nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒10‒02
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information Provision in Procurement Auctions By Daniel García; Joaquím Coleff
  2. Choosing one's preferences By Guilhem Lecouteux
  3. Markets, Correlation, and Regret-Matching By Sergiu Hart; Andreu Mas-Colell
  4. The Query Complexity of Correlated Equilibria By Sergiu Hart; Noam Nisan
  5. Implementing the "Wisdom of the Crowd" By Kremer, Ilan; Mansour, Yishay; Perry, Motty
  6. Debt Rescheduling with Multiple Lenders: Relying on the Information of Others By Claude Fluet; Paolo G. Garella
  7. "Reverse" Nested Lottery Contests By Zhewei Wang
  8. Issues on Integrating Real and Financial Decisions By Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
  9. The Rejective Core of an Economy with Profit-Making Firms By Takekuma, Shin-Ichi
  10. Does Near-Rationality Matter in First-Order Approximate Solutions? A Perturbation Approach By Frank Hespeler; Marco M. Sorge
  11. Accuracy in Contests: Players' Perspective By YILDIRIM, Mustafa
  12. Procurement Auctions with Renegotiation and Wealth Constraints By Chang, Wei-Shiun; Salmon, Timothy C.; Saral, Krista Jabs
  13. Financing Experimentation By Macchiavello, Rocco
  14. Biases and Implicit Knowledge By Cunningham, Thomas
  15. Foundations for Cooperation in the Prisoners’ Dilemma By Brendan Daley; Philipp Sadowski
  16. On the Origin of the Family By Francesconi, Marco; Ghiglino, Christian; Perry, Motty

  1. By: Daniel García; Joaquím Coleff
    Abstract: We analyze the optimal provision of information in a procurement auction with horizontally dierentiated goods. The buyer has private information about her preferred location on the product space and has access to a costless communication device. A seller who pays the entry cost may submit a bid comprising a location and a minimum price. We characterize the optimal information structure and show that the buyer prefers to attract only two bids. Further, additional sellers are inecient since they reduce total and consumer surplus, gross of entry costs. We show that the buyer will not nd it optimal to send public information to all sellers. On the other hand, she may prot from setting a minimum price and that a severe hold-up problem arises if she lacks commitment to set up the rules of the auction ex-ante.
    JEL: D44 D82 H57
    Date: 2013–09
  2. By: Guilhem Lecouteux (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: A central assumption in economics is that individuals are rational in the sense that they seek to satisfy their preferences, by choosing the action that maximizes a utility function that represents those preferences. However, it appears that in strategic interaction with other rational agents, the individuals can bene t from strategic commitments. We determine the set of games for which strategic commitments can be bene cial to the players, by building an analytical framework in which players can choose their own preferences before playing a game. We show that players make strategic commitments as soon as there exists a Stackelberg equilibrium that is not a Nash equilibrium, but also that there always exists at least one set of preference relations at the equilibrium such that a Nash equilibrium is implemented. We then show that the possibility of making strategic commitments generates cooperative behaviours in the case of supermodular games.
    Keywords: strategic commitment, choice of preferences, Stackelberg, supermodularity
    Date: 2013–09–23
  3. By: Sergiu Hart; Andreu Mas-Colell
    Date: 2013–09–22
  4. By: Sergiu Hart; Noam Nisan
    Date: 2013–09–22
  5. By: Kremer, Ilan (Department of Economics, University of Warwick); Mansour, Yishay (Tel Aviv University); Perry, Motty (Department of Economics, University of Warwick)
    Abstract: We study a novel mechanism design model in which agents each arrive sequentially and choose one action from a set of actions with unknown rewards. The information revealed by the principal affects the incentives of the agents to explore and generate new information. We characterize the optimal disclosure policy of a planner whose goal is to maximize social welfare. One interpretation of our result is the implementation of what is known as the "wisdom of the crowd". This topic has become increasingly relevant with the rapid spread of the Internet over the past decade. JEL classification: JEL codes:
    Date: 2013
  6. By: Claude Fluet; Paolo G. Garella
    Abstract: Can debt rescheduling decisions differ in multiple lenders’ versus a single lender loan? Do multiple lenders efficiently react to information? We show that the precision of information plays an essential role. Foreclosing by one lender is disruptive so that a lender can rationally wait for the decision of other lenders, rescheduling her loan, if she expects that other lenders receive more precise information. We develop a Bayesian game where signals of different precision are randomly distributed to lenders. Both, premature liquidation and excessive rescheduling are possible in equilibrium, according to the pattern of information. However this is a second-best outcome, given that private information cannot be optimally shared.
