nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒11‒07
six papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Voting and contributing when the group is watching By Henry, Emeric; Louis-Sidois, Charles
  2. Reason-based choice and context-dependence: an explanatory framework By Franz Dietrich; Christian List
  3. Full versus Partial Delegation in Multi-Task Agency By Barbara Schöndube-Pirchegger; Jens Robert Schöndube
  4. Multilateral Bargaining with Discrete Surplus By Maurya, Amit Kumar
  5. Pricing with Limited Knowledge of Demand By Maxime C. Cohen; Georgia Perakis; Robert S. Pindyck
  6. The role of public information in corporate social responsibility By Aleix Calveras; Juan José Ganuza

  1. By: Henry, Emeric; Louis-Sidois, Charles
    Abstract: Members of groups and organizations often have to decide on rules that regulate their contributions to common tasks. They typically differ in their propensity to contribute and often care about the image they project, in particular want to be perceived by other group members as being high contributors. In such environments we study the interaction between the way members vote on rules and their subsequent contribution decisions. We show that multiple norms can emerge. We draw surprising policy implications, on the effect of group size, of supermajority rules and of the observability of actions.
    Keywords: image concern; information aggregation; public good; voting
    JEL: D71 D72 H41
    Date: 2015–11
  2. By: Franz Dietrich; Christian List
    Abstract: We introduce a “reason-based” framework for explaining and predicting individual choices. The key idea is that a decision-maker focuses on some but not all properties of the options and chooses an option whose “motivationally salient” properties he/she most prefers. Reason-based explanations can capture two kinds of contextdependent choice: (i) the motivationally salient properties may vary across choice contexts, and (ii) they may include “context-related” properties, not just “intrinsic” properties of the options. Our framework allows us to explain boundedly rational and sophisticated choice behaviour. Since properties can be recombined in new ways, it also offers resources for predicting choices in unobserved contexts.
    Keywords: rational choice; reasons; context-dependence; bounded and sophisticated rationality; prediction of choice
    JEL: J1
    Date: 2015
  3. By: Barbara Schöndube-Pirchegger (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Jens Robert Schöndube (Faculty of Economics and Management, Leibniz University Hannover)
    Abstract: We consider a moral hazard type agency problem. Two tasks need to be performed within the agency. The principal can either delegate both tasks to the agent or perform one of the tasks himself. In the latter case the principal can choose which task to delegate but doing both personally is not feasible. As firm value is not contractible by assumption the incentive contract offered to the agent needs to be based on a possibly non-congruent performance measure. Allowing for both of the players to be risk averse, agency costs can arise from a trade-off in allocating incentives and risk as well as from a congruity problem. While full delegation results in a standard two task agency problem, partial delegation creates a double moral hazard problem as neither the principal can observe the agent’s effort nor vice versa. We find that full delegation is more favorable the more risk is optimally allocated to the agent. Accordingly partial delegation is beneficial if the principal has a relatively low degree of risk aversion. Moreover, full delegation allows the principal to scale incentives provided to the agent but not to fine tune the intensity of incentives for each effort separately. With partial delegation fine tuning is possible but increasing incentives for one effort implies reducing them for the other. If scaling is more effective in minimizing agency costs than fine tuning incentives, the principal tends to prefer full delegation to partial delegation and vice versa.
    Keywords: Delegation, agency problem, congruity, risk sharing
    Date: 2015–11
  4. By: Maurya, Amit Kumar
    Abstract: Krishna and Serrano (1996) show a unique and efficient outcome in a model of multilateral bargaining. We show that the predictability of the model critically depends on the nature of the surplus i.e. whether it is continuous or discrete. We show that the model suffers from multiple equilibria and severe inefficiency when the surplus is discrete, not continuous as assumed in Krishna and Serrano (1996), and players are patient enough.
    Keywords: Multilateral bargaining, Discrete surplus, Inefficiency
    JEL: C72 C78
    Date: 2015–10–10
  5. By: Maxime C. Cohen; Georgia Perakis; Robert S. Pindyck
    Abstract: How should a firm price a new product for which little is known about demand? We propose a simple pricing rule: the firm only estimates the maximum price it can charge and still expect to sell at least some units, and then sets price as though the actual demand curve were linear. We show that if the true demand curve is one of many commonly used demand functions, or even if it is a more complex function, and if marginal cost is known and constant, the firm can expect its profit to be close to what it would earn if it knew the true demand curve. We derive analytical performance bounds for a variety of demand functions, and calculate expected profit performance for randomly generated demand curves.
    JEL: D40 D80 D81
    Date: 2015–10
  6. By: Aleix Calveras; Juan José Ganuza
    Abstract: Many of the attributes that make a good 'socially responsible' are credence attributes that cannot be learned by consumers either through search or experience. Consumers, then, use for their purchasing decisions 'noisy' information about these attributes obtained from potentially contradictory channels (media, advertisement, NGOs). In this paper we model such informational framework and show the positive relationship between the accuracy of the information transmitted to consumers and corporate social responsibility (CSR). We also show that a firm may be tempted to add noise to the information channel (through lobbying of the media), which might reduce the supply of the CSR attributes and even harm the firm itself (with lower profits). It might then be profitable to the firm to commit ex-ante to not manipulate the information regarding the firm's business practices (e.g., with a partnership with an NGO). Finally, we extend our model to a competition framework endogenizing the number of firms active in the CSR segment. We show both that in more transparent markets a larger number of firms will be CSR, and that in a market with more intense competition, a higher degree of transparency is required in order to sustain a given number of CSR firms.
    Keywords: credence good, information asymmetry, corporate social responsibility, regulation, NGO, competition.
    JEL: D72 H42 L51 M14 Q52
    Date: 2015–02

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