nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒10‒23
thirty-one papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Multi-period competitive cheap talk with very biased experts By Eric Schmidbauer
  2. Repeated games with public information revisited By Marie Laclau; Tristan Tomala
  3. Collective commitment By Christian Roessler; Sandro Shelegia; Bruno Strulovici
  4. Public Persuasion By Marie Laclau; Ludovic Renou
  5. When to Drop a Bombshell By Gabriele Gratton; Richard Holden; Anton Kolotilin
  6. Limited consideration and limited data By Yuta Inoue; Koji Shirai
  7. A revealed preference theory of monotone choice and strategic complementarity By Natalia Lazzati; John K.-H. Quah; Koji Shirai
  8. Non stationary additive utility and time consistency By Nicolas Drouhin
  9. On the benefits of set-asides By Jehiel, Philippe; Lamy, Laurent
  10. Ordered Consumer Search By Armstrong, Mark
  11. Expert Costs and the Role of Verifiability By Li, Jianpei; Ouyang, Yaofu
  12. Dynamic consistency of expected utility under non-classical(quantum) uncertainty By Vladimir Ivanovitch Danilov; Ariane Lambert-Mogiliansky; Vassili Vergopoulos
  13. Equilibrium Informativeness in Veto-Based Delegation By Eric Schmidbauer; Dmitry Lubensky
  14. General equilibrium with endogenous trading constraints By Sebastián Cea-Echenique; Juan Pablo Torres-Martínez
  15. Conditional Expected Utility Criteria for Decision Making under Ignorance or Objective Ambiguity By Nicolas Gravel; Thierry Marchant; Arunava Sen
  16. Retail Channel Management in Consumer Search Markets By Garcia, Daniel; Janssen, Maarten
  17. Local Interactions under Switching Costs By Jiang, Ge; Weidenholzer, Simon
  18. Viable Nash Equilibria in the Problem of Common Pollution By Noël Bonneuil; Raouf Boucekkine
  19. Entry into complementary good markets with network effects By Gaston Llanes; Andrea Mantovani; Francisco Ruiz-Aliseda
  20. Sharing contests with general preferences By Alex Dickson; Ian A. MacKenzie; Petros G. Sekeris
  21. Bidding Dynamics in Auctions By Hugo Hopenhayn; Maryam Saeedi
  22. Implementing Tax Coordination and Harmonization through Voluntary Commitment By Grégoire Rota-Graziosi
  23. Keeping Up with the Joneses as an Outcome of Getting Ahead of the Smiths. A Two-Stage Veblenian Status Game By Frédéric Gavrel
  24. Strategic Voting in Multi-Winner Elections with Approval Balloting: A Theory for Large Electorates By Jean-François Laslier; Karine Van Der Straeten
  25. Oliver Hart and Bengt Holmström: Contract Theory By Committee, Nobel Prize
  26. The Market for Lemons: Costly Insurance, Coverage Denials, and Pooling By hector chade
  27. A counterexample on the completion of preferences with single crossing differences By Nikolai S. Kukushkin; John K.-H. Quah; Koji Shirai
  28. The Value of Network Information: Assortative Mixing Makes the Difference By Mohamed Belhaj; Frédéric Deroïan
  29. The Effect of a Merger on Investments By Motta, Massimo; Tarantino, Emanuele
  30. Repeated moral hazard with costly self-control By Lukasz Wozny
  31. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance By Brice Corgnet; Joaquín Gómez-Miñambres; Roberto Hernán-Gonzalez

  1. By: Eric Schmidbauer (University of Central Florida, Orlando, FL)
    Abstract: Each of n experts communicates with a principal about the privately observed quality of the expert's own project via cheap talk, with new independently drawn projects available each period until the principal adopts one. Even when experts are very biased in that they only receive a positive payoff if their own project is selected, we show that informative equilibria may exist, characterize the set of stationary equilibria, and nd the Pareto dominant symmetric equilibrium. Experts face a tradeoff between inducing acceptance now versus waiting for a better project should the game continue. When the future is more highly valued experts send more informative messages, increasing the average quality of an adopted project and resulting in a Pareto improvement, while communication is harmed and payoffs can decline when there is more competition between experts.
