|
on Microeconomics |
| By: | Aristotelis Boukouras; Kostas Koufopoulos |
| Abstract: | We consider a general economy, where agents have private information about their types. Types can be multi-dimensional and potentially interdependent. We show that, if the realized frequency of types (the exact number of agents for each type) is common knowledge, then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique equilibrium. The result requires the single crossing property on utility functions and the anonymity of the Pareto correspondence. |
| Keywords: | adverse selection, first-best, full implementation, mechanism design, single-crossing property |
| JEL: | D71 D82 D86 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/04&r=mic |
| By: | David Ettinger; Fabio Michelucci |
| Abstract: | We show that jump bids can be used by a bidder to create a winner's curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The eect of the winner's curse is to create allocative distortions and reduce the seller's expected revenue. Two novel features of equilibrium jump bids are also derived. First, the jump bid may partially reveal the value of the signal that the jump bid intends to hide. Second, the probability of calling a price might decrease with the type of the bidder who places the jump bid. |
| Keywords: | auctions; efficiency; jump bids; winner'scurse; |
| JEL: | D44 D82 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp537&r=mic |
| By: | Vittorio Larocca (ETH Zurich, Switzerland) |
| Abstract: | This paper investigates competition among financial intermediaries in a finite-trader version of the Diamond and Dybvig (1983) economy under no aggregate uncertainty. The economy is populated by self-interested financial intermediaries that compete strategically over deposit contracts offered to consumers. Both exclusive and nonexclusive competition perspective are considered, in both cases multiple equilibria arise if banks do not have an initial endowment. When financial intermediaries have a sufficient level of endowment, regardless the competition perspective adopted, the first best allocation is the unique equilibrium allocation. |
| Keywords: | financial intermediation; deposit contracts. |
| JEL: | D82 G21 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:15-213&r=mic |
| By: | Elena L. del Mercato (Paris School of Economics - Centre d'Economie de la Sorbonne); Vincenzo Platino (Paris School of Economics - Centre d'Economie de la Sorbonne) |
| Abstract: | We consider a general equilibrium model of a private ownership economy with consumption and production externalities. Utility functions and production technologies may be affected by the consumption and production activities of all other agents in the economy. We use differential techniques to show that the set of competitive equilibria is non-empty and compact. Fixing the externalities, the assumptions on utility functions and production technologies are standard in a differentiable framework. Competitive equilibria are written in terms first-order conditions associated with agents' behavior and market clearing conditions, following the seminal work by Smale (1974). Adapting differential techniques to economies with externalities is non trivial and it requires some ingenious adjustments, because the production technologies are not required to be convex with respect to the consumption and production activities of all agents |
| Keywords: | Externalities; private ownership economy; competitive equilibrium; differentiable approach |
| JEL: | C62 D51 D62 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:15034&r=mic |
| By: | R. Emre Aytimur; Aristotelis Boukouras; Robert Schwagerz |
| Abstract: | We present a modified citizen-candidate model where the implemented policy arises from a compromise between the government and an unelected external power. We show that the two-candidate equilibria of this model differ significantly from the original: however small the cost of candidacy, the distance between the candidates' policies, both ideal and implemented, remains strictly above a threshold. Moreover, there may be one-candidate equilibria in which the only candidate is not the one most preferred by the median voter. Both results point out that, even with negligible cost of entry, there are limits to strategic delegation. |
| Keywords: | elections, polarization, strategic delegation, bureaucracy, foreign influence |
| JEL: | D72 D78 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/03&r=mic |
| By: | Jean-Michel Benkert; Nick Netzer |
| Abstract: | A nudge is a non-coercive paternalistic intervention that attempts to improve choices by manipulating the framing of a decision problem. As any paternalism, it faces the difficulty of determining the appropriate welfare criterion. We propose a welfare-theoretic foundation for nudging similar in spirit to the classic revealed preference approach, by investigating a model where preferences and mistakes of an agent have to be elicited from her choices under different frames. We provide characterizations of the classes of behavioral models for which nudging is possible or impossible. For the case where nudging is possible in principle, we derive results on the required quantity of information. |
| Keywords: | Nudge, framing, behavioral welfare economics |
| JEL: | D03 D04 D60 D82 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:190&r=mic |
| By: | Aristotelis Boukouras |
| Abstract: | This paper provides a theoretical model for explaining the separation of ownership and control in fi rms. An entrepreneur hires a worker for providing effort to complete a project. The worker's effort determines the probability that the project is completed on time, but the worker receives private benefit s for every period she is employed. We show that hiring a manager on a short-term contract may increase firm value and we identify the conditions under which separation of ownership and control is optimal. |
| Keywords: | commitment problem, control rights, control structure, moral hazard, private bene t, separation of ownership and control, soft-budget constraint, strategic delegation |
| JEL: | D86 G34 J31 L22 L26 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:15/02&r=mic |
