nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒08‒25
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Peer Discipline and Incentives Within Groups By David K Levine; Salvatore Modica
  2. Price revelation and existence of equilibrium in a private belief economy. By Lionel de Boisdeffre
  3. Nash bargaining and renegotiation with social preferences: case of the roundwood log supply contracts By Ahmed Barkaoui; Arnaud Dragicevic
  4. Robust Equilibria in Location Games By Berno Buechel; Nils Roehl
  5. Markovian Elections By Jean Guillaume Forand; John Duggan
  6. Don't Kill the Goose that Lays the Golden Eggs: Strategic Delay in Project Completion By Katolnik, Svetlana; Schöndube, Jens Robert
  7. Employers' Preference for Discrimination By Sue H. Mialon; Seung Han Yoo
  8. A Full Characterization on Fixed-Point Theorem, Minimax Inequality, Saddle Point, and KKM Theorem By Tian, Guoqiang
  9. Simple Agents, Intelligent Markets By Karim Jamal; Michael Maier; Shyam Sunder
  10. Honesty and Trade By Michael T. Rauh; Giulio Seccia
  11. Collusion-Proof Mechanism Design in Two-Agent Nonlinear Pricing Environments By Meng, Dawen; Tian, Guoqiang
  12. On discovery, restricting lawyers, and the settlement rate By Baumann, Florian; Friehe, Tim
  13. Competitive Search with Moving Costs By KAWATA Keisuke; NAKAJIMA Kentaro; SATO Yasuhiro
  14. Constitutions and Social Networks By Ana Mauleon; Nils Roehl; Vincent Vannetelbosch
  15. Reciprocity Networks and the Participation Problem By Dufwenberg, Martin; Patel, Amrish
  16. Realization Utility with Reference-Dependent Preferences By Jonathan E. Ingersoll Jr.; Lawrence J. Jin

  1. By: David K Levine; Salvatore Modica
    Date: 2014–08–16
  2. By: Lionel de Boisdeffre (Université de Pau - CATT et Centre d'Economie de la Sorbonne)
    Abstract: We consider a pure exchange financial economy, where rational agents, possibly asymmetrically informed, forecast prices privately and, therefore, face “exogenous uncertainty”, on the future state of nature, and “endogenous uncertainty” on future prices. At a sequential equilibrium, all agents expect the “true” price as a possible outcome and elect optimal strategies at the first period, which clear on all markets ex post. We introduce no-arbitrage prices and display their revealing properties. Under mild conditions, we show that a sequential equilibrium exists, whatever the financial structure and agents' private information or beliefs. This result suggests that existence problems of standard sequential equilibrium models, following Hart (1975) or Radner (1979), stem from the rational expectation and perfect foresight assumptions, which are both dropped in our model.
    Keywords: Sequential equilibrium, temporary equilibrium, perfect foresight, existence, rational expectations, financial markets, asymmetric information, arbitrage.
    JEL: D52
    Date: 2014–07
  3. By: Ahmed Barkaoui (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Arnaud Dragicevic (Laboratoire d'Economie Forestière, INRA - AgroParisTech; Chaire Forêts pour Demain, Agro ParisTech–Office National des Forêts)
    Abstract: We consider two economic agents, a timber and log supplier and a lumber manufacturer, endowed with the mean-variance utility preferences that negotiate according to the Nash bargaining game. We study both negotiation and renegotiation between a supplier that can be either public-oriented or profit-maximizing and a profit-maximizing manufacturer. We first prove that the Nash bargaining game has a unique equilibrium log supply contract, at which the negotiation takes only place on the prices. We then find that the expected profitmaximizing is achieved when the supplier’s public interest and the manufacturer’s bargaining power are strategic substitutes. The renegotiation reveals the presence of a memory effect over the quantities issued from bargaining. As well, it unveils strategic complementarity of changes in expected profits. The simulations we conduct provide an insight of the model outcomes.
    Keywords: Nash Bargaining, Renegotiation, Social Preferences, Supply Contracts, Forest-Based Sector
    JEL: C78 D21 D86 L33
    Date: 2014–07
  4. By: Berno Buechel (University of Hamburg); Nils Roehl (University of Paderborn)
    Abstract: In the framework of spatial competition, two or more players strategically choose a location in order to attract consumers. It is assumed standardly that consumers with the same favorite location fully agree on the ranking of all possible locations. To investigate the necessity of this questionable and restrictive assumption, we model heterogeneity in consumers' distance perceptions by individual edge lengths of a given graph. A profile of location choices is called a ``robust equilibrium'' if it is a Nash equilibrium in several games which differ only by the consumers' perceptions of distances. For a finite number of players and any distribution of consumers, we provide a full characterization of all robust equilibria and derive structural conditions for their existence. Furthermore, we discuss whether the classical observations of minimal differentiation and inefficiency are robust phenomena. Thereby, we find strong support for an old conjecture that in equilibrium firms form local clusters.
