nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒09‒11
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. When and How the Punishment Must Fit the Crime By George J. Mailath; Volker Nocke; Lucy White
  2. Goal Bracketing and Self-Control By Alice Hsiaw
  3. "Satisficing and Stochastic Choice" By Victor Aguiar; Maria Jose Boccardi; Mark Dean
  4. Intra Firm Bargaining and Shapley Values By Brügemann, Björn; Gautier, Pieter A.; Menzio, Guido
  5. Fair Reallocation in Economies with Single-Peaked Preferences By Kazuhiko Hashimoto; Takuma Wakayama
  6. A strategic implementation of the sequential equal surplus division rule for digraph cooperative games By Sylvain Béal; Eric Rémila; Philippe Solal
  7. Self-Consistency and Common Prior in Non-Partitional Knowledge Models By Luciana C. Fiorini; José A. Rodrigues-Neto
  8. Evidential equilibria: Heuristics and biases in static games of complete information Working Paper Version By Ali al-Nowaihi; Sanjit Dhami
  9. Optimal Taxation with Behavioral Agents By Emmanuel Farhi; Xavier Gabaix

  1. By: George J. Mailath; Volker Nocke; Lucy White
    Abstract: In repeated normal-form (simultaneous-move) games, simple penal codes (Abreu,1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes.We show that the logic of simple penal codes fails in repeated extensive-form games. By means of examples, we identify two types of settings in which a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation.
    Keywords: Simple Penal Code, Subgame Perfect Equilibrium, Repeated Extensive Game, Optimal Punishment
    JEL: C70 C72 C73
    Date: 2015–02
  2. By: Alice Hsiaw (Brandeis University)
    Abstract: This paper studies the role of goal bracketing to attenuate time inconsistency. When setting non-binding goals in multi-stage project, an agent must also decide how and when to evaluate himself against such goals. In particular, he can bracket broadly by setting an aggregate goal for the entire project, or narrowly by setting incremental goals for individual stages. In the presence of loss aversion and uncertainty over outcomes, this decision involves a trade-off between motivation and comparative disutility due to ex-ante uncertainty. Narrow goal bracketing can be used as an instrument to counteract the self-control problem, while broad goal bracketing can itself generate apparently erroneous behavior such as the sunk cost fallacy. The sequential nature of decision-making introduces a differential reaction to outcome uncertainty based on its timing, which determines the optimal bracketing choice.
    Date: 2015–08
  3. By: Victor Aguiar; Maria Jose Boccardi; Mark Dean
    Abstract: #
    Date: 2015
  4. By: Brügemann, Björn (VU University Amsterdam); Gautier, Pieter A. (VU University Amsterdam); Menzio, Guido (University of Pennsylvania)
    Abstract: The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.
    Keywords: intra firm bargaining, Shapley value
    JEL: D21 J30
    Date: 2015–08
  5. By: Kazuhiko Hashimoto; Takuma Wakayama
    Abstract: We consider the problem of fairly reallocating the individual endowments of a perfectly divisible good among agents with single-peaked preferences. We provide a new concept of fairness, called position-wise envy-freeness, that is compatible with individual rationality. This new concept requires that each demander (i.e., agent whose most preferred amount is strictly greater than his endowment) should not envy another demander who does not receive his endowment and that each supplier (i.e., agent whose most preferred amount is strictly less than his endowment) should not envy another supplier who does not receive his endowment. We establish that a rule is efficient, individually rational, strategy-proof, and position-wise envy-free if and only if it is the gradual uniform rule, which is an extension of the well-known uniform rule.
    Date: 2015–09
  6. By: Sylvain Béal (CRESE EA3190, Univ. Bourgogne Franche-Comté); Eric Rémila (Université de Saint-Etienne, CNRS UMR 5824 GATE Lyon Saint-Etienne); Philippe Solal (Université de Saint-Etienne, CNRS UMR 5824 GATE Lyon Saint-Etienne)
    Abstract: We provide a strategic implementation of the sequential equal surplus division rule (Béal et al., 2014). Precisely, we design a non-cooperative mechanism of which the unique subgame perfect equilibrium payoffs correspond to the sequential equal surplus division outcome of a superadditive rooted tree TU-game. This mechanism borrowed from the bidding mechanism designed by Pérez-Castrillo and Wettstein (2001), but takes into account the direction of the edges connecting any two players in the rood tree, which reflects some dominance relation between them
    Keywords: Bidding approach, Implementation, Rooted tree TU-games, Sequential equal surplus division
    JEL: C71
    Date: 2015–06
  7. By: Luciana C. Fiorini; José A. Rodrigues-Neto
    Abstract: In non-partitional models of knowledge with objective and subjective state spaces, the issue of self-consistency arises. The present paper de?nes a multigraph Gj for each player j, and also a global multigraph G. The posteriors of player j are self-consistent if and only if all cycle equations associated with cycles in Gj are satis?ed. Similarly, the posteriors of all players are consistent with a common prior when all cycle equations corresponding to the cycles in G are satis?ed. In particular, the self-consistency of player j is automatic when Gj is acyclic. Consistency always holds when G is acyclic, regardless of any probabilistic information. There is a simple formula to check for the acyclicity of Gj , and another formula to check for the acyclicity of G.
    Keywords: consistency, correspondence, cycle, knowledge, partition, prior, posterior
    JEL: C02 D80 D82 D83
    Date: 2014–12
  8. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence from a large number of static games including the prisoners dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in one-shot games, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like-minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept: evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We illustrate these concepts in the context of the prisoners dilemma game.
    Keywords: Evidential reasoning, game theory, cognitive bias, prisoners dilemma game, oligopoly games, conservative heuristics, radical heuristics, decision making.
    JEL: D03
    Date: 2015–08
  9. By: Emmanuel Farhi; Xavier Gabaix
    Abstract: This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities) and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to a rich set of novel economic insights. We also show how to incorporate nudges in the optimal taxation frameworks, and jointly characterize optimal taxes and nudges. We explore the Diamond-Mirrlees productive efficiency result and the Atkinson-Stiglitz uniform commodity taxation proposition, and find that they are more likely to fail with behavioral agents.
    JEL: D03 H0
    Date: 2015–09

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