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on Microeconomics |
| By: | Chen, Yongmin; Gu, Dingwei; Yao, Zhiyong |
| Abstract: | Credit rating agencies play a crucial role in financial markets. There are two competing views regarding their behavior: some argue that they engage in rating inflation, while others suggest that they deflate ratings. This article offers a rationale that reconciles the two opposite arguments. We find that both rating inflation and rating deflation can occur in equilibrium. Furthermore, we show that credit rating is procyclical: rating inflation is more likely to happen in a boom while rating deflation is more likely to happen in a recession. |
| Keywords: | rating inflation, rating deflation, procyclical rating |
| JEL: | D82 G10 G24 |
| Date: | 2013–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:51159&r=mic |
| By: | Christoph Diehl; Christoph Kuzmics (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Chakraborty and Harbaugh (2010) prove the existence of influential cheap talk equilibria in one sender one receiver games when the state is multidimensional and the preferences of the sender are state-independent. We show that only the babbling equilibrium survives the introduction of any small degree of uncertainty about the sender’s preferences in the spirit of Harsanyi (1973). None of the influential equilibria are robust to this kind of uncertainty. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:489&r=mic |
| By: | HILL, Brian |
| Abstract: | It is commonly argued that dynamic consistency, consequentialism and non-expected utility are incompatible. The first aim of this paper is to rebut such arguments, by targeting the implicit assumption that the relevant contingencies correspond to objective resolutions of uncertainty (that is, events in a state space). These are not necessarily the same as the contingencies that the decision maker envisages, and we argue that any reasonable notion of dynamic consistency involves the latter, rather than the former, sort of contingency. We formulate such a version of dynamic consistency and show it to be compatible with consequentialism and non-expected utility. We then analyze the economic consequences of this new perspective. On the one hand, it provides a principled justification for restrictions on non-expected utility models (such as that proposed by Epstein and Schneider (2003)) in applications to dynamic choice problems. On the other hand, it provides a new analysis of the issue of attitude to information; contra standard arguments, the value of information under non-expected utility is non-negative as long as the information offered does not compromise information that the decision maker had otherwise expected to receive. Finally, we give a representation theorem for the contingencies the decision maker envisages, in the case where he uses the maxmin expected utility rule. |
| Keywords: | Decision under Uncertainty; Dynamic Consistency; Dynamic Choice; Value of Information; Epistemic Contingency |
| JEL: | D81 D83 |
| Date: | 2013–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0983&r=mic |
| By: | Santiago Oliveros |
| Abstract: | We study aggregation of information when voters can collect information of different precision, with increased precision entailing an increasing marginal cost. In order to properly understand the incentives to collect information we introduce another dimension of heterogeneity: on top of the ideological dimension we allow for different levels of intensity in preferences. Contrary to traditional models of endogenous information, in equilibrium, there are voters collecting information of different qualities. After characterizing all symmetric Bayesian equilibria in pure strategies for arbitrary rules of election and fairly general distribution of types. We study information aggregation in symmetric electorates and show that information aggregates even when voters collect information of different qualities. |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:733&r=mic |
| By: | David S. Ahny; Santiago Oliveros |
| Abstract: | Consider the problem of deciding a winner among three alternatives when voters have common values, but private information regarding the values of the alternatives. We compare approval voting with other scoring rules. For any finite electorate, the best equilibrium under approval voting is more efficient than either plurality rule or negative voting. If any scoring rule yields a sequence of equilibria that aggregates information in large elections, then approval voting must do so as well. |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:732&r=mic |
| By: | Marco Stimolo |
| Abstract: | The idea of multiple-self models in economics is that individual identity is the equilibrium result of the strategic interaction between sub-personal selves. These models fill the gap of standard rational choice theory in explaining inter-temporal inconsistency of choices. This modelling procedure requires an extension of revealed preference theory to the sub-personal level. This extension is grounded in the assumption that sub-personal selves are economic agents to whom analytical tools of microeconomics apply. I claim that this assumption is false and entails the empirical methodology of functional localization that fails to provide robust results. |
| Keywords: | Multiple-self, rationality, as if, functional localization, robustness |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:icr:wpicer:07-2012&r=mic |