    Keywords: cheap talk, multiple senders, competition
    JEL: D23 D74 D82
    Date: 2016–10
  2. By: Marie Laclau (CNRS - Centre National de la Recherche Scientifique, 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); Tristan Tomala (HEC Paris - Department of Economics and Decision Sciences)
    Abstract: We consider repeated games with compact actions sets and pure strategies in which players commonly observe a public signal which reveals imperfectly the action profile. We characterize the set of payoffs profiles that can be sustained by a perfect equilibrium, as players become increasingly patient. There are two conditions: admissibility and joint rationality. An admissibly feasible payoff can be achieved by an action profile that offers no unilateral deviation which is both undetectable and profitable. It is jointly rational if for all weights on players, the weighted payoff is greater than or equal to the minmax level of the weighted payoff function. This characterization is alternative to the one provided by the " score method " of Fuden-berg and Levine (1994). We provide a simple construction of equilibrium strategies based on cooperation, punishments and rewards. Punishments rely on Blackwell's approachability algorithm.
    Keywords: Repeated games, approachability, imperfect public monitoring.
    Date: 2016–03–09
  3. By: Christian Roessler; Sandro Shelegia; Bruno Strulovici
    Abstract: We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inecient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? We provide a consistency condition linking power structures in the dynamic setting and at the commitment stage. When the condition holds, commitment has no value: any agreement that may be reached at the outset coincides with the equilibrium without commitment. When the condition fails, as in the case of time-inconsistent preferences, commitment can improve outcomes. We discuss several applications.
    JEL: D70 H41 C70
    Date: 2016–07
  4. By: Marie Laclau (CNRS - Centre National de la Recherche Scientifique, 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); Ludovic Renou (University of Essex - University of Essex)
    Abstract: This short paper studies the problem of public persuasion, that is, when a sender has to persuade multiple receivers, possibly having heterogenous beliefs, with the same information for all. We show that public persuasion constrains the sender in how he can influence the beliefs of receivers: if the sender wants to influence the beliefs of one particular receiver, he loses all controls over the beliefs of the others. This observation partially generalizes to targeted persuasion.
    Keywords: Public,targeted,persuasion,multiple priors,splitting,concavification
    Date: 2016–03–08
  5. By: Gabriele Gratton (School of Economics, UNSW Business School, UNSW); Richard Holden (School of Economics, UNSW Business School, UNSW); Anton Kolotilin (School of Economics, UNSW Business School, UNSW)
    Abstract: At an exogenous deadline, Receiver takes an action, the payoff from which depends on Sender’s private type. Sender privately observes if and when a bombshell arrives. Upon arrival, she chooses when to drop it, which starts a public flow of information about her type. Dropping the bombshell earlier exposes it to greater scrutiny, but signals credibility. We characterize the set of equilibria and show that Sender delays dropping the bombshell, and completely withholds it with positive probability. Our model provides an explanation for an “October Surprise” effect and generates further predictions about the dynamics of information disclosure during election campaigns. We find empirical support for these predictions in data on US presidential scandals.
    Keywords: information disclosure, strategic timing, Bayesian learning, credibility vs. scrutiny
    JEL: D72 D82 D83
    Date: 2016–10
  6. By: Yuta Inoue (Graduate School of Economics, Waseda University); Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: This paper develops revealed preference tests for choices under limited consideration, allowing a partially observed data set. Our tests cover leading theories in the literature including the limited attention model, the rationalization model, the categorize-then-choose model, and the rational shortlisting model. It is worth noting that all our tests exploit a common structure of limited consideration models. We start from a data set collected from a single agent, and then extend the analysis to panel data in which the coincidence of consideration sets/preferences of agents are tested.
