
on Microeconomics 
Issue of 2013‒07‒28
fifteen papers chosen by JingYuan Chiou IMT Lucca Institute for Advanced Studies 
By:  AlNajjar, Nabil I. (Department of Managerial Economics and Decision Sciences, Kellog School of Management, Northwestern University Evanston, USA); Weinstein, Jonathan (Department of Managerial Economics and Decision Sciences, Kellog School of Management, Northwestern University Evanston, USA) 
Abstract:  A long tradition suggests a fundamental distinction between situations of risk, where true objective probabilities are known, and unmeasurable uncertainties where no such probabilities are given. This distinction can be captured in a Bayesian model where uncertainty is represented by the agent's subjective belief over the parameter governing future income streams. Whether uncertainty reduces to ordinary risk depends on the agent's ability to smooth consumption. Uncertainty can have a major behavioral and economic impact, including precautionary behavior that may appear overly conservative to an outside observer. We argue that one of the main characteristics of uncertain beliefs is that they are not empirical, in the sense that they cannot be objectively tested to determine whether they are right or wrong. This can confound empirical methods that assume rational expectations. 
Keywords:  Knightian uncertainty, consumption smoothing, uncertainty premium, rational expectations 
JEL:  A10 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:ihs:ihsesp:300&r=mic 
By:  Lombardi, Michele; Miyagishima, Kaname; Veneziani, Roberto 
Abstract:  This paper analyses the implications of classical liberal and libertarian approaches for distributive justice in the context of social welfare orderings. An axiom capturing a liberal noninterfering view of society, named the Weak Harm Principle, is studied, whose roots can be traced back to John Stuart Mill's essay On Liberty. It is shown that liberal views of individual autonomy and freedom can provide consistent foundations for social welfare judgements, in both the finite and the infinite context. In particular, a liberal noninterfering approach can help to adjudicate some fundamental distributive issues relative to intergenerational justice. However, a surprisingly strong and general relation is established between liberal views of individual autonomy and noninterference, and egalitarian principles in the Rawlsian tradition. 
Keywords:  Liberal principles, maximin, intergenerational equity, infinite utility streams. 
JEL:  D0 D01 D6 D60 D63 D7 D70 Q01 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:48458&r=mic 
By:  Jianpei Li; Paul Schweinzer 
Abstract:  We study the incentives of noncooperative players to play a cooperative game. That is, we look for individually rational, redistributive, pregame agreements enacted in order to coordinate towards efficient equilibrium play. Contrasting with standard Nash equilibrium analysis, we assume that players can commit to the agreements they negotiate and that utility is verify and transferable. We show that agreeing on a proportionalexponential redistribution rule is individually rational and implements the socially efficient outcome as Nash equilibrium. Moreover, we show that this class of redistributional contracts may be naturally obtained as the outcome of Nash bargaining. 
Keywords:  Redistribution, Efficiency, Social contract 
JEL:  C72 D62 D71 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:yor:yorken:13/19&r=mic 
By:  Dominik Karos (Department of Economics and Statistics, Saarland University) 
Abstract:  Given a simple game, a power configuration specifies the power of each player in each winning coalition. We introduce a new power configuration which takes into account bargaining among players in coalitions. We show that under very weak conditions on a bargaining solution there is a power configuration which is stable with respect to renegotiations. We further show that given this power configuration there is a coalition which is both internally and Nash stable. We consider two different bargaining solutions on apex games and show under which conditions there are core stable coalitions. Finally, we investigate how infeasible coalition might affect the outcome and apply our model to the German parliament. 
Keywords:  Coalition Formation, Power, Bargaining 
JEL:  C71 D71 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:fem:femwpa:2013.63&r=mic 
By:  Ezra Einy (Department of Economics, BenGurion University of the Negev, Israel); Ori Haimanko (Department of Economics, BenGurion University of the Negev, Israel); Diego Moreno (Departamento de Economia, Universidad Carlos III de Madrid.); Aner Sela (Department of Economics, BenGurion University of the Negev. Israel); Benyamin Shitovitz (Department of Economics, University of Haifa) 
Abstract:  Under standard assumptions about players'cost functions, we show that a Tullock contest with asymmetric information has a pure strategy equilibrium. Next we study Tullock contests in which players have a common value and a common stateindependent linear cost function. A twoplayer contest in which one player has an information advantage has a unique equilibrium. In equilib rium both players exert the same expected effort, and although the player with an information advantage wins the prize with probability less than onehalf, his payoff is greater or equal to that of his opponent. When there are more than two players in the contest, having information advantage leads to higher payoffs, but the other properties of equilibrium no longer hold. 
