nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒10‒16
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Reputation Cycles By Boyan Jovanovic; Julien Prat
  2. Persuading voters By Ricardo Alonso; Odilon Câmara
  3. Truth-revealing voting rules for large populations * By Matías Núñez; Marcus Pivato
  4. Prudent Equilibria and Strategic Uncertainty in Discontinuous Games By Philippe Bich
  5. Does Incomplete Information Reduce Manipulability? By Yuliya A. Veselova
  6. Regular economies with ambiguity aversion By Noé Biheng; Jean-Marc Bonnisseau
  7. Inefficient equilibria in wage bargaining with discount rates varying in time By Ahmet Ozkardas; Agnieszka Rusinowska
  8. Necessary and Sufficient Conditions for a Solution of the Bellman Equation to be the Value Function: A General Principle By Takashi Kamihigashi; Cuong Le Van
  9. A generalization of the expenditure function By Noé Biheng
  10. Aggregation theory and the relevance of some issues to others By Franz Dietrich
  11. Aggregation of Preferences and the Structure of Decisive Sets By Donald J. Brown
  12. Influence networks and public goods By Dunia Lopez-Pintado
  13. Contract contingency in vertically related markets By E. Bacchiega; O. Bonroy; E. Petrakis
  14. Mutual rankings By Gabrielle Demange
  15. On the Design of Optimal Health Insurance Contracts under Ex Post Moral Hazard By Pierre Martinon; Pierre Picard; Anasuya Raj
  16. Why firms should care for all consumers By Planer-Friedrich, Lisa; Sahm, Marco

  1. By: Boyan Jovanovic; Julien Prat
    Abstract: This paper shows that endogenous cycles can arise when contracts between firms and their customers are incomplete and when products are experience goods. Then firms invest in the quality of their output in order to establish a good reputation. Cycles arise because investment in reputation causes self-fulfilling changes in the discount factor. Cycles are more likely to occur when information diffuses slowly and consumers exhibit high risk aversion. A rise in idiosyncratic uncertainty is of two kinds that work in opposite ways: Noise in observing effort is contractionary as it generally is in agency models. But a rise in the variance of the distribution of abilities is expansionary. A calibrated version produces realistic fluctuations in terms of peak-to-trough movements in consumption and the spacing of time between recessions.
    JEL: E32
    Date: 2016–09
  2. By: Ricardo Alonso; Odilon Câmara
    Abstract: In a symmetric information voting model, an individual (politician) can influence voters' choices by strategically designing a policy experiment (public signal). We characterize the politician's optimal experiment. With a non-unanimous voting rule, she exploits voters' heterogeneity by designing an experiment with realizations targeting different winning coalitions. Consequently, under a simple-majority rule, a majority of voters might be strictly worse off due to the politician's influence. We characterize voters' preferences over electoral rules and provide conditions for a majority of voters to prefer a supermajority (or unanimity) voting rule, in order to induce the politician to supply a more informative experiment.
    Keywords: strategic experimentation; persuasion; voting
    JEL: J1
    Date: 2016
  3. By: Matías Núñez (Université Paris-Dauphine); Marcus Pivato (THEMA - université de Cergy-Pontoise -)
    Abstract: Deterministic voting rules are notoriously susceptible to strategic voting. We propose a new solution to this problem for large electorates. For any deterministic voting rule, we can design a stochastic rule that asymptotically approximates it in the following sense: for a sufficiently large population of voters, the stochastic voting rule (i) incentivizes every voter to reveal her true preferences and (ii) produces the same outcome as the deterministic rule, with very high probability.
    Keywords: Large Elections,Truth-telling,Incentives
    Date: 2016–06–30
  4. By: Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We introduce the new concept of prudent equilibrium to model strategic uncertainty, and prove it exists in large classes of discontinuous games. When the game is better-reply secure, we show that prudent equilibrium refines Nash equilibrium. In contrast with the current literature, we don't use probabilities to model players' strategies and beliefs about other players' strategies. We provide examples (first-price auctions, location game, Nash demand game, etc.) where the prudent equilibrium is the intuitive solution of the game.
