nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒07‒04
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Dynamic Mechanism Design for Scheduling with Different Use Lengths By Ryuji Sano
  2. Collective Commitment By Christian Roessler; Sandro Shelegia; Bruno Strulovici
  3. Selling to the mean By Nenad Kos; Matthias Messner
  4. Demand Analysis with Partially Observed Prices By Ian Crawford; Matthew Polisson
  5. Should Different People Have Different Governments? By Federico Boffa; Amedeo Piolatto; Giacomo Ponzetto
  6. On the properties of linear supply functions in oligopoly By F. Delbono; L. Lambertini
  7. A Tug of War Team Contest By Samuel Häfner
  8. Difference-Form Persuasion Contests By Stergios Skaperdas; Amjad Toukan; Samarth Vaidya
  9. A Simple No-Bubble Theorem for Deterministic Dynamic Economies By Takashi Kamihigashi
  10. Two-sided Altruism and Signaling By Garance Genicot
  11. A new basis and the Shapley value By Koji Yokote; Yukihiko Funaki; Yoshio Kamijo
  12. Wars of Conquest and Independence By Hentschel, Friedhelm; Hodler, Roland; Yektas, Hadi
  13. Why are Reforms incomplete? Reputation versus the "need for enemies" By Maxime MENUET; Patrick VILLIEU
  14. Robust Comparative Statics of Non-monotone Shocks in Large Aggregative Games By Carmen Camacho; Takashi Kamihigashi; Cagri Saglam

  1. By: Ryuji Sano (Institute of Economic Research, Kyoto University)
    Abstract: This paper considers a dynamic allocation problem in which many perishable goods are allocated at each period. Agents want to keep winning goods for more than one period to make profits. We consider efficient and optimal mechanisms when the seller offers simple long-term contracts. The dynamic VCG mechanism achieves efficient allocations. The expected revenue is maximized by the virtual welfare maximization. In the single unit case, price discounts for long-stay agents can be optimal under certain distributions. Both the efficient and optimal mechanisms are implemented by a simple “handicap auction” in the binary length case.
    Keywords: dynamic mechanism design, online mechanism, optimal auction
    JEL: C73 D44 D82
    Date: 2015–06
  2. By: Christian Roessler; Sandro Shelegia; Bruno Strulovici
    Abstract: We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inecient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? Under an intuitive condition linking power structures in the dynamic setting and at the commitment stage, the answer is negative: when the condition holds, the only agreement that may be reached at the outset, if any, coincides with the equilibrium without commitment. The condition is also necessary: when it fails, as in the case of a single time-inconsistent agent, commitment is valuable for some payos. We apply our result to explain inecient collective decisions in the contexts of investment in a public good, hiring, and reform.
    JEL: D70 H41 C70
    Date: 2015–06
  3. By: Nenad Kos; Matthias Messner
    Abstract: We study optimal selling strategies of a seller who is poorly informed about the buyer’s value for the object. When the maxmin seller only knows that the mean of the distribution of the buyer’s valuations belongs to some interval then nature can keep him to payoff zero no matter how much information the seller has about the mean. However, when the seller has information about the mean and the variance, or the mean and the upper bound of the support, the seller optimally commits to a randomization over prices and obtains a strictly positive payoff. In such a case additional information about the mean and/or the variance affects his payoff. JEL Code: C72, D44, D82. Keywords: Optimal mechanism design, Robustness, Incentive compatibility, Individual rationality, Ambiguity aversion.
    Date: 2015
  4. By: Ian Crawford; Matthew Polisson
    Abstract: In empirical demand, industrial organization, and labor economics, prices are often unobserved or unobservable since they may only be recorded when an agent transacts. In the absence of any additional information, this partial observability of prices is known to lead to a number of identification problems. However, in this paper, we show that theory-consistent demand analysis remains feasible in the presence of partially observed prices, and hence partially observed implied budget sets, even if we are agnostic about the nature of the missing prices. Our revealed preference approach is empirically meaningful and easy to implement. We illustrate using simple examples.
