nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒07‒09
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Doing it when others do: a strategic model of procrastination By Claudia Cerrone
  2. Repeated Games with Recursive Utility:Cournot Duopoly under Gain/Loss Asymmetry By Tadashi Sekiguchi; Katsutoshi Wakai
  3. Refinement of the Equilibrium of Public Goods Games over Networks: Efficiency and Effort of Specialized Equilibria By Pandit, Parthe; Kulkarni, Ankur
  4. "Contests with general preferences" By Alex Dickson; Ian A MacKenzie; Petros Sekeris
  5. Volume of Trade and Dynamic Network Formation in Two-Sided Economies By Roland Pongou; Roberto Serrano
  6. Robustness of Full Revelation in Multisender Cheap Talk By Margaret Meyer; Inés Moreno de Barreda; Julia Nafziger
  7. Strategy-proof Choice of Acts : A Preliminary Study By Yves SPRUMONT
  8. Risk Neutrality, Incompleteness and Degenerate Indifference By Georgios Gerasimou
  9. Cooperation in Organization through Slef-Commitment Actions By Francesco Lancia; Alessia Russo
  10. Skorohod's representation theorem and optimal strategies for markets with frictions By Huy N. Chau; Mikl\'os R\'asonyi
  11. Ordered Consumer Search By Armstrong, Mark
  12. Optimal Deterrence of Cooperation By Stéphane Gonzalez; Aymeric Lardon

  1. By: Claudia Cerrone (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper develops a strategic model of procrastination in which present-biased agents prefer to do an onerous task in the company of someone else. This turns their decision of when to do the task into a procrastination game – a dynamic coordination game between present-biased players. The model characterises the conditions under which interaction mitigates or exacerbates procrastination. Surprisingly, a procrastinator matched with a worse procrastinator may do her task earlier than she otherwise would: she wants to avoid the increased temptation that her peer's company would generate. Procrastinators can thus use bad company as a commitment device to mitigate their self-control problem. Principals can reduce procrastination by matching procrastinators with each other, but the efficient matching may not be stable.
    JEL: C72 C73 D03 D91
    Date: 2016–06
  2. By: Tadashi Sekiguchi; Katsutoshi Wakai
    Abstract: We study the repeated Cournot duopoly with recursive utility where the players discount gains more than losses. First, as in the standard model of discounted utility, we confirm that the optimal punishment equilibrium has a stick-and-carrot structure. Next, we explore its exact form in relation to the role of the asymmetry in discounting. We find that the discount factor used to evaluate losses controls the deterrence of a given punishment, while the discount factor used to evaluate gains influences the enforceability of the penalty. An increase in one of the two discount factors increases the most collusive equilibrium profit unless full collusion is already sustainable. However, the key to collusion is the loss discount factor: regardless of the level of the gain discount factor, full cooperation can be achieved if the loss discount factor is sufficiently high.
    Keywords: Cournot duopoly, gain/loss asymmetry, optimal penal code, repeated game, recursive utility, utility smoothing
    JEL: C73 D20 D90 L13
    Date: 2016–07
  3. By: Pandit, Parthe; Kulkarni, Ankur
    Abstract: Recently Bramoulle and Kranton presented a model for the provision of public goods over a network and showed the existence of a class of Nash equilibria called specialized equilibria wherein some agents exert maximum effort while other agents free ride. We examine the efficiency, effort and cost of specialized equilibria in comparison to other equilibria. Our main results show that the welfare of a particular specialized equilibrium approaches the maximum welfare amongst all equilibria as the concavity of the benefit function tends to unity. For forest networks a similar result also holds as the concavity approaches zero. Moreover, without any such concavity conditions, there exists for any network a specialized equilibrium that requires the maximum weighted effort amongst all equilibria. When the network is a forest, a specialized equilibrium also incurs the minimum total cost amongst all equilibria. For well-covered forest networks we show that all welfare maximizing equilibria are specialized and all equilibria incur the same total cost. Thus we argue that specialized equilibria may be considered as a refinement of the equilibrium of the public goods game. We show several results on the structure and efficiency of equilibria that highlight the role of dependants in the network.