    Keywords: prudent equilibrium,Nash equilibrium,refinement,strategic uncertainty,better-reply secure
    Date: 2016–06–24
  5. By: Yuliya A. Veselova (National Research University Higher School of Economics)
    Abstract: We consider the problem of individual manipulation under incomplete information, i.e. the whole preference profile is not known to voters. Instead, voters know the result of an opinion poll (the outcome of a poll information function , e.g. a list of scores or a set of winners). In this case, a voter has an incentive to misrepresent his preferences ( -manipulate) if he knows that he will not become worse off and there is a chance of becoming better off. We consider six social choice rules and eight types of poll information functions differing in their informativeness. To compare manipulability, first we calculate the probability that there is a voter which has an incentive to -manipulate and show that this measure is not illustrative in the case of incomplete information. Then we suggest considering two other measures: the probability of a successful manipulation and an aggregate stimulus of voters to manipulate which demonstrate more intuitive behaviour. We provide results of computational experiments and analytical proofs of some of the observed effects
    Keywords: voting theory; manipulation; manipulability index; opinion poll; incomplete information.
    JEL: C6 D7
    Date: 2016
  6. By: Noé Biheng (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Jean-Marc Bonnisseau (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider a family of exchange economies with complete markets where consumers have multiprior preferences representing their ambiguity aversion. Under a linear independence assumption, we prove that regular economies are generic. Regular economies exhibit enjoyable properties: odd finite number of equilibrium prices, local constancy of this number, local differentiable selections of the equilibrium prices. Thus, even if ambiguity aversion is represented by non-differentiable multiprior preferences, economies retain generically the properties of the differentiable approach.
    Keywords: demand function,general equilibrium,ambiguity aver-sion,multiprior preferences,regular economies,Lipschitz behavior
    Date: 2015
  7. By: Ahmet Ozkardas (Turgut Ozal University); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We consider a union-firm wage bargaining in which the union must choose between strike and holdout in case of disagreement, and preferences of the union and the firm are expressed by sequences of discount rates varying in time. We show that there may exist inefficient subgame perfect equilibria in the model under which the union engages in several periods of strikes prior to reaching a final agreement. For an inefficient equilibrium to exist, the status quo wage must be sufficiently low and the amounts that the firm offers for itself in the subgame perfect equilibrium under the exogenous always strike decision in every odd period before reaching an agreement must be sufficiently low.
    Keywords: discount rates
    Date: 2015
  8. By: Takashi Kamihigashi (RIEB, Kobe University - Kobe University); Cuong Le Van (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, IPAG - Business School, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment)
    Abstract: In this paper, we give Necessary and Sufficient Conditions for a Solution of the Belman Equation to be the Value Function. This result is a general principle. It requires no structure beyond the common framework of discrete-time stationary optimization problems with time-additive returns. In particular, the state space X is an arbitrary set.
    Keywords: dynamic programming,Bellman equation,value function,fixed point
    Date: 2015–01
  9. By: Noé Biheng (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We consider a generalized expenditure function and the associated Hicksian demand. First, we provide some economic interpretation of the problem that we study. Then, we study different properties of the solution: existence, Lipschitz behavior and differential properties. We conclude by a Slutsky-type property.
    Abstract: Nous considérons une fonction de dépense généralisée et la demande compensée qui lui est associée. Premièrement, nous proposons différentes applications économiques du problème étudié. Nous étudions ensuite différentes propriétés de la solution de ce problème. Celles-ci concernent l'existence, le caractère lipschitzien et la différentiabilité de la solution. Enfin, nous obtenons une propriété similaire à la propriété de Slutsky.
    Keywords: expenditure function,Lipschitz behavior,incomplete preferences,préférences incomplètes,caractère Lipschitzien,fonction de dépense
    Date: 2014–11
  10. By: Franz Dietrich (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: I propose a relevance-based independence axiom on how to aggregate individual yes/no judgments on given propositions into collective judgments: the collective judgment on a proposition depends only on people's judgments on propositions which are relevant to that proposition. This axiom contrasts with the classical independence axiom: the collective judgment on a proposition depends only on people's judgments on the same proposition. I generalize the premise-based rule and the sequential-priority rule to an arbitrary priority order of the propositions, instead of a dichotomous premise/conclusion order resp. a linear priority order. I prove four impossibility theorems on relevance-based aggregation. One theorem simultaneously generalizes Arrow's Theorem (in its general and indifference-free versions) and the well-known Arrow-like theorem in judgment aggregation.
