nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒08‒20
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Strategic Obscurity in the Forecasting of Disasters By Masaki Aoyagi
  2. Dominance Solvable Games with Multiple Payoff Criteria By Georgios Gerasimou
  3. Bargaining over a common conceptual space By Nadia Mâagli; Marco Licalzi
  4. Evolutionarily stable strategies, preferences and moral values, in n-player Interactions By Alger, Ingela; Weibull, Jörgen
  5. How Good Are Simple Mechanisms for Selling Multiple Goods? By Sergiu Hart; Noam Nisan
  6. Behavioral Perfect Equilibrium in Bayesian Games By Bajoori, Elnaz; Flesch, Janos; Vermeulen, Dries
  7. Strategic and structural uncertainties in robust implementation By Yamashita, Takuro
  8. Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Markets By Lester, Benjamin R.; Visschers, Ludo; Wolthoff, Ronald P.
  9. A Model of Influence Based on Aggregation Function By Michel Grabisch; Agnieszka Rusinowska
  10. Aggregating sets of von Neumann-Morgenstern utilities By Eric Danan; Thibault Gajdos; Jean-Marc Tallon
  11. Affirmative Action through Extra Prizes By Matthias Dahm; Patricia Esteve
  12. Probabilistic opinion pooling generalized Part one: General agendas By Dietrich, Franz; List, Christian
  13. Atkinson and Stiglitz theorem in the presence of a household production sector By Cremer, Helmuth; Gahvari, Firouz
  14. Social Norms and the Enforcement of Laws By Daron Acemoglu; Matthew O. Jackson

  1. By: Masaki Aoyagi
    Abstract: A principal acquires information about a shock and then discloses it to an agent. After the disclosure, the principal and agent each decide whether to take costly preparatory actions that yield mutual benefits but only when the shock strikes. The principal maximizes his expected payoff by ex ante committing to the quality of his information, and the disclosure rule. We show that even when the acquisition of perfect information is costless, the principal may optimally acquire imperfect information when his own action eliminates the agent's incentive to take action against the risk.
    Date: 2012–02
  2. By: Georgios Gerasimou (School of Economics and Finance, University of St Andrews)
    Abstract: Two logically distinct and permissive extensions of iterative weak dominance are introduced for games with possibly vector-valued payoffs. The first, iterative partial dominance, builds on an easy-to-check condition but may lead to solutions that do not include any (generalized) Nash equilibria. However, the second and intuitively more demanding extension, iterative essential dominance, is shown to be an equilibrium refinement. The latter result includes Moulin's (1979) classic theorem as a special case when all players' payoffs are real-valued. Therefore, essential dominance solvability can be a useful solution concept for making sharper predictions in multicriteria games that feature a plethora of equilibria.
    Keywords: Dominance solvability; Multicriteria games; Partial Dominance; Essential Dominance
    JEL: C72 D01
  3. By: Nadia Mâagli (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, Università Ca' Foscari Venezia - Calle Larga Foscari); Marco Licalzi (Università Ca' Foscari Venezia - Department of Management)
    Abstract: Two agents endowed with different individual conceptual spaces are engaged in a dialectic process to reach a common understanding. We model the process as a simple non-cooperative game and demonstrate three results. When the initial disagreement is focused, the bargaining process has a zero-sum structure. When the disagreement is widespread, the zero-sum structure disappears and the unique equilibrium requires a retraction of consensus: two agents who individually agree to associate a region with the same concept end up rebranding it as a different concept. Finally, we document a conversers' dilemma: such equilibrium outcome is Pareto-dominated by a cooperative solution that avoids retraction.
    Keywords: Cognitive maps; language differences; semantic bargaining; organisational codes; mental models
    Date: 2014–01
  4. By: Alger, Ingela; Weibull, Jörgen
    Abstract: We provide a generalized definition of evolutionary stability of heritable types in arbitrarily large symmetric interactions under random matching that may be assortative. We establish stability results when these types are strategies in games, and when they are preferences or moral values in games under incomplete information. We show that a class of moral preferences, with degree of morality equal to the index of assortativity are evolutionarily stable. In particular, selfishness is evolutionarily unstable when there is positive assortativity in the matching process. We establish that evolutionarily stable strategies are the same as those played in equilibrium by rational but partly morally motivated individuals, individuals with evolutionarily stable preferences. We provide simple and operational criteria for evolutionary stability and apply these to canonical examples.
