nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒01‒17
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Influence and Social Tragedy in Networks By Yann Rébillé; Lionel Richefort
  2. Endogenous Information Acquisition and Partial Announcement Policy By Hiroki Arato; Takeo Hori; Tomoya Nakamura
  3. Competing Auctions with Heterogeneous Goods By Cristian Troncoso-Valverde
  4. Second Degree Price Discrimination in a Market for Credence Goods By Dulleck, Uwe; Kerschbamer, Rudolf; Konovalov, Alexander
  5. Deliberation, leadership and information aggregation By Javier Rivas; Carmelo Rodríguez-Álvarez
  6. Revealed preferences for diamond goods By Sam COSAERT
  7. Regular economies with ambiguity aversion By Noé Biheng; Jean-Marc Bonnisseau
  8. Rent-seeking contests with private values and common knowledge about the mean By Andrea Gallice
  9. Financial Experts, Asset Prices and Reputation By Rudiger, Jesper; Vigier, Adrien
  10. Competition and Cooperation in Network Games By Konovalov, Alexander
  12. On the impossibility of insider trade in rational expectations equilibria By Alexander Zimper
  13. Signaling about norms: Socialization under strategic uncertainty By Fabrizio Adriani; Silvia Sonderegger
  14. Coalitional Fairness: The Case of Exact Feasibility with Asymmetric Information By Bhowmik, Anuj
  15. Welfare Improving Discrimination based on Cognitive Limitations By Oktay Sürücü
  16. Not so demanding: Preference structure, firm behavior, and welfare By Peter Neary; Monika Mrazova
  17. Consumption habits and humps By Kraft, Holger; Munk, Claus; Seifried, Frank Thomas; Wagner, Sebastian
  18. Game-theoretic foundations of monetary equilibrium By Camera, Gabriele; Gioffré, Alessandro

  1. By: Yann Rébillé (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Lionel Richefort (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: We model agents in a network game of strategic complements and negative externalities. Sufficient conditions for the existence of a unique Nash equilibrium and of a unique social optimum are established. Under these conditions, we find that players with more vulnerable locations in the network exert more effort at equilibrium, and that the most influential players should exert less effort at efficiency. We then find structural conditions under which each player exerts strictly more effort than her efficient level, whether the social optimum be interior or not.
    Keywords: Network; strategic complements; equilibrium; efficiency; social tragedy.
    Date: 2014–01–06
  2. By: Hiroki Arato; Takeo Hori; Tomoya Nakamura
    Abstract: We extend the model of Cornand and Heinemann (2008, Economic Journal) and examine how to implement partial announcement by selling public information when the agents' action is strategic complements. In a game of information acquisition, there exist multiple equilibria and the partial announcement equilibrium is unstable if the authorities sell public information at a constant price. However, if the authorities offer an increasing pricing rule, partial announcement equilibrium is stable and implementable.
    Date: 2014–01
  3. By: Cristian Troncoso-Valverde (Facultad de Economía y Empresa, Universidad Diego Portales)
    Abstract: This paper studies a model of competing auctions in which bidders attach different valuations to the items offered by sellers. We provide a novel characterization of the set of (symmetric) participation rules used by bidders and show that contrary to models with homogeneous goods, heterogeneity rules out randomization when bidders choose trading partners. We also show that changes in some reserve price alter the participation decision of every buyer regardless of her valuation of the item. This implies that such changes not only affect the distribution of valuations of those buyers participating in a given auction but also modify the probability with which every buyer visits the auctions.
    Date: 2013–12
  4. By: Dulleck, Uwe (QUT School of Economics and Finance); Kerschbamer, Rudolf (Dept of Economics, University of Innsbruck and CEPR); Konovalov, Alexander (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This article studies second-degree price-discrimination in markets for credence goods. Such markets are affected by asymmetric informationbecause expert sellers are better informed than their customers about the quality that yields the highest surplus from trade. We show that discrimination regards the amount of advice offered to customers and that it leads to a different equilibrium distortion depending on the main source of heterogeneity among consumers. If consumers differ mainly in the expected cost needed to generate consumer surplus, the inefficiency occurring at the bottom of the type distribution involves overprovision of quality. By contrast, if consumers differ in the surplus generated whenever the consumer’s needs are met, the inefficiency involves underprovision of quality.
