nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒05‒11
twenty-two papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Equilibrium Theory under Ambiguity By Wei He; Nicholas C. Yannelis
  2. Edgeworth equilibria: separable and non-separable commodity spaces By Bhowmik, Anuj
  3. Prospect Theory and consumer behavior: Goals and Tradeoffs. By Florent Buisson
  4. Dual theory of choice under multivariate risks . By Galichon, Alfred; Henry, Marc
  5. The Housing Problem and Revealed Preference Theory : Duality and an application. By Galichon, Alfred; Ekeland, Ivar
  6. Multi-stage investment, long-term asymmetric information and equity issues By Miglo, Anton
  7. The existence of equilibrium in a simple exchange model By Maćkowiak, Piotr
  8. Heterogeneous Beliefs and Prediction Market Accuracy By He, Xue-Zhong; Treich, Nicolas
  9. An Interpretation of Ellsberg’s Paradox Based on Information and Incompleteness By Luciano De Castro; Nicholas C. Yannelis
  11. A note on fashion cycles, novelty and conformity By Federica Alberti
  12. On pure strategy equilibria in large generalized games By Riascos Villegas, Alvaro; Torres-Martínez, Juan Pablo
  13. The Veto Mechanism in Atomic Differential Information Economies By Maria Laura Pesce
  14. Majority rule in the absence of a majority By Nehring, Klaus; Pivato, Marcus
  15. Interviews and the Assignment of Workers to Jobs By Ronald Wolthoff; Benjamin Lester
  16. On Social Sanctions and Beliefs: A Pollution Norm Example By Garcia, Jorge H.; Wei, Jiegen
  17. Why Rent When You Can Buy? A Theory of Repurchase Agreements By Borghan Nezami Narajabad; Cyril Monnet
  18. Dynamics of Social Norms in the City By Fabien Moizeau
  19. Pack light on the move: Exploitation and exploration in a dynamic environment By Marco LiCalzi; Davide Marchiori
  20. Spatial Segregation and Urban Structure By Pierre M. Picard; Pascal Mossay
  21. Monitoring Job Search Effort with Hyperbolic Time Preferences and Non-Compliance: A Welfare Analysis. By B. COCKX; C. GHIRELLI; B. VAN DER LINDEN
  22. A comparison of techniques for dynamic risk measures with transaction costs By Zachary Feinstein; Birgit Rudloff

  1. By: Wei He; Nicholas C. Yannelis
    Date: 2013
  2. By: Bhowmik, Anuj
    Abstract: Consider a pure exchange differential information economy with an atomless measure space of agents and a Banach lattice as the commodity space. If the commodity space is separable, then it is shown that the private core coincides with the set of Walrasian expectations allocations. In the case of non-separable commodity space, a similar result is also established if the space of agents is decomposed into countably many different types.
    Keywords: Differential information economy; Extremely desirable bundle; Private core.
    JEL: D41 D51 D82
    Date: 2013–05–07
  3. By: Florent Buisson (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: I show that a loss averse consumer who must share her budget between two goods prefer allocations for which consumption equals reference point for at least one good. The phenomenon intensity depends on the curvature of the utility curve. These results are consistent with several stylized facts which cannot be explained by the standard consumer theory.
    Keywords: Loss aversion, prospect theory.
    JEL: D03 D11 D83
    Date: 2013–03
  4. By: Galichon, Alfred (Département d'économie); Henry, Marc
    Abstract: We propose a multivariate extension of Yaari's dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves ¯rst order stochastic dominance and satis¯es comonotonic in-dependence behaves as if evaluating prospects with a weighted sum of quantiles. Both the notions of quantiles and of comonotonicity are extended to the multivariate framework using optimal transportation maps. Finally risk averse decision makers are characterized, and we show how to efficiently compute the functionals they use to evaluate prospects.
