nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒11‒22
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Ranking opportunity sets, averaging versus preference for freedom. By Potoms, Tom; Lauwers, Luc
  2. Revealed preference theory for finite choice sets. By Cosaert, Sam; Demuynck, Thomas
  3. Ignorance and Competence in Choices Under Uncertainty By Casaca, Paulo; Chateauneuf, Alain; Faro, José Heleno
  4. Auctions with Limited Commitment By Qingmin Liu; Konrad Mierendorff; Xianwen Shi
  5. Implementation with securities By Rahul Deb; Debasis Mishra
  6. Implementation in multidimensional domains with ordinal restrictions By Debasis Mishra; Anup Pramanik; Souvik Roy
  7. Spaces for agreement: a theory of Time-Stochastic Dominance By Simon Dietz; Anca N. Matei
  8. On the economics of others By Stark, Oded
  9. Gorman revisited: nonparametric conditions for exact linear aggregation. By Cherchye, Laurens; Crawford, Ian; De Rock, Bram; Vermeulen, Frederic

  1. By: Potoms, Tom; Lauwers, Luc
    Abstract: We introduce and axiomatize two quasi-orderings that extend preferences on a set to its power set. First, a modified version of indirect utility takes into account the number of maximal elements in the opportunity set. This rule meets Puppe's axiom of preference for freedom. Second, an averaging rule takes into account the number of non-maximal elements in the opportunity set. Such a rule satisfies the Gärdenfors principle. Axioms that involve no more than two alternatives capture the differences between the two rules.
    Date: 2013–09
  2. By: Cosaert, Sam; Demuynck, Thomas
    Abstract: The theory of revealed preferences offers an elegant way to test the neoclassical model of utility maximization subject to a linear budget constraint. In many settings, however, the set of available consumption bundles does not take the form of a linear budget set. In this paper, we adjust the theory of revealed preferences to handle situations where the set of feasible bundles is finite. Such situations occur frequently in many real life and experimental settings. We derive the revealed preference conditions for consistency with utility maximization in this finite choice-set setting. Interestingly, we find that it is necessary to make a distinction between the cases where the underlying utility function is weakly monotone, strongly monotone and/or concave. Next, we provide conditions on the structure of the finite choice sets for which the usual revealed preference condition (i.e. GARP) is still valid. We illustrate the relevance of our results by means of an application based on two experimental data sets that contain choice behavior from children.
    Date: 2013
  3. By: Casaca, Paulo; Chateauneuf, Alain; Faro, José Heleno
    Date: 2013–10
  4. By: Qingmin Liu; Konrad Mierendorff; Xianwen Shi
    Abstract: We study auction design in the standard symmetric independent private values environment, where the seller lacks the commitment power to withhold an unsold object off the market. The seller has a single object and can conduct an infinite sequence of standard auctions with reserve prices to maximize her expected profit. In each period, the seller can commit to a reserve price for the current period but cannot commit to future reserve prices. We analyze the problem with limited commitment through an auxiliary mechanism design problem with full commitment, in which an additional constraint reflects the sequential rationality of the seller. We characterize the maximal profit achievable in any perfect Bayesian equilibrium in the limit as the period length vanishes. The static full commitment profit is not achievable but the seller can always guarantee the profit of an efficient auction. If the number of buyers exceeds a cutoff which is small for many distributions, the efficient auction is optimal. Otherwise, the efficient auction is not optimal, and we give conditions under which the optimal solution consists of an initial auction with a non-trivial reserve price followed by a continuously decreasing price path. The solution is described by a simple ordinary differential equation. Our analysis combines insights from bargaining, auctions, and mechanism design.