    Keywords: Network games; public goods; specialized equilibria; independent sets; linear complementarity problems
    JEL: C7 C72
    Date: 2016–07–07
  4. By: Alex Dickson (Department of Economics, University of Strathclyde); Ian A MacKenzie (School of Economics, University of Queensland); Petros Sekeris (Department of Economics & Finance, University of Portsmouth)
    Abstract: This article investigates contests when heterogeneous players compete to obtain a share of a prize. We prove the existence and uniqueness of the Nash equilibrium when players have general preference structures. Our results show that many of the standard conclusions obtained in the analysis of contests - such as aggregate effort increasing in the size of the prize and the dissipation ratio invariant to the size of the prize - may no longer hold under a general preference setting. We derive the key conditions on preferences, which involve the rate of change of the marginal rate of substitution between a player's share of the prize and their effort within the contest, under which these counter-intuitive results may hold. Our approach is able to nest conventional contest analysis - the study of (quasi-)linear preferences - as well as allowing for a much broader class of utility functions, which include both separable and non-separable utility structures.
    Keywords: contest, general preferences, aggregative game
    JEL: C72 D72
    Date: 2016–06
  5. By: Roland Pongou (Department of Economics, University of Ottawa); Roberto Serrano (Department of Economics, Brown University)
    Abstract: We study the long-run stability of trade networks in a two-sided economy. Each agent desires relationships with the other side, but having multiple partners is costly. This cost-benefit tradeoff results in each agent having a single-peaked utility over the number of partners-the volume of trade-, the peak being greater for agents on one side than those on the other. We propose a stochastic matching process in which self-interested agents form and sever links over time. Links can be added or deleted, sometimes simultaneously by a single agent. While the unperturbed process yields each pairwise stable network as an absorbing state, stochastic stability in two perturbed processes provides a significant refinement, leading respectively to egalitarian and anti-egalitarian pairwise stable networks. These distinct network configurations have implications for the concentration on each side of the market of a random information shock, which may affect structurally identical economies differently. The analysis captures stylized facts, related to herd behavior, market fragmentation, concentration and contagion asymmetry, in several two-sided economies. It also rationalizes long-run population imbalance between the two sides of certain buyer-seller markets.
    Keywords: Two-sided economies, trade networks, pairwise stability, stochastic stability, herd behavior, fragmentation, concentration, contagion asymmetry
    JEL: C73 D01 D03 D85 F16 J00
    Date: 2016
  6. By: Margaret Meyer (Nuffield College and Dept. of Economics, Oxford University); Inés Moreno de Barreda (Dept of Economics, Oxford University); Julia Nafziger (Dept. of Economics and Business, Aarhus University)
    Abstract: This paper studies information transmission in a two-sender, multidimensional cheap talk setting where there are exogenous restrictions on the feasible set of policies for the receiver. Such restrictions, which are present in most applications, can, by limiting the punishments available to the receiver, prevent the existence of fully revealing equilibria (FRE). We focus on FRE that are i) robust to small mistakes by the senders, in that small differences between the senders’ messages result in only small punishments by the receiver, and ii) independent of the magnitudes of the senders’ bias vectors. For convex policy spaces in an arbitrary number of dimensions, we prove that if there exists a FRE satisfying property ii), then there exists one satisfying both i) and ii). Thus the requirement of robustness is, under these assumptions, not restrictive. For convex policy spaces in two dimensions, we provide a simple geometric condition, the Local Deterrence Condition, on the directions of the senders’ biases relative to the frontier of the policy space, that is necessary and sufficient for the existence of a FRE satisfying i) and ii). We also provide a specific policy rule, the Min Rule, for the receiver that supports a FRE satisfying i) and ii) whenever one exists. The Min Rule is the anonymous rule that punishes incompatible reports in the least severe way, subject to maintaining the senders’ incentives for truthtelling, no matter how large their biases. We characterize necessary and sufficient conditions for collusion-proofness of a FRE supported by the receiver using the Min Rule and show that if such a FRE is not collusion-proof, then no other FRE satisfying ii) can be collusion-proof. We extend our existence results to convex policy spaces in more than two dimensions and to non-convex two-dimensional spaces. Finally, our necessary and sufficient condition, as well as our specific policy rule, can be easily adapted if the receiver is uncertain about the directions of the biases and/or if the biases vary with the state of the world.