    Keywords: Overlending, debt contracts, insolvency, illiquidity, liquidation, relationship lending, multiple lenders, Bayesian games
    JEL: G32 G33 D82 D86
    Date: 2013
  7. By: Zhewei Wang (School of Economics, Shandong University)
    Abstract: This paper proposes a multi-prize "reverse" nested lottery contest model, which can be viewed as the "mirror image" of the conventional nested lottery contest of Clark and Riis (1996a). The reverse-lottery contest model determines winners by selecting losers based on contestants' one-shot effort through a hypothetical sequence of lotteries. We provide a microfoundation for the reverse-lottery contest from a perspective of (simultaneous) noisy performance ranking and establish that the model is underpinned by a unique performance evaluation rule. We further demonstrate that the noisy-ranking model can be interpreted intuitively as a "worst-shot" contest, in which contestants' performances are evaluated based on their most severe mistakes. The reverse-lottery contest model thus depicts a great variety of widely observed competitive activities of this nature. A handy closed-form solution for a symmetric equilibrium of the reverse-lottery contest is obtained. We show that the winner-take-all principle continues to hold in reverse-lottery contests. Moreover, we find that a reverse-lottery contest elicits more effort than a conventional lottery contest whenever the prizes available to contestants are relatively scarce.
    Keywords: Contest Elimination Function; Imperfectly Discriminatory Contests; Least-Favorable Performance Ranking; Multi-Prize Contest.
    JEL: C72 D72 D74
    Date: 2013–07
  8. By: Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
    Abstract: We study the issue of integrating real and financial decisions in the monopoly framework. To that end, we combine the decisions of the firm with the decisions of the shareholders. When the managing shareholder chooses production, risk allocation, and the total number of shares for the risky asset, we show that there is no Nash equilibrium with a competitive financial market. Existence is reestablished under various restrictions on the set for the total number of shares. Moreover, there exists a Stackelberg equilibrium when the managing shareholder is the leader. In addition to discussing the issue of existence, we compare the equilibrium outcomes for each restriction we impose.
    Keywords: Existence of Equilibrium, Financial sector, Firm behavior, Market power, Monopoly, Nash equilibrium, Perfect competition, Publicly-traded firm, Risk aversion, Risk taking, Shareholder behavior, Stackelberg equilibrium
    JEL: D21 D42 D82 D83 D84 L12 L15
    Date: 2013
  9. By: Takekuma, Shin-Ichi
    Abstract: In this paper, we consider an economy with producers and introduce a kind of "money" into the economy in order to incorporate producers' behaviors of profit maximization. We define a modified concept of "rejective core" which depends on both consumers' and producers' criterions, and prove the identity of the rejective core and the competitive equilibrium. Namely, the purpose of this paper is to characterize the competitive equilibrium in Arrow-Debreu type economies by applying the concept of "rejective core".
    Keywords: rejective core, competitive equilibrium
    JEL: C71 D21 D41 D51
    Date: 2013–09
  10. By: Frank Hespeler (Ben Gurion University); Marco M. Sorge (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies first-order approximate solutions to near-rational dynamic stochastic models. Under near-rationality, subjective beliefs are distorted away from rational expectations via a change of measure process which fulfils some regularity conditions. As a main result, we show that equilibrium indeterminacy may arise even when the martingale representation of beliefs distortion depends on the economy's fundamentals solely. This provides theoretical support to the modeling assumptions of Woodford [American Economic Review 100, 274-333 (2010)]
    Keywords: Near-Rationality; Perturbation methods; Equilibrium indeterminacy
    JEL: D84 E0 C62 C63
    Date: 2013–09–19
  11. By: YILDIRIM, Mustafa (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: We propose a political theory for the slow adoption of technology in sports and other contests. We investigate players’preferences for new technology that improves contest accuracy. Modeling accuracy as the elasticity of "production" in a standard Tullock contest, we show that players may be against higher accuracy if heterogeneity among them is:(1) sufficiently low; (2) moderate but the initial accuracy is low; or (3) high but the initial accuracy is high. We apply our results to the recent adoption of goal-line technology by major European soccer leagues.
