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on Microeconomics |
| By: | Andrew Ellis; Michele Piccione |
| Abstract: | We present a decision-theoretic analysis of an agent’s understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs. |
| JEL: | G32 F3 G3 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68326&r=mic |
| By: | Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme |
| Abstract: | We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods. |
| Keywords: | asymmetric information; Competition; Expertise; Mis-Selling; regulation; Retailing |
| JEL: | D82 G24 I11 L13 L15 L51 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11665&r=mic |
| By: | Pierpaolo Battigalli; Alejandro Francetich; Giacomo Lanzani; Massimo Marinacci |
| Abstract: | We consider an uncertainty averse, sophisticated decision maker facing a recurrent decision problem where information is generated endogenously. In this context, we study self-con firming strategies as the outcomes of a process of active experimentation. We provide inter alia a learning foundation for self-con firming equilibrium with model uncertainty (Battigalli et al., 2015). We also argue that ambiguity aversion tends to stifle experimentation, increasing the likelihood that decision maker get stuck into suboptimal certainty traps. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:588&r=mic |
| By: | Cingiz, Kutay (General Economics 0 (Onderwijs)); Flesch, Janos (QE / Mathematical economics and game the); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Predtetchinski, Arkadi (General Economics 1 (Micro)) |
| Abstract: | We study perfect information games played by an infinite sequence of players, each acting only once in the course of the game. We introduce a class of frequency-based minority games and show that these games admit no subgame perfect ϵ-equilibrium for small positive values of ϵ. Furthermore we derive a number of sufficient conditions to guarantee existence of subgame perfect ϵ-equilibrium. |
| JEL: | C72 C73 D91 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2016036&r=mic |
| By: | Aner Sela (BGU); Ezra Einy (BGU); 0ri Haimanko (BGU); Diego Moreno (Universidad Carlos III de Madrid); Avishay Aiche (University of Haifa); Benyamin Shitovitz (University of Haifa) |
| JEL: | C72 D44 D82 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1614&r=mic |
| By: | Sylvain Béal (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté); Eric Rémila (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); Philippe Solal (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) |
| Abstract: | We provide a strategic implementation of the sequential equal surplus division rule (Béal et al., 2014). Precisely, we design a non-cooperative mechanism of which the unique subgame perfect equilibrium payoffs correspond to the sequential equal surplus division outcome of a superadditive rooted tree TU-game. This mechanism borrowed from the bidding mechanism designed by Pérez-Castrillo and Wettstein (2001), but takes into account the direction of the edges connecting any two players in the rood tree, which reflects some dominance relation between them. |
| Keywords: | Implementation,Bidding approach, Rooted tree TU-games, Sequential equal surplus division |
| Date: | 2015–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01376910&r=mic |
| By: | Pierre Bernhard (BIOCORE - Biological control of artificial ecosystems - INRA - Institut National de la Recherche Agronomique - CRISAM - Inria Sophia Antipolis - Méditerranée - Inria - Institut National de Recherche en Informatique et en Automatique - LOV - Laboratoire d'océanographie de Villefranche - UPMC - Université Pierre et Marie Curie - Paris 6 - INSU - CNRS - Centre National de la Recherche Scientifique); Marc Deschamps (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté) |
| 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. |
| Date: | 2016–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01394813&r=mic |
| By: | João Ferreira (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: | The common interpretation given to choice behavior that satisfies the traditional revealed preference axioms is that it results from the maximization of a single preference. We show that choice data alone does not enable one to rule out the possibility that the choice behavior that satisfies the revealed preference axioms is instead the result of the aggregation of a collection of distinct preferences. In particular, we show that any ordering is observationally equivalent to a majoritarian aggregation of a collection of distinct dichotomous orderings. We also show that any ordering is observationally equivalent to a Borda's aggregation of a collection of distinct linear orderings. |
| Keywords: | revealed preference theory,rationalization,dichotomous preferences,aggregation rules,choice data |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01386451&r=mic |
| By: | Liza Charroin (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique, UL2 - Université Lumière - Lyon 2) |
| Abstract: | In the benchmark model of Bala and Goyal (2000) on network formation, the equilibrium network is asymmetric and unfair as agents have different payoffs. While they are prominent in reality, asymmetric networks do not emerge in the lab mainly because of fairness concerns. We extend this model with a sequential linking decision process to ease coordination and with heterogeneous agents. Heterogeneity is introduced with the presence of a special agent who has either a higher monetary value or a different status. The equilibrium is asymmetric and unfair. Our experimental results show that thanks to sequentiality and fairness concerns, individuals coordinate on fair and efficient networks in homogeneous settings. Heterogeneity impacts the network formation process by increasing the asymmetry of networks but does not decrease the level of fairness nor efficiency. |