    Keywords: Evolutionary stability, assortativity, morality, homo moralis, public goods, contests, helping, Cournot competition.
    JEL: C73 D01 D03
    Date: 2014–06
  5. By: Sergiu Hart; Noam Nisan
    Abstract: Maximizing the revenue from selling two goods (or items) is a notoriously difficult problem, in stark contrast to the single-good case. We show that simple "one-dimensional" mechanisms, such as selling the two goods separately, guarantee at least 73% of the optimal revenue when the valuations of the two goods are independent and identically distributed, and at least 50% when they are independent. However, in the general case where the valuations may be correlated, simple mechanisms cannot guarantee any positive fraction of the optimal revenue. We also introduce a "measure of complexity" for mechanisms---the menu size---and show that it is naturally related to the fraction of the optimal revenue that can be guaranteed.
    Date: 2014–05
  6. By: Bajoori, Elnaz; Flesch, Janos; Vermeulen, Dries
    Date: 2013
  7. By: Yamashita, Takuro
    Abstract: This paper discusses some connections among several robustness concepts of mechanisms in terms of agents' behaviors. Specifically, under certain conditions such as private values and ``rich'' interdependent values, we show that implementation in (one-round or iterative) undominated strategies, a solution concept robust to strategic uncertainty, is equivalent to Bayesian implementation with arbitrary type spaces, a solution concept robust to structural uncertainty.
    Keywords: Robust implementation, Strategic and structural uncertainty
    JEL: D82 D86
    Date: 2014–04
  8. By: Lester, Benjamin R. (Federal Reserve Bank of Philadelphia); Visschers, Ludo (University of Edinburgh); Wolthoff, Ronald P. (University of Toronto)
    Abstract: In a market in which sellers compete by posting mechanisms, we study how the properties of the meeting technology affect the mechanism that sellers select. In general, sellers have incentive to use mechanisms that are socially efficient. In our environment, sellers achieve this by posting an auction with a reserve price equal to their own valuation, along with a transfer that is paid by (or to) all buyers with whom the seller meets. However, we define a novel condition on meeting technologies, which we call "invariance," and show that the transfer is equal to zero if and only if the meeting technology satisfies this condition.
    Keywords: search frictions, matching function, meeting technology, competing mechanisms
    JEL: C78 D44 D83
    Date: 2014–07
  9. By: Michel Grabisch (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); Agnieszka Rusinowska (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: The paper concerns a dynamic model of influence in which agents make a yes-no decision. Each agent has an initial opinion which he may change during different phases of interaction, due to mutual influence among agents. We investigate a model of influence based on aggregation functions. Each agent modifies his opinion independently of the others, by aggregating the current opinion of all agents. Our framework covers numerous existing models of opinion formation, since we allow for arbitrary aggregation functions. We provide a general analysis of convergence in the aggregation model and find all terminal classes and states. We show that possible terminal classes to which the process of influence may converge are terminal states (the consensus states and non trivial states), cyclic terminal classes, and unions of Boolean lattices (called regular terminal classes). An agent is influential for another agent if the opinion of the first one matters for the latter. A generalization of influential agent to an irreducible coalition whose opinion matters for an agent is called influential coalition. The graph (hypergraph) of influence is a graphical representation of influential agents (coalitions). Based on properties of the hypergraphs of influence we obtain conditions for the existence of the different kinds of terminal classes. An important family of aggregation functions -- the family of symmetric decomposable models -- is discussed. Finally, based on the results of the paper, we analyze the manager network of Krackhardt.
    Keywords: influence; aggregation function; convergence; terminal class; influential coalition; hypergraph; social network
    Date: 2013
  10. By: Eric Danan (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Thibault Gajdos (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR7316); Jean-Marc Tallon (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 analyze the aggregation problem without the assumption that individuals and society have fully determined and observable preferences. More precisely, we endow individuals ans society with sets of possible von Neumann-Morgenstern utility functions over lotteries. We generalize the classical neutrality assumption to this setting and characterize the class of neutral social welfare function. This class turns out to be considerably broader for indeterminate than for determinate utilities, where it basically reduces to utilitarianism. In particular, aggregation rules may differ by the relationship between individual and social indeterminacy. We characterize several subclasses of neutral aggregation rules and show that utilitarian rules are those that yield the least indeterminate social utilities, although they still fail to systematically yield a determinate social utility.
