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on Microeconomics |
| By: | Domenico Menicucci; Sjaak Hurkens; Doh-Shin Jeon |
| Abstract: | This paper considers a monopolist selling two objects to a single buyer with privately observed valuations. We prove that if each buyer’s type has a non-negative virtual valuation for each object, then the optimal price schedule is such that the objects are sold only in a bundle; weaker conditions suffice if valuations are independently and identically distributed. Under somewhat stronger conditions, pure bundling is the optimal sale mechanism among all individually rational and incentive compatible mechanisms. |
| Keywords: | monopoly pricing, price discrimination, multi-dimensional mechanism design, pure bundling |
| JEL: | D42 D82 L11 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:771&r=mic |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Alex Smolin (Dept. of Economics, Yale University) |
| Abstract: | A monopolist sells informative experiments to heterogeneous buyers. Buyers differ in their prior information, and hence in their willingness to pay for additional signals. The monopolist can profitably offer a menu of experiments. We show that, even under costless information acquisition and free degrading of information, the optimal menu is quite coarse. The seller offers at most two experiments, and we derive conditions under which at vs. discriminatory pricing is optimal. |
| Keywords: | Experiments, Mechanism design, Price discrimination, Product differentiation, Selling information |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1952&r=mic |
| By: | Philippe Aghion; Matthew Jackson |
| Abstract: | In this paper we analyze the problem of whether and/or when to replace a leader (agent) when no monetary rewards are available, and it is the leader's competence rather than effort that is being evaluated. The only decisions that the leader takes over time are whether to undertake risky but potentially high payoff projects, the choice of which can reveal the leader's competency. If the value of foregone projects are observed, then the probability that a leader is replaced is bell-shaped and saw-toothed over time. If the value of foregone projects are not observed, and the leader's competency is only indirectly inferrable through the success or failure of projects that the leader undertakes, then the incentives of the leader depend on the replacement strategy. If the principal can commit to a replacement strategy in advance, then we show that (approximately) optimal mechanisms either involve a probationary period and then indefinite tenure, or else a random dismissal strategy. If instead commitment is impossible, and for instance voters regularly choose whether to replace the leader, then there are poor incentives and inefficiently low payoffs, even below that of simply replacing the leader in every period. Incentives can be improved via term limits. |
| JEL: | C72 D72 D82 D86 M12 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20301&r=mic |
| By: | Pradeep Dubey (SUNY); John Geanakoplos (Cowles Foundation, Yale University) |
| Abstract: | Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status together to get his employees to work hard for the least total cost. We find that he should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, he should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers. |
| Keywords: | Status, Incentives, Wages |
| JEL: | C70 I20 I30 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1954&r=mic |
| By: | Kfir Eliaz (Tel Aviv University, Eitan Berglas School of Economics; University of Michigan, Economics Department); Ran Spiegler (Tel Aviv University, Eitan Berglas School of Economics; Centre for Macroeconomics (CFM)) |
| Abstract: | We study a repeated principal-agent interaction, in which the principal offers a "spot" wage contract at every period, and the agent’s outside option follows a Markov process with i.i.d shocks. If the agent rejects an offer, the two parties are permanently separated. At any period during the relationship, the agent is productive if and only if his wage does not fall below a "reference point" (by more than an infinitesimal amount), which is defined as his lagged-expected wage in that period. We characterize the game’s unique subgame perfect equilibrium. The equilibrium path exhibits an aspect of wage rigidity. The agent’s total discounted rent is equal to the maximal shock value. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:repec:cfm:wpaper:1414&r=mic |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Philipp Strack (Microsoft Research New England & UC Berkeley) |
| Abstract: | We characterize the profit-maximizing mechanism for repeatedly selling a non-durable good in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. In the profit-maximizing mechanism the allocation is distorted in favor of agents with high initial types. We derive the optimal mechanism in closed form, which enables us to compare the distortion in various examples. The case where the valuation of the agents follows an arithmetic/geometric Brownian motion, Ornstein-Uhlenbeck process, or is derived from a Bayesian learning model are discussed. We show that depending on the nature of the private information and the valuation process the distortion might increase or decrease over time. |
| Keywords: | Mechanism design, Dynamic auctions, Repeated sales |
| JEL: | D44 D82 D83 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1953&r=mic |
| By: | Rose-Anne Dana (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine, IPAG Business School - Ipag Business School); Cuong Le Van (IPAG Business School - Ipag Business School, 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, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment) |
| 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 condition for the 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 represented by a family of concave utility functions. Several definitions of efficiency and of equilibrium with inertia are considered. Sufficient conditions and necessary and sufficient conditions are given for the 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 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01020646&r=mic |