    Keywords: Revealed preference, Limited consideration, Limited attention, Rational shortlisting, Categorization, Bounded rationality
    JEL: C6 D1 D8
    Date: 2016–10
  7. By: Natalia Lazzati (Department of Economics, University of California Santa Cruz); John K.-H. Quah (Department of Economics, Johns Hopkins University); Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: We develop revealed preference characterizations of (1) monotone choice in the context of individual decision making and (2) strategic complementarity in the context of simultaneous games. We first consider the case where the observer has access to panel data and then extend the analysis to the case where data sets are cross sectional and preferences heterogenous. Lastly, we apply our techniques to investigate the possibility of spousal inuence in smoking decisions.
    Keywords: monotone comparative statics, single crossing differences, interval dominance, supermodular games, lattices
    JEL: C6 C7 D7
    Date: 2016–10
  8. By: Nicolas Drouhin (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, ENS Cachan - École normale supérieure - Cachan)
    Abstract: By solving dynamic optimization programs, I study the most general class of additive intertemporal utility functionals. They are not necessarily stationary, and do not necessarily multiplicatively separate a discount factor from "per-period utility". I prove that time consistency holds if and only if the period felicity function is multiplicatively separable in t, the date of decision and in s, the date of consumption, or equivalently, if the Fisherian instantaneous subjective discount rate does not depend on t. The model allows to explain"anomalies in intertemporal choice" and various empirical regularities, even when the agents are time consistent. On the other hand, the model allows to characterize the "effective consumption profile" of naive, time-inconsistent agents mathematically.
    Keywords: intertemporal choice, life cycle theory of consumption and saving, stationarity, time consistency, time invariance, exponential discounting, hyperbolic discounting, aging
    Date: 2016–01–19
  9. By: Jehiel, Philippe; Lamy, Laurent
    Abstract: Set-asides programs which consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial to exclude the incumbent in the second-price auction. This exclusion principle carries over to other auction formats that favor the incumbent and also to some environments with multiple incumbents. Whether it could be beneficial to exclude some kinds of entrants is also addressed. Various applications are discussed.
    Keywords: asymmetric buyers; auctions with endogenous entry; entry deterrence; government procurement; incumbents; set-asides
    JEL: D44 H57 L10
    Date: 2016–10
  10. 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: the existence of ordered search equilibria with symmetric sellers (all consumers first inspect the seller they anticipate sets the lowest price, and a seller which is inspected first by consumers will set the lowest price); the use of price and non-price advertising to direct search; the impact of consumers starting a new search at their previous supplier; 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 or dynamic decision making.
    Keywords: advertising; consumer search; directed search; discrete choice; obfuscation; oligopoly; ordered search; sequential search
    JEL: D21 D43 D83 L11 L15 M37
    Date: 2016–10
  11. By: Li, Jianpei; Ouyang, Yaofu
    Abstract: We study a credence goods market in which an expert holds private information about his treatment cost besides his superior knowledge about the nature of the consumer’s problem. Under the assumption of liability, cheating may occur through overcharging—a price for major treatment is charged while a minor treatment is provided, while under liability and verifiability, cheating can only occur through costly overtreatment of minor problems. Neither liability nor liability and verifiability achieves socially efficient outcome. Adding verifiability improves social welfare because it increases the probability that a major problem is repaired and the associated overtreatment cost is dominated by the gain from more problems being repaired.