    Keywords: Aggregation ; vNM utility ; indeterminacy ; neutrality ; utilitarianism
    Date: 2013–03
  11. By: Matthias Dahm (School of Economics, University of Nottingham); Patricia Esteve (Universitat Rovira i Virgili, Department d’Economia and CREIP, Av. de la Universitat 1, 43204 Reus, Spain)
    Abstract: Some affirmative action policies establish that a set of disadvantaged competitors has access to an extra prize. We analyse the effects of creating an extra prize by reducing the prize in the main competition. Contestants differ in ability and agents with relatively low ability belong to a disadvantaged minority. All contestants compete for the main prize, but only disadvantaged agents can win the extra prize. We show that an extra prize is a powerful tool to ensure participation of disadvantaged agents. Moreover, for intermediate levels of the disadvantage of the minority, introducing an extra prize increases total equilibrium effort compared to a standard contest. Thus, even a contest designer not interested in affirmative action might establish an extra prize in order to enhance competition.
    Keywords: Asymmetric contest, equality of opportunity, affirmative action, discrimination, prize structure, exclusion principle
  12. By: Dietrich, Franz; List, Christian
    Abstract: How can different individuals' probability assignments to some events be aggregated into a collective probability assignment? Classic results on this problem assume that the set of relevant events -- the agenda -- is a σ-algebra and is thus closed under disjunction (union) and conjunction (intersection). We drop this demanding assumption and explore probabilistic opinion pooling on general agendas. One might be interested in the probability of rain and that of an interest-rate increase, but not in the probability of rain or an interest-rate increase. We characterize linear pooling and neutral pooling for general agendas, with classic results as special cases for agendas that are σ-algebras. As an illustrative application, we also consider probabilistic preference aggregation. Finally, we unify our results with existing results on binary judgment aggregation and Arrovian preference aggregation. Our unified theorems show why the same kinds of axioms (independence and consensus preservation) have radically different implications for different aggregation problems: linearity for probability aggregation and dictatorship for binary judgment or preference aggregation.
    Keywords: Probabilistic opinion pooling, judgment aggregation, subjective probability, probabilistic preferences, vague/fuzzy preferences, agenda characterizations, a unified perspective on aggregation
    JEL: D70 D71 D8 D80
    Date: 2013–05
  13. By: Cremer, Helmuth; Gahvari, Firouz
    Abstract: We show that the celebrated Atkinson and Stiglitz (1976) result on the uniformity of the commodity tax rates when preferences are weakly separable between goods and leisure does not hold when (at least) one of the goods is produced within the household. The result is restored if preferences are weakly separable in market goods on the one hand, and leisure and household goods on the other.
    Keywords: Atkinson and Stiglitz theorem, household production, weak-separability.
    JEL: H2 H5
    Date: 2014–07
  14. By: Daron Acemoglu; Matthew O. Jackson
    Abstract: We examine the interplay between social norms and the enforcement of laws. Agents choose a behavior (e.g., tax evasion, production of low-quality products, corruption, substance abuse, etc.) and then are randomly matched with another agent. An agent's payoff decreases with the mismatch between her behavior and her partner's, as well as average behavior in society. A law is an upper bound (cap) on behavior and a law-breaker, when detected, pays a fine and has her behavior forced down to the level of the law. Law-breaking depends on social norms because detection relies, at least in part, on private cooperation and whistle-blowing. Law-abiding agents have an incentive to whistle-blow because this reduces the mismatch with their partner's behavior as well as the overall negative externality. When laws are in conflict with norms so that many agents are breaking the law, each agent anticipates little whistle-blowing and is more likely to also break the law. Tighter laws (banning more behaviors) have counteracting effects, reducing behavior among law-abiding individuals but inducing more law-breaking. Greater fines for law breaking and better public enforcement reduce the number of law-breakers and behavior among law-abiding agents, but increase levels of law breaking among law-breakers (who effectively choose their behavior targeting other high-behavior law-breakers). Within a dynamic version of the model, we show that laws that are in strong conflict with prevailing social norms may backfire, while gradual tightening of laws can be more effective by changing social norms.
    JEL: C72 C73 P16 Z1
    Date: 2014–08

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