| By: | Jean J. Gabszewicz (CORE UniversitŽ Catholique de Louvain); Marco A. Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Ornella Tarola (Dipartimento di Scienze sociali ed economiche, Universita' degli Studi di Roma "La Sapienza") |
| Abstract: | This paper studies how the possibility for firms to sign collusive agreements (as for instance being part of alliances, cartels and mergers) may affect their quality and price choice in a market with vertically differentiated goods. For this purpose we model the firm decisions as a three-stage game in which, at the first stage, firms can form an alliance via a sequential game of coalition formation and, at the second and third stage, they decide simultaneously their product qualities and prices, respectively. In such a setting we study whether there exist circumstances under which either full or partial collusion can be sustained as a subgame perfect Nash equilibrium of the coalition formation game. Also, we analyse the effects of different coalition structures on equilibrium qualities, prices and profits accruing to firms. It is shown that only intermediate coalition structures arise at the equilibrium, with the bottom quality firm always included. Moreover, all equilibrium price and quality configurations always coincide with that observed in the duopoly case, with only two quality variants on sale. |
| Keywords: | Vertically differentiated market ; endogenous alliance formation ; coalition structures ; price collusion ; grand coalition ; coalition stability ; sequential games of coalition formation |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:aeg:report:2015-06&r=mic |
| By: | Pablo Kurlat |
| Abstract: | This paper proposes a theory of liquidity dynamics. Illiquidity results from asymmetric information. Observing the historical track record teaches agents how to interpret public information and helps overcome information asymmetry. There can be an illiquidity trap: too much asymmetric information leads to the breakdown of trade, which interrupts learning and perpetuates illiquidity. Liquidity falls in response to unexpected events that lead agents to question their valuation models, especially in newer markets, may be slow to recover after a crisis and is higher in periods of stability. |
| JEL: | D82 D83 G14 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21118&r=mic |
| By: | F. Delbono; L. Lambertini |
| Abstract: | This paper aims at participating in the long-lasting debate about the analytical foundations of the Cournot equilibrium. In a homogeneous oligopoly, under standard regularity conditions, we prove that Cournot-Nash emerges both under (i) price competition and Cournot conjectures; and (ii) supply function competition with ex post market clearing. We demonstrate both results within a model of exogenous product differentiation. |
| JEL: | D43 L13 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1003&r=mic |
| By: | Aghion, Philippe (Harvard University); Fehr, Ernst (University of Zurich); Holden, Richard (University of New South Wales); Wilkening, Tom (University of Melbourne) |
| Abstract: | In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullo's subgame perfect implementation mechanism induces truth-telling in practice, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good's value. We find that Moore-Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. This failure to implement truth-telling is due to beliefs about the irrationality of one's trading partner. Therefore, although the mechanism should – in theory – provide incentives for truth-telling, many buyers in fact believe that they can increase their expected monetary payoff by lying. The deviations from truth-telling become significantly more frequent and more persistent when agents face small amounts of uncertainty regarding the good's value. Our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of Moore-Repullo mechanisms in practice. |
| Keywords: | implementation theory, incomplete contracts, experiments |
| JEL: | D23 D71 D86 C92 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8971&r=mic |
| By: | Remorov, Alexander |
| Abstract: | I analyze a model with heterogeneous investors who have incorrect beliefs about fundamentals. Investors think that they are right at first, but over time realize that they are wrong. The speed of the realization depends on investor confidence in own beliefs and arrival of new information. The model provides a tractable and clear link for how changing opinions translate into equilibrium dynamics for price, holdings, and expected profits. I am able to generate a wide range of realistic market behaviors, including momentum and reversals, as well as support and resistance levels in prices due to investors being reluctant to admit they are wrong. |
| Keywords: | Asset Pricing, Learning, Being Wrong, Heterogeneous Beliefs, Behavioral Finance |
| JEL: | G11 G12 G14 |
| Date: | 2015–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:63964&r=mic |
| By: | Anne-Christine Barthel (Department of Economics and Business, Randolph College); Tarun Sabarwal (Department of Economics, University of Kansas) |
| Abstract: | Many questions of interest can be stated in terms of monotone comparative statics: if a parameter of a constrained optimization problem “increases,” when does its solution “increase” as well. This paper studies monotone comparative statics in different directions in finite-dimensional Euclidean space. The conditions on the objective function are ordinal and retain the same flavor as their counterparts in the standard theory. They can be naturally specialized to cardinal conditions, and to differential conditions using directional derivatives. Conditions on both the objective function and the constraint set do not require new binary relations or convex domains. The results allow flexibility to explore comparative statics with respect to the constraint set, with respect to parameters in the objective function, or both. Results from Quah (2007) are included as a special case. Several examples highlight applications of the results. |
| Keywords: | monotone comparative statics, directional single-crossing property, directional set order |
| JEL: | C60 C61 D10 D20 D40 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201412&r=mic |