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on Microeconomics |
| By: | Nicola Gennaioli; Enrico Perotti; Giacomo Ponzetto |
| Abstract: | We model the effect of contract standardization on the development of markets and the law. In a setting in which biased judges can distort contract enforcement, we find that the introduction of a standard contract reduces enforcement distortions relative to reliance on precedents, exerting two effects: i) it statically expands the volume of trade, but ii) it crowds out the use of open-ended contracts, hindering legal evolution. We shed light on the large-scale commercial codification undertaken in the nineteenth century in many countries (even common-law ones) during a period of booming commerce and long-distance trade. |
| Keywords: | contracting, standardization, inequality, legal evolution |
| JEL: | K12 K41 G3 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:747&r=mic |
| By: | Rose-Anne Dana (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Franck Riedel (Center for mathematical economics - Universität Bielefeld (GERMANY)) |
| Abstract: | We study a dynamic and infinite-dimensional model with incomplete multiple prior preferences. In interior efficient allocations, agents share a common risk-adjusted prior and subjective interest rate. Interior efficient allocations and equilibria coincide with those of economies with subjective expected utility and priors from the agentsʼ multiple prior sets. A specific model with neither risk nor uncertainty at the aggregate level is considered. Risk is always fully insured. For small levels of ambiguity, there exists an equilibrium with inertia where agents also insure fully against Knightian uncertainty. When the level of ambiguity exceeds a critical threshold, full insurance no longer prevails and there exist equilibria with inertia where agents do not insure against uncertainty at all. We also show that equilibria with inertia are indeterminate. |
| Keywords: | Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00927170&r=mic |
| By: | Ahnert, Toni (Bank of Canada); Bertsch, Christoph (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | A successful speculative attack against one currency is a wake-up call for speculators elsewhere. Currency speculators have an incentive to acquire costly information about exposures across countries to infer whether their monetary authority's ability to defend its currency is weakened. Information acquisition per se increases the likelihood of speculative currency attacks via heightened strategic uncertainty among speculators. Contagion occurs even if speculators learn that there is no exposure. Our new contagion mechanism offers a compelling explanation for the 1997 Asian currency crisis and the 1998 Russian crisis, both of which spread across countries with seemingly unrelated fundamentals and limited interconnectedness. The proposed contagion mechanism applies generally in global coordination games and can also be applied to bank runs, sovereign debt crises, and political regime change. |
| Keywords: | contagion; coordination failure; global games; information acquisition |
| JEL: | C70 D82 F31 G01 |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0282&r=mic |
| By: | Amihai Glazer (Department of Economics, University of California-Irvine) |
| Abstract: | Consider an organization that solicits private contributions, which will partly be used to provide a public good. The organization's goals is to maximize its profits, namely the difference between aggregate contributions and the amount it spends on providing the public good. An equilibrium exists in which many persons contribute, each contributor enjoys zero consumer surplus from contributing, and the organization takes as a profit the contributions of all but one donor. Such behavior by the organization is consistent with incomplete crowding out of governmental grants. Furthermore, when the organization is constrained to spend at least fraction of all contributions on the public good, it can have an incentive to produce inefficiently. |
| Keywords: | Non-profit; Public good; Private provision; Philanthropy |
| JEL: | D64 H41 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:131404&r=mic |
| By: | Kvaløy, Ola (UiS Business School, University of Stavanger); Olsen, Trond E. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | This paper analyses and compares optimal relational contracts between a principal/firm and a set of agents when (a) only aggregate output can be observed, and (b) individual outputs can be observed. We show that the optimal contract under (a) is a team incentive scheme where each agent is paid a maximal bonus for aggregate output above a threshold and a minimal (no) bonus otherwise. The team’s efficiency decreases with its size (number of agents) when outputs are non-negatively correlated, but may increase considerably with size if outputs are negatively correlated. In the case where individual output can be observed, we show that the optimal contract is a tournament scheme where the conditions for an agent to obtain the (single) bonus are stricter for negatively compared to positively correlated outputs. We finally show that if agents have bargaining power, firms may deliberately choose to organize production as a team where only aggregate output is observable. The team alternative is more likely to be superior under negatively correlated outputs. |
