nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒12‒28
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Fooling Some of the People Some of the Time: Reputation Management and Optimal Betrayal By Andrew Mell
  2. "Information and Small Group Effectiveness in Large Quasilinear Economies" By Yusuke Kamishiro; Roberto Serrano; Myrna Wooders
  3. Risk Assessment under Ambiguity: Precautionary Learning vs. Research Pessimism By Heyen, Daniel; Goeschl, Timo; Wiesenfarth , Boris
  4. On discounting and voting in a simple growth model By Borissov, Kirill; Pakhnin, Mikhail; Puppe, Clemens
  5. Should a Non-rival Public Good Always be Provided Centrally? By Nicolas GRAVEL; Michel POITEVIN
  6. Ambiguity and Long-Run Cooperation By Marco Rojas Olivares; Damián Vergara Domínguez
  7. Imitation and price competition in a differentiated market By Khan A.; Peeters R.J.A.P.
  8. Feasible sets, comparative risk aversion, and comparative uncertainty aversion in bargaining By Driesen B.W.I.; Lombardi M.; Peters H.J.M.
  9. Consistent collective decisions under majorities based on difference of votes By Mostapha Diss; Patrizia Pérez-Asurmendi
  10. On the Equilibrium and Welfare Consequences of Going Ahead of the Smiths By Frédéric Gavrel; Thérèse Rebière
  11. Dynamic Directed Random Matching By Darrell Duffie; Lei Qiao; Yeneng Sun
  12. Social network and private provision of public goods By Bulat Sanditov; Saurabh Arora
  13. Robust Social Decisions By Eric Danan; Thibault Gajdos; Brian Hill; Jean-Marc Tallon

  1. By: Andrew Mell
    Abstract: Abstract: A rational long lived player plays against a series of short lived players who use a variant of the Adaptive Play behavioral rule. In equilibrium, under certain conditions, there will be a cut-off level of reputation. If their reputation is below the cut-off, they will build their reputation, and consume out of their reputation if it is above the cut-off. Over the long run, their reputation oscillates around the cut-off. A public relations professional can manipulate the sampling of the short lived players to the benefit of the long lived player. As a result a patient long lived player's behavior will worsen while an impatient long lived player's behavior will improve.
    Keywords: Reputation, Adaptive Play, Monitoring, Expectation Formation
    JEL: D82 D83 D84
    Date: 2015–12–03
  2. By: Yusuke Kamishiro; Roberto Serrano; Myrna Wooders
    Abstract: In large quasilinear economies, we provide sufficient conditions to establish the nonemptiness of several versions of approximate interim cores with endogenous communication. This is done by proving nonemptiness of approximate ex post cores satisfying incentive compatibility. When the number of agents with private information remains finite, the main argument relies on an adaptation of the small group effectiveness condition, previously proposed for games of complete information. The result goes through when all agents are informationally small.
    Date: 2015
  3. By: Heyen, Daniel; Goeschl, Timo; Wiesenfarth , Boris
    Abstract: Agencies charged with regulating complex risks such as food safety or novel substances frequently need to take decisions on risk assessment and risk management under conditions of ambiguity, i.e. where probabilities cannot be assigned to possible outcomes of regulatory actions. What mandates should society write for such agencies? Two approaches stand out in the current discussion. One charges the agency to apply welfare economics based on expected utility theory. This approach underpins conventional cost-benet analysis (CBA). The other requires that an ambiguity-averse decision-rule - of which maxmin expected utility (MEU) is the best known - be applied in order to build a margin of safety in accordance with the Precautionary Principle (PP). The contribution of the present paper is a relative assessment of how a CBA and a PP mandate impact on the regulatory task of risk assessment. In our parsimonious model, a decision maker can decide on the precision of a signal which provides noisy information on a payoff-relevant parameter. We find a complex interplay of MEU on information acquisition shaped by two countervailing forces that we dub 'Precautionary Learning' and 'Research Pessimism'. We find that - contrary to intuition - a mandate of PP rather than CBA will often give rise to a less informed regulator. PP can therefore lead to a higher likelihood of regulatory mistakes, such as the approval of harmful new substances.
    Keywords: scientific uncertainty; ambiguity; learning; risk assessment; precautionary principle; active information acquisition; regulatory mandates.
