|
on Microeconomics |
| By: | Simone Cerreia Vioglio; Fabio Maccheroni; Massimo Marinacci |
| Abstract: | We characterize the consistency of a large class of nonexpected utility preferences (including mean-variance preferences and prospect theory preferences) with stochastic orders (for example, stochastic dominances of different degrees). Our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision makers preferences. As an illustration, we consider in some detail prospect theory and choice-acclimating preferences, two popular models of reference dependence under risk, and we show the incompatibility of loss aversion with prudence. JEL classi cation: D81 Keywords: Stochastic dominance, integral stochastic orders, nonexpected utility, risk aversion, multi utility representation, prospect theory, choice-acclimating personal equilibria |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:549&r=mic |
| By: | Yasushi Asako (School of Political Science and Economics, Waseda University) |
| Abstract: | This study develops a war-of-attrition model with the asymmetric feature that one player can be defeated by the other but not vice versa; that is, only one player has an exogenous probability of being forced to capitulate. With complete information, the equilibria are almost identical to the canonical war-of-attrition model. On the other hand, with incomplete information on a players robustness, a war where both players ght for some duration emerges. Moreover, a player who is never defeated may capitulate in equilibrium, and this player will give in earlier if the other players ghting costs are greater. |
| Keywords: | war, attrition, Bayesian learning, asymmetric robustness |
| JEL: | C72 D82 D83 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1420&r=mic |
| By: | Hafalir Isa; Kurnaz Musab |
| Abstract: | We consider multi-unit discriminatory auctions where ex-ante symmetric bidders have single-unit demands and resale is allowed after the bidding stage. When bidders use the optimal auction to sell the items in the resale stage, the equilibrium without resale is not an equilibrium. We find a symmetric and monotone equilibrium when there are two units for sale, and, interestingly, show that there may not be a symmetric and monotone equilibrium if there are more than two units. |
| URL: | http://d.repec.org/n?u=RePEc:cmu:gsiawp:1153281920&r=mic |
| By: | Vincent Anesi (Department of Economics, University of Nottingham); John Duggan (Department of Political Science and Department of Economics, University of Rochester) |
| Abstract: | This note examines the structure of stationary bargaining equilibria in the finite framework of Anesi (2010). The main result establishes a tight connection between the set of equilibrium absorbing points and the von Neumann-Morgestern solutions: assuming that players are patient, that the voting rule is oligarchical, and that there is at least one veto player with positive recognition probability, a set of alternatives corresponds to the absorbing points of an equilibrium if and only if it is a von Neumann-Morgenstern solution. We also apply our analysis of ergodic properties of equilibria to the persistent agenda setter environment of Diermeier and Fong (2012). We show that all equilibria are essentially pure, and we extend their characterization of absorbing sets to allow an arbitrary voting rule and by removing the restriction to pure strategy equilibira. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-12&r=mic |
| By: | Alessandro Fedele (Free University of Bolzano‐Bozen, Faculty of Economics and Management); Luca Panaccione (DEDI and CEIS, Università Tor Vergata) |
| Abstract: | By deferring a significant portion of managers' remuneration, managers bear the risk of their choices for a longer period of time and avoid excessive risk taking. The effectiveness of this mechanism is jeopardized if managers reshuffle their pay packages; this is possible when trades in the components of pay packages are not verifiable. In this paper, we investigate the relevance of trade verifiability in pay packages design. We analyze a principal-agent model with agent's compensation made of different commodities which can be exchanged on competitive markets at given prices. We consider both the case when trades in commodities are verifiable, and when they are not. We prove that an optimal contract when trades are verifiable remains optimal when trades are not verifiable if agent's preferences for commodities are independent of the action performed. We provide examples to illustrate what happens when preferences' independence fails. |
| Keywords: | Pay package reshuffling, Principal-agent model, Independent preferences |
| JEL: | D82 D86 J33 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps28&r=mic |
| By: | Rene Kirkegaard (Department of Economics and Finance, University of Guelph) |
| Abstract: | I extend the canonical moral hazard model to allow the agent to face endogenous and non-contractible uncertainty. The agent works for the principal and simultaneously pursues private rewards. I establish conditions under which the first-order approach remains valid. The model adds to the literature on intrinsic versus extrinsic motivation. Specifically, to induce higher effort at work the contract may offer higher rewards but flatter incentives. The contract change makes the agent reevaluate his “work-life balanceâ€. Larger employment rewards lessens the incentive to pursue private rewards. The greater reliance on labor income then necessitates weaker explicit incentives to induce high effort. |
| Keywords: | First-Order Approach, Intrinsic Motivation, Moral Hazard, Multi-tasking, Principal-Agent Models, Private Rewards |
| JEL: | D82 D86 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2015-04&r=mic |
| By: | Vincent Anesi (School of Economics, University of Nottingham); John Duggan (Department of Political Science and Department of Economics, University of Rochester) |
| Abstract: | We show that dynamic bargaining games are characterized by a continuum of stationary Markov perfect equilibria, when the set of alternatives is multidimensional and players are patient. In fact, we show that there is a continuum of equilibria close to any alternative satisfying a simple linear independence condition on the players’ gradients. The approach extends the construction of simple solutions from Anesi and Seidmann (2015) to the spatial setting. The implication is that constructive techniques, which involve an explicit specification of a particular equilibrium and are common in the literature, implicitly rely on a restrictive selection of equilibria. |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-01&r=mic |
