nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒05‒14
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Strategic Voting with Almost Perfect Signals By Venturini, Andrea
  2. A More General Definition of Equilibrium in Markets with Adverse Selection By Dosis, Anastasios
  3. Rational Inattention Dynamics: Inertia and Delay in Decision-Making By Jakub Steiner; Colin Stewart; Filip Matejka
  4. First Price Auctions with General Information Structures: Implications for Bidding and Revenue By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  5. Pareto Optimality and Inderterminancy of General Equilibrium under Knightian Uncertainty By Wei Ma
  6. Social Mobility and Stability of Democracy: Re-evaluating De Tocqueville By Daron Acemoglu; Georgy Egorov; Konstantin Sonin
  7. Revising claims and resisting ultimatums in bargaining problems By Johannes Spinnewijn; Frans Spinnewyn
  8. High-Roller Impact: A Large Generalized Game Model of Parimutuel Wagering By Erhan Bayraktar; Alexander Munk
  9. Size, Fungibility, and the Strength of Lobbying Organizations By David K Levine; Salvatore Modica
  10. GRESHAM’S LAW OF MODEL AVERAGING By In-Koo Cho; Kenneth Kasa
  11. Relational knowledge transfers By Luis Garicano; Luis Rayo
  12. Incentives, Efficiency and Quality in Regulated Monopolies under Customer Ownership By Richard Meade
  13. Quadratic Voting By Steven Lalley; E. Glen Weyl
  14. The Interplay of Cultural Aversion and Assortativity for the Emergence of Cooperation By Ennio Bilancini; Leonardo Boncinelli; Jiabin Wu
  15. Public versus Secret Voting in Committees By Mattozzi, Andrea; Nakaguma, Marcos Y.

  1. By: Venturini, Andrea
    Abstract: A standard assumption in the literature of strategic voting is the independence of signals. Each juror observes a signal at the interim stage of the game. Then she votes according to her private information in order to maximize her expected utility. This work introduces a dependency between signals, reflecting a more realistic situation, in which evidences can be incontrovertible. We give a full characterization of the symmetric equilibria in non-weakly dominated strategies and we provide a benchmark between the classical approach and this new one.
    Keywords: Voting, Bayesian Nash Equilibrium, Condorcet Theorem
    JEL: C72 D72
    Date: 2015–11–19
  2. By: Dosis, Anastasios (Essec Business School, Economics Department)
    Abstract: I provide a general definition of equilibrium in markets with adverse selection. An equilibrium is defined as a menu of contracts that makes non-negative aggregate profits such that there exists no other menu that includes it as a subset and makes strictly positive aggregate profits. I show that every efficient menu of contracts is also an equilibrium menu of contracts. Furthermore, I characterise a general sufficient condition under which every equilibrium menu of contracts is efficient, restoring that way the First Fundamental Theorem of Welfare Economics. I provide two possible interpretations for this new definition.
    Keywords: existence; efficiency; Adverse selection; equilibrium
    JEL: D82 D86
    Date: 2016–02–19
  3. By: Jakub Steiner; Colin Stewart; Filip Matejka
    Abstract: We solve a general class of dynamic rational-inattention problems in which an agent repeatedly acquires costly information about an evolving state and selects actions. The solution resembles the choice rule in a dynamic logit model, but it is biased towards an optimal default rule that is independent of the realized state. The model provides the same fit to choice data as dynamic logit, but, because of the bias, yields different counterfactual predictions. We apply the general solution to the study of (i) the status quo bias; (ii) inertia in actions leading to lagged adjustments to shocks; and (iii) the tradeoff between accuracy and delay in decision-making.
    Keywords: Rational inattention; stochastic choice; dynamic logit; information acquisition
    JEL: D81 D83 D90
    Date: 2016–05–04
  4. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We explore the impact of private information in sealed-bid first-price auctions. For a given symmetric and arbitrarily correlated prior distribution over values, we characterize the lowest winning-bid distribution that can arise across all information structures and equilibria. The information and equilibrium attaining this minimum leave bidders indifferent between their equilibrium bids and all higher bids. Our results provide lower bounds for bids and revenue with asymmetric distributions over values. We report further analytic and computational characterizations of revenue and bidder surplus including upper bounds on revenue. Our work has implications for the identification of value distributions from data on winning bids and for the informationally robust comparison of alternative bidding mechanisms.