| Keywords: | Relational Contracts; team incentive scheme; tournament |
| JEL: | D00 D20 D21 D80 D86 |
| Date: | 2013–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2013_013&r=mic |
| By: | Stovall, John (University of Warwick) |
| Abstract: | We model a decision maker who anticipates being a ected by temptation but is also uncertain about what is normatively best. Our model is an extended version of Gul and Pesendorfer's (2001) where there are three time periods: in the ex-ante period the agent chooses a set of menus, in the interim period she chooses a menu from this set, and in the nal period she chooses from the menu. We posit axioms from the ex-ante perspective. Our main axiom on preference states that the agent prefers to have the option to commit in the interim period. Our representation is a generalization of Dekel et al.'s (2009) and identi es the agent's multiple normative preferences and multiple temptations. We also characterize the uncertain normative preference analogue to the representation in Stovall (2010). Finally, we characterize the special case where normative preference is not uncertain. This special case allows us to uniquely identify the representations of Dekel et al. (2009) and Stovall (2010). Key words: JEL classification: |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1036&r=mic |
| By: | Cox, Caleb |
| Abstract: | I show how improper conditioning of beliefs can lead to under-contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naive players who condition expectations only on their private information contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, subjects indeed under-contribute relative to equilibrium. Using modified games with different belief conditioning effects, I verify that under-contribution is due to improper belief conditioning. I find little evidence of learning over multiple rounds of play. |
| Keywords: | Public goods; experiments; cursed equilibrium; game theory |
| JEL: | C72 C92 D71 H41 |
| Date: | 2014–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53074&r=mic |
| By: | Andrea Attar; Eloisa Campioni; Gwenaël Piaser |
| Abstract: | In the present note, we show that a weak restriction on out of equilibrium beliefs allows to extend the Revelation Principle to exclusive agency games, even if we consider mixed strategy equilibria. Next, we argue that this result does not extend to games with several agents, even if we restrict the analysis to pure strategy equilibria. |
| Keywords: | Competing Mechanisms, Exclusive Contracts, Incomplete Information, Participation decision |
| JEL: | D82 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201407&r=mic |
| By: | Marco A. Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Paolo Polidori (University of Urbino); Desiree Teobaldelli (University of Urbino); Davide Ticchi (IMT Institute for Advanced Studies Lucca) |
| Abstract: | One of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a modified version of the Holmstrom and Milgrom's (1987) framework, we obtain that lower agent's risk aversion unambiguously leads to higher incentives when the technology function linking efficiency and riskiness is elastic, while the risk aversion-incentive relationship can be positive when this function is rigid |
| Keywords: | principal-agent; incentives; risk aversion; endogenous technology |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:aeg:report:2014-1&r=mic |
| By: | Gwenaël Piaser |
| Abstract: | It is argued that the revelation principle in multi-principal multi-agent games cannot be generalized. In other words, one cannot restrict attention to incentive compatible mechanisms, even if the concept of information is enlarged. |
| Keywords: | Direct Mechanisms, Incentive compatible, Multiprincipals. |
| JEL: | D82 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201408&r=mic |
| By: | Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Clotilde Napp (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Diego Nocetti (Clarkson University - Clarkson University) |
| Abstract: | We study comparative statics of Nth-degree risk increases within a large class of problems that involve bidimensional payoffs and additive or multiplicative risks. We establish necessary and sufficient conditions for unambiguous impact of Nth-degree risk increases on optimal decision making. We develop a simple and intuitive approach to interpret these conditions : novel notions of directional Nth-degree risk aversion that are characterized via preferences over lotteries. |
| Keywords: | Comparative statics, Nth degree risk increases, Risk disaggregation |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00927270&r=mic |
| By: | Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Clotilde Napp (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Diego Nocetti (CIMS - Courant Institute of Mathematical Science - New York University) |
