nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒06‒25
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Reputation Building under Uncertain Monitoring By Joyee Deb; Yuhta Ishii
  2. Endogenous Competence and a Limit to the Condorcet Jury Theorem By Bryan McCannon; Paul Walker
  3. Competitive Search with Ex-post Opportunism By Pere Gomis-Porqueras; Benoit Julien; Liang Wang
  4. Holding an Auction for the Wrong Project By De Chiara, Alessandro
  5. Strategic schools under the Boston mechanism revisited By Bó, Inácio; Heller, C.-Philipp
  6. Strategy-Proofness and Efficiency for Non-quasi-linear Common-Tiered-Object Preferences: Characterization of Minimum Price Rule By Yu Zhou; Shigehiro Serizawa
  7. A "fractal" solution to the chopstick auction By Christian Ewerhart
  8. Implementing Tax Coordination and Harmonization through Voluntary Commitment By Grégoire ROTA-GRAZIOSI
  9. Decisiveness, Peace, and Inequality in Games of Conflict By Juan A. Lacomba; Francisco M. Lagos; Ernesto Reuben; Frans Van Winden
  10. Entry under an information-gathering monopoly By Alex Barrachina
  11. Virtual Demand and Stable Mechanisms By Jan Christoph Schlegel
  12. "Rationalizable Implementation of Correspondences" By Takashi Kunimoto; Roberto Serrano

  1. By: Joyee Deb (School of Management, Yale University); Yuhta Ishii (Cowles Foundation, Yale University & Centro de Investigacion Economica, ITAM)
    Abstract: We study a canonical model of reputation between a long- run player and a sequence of short-run opponents, in which the long-run player is privately informed about an uncertain state that determines the monitoring structure in the reputation game. The long-run player plays a stage-game repeatedly against a sequence of short-run opponents. We present necessary and sufficient conditions (on the monitoring structure and the type space) to obtain reputation building in this setting. Specifically, in contrast to the previous literature, with only stationary commitment types, reputation building is generally not possible and highly sensitive to the inclusion of other commitment types. However, with the inclusion of appropriate dynamic commitment types, reputation building can again be sustained while maintaining robustness to the inclusion of other arbitrary types.
    JEL: C73 D82 L14
    Date: 2016–05
  2. By: Bryan McCannon (West Virginia University, Department of Economics); Paul Walker (West Virginia University, Department of Economics)
    Abstract: The seminal contribution, known as the Condorcet Jury Theorem, observes that under a specific set of conditions an increase in the size of a group tasked with making a decision leads to an improvement in the group's ability to make a good decision. An assumption under-appreciated is that the competency of the members of the group is assumed to be exogenous. In numerous applications, members of the group make investments to improve the accuracy of their decision making (e.g. pre-meeting efforts). We consider the collective action problem that arises. We show that if competence is endogenous, then increases in the size of the group encourages free riding. This trades off with the value of information aggregation. Thus, the value of increased group size is muted. Extensions illustrate that if committee members are allowed to exit/not participate, then the equilibrium committee size is reduced. Additionally, (non-decisive supermajority voting rules encourage the investments and, consequently, individual competence.
    Keywords: committee decision making, Condorcet Jury Theorem, endogenous competence, group size, majority voting, supermajority voting
    JEL: D71 D02 H41
    Date: 2016–06
  3. By: Pere Gomis-Porqueras (Deakin University); Benoit Julien (UNSW Australia); Liang Wang (University of Hawaii Manoa)
    Abstract: We consider a frictional market where buyers are uncoordinated and sellers cannot commit ex-ante to either a per-unit price or quantity of a divisible good. Sellers then can exploit their local monopoly power by adjusting prices or quantities once the local demand is realized. We find that when sellers can adjust quantities ex-post, there exists a unique symmetric equilibrium where the increase in the buyer-seller ratio leads to higher quantities and prices in equilibrium. When sellers post ex-ante quantities and adjust prices ex-post, a symmetric equilibrium does not exist.
    Keywords: Competitive Search, Price Posting, Quantity Posting
    JEL: D40 L10
  4. By: De Chiara, Alessandro
    Abstract: How does the probability of being involved in a renegotiation during the execution of a procurement contract affect the behavior of the interested contractors? What are its implications for the optimal contractual choice made by the buyer? We investigate these issues in a context characterized by uncertainty about the adequateness of the project initially specified by the buyer. We determine under which circumstances the buyer may find it profitable to hold an auction for a project design which ex-ante does not have the highest probability of being adequate.
    Keywords: Asymmetric Auctions, Procurement, Renegotiation.
    JEL: D44 D86 H57
    Date: 2015–06–04
  5. By: Bó, Inácio; Heller, C.-Philipp
    Abstract: We show that Ergin & Sönmez's (2006) results which show that for schools it is a dominant strategy to truthfully rank the students under the Boston mechanism, and that the Nash equilibrium outcomes in undominated strategies of the induced game are stable, rely crucially on two assumptions. First, (a) that schools need to be restricted to find all students acceptable, and (b) that students cannot observe the priorities set by the schools before submitting their preferences. We show that relaxing either assumption eliminates the strategy dominance, and that Nash equilibrium outcomes in undominated strategies for the simultaneous induced game in case (a) and subgame perfect Nash equilibria in case (b) may contain unstable matchings. We also show that when able to manipulate capacities, schools may only have an incentive to do so if students submit their preferences after observing the reported capacities.