    Keywords: Demand; missing prices; partial identification; revealed preference
    JEL: D11 D12
    Date: 2015–06
  5. By: Federico Boffa (Free University of Bolzano‐Bozen, Faculty of Economics and Management); Amedeo Piolatto (Universitat de Barcelona); Giacomo Ponzetto (CREI, Universitat Pompeu Fabra, and Barcelona GSE)
    Abstract: The classic theory of …scal federalism suggests that different people should have different governments. Yet, separate local governments with homogeneous constituents often end up doing poorly. This paper explains why and answers three questions: when regions are heterogeneous, what determines if power should be centralized or decentralized? How many levels of government should there be? How should state borders be drawn? We develop a model of political agency in which voters differ in their ability to monitor rent-seeking politicians. We …find that rent extraction is a decreasing but convex function of the share of informed voters, because voter information improves monitoring but also reduces the appeal of holding office. As a consequence, information heterogeneity makes centralization appealing as a way of reducing rent extraction. Conversely, taste heterogeneity prompts decentralization as a way of matching local preferences. We also explain why the proliferation of government tiers harms efficiency. We …find economies of scope in accountability: a single government in charge of many policies has better incentives than many special-purpose governments splitting its budget. Thus, a federal system is desirable only if information varies enough across regions. Our model implies that optimal borders should cluster by tastes but also ensure diversity of information. Quantitatively, our fi…ndings suggest excessive government fragmentation in the United States.
    Keywords: federalism, government accountability, imperfect information, interregional heterogeneity, elections
    JEL: D72 D82 H73 H77
    Date: 2015–06
  6. By: F. Delbono; L. Lambertini
    Abstract: In this note we revisit the result by Menezes and Quiggin (2012), showing that under linear supply function competition, the same Nash equilibrium results when firms choose slopes or intercepts of their supply functions. This is because the first order conditions emerging in the two strategy spaces are not linearly independent.
    JEL: D43 L13
    Date: 2015–06
  7. By: Samuel Häfner (University of Basel)
    Abstract: This paper analyzes a tug of war contest between two teams. In each round of the tug of war a pair of agents from the opposing teams competes in a private value all-pay auction with asymmetric type distributions and eort eectiveness. Whichever team arrives first at a given lead in terms of battle victories over the opponent wins the tug of war. There exists a unique Markov-perfect equilibrium in bidding strategies that depend on the player's valuation and on the history through the current state of the tug of war only. We derive rich comparative statics for this equilibrium by using the fact that the states of the tug of war evolve according to a time-homogeneous absorbing Markov chain.
    Keywords: Team Contests, Multi-Stage Contests, Tug of War, All-Pay Auction, Absorbing Markov Chain
    JEL: D74 F51 H56
    Date: 2015
  8. By: Stergios Skaperdas (Department of Economics, University of California-Irvine University); Amjad Toukan (Department of Economics, Lebanese American University of Beirut); Samarth Vaidya (Department of Economics, Deakin Business School, Deakin University)
    Abstract: We explore the equilibrium properties of two types of "difference-form" persuasion contest functions derived in Skaperdas and Vaidya (2012) in which contestants spend resources to persuade an audience. We find that that both types of functions generate interior pure strategy Nash equilibria unlike Baik (1998) and Che and Gale (2000) with characteristics different to existing literature. For one type of function, we find that the reaction function of each player is "flat" and non-responsive to the level of resources devoted by the rival so that the "preemption effect" as defined by Che and Gale (2000) is absent. Further, the equilibrium is invariant to the sequencing of moves. For the second type of function which applies when there is asymmetry among contestants with regards to the quality of evidence, we find that the reaction functions of the stronger and weaker players have gradients with opposite signs relative to Dixit (1987) and therefore their incentive to pre-commit expenditures in a sequential move game is also different. For both types of functions, the extent of rent dissipation is partial. From the equilibrium analysis, we are also able to establish the potential effects of some specific factors affecting persuasion such as evidence potency, the degree of truth and bias on aggregate resource expenditures and welfare.