    Keywords: Risk; Rank dependent utility theory; Multivariate comonotonicity; Optimal transportation; Multi-attribute inequality; Gini evaluation functions;
    JEL: D81 C61
    Date: 2012–07
  5. By: Galichon, Alfred (Département d'économie); Ekeland, Ivar (Université Paris-Dauphine - Paris IX)
    Abstract: This paper exhibits a duality between the theory of revealed preference of Afriat and the housing allocation problem of Shapley and Scarf. In particular, it is shown that Afriat’s theorem can be interpreted as a second welfare theorem in the housing problem. Using this duality, the revealed preference problem is connected to an optimal assignment problem, and a geometrical characterization of the rationalizability of experiment data is given. This allows in turn to give new indices of rationalizability of the data and to define weaker notions of rationalizability, in the spirit of Afriat’s efficiency index.
    JEL: D11
    Date: 2012–10
  6. By: Miglo, Anton
    Abstract: We analyze equity financing for a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with signalling theory and pecking-order theory. When private information is long-term, equilibria may exist where high quality firms issue equity. The model explains the link between debt-equity choice and subsequent performance after issue (short-term versus long-term). A set of new predictions is generated regarding the link between the extent of asymmetric information and equity issues, macroeconomic performance and equity issues and market timing.
    Keywords: equity issues, long-term asymmetric information, multi-stage investment, pecking-order theory, signalling
    JEL: D82 G32
    Date: 2012
  7. By: Maćkowiak, Piotr
    Abstract: This paper gives a new proof of the existence of equilibrium in a simple model of an exchange economy. We first formulate and prove a simple combinatorial lemma and then we use it to prove the existence of equilibrium. The combinatorial lemma allows us to derive an algorithm for the computation of equilibria. Though the existence theorem is formulated for functions defined on open simplices it is equivalent to the Brouwer fixed point theorem.
    Keywords: Simple exchange model, equilibrium existence, zero of a function, fixed point, computation of equilibria, simplicial methods
    JEL: C62 D51
    Date: 2013–01
  8. By: He, Xue-Zhong; Treich, Nicolas
    Abstract: We consider a prediction market in which traders have heterogeneous prior beliefs in probabilities. In the two-state case, we derive necessary and sufficient conditions so that the prediction market is accurate in the sense that the equilibrium state price equals the mean probabilities of traders' beliefs. We also provide a necessary and sufficient condition for the well documented favorite-longshot bias. In an extension to many states, we revisit the results of Varian (1985) on the relationship between equilibrium state price and belief heterogeneity.
    Keywords: Prediction market, heterogeneous beliefs, risk aversion, favorite-longshot bias, complete markets, and asset prices.
    Date: 2012–08–20
  9. By: Luciano De Castro; Nicholas C. Yannelis
    Date: 2013
  10. By: Venky Venkateswaran; Luis Llosa (UCLA)
    Abstract: We study the efficiency of information acquisition decisions in models with dispersed information and strategic considerations. Our main result is that information choice is typically inefficient because agents do not fully internalize the effects of their information on others. This ex-ante suboptimality is obtained even in environments where information is used efficiently ex-post. We demonstrate this finding in 3 benchmark environments. In a beauty contest model `a la Morris and Shin (1998), incentives to invest in information can diverge from the socially optimal level because the absolute level of the plannerâÂÂs welfare criterion is different from that of the private payoff function. In a RBC framework with dispersed information about technology shocks, distortions due to imperfect substitutability have no effect on incentives to respond to information, but distort the private value of information, leading to an inefficiently low level of information acquired in equilibrium. Finally, in a monetary model with nominal price-setting by heterogeneously informed firms, inefficiencies arise in both the use and the acquisition of information. Importantly, the latter persist even when the former are removed. We also discuss optimal policy response to address these inefficiencies.
    Date: 2012
  11. By: Federica Alberti (Max Planck Institute of Economics, Jena)
    Abstract: We develop a model in which novelty and conformity motivate fashion behavior.Fashion cycles occur if conformity is not too high. The duration of fashion cycles depends on individual-specific conformity, novelty, and the number of available styles. The use of individual-specific novelty and conformity allows us to also identify fashion leaders.