| Keywords: | Network formation, sequentiality, heterogeneity, fairness, asymmetry |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01368067&r=mic |
| By: | Cecilia Parlatore (New York University Stern); Ana Babus (Chicago FED) |
| Abstract: | We propose a theory of fragmentation in asset markets. We develop a model of market formation in which investors with heterogeneous valuations trade an asset strategically. Investors choose a dealer with whom to trade. After the market structure is decided, trade takes place sequentially. First, each dealer and his investors trade strategically in a local market. Second, dealers participate in a strategic inter-dealer market. Markets are fragmented when there are multiple active dealers. In contrast, the market is centralized if all investors choose to trade with the same dealer. In equilibrium, market fragmentation depends on the dispersion of the investors' valuations for the asset and on the dealers' opportunities to intermediate through the inter-dealer market. Increasing the number of market participants in the local market always decreases the investors' price impact and, thus, their cost of trading. At the same time, it also decreases the investors' gains from trade when their valuations are less dispersed. This second effect dominates when the dealers' willingness to intermediate is low. We show that investors choose to trade in fragmented markets when their valuations are highly correlated and when intermediation is limited. We compare investors' and dealers' welfare in fragmented and centralized markets. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1582&r=mic |
| By: | Yolande Hiriart (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté); Lionel Thomas (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté) |
| Abstract: | We study the potential conflict between cost minimization and investment in prevention for a risky venture. A natural monopoly is regulated i) for economic purposes; ii) because it can cause losses of substantial size to third parties (the environment or people). The regulator observes the production cost without being able to distinguish the initial type (an adverse selection parameter) from the effort (a moral hazard variable). In addition, the investment in prevention is non observable (another moral hazard variable) and the monopoly is protected by limited liability. We fully characterize the optimal regulation in this context of asymmetric information plus limited liability. We show that incentives to reduce cost and to invest in safety are always compatible. But, in some cases, higher rents have to be given up by the regulator. |
| Keywords: | Risk Regulation, Incentives, Moral Hazard, Adverse Selection, Insolvency |
| Date: | 2015–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01377921&r=mic |
| By: | Aner Sela (BGU); Maya Amiad |
| Keywords: | Tullock contests; prizes; punishments |
| JEL: | D44 J31 D72 D82 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1613&r=mic |
| By: | Yehuda Izhakian; David Yermack; Jaime F. Zender |
| Abstract: | We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure decision. We develop a static tradeoff theory model in which agents are both risk averse and ambiguity averse. The model con firms the usual idea that increased risk - the uncertainty over known possible outcomes - leads firms to use less leverage. Conversely, greater ambiguity - the uncertainty over the probabilities associated with the outcomes - leads firms to increase leverage. Our empirical analysis provides results consistent with these predictions. |
| JEL: | C65 D81 D83 G32 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22870&r=mic |
| By: | Alice Hsiaw (Brandeis University); Ing-Haw Cheng (Brandeis University) |
| Abstract: | Disagreements about substance and expert credibility often go hand-in-hand and are hard to resolve, even when people share common information, on a wide range of issues ranging from economics, climate change, to medicine. We argue that a learning bias helps explain disagreement in environments such as these where both the state of the world and the credibility of information sources (experts) are uncertain. Individuals with our learning bias overinterpret how much they can learn about two sources of uncertainty from one signal, leading them to over-infer expert quality. People who encounter information or experts in different order disagree about substance because they endogenously disagree about the credibility of each others' experts. Disagreement persists because first impressions about experts have long-lived influences on beliefs about the state. These effects arise even though agents share common priors, information, and biases, providing a theory for the origins of disagreement. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:110r&r=mic |
| By: | Mostapha Diss (Univ Lyon, UJM Saint-Etienne, CNRS, GATE L-SE UMR 5824, F-42023 Saint- Etienne, France); Abdelmonaim Tlidi (University of Marrakech, National School of Applied Science - Safi, Route Sidi Bouzid, B.P. 63, 46000 Safi, Morocco) |
| Abstract: | This paper presents the conditions required for a profile in order to never exhibit either the strong or the strict Borda paradoxes under all weighted scoring rules in three-candidate elections. The main particularity of our paper is that all the conclusions are extracted from the differences of votes between candidates in pairwise majority elections. This way allows us to answer new questions and provide an organized knowledge of the conditions under which a given profile never shows one of the two paradoxes. |
| Keywords: | Voting, Geometry, Borda’s Paradox, Condorcet Pairwise Procedure, Borda, Plurality, Negative Plurality, Weighted Scoring Rules |
