nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒11‒28
nineteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. An application of wage bargaining to price negotiation with discount factors varying in time By Ahmet Ozkardas; Agnieszka Rusinowska
  2. Bargaining over a common conceptual space By Nadia Mâagli; Marco Licalzi
  3. A Model of Influence Based on Aggregation Function By Michel Grabisch; Agnieszka Rusinowska
  4. On the Existence of Approximate Equilibria and Sharing Rule Solutions in Discontinuous Games By Philippe Bich; Rida Laraki
  5. Access fees for competing lobbies By Martin Gregor
  6. Optimal mechanisms for the control of fiscal deficits By Grüner, Hans Peter
  7. Social Insurance, Information Revelation, and Lack of Commitment By Mikhail Golosov; Luigi Iovino
  8. A Theory of Targeted Search By Cheremukhin, Anton A.; Restrepo-Echavarria, Paulina; Tutino, Antonella
  9. The Impatient Salesperson and the Delegation of Pricing Authority By Edward P. Lazear
  10. Inequality aversion in long-term contracts By Cato, Susumu; Ebina, Takeshi
  11. Are Dynamic Vickrey Auctions Practical?: Properties of the Combinatorial Clock Auction By Jonathan Levin; Andrzej Skrzypacz
  12. A simple mechanism for the roommate problem By B. Evci
  13. Desert and Inequity Aversion in Teams By Gill, David; Stone, Rebecca
  14. Anonymous social influence By Manuel Foerster; Michel Grabisch; Agnieszka Rusinowska
  15. Stability of networks under level-k farsightedness By Herings P.J.J.; Mauleon A.; Vannetelbosch V.
  16. Equal Treatment of Equals in Classical Quasilinear Exchange Economies By Mridu Prabal Goswami
  17. Welfare and Optimal Trading Frequency in Dynamic Double Auctions By Songzi Du; Haoxiang Zhu
  18. Pareto Efficiency in the Jungle By Harold Houba; Roland Iwan Luttens; Hans-Peter Weikard
  19. On the value of randomization By Stéphane Gauthier; Guy Laroque

  1. By: Ahmet Ozkardas (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); 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: We consider a non-cooperative price bargaining model between a monopolistic producer and a monopsonic consumer. The innovative element that our model brings to the existing literature on price negotiation concerns the parties' preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. We assume that the sequence of discount rates of a party can be arbitrary, with the only restriction that the infinite series that determines the utility for the given party must be convergent. Under certain parameters, the price negociation model coincides with wage bargaining with the exogenous always strike decision. We determine the unique subgame perfect equilibrium in this model for no-delay strategies independent of the former history of the game. Then we relax the no-delay assumption and determine the highest equilibrium payoff of the seller and the lowest equilibrium payoff of the buyer for the general case. We show that the no-delay equilibrium strategy profiles support these extreme payoffs.
    Keywords: Price bargaining; alternating offers; varying discount rates; subgame perfect equilibrium
    Date: 2013–10
  2. 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
  3. 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
  4. By: Philippe Bich (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); Rida Laraki (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique, IMJ - Institut de Mathématiques de Jussieu - CNRS : UMR7586 - Université Pierre et Marie Curie (UPMC) - Paris VI - Université Paris VII - Paris Diderot)
    Abstract: This paper studies the existence of some known equilibrium solution concepts in a large class of economic models with discontinuous payo functions. The issue is well understood for Nash equilibria, thanks to Reny's better-reply security condition [34], and its recent improvements [3, 25, 35, 36]. We propose new approaches, related to Reny's work, and obtain tight conditions for the existence of an approximate equilibrium and of a sharing rule solution in pure and mixed strategies (Simon and Zame [38]). As byproducts, we prove that many auction games with correlated types admit an approximate equilibrium, and that in any general equilibrium model with discontinuous preferences, there is a sharing rule solution.