JEL:  C72 D44 D82 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:bgu:wpaper:1303&r=mic 
By:  Thiemo Fetzer; Maitreesh Ghatak; Jonathan de Quidt 
Abstract:  This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending by some microfinance institutions First we show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Second, we explore how a purely mechanical argument in favor of the use of groups  namely lower transaction costs  may actually be used explicitly by lenders to encourage the creation of social capital. We also carry out some simulations to evaluate quantitatively the welfare impact of alternative forms of lending, and how they relate to social capital. 
Keywords:  microfinance, group lending, joint liability, mutual insurance 
JEL:  G11 G21 O12 O16 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:cep:stieop:44&r=mic 
By:  Philippe Bich (CES  Centre d'économie de la Sorbonne  CNRS : UMR8174  Université Paris I  PanthéonSorbonne, EEPPSE  Ecole d'Économie de Paris  Paris School of Economics  Ecole d'Économie de Paris); Rida Laraki (Ecole Polytechnique  Ecole Polytechnique, IMJ  Institut de Mathématiques de Jussieu  CNRS : UMR7586  Université Pierre et Marie Curie (UPMC)  Paris VI  Université Paris VII  Paris Diderot) 
Abstract:  New relaxations of the Nash equilibrium concept are shown to exist in any strategic game with discontinuous payoff functions. The new concepts are used (1) to show the equivalence between Reny's betterreply security condition [28] and SimonZame's endogenous tiebreaking rule equilibrium concept [32], (2) to obtain conditions for the existence of approximated equilibria in a class of discontinuous games that naturally extends Reny's betterreply secure games, and (3) to show the existence of approximated equilibria in a large family of twoplayer games that contains all standard models of auctions. 
Keywords:  Discontinuous games, betterreply security, sharingrule equilibrium, approximated equilibrium, strategic approximation, auctions, diagonal games. 
Date:  2013–07–18 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:hal00846143&r=mic 
By:  Akiyoshi Shioura; Zaifu Yang 
Abstract:  We study a market model where there are n different types of indivisible goods for sale. The goods can be substitutable or complementary. There are multiple units of each good. Each agent may consume several goods and has quasilinear utilities in money. We introduce a general condition which will be shown to guarantee the existence of a Walrasian equilibrium and generalize several existing conditions such as gross substitutes, strong substitutes, and gross substitutes and complements. We also identify several characterizations of this condition. Furthermore, we propose a price adjustment process which converges globally to a Walrasian equilibrium. 
Keywords:  Indivisibility, equilibrium, existence, substitutes and complements, auction 
JEL:  C61 C62 D44 D51 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:yor:yorken:13/17&r=mic 
By:  Armstrong, Mark; Zhou, Jidong 
Abstract:  A seller wishes to prevent the discovery of rival offers by its prospective customers. We study sales techniques which serve this purpose by making it harder for a customer to return to buy later after a search for alternatives. These include making an exploding offer, offering a "buynow" discount, or requiring payment of a deposit in order to buy later. It is unilaterally profitable for a seller to deter search under mild conditions, but sellers can suffer when all do so. In a monopoly setting where the buyer has an uncertain outside option, the optimal selling mechanism features both buynow discounts and deposit contracts. When a seller cannot commit to its policy, it exploits the inference that those consumers who try to buy later have no good alternative. In many cases the outcome then involves exploding offers, so that no consumers return to buy after search. 
Keywords:  Consumer search; sales techniques; price discrimination; sequential screening 
JEL:  D18 D83 L13 L80 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:48568&r=mic 
By:  Georgios Gerasimou (University of St. Andrews) 
Abstract:  Sufficient conditions are provided for a possibly incomplete preference preorder on a topological space to be closed in the product space if and only if it has closed upper and lower contour sets. Notably, it is shown that the two properties are equivalent if the domain of the preorder is a Hausdorff (T2) topological space. The two concepts are therefore identical in the overwhelming majority of cases that are of interest to economists, even when completeness is not assumed. 
Keywords:  Incomplete preorders, continuity, hemicontinuity, equivalence. 
JEL:  C65 D01 D11 
Date:  2013–07–01 
URL:  http://d.repec.org/n?u=RePEc:san:wpecon:1305&r=mic 
By:  Lee, Byung Soo 
Abstract:  In this paper, we establish the Bayesian foundations of type structures in which beliefs are lexicographic probability systems (LPS’s)—such as those used in Brandenburger et al. (2008)—rather than standard probability measures as in Mertens and Zamir (1985). This is a setting which the distinction between preferences hierarchies (Epstein and Wang, 1996) and beliefs hierarchies is meaningful and the former has conceptual advantages. Type structures in which beliefs are conditional probability systems (CPS’s) are found to describe fewer hierarchies than LPS type structures can if a nonredundancy requirement is imposed. The two families of type structures are found to be capable of describing the same set of hierarchies in the absence of such a requirement. The existence of “largest”—a notion closely related to universality—LPS/CPS type structures is also shown. Finally, we find that some coherent hierarchies cannot be types but those hierarchies may be needed to express epistemic conditions for iterated elimination of weakly dominated strategies. 