    Keywords: Credence Goods, Expert Costs, Liability, Verifiability
    JEL: D21 D82 L23
    Date: 2016–10
  12. By: Vladimir Ivanovitch Danilov (CEMI - Central Economic Mathematical Institute - Russian Academy of Sciences); Ariane Lambert-Mogiliansky (PSE - Paris School of Economics, 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)); Vassili Vergopoulos (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: Quantum cognition is a recent and rapidely growing field. In this paper we developan expected utility theory in a context of non-classical (quantum) uncertainty. We replace the classical state space with a Hilbert space which allows introducing the concept of quantum lottery. Within that framework we formulate sufficient and necessary axioms on preferences over quantum lotteries to establish a representation theorem. We show that demanding the consistency of choice behavior conditional on new information is equivalent to the von Neuman-Luders postulate applied to beliefs. In our context, dynamic consistency is shown not to secure Savage's Sure Thing Principle (in its dynamic version). Finally, we discuss the interpretation and value of our results for rationality and behavioral economics.
    Keywords: Quantum cognition
    Date: 2016–05–31
  13. By: Eric Schmidbauer (University of Central Florida, Orlando, FL); Dmitry Lubensky
    Abstract: In veto delegation a biased expert recommends an action that an uninformed decision maker can accept or reject for an outside option. The arrangement is ubiquitous in political institutions, corporations, and consumer markets but has seen limited use in applications due to a poor understanding of the equilibrium set and an ensuing debate over selection. We develop a simple algorithm that constructs every veto equilibrium and identify the most informative equilibrium in a setting that spans prior work. We show that Krishna and Morgan’s (2001) and Mylovanov’s (2008) equilibria are maximally informative in their respective settings and strengthen Dessein’s (2002) comparison of full and veto delegation. In an application we study the relationship between a patient and a doctor with a financial incentive to overtreat, and in contrastwith existing literature showthat the doctor’s bias harms the patient both through excessive treatment and information loss, that the latter can be the dominant effect, and that insurance benefits both parties by improving communication.
    Keywords: veto-based delegation, cheap talk, physician-induced demand, noncompliance
    JEL: D82 I10
    Date: 2016–09
  14. By: Sebastián Cea-Echenique (Paris School of Economics - Centre d'Economie de la Sorbonne); Juan Pablo Torres-Martínez (Department of Economics - Faculty of Economics and Business - University of Chile)
    Abstract: In a competitive model where agents are subject to endogenous trading constraints, we make the access to financial trade dependent on prices and consumption decisions. Our framework is compatible with the existence of both credit market segmentation and market exclusion. In this context, we show equilibrium existence in two scenarios. In the first one, individuals can fully hedge the payments of segmented financial contracts by trading unsegmented assets. In the second one, it is assumed that agents may compensate with increments in present demand the losses of well-being generated by reductions of future consumption
    Keywords: Incomplete Markets; General Equilibrium; Endogenous Trading Constraints
    JEL: D52
    Date: 2016–07
  15. By: Nicolas Gravel (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Thierry Marchant (Department of Data Analysis - Ghent University [Belgium]); Arunava Sen (Indian Statistical Institute [New Delhi])
    Abstract: We provide an axiomatic characterization of a family of criteria for ranking completely uncertain and/or ambiguous decisions. A completely uncertain decision is described by the set of all its consequences (assumed to be finite). An ambiguous decision is described as a finite set of possible probability distributions over a finite set of prices. Every criterion in the family compares sets on the basis of their conditional expected utility, for some probability function taking strictly positive values and some utility function both having the universe of alternatives as their domain.
    Keywords: ignorance,ambiguity,conditional probabilities,expected utility,ranking sets,axioms
    Date: 2016–04
  16. By: Garcia, Daniel; Janssen, Maarten
    Abstract: We study how a monopoly manufacturer optimally manages her contractual relations with retailers in markets with consumer search. By choosing wholesale prices, the manufacturer affects the degree of competition between retailers and the incentives of consumers to search. We show that depending on whether or not the manufacturer can commit to her price decisions and on the search cost, the manufacturer may be substantially better off choosing her wholesale prices not independent of each other, consciously allowing for asymmetric contracts. Thus, our analysis may shed light on when we may expect sales across different retailers to be positively or negatively correlated. Our model may be able to generate loss leaders at the wholesale level and show the rationale for creating ”premium resellers”.