    Keywords: Price Discrimination; Credence Goods; Experts; Discounters; Distribution Channels
    JEL: D40 D82 L15
    Date: 2014–01
  5. By: Javier Rivas (Department of Economics, University of Bath); Carmelo Rodríguez-Álvarez (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa) (Department of Foundations of Economic Analysis II (Quantitative Economics)), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid))
    Abstract: We analyse committees of voters who take a decision between two options as a two- stage process. In a discussion stage, voters share non-verifiable information about a private signal concerning what is the best option. In a voting stage, votes are cast and one of the options is implemented. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study information transmission and characterize the effects of the leader on the deliberation process. We find, amongst others, that both the quality of the decision taken by the committee and how truthful voters are at the discussion stage depends non-monotonically on how influential the leader is. In particular, although a leader whose influence is weak does not disrupt the decision process of the committee in any way, a very influential leader is less disruptive than a moderately influential leader.
    Keywords: Committees, Information Aggregation, Leadership, Voting
    JEL: D71 D72 D82
    Date: 2013–11–19
  6. By: Sam COSAERT
    Abstract: When consumers do not only care for the intrinsic consumption component of commodities but also for the value of a commodity, it can be rational to purchase products as they become more expensive. Standard revealed preference conditions are however unable to take diamond effects into account. We develop a theoretical model and the associated revealed preference conditions to analyze commodities with different degrees of diamondness. On the basis of real consumer data from the Russian Longitudinal Monitoring Survey, we test the empirical performance of different models with and without diamond effects. It turns out that allowing for diamond effects improves the predictive success of the models. We also link the newly identified diamondness weights to the visibility of commodities. The results suggest that visible goods are more likely to induce diamond effects.
    Date: 2013–12
  7. By: Noé Biheng (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); Jean-Marc Bonnisseau (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 family of exchange economies where consumers have multiprior preferences representing their ambiguity aversion. Under a linear independence assumption, we prove that regular economies are generic. Regular economies exhibit enjoyable properties: odd finite number of equilibrium prices, local constancy of this number and local differentiable selections of the equilibrium prices. Thus, even if ambiguity aversion is represented by non-differentiable multiprior preferences, economies retain generically the properties of the differentiable approach.
    Keywords: Demand function; general equilibrium; ambiguity aversion; multiprior preferences; regular economies; Lipschitz behavior
    Date: 2013–12
  8. By: Andrea Gallice (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: We study a rent-seeking contest in which players have heterogeneous and private valuations. In addition to their own type, agents only know that all valuations are drawn from a distribution, of which they only know the mean. We obtain a closed-form solution for agents' optimal level of investment and subject it to comparative statics analysis. We also investigate the issue of entry in the game and the amount of rent dissipation that results in equilibrium. Finally, we compare our results with those that would emerge in a context of perfect information.
    Keywords: rent-seeking, contests, private information, imperfect information
    JEL: D72 D82
    Date: 2013–12
  9. By: Rudiger, Jesper; Vigier, Adrien
    Abstract: We analyze how financial experts influence asset prices in a sequential trading model. In the model, an expert of unknown ability sends a report about asset values to traders, who then observe a signal about the expert's type. All information about the expert's ability is private to traders and only revealed through trades. When the expert's reputation is sufficiently high, traders ignore their private signal about ability and the market enters a reputational cascade in which no information about the expert reaches the market. Reputational cascades are conducive to asset price bubbles, which eventually result in market crashes when cascades terminate. Rather than being caused by the release of new information, market crashes in our model result from the sudden depreciation of past accumulated information. Finally, we show that reputational cascades are bad for liquidity and induce high price volatility.