    Keywords: spatial competition, Hotelling-Downs, networks, graphs, Nash equilibrium, median, minimal differentiation
    JEL: C72 D49 P16 D43
    Date: 2013–02
  5. By: Jean Guillaume Forand (University of Waterloo); John Duggan (University of Rochester)
    Abstract: We establish existence and continuity properties of equilibria in a model of dynamic elections with a discrete (countable) state space and general policies and preferences. We provide conditions under which there is a representative voter in each state, and we give characterization results in terms of the equilibria of an associated “representative voting game.†When the conditions for these results are not met, we provide examples that uncover new classes of dynamic political failures.
    Date: 2014
  6. By: Katolnik, Svetlana; Schöndube, Jens Robert
    Abstract: It's puzzling that most projects fail to complete within the predetermined timeframe given that timing considerations rank among the major goals in project management. We argue that when managers can extract private benefits from working on a project, project delay becomes optimal. We introduce a continuous-time framework for project management activities that incorporates this feature. A manager's unobserved effort cumulatively increases the project's success probability, but decreases the expected duration of the project and with it the expected flow of on-the-job benefits. A strict deadline limits incentives for effort delay, but also decreases the probability that the project will be terminated in due time. In this trade-off, the optimal deadline balances the increase in expected project value against the expected increase in project duration and costs. Since the manager does not want to "kill the golden goose" prematurely, he always prefers a stricter deadline compared to the principal. As a result, project completion is threatened by both effort provision over time and contractual agreements on time.
    Keywords: Optimal deadline, Dynamic incentives, Strategic delay, Project completion
    JEL: D82 M52
    Date: 2014–07
  7. By: Sue H. Mialon; Seung Han Yoo
    Abstract: This paper models employers' preference for discrimination toward ex ante identical groups of workers when the workers must compete for limited positions. Employers benefit from discrimination against minority workers because it can reduce the overall risk from workers' noisy signals as it increases the expected quality of "majority" workers' signals and their chance to win the competition for the limited positions. We show that employers can influence the selection of a discriminatory equilibrium by choosing the set of finalists in competition primarily from a majority group. We discuss the implications of Equal Opportunity Laws in this context.
    Date: 2014–05
  8. By: Tian, Guoqiang
    Abstract: This paper provides necessary and sufficient conditions for fixed-point theorems, minimax inequalities and some related theorems defined on arbitrary topological spaces that may be discrete, continuum, non-compact or non-convex. We establish a single condition, γ-recursive transfer lower semicontinuity, which fully characterizes the existence of equilibrium of minimax inequality without imposing any kind of convexity nor any restriction on topological space. The result then is employed to fully characterize fixed point theory, saddle point theory, and the FKKM theory.
    Keywords: Fixed-point theorems, minimax inequalities, saddle points, FKKM theorems, recursive transfer continuity
    JEL: D00
    Date: 2012–11
  9. By: Karim Jamal (University of Alberta); Michael Maier (University of Alberta); Shyam Sunder (School of Management, Yale University)
    Abstract: Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate agents’ private information to others. Markets populated by human agents are known to be capable of converging to rational expectations equilibria. This paper reports comparable market outcomes when human agents are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings point to market structure (rather than cognition or optimization) being an important determinant of efficient aggregate level outcomes.
    Keywords: Bounded rationality, Dissemination of asymmetric information, Efficiency of security markets, Minimally-rational agents, Rational expectations, Structural properties of markets
    JEL: C92 D44 D50 D70 D82 G14
    Date: 2012–07
  10. By: Michael T. Rauh (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Giulio Seccia (University of Shouthampton)
    Abstract: There is substantial evidence that many parents value honesty in their children and that trust is an important determinant of trade. There is also evidence that certain institutions (i.e., religious institutions) foster trust, trade, and economic growth. In this paper we consider a parent who can enroll her child in an imperfect institution which can make her child honest with some probability less than one. We assume that institutional membership is observable so that institutions serve as both imperfect socialization technologies and potentially informative signals that such socialization has taken place. We provide necessary and sucient conditions for nonzero investments in honesty in the two main benchmark models of exchange under asymmetric information: the basic two-type screening model and a game-theoretic version of Akerlof's market for lemons. Consistent with the evidence, we show that when non-zero socialization occurs in equilibrium it improves economic performance by increasing allocative eciency in the screening model and reducing adverse selection in the market for lemons.
