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on Microeconomics |
| By: | Piero Gottardi (European University Institute); Guido Ruta (NYU and University of Bologna); Alberto Bisin (New York University) |
| Abstract: | This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that shareholders always unanimously support firms' choices. In addition, equilibrium allocations have well-defined welfare properties: they are constrained efficient when information is symmetric, or when agency frictions satisfy certain specific conditions. Furthermore, equilibria may display specialization on the part of identical firms and, when equilibria are constrained inefficient, may exhibit excessive aggregate risk. Financial decisions of the corporate sector are determined at equilibrium and depend not only on the nature of financial frictions but also on the consumers' demand for risk. Financial intermediation and short sales are naturally accounted for at equilibrium. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:358&r=mic |
| By: | Jos Jansen (Department of Economics and Business Economics, Aarhus University, Denmark) |
| Abstract: | Competitive pressure is lower in markets where goods are more differentiated. I analyze how a change in the degree of horizontal product differentiation affects the incentives of duopolists to disclose quality information. If disclosure is costly, then a firm discloses high qualities but conceals low qualities in equilibrium. The higher the disclosure cost, the higher the equilibrium threshold below which firms conceal quality information. I show that the effect of product differentiation on quality disclosure depends on the cost of disclosure. For low (high) disclosure costs, a firm discloses more (less) quality information if goods become more differentiated. |
| Keywords: | Hotelling model, quality, transportation cost, product differentiation, information disclosure, disclosure cost, competitive pressure |
| JEL: | D82 D83 L13 L15 M31 |
| Date: | 2015–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2015-15&r=mic |
| By: | Jun Honda (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | In many procurement auctions, entrants determine whether to participate in auctions accounting for their roles of intermediaries who search for the best (or the cheapest) input suppliers. We build on a procurement auction model with entry, combining with intermediary search for suppliers. The novel feature is that costs of bidders are endogenously determined by suppliers who strategically charge input prices. We show the existence of an equilibrium with price dispersion for inputs, generating cost heterogeneity among bidders. Interestingly, the procurement cost may rise as the number of potential bidders increases. |
| Keywords: | Information Frictions, Search, Procurement, Auction, Vertical Relations, Entry Deterrence, Price Dispersion |
| JEL: | D43 D44 D83 L13 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp203&r=mic |
| By: | Gabriele Gratton (School of Economics, UNSW Business School, UNSW); Richard Holden (School of Economics, UNSW Business School, UNSW); Anton Kolotilin (School of Economics, UNSW Business School, UNSW) |
| Abstract: | At an exogenous deadline, Receiver must take an action, the payoff of which depends on Sender’s private binary type. Sender privately observes whether and when an opportunity to start a public flow of information about her type arrives. She then chooses when to seize this opportunity. Starting the information flow earlier exposes to greater scrutiny but signals credibility. We characterize the set of equilibria and show that Sender always delays the information flow and completely withholds it with strictly positive probability. Focusing on the stable equilibrium, we derive comparative statics, and discuss implications for organizations, politics, and financial markets. |
| Keywords: | information disclosure, strategic timing, Bayesian learning, credibility vs. scrutiny |
| JEL: | D72 D82 D83 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2015-16&r=mic |
| By: | Ying Chen (Key Laboratory of Inorganic Functional Materials and Devices - Chinese Academy of Science (CAS) - Shangai Institute of Ceramics); Sidartha Gordon (ECON - Département d'économie - Sciences Po) |
| Abstract: | We introduce a "nestedness" relation for a general class of sender-receiver games and compare equilibrium properties, in particular the amount of information transmitted, across games that are nested. Roughly, game is nested in game if the players's optimal actions are closer in game. We show that under some conditions, more information is transmitted in the nested game in the sense that the receiver's expected equilibrium payoff is higher. The results generalize the comparative statics and welfare comparisons with respect to preferences in the seminal paper of Crawford and Sobel (1982). We also derive new results with respect to changes in priors in addition to changes in preferences. We illustrate the usefulness of the results in three applications: (i) delegation to an intermediary with a different prior, the choice between centralization and delegation, and two-way communication with an informed principal. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00973071&r=mic |
| By: | Jean-François Laslier (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Karine Van Der Straeten (Institute for Advanced Study Toulouse - Institute for Advanced Study Toulouse, TSE - Toulouse School of Economics - Toulouse School of Economics) |
| Abstract: | We propose a theory of strategic voting under “Commitee Approval”: a fixed-sized commitee of M members is to be elected; each voter votes for as many candidates as she wants, and the M candidates with the most votes are elected. We assume that voter preferences are separable and that there exists a tiny probability that any vote might be misrecorded. We show that best responses involve voting by pairwise comparisons. Two candidates play a critical role: the weakest expected winner and the strongest expected loser. Expected winners are approved if and only if they are preferred to the strongest expected loser and expected losers are approved if and only if they are preferred to the weakest expected winner. At equilibrium, if any, a candidate is elected if and only if he is approved by at least half of the voters. With single-peaked preferences, an equilibrium always exists, in which the first M candidates according to the majority tournament relation are elected. |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01168767&r=mic |
| By: | Heller, C.-Philipp; Johnen, Johannes; Schmitz, Sebastian |