| By: | Igal Milchtaich (Bar-Ilan University) |
| Abstract: | Polyequilibrium is a generalization of Nash equilibrium that is applicable to any strategic game, whether finite or otherwise, and to dynamic games, with perfect or imperfect information. It differs from equilibrium in specifying strategies that players do not choose and by requiring an after-the-fact justification for the exclusion of these strategies rather than the retainment of the non-excluded ones. Specifically, for each excluded strategy of each player there must be a non-excluded one that responds to every profile of non-excluded strategies of the other players at least as well as the first strategy does. A polyequilibrium’s description of the outcome of the game may be more or less specific, depending on the number and the identities of the non-excluded strategy profiles. A particular property of the outcome is said to hold in a polyequilibrium if it holds for all non-excluded profiles. Such a property does not necessarily hold in any Nash equilibrium in the game. In this sense, the generalization proposed in this work extends the set of justifiable predictions concerning a game’s results. |
| Keywords: | Polyequilibrium, Polystrategy, Coarsening of Nash equilibrium, Subgame perfection, Bayesian perfection |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2015-06&r=mic |
| By: | Yasushi Asako (School of Political Science and Economics, Waseda University) |
| Abstract: | This study develops a political competition model in which campaign platforms are partially binding. A candidate who implements a policy that differs from his/her platform must pay a cost of betrayal, which increases with the size of the discrepancy. I also assume that voters are uncertain about candidatespolicy preferences. If voters believe that a candidate is likely to be extreme, there exists a semi-separating equilibrium: an extreme candidate imitates a moderate candidate, with some probability, and approaches the median policy with the remaining probability. Although an extreme candidate will implement a more extreme policy than will a moderate candidate, regardless of imitation or approach, partial pooling ensures that voters prefer an extreme candidate who does not pretend to be moderate over an uncertain candidate who announces an extreme platform. As a result, a moderate candidate never has a higher probability of winning than does an extreme candidate. |
| Keywords: | electoral competition, voting, campaign promise, signaling game |
| JEL: | C72 D72 D82 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1411&r=mic |
| By: | Vincenzo Platino (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS); Elena L. Del Mercato (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS) |
| Abstract: | We consider a general equilibrium model of a private ownership economy with consumption and production externalities. The choices of all agents (households and firms) may affect utility functions and production technologies. The equilibrium notion blends Arrow-Debreu with Nash, that is, agents (households and firms) maximize their goals by taking as given both commodity prices and choices of every other agent in the economy. We provide an example showing that under standard assumptions, such economies may have infinitely many equilibria. We present our model with firms' endowments following Geanakoplos, Magill, Quinzii and Drèze (1990). Firms' endowments consist of amounts of commodities held by the firms to generate receipts from sales of initially-held stocks of commodities and claims from debts, subsidies and taxes expressible in terms of them. We prove that almost all economies are regular in the space of endowments of households and firms. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01162039&r=mic |
| By: | Georgy Egorov |
| Abstract: | In most elections, voters care about several issues, but candidates may have to choose only a few to build their campaign on. The information that voters will get about the politician depends on this choice, and it is therefore a strategic one. In this paper, I study a model of elections where voters care about the candidates' competences (or positions) over two issues, e.g., economy and foreign policy, but each candidate may only credibly signal his competence or announce his position on at most one issue. Voters are assumed to get (weakly) better information if the candidates campaign on the same issue rather than on different ones. I show that the first mover will, in equilibrium, set the agenda for both himself and the opponent if campaigning on a different issue is uninformative, but otherwise the other candidate may actually be more likely to choose the other issue. The social (voters') welfare is a non-monotone function of the informativeness of different-issue campaigns, but in any case the voters are better off if candidates are free to pick an issue rather than if an issue is set by exogenous events or by voters. If the first mover is able to reconsider his choice in case the follower picked a different issue, then politicians who are very competent on both issues will switch. If voters have superior information on a politician's credentials on one of the issues, this politician is more likely to campaign on another issue. If voters care about one issue more than the other, the politicians are more likely to campaign on the more important issue. If politicians are able to advertise on both issues, at a cost, then the most competent and well-rounded will do so. This possibility makes voters better informed and better off, but has an ambiguous effect on politicians' utility. The model and the results may help understand endogenous selection of issues in political campaigns and the dynamics of these decisions. |
| JEL: | D72 D82 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21265&r=mic |
| By: | Montagnes, B, Pablo; Wolton, Stephane |
| Abstract: | Previous studies of the bureaucracy have focused on the internal relationship between politicians (principals) and bureaucrats (agents). External regulated actors, such as firms, have generally been ignored. But firms strategically respond to their regulatory environment and regulatory uncertainty can deter investment. We examine how concerns about firms' strategic behavior affect the optimal internal organization of the bureaucracy. When regulatory uncertainty is about how much firms will be regulated, the ally principle applies: the principal delegates to an agent with similar preferences as hers. When regulatory uncertainty is about whether firms will be regulated, the ally principle fails to hold: the principal prefers an inefficient rule-based regulatory framework or, if possible, to delegate to an agent with preferences distinct from hers to encourage firm investment. We uncover novel endogenous limits to delegation since the principal faces a commitment problem not to replace a biased agent after the firm investment. |
