nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒03‒23
fourteen papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Trembles in Extensive Games with Ambiguity Averse Players By Gaurab Aryal; Ronald Stauber
  2. Privacy in Implementation By Ronen Gradwohl
  3. Coordination under global random interaction and local imitation By Khan A.
  4. Majority Voting and the Single Crossing Property when Voters Belong to Separate Groups. By De Donder, Philippe
  5. The average tree permission value for games with a permission tree By Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der
  6. Competing with asking prices By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  7. Optimal delegation via a strategic intermediary By Liang, Pinghan
  8. The provision point mechanism with reward money By Robertas Zubrickas
  9. List-based decision problems By Dimitrov, Dinko; Mukherjee, Saptarshi; Muto, Nozomu
  10. Learning about one's own type: a search model with two-sided uncertainty By Akiko Maruyama
  11. Voting for Legislators By Francesco De Sinopoli; Giovanna Iannantuoni; Elena Manzoni
  12. Investments in physical capital, relationship-specificity, and the property rights approach By Schmitz, Patrick W.
  13. Constant Returns to Scale: Can the Neoclassical Economy Exist? By Alam, M. Shahid
  14. Optimal Market Size By Kei Kawakami

  1. By: Gaurab Aryal; Ronald Stauber
    Abstract: We introduce and analyze three definitions of equilibrium for finite extensive games with imperfect information and ambiguity averse players. In a setting where players' preferences are represented by maxmin expected utility as characterized in Gilboa and Schmeidler (1989), our definitions capture the intuition that players may consider the possibility of slight mistakes, analogous to the intuition leading to trembling-hand perfect equilibrium as introduced in Selten (1975). We prove existence for two of our equilibrium notions, and relate our definitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to distinct behavioral implications, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies.
    Keywords: Extensive games; Ambiguity; Maxmin
    JEL: C72 D81
    Date: 2013–03
  2. By: Ronen Gradwohl
    Abstract: In most implementation frameworks, agents care only about the outcome and not at all about the way in which it was obtained. Additionally, typical mechanisms for full implementation involve the complete revelation of all private information to the planner. In this paper I consider the problem of full implementation with agents who may prefer to protect their privacy. I analyze the extent to which privacy-protecting mechanisms can be constructed under various assumptions about agents' predilection for privacy and the permissible game forms. JEL Classification Numbers: D82, C72
    Keywords: Nash implementation, subgame perfect implementation, privacy
    Date: 2013–03–04
  3. By: Khan A. (GSBE)
    Abstract: We study stochastically stable behaviour in 2 x 2 coordination games where the risk-dominant equilibrium differs from the Pareto-efficient equilibrium. Individuals are randomly matched to another individual in the population (with full support) and they choose strategies by imitating the most successful individual they observe. So, while individuals interact globally, their observation, as determined by their social network, may be local. In the benchmark model, all individuals observe each other, and hence, an individual imitates the strategy of the most successful individual in the entire population; here, the stochastically stable outcome corresponds to the situation where everyone coordinates on the Pareto-efficient equilibrium. While this outcome is always stochastically stable even when observability is incomplete, the state where everyone plays the action of the risk-dominant equilibrium may be stochastically stable as well. Reasonably tight sufficient conditions for unique stochastic stability of the state where all individuals play the Pareto-efficient equilibrium strategy include each individual observing at least four other individuals or when each individual observes the same number of other individuals.
    Date: 2013
  4. By: De Donder, Philippe
    Date: 2013
  5. By: Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der (GSBE)
    Abstract: In the literature various models of games with restricted cooperation can be found. In those models, instead of allowing for all subsets of the set of players to form, it is assumed that the set of feasible coalitions is a proper subset of the power set of the set of players. In this paper we consider such sets of feasible coalitions that follow from a permission structure on the set of players, in which players need permission to cooperate with other players. We assume the permission structure to be an oriented tree. This means that there is one player at the top of the permission structure and for every other player there is a unique directed path from the top player to this player. We introduce a new solution for these games based on the idea of the Average Tree value for cycle-free communication graph games. We provide two axiomatizations for this new value and compare it with the conjunctive permission value.
    Keywords: Game Theory and Bargaining Theory: General;
    Date: 2013
  6. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers’ revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Keywords: Auctions ; Competition ; Markets
    Date: 2013
  7. By: Liang, Pinghan
    Abstract: This paper studies the optimal design of delegation rule in a three-tier principal-intermediary-agent hierarchy. In this hierarchy, monetary transfer is not feasible, delegation is made sequentially, and all players are strategic. We characterize the optimal delegation mechanism. It is shown that the single-interval delegation a la Holmstrom is optimal only when the intermediary is moderately biased. Otherwise, as responses to the distortion caused by a biased intermediary, the optimal delegation set may involve a hole. Thus, multi-interval delegation set would arise when subordinates have opposing biases. This result sheds some light on policy threshold effects: "slight" changes in the underlying state cause a jump in the policy responses.
