nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒08‒25
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information-Revelation and Coordination Using Cheap Talk in a Game with Two-Sided Private Information By Ganguly, Chirantan; Ray, Indrajit
  2. Feasibility and individual rationality in two-person Bayesian games By Francoise Forges; Ulrich Horst; Antoine Salomon
  3. Unanimity in Attribute-Based Preference Domains By Sidartha Gordon
  4. From Rationality to Irrationality : Dynamic Interacting Structures By Pierre Gosselin; Aïleen Lotz; Marc Wambst
  5. Bargaining through Approval By Matias Nunez; Jean-François Laslier
  6. Demand analysis with partially observed prices By Ian Crawford; Matthew Polisson
  7. A mechanism design approach to the Tiebout hypothesis By Jehiel, Philippe; Lamy, Laurent
  8. Economic Features of the Internet and Network Neutrality By Nicholas Economides
  9. Constrained Efficiency and Equilibrium Without Commitment By Victor Filipe Martins da Rocha; Yiannis Vailakis
  10. On the Nature and Stability of Sentiments By Gaetano Gaballo; Ryan Chahrour
  11. On the Equilibrium and Welfare Consequences of Keeping Up With The Joneses By Frédéric Gavrel; Thérèse Rebière
  12. A Reputational Theory of Firm Dynamics By Moritz Meyer-ter-Vehn; Simon Board
  13. A conjecture about the efficiency of first price mechanisms By Endre Cs\'oka
  14. Matching in Closed-Form: Equilibrium, identification, and comparative statics By Raicho Bolijov; Alfred Galichon
  15. A Cournot triopoly with two identical producers By Alina Szuz; Anna Agliari; Tonu Puu
  16. Time-Consistent Institutional Design By Martin Ellison; Charles Brendon
  17. Research and Development of an Optimally Regulated Monopolist with Unknown Costs By Ismail Saglam

  1. By: Ganguly, Chirantan; Ray, Indrajit (Cardiff Business School)
    Abstract: We consider a Bayesian game, namely the Battle of the Sexes with private information, in which each player has two types, High and Low. We allow cheap talk regarding players’ types before the game and prove that the unique fully revealing symmetric cheap talk equilibrium exists for a low range of prior probability of the High-type. This equilibrium has a desirable type-coordination property: it fully coordinates on the ex-post efficient pure Nash equilibrium when the players’ types are different. Type-coordination is also obtained in a partially revealing equilibrium in which only the High-type is not truthful, for a medium range of prior probability of the High-type.
    Keywords: Battle of the Sexes; Private Information; Cheap Talk; Coordination; Full Revelation
    JEL: C72
    Date: 2015–06
  2. By: Francoise Forges (CEREMADE - Université Paris Dauphine (Paris 9), LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine); Ulrich Horst (Department of Mathematics - Humboldt University Berlin); Antoine Salomon (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine)
    Abstract: We define feasible, posterior individually rational solutions for two-person Bayesian games with a single informed player. Such a solution can be achieved by direct signalling from the informed player and requires approval of both players after the signal has been sent. Without further assumptions on the Bayesian game, a solution does not necessarily exist. We show that, if the uninformed player has a "uniform punishment strategy"against the informed one, the existence of a solution follows from the existence of Nash equilibrium in infinitely repeated games with lack of information on one side. We consider the extension of the result when both players have private information. We are grateful to
    Date: 2014–11–25
  3. By: Sidartha Gordon (ECON - Département d'économie - Sciences Po)
    Abstract: We provide several characterizations of unanimity decision rules, in a public choice model where preferences are constrained by attributes possessed by the alternatives (Nehring and Puppe, 2007a,b). Solidarity conditions require that when some parameters of the economy change, the agents whose parameters are kept fixed either all weakly lose or they all weakly win. Population-monotonicity (Thomson, 1983a,b) applies to the arrival and departure of agents, while replacement-domination (Moulin,1987) applies to changes in preferences. We show that either solidarity property is compatible with voter-sovereignty and strategy-proofness if and only if the attribute space is quasi-median (Nehring, 2004), and with Pareto-efficiency if and only if the attribute space is a tree. Each of these combinations characterizes unanimity.
    Date: 2014–09
  4. By: Pierre Gosselin (IF - Institut Fourier - CNRS - Grenoble 1 UJF - Université Joseph Fourier); Aïleen Lotz (Cerca Trova - Aucune); Marc Wambst (IRMA - Institut de Recherche Mathématique Avancée - CNRS - Université de Strasbourg)
    Abstract: This article develops a general method to solve dynamic models of interactions between multiple strategic agents that extends the static model studied previously by the authors. It describes a general model of several interacting agents, their domination relations as well as a graph encoding their information pattern. It provides a general resolution algorithm and discusses the dynamics around the equilibrium. Our model explains apparent irrational or biased individual behaviors as the result of the actions of several goal-specific rational agents. Our main example is a three-agent model describing " the conscious " , " the unconscious " , and " the body ". We show that, when the unconscious strategically dominates, the equilibrium is unconscious-optimal, but body and conscious-suboptimal. In particular, the unconscious may drive the conscious towards its goals by blurring physical needs. Our results allow for a precise account of agents' time rate preference. Myopic behavior among agents leads to oscillatory dynamics : each agent, reacting sequentially, adjusts its action to undo other agents' previous actions. This describes cyclical and apparently inconsistent or irrational behaviors in the dual agent. This cyclicality is present when agents are forward-looking, but can be dampened depending on the conscious sensitivity to other agents' actions.
