nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒11‒13
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Unraveling of Cooperation in Dynamic Collaboration By Suvi Vasama; ;
  2. Rational Skeptics: On the Strategic Communication of Scientific Data By Joungseok Park
  3. Mixed Strategies in Games with Ambiguity Averse Agents By Calford, Evan
  4. Dynamic equilibrium in games with randomly arriving players By Pierre Bernhard; Marc Deschamps
  5. Risky Rents By Guigou, Jean-Daniel; Lovat, Bruno; Treich, Nicolas
  6. Ignorance is Strength: Improving Performance of Decentralized Matching Markets by Limiting Information (JOB MARKET PAPER -- coming soon) By Gleb Romanyuk
  7. On Discounting and Voting in a Simple Growth Model By Kirill Borissov; Mikhail Pakhnin; Clemens Puppe
  8. Arbitrage and asset market equilibrium in infinite dimensional economies with short-selling and risk-averse expected utilities By Thai Ha-Huy; Cuong Le Van; Nguyen Manh Hung
  9. Social preferences or sacred values? Theroy and evidence of deontological motivations By Chen, Daniel L.; Schonger, Martin
  10. The Direction of Strategic Delegation and Voter Welfare in Asymmetric Tax Competition Models By Yukihiro Nishimura; Kimiko Terai
  11. Transfers and exchange-stability in two-sided matching problems By Lazarova, E.A.; Borm, Peter; Estevez, Arantza
  12. The Negligence Rule Specificity under Radical Uncertainty By Gérard Mondello
  13. Price discrimination of ott providers under duopolistic competition and multi-dimmesional product differentiation in retail broadband access By José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes
  14. A Theory of Experiments: Invariance of Equilibrium to the Strategy Method of Elicitation and Implications for Social Preferences By Chen, Daniel L.; Schonger, Martin

  1. By: Suvi Vasama; ;
    Abstract: We examine collaboration in a one-arm bandit problem in which the players' actions affect the distribution over future payoffs. The players need to exert costly effort both to enhance the value of a risky technology and to learn about its current state. Both product value and learning are public goods, which gives the players incentives to free-ride on each others' actions. This leads to an inefficiently low aggregate level of effort. When the players' actions affect the distribution over future payoffs, they eventually get trapped in the low action, causing an inefficient unraveling of the game. Moreover, the players' incentives to exert effort depend on the state that in turn depends on the aggregate effort. If the players start restricting effort when the belief decreases in expectation, the two effects play in the same direction. Higher effort encourages higher effort and vice versa. Unraveling leads to multiple symmetric Markov perfect equilibria.
    JEL: C73 D83 O31
    Date: 2016–10
  2. By: Joungseok Park
    Abstract: I show that a credibility gap is created between the scientist and the government if the preference of the scientist is not perfectly aligned with that of the government. I find a remarkable result that the credibility gap is eliminated and the ex-ante social welfare is maximized if and only if the scientist’s preference is perfectly aligned with that of the government, not with that of the median voter. This is endogenously achieved when the government is allowed to appoint its optimal scientist without election concerns. In the case where the government has election concerns, if the median voter perceives an alarming message from the climate scientist, then even a “right-wing” government must choose an aggressive climate change policy to avoid losing the election. Accordingly, it will prefer to appoint a climate scientist who is unlikely to send an alarming message. Thus the government deliberately creates a credibility gap which may cause a distorted climate change policy in a democracy. Key Words: Climate Change; Cheap-Talk; Elections; SocialWelfare.
    JEL: D72 D83 H89 Q48 Q54
    Date: 2016
  3. By: Calford, Evan
    Abstract: In normal form games, when agents exhibit ambiguity aversion the exclusion of mixed strategies from agents' choice sets can enlarge the set of equilibria. While it is possible, in a game theoretic experiment, to enforce pure strategy reporting it is not possible to prevent subjects from mixing before reporting a pure strategy. This short paper establishes conditions under which the set of equilibrium in a game with ambiguity averse agents and pure strategy reporting is invariant to the existence of pre-play mixing devices. This result is crucial for the interpretation of recent experimental work on the role of ambiguity aversion in normal form games.
    Keywords: Ambiguity Aversion, Mixed Strategies, Game Theory, Experimental Economics
    JEL: C72 C92 D03 D81
    Date: 2016–10–31
  4. By: Pierre Bernhard (Université Côte d’Azur, INRIA); Marc Deschamps (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: There are real strategic situations where nobody knows ex ante how many players there will be in the game at each step. Assuming that entry and exit could be modelized by random processes whose probability laws are common knowledge, we use dynamic programming and piecewise deterministic Markov decision processes to investigate such games. We study the dynamic equilibrium in games with randomly arriving players in discrete and continuous time for both finite and infinite horizon. Existence of dynamic equilibrium in discrete time is proved and we develop explicit algorithms for both discrete and continuous time linear quadratic problems. In both cases we offer a resolution for a Cournot oligopoly with sticky prices.
