nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒07‒25
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Peer Effects and Incentives By Matthias Kräkel
  2. Intrinsically Motivated Agents in Teams By Ester Manna
  3. Information Design By Ina A Taneva
  4. Symmetric equilibria in stochastic timing games By Steg, Jan-Henrik
  5. Competing with Asking Prices By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  6. Strategic Delegation under Cost Asymmetry By F. Delbono; L. Lambertini; L. Marattin
  7. Limited Capacity in Project Selection: Competition Through Evidence Production By Raphael Boleslavsky; Christopher Cotton
  8. Tacit Collusion in Repeated Contests with Noise By Boudreau, James W.; Shunda, Nicholas
  9. Darwinian Adverse Selection By Wolfgang Kuhle
  10. Stochastic Search Equilibrium By Giuseppe Moscarini; Fabien Postel-Vinay
  11. Axiomatization of the Choquet integral for heterogeneous product sets By Mikhail Timonin
  12. Three Models of Noncooperative Oligopoly in Markets with a Continuum of Traders By Francesca BUSETTO; Giulio CODOGNATO; Sayantan GHOSSAL
  13. Reputational Learning and Network Dynamics By Simpson Zhang; Mihaela van der Schaar
  14. Political Selection and the Concentration of Political Power By Andreas Grunewald; Emanuel Hansen; Gert Poenitzsch
  15. Endogenous Intermediation in Over-the-Counter Markets By Babus, Ana; Hu, Tai-Wei
  16. Existence and Stability of Dynamic Exchange Equilibria By Craig McLaren

  1. By: Matthias Kräkel
    Abstract: In a multi-agent setting, individuals often compare own performance with that of their peers. These comparisons in?uence agents? incentives and lead to a noncooperative game, even if the agents have to complete independent tasks. I show that depending on the interplay of the peer effects, agents?efforts are either strategic complements or strategic substitutes. I solve for the optimal monetary incentives that complement the peer effects and show that the principal prefers sequential effort choices of the agents to choosing efforts simultaneously.
    Keywords: externalities, moral hazard, other-regarding preferences
    JEL: C72 D03 D86
    Date: 2014–10
  2. By: Ester Manna (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: I develop a principal-agent model where a profit-maximizing principal employs two agents to undertake a project. The employees differ in terms of their intrinsic motivation towards the project and this is their private information. I analyze the impact of individual and team incentives on the screening problem of employees with different degrees of motivation within teams. If the principal conditions each agent's wage on his own level of effort (individual incentives), an increase of the rents paid to the motivated agents results in a lower level of effort exerted by all agents in the second-best. In this case, reversal incentives occur. Conversely, reversal incentives do not arise if the principal uses team-incentives. If the principal conditions each agent's wage on the effort of both agents and the agent's performance on the effort of his colleague (team-incentives), motivated agents exert the same level of effort as in the first-best.
    Keywords: Intrinsically Motivated Agents, Team Production, Adverse Selection, Individual and team incentives, Reversal Incentives.
    JEL: D03 D82 M54
    Date: 2015
  3. By: Ina A Taneva
    Abstract: There are two ways of creating incentives for interacting agents to behave in a desired way. One is by providing appropriate payoff incentives, which is the subject of mechanism design. The other is by choosing the information that agents observe, which we refer to as information design. We consider a model of symmetric information where a designer chooses and announces the information structure about a payoff relevant state. The interacting agents observe the signal realizations and take actions which affect the welfare of both the designer and the agents. We characterize the general finite approach to deriving the optimal information structure for the designer - the one that maximizes the designer's ex ante expected utility subject to agents playing a Bayes Nash equilibrium. We then apply the general approach to a symmetric two state, two agent, and two actions environment in a parameterized underlying game and fully characterize the optimal information structure: it is never strictly optimal for the designer to use conditionally independent private signals; the optimal information structure may be a public signal or may consist of correlated private signals. Finally, we examine how changes in the underlying game affect the designer's maximum payoff. This exercise provides a joint mechanism/information design perspective.
    Keywords: informtion design, implementation, incomplete information, Bayes correlated equilibrium, sender-receiver games
    JEL: C72 D72 D82 D83
    Date: 2015–02–11
  4. By: Steg, Jan-Henrik (Center for Mathematical Economics, Bielefeld University)
    Abstract: We construct subgame-perfect equilibria with mixed strategies for symmetric stochastic timing games with arbitrary strategic incentives. The strategies are qualitatively different for local first- or second-mover advantages, which we analyse in turn. When there is a local second-mover advantage, the players may conduct a war of attrition with stopping rates that we characterize in terms of the Snell envelope from the general theory of optimal stopping, which is very general but provides a clear interpretation. With a local first-mover advantage, stopping typically results from preemption and is abrupt. Equilibria may differ in the degree of preemption, precisely at which points it is triggered. We provide an algorithm to characterize where preemption is inevitable and to establish the existence of corresponding payoff-maximal symmetric equilibria.