    Date: 2015–02–15
  5. By: Matias Nunez (Thema, Université de Cergy-Pontoise - THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS); 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)
    Abstract: The paper considers two-person bargaining under Approval Voting. It first proves the existence of pure strategy equilibria. Then it shows that this bargaining method ensures that both players obtain at least their average and median utility level in equilibrium. Finally it proves that, provided that the players are partially honest, the mechanism triggers sincerity and ensures that no alternative Pareto dominates the outcome of the game.
    Date: 2015–06
  6. By: Ian Crawford (Institute for Fiscal Studies and University of Oxford); Matthew Polisson (Institute for Fiscal Studies and University of Leicester)
    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 identiï¬cation 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
  7. By: Jehiel, Philippe; Lamy, Laurent
    Abstract: We revisit the Tiebout hypothesis in a world in which agents may possess private information as to how they value the various public goods in the various locations, and jurisdictions are free to choose whatever mechanism to attract citizens possibly after making some investments. It is shown that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare. Limitations of the result are discussed.
    Keywords: competing exchange platforms; competing mechanisms; endogenous entry; free riding; local public goods; mechanism design; Tiebout hypothesis
    JEL: D82 H4
    Date: 2015–08
  8. By: Nicholas Economides (Stern School of Business, New York University. 44 West 4th Street, New York, NY 10012)
    Abstract: We discuss the issue of a possible abolition of network neutrality and the introduction of paid prioritization by residential broadband access networks.We show that, in short run analysis where bandwidth is fixed, and in the absence of congestion, network neutrality tends to maximize total surplus. When an ISP violates network neutrality and invests the extra profits to bandwidth expansion, the presence of more bandwidth alleviates the allocative distortion, and can even reverse it. We also discuss the network neutrality issue under the assumption of congestion, and characterize the set of utility functions for which network neutrality is optimal, as well as utility functions where it is optimal to prioritize. Finally, we review regulatory rules in the United States on network neutrality.
    Keywords: Internet, pricing, network neutrality, price discrimination, prioritization
    JEL: D43 L11 L1
    Date: 2015–04
  9. By: Victor Filipe Martins da Rocha (EESP - Sao Paulo School of Economics - FGV - Fundação Getulio Vargas, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS - Université Paris IX - Paris Dauphine); Yiannis Vailakis (Adam Smith Business School - University of Glasgow)
    Abstract: We consider an infinite horizon economy where agents share income risks by trading a complete set of contingent claims but cannot commit to their promises. Allocations are restricted to be self-enforcing relative to autarchic reservation utilities. Under the assumption of uniform gains to trade, we characterize constrained Pareto efficiency, prove a constrained version of the Second Welfare Theorem and establish the existence of a constrained competitive equilibrium as defined by Kehoe and Levine (1993). Our results extend those in Bloise and Reichlin (2011) in several aspects.
    Date: 2014–12–18
  10. By: Gaetano Gaballo (Banque de France); Ryan Chahrour (Boston College and Toulouse School of Economics)
    Abstract: We show that non-trivial aggregate fluctuations may originate with vanishingly-small common shocks to either information or fundamentals. These 'sentiment' fluctuations can be driven by self-fulfilling variation in either first-order beliefs (as in Benhabib et al., 2015) or higher-order beliefs (as in Angeletos and La'O, 2013), due to an endogenous signal structure. We analyze out-of-equilibrium best-response functions in the underlying coordination game to study whether sentiment equilibria are stable outcomes of a convergent process. We find that limiting sentiment equilibria are generally unattainable under both higher-order belief and adaptive learning dynamics, whereas equilibria without sentiment shocks show strong stability properties. Away from the limit case, however, multiple noisy rational expectations equilibria may be stable.
    Date: 2015
  11. By: Frédéric Gavrel (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1); Thérèse Rebière (IZA Bonn)
    Abstract: This paper provides an analysis of the social consequences of people seeking to keep up with the Joneses. All individuals attempt to reach a higher rank than the Joneses, including the Joneses themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale in this equilibrium. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Unexpectedly, numerical simulations show that this theory could account for the observed distribution of intermediate wages.