    Date: 2015–12–18
  4. By: Borissov, Kirill; Pakhnin, Mikhail; Puppe, Clemens
    Abstract: In dynamic resource allocation models, the non-existence of voting equilibria is a generic phenomenon due to the multi-dimensionality of the choice space even with agents heterogeneous only in their discount factors. Nevertheless, at each point of time there may exist a "median voter" whose preferred instantaneous consumption rate is supported by a majority of agents. Based on this observation, we propose an institutional setup ("intertemporal majority voting") in a Ramsey-type growth model with common consumption and heterogeneous agents, and show that it provides a microfoundation of the choice of the optimal consumption stream of the median agent. While the corresponding intertemporal consumption stream is in general not a Condorcet winner among all feasible paths, its induced instantaneous consumption rate receives a majority at each point in time in the proposed intertemporal majority voting procedure. We also provide a characterization of balanced-growth and steady-state voting equilibria in the case in which agents may differ not only in their time preference, but also in their instantaneous utility functions.
    Keywords: collective choice,common-pool resource,economic growth,heterogeneous agents,median voter theorem
    JEL: D11 D71 D91 O13 O43
    Date: 2015
  5. By: Nicolas GRAVEL; Michel POITEVIN
    Abstract: This paper discusses the problem of optimal design of a jurisdiction structure from the view point of a utilitarian social planner when individuals with identical utility functions for a non-rival public good and private consumption have private information about their contributive capacities. It shows that the superiority of a centralized provision of a non-rival public good over a federal one does not always hold. Specifi…cally, when differences in individuals' contributive capacities are large, it is better to provide the public good in several distinct jurisdictions rather than to pool these jurisdictions into a single one. In the specifi…c situation where individuals have logarithmic utilities, the paper provides a complete characterization of the optimal jurisdiction structure in the two-type case.
    Keywords: federalism, jurisdictions, asymmetric information, equalization, second best, public goods, city mergers
    JEL: D6 H2 H7
    Date: 2015
  6. By: Marco Rojas Olivares; Damián Vergara Domínguez
    Abstract: This paper studies the effects of ambiguity on long-run cooperation, by analyzing the infinitely repeated Prisoner’s Dilemma and its application to Cournot’s duopoly model. We show that ambiguity decreases the likelihood of cooperation in the infinitely repeated Prisoner’s Dilemma, regardless the level of optimism. In the economic application, we find that ambiguity is positively related with static equilibrium quantities and negatively related with the probability of sustaining a tacit collusion, i.e. positively related with competition. In fact, the critical discount factor associated with the probability of achieving a collusive equilibrium can be even higher than one for some parametric combinations. Nevertheless, depending on the level of optimism, a discontinuity can arise when ambiguity is too high, emerging a situation where collusion can be implemented as a short-run equilibrium. That is due to the fact that, for some parametric combinations, the economic application stops being a particular case of the Prisoner’s Dilemma and start behaving as different games in which cooperation can be achieved as a short-run pure Nash equilibrium. Finally, an alternative interpretation suggests an equivalence result: a Cournot’s duopoly with high ambiguity and relatively pessimist players behaves as a coordination game with exogenous payoffs.
    Date: 2015–12
  7. By: Khan A.; Peeters R.J.A.P. (GSBE)
    Abstract: We study the market outcome that evolves in the long-run when price-setting firms, that compete in a differentiated market, are driven by an imitation dynamic. We find that the prices that can evolve in the long-run depend on the level of market differentiation and on the degree of oversight firms have on market decisions and outcomes. The unique symmetric pure Nash equilibrium price is always supported in the long-run, and it is the unique long-run market outcome for high and low levels of differentiation, when there is no oversight or even with limited oversight on market decisions and outcomes. For intermediate levels of differentiation, in addition to the Nash equilibrium price, there is a set of prices that may emerge in the long-run while these other prices are below Nash equilibrium price when there is almost no oversight on market performances, they are above Nash equilibrium price when the oversight on market performances is more acute.
    Keywords: Noncooperative Games; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Firm Behavior: Theory; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Production, Pricing, and Market Structure; Size Distribution of Firms; Oligopoly and Other Imperfect Markets;
    JEL: C72 C73 D21 D43 L11 L13
    Date: 2015
  8. By: Driesen B.W.I.; Lombardi M.; Peters H.J.M. (GSBE)
    Abstract: We study feasible sets of the bargaining problem under two different assumptions the players are subjective expected utility maximizers or the players are Choquet expected utility maximizers. For the latter case, we consider the effects on bargaining solutions when players become more risk averse and when they become more uncertainty averse.
