nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒03‒16
thirty-two papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Cross-Subsidization and Matching Design By Renato Gomes; Alessandro Pavan
  2. Representation of constitutions under incomplete information By Bezalel Peleg; Shmuel Zamir
  3. Reserve price when bidders are asymmetric By Gunay, Hikmet; Meng, Xin; Nagelberg, Mark
  4. Consistency and Communication in Committees By Inga Deimen; Felix Ketelaar; Mark T. Le Quement
  5. Asymmetric Information and Rationalizability By Gabriel Desgranges; Stéphane Gauthier
  6. Ambiguity as a Source of Temptation: Modeling Unstable Beliefs By André Lapied; Thomas Rongiconi
  7. Solutions For Games With General Coalitional Structure And Choice Sets By Koshevoy, G.A.; Suzuki, T.; Talman, A.J.J.
  8. Robust Equilibria in Location Games By Berno Buechel; Nils Röhl
  9. Change in risk and bargaining game By Hailin Sun; Sanxi Li; Tong Wang
  10. On a Fundamental Property of Talman-Yang's Auction under Price Control By Zaifu Yang; Dongmo Zhang
  11. Invader Strategies in the War of Attrition with Private Information By Lars Peter Metzger
  12. Approximate Recursive Equilibrium with Minimal State Space By Raad, Rodrigo Jardim
  13. Bargaining position, bargaining power, and the property rights approach By Schmitz, Patrick W.
  14. Coordination in the El Farol Bar problem: The role of social preferences and social networks By Chen, Shu-Heng; Gostoli, Umberto
  15. Asymmetries in Rent-Seeking By Giuseppe Dari-Mattiacci; Eric Langlais; Bruno Lovat; Francesco Parisi
  16. Ordinal equivalence of values and Pigou-Dalton transfers in TU-games By Chameni Nembua, Célestin; Demsou, Themoi
  17. Over- and Under-Bidding in Tendering By Vincent van den Berg
  18. On the Efficient Provision of Public Goods by Means of Lotteries By Jörg Franke; Wolfgang Leininger
  19. The Roman Metro Problem:Dynamic Voting and the Limited Power of Commitment By Christian Roessler; Sandro Shelegia; Bruno Strulovici
  20. The instability of backward induction in evolutionary dynamics By Zibo Xu
  21. Measuring Power and Satisfaction in Societies with Opinion Leaders By René Van Den Brink; Agnieszka Rusinowska; Frank Steffen
  22. Authority and Incentives in Organizations By Matthias Kräkel
  23. A Note on Almost Stochastic Dominance By Guo, Xu; Zhu, Xuehu; Wong, Wing-Keung; Zhu, Lixing
  24. The MBR Intertemporal Choice Criterion and Rawls' Just Savings Principle By Charles Figuières; Ngo Van Long; Mabel Tidball
  25. A Reverse Holdup Problem By Antonio Estache; Renaud Foucart
  26. Evolutionary stability in finite stopping games under a fast best-reply dynamics By Zibo Xu
  27. On apparent irrational behaviors : interacting structures and the mind By Gosselin, Pierre; Lotz, Aileen; Wambst, Marc
  28. Mapping completely proper rationality By A. Mantovi
  29. Two Folk Manipulability Theorems in the General One-to-one Two-sided Matching Markets with Money By David Pérez-Castrillo; Marilda Sotomayor
  30. Predestination and the Protestant Ethic By Larbi Alaoui; Alvaro Sandroni
  31. Uncertainty and Sentiment-Driven Equilibria By Jess Benhabib; Pengfei Wang; Yi Wen
  32. Nation Building By Alberto Alesina; Bryony Reich

  1. By: Renato Gomes; Alessandro Pavan
    Abstract: We develop a theory of price discrimination in many-to-many matching markets in which agents’ preferences are vertically and horizontally differentiated. The optimal plans induce negative assortative matching at the margin: agents with a low value for interacting with other agents are included in the matching sets of only those agents from the opposite side whose value for matching is sufficiently high (cross-subsidization). We deliver testable predictions relating the optimal matching plans and price schedules to the distribution of the agents’ preferences and attractiveness. The analysis has implications for the design of business-to-business platforms, advertising, and cable TV packages. JEL Classification Numbers: D82
    Keywords: Dynamic Voting, Condorcet Winner, Commitment, Condorcet Cycle, Social Experimentation, Status Quo Bias, Social Inefficiency, Social Inertia
    Date: 2013–01–01
  2. By: Bezalel Peleg; Shmuel Zamir
    Abstract: We model constitutions by effectivity functions. We assume that the constitution is common knowledge among the members of the society. However, the preferences of the citizen are private information. We investigate whether there exist decision schemes (i. e., functions that map profiles of (dichotomous) preferences on the set of outcomes to lotteries on the set of social states), with the following properties: i) The distribution of power induced by the decision scheme is identical to the effectivity function under consideration; and ii) the (incomplete information) game associated with the decision scheme has a Bayesian Nash equilibrium in pure strategies. If the effectivity function is monotonic and superadditive, then we find a class of decision schemes with the foregoing properties. When applied to n-person games in strategic form, a decision scheme d is a mapping from profiles of (dichotomous) preferences on the set of pure strategy vectors to probability distributions over outcomes (or equivalently, over pure strategy vectors). We prove that for any feasible and individually rational payoff vector of a strategic game, there exists a decision scheme that yields that payoff vector as a (pure) Nash equilibrium payoff in the game induced by the strategic game and the decision scheme. This can be viewed as a kind of purification result.