    Keywords: Discontinuous games, better-reply security, sharing rules, approximate equilibrium, Reny equilibrium, strategic approximation, auctions, timing games, exchange economy
    Date: 2014–10–06
  5. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic)
    Abstract: We model `money buys access' informational lobbying as a commitment from the policy-maker to observe a lobby's verifiable evidence only upon receiving an access fee. We specifically examine the policy-maker's optimal access fees in the presence of two strictly competing lobbies. Our novel method constructs bargaining surpluses in parallel bilateral bargaining problems in which a negative sign for the bilateral surplus implies a strategic access restriction. This approach easily identifies the equilibrium set of participating lobbies for any information structure and any timing for the lobbies' access. We explain the incomplete participation of lobbies and the resulting information and welfare distortion using the information and revenue complementarities of signals. We also show that a lower bias may be either a blessing or curse for a lobby depending on the information structure and timing. Finally, we demonstrate that promoting lobbying competition may be detrimental to welfare due to the policy-maker's revenue-information tradeoff.
    Keywords: informational lobbying, access fee, persuasion, verifiable evidence
    JEL: C72 C78 D72 D83
    Date: 2014–07
  6. By: Grüner, Hans Peter
    Abstract: This paper shows that a simple two-stage voting mechanism may implement a constrained optimal state dependent decision about a fiscal deficit. I consider a setup with strategic fiscal deficits à la Tabellini and Alesina (1990). Three groups of voters are informed about the productivity of current public spending. Voters differ in their preferences for public goods and swing voters’ preferences may change over time. The current government decides on the current spending mix and it has an incentive to strategically overspend. Under certain conditions, a simple two-stage mechanism in which a deficit requires the approval by a supermajority in parliament implements a constrained optimal decision. When the current majority is small, bargaining between political parties may further increase social welfare. However, when the current majority is large, a supermajority mechanism with bargaining leads to a biased spending mix and reduces welfare whereas the laissez faire mechanism may yield the first best. An appropriately adjusted majority threshold can deal with this problem. JEL Classification: D82, H62
    Keywords: constitutional choice, fiscal policy rules, mechanism design
    Date: 2014–08
  7. By: Mikhail Golosov; Luigi Iovino
    Abstract: We study the optimal provision of insurance against unobservable idiosyncratic shocks in a setting in which a benevolent government cannot commit. A continuum of agents and the government play an infinitely repeated game. Actions of the government are constrained only by the threat of reverting to the worst perfect Bayesian equilibrium (PBE). We construct a recursive problem that characterizes the resource allocation and information revelation on the Pareto frontier of the set of PBE. We prove a version of the Revelation Principle and find an upper bound on the maximum number of messages that are needed to achieve the optimal allocation. Agents play mixed strategies over that message set to limit the amount of information transmitted to the government. The central feature of the optimal contract is that agents who enter the period with low implicitly-promised lifetime utilities reveal no information to the government and receive no insurance against current period shock, while agents with high promised utilities reveal precise information about their current shock and receive insurance as in economies with full commitment by the government.
    JEL: D82 D86 E61 H3
    Date: 2014–10
  8. By: Cheremukhin, Anton A. (Federal Reserve Bank of Dallas); Restrepo-Echavarria, Paulina (Federal Reserve Bank of St. Louis); Tutino, Antonella (Federal Reserve Bank of Dallas)
    Abstract: We present a theory of targeted search, where people with a finite information processing capacity search for a match. Our theory explicitly accounts for both the quantity and the quality of matches. It delivers a unique equilibrium that resides in between the random matching and the directed search outcomes. The equilibrium that emerges from this middle ground is inefficient relative to the constrained Pareto allocation. Our theory encompasses the outcomes of the random matching and the directed search literature as limiting cases.
    Keywords: Matching; assignment; search; efficiency; information
    JEL: C78 D83 E24 J64
    Date: 2013–08–23
  9. By: Edward P. Lazear
    Abstract: Sales agents are impatient relative to owners. If a good fails to sell, the owner still retains possession of that good and can enjoy its services, whereas the agent receives nothing. As a consequence, sales agents prefer a lower price than does an owner. Owners are therefore reluctant to delegate pricing authority to sales agents even when the agents have superior market information. Pricing authority is more likely to be delegated to agents when the owner lacks monopoly power and sells competitively and when the good is a non-durable. Agents who are given pricing authority are less likely to be paid commissions and more likely to be on a straight salary.