    Keywords: Bargaining Theory; Matching Theory; Criteria for Decision-Making under Risk and Uncertainty;
    JEL: C78 D81
    Date: 2015
  9. By: Mostapha Diss (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France); Patrizia Pérez-Asurmendi (Grupo de investigacion PRESAD, Universidad de Valladolid, Avda. Valle de Esgueva 6,47011, Valladolid, Spain & Grupo de investigacion SEED, Universidad Publica de Navarra, Campus de Arrosadia,31006, Pamplona, Spain.)
    Abstract: The main criticism to the aggregation of individual preferences under majority rules refers to the possibility of reaching inconsistent collective decisions from the election process. In these cases, the collective preference includes cycles and even could prevent the election of any alternative as the collective choice. The likelihood of consistent outcomes under a class of majority rules constitutes the aim of this paper. Specifically, we focus on majority rules that require certain consensus in individual preferences to declare an alternative as the winner. Under majorities based on difference of votes, the requirement asks to the winner alternative to obtain a difference in votes with respect to the loser alternative taking into account that individuals are endowed with weak preference orderings. Same requirement is asked to the restriction of these rules to individual linear preferences.
    Keywords: Majorities based on difference of votes, Probability, Transitivity, Triple-acyclicity.
    JEL: D70 D71
    Date: 2015
  10. By: Frédéric Gavrel (CREM - Centre de Recherche en Economie et Management - CNRS - Centre National de la Recherche Scientifique - 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 go ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths 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. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Conversely, an utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.
    Keywords: Going ahead of the Smiths,Social interactions,Well-being,Inequalities,Efficiency
    Date: 2015–12
  11. By: Darrell Duffie; Lei Qiao; Yeneng Sun
    Abstract: We demonstrate the existence of a continuum of agents conducting directed random searches for counterparties, and characterize the implications. Our results provide the first probabilistic foundation for static and dynamic directed random search (including the matching function approach) that is commonly used in the search-based models of financial markets, monetary theory, and labor economics. The agents' types are shown to be independent discrete-time Markov processes that incorporate the effects of random mutation, random matching with match-induced type changes, and with the potential for enduring partnerships that may have randomly timed break-ups. The multi-period cross-sectional distribution of types is shown to be deterministic via the exact law of large numbers.
    JEL: C78 D83 E41 G12
    Date: 2015–11
  12. By: Bulat Sanditov (TELECOM Ecole de Management, Institut Mines-T´el´ecom, France); Saurabh Arora (Science Policy Research Unit, University of Sussex, UK)
    Abstract: Using a simple model with interdependent utilities, we study how social networks influence individual voluntary contributions to the provision of a public good. Departing from the stan- dard model of public good provision, we assume that an agent’s utility has two terms: (a) ‘ego’-utility derived from the agent’s consumption of public and private goods, and (b) a so- cial utility which is the sum of utility spillovers from other agents with whom the agent has social relationships. We establish conditions for the existence of a unique interior Nash equi- librium and describe the equilibrium in terms of network characteristics. We show that social network always has a positive effect on the provision of the public good. We also find that, in networks with “small world”-like modular structures, ‘bridging’ ties connecting distant parts of social network play an important role inducing the agent’s contribution to public good. Assumptions and results of the model are discussed in relation to the role of social capital in community-level development projects and to the effect of innovation networks on firms’ R&D investments.
    Keywords: public goods, interrelated utilities, social capital, R&D networks
    JEL: H41 D85 O31
    Date: 2015–12
  13. By: Eric Danan (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Thibault Gajdos (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - AMU - Aix-Marseille Université); Brian Hill (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - GROUPE HEC - CNRS - Centre National de la Recherche Scientifique); Jean-Marc Tallon (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose and operationalize normative principles to guide social decisions when individuals potentially have imprecise and heterogeneous beliefs, in addition to conflicting tastes or interests. To do so we adapt the standard Pareto principle to those preference comparisons that are robust to belief imprecision and characterize social preferences that respect this robust principle. We also characterize a suitable restriction of this principle. The former principle provides stronger guidance when it can be satisfied; when it cannot, the latter always provides minimal guidance.
    Keywords: Unambiguous preferences,Pareto dominance,Prefer-ence aggregation,Social choice,Uncertainty
    Date: 2015–12–11

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