    Date: 2013–01
  3. By: Gunay, Hikmet; Meng, Xin; Nagelberg, Mark
    Abstract: The authors analyze the optimal reserve price in a second price auction when there are N types of bidders whose valuations are drawn from different distribution functions. The seller cannot determine the specific type of each bidder. First, the authors show that the number of bidders affects the reserve price. Second, they give the sufficient conditions for the uniqueness of the optimal reserve price. Third, the authors find that if a bidder is replaced by a stronger bidder, the optimal reserve price may decrease. Finally, they give sufficient conditions that ensure the seller will not use a reserve price; hence, the auction will be efficient. --
    Keywords: auction,reserve (reservation) price,asymmetric bidders
    JEL: D44
    Date: 2013
  4. By: Inga Deimen; Felix Ketelaar; Mark T. Le Quement
    Abstract: This paper analyzes truthtelling incentives in pre-vote communication in heterogeneous committees. We generalize the classical Condorcet jury model by introducing a new informational structure that captures consistency of information. In contrast to the impossibility result shown by Coughlan (2000) for the classical model, full pooling of information followed by sincere voting is an equilibrium outcome of our model for a large set of parameter values implying the possibility of ex post conflict between committee members. Furthermore, abandonning the assumption of sincere voting, we characterize necessary and sufficient conditions for the implementability of the first best decision rule via truthful equilibria.
    Keywords: Communication, Committees, Voting
    JEL: D72 D82 D83
    Date: 2013–02
  5. By: Gabriel Desgranges (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We study how asymmetric information affects the set of rationalizable solutions in a linear setup where the outcome is determined by forecasts about this same outcome. The unique rational expectations equilibrium is also the unique rationalizable solution when the sensitivity of the outcome to agents' forecasts is less than one, provided that this sensitivity is common knowledge. Relaxing this common knowledge assumption, multiple rationalizable solutions arise when the proportion of agents who know the sensitivity is large, and the uninformed agents believe it is possible that the sensitivity is greater than one. Instability is equivalent to existence of some kind of sunspot equilibria.
    Keywords: Asymmetric information; common knowledge; eductive learning; rational expectations; rationalizability
    Date: 2013
  6. By: André Lapied (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Thomas Rongiconi (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))
    Abstract: The "General-Self-Control-Preference" model introduced by Noor and Takeoka (2010) allows to take into account non linear costs of Self-Control. In this paper we extend this theory to situations in which a decision-maker faces ambiguity. We focus on the fact that lack of information is a potential source of temptation. Indeed lack of information doesn't allow the decision-maker to put a probability measure on uncertain events. Our basic hypothesis is that, in ambiguous situation, individuals are not confident enough about their beliefs and could therefore be tempted to use other beliefs to evaluate the alternatives in the second period. We study a two period model where ex ante dominated choice may tempt the decision-maker in the second period. Individuals have preferences over sets of alternatives that represent second period choices. We provide a Choice-Theoretic model where the ex ante belief is a probability measure whereas ex post belief is a Choquet-capacity, in order to take into account individual attitudes towards ambiguity in the second period.