| Abstract: | We study road congestion as a mechanism design problem. In our basic model we analyze the allocation of a set of drivers among two roads, one of which may be congested. An additional driver on the congestible road imposes an externality on the other drivers by increasing their travel time. Each driver is privately informed about her value of time and asked to report that value to the mechanism designer, who assigns drivers to roads. With a finite number of drivers, there is aggregate uncertainty and the efficient allocation is ex ante unknown. Setting a single Pigouvian price is then not optimal. However, the efficient allocation is implementable by a Vickrey-Clarke-Groves price schedule that lets each driver pay the externality she imposes on other drivers. This allows drivers to pay to have other drivers use the slow road instead of the congestible road. As the number of drivers becomes large, there is a single optimal Pigouvian price that leads to an efficient allocation. However, finding this price requires the mechanism designer to either know the precise distribution of the value of time or the use of our mechanism. We analyze some extensions and apply our model to various congestion problems arising in other contexts. |
| Keywords: | mechanism design,congestion pricing,VCG mechanism,externalities,value of time |
| JEL: | D82 D62 R48 R41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201520&r=mic |
| By: | Yukio Koriyama (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X); Matias Nunez (CNRS and Université de Cergy-Pontoise, THEMA - [-]) |
| Abstract: | We examine the conditions under which iterative elimination of weakly dominated strategies refines the set of proper outcomes of a normal-form game. We say that the proper inclusion holds in terms of outcome if the set of outcomes of all proper equilibria in the reduced game is included in the set of all proper outcomes of the original game. We show by examples that neither dominance solvability nor the transference of decision-maker indifference condition (TDI of Marx and Swinkels [1997]) implies proper inclusion. When both dominance solvablility and the TDI condition are satisfied, a positive result arises: the game has a unique stable outcome. Hence, the proper inclusion is guaranteed. |
| Date: | 2014–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01074178&r=mic |
| By: | Edouard Challe (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Edouard Chrétien (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique) |
| Abstract: | This paper studies the outcome of a two-stage global game wherein a market-based asset price determined at the trading stage of the game provides an endogenous public signal about the fundamental that a¤ects traders' decisions in the coordination stage of the game. The microstructure of the trading stage is one in which informed traders may place market orders –rather than full demand schedules– and where a competitive market-making sector sets the price. Because market-order traders face price execution risk, they trade less aggressively on their private information than demand-schedule traders, which slows down information aggregation and limits the informativeness of the asset price. When all traders place market orders, the precision of the price signal is bounded above and the outcome of the coordination stage is unique as the noise in the private signals vanishes. More generally, in an asset market with both market-order and demand-schedule traders, the presence of the former may drastically limit the range of parameters leading to multiple equilibria. This is especially true when traders optimise over their type of order, in which case market-order traders tend to overwhelm the market when the precision of the private signal is large. |
| Date: | 2015–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01180058&r=mic |
| By: | Kohei Shiozawa (Graduate School of Economics, Osaka University) |
| Abstract: | This paper presents some substantial relationships between revealed preference tests for a data set and the shortest path problem in a network (a directed graph with weighted edges), using a simple and straightforward graph theoretic argument. We clarify the interpretation of revealed preference tests, refine Afriat inequalities, and give a unified perspective of several forms of rationalizability tests and the classical utility representation problem of preferences. Furthermore, we provide an additional graph theoretic structure, which we call the shortest path problem with weight adjustment. This is a common structure for several rationalizability tests. The proposed structure leads to effcient algorithms for checking rationalizability conditions, and for computing a solution to the Afriat inequalities if the data are rationalizable in several settings. |
| Keywords: | Revealed preference; Afriat inequalities; shortest path problem |
| JEL: | C60 D11 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1517r&r=mic |
| By: | David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) |
| Abstract: | A number of collusive agreements involve the exchange of self-reported sales data between firms, which use them to monitor compliance with a target market share allocation. This paper shows that such communication between competitors may facilitate collusion even if all private information becomes public after a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars as a tool for mutual disciplining. In some cases, efficient collusion cannot occur unless firms are able to engage in such communication. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01119959&r=mic |
| By: | Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Masayuki Yao (Graduate School of Economics, Keio University) |
| Abstract: | We consider infinite-horizon deterministic dynamic programming problems in discrete time. We show that the value function is always a fixed point of a modified version of the Bellman operator. We also show that value iteration monotonically converges to the value function if the initial function is dominated by the value function, is mapped upward by the modified Bellman operator, and satisfies a transversality-like condition. These results require no assumption except for the general framework of infinite-horizon deterministic dynamic programming. |
| Keywords: | Dynamic Programming, Bellman Operator, Fixed Point, Value Iteration |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2015-32&r=mic |
| By: | Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Rodolphe Dos Santos Ferreira (BETA - Bureau d'économie théorique et appliquée - CNRS - Université Nancy II - Université de Strasbourg) |
| Abstract: | In Keynes' beauty contest, agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents' actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general framework. Abstract In Keynes' beauty contest, agents have to choose actions in accordance with an ex-pected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive re-spectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents' actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general framework. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01116156&r=mic |