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on Microeconomics |
| By: | Philipp Renner (Stanford University - The Hoover Institution on War, Revolution and Peace); Karl Schmedders (University of Zurich) |
| Abstract: | This paper contributes to the theoretical and numerical analysis of discrete time dynamic principal-agent problems with continuous choice sets. We first provide a new and simplified proof for the recursive reformulation of the sequential dynamic principal-agent relationship. Next we prove the existence of a unique solution for the principal's value function, which solves the dynamic programming problem in the recursive formulation, by showing that the Bellman operator is a contraction mapping. Therefore, the theorem also provides a convergence result for the value function iteration. To compute a solution for the problem we have to solve a collection of static principal-agent problems at each iteration. Under the assumption that the agent's expected utility is a rational function of his action, we can transform the bi-level optimization problem into a standard nonlinear program (NLP). We can then solve these nonlinear problems with a standard NLP solver. The final results of our solution method are numerical approximations of the policy and value functions for the dynamic principal-agent model. We illustrate our solution method by solving variations of two prominent social planning models from the economics literature. |
| Keywords: | Optimal unemployment tax, principal-agent model, repeated moral hazard |
| JEL: | C63 D80 D82 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1626&r=mic |
| By: | Balázs Szentes |
| Abstract: | This article analyses contractual situations between many principals and many agents. The agents have private information, and the principals take actions. Principals have the ability to contract not only on the reports of the agents but also on the contracts offered by other principals. Contracts are required to be representable in a formal language. The main result of the article is a characterization of the allocations that can be implemented as equilibria in our contracting game. We then restrict attention to exclusive-contracting environments, in which the agent may select the contract of at most one principal. In this setting, our characterization result implies that principals can collude to implement the monopolist outcome. Finally, in general, equilibrium contracts turn out to be incomplete. That is, a contract will restrict the action space of a principal but will not necessarily determine a single action. |
| Keywords: | Common agency; Contractible contracts |
| JEL: | J1 |
| Date: | 2015–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:66071&r=mic |
| By: | Maarten Janssen; Bernhard Kasberger |
| Abstract: | The Combinatorial Clock Auction (CCA) has been frequently used in recent spectrum auctions. It combines a dynamic clockphase with subsequent VCG pricing in order to maximize price discovery and eciency. We inquire into the role of the clock when bidders have lexicographic preferences for raising rivals' costs. All equilibria of the CCA are inecient if there is substantial room for price discovery, that is, if there is large uncertainty concerning the competitor's type. Conversely, in all ecient equilibria price discovery is limited. Qualitative features of our equilibria are in line with evidence concerning bidding behavior in some recent CCAs. |
| JEL: | D01 D44 D47 L96 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1607&r=mic |
| By: | Inés Macho-Stadler; David Pérez-Castrillo; David Wettstein |
| Abstract: | We propose the average approach,where the worth of a coalition is a weighted average of its worth for di/erent partitions of the playersset, as a unifying method to extend values for characteristic function form games. Our method allows us to extend the equal division value, the equal surplus value, the consensus value, the -egalitarian Shapley value, and the least-square family. For each of the rst three extensions, we also provide an axiomatic characterization of a particular value for partition function form games. And for each of the last two extensions, we nd a family of values that satisfy the properties. |
| Keywords: | Externalities, sharing the surplus, average approach |
| JEL: | D62 C71 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:919&r=mic |
| By: | Akitoshi Muramoto (Institute of Intellectual Property, Foundation for Intellectual Property); Ryuji Sano (Institute of Economic Research, Kyoto University) |
| Abstract: | We consider sequential second-price auctions in which heterogeneous objects are sold to bidders with unit demand and a single dimensional type. We show that a symmetric increasing equilibrium exists if objects are ordered in terms of dispersiveness of value distributions. Equilibrium price declines when objects are equivalent on average and additional conditions hold. |
| Keywords: | sequential auctions, declining price anomaly, dispersiveness |
