dictator game in which the dictator splits a pie which will be subsequently created through simultaneous investments by herself and the recipient. We consider two treatments by varying the maximum attainable size of the pie leading to either high or low investment incentives. We find that constrained dictators and recipients invest less than a model with self-interested players would predict. While the splitting decisions of constrained dictators correspond to the theoretical predictions when investment incentives are high, they are more selfish when investment incentives are low. Overall, team productivity is negatively affected by lower investment incentives. -- |
| Keywords: | Bargaining Game,Dictator Game,Investment Incentives,Team Production |
| JEL: | C72 C91 D01 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:77&r=mic |
| By: | Belal E. Baaquie |
| Abstract: | A statistical generalization is made of microeconomics in the spirit of going from classical to statistical mechanics. The price and quantity of every commodity1 traded in the market, at each instant of time, is considered to be an independent random variable: all prices and quantities are considered to be stochastic processes, with the observed market prices being a random sample of the stochastic prices. The dynamics of market prices is determined by an action functional and, for concreteness, a specific model is proposed. The model can be calibrated from the unequal time correlation of the market commodity prices. A perturbation expansion for the correlation functions is defined in powers of the inverse of the total budget of the aggregate consumer and the propagator for the market prices is evaluated. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1211.7172&r=mic |