| By: | Debraj Ray; Rajiv Vohra |
| Abstract: | Harsanyi (1974) criticized the von Neumann-Morgenstern notion of a stable set on the grounds that it implicitly assumes coalitions to be shortsighted in evaluating their prospects. He proposed a modification of the dominance relation to incorporate farsightedness. In doing so, however, Harsanyi retained another feature of the stable set: that a coalition S can impose any imputation as long as its restriction to S is feasible for S. This implicitly gives an objecting coalition complete power to arrange the payoffs of players elsewhere, which is clearly unsatisfactory. While this assumption is absolutely innocuous for the classical stable set, it is of crucial significance for farsighted dominance. Our proposed modification of the Harsanyi set respects “coalitional sovereignty.” The resulting farsighted stable set is very different, both from that of Harsanyi or of von Neumann and Morgenstern. We provide a necessary and sufficient condition for the existence of a farsighted stable set containing just a single payoff allocation. This condition is weaker than assuming that the relative interior of the core is non-empty, but roughly establishes an equivalence between core allocations and the union of allocations over all singlepayoff farsighted stable sets. We state two conjectures: that farsighted stable sets exist in all transferable-utility games, and that when a single-payoff farsighted stable set exists, there are no farsighted stable sets containing multiple payoff allocations. |
| Keywords: | # |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2013-11&r=mic |
| By: | Manuel Förster (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); Ana Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEREC - Université Saint-Louis - Bruxelles); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEREC - Université Saint-Louis - Bruxelles) |
| Abstract: | We investigate the role of manipulation in a model of opinion formation where agents have opinions about some common question of interest. Agents repeatedly communicate with their neighbors in the social network, can exert some effort to manipulate the trust of others, and update their opinions taking weighted averages of neighbors' opinions. The incentives to manipulate are given by the agents' preferences. We show that manipulation can modify the trust structure and lead to a connected society, and thus, make the society reaching a consensus. Manipulation fosters opinion leadership, but the manipulated agent may even gain influence on the long-run opinions. In sufficiently homophilic societies, manipulation accelerates (slows down) convergence if it decreases (increases) homophily. Finally, we investigate the tension between information aggregation and spread of misinformation. We find that if the ability of the manipulating agent is weak and the agents underselling (overselling) their information gain (lose) overall influence, then manipulation reduces misinformation and agents converge jointly to more accurate opinions about some underlying true state. |
| Keywords: | Social networks; trust; manipulation; opinion leadership; consensus; wisdom of crowds |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00881145&r=mic |
| By: | Ahmet Ozkardas (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We consider a non-cooperative price bargaining model between a monopolistic producer and a monopsonic consumer. The innovative element that our model brings to the existing literature on price negotiation concerns the parties' preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. We assume that the sequence of discount rates of a party can be arbitrary, with the only restriction that the infinite series that determines the utility for the given party must be convergent. Under certain parameters, the price negociation model coincides with wage bargaining with the exogenous always strike decision. We determine the unique subgame perfect equilibrium in this model for no-delay strategies independent of the former history of the game. Then we relax the no-delay assumption and determine the highest equilibrium payoff of the seller and the lowest equilibrium payoff of the buyer for the general case. We show that the no-delay equilibrium strategy profiles support these extreme payoffs. |
| Keywords: | Price bargaining; alternating offers; varying discount rates; subgame perfect equilibrium |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00881151&r=mic |
| By: | Ravanel, M. |
| Abstract: | In this paper, I study how the CEO's election can be biased if some directors in the board belong to the same network. I use a static Bayesian game. Directors want to elect the best candidate but they also want to vote for the winner. In that context, results show that, when no candidate is part of the network, boards with a network perform better in electing the right candidate. On the other hand, it becomes detrimental for stockholders if one candidate is part of the network. Indeed, compared to a situation where there are no interconnections between directors, the directors who are members of a network vote more often for the candidate they think is best, rather than for the one they think might win. The ones who are not part of the network follow their lead. Thus the network has power on the result of the election and therefore limits the power of the future CEO. |
| Keywords: | Networks, corporate governance. |
| JEL: | D71 G34 Z13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:459&r=mic |