    Keywords: deception, exchange, honesty, institutions, religion, trade, trust
    JEL: D02 D03 D82 Z1
    Date: 2014–04
  11. By: Meng, Dawen; Tian, Guoqiang
    Abstract: This paper studies the cost requirement for two-agent collusion-proof mechanism design. Unlike the existing results for general environments with three or more agents, it is shown that collusive behavior cannot be prevented freely in two-agent nonlinear pricing environments with correlated types. Reporting manipulation calls for distortions away from the first-best efficiency, and arbitrage calls for further distortion. Moreover, we show that the distortionary patterns are quite different for positive and negative correlations. The second-best outcome is attainable as negative correlation is vanishing, while the limit of collusion-proof efficiency is strictly lower than the second-best level as positive correlation goes to zero. Allowing arbitrage therefore breaks the continuity between correlated and uncorrelated types.
    Keywords: Nonlinear pricing, collusion-proof, mechanism design, arbitrage, correlation
    JEL: D42 D62 D82
    Date: 2014–02
  12. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper analyzes the principal-agent relationship between a plaintiff and his or her lawyer when the lawyer's investment in discovery is private information. The plaintiff uses the level of the contingency fee and potentially also restrictions on settlements to guide the lawyer's decision-making. We show that the plaintiff can increase the lawyer's investment in discovery by disallowing a settlement in the event of unsuccessful discovery, thereby reducing the pair's joint surplus. We establish that such a restriction may indeed be privately optimal for the plaintiff but can cast doubt on the social desirability of the discovery process. --
    Keywords: litigation,discovery,moral hazard,principal-agent relationship
    JEL: K41 H23
    Date: 2014
  13. By: KAWATA Keisuke; NAKAJIMA Kentaro; SATO Yasuhiro
    Abstract: We developed a competitive search model involving multiple regions, geographically mobile workers, and moving costs. Equilibrium mobility patterns were analyzed and characterized, and the results indicate that shocks to a particular region, such as a productivity shock, can propagate to other regions through workers' mobility. Moreover, equilibrium mobility patterns are not efficient because of the existence of moving costs, implying that they affect social welfare because not only are they costs but also they distort equilibrium allocation. By calibrating our framework to Japanese regional data, we demonstrate the extent to which changes in moving costs affect unemployment and social welfare.
    Date: 2014–08
  14. By: Ana Mauleon (Saint-Louis University — Brussels); Nils Roehl (University of Paderborn); Vincent Vannetelbosch (CORE, University of Louvain)
    Abstract: The objective of the paper is to analyze the formation of social networks where individuals are allowed to engage in several groups at the same time. These group structures are interpreted here as social networks. Each group is supposed to have specific rules or constitutions governing which members may join or leave it. Given these constitutions, we consider a social network to be stable if no group is modified any more. We provide requirements on constitutions and players’ preferences under which stable social networks are induced for sure. Furthermore, by embedding many-to-many matchings into our setting, we apply our model to job markets with labor unions. To some extent the unions may provide job guarantees and, therefore, have influence on the stability of the job market.
    Keywords: Social networks, Constitutions, Stability, Many-to-Many Matchings.
    JEL: C72 C78 D85
    Date: 2014–01
  15. By: Dufwenberg, Martin (Department of Economics, School of Business, Economics and Law, Göteborg University); Patel, Amrish (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Reciprocity can be a powerful motivation for human behaviour. Scholars argue that it is relevant in the context of private provision of public goods. We examine whether reciprocity can resolve the associated coordination problem. The interaction of reciprocity with cost-sharing is critical. Neither cost-sharing nor reciprocity in isolation can solve the problem, but together they have that potential. We introduce new network notions of reciprocity relations to better understand this. Our analysis uncovers an intricate web of nuances that demonstrate the attainable yet elusive nature of a unique outcome.
    Keywords: discrete public good; participation; reciprocity networks; coordination; cost-sharing
    JEL: C72 D03 H41
    Date: 2014–08–13
  16. By: Jonathan E. Ingersoll Jr.; Lawrence J. Jin
    Abstract: We develop a tractable model of realization utility that studies the role of reference-dependent S-shaped preferences in a dynamic investment setting with reinvestment. Our model generates both voluntarily realized gains and losses. It makes specific predictions about the volume of gains and losses, the holding periods, and the sizes of both realized and paper gains and losses that can be calibrated to a variety of statistics, including the Odean measure of the disposition effect. Our model also predicts several anomalies including, among others, the flattening of the capital market line and a negative price for idiosyncratic risk.
    Date: 2014–08

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