    Keywords: Novelty, Conformity, Fashion
    JEL: B5 L1 D1
    Date: 2013–04–24
  12. By: Riascos Villegas, Alvaro; Torres-Martínez, Juan Pablo
    Abstract: We consider a game with a continuum of players where at most a finite number of them are atomic. Objective functions are continuous and admissible strategies may depend on the actions chosen by atomic players and on aggregate information about the actions chosen by non-atomic players. When atomic players have convex sets of admissible strategies and quasi-concave objective functions, a pure strategy Nash equilibria always exists.
    Keywords: Generalized games; Non-convexities; Pure-strategy Nash equilibrium
    JEL: C72 C62
    Date: 2013–03
  13. By: Maria Laura Pesce (Università di Napoli Federico II)
    Abstract: We establish new characterizations of Walrasian expectations equilibria based on the veto mechanism in the framework of differential information economies with a finite number of states of nature and a measure space of agents that may have atoms. We show that it is enough to consider the veto power of a single coalition, consisting of the entire set of agents, to obtain the Aubin private core. Moreover, we investigate on the veto power of arbitrary small and big coalitions, providing an extension to mixed markets of the well known Schmeidler [20] and Vind’s [22] results in terms of Aubin private core allocations.
    Date: 2013–05–06
  14. By: Nehring, Klaus; Pivato, Marcus
    Abstract: What is the meaning of "majoritarianism" as a principle of democratic group decision-making in a judgement aggregation problem, when the propositionwise majority view is logically inconsistent? We argue that the majoritarian ideal is best embodied by the principle of "supermajority efficiency" (SME). SME reflects the idea that smaller supermajorities must yield to larger supermajorities. We show that in a well-demarcated class of judgement spaces, the SME outcome is generically unique. But in most spaces, it is not unique; we must make trade-offs between the different supermajorities. We axiomatically characterize the class of "additive majority rules", which specify how such trade-offs are made. This requires, in general, a hyperreal-valued representation.
    Keywords: judgement aggregation; majority rule; majoritarian; hyperreal; Condorcet
    JEL: D71
    Date: 2013–05–02
  15. By: Ronald Wolthoff (University of Toronto); Benjamin Lester (Federal Reserve Bank of Philadelphia)
    Abstract: This paper studies the effect of screening costs on the equilibrium allocation of workers with different productivities to firms with different technologies. In the model, a worker's type is private information, but can be learned by the firm during a costly screening or interviewing process. We characterize the planner's problem in this environment and determine its solution. A firm may receive applications from workers with different productivities, but should in general not interview them all. Once a sufficiently good applicant has been found, the firm should instead make a hiring decision immediately. We show that the planner's solution can be decentralized if workers direct their search to contracts posted by firms. These contracts must include the wage that the firm promises to pay to a worker of a particular type, as well as a hiring policy which indicates which types of workers will be hired immediately, and which types will lead the firm to keep interviewing additional applicants.
    Date: 2012
  16. By: Garcia, Jorge H.; Wei, Jiegen
    Abstract: A prevailing view in the literature is that social sanctions can support, in equilibrium, high levels of obedience to a costly norm. The reason is that social disapproval and stigmatization faced by the disobedient are highest when disobedience is the exception rather than the rule in society. In contrast, the (Bayesian) model introduced here shows that imperfect information causes the expected social sanction to be lowest precisely when obedience is more common. This, amongst other fi?ndings, draws a distinct line between social and moral sanctions, both of which may depend on others' ?behavior but not on action observability.
    Keywords: social interactions, social norms, asymmetric information
    JEL: D82 K42 L51
    Date: 2013–02–14
  17. By: Borghan Nezami Narajabad (Rice University); Cyril Monnet (Universitat Bern)
    Abstract: In a model with matching frictions, we provide conditions under which repurchase agreements (or repos) co-exist with asset sales. In a repo, the seller agrees to repurchase the asset at a later date at the agreed price. Absent bilateral trading frictions, repos have no role despite uncertainty about future valuations. Introducing pairwise meetings, we show that agents prefer to sell (or buy) assets whenever they face little uncertainty regarding the future use of the asset. As agents become more uncertain of the value of holding the asset, repos become more prevalent. We show that while the total volume of repos is always increasing with the uncertainty, the total sales volume is hump-shaped. In other words, pairwise matching alone is sufficient to explain why repo markets exist and there is no need to introduce random matching, search frictions, information asymmetries or other market frictions.