| Abstract: | In this paper we extend the theory of precautionary saving to the case in which uncertainty is multidimensional and we develop a matrix-measure of multivariate prudence. Furthermore, we characterize comparative prudence, decreasing and increasing prudence, the effect of uncertainty on the marginal propensity to consume out of wealth, and the Drèze-Modigliani substitution effect in this multivariate setting. We also characterize the concept of multivariate downside risk aversion as a multivariate preference for harm disaggregation. We show that our definition is equivalent to a positive precautionary saving motive. We propose an alternative measure of the intensity of downside risk aversion and show that this measure is useful in understanding several economic problems that involve multivariate preferences. |
| Keywords: | matrix-measure, multivariate prudence, comparative prudence, multivariate downside risk aversion, downside risk aversion, multivariate preferences |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00635558&r=mic |
| By: | Carlos da Costa (Fundação Getulio Vargas) |
| Abstract: | We study optimal taxation in a dynamic Mirrlees' incentive structure where both aggregate and idiosyncratic risks are present. When aggregate shocks are i.i.d., we characterize the steady-state of our economy and prove the existence of an invariant distribution of expected utilities, which is non-degenerate thanks to the perpetual youth we assume. We show that consumption and income shares of each cohort are invariant to the aggregate state. In contrast, when aggregate shocks are persistent, efficient allocations display history dependence, and no invariant distribution needs to exist. We provide a particular example in which it does not exist and one in which it does. In the latter case, the particular distribution at which a society settles depends on the whole history of aggregate shocks. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:788&r=mic |
| By: | Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Paul Karehnke (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Clotilde Napp (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine) |
| Abstract: | We revisit the model proposed by Gollier and Muermann (see Gollier, C. and A. Muermann, 2010, Optimal choice and beliefs with exante savoring and ex-post disappointment, Management Sci., 56, 1272-1284, hereafter GM). In GM, for a given lottery, agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed. We rather propose sets of possible anticipations which are endogenously determined. This permits to compare and evaluate in a consistent manner lotteries with different supports and to revisit the portfolio choice problem. We obtain new conclusions and interesting insights. Our extended model can rationalize a variety of empirically observed puzzles like a positive demand for assets with negative expected returns, preference for skewed returns and under-diversification of portfolios. |
| Keywords: | endogenous beliefs; anticipatory feelings; disappointment; optimism; portfolio choice; skewness; under-diversification |
| Date: | 2013–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00927267&r=mic |
| By: | Maximilian Conze; Michael Kramm |
| Abstract: | Hotelling’s famous "Principle of Minimum Differentiation" suggests that two firms engaging in spatial competition will decide to locate at the same place. Interpreting spatial competition as modeling product differentiation, firms will thus offer products that are not differentiated and equally share the market demand. We extend (a fixed price version of) Hotelling’s model by introducing sequential consumer purchases and a second dimension of variation of the goods, quality. Consumers have differential information about the qualities of the goods and uninformed consumers observe the decision of their predecessors. With this extension a rationale for differentiating products emerges: Differentiation makes later consumers’ inference from earlier consumers’ purchases more informative, so that firms are confronted with two offsetting effects. On the one hand, differentiating one’s product decreases the likelihood that it is bought in earlier periods, but on the other hand, by making inference more valuable, it increases the likelihood that later consumers buy the differentiated good. We show that the second effect, the recommendation effect, can dominate, leading to an equilibrium with differentiated products. Our model thus introduces an aspect similar to the herding literature in that consumers might base their decisions on observable actions of others and thus potentially on "wrong" decisions. |
| Keywords: | Hotelling; herding; principle of minimum differentiation; consumer learning |
| JEL: | L13 L15 D83 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0460&r=mic |
| By: | David K Levine; Salvatore Modica |
| Date: | 2014–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:786969000000000864&r=mic |
| By: | Guillaume Carlier (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Rose-Anne Dana (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine) |
| Abstract: | An exchange economy in which agents have convex incomplete preferences defined by families of concave utility functions is considered. Sufficient conditions for the set of efficient allocations and equilibria to coincide with the set of efficient allocations and equilibria that result when each agent has a utility in her family are provided. Welfare theorems in an incomplete preferences framework therefore hold under these conditions and efficient allocations and equilibria are characterized by first order conditions. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00661903&r=mic |