| JEL: | D44 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:945&r=mic |
| By: | Vanessa Kummer (University of Zurich); Maik Meusel (University of Zurich); Philipp Renner (Stanford University - The Hoover Institution on War, Revolution and Peace); Karl Schmedders (University of Zurich) |
| Abstract: | In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision. |
| Keywords: | Career concerns, dynamic agent model, multi-period contracts |
| JEL: | D21 D23 D86 L24 L51 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1632&r=mic |
| By: | Alvarez, Francisco; André, Francisco J.; Mazón, Cristina |
| Abstract: | We study the efficiency of the uniform auction as an allocation mechanism for emission permits among polluting firms. In our model, firms have private information about their abatement costs, which differ across firms and across units, and bidders' demands are linear. We show that there is a continuum of interior Bayesian-Nash equilibria, and only one is effcient, minimizing abatement costs. We find that the existence of many bidders is not a sufficient condition to guarantee an efficient equilibrium in the uniform auction. Additionally, bidders' types have to be uncorrelated. |
| Keywords: | Emission permits, Uniform auction, Efficiency, Incomplete information Simultaneous games |
| JEL: | D44 Q58 |
| Date: | 2016–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72827&r=mic |
| By: | Pieter Gautier (VU University Amsterdam); Guido Menzio (University of Pennsylvania); Bjoern Bruegemann (VU University Amsterdam) |
| Abstract: | The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:389&r=mic |
| By: | Crespo, Juan A.; Sanchez-Gabites, J.J |
| Abstract: | Suppose that a number of equally qualified agents want to choose collectively an element from a set of alternatives defined by equality constraints. Each agent may well prefer a different element, and the social choice problem consists in deciding whether it is possible to design a rule to aggregate all the agents’ preferences into a social choice in an egalitarian way. In this paper we obtain criteria that solve this problem in terms of conditions that are explicitly computable from the constraints. As a theoretical consequence, we show that the only way to avoid running into a social choice paradox consists in designing (if possible) the set of alternatives satisfying certain optimality condition on the constraints, that is, in the natural way from the point of view of economics. |
| Keywords: | Social choice, optimization, rational design. |
| JEL: | C60 D63 D71 |
| Date: | 2016–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72757&r=mic |
| By: | S. Agarwal; D. Ghosh; A. S. Chakrabarti |
| Abstract: | In this paper we consider a distributed coordination game played by a large number of agents with finite information sets, which characterizes emergence of a single dominant attribute out of a large number of competitors. Formally, $N$ agents play a coordination game repeatedly which has exactly $N$ Nash equilibria and all of the equilibria are equally preferred by the agents. The problem is to select one equilibrium out of $N$ possible equilibria in the least number of attempts. We propose a number of heuristic rules based on reinforcement learning to solve the coordination problem. We see that the agents self-organize into clusters with varying intensities depending on the heuristic rule applied although all clusters but one are transitory in most cases. Finally, we characterize a trade-off in terms of the time requirement to achieve a degree of stability in strategies and the efficiency of such a solution. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1608.00213&r=mic |
| By: | Ascensión Andina Díaz (Departamento de Teoría e Historia Económica, Universidad de Málaga); José A. García-Martínez (Departamento de Estudios Económicos y Financieros, Universidad Miguel Hernández) |
| Abstract: | This paper analyzes the effect of media coverage on the incentives of a careerist judge to act on her information. The novelty of our approach is to consider a judge who seeks to signal both \textit{expertise} and (absence of) \textit{bias}. To this, we incorporate three types of judges: the high quality or wise judge, the normal judge and the biased/lenient judge. Our results show that whether media coverage of judicial cases leads to better sentencing practices or not, deeply depend on the proportion of lenient judges in the population. In particular, we obtain that when this proportion is either too low or too high, media coverage does not affect a judge's behavior. However, her behavior if very different in one case than in the other. We also obtain that when the perceived proportion of lenient judges is neither too strong nor too weak, media coverage of judicial cases can induce a judge to act less on her information and to pass harsher sentences. |
| Keywords: | Careerist judges; bias; transparency; media coverage; sentencing practices |