    Keywords: Temptation; Self-control; Ambiguity; Choquet-Expected-Utility; Comonotonic-Temptation-Independence
    Date: 2013–03
  7. By: Koshevoy, G.A.; Suzuki, T.; Talman, A.J.J. (Tilburg University, Center for Economic Research)
    Abstract: In this paper we introduce the concept of quasi-building set that may underlie the coalitional structure of a cooperative game with restricted communication between the players. Each feasible coalition, including the set of all players, contains a nonempty subset called the choice set of the coalition. Only players that are in the choice set of a coalition are able to join to feasible subcoalitions to form the coalition and to obtain a marginal contribution. We demonstrate that all restricted communication systems that have been studied in the literature take the form of a quasi-building set for an appropriate set system and choice set. Every quasi-building set determines a nonempty collection of maximal strictly nested sets and each such set induces a rooted tree satisfying that every node of the tree is a player that is in the choice set of the feasible coalition that consists of himself and all his successors in the tree. Each tree corresponds to a marginal vector of the underlying game at which each player gets as payo his marginal contribution when he joins his successors in the tree. As solution concept of a quasi-building set game we propose the average marginal vector (AMV) value, being the average of the marginal vectors that correspond to the trees induced by all maximal strictly nested sets of the quasi-building set. Properties of this solution are also studied. To establish core stability we introduce appropriate convexity conditions of the game with respect to the underlying quasi-building set. For some speci cations of quasi-building sets, the AMV-value coincides with solutions known in the literature, for example, for building set games the solution coincides with the gravity center solution and the Shapley value recently de ned for this class. For graph games it therefore diers from the well-known Myerson value. For a full communication system the solution coincides with the classical Shapley value.
    Keywords: Set system;nested set;rooted tree;chain;core;convexity;marginal vector;Shapley value
    JEL: C71
    Date: 2013
  8. By: Berno Buechel (University of Hamburg); Nils Röhl (University of Paderborn)
    Abstract: In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.
    Keywords: spatial competition, Hotelling-Downs, networks, graphs, Nash equilibrium, median, minimal differentiation
    JEL: C72 D49 P16 D43
    Date: 2013–02
  9. By: Hailin Sun (University of Toulouse); Sanxi Li (University of Toulouse); Tong Wang (University of East Anglia)
    Abstract: This paper studies the comparative statics regarding changes in risk on Nash's solution to bargaining games with stochastic outcome and disagreement points. When absolute risk tolerance is linear with constant slope, the Nash's solution to bargaining with risky outcomes and risky disagreement points can be viewed as division of divisible certainty equivalent between two risk-averse agents. We show that whether a deterioration of a bargainer's risky prospect is advantageous to his opponent often depends on whether preference displays decreasing absolute risk aversion (DARA). Specically, for perfectly correlated risky prospects, DARA à la Arrow-Pratt works to the concavity of the joint certainty equivalent with respect to a bargainer's initial wealth or size of risky exposure; for independent risky prospects, DARA à la Ross vulnerates his risk bearing under Rothschild-Stiglitz increase in risk taking the form of adding an independent noise, both leading to the bargainer's increased propensity for risk aversion as well as the joint size of the pie. These results illuminate how individual risky prospect as well as risk preference influence the cooperating partners' income shares and thus the market equilibrum of marriage formation. We also show that this result is robust under Rubinstein's non-cooperative bargaining game.
    Date: 2013–03
  10. By: Zaifu Yang; Dongmo Zhang
    Abstract: Recently Talman and Yang (2008) examined an assignment market under price control. In the market a number of heterogeneous items are to be sold to several bidders. Each bidder has a valuation on each item. The seller has a reservation price for every item. Meanwhile every item has a ceiling price imposed by a central planner. Due to price controls, there usually do not exist market-clearing prices. To deal with this allocation problem, Talman and Yang proposed a dynamic auction with rationing that always yields a constrained equilibrium. In this paper we establish that this dynamic auction can actually ï¬nd a core allocation in ï¬nite steps, resulting in a Pareto efficient outcome. A core allocation consists of an assignment of items and a supporting price vector for the assignment.
    Keywords: Ascending auction, multi-item auction, housing market, price control, Pareto efficiency, core.