    Keywords: Consumer Search, Retailing, Pricing
    JEL: D43 L13 M30
    Date: 2016–10–09
  17. By: Jiang, Ge; Weidenholzer, Simon
    Abstract: We study the impact of switching costs on the long run outcome in 2x2 coordination games played in the circular city model of local interactions. For low levels of switching costs the predictions are in line with the previous literature and the risk dominant convention is the unique long run equilibrium. For intermediate levels of switching costs the set of long run equilibria still contains the risk dominant convention but may also contain conventions that are not risk dominant. The set of long run equilibria may further be non-monotonic in the level of switching costs, i.e. as switching costs increase the prediction that the risk dominant convention is the unique long run equilibrium and the prediction that both conventions are long run equilibria alternate. Finally, for high levels of switching costs also non-monomorphic states will be included in the set of long run equilibria.
    Date: 2016–09
  18. By: Noël Bonneuil (EHESS - École des hautes études en sciences sociales, INED - Institut national d'études démographiques); Raouf Boucekkine (IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche, AMSE - Aix-Marseille School of Economics - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - EHESS - École des hautes études en sciences sociales)
    Abstract: Two countries produce goods and are penalized by the common pollution they generate. Each country maximizes an inter-temporal utility criterion, taking account of the pollution stock to which both contribute. The dynamic is in continuous time with possible sudden switches to less polluting technologies. The set of Nash equilibria, for which solutions also remain in the set of constraints, is the intersection of two manifolds in a certain state space. At the Nash equilibrium, the choices of the two countries are interdependent: different productivity levels after switching lead the more productive country to hasten and the less productive to delay the switch. In the absence of cooperation, efforts by one country to pollute less motivate the other to pollute more, or encourage the country that will be cleaner or less productive country after switching to delay its transition.
    Keywords: pollution,dynamic game,Nash,viability theory
    Date: 2016–06
  19. By: Gaston Llanes (Pontificia Universidad Catolica de Chile, Escuela de Administracion, Vicuna Mackenna 4860, Macul, Santiago, Chile); Andrea Mantovani (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy); Francisco Ruiz-Aliseda (Pontificia Universidad Catolica de Chile, Escuela de Administracion, Vicuna Mackenna 4860, Macul, Santiago, Chile)
    Abstract: We examine whether an incumbent active in a market with strong network effects can be challenged by an entrant already active in the market of a complementary good. When only the entrant benefits from such a complementarity in the network market, we find that it can conquer such a market if and only if the degree of complementarity is large enough. In such cases, the entrant may use the network good as a loss-leader so as to expand the market of the complementary good. When the incumbent's network good is enhanced too by the existence of the complementary good, we study if the entrant is better or worse off. Finally, we argue that, even though pure bundling may be an effective entry strategy and it may be socially desirable, it may be harmful for the entrant to use it.
    Keywords: network effects; complementarities; bundling; incumbency advantage; entry
    JEL: L13 L14 L41
    Date: 2016–09
  20. By: Alex Dickson (Department of Economics, University of Strathclyde, Glasgow, UK, G4 0QU); Ian A. MacKenzie (School of Economics, University of Queensland, Brisbane, Australia, 4072); Petros G. Sekeris (Montpellier Business School, Montpellier, France)
    Abstract: This article investigates contests when heterogeneous players compete to obtain a rent share. We prove the existence and uniqueness of the Nash equilibrium when players have general preferences. Our results show that the conventional wisdom in contests-such as a monotonically increasing relationship between effort and the size of the rent-may no longer hold. We derive the key conditions on preferences under which this is the case. By providing a much broader contest environment, our approach is able to nest conventional contest analysis as well as providing a rich framework that helps to explain many previously puzzling applications.
