nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒05‒24
five papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Incomplete Information Models of Guilt Aversion in the Trust Game By Giuseppe Attanasi; Pierpaolo Battigalli; Elena Manzoni
  2. The Limits of Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  3. Does Signaling Solve the Lemon’s Problem? By Timothy Perri
  4. The Condorcet paradox revisited By Herings P.J.J.; Houba H
  5. Freezeout, Compensation Rules and Voting Equilibria By Christian At; Sylvain Béal; Pierre-Henri Morand

  1. By: Giuseppe Attanasi; Pierpaolo Battigalli; Elena Manzoni
    Abstract: In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a first step in this direction, focusing on models of guilt aversion in the Trust Game. We consider two alternative modeling assumptions: (i) guilt aversion depends on the role played in the game, because only the "trustee" can feel guilt for letting the co-player down, (ii) guilt aversion is independent of the role played in the game. We show how the set of Bayesian equilibria changes as the upper bound on guilt sensitivity varies, and we compare this with the complete-information case. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game. JEL classification: C72, C91, D03. Keywords: Psychological games, Trust Game, guilt, incomplete information.
    Date: 2013
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.
    Keywords: First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium
    JEL: C72 D82 D83
    Date: 2013–05
  3. By: Timothy Perri
    Abstract: Maybe. Lemon’s and signaling models generally deal with different welfare problems, the former with withdrawal of high quality sellers, and the latter with socially wasteful signals. However, with asymmetric information, high productivity workers may not (absent signaling) be employed where they are valued the most. If one’s productivity is known in alternative employment, signaling that overcomes the lemon’s problem at a cost will only occur if it increases welfare. If individual productivity is unknown in alternative employment, again signaling may occur and will overcome the lemon’s problem, but it may lower welfare. Key Words: Lemons, signaling, and sorting
    JEL: D82
    Date: 2013
  4. By: Herings P.J.J.; Houba H (GSBE)
    Abstract: We analyze the Condorcet paradox within a strategic bargaining model with majority voting, exogenous recognition probabilities, and no discounting. Stationary subgame perfect equilibria (SSPE) exist whenever the geometric mean of the players' risk coefficients, ratios of utility differences between alternatives, is at most one. SSPEs ensure agreement within finite expected time. For generic parameter values, SSPEs are unique and exclude Condorcet cycles. In an SSPE, at least two players propose their best alternative and at most one player proposes his middle alternative with positive probability. Players never reject best alternatives, may reject middle alternatives with positive probability, and reject worst alternatives. Recognition probabilities represent bargaining power and drive expected delay. Irrespective of utilities, no delay occurs for suitable distributions of bargaining power, whereas expected delay goes to infinity in the limit where one player holds all bargaining power. Contrary to the case with unanimous approval, a player benefits from an increase in his risk aversion.
    Keywords: Stochastic and Dynamic Games; Evolutionary Games; Repeated Games;
    Date: 2013
  5. By: Christian At (CRESE, Université de Franche-comté); Sylvain Béal (CRESE, Université de Franche-Comté); Pierre-Henri Morand (Université d'Avignon et des pays de Vaucluse)
    Abstract: A single proposer has the opportunity to generate a surplus by taking the assets of a group of individuals. These individuals are called upon to vote for accepting or rejecting the monetary offer made to them by the proposer, who needs the agreement of a qualified majority. The voters who rejected the offer while the qualified majority is met are frozen out but they can claim a compensation in exchange for their asset. This article analyses how compensation rules influence both the votes and the offer made by the proposer. We find that unanimity rule or compensation equals to the proposal or voters' initial wealth maximize the expected social surplus that entirely accrues to the proposer. We show that increasing the offer does not always increase the probability of acceptance, in sharp contrast to many close models. We identify the optimal offer when the compensation does not depend on the proposal. Increasing the compensation always reduces the expected social surplus and the expected profit of the proposer, but does not always benefit to the voters. Reinforcing the qualified majority always increases the expected profit of the proposer, and can decrease both the expected social surplus and the expected utility of the voters. When the compensation is based on the proposal we find that the success or the failure of the proposition depends crucially of the compensation's shape.
    Keywords: Voting games, Compensations, Fairness, Freezeout, Regulatory takings, Debt restructuring
    JEL: D72 K2
    Date: 2013–05

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