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on Microeconomics |
| By: | Kiyohiko G. Nishimura (The University of Tokyo); Hiroyuki Ozaki S (Keio University) |
| Abstract: | In this paper, we extend the concept of rational-expectations equilibrium, from a traditional single-belief framework to a multi-belief one. In the traditional framework of single belief, agents are supposed to know the equilibrium price “correctly.†We relax this requirement in the framework of multiple beliefs. While agents do not have to know the equilibrium price exactly, they must be correct in that it must be always contained in the support of each probability distribution they think possible. We call this equilibrium concept a multibelief rational-expectations equilibrium. We then show that such an equilibrium exists, that indeterminacy and complexity of equilibria can happen even when the degree of risk aversion is moderate and, in particular, that a decreasing price sequence can be an equilibrium. The last property is highlighted in a linear-utility example where any decreasing price sequence is a multi-belief rational-expectations equilibrium while only possible single-belief rational-expectations equilibrium price sequences are those which are constant over time. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf354&r=mic |
| By: | Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CATT - Centre d'Analyse Théorique et de Traitement des données économiques) |
| 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; information; inferences; asymmetric information; arbitrage |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01053471&r=mic |
| By: | Thierry Chauveau (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | Although it is endowed with many interesting properties, the theory of decision-making under risk by Loomes and Sugden [1986] has never been given an axiomatics. In this paper, we make up for this omission because their lottery-dependent functional is endowed with many interesting properties to which little attention has been paid up to now. In particular, investors whose preferences are represented by the functional are rational in that (a) they actually behave differently if they are risk averse or risk prone, (b) risk is defined in a consistent way with risk aversion, (c) the functional is but the opposite to a convex measure of risk (Föllmer ans Schied [2002]) when constant marginal utility is assumed and (d) violations of the second-order stochastic dominance property are allowed for when "utils" are substituted for monetary values. Moreover, the partial weak order induced by stochastic dominance over utils is as "close" to the weak order of preferences as possible and utility functions may be elicited through experimental testing. |
| Keywords: | Disappointment; risk-aversion; expected utility; risk premium; stochastic dominance; subjective risk |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01025102&r=mic |
| By: | Michele Lombardi (University of Glasgow); Yoshihara Naoki (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | We study Nash implementation by natural price-quantity mechanisms in pure exchange economies with free-disposal (Saijo et al., 1996, 1999) where agents have weak/strong intrinsic preferences for honesty (Dutta and Sen, 2012). Firstly, the Walrasian rule is shown to be non-implementable where all agents have weak (but not strong) intrinsic preferences for honesty. Secondly, the class of efficient allocation rules that are implementable is identified provided that at least one agent has strong intrinsic preferences for honesty. Lastly, the Walrasian rule is shown to belong to that class. |
| Keywords: | Natural implementation, Nash equilibrium, exchange economies, intrinsic preferences for honesty. |
| JEL: | C72 D71 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2014-09&r=mic |
| By: | Ismail M.S. (GSBE) |
| Abstract: | In this note, we introduce a new sufficient condition, called sign-quasiconcavity, on the existence of a pure equilibrium in two-person symmetric zerosum games, which generalizes both generalized ordinal potentials Monderer and Shapley, 1996 and quasiconcavity Duerschet al., 2012. |
| Keywords: | Noncooperative Games; |
| JEL: | C72 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2014035&r=mic |
| By: | Pierre Chaigneau; Alex Edmans; Daniel Gottlieb |
| Abstract: | The informativeness principle demonstrates qualitative benefits to increasing signal precision. However, it is difficult to quantify these benefits -- and compare them against the costs of precision -- since we typically cannot solve for the optimal contract and analyze how it changes with informativeness. We consider a standard agency model with risk-neutrality and limited liability, where the optimal contract is a call option. The direct effect of reducing signal volatility is a fall in the value of the option, benefiting the principal. The indirect effect is a change in the agent's effort incentives. If the original option is sufficiently out-of-the-money, the agent can only beat the strike price if he exerts effort and there is a high noise realization. Thus, a fall in volatility reduces effort incentives. As the agency problem weakens, the gains from precision fall towards zero, potentially justifying pay-for-luck. |