| JEL: | D82 K40 L82 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:mal:wpaper:2016-2&r=mic |
| By: | Adam Zawadowski (Central European University); Peter Kondor (London School of Economics) |
| Abstract: | We develop a model of capital reallocation to analyze whether the presence of more arbitrageurs improves capital allocation and welfare. While trades can become crowded due to imperfect information and externalities, arbitrageurs can devote resources to flexibly learn about the number of earlier entrants. Above a threshold, increasing the number of arbitrageurs does not affect capital allocation: whether there is eventually too little or too much capital allocated to the trade is solely determined by the parameters of the market. The flexibility in the learning technology is key to this insight. However, the presence of more arbitrageurs decreases welfare, as they use more aggregate resources to learn about each others' position. When both sophisticated and unsophisticated arbitrageurs are present, increasing the share of sophisticated arbitrageurs might be welfare reducing. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:338&r=mic |
| By: | Simone Cerreia Vioglio; Fabio Maccheroni; Massimo Marinacci |
| Abstract: | We study absolute and relative attitudes toward ambiguity, determined by wealth effects, from a preferential viewpoint. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:578&r=mic |
| By: | Fabrice Rousseau (Department of Economics, Finance and Accounting, Maynooth University.); Hervé Boco (University of Toulouse Toulouse Business School ISAE); Laurent Germain (Workplace-Name:University of Toulouse Toulouse Business School ISAE) |
| Abstract: | This paper analyzes the competition of heterogeneously informed traders in a multi-auction setting. We obtain that the competition can take different forms depending on the number of traders, trading rounds and the noise in the information. When the number of traders is small and the number of trading rounds is large, traders may trade very aggressively at the opening and at the end of the trading day with lower trading intensity in between. Hence, we can explain volume patterns by the nature of the competition between traders rather than by pattern in the level of liquidity. We find that the noise in the signal may be beneficial for traders when the competition is strong as it gives them a monopolistic position on their private information. The amount of noise maximizing the trader’s expected profit increases with the number of trading rounds as well as the number of traders. This implies that the value of information is closely related to the market where that information is subsequently being used. |
| Keywords: | efficiency, asymmetric information, noise, liquidity, adverse selection, competition. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n269-16.pdf&r=mic |
| By: | F. Barigozzi; N. Burani |
| Abstract: | We study optimal non-linear contracts offered by two firms competing for the exclusive services of workers, who are privately informed about their ability and motivation. Firms differ in their organizational form, and motivated workers are keen to be hired by the non-profit firm because they adhere to its mission. If the for-profit firm has a competitive advantage over the non-profit firm, the latter attracts fewer high-ability workers with respect to the former. Moreover, workers exert more effort at the for-profit than at the non-profit firm despite the latter distorts effort levels upwards. Finally, a wage penalty emerges for non-profit workers which is partly due to compensating effects (labor donations by motivated workers) and partly due to the negative selection of ability into the non-profit firm. The opposite results hold when it is the non-profit firm that has a competitive advantage. |
| JEL: | D82 D86 J24 J31 M55 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1072&r=mic |
| By: | Robert Baumann (Department of Economics, College of the Holy Cross); Bryan Engelhardt (Department of Economics, College of the Holy Cross); David L. Fuller (College of Business, University of Wisconsin - Oshkosh) |
| Abstract: | We show if a speculator can benefit from reducing a monopoly’s rents through short selling, then a speculator may take a short position in a monopoly, overcome the barriers to entry, and compete with the monopoly. The competition drives down the monopoly’s rents, and as a result, the short position becomes profitable and covers the cost of entry. If entry is impossible, then the speculator may coordinate and pay the firm’s counter-parties to stop trading with the monopoly rather than entering. Either way, increasing a speculator’s ability to short a firm’s rents results in a constraint on the monopoly and forces it to act more like a price taker. The mechanism is a market based approach to antitrust. |
| Keywords: | antitrust, monopoly, short selling |
| JEL: | L12 K21 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:hcx:wpaper:1603&r=mic |