nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒09‒06
eight papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Correlated Equilibria and Communication Equilibria in All-pay Auctions By Gregory Pavlov
  2. Ex post information rents and disclosure in sequential screening By Krähmer, Daniel; Strausz, Roland
  3. The Max-Min Group Contest By Subhasish M. Chowdhury; Dongryul Lee; Iryna Topolyan
  4. Speculative Trade Equilibria with Incorrect Price Anticipations By Alexander Zimper
  5. Coasian Bargaining with An Arriving Outside Option By Ilwoo Hwang; Fei Li
  6. Caps on Coasean Transfers By Ian A. MacKenzie; Markus Ohndorf
  7. Making Friends to Influence Others: The Effect of Corruption onthe Creation, Allocation and Impacts of Social Capital By Gregmar Galinato; Hayley Chouinard; Phil Wandschneider
  8. Optimal capital taxation for time-nonseparable preferences By Moritz Kuhn; Sebastian Koehne

  1. By: Gregory Pavlov (University of Western Ontario)
    Abstract: We study cheap-talk pre-play communication in the static all-pay auctions. For the case of two bidders, all correlated and communication equilibria are payoff equivalent to the Nash equilibrium if there is no reserve price, or if it is commonly known that one bidder has a strictly higher value. Hence, in such environments the Nash equilibrium predictions are robust to preplay communication between the bidders. If there are three or more symmetric bidders, or two symmetric bidders and a positive reserve price, then there may exist correlated and communication equilibria such that the bidders’ payoffs are higher than in the Nash equilibrium. In these cases, pre-play cheap talk may affect the outcomes of the game, since the bidders have an incentive to coordinate on such equilibria.
    Keywords: Communication; Collusion; All-pay auctions
    JEL: C72 D44 D82 D83 L41
    Date: 2013
  2. By: Krähmer, Daniel; Strausz, Roland
    Abstract: We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agent’s ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling.
    Keywords: information rents; sequential screening; information disclosure
    JEL: D82 H57
    Date: 2013–08–09
  3. By: Subhasish M. Chowdhury (University of East Anglia); Dongryul Lee (Sungshin University); Iryna Topolyan (Mississippi State University)
    Abstract: We investigate a group all-pay auction with weakest-link impact function and group-specific public good prize. Since only the minimum effort exerted among all group members represents the group effort and the group with the maximum group effort wins the contest, this is termed as the `Max-Min group contest'. Examples of such structure include various sporting events, territorial conicts, negative product or political campaigns etc. We fully characterize equilibria for the case of two groups and show that a continuum of pure strategy equilibria exist, in which all (active) players exert the same effort. A semi-pure strategy equilibrium may also exist in which all the members of one group play the same pure strategy whereas all the members of the other group play the same mixed strategy. There are two types of non-degenerate mixed strategy equilibria - with and without continuous supports. When either type of such equilibrium exists, it exhibits the same support and effort distribution of group members. We also fully characterize pure strategy equilibria for a general case of n groups and specify candidates for mixed strategy equilibria.
    Date: 2013–08
  4. By: Alexander Zimper
    Abstract: This paper introduces an equilibrium concept for boundedly rational agents who base their demand-supply decisions on incorrect price anticipations. Formally, we differentiate between equilibrium and out-of-equilibrium states. If the agents attach zero prior probability to all out-of-equilibrium 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 out-of-equilibrium states as possible.
    Keywords: Bounded Rationality, Speculative Trade, Rational Expectations, Incorrect Prices
    JEL: D51 D53
    Date: 2013
  5. By: Ilwoo Hwang (Department of Economics, University of Pennsylvania); Fei Li (Department of Economics, University of North Carolina Chapel Hill)
    Abstract: We consider Coasian bargaining problems where the buyer has an outside option arriving at a stochastic time. We study both observable outside option models and unobservable outside option models. In both models, we show that a Coasian equilibrium exists if (1) the arrival of the outside option is public, or (2) the arrival of the outside option is private but the arrival probability is small enough. (1) the seller makes multiple rounds of offers, and (2) the Coase conjecture holds for an arbitrarily large arrival rate of the outside option. The result also applies to the time-varying outside option model. This exercise helps us to understand the sharp difference between Board and Pycia (2013), where the buyer's outside option is always available, and the standard Coasian bargaining literature, where the buyer has no outside option.
    Keywords: Bargaining, Arriving Outside Option, Dynamic Games, Coase Conjecture
    JEL: C78 D74 D83
    Date: 2013–08–25
  6. By: Ian A. MacKenzie (School of Economics, The University of Queensland); Markus Ohndorf
    Abstract: We investigate the efficiency of Coasean bargaining when transfers between agents are capped. We model a two-stage Coasean environment where, in the first stage, property rights are costly to attribute. After the attribution stage agents voluntarily exchange over the level of harm. If property rights are attributed via an all-pay auction, then the introduction of a cap is Pareto improving. Using a Tullock contest we find a cap is Pareto inferior, but may increase Kaldor-Hicks efficiency. Applications include the analysis of tort law.
    Date: 2013–08–30
  7. By: Gregmar Galinato; Hayley Chouinard; Phil Wandschneider (School of Economic Sciences, Washington State University)
    Abstract: We examine the effect of corruption on social capital investment in an association and its allocation in a political economy context. Our model explains how agents invest to form social capital which is used to produce a club good for association members and influence industry-wide policy. Government corruption affects the number of agents that invest in social capital and the contribution per agent, but varies with agent productivity. We find that high productivity agents prefer to influence policy while low productivity agents focus on production. Furthermore, social capital does not necessarily increase welfare if socially sub-optimal regulations are implemented.
    Keywords: association, corruption, social capital
    JEL: D71 D73
    Date: 2013–01
  8. By: Moritz Kuhn (University of Bonn); Sebastian Koehne (Stockholm University)
    Abstract: We study optimal capital taxation in a dynamic Mirrleesian model with time-nonseparable preferences. The model covers the widely used cases of habit formation and durable consumption. Time-nonseparable preferences change labor supply incentives across time and thereby generate novel motives to distort capital accumulation decisions. We decompose intertemporal wedges (implicit capital taxes) into three components and provide conditions under which intertemporal wedges are positive. We derive a recursive formulation of constrained efficient allocations and evaluate the quantitative importance of habit formation for intertemporal wedges. In our baseline parameterization, habit formation reduces average intertemporal wedges by about 40 percent compared to the time-separable case.
    Date: 2013

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