| By: | R.A Dana; C. Le Van |
| Abstract: | This article reconsiders the theory of existence of efficient allocations and equilibria when consumption sets are unbounded below under the assumption that agents have incomplete preferences. It is motivated by an example in the theory of assets with short-selling where there is risk and ambiguity. Agents have Bewley’s incomplete preferences. As an inertia principle is assumed in markets, equilibria are individually rational. It is shown that a necessary and sufficient for existence of an individually rational efficient allocation or of an equilibrium is that the relative interiors of the risk adjusted sets of probabilities intersect. The more risk averse, the more ambiguity averse the agents, the more likely is an equilibrium to exist. The paper then turns to incomplete preferences with concave multi-utility representations. Several definitions of efficiency and of equilibrium with inertia are considered. Sufficient conditions and necessary and sufficient conditions are given for existence of efficient allocations and equilibria with inertia. |
| Keywords: | Uncertainty, risk, risk adjusted prior, no arbitrage, equilibrium with short-selling, incomplete preferences, equilibrium with inertia. |
| JEL: | C62 D50 D81 D84 G1 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201420&r=mic |
| By: | Ken Urai (Graduate School of Economics, Osaka University); Akihiko Yoshimachi (Department of Commerce, Doshisha University); Kohei Shiozawa (Graduate School of Economics, Osaka University) |
| Abstract: | In this paper, we investigate a new concept of a market's commodity-information structure (a partition of the set of real goods that are treated as one commodity for market exchanges) and technologies relat- ing to it, commodity-information technologies. Using this concept, we can always affirmatively answer the market viability problem, concerning the existence of general equilibrium even when information asymmetry among agents such as adverse selection prevails in the economy. Some Pareto-optimality problems and policy implications are also discussed. |
| Keywords: | General Equilibrium Model, Asymmetric Information, Adverse Selection, Market Via- bility Problem, Commodity-information Structure |
| JEL: | C62 D51 D82 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1402&r=mic |
| By: | Francoise Forges (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Vincent Iehlé (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine) |
| Abstract: | According to a minimalist version of Afriat's theorem, a consumer behaves as a utility maximizer if and only if a feasibility matrix associated with his choices is cyclically consistent. An essential experiment consists of observed consumption bundles (x_1,..., x_n) and a feasibility matrix \alpha. Starting with a standard experiment, in which the economist has access to precise budget sets, we show that the necessary and sufficient condition for the existence of a utility function rationalizing the experiment, namely, the cyclical consistency of the associated feasibility matrix, is equivalent to the existence, for any budget sets compatible with the deduced essential experiment, of a utility function rationalizing them (and typically depending on them). In other words, the conclusion of the standard rationalizability test, in which the economist takes budget sets for granted, does not depend on the full specification of the underlying budget sets but only on the essential data that these budget sets generate. Starting with an essential experiment (x_1,..., x_n; alpha) only, we show that the cyclical consistency of alpha, together with a further consistency condition involving both (x_1,..., x_n) and alpha, guarantees the existence of a budget representation and that the essential experiment is rationalizable almost robustly, in the sense that there exists a single utility function which rationalizes at once almost all budget sets which are compatible with (x_1,..., x_n; alpha). The conditions are also trivially necessary. |
| Keywords: | Afriat's theorem, budget sets, cyclical consistency, rational choice, revealed preference |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00727806&r=mic |
| By: | Dahm, Matthias; Glazer, Amihai, |
| Abstract: | This paper models a legislature in which the same agenda setter serves for two periods, showing how he can exploit a legislature (completely) in the first period by promising future benefits to legislators who support him. In equilibrium, a large majority of legislators vote for the first-period proposal because they thereby maintain the chance of belonging to the minimum winning coalition in the future. Legislators may therefore approve policies by large majorities, or even unanimously, that benefit few, or even none, of them. The results are robust; but institutional arrangements (such as entitlements) can reduce the agenda setter's power by reducing his discretion to reward and punish legislators, and rules (such as sequential voting) can increase a legislator's ability to resist exploitation. Keywords: Legislative bargaining, distributive politics, agenda-setting, proposal power. JEL C72, D72, D78. |
| Keywords: | Jocs no-cooperatius (Matemàtica), 32 - Política, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/222199&r=mic |