    Date: 2015–06–01
  12. By: Moritz Meyer-ter-Vehn (UCLA); Simon Board (University of California - Los Angeles)
    Abstract: We propose a firm lifecycle model in which the firm privately invests in its quality and thereby its reputation. Over time, both the firm and the market learn about the firm's evolving quality via infrequent breakthroughs. The firm can also exit if its value becomes negative, giving rise to selection effects. In a pure-strategy equilibrium, incentives are single-peaked: the firm shirks immediately following a breakthrough, works for intermediate levels of reputation and shirks again when it is about to exit. This investment behavior yields predictions for the distribution of firm productivity and the survival rate. Finally, we compare the model to two variants: one in which the firm's investment is publicly observed, and a second in which the firm has private information about its product quality.
    Date: 2015
  13. By: Endre Cs\'oka
    Abstract: We present different versions of a conjecture which would express that first price mechanisms never work very badly in a very general class of problems. The definitions include most of the problems where there is a principal (seller) who has the right to exclude others from the game. The exact definitions are motivated by the "first price mechanism" in E Cs: "Efficient Teamwork", but the conjecture is relevant for most auction problems, e.g. for combinatorial auctions.
    Date: 2015–04
  14. By: Raicho Bolijov (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X); Alfred Galichon (Department of Economics, Ecole Polytechnique - CNRS - Polytechnique - X)
    Abstract: This paper provides closed-form formulas for a multidimensional two-sided matching problem with transferable utility and heterogeneity in tastes. When the matching surplus is quadratic, the marginal distributions of the characteristics are normal, and when the heterogeneity in tastes is of the continuous logit type, as in Choo and Siow (2006), we show that the optimal matching distribution is also jointly normal and can be computed in closed form from the model primitives. Conversely, the quadratic surplus function can be identified from the optimal matching distribution, also in closed-form. The analytical formulas make it computationally easy to solve problems with even a very large number of matches and allow for quantitative predictions about the evolution of the solution as the technology and the characteristics of the matching populations change.
    Date: 2014–10
  15. By: Alina Szuz (Independent researcher); Anna Agliari (Catholic University of Sacred Heart); Tonu Puu (Center for Regional Science, Umeå University, Umeå, Sweden)
    Abstract: In the present paper we analyze a Cournot oligopoly with three competitors, and we assume that two of them behave in the same way. Therefore the game reduces to a duopoly competition. We assume an iso-elastic demand function derived from a Cobb-Douglas utility function and linear costs. Furthermore the competitors adjust their moves giving a weight ߠ to the best calculated reply and another ሺ1 − ߠሻ for their own previous move. The adjustment process shows that the Cournot equilibrium point loses stability through a Neimark-Sacker bifurcation of subcritical type and this implies that diferent attractors may coexist. We show that the different attractors appear and/or disappear due to the occurrence of homoclinic and border collision bifurcations.
    Keywords: Cournot oligopoly; two-dimensional piecewise discrete map; subcritical Neimark-Sacker bifurcation; homoclinic bifurcation.
    Date: 2015–08
  16. By: Martin Ellison (University of Oxford); Charles Brendon (University of Cambridge)
    Abstract: This paper reconsiders normative policy design in environments subject to time inconsistency problems, a  la Kydland and Prescott (1977). In these environments there are generally gains to making binding promises about future policy conduct, in the form of an institutional target or mandate. However decisionmakers at different points in time have different preferences about the best promises to make and to keep. We consider the implications of choosing these promises according to a Pareto criterion. A sequence of promises is Pareto efficient if there is no alternative sequence that all current and future policymakers would prefer to switch to. This criterion has the advantage that it can be applied recursively, in environments where, by definition, no policy is recursively Ramsey-optimal. Recursive Pareto efficiency thus provides an appealing normative alternative to standard Ramsey policy. We characterise outcomes in a general setting when promises are chosen to be recursively Pareto efficient. Three examples, explored throughout the paper, highlight how this approach to policy design avoids features of Ramsey policy that are commonly identified as problematic.
    Date: 2015
  17. By: Ismail Saglam (Department of Economics, Ipek University)
    Abstract: This paper studies whether a monopolist with private marginal cost information has incentives to make cost-reducing innovations through research and development (R&D) when its output and price are regulated according to the incentive-compatible mechanism of Baron and Myerson (1982). Under several assumptions concerning the cost of R&D and the regulator's beliefs about the marginal cost, we characterize the optimal level of R&D activities for the regulated monopolist when these activities are observed by the regulator as well as when they are not. We show that the regulated monopolist always chooses a higher level of R&D activities when its activities are unobserved. In situations where the social welfare attaches a sufficiently high weight to the monopolist welfare, the monopolist's R&D activities in the unobservable case even realize at a higher level than its activities when its output and price are not regulated. Moreover, whenever R&D activities increase productive efficiency, a less efficient monopolist would choose a higher level of R&D activities than a more efficient monopolist, irrespective of the observability of R&D.
    Keywords: Monopoly, Regulation,Research and Development
    JEL: D82 L51 O32
    Date: 2015–07

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