nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒05‒09
five papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Too small to regulate By Basu, Kaushik; Dixit, Avinash
  2. Reciprocal Equilibria in Link Formation Games By Hannu Salonen
  3. Uncertainty Aversion and a Theory of Incomplete Contract By Chenghu Ma
  4. Subgame Perfect Equilibria in Discounted Stochastic Games By Mitri Kitti
  5. Crisp Fair Gambles By Éric André

  1. By: Basu, Kaushik; Dixit, Avinash
    Abstract: The paper argues that to achieve compliance of firms with regulations such as product quality or environmental or health standards it is better to have industries with a few large corporations than numerous small firms. A model is constructed to show that limited liability constraints bind more easily in competitive industries, making it harder to impose sufficiently severe penalties and costlier to send sufficient monitors. Having large corporations allows the government effectively to delegate some of its monitoring functions to the managers of the corporation. The tradeoff between this issue and the usual argument in favor of competition is considered.
    Keywords: Microfinance,Small Scale Enterprise,Regulatory Regimes,Public Sector Regulation,Public Sector Corruption&Anticorruption Measures
    Date: 2014–05–01
  2. By: Hannu Salonen (Department of Economics, University of Turku)
    Abstract: We study non-cooperative link formation games in which players have to decide how much to invest in relationships with other players. A link between two players is formed, if and only if both make a positive investment. The cost of forming a link can be interpreted as the opportunity cost of privacy. We analyze the existence of pure strategy equilibria and the resulting network structures with tractable specifications of utility functions. Sufficient conditions for the existence of reciprocal equilibria are given and the corresponding network structure is analyzed. Pareto optimal and strongly stable network structures are studied. It turns out that such networks are often complete.
    Keywords: link formation games, reciprocal equilibrium, complete network
    JEL: C72 D43
    Date: 2014–03
  3. By: Chenghu Ma
    Abstract: This paper is to provide a theoretical foundation of incomplete contract in an extensive game of multi-agent interaction. It aims to explain why rational agents may agree upon incomplete contracts even though it is costless to sign a complete one. It is argued that an incomplete contract creates strategic uncertainty. If agents' attitudes toward uncertainty are not neutral, then an incomplete contract as final solution can be the consequence of common knowledge of rationality. This paper assumes that all agents are uncertainty averse in a sense of Gilboa and Schmeidler (1989); and that agents can form coalitions as part of strategic play. All these are embedded into a newly proposed equilibrium solution concept for extensive form game of perfect information.
    Keywords: uncertainty aversion, strategic uncertainty, coalition-formation, stability and core-criterion.
    JEL: C70 C71 C72
    Date: 2013–10–14
  4. By: Mitri Kitti (Department of Economics, University of Turku)
    Abstract: This paper considers policies and payoffs corresponding to subgame perfect equilibrium strategies in discounted stochastic games with finitely many states. It is shown that a policy is induced by an equilibrium strategy if and only if it can be supported with the threat of reverting to the induced policy that gives the least equilibrium payoff for the deviator. It follows that the correspondence of subgame perfect equilibrium payoffs is the largest fixed-point of a correspondence-valued operator defined by the players’ incentive compatibility conditions. Moreover, the fixed-point iteration converges to the equilibrium payoff correspondence.
    Keywords: Subgame Perfect Equilibria in Discounted Stochastic Games
    JEL: C73
    Date: 2013–12
  5. By: Éric André
    Abstract: Axiomatic models of decision under ambiguity with a non-unique prior allow for the existence of Crisp Fair Gambles: acts whose expected utility is nul whichever of the priors is used. But, in these models, the DM has to be indifferent to the addition of such acts. Their existence is then at odds with a preference taking into account the variance of the prospects. In this paper we study some geometrical and topological properties of the set of priors that would rule out the existence of Crisp Fair Gambles, properties which have consequences on what can be an unambiguous financial asset.
    Keywords: monotone mean-variance preferences, Ambiguity, set of priors, crisp acts, unambiguous asset
    JEL: D81 G11
    Date: 2014–03–25

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