    Date: 2012
  18. By: Fabien Moizeau (CREM CNRS UMR 6211, University of Rennes 1, Condorcet Center and Institut Universitaire de France (IUF))
    Abstract: We study how in a city either opposite social norms remain or a particular code of behavior spreads and ultimately prevails. We develop a multicommunity model with overlapping generations. When young, an individual chooses the level of educational e¤ort. The crucial feature is that her decision is inuenced by peers living in the area who favor either a social norm valuing education or a social norm discrediting education. When an adult, an individual who cares about her o¤springs expected income chooses the familys location. Endogenous location leads to di¤erent patterns of social norms in the city. We identify two types of urban equilibrium: a culturally-balanced city where social norms are distributed evenly among urban areas and the rate of education is the same in each urban area and a culturally-divided city where urban areas oppose on their prevailing social norm and exhibit di¤erent rates of education. We then study the dynamics of social norms. We show that there are multiple long-run patterns of social norms. A particular steady state is achieved depending on the initial distribution of social norms support in the population. Finally, we show that the public policies promoting social integration can lead in the long run to a population unanimously discrediting education and getting less education than letting the culturally-divided city arise.
    Date: 2013–04
  19. By: Marco LiCalzi (Department of Management, Università Ca' Foscari Venezia); Davide Marchiori (Department of Management, Università Ca' Foscari Venezia)
    Abstract: This paper revisits a recent study by Posen and Levinthal (2012) on the exploration/exploitation tradeoff for a multi-armed bandit problem, where the reward probabilities undergo random shocks. We show that their analysis suffers two shortcomings: it assumes that learning is based on stale evidence, and it overlooks the steady state. We let the learning rule endogenously discard stale evidence, and we perform the long run analyses. The comparative study demonstrates that some of their conclusions must be qualified.
    Keywords: adaptation, learning, turbulence, multi-armed bandit problem
    JEL: D83
    Date: 2013–04
  20. By: Pierre M. Picard (CREA, University of Luxembourg and CORE, Université Catholique de Louvain); Pascal Mossay (Department of Economics, University of Reading and CORE)
    Abstract: In this paper, we study social interactions between two populations of individuals living in a city. Agents consume land and benefit from intra- and inter-group social interactions. We show that in equilibrium segregation arises: populations get separated in distinct spatial neighborhoods. Two- and three-district urban structures are characterized. For high population ratios or strong inter-group interactions, only a three-district city exists. In other cases, multiplicity of equilibria arises. Moreover, for sufficiently low population ratios or very weak inter-group interactions, all individuals agree on which spatial equilibrium is best.
    Keywords: social interaction, segregation, multiple centers, urban districts
    JEL: R12 R14 R31
    Date: 2013
    Abstract: This paper develops a partial equilibrium job search model to study the behavioral and welfare implications of an Unemployment Insurance (UI) scheme in which job search requirements are imposed on UI recipients with hyperbolic preferences. We show that, if the search requirements are well chosen, a perfect monitoring scheme can in principle increase the job finding rate and, contrary to what happens with exponential discounting, it can raise the expected lifetime utility of the current and future selves of sophisticated hyperbolic discounters. The same holds for naive agents if the welfare criterion ignores their misperception problem. In sum, introducing a perfect monitoring scheme can be a Pareto improvement. However, if claimants have the opportunity to withdraw from the UI scheme, their long-run utility can even be lower than in the absence of job search requirements. Imperfections in the measurement of job-search effort further reduce the chances that monitoring raises the welfare of the unemployed.
    Keywords: Job search model, job search monitoring, non-compliance, hyperbolic discounting, social efficiency.
    JEL: D60 D90 J64 J65 J68
    Date: 2013–03
  22. By: Zachary Feinstein; Birgit Rudloff
    Abstract: This paper contains an overview of results for dynamic risk measures in markets with transaction costs. We provide the main results of four different approaches. We will prove under which assumptions results within these approaches coincide, and how properties like primal and dual representation and time consistency in the different approaches compare to each other.
    Date: 2013–05

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