Keywords:  Preferences hierarchies, type structure, weakly dominated strategies, epistemic game theory, lexicographic probability system, conditional probability system 
JEL:  C72 D8 D80 
Date:  2013–07–17 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:48551&r=mic 
By:  Duran, Mihael 
Abstract:  I analyze how boards of directors with heterogeneous preferences can affect the information shared with the CEO with the help of a cheaptalk model that allows for large groups of receivers. This paper provides new insights on how heterogeneity of boards can change the way of communication between the board and the CEO, related to different ways of decision making. My model gives some insights how heterogeneous preferences can have an impact on how communication between CEO and the board of directors takes place. I also indicate how coalition forming in the boardroom can be influenced by director's and CEO's perferences. Finnaly this model gives a possible answer why board of directors hetreogeneity differs even for shareholder representatives if there are any empoyees on the board.  
Keywords:  Board of directors,Cheap talk,Director's preferences,Heterogeneity,Multiple audiences 
JEL:  C71 C72 D72 D82 G34 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:zbw:tuewef:57&r=mic 
By:  Alexander Zimper (Department of Economics, University of Pretoria) 
Abstract:  This paper introduces an equilibrium concept for boundedly rational agents who base their demandsupply decisions on incorrect price anticipations. Formally, we differentiate between equilibrium and outofequilibrium states. If the agents attach zero prior probability to all outofequilibrium states, our equilibrium concept coincides with Radner's (1979) concept of rational expectations equilibria (=REE). In contrast to REE, however, there may exist strict incentives for speculative asset trade whenever boundedly rational agents regard outofequilibrium states as possible. 
Keywords:  Bounded Rationality, Speculative Trade, Rational Expectations, Incorrect Prices 
JEL:  D51 D53 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:pre:wpaper:201335&r=mic 
By:  Gotoh, Reiko; Yoshihara, Naoki 
Abstract:  The purpose of this paper is to examine the possibility of a social choice rule to implement a social policy for “securing basic wellbeing for all.” For this purpose, the paper introduces a new scheme of social choice, called a social relation function (SRF), which associates to each profile of individual wellbeing appraisals and each profile of groupevaluations a reflexive and transitive binary relation over the set of social policies. As a part of the domains of SRFs, the available class of group evaluations is constrained by the following three conditions: Basic Wellbeing Condition, Restricted Monotonicity, and Refrain Condition. Furthermore, two axioms, the nonnegative response (NR) and the weak Pareto condition (WP), are introduced as the two basic condititions of SRFs. NR demands giving priority to the evaluations of disadvantage groups, while treating them as formally equal relative to each other. WP requires treating impartially the wellbeing appraisals of all individuals. In conclusion, this paper shows that, under some reasonable assumptions, there exists a SRF which satisfies NR and WP. 
Keywords:  basic wellbeing, individual wellbeing appraisals, social relation functions 
JEL:  D63 
Date:  2013–07 
URL:  http://d.repec.org/n?u=RePEc:hit:ccesdp:48&r=mic 
By:  Dickson Alex (Department of Economics, University of Strathclyde) 
Abstract:  Bilateral oligopoly is a simple model of exchange in which a finite set of sellers seek to exchange the goods they are endowed with for money with a finite set of buyers, and no pricetaking assumptions are imposed. If trade takes place via a strategic market game bilateral oligopoly can be thought of as two linked proportionalsharing contests: in one the sellers share the aggregate bid from the buyers in proportion to their supply and in the other the buyers share the aggregate supply in proportion to their bids. The analysis can be separated into two â€˜partial gamesâ€™. First, fix the aggregate bid at B; in the first partial game the sellers contest this fixed prize in proportion to their supply and the aggregate supply in the equilibrium of this game is XËœ (B). Next, fix the aggregate supply at X; in the second partial game the buyers contest this fixed prize in proportion to their bids and the aggregate bid in the equilibrium of this game is ËœB (X). The analysis of these two partial games takes into account competition within each side of the market. Equilibrium in bilateral oligopoly must take into account competition between sellers and buyers and requires, for example, ËœB (XËœ (B)) = B. When all traders have CobbDouglas preferences Ëœ X(B) does not depend on B and ËœB (X) does not depend on X: whilst there is competition within each side of the market there is no strategic interdependence between the sides of the market. The CobbDouglas assumption provides a tractable framework in which to explore the features of fully strategic trade but it misses perhaps the most interesting feature of bilateral oligopoly, the implications of which are investigated. 
Keywords:  strategic market game, bilateral oligopoly, CobbDouglas preferences 
JEL:  C72 D43 D50 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:str:wpaper:1306&r=mic 