| JEL: | D86 J33 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20542&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:journl:halshs-01020398&r=mic |
| By: | Sayantan Ghosal; Simone Tonin |
| Abstract: | In this paper, we extend the non-cooperative analysis of oligopoly to exchange economies with innitely many commodities by using strategic market games. This setting can be in- terpreted as a model of oligopoly with dierentiated commodities by using the Hotelling line. We prove the existence of an \active" Cournot-Nash equilibrium and show that, when traders are replicated, the price vector and the allocation converge to the Wal- ras equilibrium. We examine how the notion of oligopoly extends to our setting with a coutable innity of commodities by distinguishing between asymptotic oligopolists and asymptotic price-takers. We illustrate these notions via a number of examples. |
| JEL: | C72 D43 D50 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2014_15&r=mic |
| By: | Manzoni, Elena; Penczynski, Stefan |
| Abstract: | This paper models a purely informational mechanism behind the incumbency advantage. In a two-period electoral campaign with two policy issues, a specialized incumbent and an unspecialized, but possibly more competent challenger compete for election by voters who are heterogeneously informed about the state of the world. Due to the asymmetries in government responsibility between candidates, the incumbent's statement may convey information on the relevance of the issues to voters. In equilibrium, the incumbent sometimes strategically releases his statement early and thus signals the importance of his signature issue to the voters. We find that, since the incumbent's positioning on the issue reveals private information which the challenger can use in later statements, the incumbent's incentives to distort the campaign are decreasing in his quality, as previously documented by the empirical literature. The distortions arising in equilibrium are decreasing in the incumbent's effective ability; however, the distortions may be increasing in the incumbent's reputation of expertise on his signature issue. |
| Keywords: | Incumbency advantage , electoral competition , information revelation , agenda setting |
| JEL: | D72 D82 D60 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mnh:wpaper:37189&r=mic |
| 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) |
| Abstract: | We present a non-cooperative union-firm wage bargaining model in which the union must choose between strike and holdout if a proposed wage contract is rejected. The innovative element that our model brings to the existing literature on wage bargaining, concerns the parties' preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. First, we determine subgame perfect equilibria if the strike decision of the union is exogenous. We analyze the case when the union is committed to strike in each disagreement period, the case when the union is committed to strike only when its own offer is rejected, and the case of the never strike exogenous decision. A comparison of the results is provided, among the cases of the exogenous strike decisions. Next, we consider the general model with no assumption on the commitment to strike. We find subgame perfect equilibria in which the strategies supporting the equilibria in the exogenous cases are combined with the minimum-wage strategies, provided that the firm is not less patient than the union. If the firm is more impatient than the union, then the firm is better off by playing the no-concession strategy. We find a subgame perfect equilibrium for this case. |
| Keywords: | union - firm bargaining ; alternating offers ; varying discount rates ; subgame perfect equilibrium |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00975533&r=mic |
| By: | Di Maggio, Marco; Pagano, Marco |
| Abstract: | We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, issuers will oppose both the disclosure of fundamentals and trading transparency. Issuers may either under- or over-provide information compared to the socially efficient level if speculators have more bargaining power than hedgers, while they never under-provide it otherwise. When hedgers have low financial literacy, forbidding their access to the market may be socially efficient. |
| Keywords: | disclosure,transparency,financial literacy,limited attention,OTC markets |
| JEL: | D83 D84 G18 G38 K22 M48 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:485&r=mic |
| By: | E. Agliardi; R. Agliardi; W. Spanjers |
| Abstract: | This paper addresses the following unresolved questions: Why do some firms issue equity instead of debt? Why did most firms retain their cash holdings instead of distributing them as dividends in recent times? How do firms change their financing policies during a period of severe financial constraints and ambiguity, or when facing the threat of an unpredictable financial crisis? We analyze how the values of the firm’s equity and debt are affected by ambiguity. We also show that cash holdings are retained longer if the investors’ ambiguity aversion bias is sufficiently large, while cash holdings become less attractive when the combined impact of ambiguity and ambiguity aversion is relatively low. |
| JEL: | G30 G32 D01 D81 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp979&r=mic |