    Keywords: Mechanism Design,Two-Sided Matching,Boston Mechanism,School Choice
    JEL: C78 D63 D78 D82
    Date: 2016
  6. By: Yu Zhou; Shigehiro Serizawa
    Abstract: We consider the allocation problem of assigning heterogeneous objects to a group of agents and determining how much they should pay. Each agent receives at most one object. Agents have non-quasi-linear preferences over bundles, each consisting of an object and a payment. Especially, we focus on the cases: (i) objects are linearly ranked, and as long as objects are equally priced, agents commonly prefer a higher ranked object to a lower ranked one, and (ii) objects are partitioned into several tiers, and as long as objects are equally priced, agents commonly prefer an object in the higher tier to an object in the lower tier. The minimum price rule assigns minimum price (Walrasian) equilibrium to each preference profile. We establish: (i) on a common-object-ranking domain, the minimum price rule is the only rule satisfying efficiency, strategy-proofness, individual rationality and no subsidy, and (ii) on a common-tiered-object domain, the minimum price rule is the only rule satisfying these four axioms.
    Date: 2016–05
  7. By: Christian Ewerhart
    Abstract: The present paper constructs a novel solution to the chopstick auction, and thereby disproves a conjecture of Szentes and Rosenthal (Games and Economic Behavior, 2003a, 2003b). In contrast to the existing solution, the identi fied equilibrium strategy allows a simple and intuitive characterization. Moreover, its best-response set has the same Hausdorff dimension as its support, which may be seen as a robustness property. The analysis also reveals some new links to the literature on Blotto games.
    Keywords: Chopstick auction, exposure problem, self-similarity, blotto games
    JEL: C02 C72 D44
    Date: 2016–06
  8. By: Grégoire ROTA-GRAZIOSI (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling's approach, we consider voluntary commitment, which constrains countries' respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition.
    Keywords: Tax coordination, Commitment.
    JEL: C72 H30
    Date: 2016–06
  9. By: Juan A. Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco M. Lagos (Department of Economic Theory and Economic History, University of Granada.); Ernesto Reuben (Columbia University.); Frans Van Winden (University of Amsterdam.)
    Abstract: In this paper, we study two games of conflict characterized by unequal access to productive resources and finitely repeated interaction. In the Noisy Conflict game, the winner of the conflict is randomly determined depending on a players’ relative conflict expenditures. In the Decisive Conflict game, the winner of the conflict is simply the player who spends more on conflict. By comparing behavior in the two games, we evaluate the effect that “decisiveness” has on the allocation of productive resources to conflict, the resulting inequality in the players’ final wealth, and the likelihood that players from long-lasting peaceful relations..
    Keywords: conflict; decisiveness; inequality; peace; rent seeking
    JEL: D72 D74 C92
    Date: 2016–05–30
  10. By: Alex Barrachina (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The effects of information-gathering activities on a basic entry model with asymmetric information are analyzed. In the basic entry game, an incumbent monopoly faces potential entry by one firm without knowing with certainty whether this potential entrant is weak or strong. If the entrant decides to enter, the monopoly must compete with him and decide whether to accommodate or to fight. To include information-gathering activities, it is considered that the monopoly has access to an Intelligence System (IS) of a certain precision (exogenous and common knowledge) that generates a noisy signal about the entrant's type. When the monopoly believes that the entrant is weak, the probability of market entry increases only for the relatively inaccurate precision of the IS and decreases for relatively accurate precision. If the monopoly is not sure about the entrant’s level of strength or considers him to be strong, the information-gathering activities either have no effect on market entry or decrease the probability of entry. Not only do these results suggest that to inform the entrant credibly about information-gathering activities can be considered as a monopoly’s entry deterrence strategy, but they also provide give an idea about when to allow or not allow monopoly’s information-gathering activities.
    Keywords: Entry Deterrence, Information-Gathering, Asymmetric Information, Credible Communication
    JEL: C72 D82 L10 L12
    Date: 2016
  11. By: Jan Christoph Schlegel
    Abstract: We study conditions for the existence of stable, strategy-proof mechanisms in a many-to-one matching model with discrete salary space (the discrete Kelso-Crawford model). Workers and firms want to match many-to-one and agree on the terms of their match. Firms demand different sets of workers at different salaries. Workers have preferences over different firm-salary combinations. Workers' preferences are monotone in salaries. We show that for this model a descending auction mechanism is the only candidate for a stable mechanism that is strategy-proof for workers. Moreover, we identify a maximal domain of demand functions for firms, such that the mechanism is stable and strategy-proof. For each demand function in our domain, we can construct a related demand function that we call a virtual demand function. Replacing demand functions by virtual demand functions will not change the outcome of our mechanism. Known conditions (gross substitutability and the law of aggregate demand) can be applied to the virtual demand profile to check whether the mechanism is stable and strategy-proof. Our result gives a sense in which gross substitutability and the law of aggregate demand are necessary for the existence of a stable and strategy-proof mechanism. In the special case where demand functions are generated by quasi-linear profit functions, demand functions and virtual demand functions agree. Thus for this case, our domain reduces to the domain of demand functions under which workers are gross substitutes.
    Keywords: Matching with contracts; Matching with salaries; Gross Substitutes; Virtual Demand
    JEL: C78 D47
    Date: 2016–06
  12. By: Takashi Kunimoto; Roberto Serrano
    Abstract: We come close to characterizing the class of social choice correspondences that are implementable in rationalizable strategies. We identify a new condition, which we call set-monotonicity, and show that it is necessary and almost sufficient for rationalizable implementation. Set-monotonicity is much weaker than Maskin monotonicity, which is the key condition for Nash implementation and which also had been shown to be necessary for rationalizable implementation of social choice functions. Set-monotonicity reduces to Maskin monotonicity in the case of functions. We conclude that the conditions for rationalizable implementation are not only starkly different from, but also much weaker than those for Nash implementation, when we consider social choice correspondences.
    Date: 2016

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