nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒03‒27
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Conditional Contribution Mechanism for the Provision of Public Goods By Reischmann, Andreas
  2. Information and Online Reviews By Oksana Loginova; Andrea Mantovani
  3. The Implementation Duality By Georg Nöldeke; Larry Samuelson
  4. Revealed Preference and Aggregation By Laurens Cherchye; Ian Crawford; Bram De Rock; Frederic Vermeulen
  5. Maximin Envy-Free Division of Indivisible Items By Brams, Steven; Kilgour, Marc; Klamler, Christian
  6. Rational Expectations Equilibria: Existence and Representation By Bhowmik, Anuj; Cao, Jiling
  7. Stable Observable Behavior By Heller, Yuval; Mohlin, Erik
  8. Connected Price Dynamics with Revealed Preferences and Auctioneer's Discretion in VCG Combinatorial Auction By Hitoshi Matsushima
  9. Countervailing incentives in adverse selection models. A synthesis By Aguirre Pérez, Iñaki; Beitia Ruiz de Mendarozqueta, María Aranzazu

  1. By: Reischmann, Andreas
    Abstract: Many mechanisms have been designed to solve the free-rider problem in public good environments. The designers of those mechanisms focused on good static equilibrium properties. In this paper, I propose a new mechanism for the provision of public goods that has good dynamic properties instead. The mechanism gives all agents the possibility to condition their contribution on the total level of contribution provided by all agents. Under a reasonable variant of Better Response Dynamics all equilibrium outcomes are Pareto efficient. This makes the mechanism particularly suited for repeated public good environments. In contrast to many previously suggested mechanisms, it does further not require an institution that has the power to enforce participation and/or transfer payments. Neither does it use any knowledge of agents preferences.
    Keywords: Mechanism Design; Public Goods; Better Response Dynamics.
    Date: 2015–03–17
  2. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia); Andrea Mantovani
    Abstract: Online review aggregators, such as TripAdvisor, HotelClub and OpenTable help consumers identify the products and services that best match their preferences. The goal of this study is to understand the impact of online review aggregators on firms and consumers. We adopt Salop's circular city model in which consumers initially do not know the locations of the firms in the product space. The firms decide whether or not to be listed on an online review aggregator's website and choose their prices. When a firm resorts to the aggregator, its location and price become observable to the consumers who visit the website. We consider two different scenarios, depending on the possibility for online firms to offer discounts to the consumers who book online. We show that in equilibrium not all firms will go online -- some will remain offline. Online firms attract more customers than their offline counterparts due to reduced mismatch costs, but face a tougher price competition. Comparing the equilibrium prices, profits and the number of firms that go online across the scenarios, we derive interesting conclusions from the private and the social standpoints.
    Keywords: online review aggregators, price discrimination, competition
    JEL: C72 D43 D61 L11 L13 M31
    Date: 2015–03–12
  3. By: Georg Nöldeke; Larry Samuelson (University of Basel)
    Abstract: We use the theory of abstract convexity to study adverse-selection principal-agent problems and two-sided matching problems, departing from much of the literature by not requiring quasilinear utility. We formulate and characterize a basic underlying implementation duality. We show how this duality can be used to obtain a sharpening of the taxation principle, to obtain a general existence result for solutions to the principal-agent problem, to show that (just as in the quasilinear case) all increasing decision functions are implementable under a single crossing condition, and to obtain an existence result for stable outcomes featuring positive assortative matching in a matching model.
    Keywords: Implementation, Duality, Galois Connection, Imperfectly Transferable Utility, Principal-Agent Model, Two-Sided Matching
    JEL: C62 C78 D82 D86
    Date: 2015
  4. By: Laurens Cherchye; Ian Crawford; Bram De Rock; Frederic Vermeulen
    Date: 2014–08
  5. By: Brams, Steven; Kilgour, Marc; Klamler, Christian
    Abstract: Assume that two players have strict rankings over an even number of indivisible items. We propose algorithms to find allocations of these items that are maximin—maximize the minimum rank of the items that the players receive—and are envy-free and Pareto-optimal if such allocations exist. We show that neither maximin nor envy-free allocations may satisfy other criteria of fairness, such as Borda maximinality. Although not strategy-proof, the algorithms would be difficult to manipulate unless a player has complete information about its opponent’s ranking. We assess the applicability of the algorithms to real-world problems, such as allocating marital property in a divorce or assigning people to committees or projects.
    Keywords: Fair division; indivisible items; maximin; envy-free
    JEL: C7 D63 D7
    Date: 2015–03–22
  6. By: Bhowmik, Anuj; Cao, Jiling
    Abstract: In this paper, we continue to explore the equilibrium theory under ambiguity. For a model of a pure exchange and asymmetric information economy with a measure space of agents whose exogenous uncertainty is described by a complete probability space, we establish a representation theorem for a Bayesian or maximin rational expectations equilibrium allocation in terms of a state-wise Walrasian equilibrium allocation. This result also strengthens the theorems on the existence and representation of a (Bayesian) rational expectations equilibrium or a maximin rational expectations equilibrium in the literature.
    Keywords: Asymmetric information; Bayesian rational expectations equilibrium; Maximin rational expectations equilibrium; Pure exchange economy; Walrasian equilibrium.
    JEL: D51 D82
    Date: 2015–03–24
  7. By: Heller, Yuval; Mohlin, Erik
    Abstract: We study stable behavior when players are randomly matched to play a game, and before the game begins each player may observe how his partner behaved in a few interactions in the past. We present a novel modeling approach and we show that strict Nash equilibria are always stable in such environments. We apply the model to study the Prisoner's Dilemma. We show that if players only observe past actions, then defection is the unique stable outcome. However, if players are able to observe past action profiles, then cooperation is also stable. Finally, we present extensions that study endogenous observation probabilities and the evolution of preferences.
    Keywords: Evolutionary stability, random matching, indirect reciprocity, secret handshake, submodularity, image scoring.
    JEL: C72 C73 D01
    Date: 2015–03–19
  8. By: Hitoshi Matsushima (The University of Tokyo)
    Abstract: We investigate a general class of dynamical open-bid combinatorial auction protocols termed price-demand procedures, where the auctioneer asks buyer-dependent price vectors and buyers reveal demand sets. Such revelations are easier to practice than the revelations of entire valuations at once. With revealed preference activity rule and connectedness, we characterize the class of all procedures that achieve the VCG outcome correctly. Since buyers can detect whether the auctioneer succeeds to achieve the VCG outcome just by observing the history, they can leave the selection of procedure the auctioneer’s discretion. The auctioneer can save irrelevant information leakage by selecting a signal-contingent shortcut.
    Date: 2015–02
  9. By: Aguirre Pérez, Iñaki; Beitia Ruiz de Mendarozqueta, María Aranzazu
    Abstract: In this paper we propose a simple method of characterizing countervailing incentives in adverse selection problems. The key element in our characterization consists of analyzing properties of the full information problem. This allows solving the principal problem without using optimal control theory. Our methodology can also be applied to different economic settings: health economics, monopoly regulation, labour contracts, limited liabilities and environmental regulation.
    Keywords: countervailing incentives, adverse selection
    JEL: D82 L50
    Date: 2014–12

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