| Keywords: | Regulatory Uncertainty, Ally Principle, Firm Investment |
| JEL: | D70 D73 D78 |
| Date: | 2015–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65047&r=mic |
| By: | Jan-Henrik Steg; Jacco Thijssen |
| Abstract: | In this paper we analyse a dynamic model of investment under uncertainty in a duopoly, in which each firm has an option to switch from the present market to a new market. We construct a subgame perfect equilibrium in mixed strategies and show that both preemption and attrition can occur along typical equilibrium paths. In order to determine the attrition region a two-dimensional constrained optimal stopping problem needs to be solved, for which we characterize the non-trivial stopping boundary in the state space. We explicitly determine Markovian equilibrium stopping rates in the attrition region and show that there is always a positive probability of eventual preemption, contrasting the deterministic version of the model. A simulation-based numerical example illustrates the model and shows the relative likelihoods of investment taking place in attrition and preemption regions. |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1506.04698&r=mic |
| By: | MATIAS IARYCZOWER; SANTIAGO OLIVEROS |
| Abstract: | We consider a class of dynamic collective action problems in which either a single principal or two competing principals vie for the support of members of a group. We focus on the dynamic problem that emerges when agents negotiate and commit their support to principals sequentially. A danger for the agents in this context is that a principal may be able to succeed by exploiting competition among members of the group. Would agents benefit from introducing competition between opposing principals? We show that when principals’ policies provide value to the agents, competition actually reduces agents’ welfare. |
| Date: | 2015–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:768&r=mic |
| By: | Montes, Rodrigo; Sand-Zantman, Wilfried; Valletti, Tommaso |
| Abstract: | This paper investigates the effects of price discrimination on prices, profits and consumer surplus, when one or more competing firms can use consumers' private information to price discriminate and consumers can pay a privacy cost to avoid it. While a monopolist always benefits from higher privacy costs, this is not true in the competing duopoly case. In this last case, firms' individual profits are decreasing while consumer surplus is increasing in the privacy cost. Finally, under competition, we show that the optimal selling strategy for the owner of consumer data consists in dealing exclusively with one firm in order to create maximal competition between the winner and the loser of data. This brings ineficiencies, and we show that policy makers should concentrate their attention on exclusivity deals rather than making it easier for consumers to protect their privacy. |
| Keywords: | Privacy, Information, Price Discrimination |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:29368&r=mic |
| By: | Mazurek, Jiří |
| Abstract: | The aim of the paper is to provide several quantitative measures concerning preference structure in a group decision making setting. These measures enable to assess group and individual discord, core preferences and outliers, or to find a consensus, where a consensus is defined as a preference with a minimum sum of distances to other preferences. Also, it is shown that a distance of a consensus to a median preference is upper bounded, which might reduce a search for a consensus significantly. |
| Keywords: | consensus; decision making; distance; discord; geometric median; group decision making; group discord; preference; preference structure. |
| JEL: | D7 D70 |
| Date: | 2015–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64998&r=mic |
| By: | Englmaier, Florian; Fahn, Matthias |
| Abstract: | The corporate finance literature documents that managers tend to overinvest into physical assets. A number of theoretical contributions have aimed to explain this stylized fact, most of them focussing on a fundamental agency problem between shareholders and managers. The present paper shows that overinvestments are not necessarily the (negative) consequence of agency problems between shareholders and managers, but instead might be a second-best optimal response if the scope of court-enforceable contracts is limited. In such an environment a firm has to rely on relational contracts in order to manage the agency relationship with its workforce. The paper shows that investments into physical productive assets enhance the enforceability of relational contracts and hence investments optimally are “too highâ€. |
| Keywords: | relational contracts; corporate finance; capital investments |
| JEL: | C73 D21 D86 G32 |
| Date: | 2014–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:506&r=mic |
| By: | Moraga-González, José-Luis; Sándor, Zsolt; Wildenbeest, Matthijs |
| Abstract: | We study price formation in a model of consumer search for differentiated products when consumers have heterogeneous marginal search costs. We provide conditions under which a symmetric Nash equilibrium exists and is unique. Search costs affect two margins—the intensive search margin (or search intensity) and the extensive search margin (or the decision to search rather than to not search at all). These two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density. When the search cost density has the increasing likelihood ratio property (ILRP), the effect of lowering search costs on the intensive search margin has a dominating influence and prices decrease. By contrast, when the search cost density has the decreasing likelihood ratio property (DLRP), the effect on the extensive search margin is dominant and lower search costs result in higher prices. We compare these results with those obtained when consumers have heterogeneous fixed search costs. |
| Keywords: | differentiated products; monotone likelihood ratio; search cost heterogeneity; sequential search |
| JEL: | D43 D83 L13 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10657&r=mic |