| By: | Matias Nunez; Jean-Francois Laslier (CNRS- Université de Cergy-Pontoise, THEMA; CNRS- Paris SChool of Economics) |
| Abstract: | The paper considers two-person bargaining under Approval Voting. It first proves the existence of pure strategy equilibria. Then it shows that this bargaining method ensures that both players obtain at least their average and median utility level in equilibrium. Finally it proves that, provided that the players are partially honest, the mechanism triggers sincerity and ensures that no alternative Pareto dominates the outcome of the game. |
| Keywords: | Bargaining, Approval Voting, Efficiency, Partial Honesty |
| JEL: | C78 D7 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-06&r=mic |
| By: | Bisin, Alberto;; Gottardi, Piero;; Ruta, Guido |
| Abstract: | This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that shareholders always unanimously support firms' choices. In addition, equilibrium allocations have well-defined welfare properties: they are constrained efficient when information is symmetric, or when agency frictions satisfy certain specific conditions. Furthermore, equilibria may display specialization on the part of identical firms and, when equilibria are constrained inefficient, may exhibit excessive aggregate risk. Financial decisions of the corporate sector are determined at equilibrium and depend not only on the nature of financial frictions but also on the consumers' demand for risk. Financial intermediation and short sales are naturally accounted for at equilibrium. |
| Keywords: | Capital structure; Competitive equilibria; Incomplete markets; Asymmetric information |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2014/09&r=mic |
| By: | Volker Britz (ETH Zurich, Switzerland); Hans Gersbach (ETH Zurich, Switzerland) |
| Abstract: | We examine whether and how democratic procedures can achieve socially desirable public good provision in the presence of deep uncertainty about the benefits of the public good, i.e., when citizens are able to identify the distribution of benefits only if they aggregate their private information. Some members of the society, however, are harmed by socially desirable policies and try to manipulate information aggregation by misrepresenting their private information. We show that information can be aggregated and the socially desirable policy implemented under a new class of democratic mechanisms involving an experimentation group. Those mechanisms reflect the principles of liberal democracy, are prior{free, and involve a differential tax treatment of experimentation group members which motivates them to reveal their private information truthfully. Conversely, we show that standard democratic mechanisms with an arbitrary number of voting rounds but no experimentation do not generally lead to the socially desirable policy. Finally, we demonstrate how experimentation can be designed in such a way that differential tax treatments occur only off the equilibrium path. |
| Keywords: | Democratic Mechanisms; Experimentation; Public Goods; Voting; Information Aggregation |
| JEL: | D62 D72 H40 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:14-199&r=mic |
| By: | Henk Kox; Bas Straathof; Gijsbert Zwart |
| Abstract: | Targeted advertising can benefit consumers through lower prices for access to websites. Yet, if consumers dislike that websites collect their personal information, their welfare may go down. We study competition for consumers between websites that can show targeted advertisements. We find that more targeting increases competition and reduces the websites' profits, but yet in equilibrium websites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and websites. If consumers are heterogeneous in their concerns for privacy, a policy that allows choice between two levels of privacy will be better. Optimal privacy protection takes into account that the more intense competition on the high-targeting market segment also benefits consumers on the less competitive segment. Consumer surplus is maximized by allowing them a choice between a high targeting regime and a low targeting regime which affords more privacy. |
| JEL: | D43 L13 L82 M38 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:280&r=mic |
| By: | L. Lambertini; L. Marattin |
| Abstract: | In this paper we verify the functioning of the standard neoclassical adjustment to equilibrium after a demand shock in a non-cooperative simultaneous Cournot duopoly with complete, symmetric and imperfect information. Our results show that in such a framework the adjustment to the long-run level of output by the entire industry or part of it is no longer guaranteed. We show that the size of the demand shock determines the nature and number of equilibria generated by strategic interaction, whereas the post-adjustment real wage level determines which equilibrium is actually obtained. |
| JEL: | D43 E30 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp952&r=mic |
| By: | Yukio KORIYAMA; Matias NUNEZ (Ecole Polytechnique, Department of Economics; Université de Cergy-Pontoise, THEMA) |
| Abstract: | We consider hybrid procedures: a first step of reducing the game by iterated elimination of weakly dominated strategies (IEWDS) followed by a second step of applying an equilibrium refinement. We show that the set of perfect/proper outcomes of a reduced normal-form game might be larger than the set of the perfect/proper outcomes of the whole game by applying IEWDS. Even in dominance solvable games in which all the orders of IEWDS select a unique singleton in the game, the surviving outcome need not be a proper equilibrium of the whole game. However, in dominance solvable games that satisfy the transference of decision maker indifference condition (TDI of Marx and Swinkels, 1997), the surviving outcome coincides with the unique stable one and hence is proper. |
| Keywords: | Weak dominance, Iterated elimination, Proper equilibrium. |
| JEL: | C7 C72 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-02&r=mic |
| By: | Robert Becker (Department of Economics, Indiana University - Indiana University); Stefano Bosi (EPEE - Université d'Evry-Val d'Essonne); Cuong Le Van (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, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment, IPAG Business School - Ipag Business School); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)) |