    Keywords: judgment aggregation,generalized Arrow theorem,generalized premise-based and sequential-priority rules,priority graph,aggregation of non-binary evalua-tions
    Date: 2015
  11. By: Donald J. Brown (Dept. of Economics, Yale University)
    Abstract: This is the manuscript for the talk that I presented at the Koerner Center’s Intellectual Trajectories Seminar in September 2016.
    Keywords: Condorcet Voting Paradox, Arrow’s Impossibility Theorem
    JEL: D63 D71 D72
    Date: 2016–10
  12. By: Dunia Lopez-Pintado (Universidad Pablo de Olavide and CORE, Universite catholique de Louvain.)
    Abstract: We consider a model of local public goods in a random network context. The influence network determines (exogenously) who observes whom every period and comprises a wide array of options depending on the degree distribution and the in/out-degree correlations. We show that there exists a unique equilibrium level of public good provision and compare it with the efficient level. We derive further insights for this problem by performing a comparative statics analysis.
    Keywords: influence networks, public goods, out-degree, in-degree, best-shot game
    JEL: D85 H41
    Date: 2016–10–04
  13. By: E. Bacchiega; O. Bonroy; E. Petrakis
    Abstract: We study the optimal contract choice of an upstream monopolist producing an essential input that may sell to two vertically differentiated downstream firms. The upstream supplier can offer an exclusive contract to one of the firms or non-exclusive contracts to both firms. Each of the latter can be made contingent or not on the breakdown of the negotiations between the upstream supplier and the rival downstream firm. The distribution of bargaining power during the contract terms negotiations is the main driving force of the monopolist's choices. A powerful supplier always opts for an exclusive contract. By contrast, a weaker supplier offers non-exclusive contracts and makes each of them contingent or non-contingent such as to guarantee the most favorable outside option in its negotiations. Our main results hold under an horizontally differentiated downstream market too.
    JEL: D43 L13 L14
    Date: 2016–09
  14. By: Gabrielle Demange (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics)
    Abstract: This paper analyzes some ranking methods in two-sided settings through their axiomatization. In these settings, there are two sets (the sides) and each member of one side evaluates each member of the other side. Such settings with mutual evaluations abound, for instance between buyers and sellers, students and teachers, or individuals and clubs.
    Keywords: ranking,scores,two-sided,overlapping groups,mutual evaluation systems,bi-partite graph
    Date: 2016–07–31
  15. By: Pierre Martinon (Commands - Control, Optimization, Models, Methods and Applications for Nonlinear Dynamical Systems - CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique - ENSTA ParisTech UMA - Unité de Mathématiques Appliquées - Univ. Paris-Saclay, ENSTA ParisTech - École Nationale Supérieure de Techniques Avancées - Univ. Paris-Saclay, ENSTA ParisTech - École Nationale Supérieure de Techniques Avancées - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique); Pierre Picard (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique); Anasuya Raj (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique)
    Abstract: We analyze the design of optimal medical insurance under ex post moral hazard, i.e., when illness severity cannot be observed by insurers and policyholders decide on their health expenditures. We characterize the trade-o§ between ex ante risk sharing and ex post incentive compatibility, in an optimal revelation mechanism under hidden information and risk aversion. We establish that the optimal contract provides partial insurance at the margin, with a deductible when insurersí rates are a§ected by a positive loading, and that it may also include an upper limit on coverage. We show that the potential to audit the health state leads to an upper limit on out-of-pocket expenses.
    Keywords: background risk, optimal control,health insurance, ex post moral hazard, audit
    Date: 2016–07–01
  16. By: Planer-Friedrich, Lisa; Sahm, Marco
    Abstract: We compare the strategic potential of Corporate Social Responsibility (CSR) and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR. This result provides an explanation for the recent shift from CO to CSR in both, corporate culture and economic research.
    Keywords: Corporate Social Responsibility,Customer Orientation,Cournot Duopoly,Commitment
    JEL: D43 L13 L21
    Date: 2016

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