    Keywords: First price auction, Information structure, Bayes correlated equilibrium, Private values, Interdependent values, Common values, Revenue, Surplus, Welfare bounds, Reserve price
    JEL: C72 D44 D82 D83
    Date: 2015–08
  5. By: Wei Ma
    Abstract: This paper studies general equilibrium theory, for both complete and incomplete markets, under Knightian uncertainty. Noting that the preference represented by Knightian uncertainty induces a set of complete preferences, we set ourselves the task of inquiring the relationship between an equilibrium under Knightian uncertainty and its counterpart under the induced complete preferences. It is shown that they are actually equivalent. The importance of this result is due toits applications, among which the existence of equilibria under Knightian uncertainty and their computation follow at once from the existing knowledge on general equilibrium theory under complete preferences. Moreover, by means of that equivalence, we are in a position to investigate the problem of efficiency and indeterminacy of equilibria under Knightian uncertainty.
    Keywords: general equilibrium, Knightian uncertainty, Pareto optimality
    Date: 2016
  6. By: Daron Acemoglu; Georgy Egorov; Konstantin Sonin
    Abstract: An influential thesis often associated with De Tocqueville views social mobility as a bulwark of democracy: when members of a social group expect to join the ranks of other social groups in the near future, they should have less reason to exclude these other groups from the political process. In this paper, we investigate this hypothesis using a dynamic model of political economy. As well as formalizing this argument, our model demonstrates its limits, elucidating a robust theoretical force making democracy less stable in societies with high social mobility: when the median voter expects to move up (respectively down), she would prefer to give less voice to poorer (respectively richer) social groups. Our theoretical analysis shows that in the presence of social mobility, the political preferences of an individual depend on the potentially conflicting preferences of her “future selves,” and that the evolution of institutions is determined through the implicit interaction between occupants of the same social niche at different points in time. When social mobility is endogenized, our model identifies new political economic forces limiting the amount of mobility in society – because the middle class will lose out from mobility at the bottom and because a peripheral coalition between the rich and the poor may oppose mobility at the top.
    JEL: D71 D74
    Date: 2016–04
  7. By: Johannes Spinnewijn; Frans Spinnewyn
    Abstract: We propose a simple mechanism which implements a unique solution to the bargaining problem with two players in subgame-perfect equilibrium. The mechanism incorporates two important features of negotiations; players can revise claims in an attempt to reach a compromise or pursue their claims in an ultimate take-it-or-leave-it offer. Players restrain their claims to avoid a weak bargaining position or their resistance to uncompromising behavior to acquire leadership. The Nash solution and the Kalai–Smorodinsky solution are implemented in the extreme cases when respectively no and all revisions are allowed.
    Keywords: bargaining solutions; Nash program; ultimatums
    JEL: C78 D74
    Date: 2015–06
  8. By: Erhan Bayraktar; Alexander Munk
    Abstract: How do large-scale participants in parimutuel wagering events affect the house and ordinary bettors? A standard narrative suggests that they may temporarily benefit the former at the expense of the latter. To approach this problem, we begin by developing a model based on the theory of large generalized games. Constrained only by their budgets, a continuum of diffuse (ordinary) players and a single atomic (large-scale) player simultaneously wager to maximize their expected profits according to their individual beliefs. Our main theoretical result gives necessary and sufficient conditions for the existence and uniqueness of a pure-strategy Nash equilibrium. Using this framework, we analyze our question in concrete scenarios. First, we study a situation in which both predicted effects are observed. Neither is always observed in our remaining examples, suggesting the need for a more nuanced view of large-scale participants.
    Date: 2016–05
  9. By: David K Levine; Salvatore Modica
    Date: 2016–05–07
  10. By: In-Koo Cho (University of Illinois); Kenneth Kasa (Simon Fraser University)
    Abstract: A decision maker doubts the stationarity of his environment. In response, he uses two models, one with time-varying parameters, and another with constant parameters. Forecasts are then based on a Bayesian Model Averaging strategy, which mixes forecasts from the two models. In reality, structural parameters are constant, but the (unknown) true model features expectational feedback, which the reduced form models neglect. This feedback permits fears of parameter instability to become self-confirming. Within the context of a standard linear present value asset pricing model, we use the tools of large deviations theory to show that even though the constant parameter model would converge to the (constant parameter) Rational Expectations Equilibrium if considered in isolation, the mere presence of an unstable alternative drives it out of consideration.
