nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒03‒08
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Extremal Information Structures in the First Price Auction By Dirk Bergemann; Benjamin A. Brooks; Stephen Morris
  2. Truthful Equilibria in Dynamic Bayesian Games By Johannes Horner; Satoru Takahashi; Nicolas Vieille
  3. Gaming and Strategic Opacity in Incentive Provision By Florian Ederer; Richard Holden; Margaret A. Meyer
  4. Incomplete Contracting, Renegotiation, and Expectation-Based Loss Aversion By Herweg, Fabian; Karle, Heiko; Müller, Daniel
  5. Efficiency in repeated games with local interaction and uncertain local monitoring By Francesco Nava; Michele Piccione
  6. Career Concerns and Market Structure By Alessandro Bonatti; Johannes Horner
  7. The Role of Commitment in Bilateral Trade By Dino Gerardi; Johannes Horner; Lucas Maestri
  8. Optimal Compatibility in Systems Markets By Sang-Hyun Kim; Jay Pil Choi
  9. On the relationship between individual and group decisions By Joel Sobel
  10. Kantian Optimization: An Approach to Cooperative Behavior By John E. Roemer
  11. Endogenous Enforcement Institutions By Gani Aldashev; Giorgio Zanarone
  12. Fishing for Excuses and Performance Evaluation By François Larmande; Jean-Pierre Ponssard

  1. By: Dirk Bergemann; Benjamin A. Brooks; Stephen Morris
    Date: 2014–02–24
  2. By: Johannes Horner; Satoru Takahashi; Nicolas Vieille
    Date: 2014–02–24
  3. By: Florian Ederer; Richard Holden; Margaret A. Meyer
    Date: 2014–02–24
  4. By: Herweg, Fabian; Karle, Heiko; Müller, Daniel
    Abstract: We consider a simple trading relationship between an expectation-based loss-averse buyer and profit-maximizing sellers. When writing a long-term contract the parties have to rely on renegotiations in order to ensure materially efficient trade ex post. The type of the concluded long-term contract affects the buyer’s expectations regarding the outcome of renegotiation. If the buyer expects renegotiation always to take place, the parties are always able to implement the materially efficient good ex post. It can be optimal for the buyer, however, to expect that renegotiation does not take place. In this case, a good of too high quality or too low quality is traded ex post. Based on the buyer’s expectation management, our theory provides a rationale for “employment contracts†in the absence of non-contractible investments. Moreover, in an extension with non-contractible investments, we show that loss aversion can reduce the hold-up problem.
    Keywords: Behavioral Contract Theory; Expectation-Based Loss Aversion; Incomplete Contracts; Renegotiation
    JEL: C78 D03 D86
    Date: 2014–02–13
  5. By: Francesco Nava; Michele Piccione
    Abstract: The paper discusses community enforcement in infinitely repeated, two-action games with local interaction and uncertain monitoring. Each player interacts with and observes only a fixed set of opponents, of whom he is privately informed. the main result shows that when beliefs about the monitoring structure have full support, efficiency can be sustained with sequential equilibria that are independent of the players' beliefs. Stronger results are obtained when only acyclic monitoring structures are allowed or players have unit discount rates. These equilibria satisfy numerous robustness properties.
    JEL: J1
    Date: 2012–11
  6. By: Alessandro Bonatti; Johannes Horner
    Date: 2014–02–24
  7. By: Dino Gerardi; Johannes Horner; Lucas Maestri
    Date: 2014–02–24
  8. By: Sang-Hyun Kim (University of East Anglia); Jay Pil Choi (University of New South Wales)
    Abstract: We analyze private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. It is shown that there is a fundamental conflict of interest between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers better match with their ideal specifications. However, firms are likely to choose the minimum compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility. We also characterize the free-entry equilibria under the maximum and the minimum compatibility. With free entry, more firms enter without standardization, but the number of available system variety is less than the one under standardization.
    Date: 2014–02
  9. By: Joel Sobel
    Date: 2014–02–24
  10. By: John E. Roemer
    Date: 2014–02–24
  11. By: Gani Aldashev (Center for Research in the Economics of Development, University of Namur and ECARES, ULB); Giorgio Zanarone (Colegio Universitario de Estudios Financieros (CUNEF))
    Abstract: We model the State as a self-enforcing agreement over the use of force. A principal contracts with an agent, and a powerful ruler enforces their contracts through a mix of monetary fines and coercion. If the ruler fails to enforce, or if he uses his power to expropriate, all parties revert to low production forever after. Our model has two important implications. First, a better coercion technology moves the optimal system from private ordering, where contracts are enforced by the threat of termination, to the State, where they are enforced by the threat of coercion. This is consistent with the historical correlation between improvements in coercion and the transition from the Law Merchant enforcement system to the State. Second, contract enforcement and non-expropriation are complementary inputs in the State, in the sense that improvements in the enforcement technology increase the agents effort only if the ruler has limited expropriation power, so that the rulers incentive constraint on contractual enforcement is binding. This result relates to the Acemoglu and Johnson (2005) finding that constraints on rulers have affected the development of nations more than improvements in contractual enforcement. Using their data we find that, consistent with our model, contractual enforcement does affect development, but only when the rulers expropriation power is sufficiently constrained.
    Keywords: Enforcement, Punishment, Coercive power, Relational contracts, State
    JEL: D23 K42 P37
    Date: 2014–01
  12. By: François Larmande; Jean-Pierre Ponssard
    Abstract: We study a principal-agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing case requires time, time that is not spent on exerting productive effort, and thus generating information represents an opportunity cost. We obtain necessary and sufficient conditions for the principal to prefer a policy of adjusting ex post the performance measure for the information provided by the agent to a policy of conforming to a result-based system with no adjustments. The risk aversion and a possible limited liability of the agent play an important role in the analysis. This paper clarifies the issues associated with the so-called “excuse culture” prevailing in some organizations.
    Keywords: performance measurement, manipulation, controllability principle, excuse culture, influence activity
    JEL: D82 M41 M52
    Date: 2014

This nep-mic issue is ©2014 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.