    Keywords: contest; general preferences; aggregative game
    JEL: C72 D72
    Date: 2016–10–05
  21. By: Hugo Hopenhayn; Maryam Saeedi
    Abstract: This paper studies bidding dynamics where values and bidding opportunities follow an unrestricted joint Markov process, independent across agents. Bids cannot be retracted, as is frequently the case in auctions. Our main methodological contribution is that we construct a mapping from this general stochastic process into a distribution of values that is independent of the type of auction considered. The equilibria of a static auction with this distribution of values is used to characterize the equilibria of the dynamic auction, making this general class very tractable. As a result of the option of future rebidding, early bids are shaded and under mild conditions increase toward the end of the auction. Our results are consistent with repeated bidding and skewness of the time distribution of winning bids, two puzzling observations in dynamic auctions. As an application, we estimate the model by matching moments from eBay auctions.
    JEL: C73 D44 D81 L81
    Date: 2016–10
  22. By: Grégoire Rota-Graziosi (CERDI - Centre d'études et de recherches sur le developpement international - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)
    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 competition,Tax coordination,Commitment.
    Date: 2016–06–15
  23. By: Frédéric Gavrel (CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a status game, homogenous individuals first decide on their income (and on the effort necessary to that end) with the aim at Getting ahead of the Smithes (GAS). Next, they make use of a pure positional good to make incomes visible. Although the GAS hypothesis is ordinal, the signalling costs induce cardinal social concerns. The GAS hypothesis, translated into the KUJ (Keeping Up with the Joneses) (pride) concern, generates an equilibrium in which identical agents have unequal income levels. This equilibrium is an egalitarian optimum. But utilitarian and Paretian inefficiency are the price paid for equality.
    Keywords: Efficiency,Conspicuous consumption,Well-being,Status game,Social concerns,Income inequalities
    Date: 2016–05–24
  24. By: Jean-François Laslier (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); Karine Van Der Straeten (TSE - Toulouse School of Economics - Toulouse School of Economics, Institute advanced for advanced studies in Toulouse - Institute advanced for advanced studies in Toulouse)
    Abstract: We propose a theory of strategic voting in multi-winner elections with approval balloting: A fixed number M of candidates are to be elected; each voter votes for as many candidates as she wants; the M candidates with the most votes are elected. We assume that voter preferences are separable and that there exists a tiny probability that any vote might be misrecorded. Best responses involve voting by pairwise comparisons. Two candidates play a critical role: the weakest expected winner and the strongest expected loser. Expected winners are approved if and only if they are preferred to the strongest expected loser and expected losers are approved if and only if they are preferred to the weakest expected winner. At equilibrium, if any, a candidate is elected if and only if he is approved by at least half of the voters. With single-peaked preferences, an equilibrium always exists, in which the first M candidates according to the majority tournament relation are elected. The theory is tested on individual data from the 2011 Regional Government election in Zurich.
    Keywords: Approval Voting,Elections,Voting behavior
    Date: 2016–04
  25. By: Committee, Nobel Prize (Nobel Prize Committee)
    Abstract: An eternal obstacle to human cooperation is that people have di§erent interests. In modern societies, conflicts of interests are often mitigated -- if not completely resolved -- by contractual arrangements. Well-designed contracts provide incentives for the contracting parties to exploit the prospective gains from cooperation. For example, labor contracts include pay and promotion conditions that are designed to retain and motivate employees; insurance contracts combine the sharing of risk with deductibles and co-payments to encourage clients to exercise caution; credit contracts specify payments and decision rights aimed at protecting the lender, while encouraging sound decisions by borrowers.
    Keywords: Contract theory;
    JEL: D86
    Date: 2016–10–10
  26. By: hector chade (arizona state university)
    Abstract: We introduce costly insurance provision into a standard monopoly insurance model with adverse selection, where the consumer has private information about the probability of suffering a loss. We obtain two main results that do not arise in the standard model. First, we derive a general comparative statics result about coverage denial only to those likely to be the worst risks. Second, we show that the optimal menu the insurer offers can entail complete pooling of all types. We also show that these results do not hold in a costly provision version of the competitive model of Rothschild-Stiglitz. Finally, we discuss the implications of these results for empirical work on insurance with adverse selection.