    Keywords: Nash equilibrium, Dynamic programming, Piecewise Deterministic Markov Decision Process, Cournot oligopoly, Sticky Prices.
    JEL: C72 C61 L13
    Date: 2016–10
  5. By: Guigou, Jean-Daniel; Lovat, Bruno; Treich, Nicolas
    Abstract: In this paper, we consider a symmetric contest game in which agents compete to increase their share of a risky rent. We show that a symmetric equilibrium always exists, and that it is unique under constant or decreasing absolute risk aversion. We then exhibit interpretable conditions so that increases in risk and risk aversion decrease equilibrium e§orts in this strategic game
    Date: 2016–10
  6. By: Gleb Romanyuk
    Abstract: I develop a model of a decentralized matching market in which heterogeneous buyers pursue sellers by proposing jobs. Buyer requests are perfectly coordinated. Sellers have preferences over jobs and independently choose what jobs to accept. Preference heterogeneity induces same-side and cross-side externalities leading to sellers' excessive screening and welfare loss. Platform's policy of coarse revelation of buyer information improves welfare by decreasing the ability of sellers to ?cherry-pick? desirable buyers. Implication for welfare-maximizing platform is to limit information to the sellers when they are the more patient and more substitutable side of the market. However, if sellers have unobserved heterogeneity, coarsening is effective only if sellers are tightly capacity constrained or buyer-to-seller ratio is large. An approach for the problem of optimal disclosure with heterogeneous forward-looking agents with general type distribution is developed.
    Date: 2016–01
  7. By: Kirill Borissov; Mikhail Pakhnin; Clemens Puppe
    Abstract: In dynamic resource allocation models, the non-existence of voting equilibria is a generic phenomenon due to the multi-dimensionality of the choice space even if agents are heterogeneous only in their discount factors. Nevertheless, at each point in time there may exist a "median voter" whose preferred instantaneous consumption rate is supported by a majority of agents. Based on this observation, we propose an institutional setup ("intertemporal majority voting") in a Ramsey-type growth model with common consumption and heterogeneous agents, and show that it provides a microfoundation of the choice of the optimal consumption stream of the "median" agent. While the corresponding intertemporal consumption stream is in general not a Condorcet winner among all feasible paths, its induced instantaneous consumption rates receive a majority at each point in time in the proposed intertemporal majority voting procedure. We also provide a characterization of stationary voting equilibria in the case where agents may differ not only in their time preferences, but also in their felicity functions.
    Keywords: collective choice, common-pool resource, economic growth, heterogeneous agents, median voter theorem
    JEL: D11 D71 D91 O13 O43
    Date: 2016–11–02
  8. By: Thai Ha-Huy (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne); Cuong Le Van (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IPAG - IPAG Business School - Ipag, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment); Nguyen Manh Hung (TSE - Toulouse School of Economics - Toulouse School of Economics)
    Abstract: We consider a model with an infinite number of states of nature, von Neumann - Morgenstern utilities, where agents have different probability beliefs and where short sells are allowed. We show that no-arbitrage conditions, defined for finite dimensional asset markets models, are not sufficient to ensure existence of equilibrium in presence of an infinite number of states of nature. However, if the individually rational utility set U is compact, we obtain an equilibrium. We give conditions which imply the compactness of U. We give examples of non-existence of equilibrium when these conditions do not hold.
    Keywords: asset market equilibrium,individually rational attainable allocations,individually rational utility set,no-arbitrage prices,no-arbitrage condition
    Date: 2016–10
  9. By: Chen, Daniel L.; Schonger, Martin
    Abstract: Recent advances in economic theory, largely motivated by experimental findings, have led to the adoption of models of human behavior where a decision-maker not only takes into consideration her own payoff but also others’ payoffs and any potential consequences of these payoffs. Investigations of deontological motivations, where a decision-maker makes her choice not only based on the consequences of a decision but also the decision per se have been rare. We propose an experimental method that can detect an individual’s deontological motivations by varying the probability of the decision-maker’s decision having consequences. It uses two states of the world, one where the decision has consequences and one where it has none. We show that a purely consequentialist decision-maker whose preferences satisfy first-order stochastic dominance will choose the decision that leads to the best consequences regardless of the probability of the consequential state. A purely deontological decision-maker is also invariant to the probability. However, a mixed consequentialist-deontological decision-maker’s choice changes with the probability. The direction of change gives insight into the location of the optimand for one’s duty. We provide a formal interpretation of major moral philosophies and a revealed preference method to detect deontological motivations and discuss the relevance of the theory and method for economics and law.