    Keywords: Informational Cascades; Experts; Reputation; Asset Price Bubbles
    JEL: D82 D83 D84 G14 G20
    Date: 2013–11–28
  10. By: Konovalov, Alexander (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We consider games where agents are embedded in a network of bilateral relationships and have multivariate strategy sets. Some components of their strategies correspond to individual activities, while the other strategic components are related to joint activities and interaction with the partners. We introduce several new equilibrium concepts that account for the possibility that players act competitively in individual components of their strategy but cooperate on the components corresponding to joint activity or collaboration. We apply these concepts to the R&D collaboration networks model where firms engage in bilateral joint projects with other firms. The analysis shows that investments are highest under bilateral cooperation and lowest under full cooperation because the spillovers associated to bilateral collaboration are bound to the partnership. This leads to welfare being maximized under bilateral collaboration when there are a few firms in the market and under non-cooperation in markets with many firms; full cooperation is never social welfare maximizing. Investigating the issue of endogenous network formation, we find that bilateral cooperation increases (lowers) the profits of more (less) connected firms. However, this does not always lead to a denser stable network of R&D collaboration under bilateral cooperation.
    Keywords: network games; bilateral cooperation; hybrid equilibrium; R&D collaboration networks
    JEL: L13 L14 L22 O31 O32
    Date: 2014–01
  11. By: Kiyohiko G. Nishimura (The University of Tokyo); Hiroyuki Ozaki (Keio Universityo)
    Abstract: We consider an infinite-horizon model of a risk-neutral fund-manager who contemplates in each period whether or not to make an irreversible investment which, if made, generates some return under a stochastic environment. Here, the fund-manager evaluates uncertainty by the Choquet expected utility with respect to a convex capacitary kernel and hence she exhibits uncertainty aversion. We provide the exact solution to this problem and show that it takes the form of a reservation strategy: There exists the reservation function such that if the current return exceeds the value of this function, the fund-manager should invest all the money subject to a cash-in-advance constraint; if it does not, she should not make any investment. We also conduct some sensitivity analyses to show that if risk increases in the sense of mean-preserving spread, then the reservation function is raised and that if uncertainty increases in the sense that the set of priors expands, then the reservation function is lowered.
    Date: 2014–01
  12. By: Alexander Zimper (Department of Economics, University of Pretoria)
    Abstract: Existing no trade results are based on the common prior assumption (CPA). This paper identifies a strictly weaker condition than the CPA under which speculative trade is impossible in a rational expectations equilibrium (REE). As our main finding, we demonstrate the impossibility of speculative asset trade in an REE whenever an insider is involved who knows the asset's true value. To model insider trade as an equilibrium phenomenon an alternative equilibrium concept than the REE is thus required.
    Keywords: Levin-Coburn Report, Goldman Sach, Insider Trade, Rational Expectations
    JEL: D51 D53 G02
    Date: 2013–12
  13. By: Fabrizio Adriani (Department of Economics, University of Leicester); Silvia Sonderegger (School of Economics, University of Nottingham)
    Abstract: We consider a society with informed individuals (adults) and naive individuals (children). Adults are altruistic towards their own children and possess information that allows to better predict the behavior of other adults. Children benefit from adopting behaviors that conform to the social norm determined by aggregate adult behavior, but, lacking accurate information, have to rely on the observed behavior of their adult parent to infer the norm. We show that this causes a signaling distortion in adult behavior. Compared to the benchmark case of no signaling, parents have a higher propensity to adopt attitudes that encourage their children to behave in a socially safe way, i.e. the way which would be optimal under maximum uncertainty about the prevailing social norm. This distortion is different in nature from the typical distortion due to a conflict of interest between sender and receiver in standard signaling games. The norm-signaling bias is self-reinforcing and might lead both to (Pareto) superior and inferior outcomes relative to the case of no signaling. We discuss applications to sexual attitudes, collective reputation, and trust.
    Keywords: Signaling, Norms, Strategic Uncertainty, Complementarities, Coordination Games, Socialization.