    JEL: D44
    Date: 2013–02
  11. By: Lars Peter Metzger
    Abstract: Second price allpay auctions (wars of attritions) have an evolutionarily stable equilibrium in pure strategies if valuations are private information. I show that for any level of uncertainty there exists a pure deviation strategy close to the equilibrium strategy such that for some valuations the equilibrium strategy has a selective disadvantage against the deviation if the population mainly plays the deviation strategy. There is no deviation strategy with this destabilizing property for all valuations if the distribution of valuations has a monotonic hazard rate. I argue that in the Bayesian game studied here, a mass deviation can be caused by the entry of a small group of agents. Numeric calculations indicate that the closer the deviation strategy to the equilibrium strategy, the less valuations are destabilizing. I show that the equilibrium strategy does not satisfy continuous stability.
    Keywords: Continuous strategies; evolutionary stability; war of attrition; strict equilibrium; neighborhood invader strategy; continuous stability; evolutionary robustness
    JEL: C72 C73 D44
    Date: 2013–02
  12. By: Raad, Rodrigo Jardim
    Abstract: This paper shows existence of approximate recursive equilibrium with minimal state space in an environment of incomplete markets. We prove that the approximate recursive equilibrium implements an approximate sequential equilibrium which is always close to a Magill and Quinzii equilibrium without short sales for arbitrarily small errors. This implies that the competitive equilibrium can be implemented by using forecast statistics with minimal state space provided that agents will reduce errors in their estimates in the long run. We have also developed an alternative algorithm to compute the approximate recursive equilibrium with incomplete markets and heterogeneous agents through a procedure of iterating functional equations and without using the first order conditions of optimality.
    Date: 2013–02–26
  13. By: Schmitz, Patrick W.
    Abstract: In the property rights approach to the theory of the firm (Hart, 1995), parties bargain about whether or not to collaborate after non-contractible investments have been made. Most contributions apply the regular Nash bargaining solution. We explore the implications of using the generalized Nash bargaining solution. A prominent finding regarding the suboptimality of joint ownership turns out to be robust. However, in contrast to the standard property rights model, it may well be optimal to give ownership to a party whose investments are less productive, provided that this party's ex-post bargaining power is relatively small.
    Keywords: ownership, incomplete contracts, bargaining, investment incentives
    JEL: C78 D23 D86 L23 L24 M11
    Date: 2013–02
  14. By: Chen, Shu-Heng; Gostoli, Umberto
    Abstract: In this paper, the authors continue the pursuit of the self-coordination mechanism as studied in the El Farol Bar problem. However, in addition to efficiency (the optimal use of the public facility), they are also interested in the distribution of the public resources among all agents. Hence, they introduce a two-dimensional El Farol Bar problem, to be distinguished from the early one-dimensional one, which has efficiency as the only concern. The authors ask whether it is possible to have self-coordinating solutions to the El Farol Bar problem so that the public resources can be optimally used with neither idle capacity nor incurring congestion and, in the meantime, the resources can be well distributed among all agents. They consider this ideal situation an El Farol version of a good society. This paper shows the existence of a positive answer to this inquiry, but it requires two elements, which were largely left out in the conventional literature on the El Farol Bar problem. These elements are social networks and social preferences. The authors first show, through cellular automata, that social networks can contribute to the emergence of a good society. They then show that the addition of some inequity-averse agents can even guarantee the emergence of the good society. --
    Keywords: El Farol Bar problem,social preferences,social networks,inequity aversion,cellular automata
    JEL: B52 C63 C73
    Date: 2013
  15. By: Giuseppe Dari-Mattiacci; Eric Langlais; Bruno Lovat; Francesco Parisi
    Abstract: In rent-seeking contests, players are seldom identical to one another. In this chapter, we examine the rent-seeking literature that explores the effects of specific forms of asymmetry between contestants. We consider Tullock’s rent-seeking contests involving two players who differ in strength (marginal returns to effort), motivation (valuations of the sought-after rent) and cunning (bargaining power). We study the combined interaction of these three possible forms of asymmetry in rent-seeking. We examine how these asymmetries affect the rent-seeking contest and investigate the effect of ex post trading opportunities on the players’ efforts, on probabilities of winning and on the social costs of rent-seeking.
    Keywords: rent-seeking games, returns to effort, asymmetric rents, asymmetric strength, tradable rents
    JEL: D72
    Date: 2013
  16. By: Chameni Nembua, Célestin; Demsou, Themoi
    Abstract: The paper studies the ordinal equivalence of Linear, Efficient and Symmetry (LES) values in TU-games. It demonstrates that most of the results obtained by Carreras F, Freixas J (2008) in the case of semivalues and simple games are transposable on LES values and the whole TU-games set. In particular, linear and weakly linear games are analyzed. We characterize both values which are ordinal equivalent in all TU-games. Pigou-Dalton transfers are introduced for social comparison of values and to shed light on the way payoffs are redistributed from a value to another.