    JEL: D4 M5
    Date: 2014–09
  10. By: Cato, Susumu; Ebina, Takeshi
    Abstract: This paper examines a two-period moral hazard model with an inequality-averse agent. We show how the agent's past performance will help the principal to relax incentive compatibility constraints and how the existence of an inequality aversion of the agent affects a level of wage in each period in a long-term contract. In particular, we focus on the performance in period 1 on the level of wage in period 2. We show that the agent's wage in period 2 depends on performance in periods 1 and 2. This implies that the long-term relationship creates the opportunity for intertemporal risk and inequality sharing.
    Keywords: Moral hazard, Inequality aversion, Behavioral contract theory, Distribution
    JEL: D63 D86 J31 L23
    Date: 2014–11–14
  11. By: Jonathan Levin; Andrzej Skrzypacz
    Abstract: The combinatorial clock auction is becoming increasingly popular for large-scale spectrum awards and other uses, replacing more traditional ascending or clock auctions. We describe some surprising properties of the auction, including a wide range of ex post equilibria with demand expansion, demand reduction and predation. These outcomes arise because of the way the auction separates allocation and pricing, so that bidders are asked to make decisions that cannot possibly affect their own auction outcome. Our results obtain in a standard homogenous good setting where bidders have well-behaved linear demand curves, and suggest some practical difficulties with dynamic implementations of the Vickrey auction.
    JEL: D44 D82 L51 L96
    Date: 2014–09
  12. By: B. Evci
    Abstract: Gale and Shapley (1962) proposed that there is a similar game to the marriage problem called "the roommate problem". And, they showed that unlike the marriage problem, the roommate problem may have unstable solutions. In other words, the stability theorem fails for the roommate problem. In this paper, we propose a new mechanism for the roommate problem. The mechanism is successful in determining the reason of instability in our game scenario. And, we show that our mechanism implements the full set of stable matchings in the existence of stability, and it ends up with Pareto Optimal matching in the instance of instability.
    JEL: C78 D71 D78
    Date: 2014–11
  13. By: Gill, David (University of Oxford); Stone, Rebecca (University of California, Los Angeles)
    Abstract: Teams are becoming increasingly important in work settings. We develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve. Team members find it painful to receive less than their perceived entitlement, while receiving more may induce pleasure or pain depending on whether their preferences exhibit desert elation or desert guilt. Our notion of desert generalizes distributional concern models to situations in which effort choices affect the distribution perceived to be fair; in particular, desert nests inequity aversion over money net of effort costs as a special case. When identical teammates share team output equally, desert guilt generates a continuum of symmetric equilibria. Equilibrium effort can lie above or below the level in the absence of desert, so desert guilt generates behavior consistent with both positive and negative reciprocity and may underpin social norms of cooperation.
    Keywords: desert, deservingness, equity, inequity aversion, loss aversion, reference-dependent preferences, guilt, reciprocity, social norms, team production
    JEL: D63 J33
    Date: 2014–08
  14. By: Manuel Foerster (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); 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: We study a stochastic model of influence where agents have "yes" or "no" inclinations on some issue, and opinions may change due to mutual influence among the agents. Each agent independently aggregates the opinions of the other agents and possibly herself. We study influence processes modeled by ordered weighted averaging operators, which are anonymous: they only depend on how many agents share an opinion. For instance, this allows to study situations where the influence process is based on majorities, which are not covered by the classical approach of weighted averaging aggregation. We find a necessary and sufficient condition for convergence to consensus and characterize outcomes where the society ends up polarized. Our results can also be used to understand more general situations, where ordered weighted averages are only used to some extent. Furthermore, we apply our results to fuzzy linguistic quantifiers, i.e., expressions like "most" or "at least a few".