    Keywords: Consequentialism, deontological motivations, normative commitments, social preferences, revealed preference, decision theory, first order stochastic dominance, random lottery incentive method
    JEL: D6 K2
    Date: 2016–10
  10. By: Yukihiro Nishimura (Graduate School of Economics, Osaka University); Kimiko Terai (Faculty of Economics, Keio University)
    Abstract: This paper examined a political process and economic consequences of tax competition among asymmetric countries. Citizens are endowed with heterogeneous capital incomes. The median-voters deliberately elect a delegate whose preferences differ from their own, to pursue advantages in the international tax competition. When the countries have different productivity of the capital, the country with a low capital productivity may delegate the tax authority to a citizen who is richer than the median-voter. As a result, the outcome through strategic delegation may make the median-voters and the majority of citizens worse-off than the selfrepresentation outcome, contrary to the previous studies with symmetric countries. Similar results are obtained when the countries differ in capital endowments. In contrast, when the countries differ in population size, productive inefficiency is reduced, and the median-voters are better-off through strategic delegation. We also point out that the role of campaign promises is important for the equilibrium tax rates and citizens f welfare.
    Keywords: Capital tax competition; Strategic delegation; Asymmetric countries; Voter welfare
    JEL: C72 D72 D78 H23 H87
    Date: 2016–11
  11. By: Lazarova, E.A. (Tilburg University, School of Economics and Management); Borm, Peter (Tilburg University, School of Economics and Management); Estevez, Arantza
    Abstract: In this paper we consider one-to-many matching problems where the preferences of the agents involved are represented by monetary reward functions. We characterize Pareto optimal matchings by means of contractual exchange stability and matchings of maximum total reward by means of compensational exchange stability. To conclude, we show that in going from an initial matching to a matching of maximum total reward, one can always provide a compensation schedule that will be ex-post stable in the sense that there will be no subset of agents who can all by deviation obtain a higher reward. The proof of this result uses the fact that the core of an associated compensation matching game with constraints is nonempty.
    Date: 2016
  12. By: Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This article is an attempt to reassess the relationships between the strict liability regime and the negligence rule under radical uncertainty (ambiguity theory). In an accident model two representative agents (potential injurer and victim) form divergent beliefs about the probability distribution of an accident and the potential damage scale. It issues on the following results: 1) When the injurer's wealth cover the damage cost, then the socially first-best level of care is established by the injurer under strict liability only. When, the injurer's wealth is insufficient, this level is not reach (capped strict liability regime for instance). 2) Under negligence, the authorities (Regulator or Court) can choose as first best level of care either the level that favors the injurer's interests or the victim ones of. No rational rule can justify a choice rather than the other. 3) The efficiency of both regimes cannot be compared because they obey to different logics.
    Keywords: unilateral accident, tort law, safety, large risks, ambiguity, pessimism and optimism, strict liability, negligence, ultra-hazardous activities
    JEL: D62 K13 K23 K32 Q52 Q58
    Date: 2016–11
  13. By: José Marino García García; Aurelia Valiño Castro; A. Jesús Sánchez Fuentes
    Abstract: Network neutrality regulation prevents price discrimination from Access Providers to Content Providers and product differentiation in terms of connection quality in the retail broadband access market. This paper analyzes the economic implications of price discrimination under duopolistic competition and multi-dimensional product differentiation in retail internet access using a sequential-moves game theoretic model. Under this framework, we discuss the impact of product differentiation and price discrimination on social welfare, and offer systematic simulations using feasible ranges for parameters value to help discern the impact of departing from network neutrality regulation on social welfare.
    Keywords: network neutrality, two sided markets, price discrimination, product differentiation, queuing theory, network congestion, duopoly, competition policy.
    JEL: C70 D43 L10 L13 L51 L86 L96
    Date: 2016–11
  14. By: Chen, Daniel L.; Schonger, Martin
    Abstract: Most papers that employ the strategy method (SM) use many observations per subject to study responses to rare or off-equilibrium behavior that cannot be observed using direct elicitation (DE), but ignore that the strategic equivalence between SM and DE holds for the monetary payoff game but not the game participants actually play, which is in terms of utilities. To illustrate the severity of this issue, we formalize the mapping from the monetary payoff game to this actual game. A theorem provides necessary and sufficient conditions for strategic equivalence to apply. When the domain of preferences includes commonlymodeled motivations, such as intentions or disappointment aversion, or less-common ones, such as self-image or duty, strategic equivalence fails and thus the invariance to the method of elicitation does not apply. We use results from the past literature and our own experiments to investigate how well this theorem explains when results with SM and DE differ. We manipulate the salience of off-equilibrium considerations in our own experiments to demonstrate that SM and DE are not strategically equivalent, contrary to conventional wisdom. Three results emerge. First, not accounting for the bias in the estimation when decisions at one information set can influence the utility at another information set can render significant differences in decision-making. Second, the bias can be large and equivalent to some of the other causal effects being measured. Third, subtle interventions on salience can magnify these differences by a similar amount.
    Keywords: Theory of experiments, strategy method, social preferences, intentions, deontological motivations
    JEL: A13 C90 D03 D64
    Date: 2016–10

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