    Keywords: Cooperative games; desirability relation; linear values; linear games; Pigou-Dalton transfers; concentration, Lorenz dominance.
    JEL: C71 D63
    Date: 2013–03–09
  17. By: Vincent van den Berg (VU University Amsterdam)
    Abstract: Consider a government tendering the right to operate, for example, an airport, telecommunication network, or utility. There is an 'incumbent bidder' who owns a complement or substitute facility, and one entering 'new bidder'. With a 'standard auction' on the payment to the government, the incumbent is willing to bid higher than its expected profit from the facility as winning implies that it is a monopolist instead of a duopolist. The incumbent is therefore more likely to win. However, it tends to have a lower expected surplus unless the new bidder can never win, which occurs with 'private values' when the facilities are strong complements or substitutes and always with 'common values'. The 'standard auction' leads to an unregulated outcome which hurts consumers as tendered facilities tend to have limited competition. The government could improve the outcome by endogenously regulating using a 'price auction' on the price to be a sked to consumers. Now, it depends who is advantaged: with complements, the incumbent bids below its marginal cost and is more likely to win; with substitutes, it bids above and is less likely to win. The same effects occur in auctions on service quality or number of users. In many settings, the advantaged bidder always wins, and this can greatly affect the competition for the field.
    Keywords: tendering; overbidding; advantaged bidders; network markets
    JEL: D43 D44 L51 R42
    Date: 2013–02–22
  18. By: Jörg Franke; Wolfgang Leininger
    Abstract: We provide a solution to the free-rider problem in the provision of a public good. To this end we define a biased indirect contribution game which provides the efficient amount of the public good in non-cooperative Nash equilibrium. No confiscatory taxes or other means of coercion are used. We rather extend the model of Morgan (2000), who used fair raffles as voluntary contribution schemes, to unfair or biased raffles, which we show to be equivalent to fair raffles whose tickets are sold to consumers at different individual prices. We give a detailed account of the solution for the case of two different consumers and discuss its implications for the general case of many consumers.
    Keywords: Public good provision; biased lotteries; charities
    JEL: C72 D72 H41
    Date: 2013–01
  19. By: Christian Roessler; Sandro Shelegia; Bruno Strulovici
    Abstract: A frequently heard explanation for the underdeveloped metro system in Rome is the following one: "If we tried to build a new metro line, it would probably be stopped by archeological finds that are too valuable to destroy, so the investment would be wasted." This statement, which seems self-contradictory from the perspective of a single decision maker, can be rationalized in a voting model with diverse constituents. One would think that commitment to finishing the metro line (no matter what is discovered in the process) can resolve this inefficiency. We show, however, that a Condorcet cycle occurs among the plans of action one could feasibly commit to, precisely when the metro project is defeated in step-by-step voting (that is, when commitment is needed). More generally, we prove a theorem for binary-choice trees and arbitrary learning, establishing that no plan of action which is majority-preferred to the equilibrium play without commitment can be a Condorcet winner among all possible plans. Hence, surprisingly, commitment has no power in a large class of voting problems. JEL Classification Numbers: DD70, H41, C70
    Keywords: Dynamic Voting, Condorcet Winner, Commitment, Condorcet Cycle, Social Experimentation, Status Quo Bias, Social Inefficiency, Social Inertia
    Date: 2013–03–13
  20. By: Zibo Xu
    Abstract: This paper continues the work initiated in [19]. We adopt the same model as in [19]. We show that the non-backward-induction equilibrium component may be evolutionarily stable for any population size in a finite stopping game where the two equilibrium components are terminated by different players. A surprising result is that the backward induction equilibrium component may not be evolutionarily stable for large populations. Finally, we study the evolutionary stability result in a different limiting process where the expected number of mutations per generation is bounded away from both zero and infinity.