    Date: 2016–06–22
  7. By: Yves SPRUMONT
    Abstract: We model social choices as acts mapping states of the world to (social) outcomes. A (social choice) rule assigns an act to every profile of subjective expected utility preferences over acts. A rule is strategy-proof if no agent ever has an incentive to misrepresent her beliefs about the world or her valuation of the outcomes; it is ex-post efficient if the act selected at any given preference profile picks a Pareto-efficient outcome in every state of the world. We show that every two-agent ex-post efficient and strategy-proof rule is a top selection : the chosen act picks the most preferred outcome of some (possibly different) agent in every state of the world. The states in which an agentís top outcome is selected cannot vary with the reported valuations of the outcomes but may change with the reported beliefs. We give a complete characterization of the ex-post efficient and strategy-proof rules in the two-agent, two-state case, and we identify a rich class of such rules in the two-agent case.
    Keywords: social choice under uncertainty, strategy-proofness, subjective expected utility
    JEL: D71
    Date: 2016
  8. By: Georgios Gerasimou
    Abstract: We show that strictly monotonic and risk-neutral Bewley preferences on the set of purely uncertain monetary acts over a finite state space are associated with a degenerate indifference relation. This conclusion is valid irrespective of whether strict or weak preferences are taken as primitive. In the latter case, it follows from this result that such a decision maker is indifferent between distinct acts only if her preferences are complete.
    Keywords: Bewley preferences; incomplete preferences; risk neutrality; degenerate indifference
    JEL: D01 D03 D11
    Date: 2016–06–23
  9. By: Francesco Lancia; Alessia Russo
    Abstract: This paper studies how an organization might promote cooperation between its members when individual contributions to the organization's output are imper- fectly observable. It considers an overlapping-generation game in which members with con icting interests expend e ort in pursuing outside tasks that are perfectly observable and privately bene cial in addition to the e ort devoted to increasing the organization's output. We show that both the organization's expected output and members' well-being increase when the reward and punishment mechanism links the two types of e ort. In the resulting equilibrium, privately bene cial ef- forts are at an inecient level in order to signal members' willingness to cooperate. After extending the game to multiple generations, we apply it to the optimal tasks assignment along career paths in an organization.
    JEL: C73 F62 M54
    Date: 2016–06
  10. By: Huy N. Chau; Mikl\'os R\'asonyi
    Abstract: We prove the existence of optimal strategies for agents with cumulative prospect theory preferences who trade in a continuous-time illiquid market, transcending known results which pertained only to risk-averse utility maximizers. The arguments exploit an extension of Skorohod's representation theorem for tight sequences of probability measures. This method is applicable in a number of similar optimization problems.
    Date: 2016–06
  11. By: Armstrong, Mark
    Abstract: The paper discusses situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search. Topics include: network effects (consumers may be better off following the same search order as other consumers); the use of price and non-price advertising to direct search; the impact of consumers starting a new search with their previous supplier; the incentive sellers have to merge or co-locate with other sellers; and the incentive a seller can have to raise its own search cost. I also show how ordered search can be reformulated as a simpler discrete choice problem without search frictions.
    Keywords: Consumer search, sequential search, ordered search, directed search, discrete choice, oligopoly, advertising, obfuscation.
    JEL: D21 D43 D83 L11 L15 M37
    Date: 2016–06–24
  12. By: Stéphane Gonzalez (Université de Lyon, Lyon F- 69007, France; CNRS, GATE L-SE, Ecully, F- 69130, France; Université J. Monnet, Saint-Etienne, F- 42000, France); Aymeric Lardon (University of Nice Sophia-Antipolis, CNRS, GREDEG UMR 7321, F-06560 Valbonne, France)
    Abstract: We introduce axiomatically a new solution concept for cooperative games with transferable utility inspired by the core. While core solution concepts have investigated the sustainability of cooperation among players, our solution concept, called contraction core, focuses on the deterrence of cooperation. The main interest of the contraction core is to provide a monetary measure of the robustness of cooperation into the grand coalition. We motivate this concept by providing optimal fine imposed by competition authorities for the dismantling of cartels in oligopolistic markets. We characterize the contraction core on the set of balanced cooperative games with transferable utility by four axioms: the two classic axioms of non-emptiness and individual rationality, a superadditivity principle and a new axiom of consistency.
    Keywords: TU-game, contraction core, optimal fine, Cournot oligopoly, axiomatization
    JEL: C71 D43
    Date: 2016

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