    Keywords: Auctions, Commitment, Bargaining, Mechanism Design, Coase Conjecture
    JEL: D44 C73 C78
    Date: 2013–11–15
  5. By: Rahul Deb (University of Toronto); Debasis Mishra (Indian Statistical Institute, New Delhi)
    Abstract: We study mechanism design in a setting where agents know their types but are uncertain about the utility from any alternative. The lnal realized utility of each agent is observed by the principal and can be contracted upon. In such environments, the principal is not restricted to using only transfers but can employ security contracts which determine each agent's payoff as a function of their realized utility and the profile of announced types. We show that using security contracts instead of transfers expands the set of (dominant strategy) implementable social choice functions. Our main result is that in a lnite type space, every social choice function that can be implemented using a security contract can also be implemented using a royalty contract. Royalty contracts are simpler and commonly used security contracts, in which agents initially pay a transfer and keep a fraction of their realized utility. We also identify a condition called acyclicity that is necessary and suncient for implementation in these environments.
    Keywords: dominant strategy implementation, acyclicity, security contracts, royalty contracts, cycle monotonicity
    JEL: D44 D71 D82 D86
    Date: 2013–04
  6. By: Debasis Mishra (Indian Statistical Institute, New Delhi); Anup Pramanik (Indian Statistical Institute, New Delhi); Souvik Roy (Indian Statistical Institute, New Delhi)
    Abstract: We consider implementation of a deterministic allocation rule using transfers in quasi-linear private values environments. We show that if the type space is a multidimensional domain satisfying some ordinal restrictions, then an allocation rule is implementable in such a domain if and only if it satisfies a familiar and simple condition called 2-cycle monotonicity. Our ordinal restrictions cover type spaces which are non-convex, e.g., the single peaked domain and its generalizations. We apply our result to show that in the single peaked domain, a local version of 2-cycle monotonicity is necessary and sufficient for implementation and every locally incentive compatible mechanism is incentive compatible.
    Keywords: implementation, 2-cycle monotonicity, revenue equivalence, local incentive compatibility
    JEL: D44 D71 D82 D86
    Date: 2013–05
  7. By: Simon Dietz; Anca N. Matei
    Abstract: Many investments involve both a long time-horizon and risky returns. Making investment decisions thus requires assumptions about time and risk preferences. In the public sector in particular, such assumptions are frequently contested and there is no immediate prospect of universal agreement. Motivated by these observations, we develop a theory and method of finding ‘spaces for agreement’. These are combinations of classes of discount and utility function, for which one investment dominates another (or ‘almost’ does so), so that all decision-makers whose preferences can be represented by such combinations would agree on the option to be chosen. The theory is built on combining the insights of stochastic dominance on the one hand, and time dominance on the other, thus offering a non-parametric approach to inter-temporal, risky choice.
    Date: 2013–10
  8. By: Stark, Oded
    Abstract: We relate to others in two important ways: we care about others, and we care about how we fare in comparison to others. In some contexts, these two forms of relatedness interact. Caring about others can conveniently be labeled altruism. Caring about how we fare in comparison with others who fare better than ourselves can conveniently be labeled relative deprivation. I provide examples of domains in which the incorporation of altruism and relative deprivation can point to novel perspectives and suggest rethinking, and possibly revising, longheld views. And I show that there are domains in which consideration of relative deprivation can substitute for the prevalence of altruism, and vice versa. I conclude that this is a fascinating sphere for research on economics and social behavior. --
    Keywords: Altruism,Relative deprivatio,Economic and social behavior
    JEL: D01 D03 D13 D31 D63 D64 F22 F24 J61 O15
    Date: 2013
  9. By: Cherchye, Laurens; Crawford, Ian; De Rock, Bram; Vermeulen, Frederic
    Abstract: In the tradition of Afriat (1967), Diewert (1973) and Varian (1982), we provide a revealed preference characterisation of exact linear aggregation. This guarantees that aggregate demand can be written as a function of prices and aggregate income alone, while abstracting from income-distributional aspects. We also establish nonparametric conditions for individual consumption to be representable in terms of Gorman Polar Form preferences. Our results are simple and complement those of Gorman (1953, 1961). We illustrate the practical usefulness of our results by means of an empirical application to a Spanish balanced microdata panel.
    Date: 2013

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