    Date: 2016
  27. By: Nikolai S. Kukushkin (Dorodnicyn Computing Centre); John K.-H. Quah (Department of Economics, Johns Hopkins University); Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: We provide an example of a data set where all the revealed preference relations seem to be consistent with single crossing differences and yet the revealed preference relations cannot be extended to a complete preference obeying that property.
    Keywords: monotone comparative statics, single crossing differences, interval dominance, supermodular games, lattices
    JEL: C6 C7 D7
    Date: 2016–10
  28. By: Mohamed Belhaj (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Frédéric Deroïan (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: We study the value of network information in a context of monopoly pricing in the presence of local network externalities. We compare a setting in which all players, i.e. the monopoly and consumers, know the network structure and consumers' private preferences with a setting in which players only know the joint distribution of preferences, in-degrees and out-degrees. We give conditions under which network information increases profit or/and consumer surplus. The analysis reveals the crucial role played by four properties: degree assortativity, homophily (in preferences), preference-degree assortativity and preference-Bonacich centrality assortativity.
    Keywords: monopoly,network effects,price discrimination,Bonacich centrality,network information,degree assortativity,homophily,preference-degree assortativity,preference-Bonacich centrality assortativity
    Date: 2016–05
  29. By: Motta, Massimo; Tarantino, Emanuele
    Abstract: It has been suggested that mergers, by increasing profitability, will also result in higher investments. To deal with this claim, we first study a general model with simultaneous cost-reducing investments and price choices. Absent scope economies, the merger is anti-competitive: it lowers both total output and investment. With sequential choices, we provide a sufficient condition in a general model for the merger to be anti-competitive. The results are confirmed in a standard Shubik-Levitan parametric model. Only if the merger entails sufficient scope economies, will it be pro-competitive. We also show that a Network Sharing Agreement (by which parties set their investment cooperatively) is preferable to a merger. Finally, we identify a class of models where the same qualitative results extend to quality-enhancing investments.
    Keywords: Horizontal mergers; innovation; Investments; Network-sharing Agreements
    Date: 2016–10
  30. By: Lukasz Wozny
    Abstract: We consider a repeated principal-agent model, where a single agent exhibits problems of self control modelled using Gul and Pesendorfer (2001) type temptation preferences. In such a setting, for a parameterized strength of self-control, we characterize the optimal contract setting using standard Rogerson (1985) or Spear and Srivastava (1987) techniques. Our analysis identifies a new channel of principal and agents interactions that can be used to incentivize an agent, this being the reduction of its self control costs. Presence of this new channel challenges typical results obtained in models with no-temptation on the agent's side. For example, incentive compatibility constraints may be non binding at the optimal solution. Moreover the standard martingale property equating marginal cost of high (low) action today and future expected marginal payments does not hold in our case as bonus (punishment) deterrence increases the cost of self control today. The higher the parameter measuring costly self control the larger the departure from the martingale property. We also consider an impact of self control on such issues as savings or renegotiation. Few other generalization follow.
    Keywords: repeated moral hazard, self-control costs, temptation, principal-agent, optimal contract
    JEL: D86
    Date: 2016–10
  31. By: Brice Corgnet (EMLYON Business school - EMLYON Business School, GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - UCBL - Université Claude Bernard Lyon 1 - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - ENS Lyon - École normale supérieure - Lyon); Joaquín Gómez-Miñambres (Chapman University - Chapman University, Bucknell University); Roberto Hernán-Gonzalez (Nottingham University Business School - UON - University of Nottingham, UK)
    Abstract: We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents' performance. We show that average performance of agents is higher in the presence of goal setting than in its absence despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. It follows that recognizing the pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.
    Keywords: Principal-agent models, incentive theory, non-monetary incentives, goal setting, reference-dependent utility, laboratory experiments
    Date: 2016

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