    Date: 2013–01
  21. By: René Van Den Brink (Department of Econometrics and Tinbergen Institute - VU University); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Frank Steffen (University of Liverpool Management School (ULMS) - University of Liverpool Management School)
    Abstract: Opinion leaders are actors who have some power over their followers as they are able to influence their followers' choice of action in certain instances. In van den Brink et al. (2011) we proposed a two-action model for societies with opinion leaders. We introduced a power and a satisfaction score and studied some common properties. In this paper we strengthen two of these properties and present two further properties, which allows us to axiomatize both scores for the case that followers require unanimous action inclinations of their opinion leaders to follow them independently from their own action inclinations.
    Keywords: Collective choice ; follower ; opinion leader ; power ; satisfaction ; axiomatization
    Date: 2013
  22. By: Matthias Kräkel
    Abstract: The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If the CEO is more efficient than the division heads (i.e., the CEO's costs from exerting high effort are smaller than those of the division heads), the owner will prefer full delegation to the divisions to replace high incentive pay for motivating the division heads by incentives based on private benefits of control. In that situation, the importance of cooperative behavior between the firm's divisions determines whether decentralization or cross-authority delegation is the optimal form of full delegation. If, however, the division heads are more efficient than the CEO, then centralization or partial delegation can also be optimal.
    Keywords: authority, centralization, contracts, decentralization, moral hazard
    JEL: D21 D23 D86 L22
    Date: 2013–03
  23. By: Guo, Xu; Zhu, Xuehu; Wong, Wing-Keung; Zhu, Lixing
    Abstract: To satisfy the property of expected-utility maximization, Tzeng et al. (2012) modify the almost second-degree stochastic dominance proposed by Leshno and Levy (2002) and define almost higher-degree stochastic dominance. In this note, we further investigate the relevant properties. We define an almost third-degree stochastic dominance in the same way that Leshno and Levy (2002) define second-degree stochastic dominance and show that Leshno and Levy's (2002) almost stochastic dominance has the hierarchy property but not expected-utility maximization. In contrast, Tzeng et al.'s (2012) definition has the property of expected-utility maximization but not the hierarchy property. This phenomenon also holds for higher-degree stochastic dominance for these two concepts. Thus, the findings in this paper suggest that Leshno and Levy's (2002) definitions of ASSD and ATSD might be better than those defined by Tzeng et al. (2012) if the hierarchy property is considered to be an important issue.
    Keywords: Almost stochastic dominance; expected-utility maximization; hierarchy of stochastic dominance
    JEL: C02 C10 G11
    Date: 2013–02–10
  24. By: Charles Figuières; Ngo Van Long; Mabel Tidball
    Abstract: This paper provides general theorems about the control that maxi- mizes the mixed Bentham-Rawls (MBR) criterion for intergenerational justice, which was introduced in Alvarez-Cuadrado and Long (2009). We establish sufficient concavity conditions for a candidate trajectory to be optimal and unique. We also show that the state variable is monotonic un- der rather weak conditions. And finally we prove that inequality among generations, captured by the gap between the poorest and the richest generations, is lower when optimization is performed under the MBR cri- terion rather than under the discounted utilitarian criterion. The two last properties are in line with some aspects of the rawlsian just savings principle.
    Date: 2013–02
  25. By: Antonio Estache; Renaud Foucart
    Abstract: In a model of horizontal matching on the labor market, we show that increasing the bargainingpower of workers may increase the incentive of some employers to switch to newproduction activities. In particular, this could lead to (i) higher wages, (ii) more jobs, (iii)better jobs and (iv) higher profits. Paradoxically, the median voter may object to the economicadjustments because search costs could cut the surplus for workers of the majority type, evenwhen it creates jobs for the other ones and increases aggregate surplus.
    Date: 2013–03
  26. By: Zibo Xu
    Abstract: We consider a fast evolutionary dynamic process on finite stopping games, where each player at each node has at most one move to continue the game. A state is evolutionarily stable if its long-run relative frequency of occurrence is bounded away from zero as the mutation rate decreases to zero. The fast dynamic process allows each individual in each population to change its strategy at every stage. We define a robustness index of backward induction and show examples where the backward induction equilibrium component is not evolutionarily stable for large populations. We show some sufficient conditions for evolutionary stability, which are different from the ones for the conventional evolutionary model. Even for this fast dynamic process, the transition between any two Nash equilibrium components may take very long time.
