nep-mic New Economics Papers
on Microeconomics
Issue of 2013‒12‒20
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Learning with Recency Bias By Drew Fudenberg; David K Levine
  2. Robust Multiplicity with a Grain of Naiveté By Aviad Heifetz; Willemien Kets
  3. Welfare-Improving Ambiguity in Insurance Markets with Asymmetric Information By : Kostas Koufopoulos; : Roman Kozhan
  4. Optimal bail-out policies under renegotiation By Michiel Bijlsma; Gijsbert Zwart
  5. Bubbles and crowding-in of capital via a savings glut By Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
  6. Unanimity overruled: Majority voting and the burden of history By Nehring, Klaus; Pivato, Marcus; Puppe, Clemens
  7. On the Structure of Cooperative and Competitive Solutions for a Generalized Assignment Game By Pablo Arribillaga; Jordi Massó; Alejandro Neme
  8. The Condorcet set: Majority voting over interconnected propositions By Nehring, Klaus; Pivato, Marcus; Puppe, Clemens
  9. Stable Partitions in Many Division Problems: The Proportional and the Sequential Dictator Solutions By Gustavo Bergantiños; Jordi Massó; Inés Moreno de Barreda; Alejandro Neme
  10. The Division Problem under Constraints By Gustavo Bergantiños; Jordi Massó; Alejandro Neme
  11. Limited Information Aggregation and Externalities - A Simple Model of Metastable Market By Gong, Zheng; Tian, Feng; Xu, Boyan
  12. Competitive Market Segmentation By Silvio Sticher

  1. By: Drew Fudenberg; David K Levine
    Date: 2013–12–16
  2. By: Aviad Heifetz; Willemien Kets
    Abstract: In an important paper, Weinstein and Yildiz (2007) show that if players have an innite depth of reasoning and this is commonly believed, types generically have a unique rationalizable action in games that satisfy a richness condition. We show that this result does not extend to environments where players may have a finite depth of reasoning, or think it is possible that the other player has a finite depth of reasoning, or think that the other player may think that is possible, and so on, even if this so-called "grain of naivete" is arbitrarily small. More precisely, we show that even if there is almost common belief in the event that players have an infinite depth of reasoning, there are types with multiple rationalizable actions, and the same is true for "nearby" types. Our results demonstrate that both uniqueness and multiplicity are robust phenomena when we relax the assumption that it is common belief that players have an infinite depth, if only slightly.
    Keywords: Bounded rationality, finite depth of reasoning, global games, higher-order beliefs, generic uniqueness, robust multiplicity JEL Classification: C700, C720, D800, D830
    Date: 2013–12–11
  3. By: : Kostas Koufopoulos; : Roman Kozhan
    Date: 2013
  4. By: Michiel Bijlsma; Gijsbert Zwart
    Abstract: We study how the possibility of renegotiation affects optimal bail-out policies for countries under asymmetric information on a country's cost of reforms. To that end, we solve the Bellman equation describing the optimal bail-out mechanism in a multiple-period principal-agent model with adverse selection and renegotiation. In each period, the agent can incrementally raise its level of reforms. The principal values these reforms and negotiates with the agent over reforms and payments. We show that the first-best efficient outcome is reached after two periods when spill-over benefits are quadratic. The principal can use market discipline to improve the outcome. Market discipline can lower the rents the principal has to pay and speed up the renegotiation process.
    JEL: D82 F34 F51
    Date: 2013–12
  5. By: Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
    Abstract: This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected. --
    Keywords: rational bubbles,savings glut,crowding-in,financial frictions
    JEL: E21 E32 E44
    Date: 2013
  6. By: Nehring, Klaus; Pivato, Marcus; Puppe, Clemens
    Abstract: Sequential majority voting over interconnected binary propositions can lead to the overruling of unanimous consensus. We characterize, within the general framework of judgement aggregation, under what circumstances this happens for some sequence of the voting process. It turns out that the class of aggregation spaces for which this difficulty arises is very large, including the aggregation of preference orderings over at least four alternatives, the aggregation of equivalence relations over at least four objects, resource allocation problems, and most committee selection problems. We also ask whether it is possible to design respect for unanimity by choosing appropriate decision sequences. Remarkably, while this is not possible in general, it can be accomplished in interesting special cases. Adapting and generalizing a classic result by Shepsle and Weingast, we show that respect for unanimity can indeed be thus guaranteed in case of the aggregation of weak orderings, strict orderings and equivalence relations. --
    Date: 2013
  7. By: Pablo Arribillaga; Jordi Massó; Alejandro Neme
    Abstract: We study cooperative and competitive solutions for a many- to-many generalization of Shapley and Shubik (1972)�s assignment game. We consider the Core, three other notions of group stability and two alternative definitions of competitive equilibrium. We show that (i) each group stable set is closely related with the Core of certain games defined using a proper notion of blocking and (ii) each group stable set contains the set of payoff vectors associated to the two definitions of competitive equilibrium. We also show that all six solutions maintain a strictly nested structure. Moreover, each solution can be identified with a set of matrices of (discriminated) prices which indicate how gains from trade are distributed among buyers and sellers. In all cases such matrices arise as solutions of a system of linear inequalities. Hence, all six solutions have the same properties from a structural and computational point of view.
