nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒02‒08
seven papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Just Enough or All: Selling a Firm By Mehmet Ekmekci; Nenad Kos; Rakesh Vohra
  2. Bidimensional Screening with Intrinsically Motivated Workers By F. Barigozzi; N. Burani
  3. Expectations Traps and Coordination Failures with Discretionary Policymaking By Richard Dennis; Tatiana Kirsanova
  4. Multi-profile intertemporal social choice: a survey By Bossert, Walter; Suzumura, Kotaro
  5. Intertemporal Pricing with Unobserved Consumer Arrival Times By Philippe Choné; Romain De Nijs; Lionel Wilner
  6. Friends and Enemies: A Model of Signed Network Formation By Timo Hiller
  7. Peer Effects in Endogenous Networks By Timo Hiller

  1. By: Mehmet Ekmekci; Nenad Kos; Rakesh Vohra
    Abstract: We consider the problem of selling a firm to a single buyer. The magnitude of the post-sale cash flow rights (v) as well as the benefits of control (b) are the buyer’s private information. In contrast to research that assumes the private information of the buyer is one-dimensional, the optimal mechanism is a menu of tuples of cashequity mixtures. We provide sufficient conditions on the joint distribution of v and b such that the optimal mechanism takes one of the following forms: i) a take-it or leave-it offer for the smallest fraction of the company that facilitates the transfer of control, or ii) a take-it or leave-it offer for all the shares of the company. We also identify a sufficient condition for the seller to extract the full value, v, per share so that the buyer earns information rents only on the private benefits of control. JEL Code: D82, D86. Keywords: Multidimensional mechanism design, negotiated block trades, private benefits, privatization, takeovers, bilateral trade, asymmetric information, cashequity offers.
    Date: 2013
  2. By: F. Barigozzi; N. Burani
    Abstract: We study optimal contracts with bidimensional screening. A principal (a firm) needs to hire a worker to produce output. The worker has private information on her productive ability and on her intrinsic motivation, where intrinsic motivation is interpreted as the worker’s enjoyment of her personal contribution to the firm’s outcome or as a non-monetary benefit accruing to the worker when performing a certain task. We solve the discrete case with two ability levels and two degrees of motivation and completely characterize the optimal contracts. According to the magnitude of intrinsic motivation relative to ability, four different classes of fully participating and fully separating equilibria exist, which always dominate equilibria with some pooling and/or exclusion. We prove that truthful revelation is less distorsive when the difference in ability is higher than the difference in motivation, but the latter is sufficiently high.
    JEL: D82 D86 J31 M55
    Date: 2013–02
  3. By: Richard Dennis; Tatiana Kirsanova
    Abstract: Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper we employ notions of learnability and self-enforceability to motivate and identify equilibria of particular interest. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our methods for identifying equilibria of interest. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we find little reason to expect coordination on that equilibrium.
    Keywords: Discretionary policymaking, multiple equilibria, coordination, equilibrium selection.
    JEL: E52 E61 C62 C73
    Date: 2013–01
  4. By: Bossert, Walter; Suzumura, Kotaro
    Abstract: We provide a brief survey of some literature on intertemporal social choice theory in a multi-profile setting. As is well-known, Arrow’s impossibility result hinges on the assumption that the population is finite. For infinite populations, there exist nondictatorial social welfare functions satisfying Arrow’s axioms and they can be described by their corresponding collections of decisive coalitions. We review contributions that explore whether this possibility in the infinite-population context allows for a richer class of social welfare functions in an intergenerational model. Different notions of stationarity formulated for individual and for social preferences are examined.
    Keywords: Infinite-population social choice, multi-profile social choice, decisiveness, intergenerational choice
    JEL: D71
    Date: 2013–01
  5. By: Philippe Choné (CREST); Romain De Nijs (CREST & UC Berkeley); Lionel Wilner (CREST-INSEE 104 rue de la Convention 75015 Paris Tél : 06 22 82 56 26)
    Abstract: We examine optimal selling mechanisms with ex-ante commitment for a nondurable good when the seller does not observe the times at which strategic consumers arrive on the market and how much they are willing to pay for the good. Assuming consumer risk neutrality, we demonstrate in this two-dimensional screening problem that stochastic mechanisms are suboptimal. In practice, this means that quantity rationing and behavior-based price discrimination do not improve the profit compared to a simple time-dependent price schedule. We explain how the optimal profit may be achieved with a first-come first-served policy
    Keywords: Intertemporal pricing, Strategic consumers, Arrival dates, Heterogeneous cohorts, two-dimensional screening
    JEL: D11 D42 D82
    Date: 2012–10
  6. By: Timo Hiller
    Abstract: I propose a game of signed network formation, where agents make friends to coerce payoffs from enemies with fewer friends. The model accounts for the interplay between friendship and enmity. Nash equilibrium configurations are such that, either everyone is friends with everyone, or agents can be partitioned into sets of different size, where agents within the same set are friends and agents in different sets are enemies. These results mirror findings of a large body of work on signed networks in sociology, social psychology, international relations and applied physics.
    Keywords: Network Formation, Structural Balance, Alliances, Contest Success Function
    JEL: D74 D85
    Date: 2012–10
  7. By: Timo Hiller
    Abstract: This paper presents a simple model of strategic network formation with local com- plementarities in effort levels and positive local externalities. Equilibrium networks display - other than the complete and the empty network - a core-periphery structure, which is commonly observed in empirical studies. Ex-ante homogenous agents may obtain very different ex-post outcomes. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation and R&D expenditures of rms.
    Keywords: Network formation, peer effects, strategic complements, positive externalities
    JEL: D62 D85
    Date: 2012–11

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