| Abstract: | We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying a Kakutani's fixed-point theorem, we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey. |
| Keywords: | Existence of equilibrium; bubbles; Ramsey model; heterogeneous agents; borrowing constraint; endogenous labor |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01020635&r=mic |
| By: | Matis Nunez; Gabriel Desranges; Mathieu Martin (CNRS- Université de Cergy-Pontoise, THEMA; Université de Cergy-Pontoise, THEMA; Université de Cergy-Pontoise, THEMA) |
| Abstract: | This paper analyzes a sequential voting mechanism that eliminates at each round one candidate, until only one of them is left (the winner). The candidates are the voters and they only differ across their skill level. The payoff allocated to the winner depends on the sequence of elimination of the players’ skills, the rest of the players receiving a payoff of zero. We fully characterize the equilibria of the game with two skills. The winnermust be a high-skilled player if there is an initial majority of strong types. On the contrary, a high-skilled player might win with an initial majority of weak players independently of the size of the majority. For an arbitrary number of types, if some type of candidates form a strict majority at the first stage, the winner belongs either to the majoritarian type or to a more skilled one. |
| Keywords: | strategic voting, backward induction, dynamic voting. |
| JEL: | C7 D7 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-07&r=mic |
| By: | Thomas Fagart (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: | This paper develops and analyzes a dynamic model of partially irreversible investment under cournot competition and stochastic evolution of demand. In this framework, I characterize the markov perfect equilibrium in which player's strategies are continuous in the state variable. There exists a zone in the space of capacities, named the no-move zone, such that if firms capacity belongs to this area, no firm invest nor disinvest at the equilibrium. Thereby, initial asymmetry between firms capacity can be preserved. If firms are outside this area, they invest in order to reached the no-move zone. The equilibrium as an efficiency property: the point of this area which is reached by the firms minimizes the investment cost of the all industry. |
| Keywords: | Capacity investment and disinvestment; dynamic stochastic games; Markov perfect equilibrium; real option games |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01020398&r=mic |
| By: | Fabrice Tricou |
| Abstract: | This paper introduces and develops the concept of “conditional agreement point”, defined as the dominating issue (hard optimality) within a certain restricted subset of the set of feasible issues (partial optimality). Such a concept associates individualistic independence (via the operation of individual preferences) and humanistic autonomy (via the social choice of the determined subset). As the “conditional agreement point” assumes a dualistic conception of human beings as self-interest followers and as rule makers, it acknowledges mixed or complex types of behavior and it supports some syntheses between efficiency and justice. Precisely, the notion of CAP permits the reconsideration of classical coordination or cooperation problems such as the bilateral exchange. |
| Keywords: | efficiency and justice; independence and autonomy; bilateral exchange. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-40&r=mic |
| By: | Ariel Zetlin-Jones |
| Abstract: | We develop a theory of systemic banking crises. For a single bank, we obtain conditions under which a bank optimally chooses a fragile capital structure that is subject to events which resemble bank runs. When depositors have limited ability to commit to long-term lending arrangements, they optimally finance the bank using short-term debt. With multiple banks, the same limited commitment friction leads depositors to invest via short-term debt in a financial system in which all banks make loans with correlated, volatile returns. Such a system is strictly preferred by depositors and bankers over one in which banks pursue independent, less volatile returns. The optimal financial system features occasional, costly systemic crises in which all banks are subject to ex post inefficient liquidations. In this sense, financial crises are efficient. |
| URL: | http://d.repec.org/n?u=RePEc:cmu:gsiawp:-1756908850&r=mic |
| By: | Laurence Ales; Soo-Haeng Cho; Ersin Korpeoglu |
| URL: | http://d.repec.org/n?u=RePEc:cmu:gsiawp:-83388745&r=mic |
| By: | Antony Millner (London School of Economics and Political Science - LSE); Hélène Ollivier (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Leo Simon (University of California - Berkeley - Department of Agricultural and Resource Economics) |
| Abstract: | We consider a two period model in which an incumbent political party chooses the level of a current policy variable unilaterally, but faces competition from a political opponent in the future. Both parties care about voters' payoffs, but they have different beliefs about how policy choices will map into future economic outcomes. We show that when the incumbent party can endogenously influence whether learning occurs through its policy choices (policy experimentation), future political competition gives it a new incentive to distort its policies - it manipulates them so as to reduce uncertainty and disagreement in the future, thus avoiding the costs of competitive elections with an opponent very different from itself. The model thus demonstrates that all incumbents can find it optimal to 'over experiment', relative to a counterfactual in which they are sure to be in power in both periods. We thus identify an incentive for strategic policy manipulation that does not depend on self-serving behavior by political parties, but rather stems from their differing beliefs about the consequences of their actions. |
| Keywords: | Beliefs; Learning; Political Economy |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01022728&r=mic |