    Keywords: Delegation, Intermediary, Hierarchies
    JEL: D73 D78 D86
    Date: 2013
  8. By: Robertas Zubrickas
    Abstract: We introduce reward money into the provision point mechanism with refunds. Reward money is distributed among the contributors in proportion to their con- tributions only when the provision point is not reached. In environments without aggregate uncertainty, the provision point is always reached in equilibrium as competition for reward money and preference for the public good induce sufficient contributions. Importantly, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, we obtain a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems.
    Keywords: Public goods, private provision, provision point mechanism, distributional efficiency, collective action problem
    JEL: D82 H41
    Date: 2013–02
  9. By: Dimitrov, Dinko; Mukherjee, Saptarshi; Muto, Nozomu
    Abstract: When encountering a set of alternatives displayed in the form of a list, the decision maker usually determines a particular alternative, after which she stops checking the remaining ones, and chooses an alternative from those observed so far. We present a framework in which both decision problems are explicitly modeled, and axiomatically characterize a stop-and-choose rule which unifies position-biased successive choice and satisficing choice.
    Keywords: choice function, list, satisficing choice, stopping decision, successive choice
    JEL: D00 D11 D83
    Date: 2013–03
  10. By: Akiko Maruyama (National Graduate Institute for Policy Studies)
    Abstract: This paper examines the movement of an individuals reservation level over time in a two-sided search model with two-sided imperfect self-knowledge, where agents are vertically heterogeneous and do not know their own types. Agents who do not know their own types update their beliefs about their own types through the o¤ers or rejections they receive from others. The results in this paper show that an agent with imperfect self-knowledge revises his or her reservation level downward when the agent receives a rejection that has some information about his or her own type. In contrast, an agent with imperfect self-knowledge revises his or her reservation level upward when the agent receives an o¤er from an agent of the opposite sex who is of lower type than the reservation level. This upward revision of an agents reservation level is due to the environment of two-sided imperfect self-knowledge.
    Date: 2013–03
  11. By: Francesco De Sinopoli; Giovanna Iannantuoni; Elena Manzoni
    Abstract: In this paper we propose a model with uncertainty in which strategic voters vote, under poportional rule, for a Parliament and parties bargain to form a government. We prove that only consensus government form and only extreme parties take votes.
    Keywords: Proportional Election, Strategic Voting, Legislative Bargaining
    JEL: C72 D72
    Date: 2013–03
  12. By: Schmitz, Patrick W.
    Abstract: We reconsider the property rights approach to the theory of the firm based on incomplete contracts. We explore the implications of different degrees of relationship-specificity when there are two parties, A and B, who can make investments in physical capital (instead of human capital). If relationship-specificity is exogenously given, it turns out that joint asset ownership can be optimal only if the degree of relationship-specificity is sufficiently small. If relationship-specificity can be freely chosen and if party A's investments are more productive, then the parties deliberately choose a strictly positive level of relationship-specificity and they always agree on sole ownership by party A.
    Keywords: ownership, incomplete contracts, relationship-specificity, theory of the firm, investment incentives
    JEL: C78 D23 D86 L14 L22 L24 M21
    Date: 2013–03
  13. By: Alam, M. Shahid
    Abstract: Constant returns to scale (CRS) is one of the corner-stones of the competitive general equilibrium paradigm of neoclassical economics. This note argues that the equilibrium solutions of this paradigm are not compatible with CRS. CRS implies that all producers (whatever their scale of production) can produce goods at the same unit costs: and this makes self-production a feasible alternative to market production. In the event, an infinite number of equilibria become possible with a mix of markets and self-production. If labor is the only factor of production, self-production becomes the only option: and the market economy ceases to exist.
    Keywords: Constant returns to scale, competitive paradigm, neoclassical economics, second-best, Lipsey, Lancaster,Samuelson, Arrow, Debreu, Kaldor, Allyn Young, general equilibrium, increasing returns to scale, existence, uniqueness, equilibrium, classical economics, Adam Smith, Ricardo, Pareto-optimality, John Bates Clark, Wicksteed, Mirowski, Austrian
    JEL: B0 B00 B1 B3 B4 B41 D5
    Date: 2013–03–16
  14. By: Kei Kawakami
    Abstract: This paper studies endogenous market formation in a ?nancial trading model where strategic traders face information asymmetries and aggregate shocks. First, we show that negative participation externalities can arise for a large class of assets. In a decentralized process of market formation, the negative externalities limit competition between intermediaries. The model predicts that free entry into intermediation causes market fragmentation, but it is Pareto-superior to a single market. The model also predicts that the more intense the information asymmetry, the more a security tends to trade in fragmented markets.
    Keywords: Asymmetric information; Aggregate shock; Imperfect competition; Market fragmentation; Network externality puzzle
    Date: 2013

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