| JEL: | D71 D72 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1632&r=mic |
| By: | Leitner, Yaron (Federal Reserve Bank of Philadelphia); Yilmaz, Bilge (Universdity of Pennsylvania) |
| Abstract: | We study a situation in which a regulator relies on models produced by banks in order to regulate them. A bank can generate more than one model and choose which models to reveal to the regulator. The regulator can find out the other models by monitoring the bank, but, in equilibrium, monitoring induces the bank to produce less information. We show that a high level of monitoring is desirable when the bank's private gain from producing more information is either sufficiently high or sufficiently low (e.g., when the bank has a very little or very large amount of debt). When public models are more precise, banks produce more information, but the regulator may end up monitoring more |
| Keywords: | bank regulation; Bayesian persuasion; internal-risk models; model-based regulation |
| JEL: | D82 D83 G21 G28 |
| Date: | 2016–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:16-31&r=mic |
| By: | Aner Sela (BGU); Noam Cohen (BGU); Maor Guy (BGU) |
| Keywords: | Multi-stage contests, Tullock contests, head starts |
| JEL: | C70 D44 L12 O32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1611&r=mic |
| By: | Mikhail Timonin |
| Abstract: | The Choquet integral is a powerful aggregation operator which lists many well-known models as its special cases. We look at these special cases and provide their axiomatic analysis. In cases where an axiomatization has been previously given in the literature, we connect the existing results with the framework that we have developed. Next we turn to the question of learning, which is especially important for the practical applications of the model. So far, learning of the Choquet integral has been mostly confined to the learning of the capacity. Such an approach requires making a powerful assumption that all dimensions (e.g. criteria) are evaluated on the same scale, which is rarely justified in practice. Too often categorical data is given arbitrary numerical labels (e.g. AHP), and numerical data is considered cardinally and ordinally commensurate, sometimes after a simple normalization. Such approaches clearly lack scientific rigour, and yet they are commonly seen in all kinds of applications. We discuss the pros and cons of making such an assumption and look at the consequences which axiomatization uniqueness results have for the learning problems. Finally, we review some of the applications of the Choquet integral in decision analysis. Apart from MCDA, which is the main area of interest for our results, we also discuss how the model can be interpreted in the social choice context. We look in detail at the state-dependent utility, and show how comonotonicity, central to the previous axiomatizations, actually implies state-independency in the Choquet integral model. We also discuss the conditions required to have a meaningful state-dependent utility representation and show the novelty of our results compared to the previous methods of building state-dependent models. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1611.09926&r=mic |
| By: | Simeon Alder (University of Notre Dame) |
| Abstract: | We build a tractable assignment model to characterize the matching and separation patterns of CEOs and their employers. Managers learn about their own type by observing a sequence of public signals. The sorting is ex ante perfect across managers of a given cohort whose most recent assignment is the same, but is not typically so ex post. Moreover, if matching is costless, perfect \textit{ex ante} sorting occurs across managers of a given cohort regardless of their assignment history. We calibrate the model to match empirical targets from a large matched employer-employee dataset covering the Danish labor force between 2000 and 2009. We exploit the non-monotonicity of executive compensation in the employer type - the firm's productivity, that is - to parameterize the model. We have a particular interest in the degree of complementarity between the characteristics of the manager and those of the firm in the production function and our results fill a gap in the literature on the aggregate effects of a particular form of misallocation, namely mismatch, which depend critically on this elasticity. What's more, our theory is a natural building block for a dynamic theory of entrepreneurship. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1583&r=mic |
| By: | Aner Sela (BGU) |
| Keywords: | Two-stage all-pay contests, e¤ort-dependent rewards |
| JEL: | C70 D44 L12 O32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1612&r=mic |
| By: | Hideo Konishi (Boston College); Chen-Yu Pan (Wuhan University) |
| Abstract: | This paper analyzes the optimal partisan and bipartisan gerrymandering policies in a model with electoral competitions in policy positions and transfer promises. With complete freedom in redistricting, partisan gerrymandering policy generates the most one-sidedly biased district profile, while bipartisan gerrymandering generates the most polarized district profile. In contrast, with limited freedom in gerrymandering, both partisan and bipartisan gerrymandering tend to prescribe the same policy. Friedman and Holden (2009) find no significant empirical difference between bipartisan and partisan gerrymandering in explaining incumbent reelection rates. Our result suggests that gerrymanderers may not be as free in redistricting as popularly thought. |
| Keywords: | electoral competition, partisan gerrymandering, bipartisan gerrymandering, policy convergence/divergence, pork-barrel politics |
| JEL: | C72 D72 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:922&r=mic |