    Keywords: assignment game, competitive equilibrium, core, group stability
    JEL: C78 D78
    Date: 2013–10
  8. By: Nehring, Klaus; Pivato, Marcus; Puppe, Clemens
    Abstract: Judgement aggregation is a model of social choice in which the space of social alternatives is the set of consistent evaluations (views) on a family of logically interconnected propositions, or yes/no-issues. Yet, simply complying with the majority opinion in each issue often yields a logically inconsistent collection of judgements. Thus, we consider the Condorcet set: the set of logically consistent views which agree with the majority on a maximal set of issues. The elements of this set are exactly those that can be obtained through sequential majority voting, according to which issues are sequentially decided by simple majority unless earlier choices logically force the opposite decision. We investigate the size and structure of the Condorcet set - and hence the properties of sequential majority voting - for several important classes of judgement aggregation problems. While the Condorcet set verifies McKelvey's (1979) celebrated chaos theorem in a number of contexts, in others it is shown to be very regular and well-behaved. --
    Date: 2013
  9. By: Gustavo Bergantiños; Jordi Massó; Inés Moreno de Barreda; Alejandro Neme
    Abstract: We study how to partition a set of agents in a stable way when each coalition in the partition has to share a unit of a perfectly divisible good, and each agent has symmetric single-peaked preferences on the unit interval of his potential shares. A rule on the set of preference profiles consists of a partition function and a solution. Given a preference profile, a partition is selected and as many units of the good as the number of coalitions in the partition are allocated, where each unit is shared among all agents belonging to the same coalition according to the solution. A rule is stable at a preference profile if no agent strictly prefers to leave his coalition to join another coalition and all members of the receiving coalition want to admit him. We show that the proportional solution and all sequential dictator solutions admit stable partition functions. We also show that stability is a strong requirement that becomes easily incompatible with other desirable properties like efficiency, strategy-proofness, anonymity, and non-envyness.
    Keywords: division problem, symmetric single-peaked preferences, stable partition
    JEL: D71
    Date: 2013–10
  10. By: Gustavo Bergantiños; Jordi Massó; Alejandro Neme
    Abstract: The division problem under constraints consists of allocating a given amount of an homogeneous and perfectly divisible good among a subset of agents with single- peaked preferences on an exogenously given interval of feasible allotments. We char- acterize axiomatically the family of extended uniform rules proposed to solve the division problem under constraints. Rules in this family extend the uniform rule used to solve the classical division problem without constraints. We show that the fam- ily of all extended uniform rules coincides with the set of rules satisfying efficiency, strategy-proofness, equal treatment of equals, bound monotonicity, consistency, and independence of irrelevant coalitions.
    Keywords: Division Problem, Single-peaked Preferences.
    JEL: D71
    Date: 2013–12–16
  11. By: Gong, Zheng; Tian, Feng; Xu, Boyan
    Abstract: We analyze a model in which agents’ decisions to enter or exit investments are influenced from their individual and external parties’ transaction histories. Actual investment outcomes are unknown to all participants until the end of decision periods, but outcomes do change depending on the number of participating players in the market and the market’s current state of condition. In this particular model, agents have access to external parties’ information from those who are within their specific social network. Our study of limited information aggregation mainly focuses on market responses to investors’ decisions of exiting the investment. With social structures complicating investment outcomes, we present a model that describes how markets can enter relatively stable statuses long enough for exiting participants to return, which brings the investment back to normal conditions. Our model also supports previous studies that limited information aggregation can cause the exogenous shock effect of global collapse.
    Keywords: Information aggregation, Social structure, Internet Externality, Simulation
    JEL: D83 D85
    Date: 2013–12–04
  12. By: Silvio Sticher
    Abstract: In a two-firm model where each firm sells a high-quality and a low-quality version of a product, customers differ with respect to their brand preferences and their attitudes towards quality. We show that the standard result of quality-independent markups crucially depends on the assumption that the customers' valuation of quality is identical across firms. Once we relax this assumption, competition across qualities leads to second-degree price discrimination. We find that markups on low-quality products are higher if consuming a low-quality product involves a firm-specific disutility. Likewise, markups on high-quality products are higher if consuming a high-quality product creates a firm-specific surplus.
    Keywords: price differentiation; vertical competition
    JEL: D43 L13 L15
    Date: 2013–12

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