    Date: 2013–01
  27. By: Gosselin, Pierre; Lotz, Aileen; Wambst, Marc
    Abstract: We develop a general method to solve models of interactions between multiple agents, including the possibility of strategic advantage for some of them. We argue that this type of model applies to the description of apparently irrational or biased behaviors in a person whose action is the resultant of several rational structures with di�erent goals. Our main example is a three agents model, denoted "conscious", "unconscious", and "body". Our principal result is that, for an agent whose "unconscious" goals differ from the conscious ones, the unconscious may in uence the conscious either directly, or indirectly via a third agent, the body and its needs. This three agent model allows the description of behaviors such as craving, excessive smoking, or sleepiness, to delay or dismiss a task. One of the main result stands in the fact that the unconscious agent's strategic action depends crucially on whether the conscious' actions ("task" and "feeding") are complementary in time. When they are complementary, and if the conscious is not sensitive to unconscious' messages, the unconscious may drive the conscious towards its goals by blurring physical needs. When they are not complementary, the unconscious may more easily reach his goal by influencing the conscious, be it directly or indirectly.
    Keywords: dual agent; conscious and unconscious; rationality; multi-rationality; consistency; choices and preferences; multi-agent model.
    JEL: C02 C65 C70 D01 D87
    Date: 2013–02–15
  28. By: A. Mantovi
    Abstract: Maps of completely proper rationality are introduced so as to parametrize departure from CARA decisionmaking in terms of level effects, and deepen the link between risk aversion, prudence and higher order concepts in connection with the objective approach to riskiness set forth by Aumann and Serrano (2008). On conceptual grounds, the focus on complete orders on preferences aligns with a line of progress of the microeconomics of risk. On technical grounds, the analytical tractability of our maps may prove effective in building explicit closed form solutions for relevant measures (for instance, the utility premium) in expected utility theory, as well as in conveying transparent insights concerning the relevance of complete properness.
    Keywords: risk aversion, complete properness, level effects, riskiness
    JEL: D11 D81 E21
    Date: 2013
  29. By: David Pérez-Castrillo; Marilda Sotomayor
    Abstract: We prove a "General Manipulability Theorem" for general one-to-one two-sided matching markets with money. This theorem implies two folk theorems, the Manipulability Theorem and the General Impossibility Theorem, and provides a sort of converse of the Non-Manipulability Theorem (Demange, 1982, Leonard, 1983, Demange and Gale, 1985).
    Keywords: matching, competitive equilibrium, optimal competitive equilibrium, manipulability, competitive equilibrium mechanism, competitive equilibrium rule
    JEL: C78 D78
    Date: 2013–02
  30. By: Larbi Alaoui; Alvaro Sandroni
    Abstract: This paper shows an equivalence result between the utility functions of secular agents who abide by a moral obligation to accumulate wealth and those of religious agents who believe that salvation is immutable and preordained by God. This result formalizes Weber's renowned thesis on the connection between the worldly asceticism of Protestants and the religious premises of Calvinism. Furthermore, ongoing economies are often modeled with preference relations such as "Keeping up with the Joneses" which are not associated with religion. Our results relate these secular economies of today and economies of the past shaped by religious ideas.
    JEL: D0 D8
    Date: 2013–01
  31. By: Jess Benhabib; Pengfei Wang; Yi Wen
    Abstract: We construct a model to capture the Keynesian idea that production and employment decisions are based on expectations of aggregate demand driven by sentiments, and that realized demand follows from the production and employment decisions of firms. We cast the Keynesian idea into a simple model with imperfect information about aggregate demand and we characterize the rational expectations equilibria of this model. We find that the equilibrium is not unique despite the absence of any non-convexities or strategic complementarity in the model. In addition to multiple fundamental equilibria, there can be serially correlated stochastic equilibria driven by self-fulfilling consumer sentiments. Furthermore, these sentiment-driven equilibria are not based on randomizations of the fundamental equilibria
    JEL: D8 D84 E3 E32
    Date: 2013–03
  32. By: Alberto Alesina; Bryony Reich
    Abstract: Nations stay together when citizens share enough values and preferences and can communicate with each other. Homogeneity amongst people can be built with education, teaching a common language to facilitate communication, but also by brute force such as prohibiting local cultures. Democracies and non-democracies have different incentives when it comes to choosing how much and by what means to homogenize the population. We study and compare both regimes in a model where the size of countries and the degree of active homogenization in endogenous. We also offer some historical discussions of cases which illustrate our theoretical results.
    JEL: F3
    Date: 2013–02

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