    Keywords: Stochastic timing games, mixed strategies, subgame perfect equilibrium, Snell envelope, optimal stopping
    Date: 2015–07–17
  5. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the implications of this pricing mechanism for transaction prices and allocations.
    Keywords: asking prices, directed search, inspection costs, efficiency
    JEL: C78 D44 D82 D83 L11 R31 R32
    Date: 2015–05–26
  6. By: F. Delbono; L. Lambertini; L. Marattin
    Abstract: We revisit the two-stage duopoly game with strategic delegation and asymmetric technologies of Sen and Stamatopoulos (2015). We show that their conclusions are misled by the restrictive assumption that the extent of delegation to managers is restricted to a binary set. Allowing for a continuous set of delegation incentives, we prove that the delegation stage is a prisonersdilemma, the unique subgame perfect equilibrium entailing both fi…rms hiring managers. At equilibrium, the more efficient …firm makes higher profi…ts.
    JEL: D43 L13
    Date: 2015–07
  7. By: Raphael Boleslavsky (University of Miami); Christopher Cotton (Queen's University)
    Abstract: An organization must decide which proposals to fund. In evaluating the proposals, the organization may rely on those applying for funding to produce evidence about the merits of their own proposals. We consider the role of a capacity constraint preventing the organization from funding all projects. Agents produce more (Blackwell) informative evidence about the merits of their proposals when there are capacity constraints. In a two agent model, we fully characterize the equilibrium under unlimited and limited capacity. Unless the prior strongly favors accepting both proposals, the funding organization is better off when its capacity is limited.
    Keywords: strategic search, evidence production, persuasion, lobbying, all-pay auction, Bayesian persuasion
    JEL: D72 D78 D83 L15
    Date: 2015–06
  8. By: Boudreau, James W.; Shunda, Nicholas
    Abstract: We analyze the determinants of tacit collusion in an infinitely repeated contest with noise in the contest success function. Sustaining collusion via Nash reversion strategies is easier the more noise there is, and is more difficult the larger is the contest's prize value. An increase in the contest's number of players can make sustaining collusion either more or less difficult.
    Keywords: Contest, Conflict, Collusion, Noise
    JEL: C72 C73 D72 D74
    Date: 2015–07–17
  9. By: Wolfgang Kuhle
    Abstract: We develop a model to study the role of rationality in economics and biology. The model's agents differ continuously in their ability to make rational choices. The agents' objective is to ensure their individual survival over time or, equivalently, to maximize profits. In equilibrium, however, rational agents who maximize their objective survival probability are, individually and collectively, eliminated by the forces of competition. Instead of rationality, there emerges a unique distribution of irrational players who are individually not fit for the struggle of survival. The selection of irrational players over rational ones relies on the fact that all rational players coordinate on the same optimal action, which leaves them collectively undiversified and thus vulnerable to aggregate risks.
    Date: 2015–07
  10. By: Giuseppe Moscarini (Yale University); Fabien Postel-Vinay (Departement d'Economie de Sciences Po)
    Abstract: We study equilibrium wage and employment dynamics in a class of popular search models with wage posting, in the presence of aggregate productivity shocks. Firms offer and commit to (Markov) contracts, which specify a wage contingent on all payoff-relevant states, but must pay equally all of their workers, who have limited commitment and are free to quit at any time. We find sufficient conditions for the existence and uniqueness of a stochastic search equilibrium in such contracts, which is Rank Preserving [RP]: larger and more productive firms offer more generous contracts to their workers in all states of the world. On the RP equilibrium path, turnover is always efficient as workers always move from less to more productive firms. The resulting stochastic dynamics of firm size provide an intuitive explanation for the empirical finding that large employers have more cyclical job creation (Moscarini and Postel-Vinay, 2012). Finally, computation of RP equilibrium contracts is tractable.
    Keywords: Equilibrium Job Search; Dynamic Contracts; Stochastic Dynamics
    JEL: J64 J31 D86
    Date: 2013–10
  11. By: Mikhail Timonin
    Abstract: We prove a representation theorem for the Choquet integral model. The preference relation is defined on a two-dimensional heterogeneous product set $X = X_1 \times X_2$ where elements of $X_1$ and $X_2$ are not necessarily comparable with each other. However, making such comparisons in a meaningful way is necessary for the construction of the Choquet integral (and any rank-dependent model). We construct the representation, study its uniqueness properties, and look at applications in multicriteria decision analysis, state-dependent utility theory, and social choice. Previous axiomatizations of this model, developed for decision making under uncertainty, relied heavily on the notion of comonotocity and that of a "constant act". However, that requires $X$ to have a special structure, namely, all factors of this set must be identical. Our characterization does not assume commensurateness of criteria a priori, so defining comonotonicity becomes impossible.