    Keywords: Influence; Anonymity; Ordered weighted averaging operator; Convergence; Consensus; Fuzzy linguistic quantifier
    Date: 2013
  15. By: Herings P.J.J.; Mauleon A.; Vannetelbosch V. (GSBE)
    Abstract: We provide a tractable concept that can be used to study the influence of the degree of farsightedness on network stability. A set of networks GK is a level-K farsightedly stable set if three conditions are satisfied. First, external deviations should be deterred. Second, from any network outside of GK there is a sequence of farsighted improving paths of length smaller than or equal to K leading to some network in GK. Third, there is no proper subset of GK satisfying the first two conditions.We show that a level-K farsightedly stable set always exists and we provide a sufficient condition for the uniqueness of a level-K farsightedly stable set. There is a unique level-1 farsightedly stable set G1 consisting of all networks that belong to closed cycles. Level-K farsighted stability leads to a refinement of G1 for generic allocation rules. We then provide easy to verify conditions for a set to be level-K farsightedly stable and we consider the relationship between level-K farsighted stability and efficiency of networks. We show the tractability of the concept by applying it to a model of criminal networks.
    Keywords: Sociology of Economics; Game Theory and Bargaining Theory: General; Production and Organizations: General;
    JEL: A14 C70 D20
    Date: 2014
  16. By: Mridu Prabal Goswami (BGU)
    Abstract: This paper shows that there does not exist a social choice function that satisfies strategy-proofness, Pareto-efficiency and equal treatment of equals simultaneously, in classical exchange economies. This result establishes the incompatibility of fairness and efficiency in strategy-proof social choice functions as found in Cho and Thomson (2013), which reaches the same conclusion for exchange economies with linear preferences.
    Date: 2014
  17. By: Songzi Du; Haoxiang Zhu
    Abstract: This paper studies the welfare consequence of increasing trading speed in financial markets. We build and solve a dynamic trading model, in which traders receive private information of asset value over time and trade strategically with demand schedules in a sequence of double auctions. A stationary linear equilibrium and its efficiency properties are characterized explicitly in closed form. Slow trading (few double auctions per unit of time) serves as a commitment device that induces aggressive demand schedules, but fast trading allows more immediate reaction to new information. If all traders have the same speed, the socially optimal trading frequency tends to be low for scheduled arrivals of information but high for stochastic arrivals of information. If traders have heterogeneous trading speeds, fast traders prefer the highest feasible trading frequency, whereas slow traders tend to prefer a strictly lower frequency.
    JEL: D44 D82 G14
    Date: 2014–10
  18. By: Harold Houba (VU University Amsterdam, the Netherlands); Roland Iwan Luttens (Amsterdam University College, the Netherlands); Hans-Peter Weikard (Wageningen University, the Netherlands)
    Abstract: We include initial holdings in the jungle economy of Piccione and Rubinstein (Economic Journal, 2007) in which the unique equilibrium satisfies lexicographic welfare maximization. When we relax assumptions on consumption sets and preferences slightly, equilibria other than lexicographic welfare maximizers can be jungle equilibria. This result is due to myopia. We introduce the concept of farsightedness and show that farsighted jungle equilibria coincide with lexicographic welfare maximization. However, we also find farsighted equilibria that are Pareto inefficient since stronger agents may withhold goods from weaker agents. Here, gift giving by stronger agents is needed to achieve Pareto efficiency. We argue that even trade has a role in the jungle. Our results add to understanding coercion and the subtle role of gift giving and trade in an economy purely based on po wer relations.
    Keywords: power, coercion, jungle economy, farsightedness, withholding
    JEL: D51 D61 P52
    Date: 2014–10–30
  19. By: Stéphane Gauthier (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); Guy Laroque (IEP Paris - Sciences Po Paris - Institut d'études politiques de Paris - Institut d'Études Politiques [IEP] - Paris - PRES Sorbonne Paris Cité - Fondation Nationale des Sciences Politiques [FNSP], Department of Economics - University College London)
    Abstract: The paper identifies a necessary and sufficient condition for a deterministic local optimum to be locally improved upon by a stochastic deviation. When this condition is satisfied, a method to construct the stochastic allocations that increase the objective is provided. This technique is applied to a number of adverse selection and moral hazard problems.
    Keywords: second order conditions; constrained optimization; incentive constraints; random contracts
    Date: 2014–05

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