    Keywords: contest accuracy; politics; slow technology adoption; goal-line technology
    JEL: C72 D44 D72
    Date: 2013–09–23
  12. By: Chang, Wei-Shiun; Salmon, Timothy C.; Saral, Krista Jabs
    Abstract: Renegotiation is a common practice in procurement auctions which allows for post-auction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer.
    Keywords: Procurement auctions, renegotiation, bankruptcy, default, economic experiments
    JEL: C9 C91 D44 D82
    Date: 2013–08
  13. By: Macchiavello, Rocco (Department of Economics, University of Warwick)
    Abstract: Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is financed by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "no-compete" clauses cannot be enforced ex-post, we show that financing experi- mentation can become harder precisely when it is more profitable, i.e., for lower values of the known-arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in micro-credit schemes) are shown to be part of the optimal contract. JEL classification: Experimentation ; Moral Hazard ; Adverse Selection ; Starting Small ; Competition JEL codes: D81 ; D86 ; G30
    Date: 2013
  14. By: Cunningham, Thomas
    Abstract: A common explanation for biases in judgment and choice has been to postulate two separate processes in the brain: a “System 1” that generates judgments automatically, but using only a subset of the information available, and a “System 2” that uses the entire information set, but is only occasionally activated. This theory faces two important problems: that inconsistent judgments often persist even with high incentives, and that inconsistencies often disappear in within-subject studies. In this paper I argue that these behaviors are due to the existence of “implicit knowledge”, in the sense that our automatic judgments (System 1) incorporate information which is not directly available to our reflective system (System 2). System 2 therefore faces a signal extraction problem, and information will not always be efficiently aggregated. The model predicts that biases will exist whenever there is an interaction between the information private to System 1 and that private to System 2. Additionally it can explain other puzzling features of judgment: that judgments become consistent when they are made jointly, that biases diminish with experience, and that people are bad at predicting their own future judgments. Because System 1 and System 2 have perfectly aligned preferences, welfare is well-defined in this model, and it allows for a precise treatment of eliciting preferences in the presence of framing effects.
    Keywords: biases, implicit knowledge, dual systems
    JEL: D11 D81
    Date: 2013–09–29
  15. By: Brendan Daley; Philipp Sadowski
    Abstract: We provide axiomatic foundations for a simple model of play in the prisoners’ dilemma. The model accommodates cooperation and suggests that players behave as if their expectations about their opponents’ behavior vary with their own choice. We refer to this nonstandard updating as magical thinking. The degree to which players exhibit magical thinking may be heterogeneous in the population and is captured by a uniquely identified parameter for each player. Further, it is as if all players perceive these parameters to be i.i.d. draws from a common distribution. The model’s identification allows for tractable comparative statics.
    Keywords: Prisoners’ dilemma, magical thinking, cooperation
    JEL: C7 D8
    Date: 2013
  16. By: Francesconi, Marco (University of Essex); Ghiglino, Christian (University of Essex); Perry, Motty (Department of Economics, University of Warwick)
    Abstract: We present a game theoretic model to explain why people form life long monogamous families. Three components are essential in our framework, paternal investment, fatherhood uncertainty, and, perhaps the most distinctive feature of all, the overlap of children of different ages. When all three conditions are present, monogamy is the most efficient form of sexual organization in the sense that it yields greater survivorship than serial monogamy, group marriage, and polygyny. Monogamy is also the only conguration that fosters altruistic ties among siblings. Finally, our result sheds light to the understanding of why most religions center around the monogamous delity family. JEL classification: Overlapping generations ; Free riding ; Kinship systems ; Religion JEL codes: C72 ; D01 ; D10 ; J12 ; Z13
    Date: 2013

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