    Keywords: Rent-seeking; Lobbying; Litigation; Contest functions
    JEL: D70 E50 H50 H60
    Date: 2015–06
  9. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: In this paper we show a simple no-bubble theorem that applies to a wide range of deterministic economies with in nitely lived agents. In particular, we show that asset bubbles are impossible if there is at least one agent who can reduce his asset holdings permanently from some period onward. This is a substantial generalization of Kocherlakota's (1992, Journal of Economic Theory 57, 245{256) result on asset bubbles and short sales constraints; our result requires virtually no assumption except for the strict monotonicity of preferences. We also provide a substantial generalization of his result on asset bubbles and the present value of a single agent's endowment. As a consequence of these results, we extend Huang and Werner's (2000, Economic Theory 15, 253{278) no-bubble theorem to an economy with multiple assets.
    Date: 2015–06
  10. By: Garance Genicot
    Abstract: This paper shows that when donors and recipients care about each other --two-sided altruism -- the presence of asymmetry of information about the donor's income leads very naturally to a signaling game. A donor who cares about the recipient's welfare has incentives to appear richer than he is when the recipient cares about him. Similarly, asymmetry of information regarding the donor's income generates a signaling game in the presence of two-sided altruism. These signaling games put upward pressure on transfers and this pressure increases with the altruism of the recipient.
    JEL: D64 F24 O15 O16
    Date: 2015–06
  11. By: Koji Yokote (Graduate School of Economics, Waseda University); Yukihiko Funaki (Faculty of Political Science and Economics, Waseda University); Yoshio Kamijo (Kochi University of Technology, Department of Management)
    Abstract: The purpose of this paper is to introduce a new basis of the set of all TU games. Shapley (1953) introduced the unanimity game in which cooperation of all players in a given coalition yields payoff. We introduce the commander game in which only one player in a given coalition yields payoff. The set of the commander games forms a basis and has two properties. First, when we express a game by a linear combination of the basis, the coefficients related to singletons coincide with the Shapley value. Second, the basis induces the null space of the Shapley value.
    Keywords: TU game; Shapley value; Basis; Null space
    JEL: C71
    Date: 2015–01
  12. By: Hentschel, Friedhelm; Hodler, Roland; Yektas, Hadi
    Abstract: Wars of conquest and wars of independence are characterized by an asymmetry in the payoff structure: The production of one party constitutes the winner's prize, while the production of the other party is not contested. We present and solve a model of warfare, which nests this asymmetric payoff structure as well as the standard symmetric payoff structure where the winner gets aggregate production. We use this model to discuss how equilibrium behavior and outcomes depend on resource endowments and military and production technologies in asymmetric wars; and to compare equilibrium behavior and outcomes in symmetric and asymmetric wars. Among others, we find that asymmetric wars are fought less intensively, and that defending countries in wars of conquest and secessionist groups in wars of independence have higher winning probabilities in such asymmetric wars than they would have in standard symmetric wars.
    Keywords: Conflict; war; asymmetric contests
    JEL: D74 H56
    Date: 2015–06
  13. By: Maxime MENUET; Patrick VILLIEU
    Keywords: , Public Debt, Public Choice, Non-cooperative games, Reputation
    Date: 2015
  14. By: Carmen Camacho (Centre National de la Recherche Scientifique(CNRS) and Université Paris 1 Panthéon-Sorbonne, France); Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Cagri Saglam (Department of Economics, Bilkent University, Turkey)
    Abstract: A policy change that involves redistribution of income or wealth is typically controversial, affecting some people positively but others negatively. In this paper we extend the "robust comparative statics" result on large aggregative games established by Acemoglu and Jensen (2010, 49th IEEE Conference on Decision and Control, 3133-3139) to possibly controversial policy changes. In particular, we show that both the smallest and the largest equilibrium values of an aggregate variable increase in response to a policy change to which individuals' reactions may be mixed but the overall aggregate response is positive. We provide sufficient conditions for such a policy change in terms of distributional changes in parameters.
    Date: 2015–06

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