    Keywords: model averaging, asset pricing
    JEL: C63 D84
    Date: 2016–04
  11. By: Luis Garicano; Luis Rayo
    Abstract: An expert with general knowledge trains a cash-constrained novice. Faster training increases the novice’s productivity and his ability to compensate the expert; it also shrinks the stock of knowledge yet to be transferred, reducing the expert’s ability to retain the novice. The profit-maximizing agreement is a multi-period apprenticeship in which knowledge is transferred gradually over time. The expert adopts a "1/e rule" whereby, at the beginning of the relationship, the novice is trained just enough to produce a fraction 1/e of the efficient output. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions.
    Keywords: general human capital; international joint ventures; relational contracts
    JEL: J24 M0
    Date: 2016–03
  12. By: Richard Meade
    Abstract: We extend the theory of monopoly regulation under imperfect information to the case of customer, rather than investor, ownership. The firm's manager can exert two types of effort - a contractible effort to reduce costs, and a non-contractible effort to increase quality. The former decreases expected costs and increases expected profits, while the latter increases expected demand, costs and consumer surplus. We show that the manager faces a conflict between pursuing cost reductions and quality when his or her net marginal disutility of cost-reducing effort is sufficiently increased by quality-enhancing effort. We further show that this conflict can arise even without an effort substitution effect. Thus stronger incentives (i.e. a higher managerial profit share) induce greater cost-reducing effort, but lower quality-enhancing effort. Since customer owners value consumer surplus as well as profits, they optimally provide the manager with weaker incentives than investor owners - who only value profits - for a given regulated price. This implies higher quality but lower efficiency under customer ownership, given price. A customer-owned firm is optimally set a tighter price cap than an investor-owned firm if its profits are less price-sensitive than is relative consumer surplus. This can result in quality differences being reduced between ownership types, but with ambiguous impacts on efficiency differences. Failure to account for ownership-related differences in objective functions gives rise to regulatory distortions.
    Keywords: Regulation, Moral Hazard, Cooperatives, Electric Utilities, Gas, Water Utilities, Profit Sharing
    JEL: D82 J33 L51 L94 L95 P13
    Date: 2015–05
  13. By: Steven Lalley (University of Chicago); E. Glen Weyl (Microsoft Research New England)
    Abstract: N individuals must choose between two collective alternatives. Under Quadratic Voting (QV), individuals buy vote in favor of their preferred alternative from a clearing house, paying the square of the number of votes purchased, and the sum of all votes purchased determines the outcome. Heuristic arguments and experimental results have suggested that this simple, detail-free mechanism is utilitarian efficient. In an independent private-values environment, we rigorously prove that for any value distribution all symmetric Bayes-Nash equilibria of QV converge toward efficiency in large populations, with waste decaying generically as 1=N.
    Keywords: social choice, collective decisions, large markets, costly voting, vote trading
    Date: 2015
  14. By: Ennio Bilancini; Leonardo Boncinelli; Jiabin Wu
    Abstract: This paper investigates the emergence of cooperation in a heterogeneous population. The population is divided into two cultural groups. Agents in the population are randomly matched in pairs to engage in a prisoner dilemma. The matching process is assortative, that is, cooperators are more likely to be matched with cooperators, defectors are more likely to be matched with defectors. When two agents of different cultures are matched, they suffer a cost due to their cultural differences. We call such a cost cultural aversion. We find that when cultural aversion is sufficiently strong, perfect correlation between culture and behavior emerges: all agents from one cultural group cooperate, while all agents from the other cultural group defect.
    Keywords: prisoner dilemma, assortativity, cultural aversion, cooperation, type-monomorphic.
    JEL: C72 C73 Z10
    Date: 2016–04
  15. By: Mattozzi, Andrea; Nakaguma, Marcos Y.
    Abstract: This paper studies a committee decision-making problem. Committee members are heterogeneous in their competence, they are biased towards one of the alternatives and career oriented, and they can choose whether to vote or abstain. The interaction between career concern and bias a¤ects the voting behavior of members depending on transparency of individual votes. We show that transparency attenuates the pre-existing biases of competent members and exacerbates the biases of incompetent members. Public voting leads to better decisions when the magnitude of the bias is large, while secret voting performs better otherwise. We provide experimental evidence supporting our theoretical conclusions.
    Keywords: Committees, Voting, Career Concern, Transparency
    JEL: D72 C92 D71
    Date: 2016

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