    Date: 2015–07
  12. By: Francesca BUSETTO (Università degli Studi di Udine, Dipartimento di Scienze Economiche e Statistiche); Giulio CODOGNATO (Università degli Studi di Udine, Dipartimento di Scienze Economiche e Statistiche); Sayantan GHOSSAL (University of Warwick, Department of Economics)
    Abstract: In this paper, we reconstruct the main developments of the theory of noncooperative oligopoly in general equilibrium by focusing on the analysis of three prototypical models for pure exchange economies: the Cournot-Walras equilibrium model of Codognato and Gabszewicz (1991), the Cournot-Nash equilibrium model originally proposed by Lloyd S. Shapley and known as the “window†model, and the Cournot-Walras equilibrium model of Busetto et al. (2008). We establish in a systematic manner the relationship between the three notions of equilibrium proposed in these models and the notion of Walras equilibrium. We then investigate the relationships linking these three notions of equilibrium.
    Keywords: Noncooperative oligopoly, Cournot-Walras equilibria, Cournot-Nash equilibria
    JEL: C72 D51
    Date: 2013–12–01
  13. By: Simpson Zhang; Mihaela van der Schaar
    Abstract: In many real world networks agents are initially unsure of each other's qualities and learn about each other over time via repeated interactions. This paper is the first to provide a methodology for studying the formation of such networks, taking into account that agents differ from each other, that they begin with incomplete information, and that they must learn through observations which connections/links to form and which to break. The network dynamics in our model vary drastically from the dynamics emerging in models of complete information. With incomplete information and learning, agents who provide high benefits will develop high reputations and remain in the network, while agents who provide low benefits will drop in reputation and become ostracized. We show, among many other things, that the information to which agents have access and the speed at which they learn and act can have tremendous impact on the resulting network dynamics. Using our model, we can also compute the \textit{ex ante} social welfare given an arbitrary initial network, which allows us to characterize the socially optimal network structures for different sets of agents. Importantly, we show through examples that the optimal network structure depends sharply on both the initial beliefs of the agents, as well as the rate of learning by the agents.
    Date: 2015–07
  14. By: Andreas Grunewald; Emanuel Hansen; Gert Poenitzsch
    Abstract: This paper studies the effects of power-concentrating institutions on the quality of political selection, i.e., the voters' capacity to identify and empower well-suited politicians. In our model, candidates are heterogeneous in two unobservable quality aspects: ability and public-spiritedness. As voters can only base their ballots on the candidates' binding policy proposals, low-quality candidates face incentives to mimic their high-quality counterparts and a selection problem arises. We nd that powerconcentrating institutions amplify this selection problem as they increase electoral stakes and thus the incentives for mimicking. However, they also allocate more political power to the voters' preferred candidate. As a consequence, the optimal institutional setting depends on the con ict of interest between voters and candidates. The larger the con ict of interest, the smaller is the level of power concentration that maximizes voter welfare. A complete concentration of power in the hands of the election winner is optimal if and only if the con ict of interest is small.
    Keywords: Elections, Constitutional Design, Selection, Asymmetric Information
    JEL: D72 D82 H11
    Date: 2015–04
  15. By: Babus, Ana; Hu, Tai-Wei
    Abstract: We provide a theory of trading through intermediaries in OTC markets. The role of intermediaries is to sustain unsecured trade. When agents trade without collateral, total surplus can increase. In our model, traders are connected through a network. Agents observe their neighbors' actions, and can trade with their counterparty in a given period through a path of intermediaries in the network. If trade is unsecured, agents can renege on their obligations. We show that trading through a network is essential to support unsecured trade, when agents infrequently meet the same counterparty in the market. However, intermediaries must receive fees to have the incentive to implement unsecured trades. While trade without collateral can be sustained in many networks, the efficiency gains are higher in a star network. The center agent in a star can receive higher fees as well. Moreover, concentrated intermediation is a stable structure, when agents incur linking costs.
    Keywords: dynamic network formation; over-the-counter trading; strategic default
    JEL: D85 G14 G21
    Date: 2015–07
  16. By: Craig McLaren (Department of Economics, University of California Riverside)
    Abstract: Economic general equilibrium results when the forces of supply and demand bring market participants into agreement as to the prices at which good should sell, and the quantities that should be sold. While it has been shown mathematically, that such exchange prices and quantities can be simultaneously determined for all goods in an economy, a mechanism that describes how such equilibria are achieved in practice has never been proposed. This paper demonstrates that such equilibria result naturally from the dynamic interaction of market participants. The dynamic interaction modeled in this paper can be used to study the interaction of demographic groups, which drives the evolution of a community. This model should also be useful in studying the effects of public policy and other external factors on markets.
    Keywords: Dynamic General General Equalibrium, Existence, Stability, Dynamic Tatonnement
    JEL: D51 C62
    Date: 2015–07

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