    Date: 2013–11
  14. By: Bhowmik, Anuj
    Abstract: Consider a pure exchange economy with asymmetric information. The space of agents is a mixed measure space and the commodity space is an ordered Banach space whose positive cone has an interior point. The concept of coalitional fairness introduced in [9] is examined in the framework of asymmetric information. It is shown that the private core is contained in the set of privately coalitionally fair allocations under some assumptions. This result provides an extension of Theorem 2 in [9] to an asymmetric information economy with infinitely many commodities.
    Keywords: Asymmetric information economy; Coalitional fairness; Private core
    JEL: D51 D82
    Date: 2014–01–08
  15. By: Oktay Sürücü (Center for Mathematical Economics, Bielefeld University)
    Abstract: This paper is concerned with the situation in which a profit-maximizing monopolist faces consumers that are diverse not only in their preferences but also in their levels of bounded rationality. The behavioral phenomenon considered here is the attraction effects when choices are made across categories. Using the standard second-degree price discrimination model, the optimal menu of contracts that screens consumers' types is characterized. The benefit of discriminating consumers based on their preference and cognitive limitation is always higher than its cost. In other words, the monopolist can exploit consumers and increase his profit with this contract. The model provides a possible explanation for the apparent puzzle why one may observe that the same quality products are priced differently under different labels. Moreover, this contract is welfare improving.
    Keywords: bounded rationality, attraction effect, contract design, welfare
    JEL: D03 D42 D60 D82 D86
    Date: 2013–12
  16. By: Peter Neary; Monika Mrazova
    Abstract: We introduce two new tools for relating preferences and demand to firm behavior and economic performance.� The "Demand Manifold" links the elasticity and convexity of an arbitrary demand function; the "Utility Manifold" links the elasticity and concavity of an arbitrary utility function.� Along the way we present some new families of demand functions; show how the structure of demand and preferences determine the responses of monopoly firms and monopolistically competitive industries to exogenous shocks; characterize the efficiency of a�monopolistically competitive equilibrium; and present a quantitative framework for predicting the welfare effects of exogenous shocks.
    Keywords: Heterogeneous Firms, Quantifying Gains from Trade, Super- and Sub-Convexity, Supermodularity
    JEL: F23 F15 F12
    Date: 2013–12–31
  17. By: Kraft, Holger; Munk, Claus; Seifried, Frank Thomas; Wagner, Sebastian
    Abstract: We show that the optimal consumption of an individual over the life cycle can have the hump shape (inverted U-shape) observed empirically if the preferences of the individual exhibit internal habit formation. In the absence of habit formation, an impatient individual would prefer a decreasing consumption path over life. However, because of habit formation, a high initial consumption would lead to high required consumption in the future. To cover the future required consumption, wealth is set aside, but the necessary amount decreases with age which allows consumption to increase in the early part of life. At some age, the impatience outweighs the habit concerns so that consumption starts to decrease. We derive the optimal consumption strategy in closed form, deduce sufficient conditions for the presence of a consumption hump, and characterize the age at which the hump occurs. Numerical examples illustrate our findings. We show that our model calibrates well to U.S. consumption data from the Consumer Expenditure Survey. --
    Keywords: Consumption hump,life-cycle utility maximization,habit formation,impatience
    JEL: D91 D11 D14
    Date: 2013
  18. By: Camera, Gabriele; Gioffré, Alessandro
    Abstract: Monetary theorists have advanced an intriguing notion: we exchange money to make up for a lack of enforcement, when it is difficult to monitor and sanction opportunistic behaviors. We demonstrate that, in fact, monetary equilibrium cannot generally be sustained when monitoring and punishment limitations preclude enforcement - external or not. Simply put, monetary systems cannot operate independently of institutions - formal or informal - designed to monitor behaviors and sanction undesirable ones. This fundamental result is derived by integrating monetary theory with the theory of repeated games, studying monetary equilibrium as the outcome of a matching game with private monitoring. --
    Keywords: Social norms,repeated games,cooperation,payment systems
    JEL: E4 E5 C7
    Date: 2013

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