nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒02‒05
27 papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Communication games with optional verification By Schopohl, Simon
  2. Persuasion for the Long-Run By James Best; Daniel Quigley
  3. The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents By Gerard Llobet; Jorge Padilla
  4. The Simple Economics of White Elephants By Juan-José Ganuza; Gerard Llobet
  5. The Explosive Combination of Religious Decentralisation and Autocracy: the Case of Islam By Auriol, Emmanuelle; PLATTEAU, Jean Philippe
  6. The contributions of Hart and Holmström to Contract Theory By László Á. Kóczy; János Kiss Hubert
  7. Mission Drift in Microcredit and Microfinance Institution Incentives By Sara Biancini; David Ettinger; Baptiste Venet
  8. Uncertain Rationality, Depth of Reasoning and Robustness in Games with Incomplete Information By Fabrizio Germano; Jonathan Weinstein; Peio Zuazo-Garin
  9. Knight-Walras equilibria By Beißner, Patrick; Riedel, Frank
  10. Disambiguation of Ellsberg equilibria in 2x2 normal form games By Decerf, Benoit; Riedel, Frank
  11. Signaling in Contests By Sela, Aner
  12. All-Pay Auctions with Extra Prize: A Partial Exclusion Principle By Matthias Dahm
  13. On preemption in discrete and continuous time By Steg, Jan-Henrik
  14. Coarse correlation and coordination in a game By Konstantinos Georgalos; Sonali Sen Gupta; Indrajit Ray
  15. Platform price parity clauses with direct sales By Johansen, Bjørn Olav; Vergé, Thibaud
  16. Cognitive empathy in conflict situations By Gauer, Florian; Kuzmics, Christoph
  17. Targeted search in matching markets By Cheremukhin, Anton A.; Restrepo-Echavarria, Paulina; Tutino, Antonella
  18. Entry and Competition in Takeover Auctions By Caleb Stroup; Matthew L. Gentry
  19. Aggregate Investment Externalities and Macroprudential Regulation By Hans Gersbach; Jean-Charles Rochet
  20. Input price discrimination, two-part tariff contracts and bargaining By Ioannis Pinopoulos
  21. Hammond\'s Equity Principle and the Measurement of Ordinal Inequalities By Nicolas GRAVEL; Brice MAGDALOU; Patrick MOYES
  22. Hypothesis testing equilibrium in signaling games By Sun, Lan
  23. Non-Revelation Mechanisms for Many-to-Many Matching: Equilibria versus Stability By Bettina Klaus; Flip Klijn
  24. Information acquisition during a descending price auction with asymmetrically informed players By Miettinen, Paavo
  25. On public good provision mechanisms with dominant strategies and balanced budget By Kuzmics, Christoph; Steg, Jan-Henrik
  26. The Myopic Stable Set for Social Environments By Thomas Demuynck; Jean-Jacques Herings; Riccardo Saulle; Christian Seel
  27. On non-cooperative foundation and implementation of the Nash Solution in subgame perfect equilibrium via Rubinstein’s game By Duman, Papatya; Trockel, Walter

  1. By: Schopohl, Simon (Center for Mathematical Economics, Bielefeld University)
    Abstract: We consider a Sender-Receiver game in which the Sender can choose between sending a cheap-talk message, which is costless, but also not verified and a costly verified message. While the Sender knows the true state of the world, the Receiver does not have this information, but has to choose an action depending on the message he receives. The action then yields to some utility for Sender and Receiver. We only make a few assumptions about the utility functions of both players, so situations may arise where the Sender’s preferences are such that she sends a message trying to convince the Receiver about a certain state of the world, which is not the true one. In a finite setting we state conditions for full revelation, i.e. when the Receiver always learns the truth. Furthermore we describe the player’s behavior if only partial revelation is possible. For a continuous setting we show that additional conditions have to hold and that these do not hold for "smooth" preferences and utility, e.g. in the classic example of quadratic loss utilities.
    Keywords: cheap-talk, communication, costly disclosure, full revelation, increasing differences, Sender-Receiver game, verifiable information
    Date: 2016–12–23
  2. By: James Best (Dept of Economics and Nuffield College, University of Oxford); Daniel Quigley (Dept of Economics and Nuffield College, University of Oxford)
    Abstract: We examine the limits of persuasion when credibility today is sustained by the incentive of future credibility. We model this as a long-run sender with private information playing a cheap talk game against short-run receivers where there is a noisy signal at the end of each period on the sender’s ex-ante private information. We compare our model of long-run persuasion to the persuasion baseline of committed persuasion, where the sender can commit to strategies at the stage game. Long-run persuasion can only achieve the optimal committed persuasion payoffs if the optimal committed persuasion strategy is “honest”. When the optimal committed strategy is not honest the use of either a weak communication mechanism called a ‘Coin and Cup’ (CnC) or a standard communication mechanism (a mediator) expands the Pareto frontier of the game. For sufficiently patient senders, a CnC mechanism replicates committed persuasion payoffs when the sender’s information is perfectly observed ex-post, whereas a mediator can get arbitrarily close whenever systematic deviation from truth telling is asymptotically identified. The advantage of the CnC over the mediator is that it is relatively easy to manufacture and implement. Finally, we show how ‘emergent communication mechanisms’ arise when there are many simultaneous receivers.
    Date: 2016–12–09
  3. By: Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros); Jorge Padilla (Compass Lexecon)
    Abstract: It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royaltystacking effect would hurt efficiency and downstream competition. In this paper we show that when we consider patent litigation and introduce heterogeneity in the portfolio of different firms these results change substantially due to what we denote the Inverse Cournot e ect. We show that the lower the total royalty that a downstream producer pays, the lower the royalty that patent holders restricted by the threat of litigation of downstream producers will charge. This effect generates a moderation force in the royalty that unconstrained large patent holders will charge that may overturn some of the standard predictions in the literature. Interestingly, though, this effect can be less relevant when all patent portfolios are weak making royalty stacking more important.
    Keywords: Intellectual property, standard setting organizations, patent licensing, R&D investment, patent pools.
    JEL: L15 L24 O31 O34
    Date: 2016–11
  4. By: Juan-José Ganuza (Universitat Pompeu Fabra and Barcelona GSE); Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper shows that the concession model discourages firms from acquiring information about the future profitability of a project. Uniformed contractors carry out good and bad projects because they are profitable in expected terms even though it would have been optimal to invest in screening them out according to their value. White elephants are identified as avoidable negative net present-value projects that are nevertheless undertaken. Institutional arrangements that limit the losses that firms can bear exacerbate this distortion. We characterize the optimal concession contract which fosters the acquisition of information and achieves the first best by conditioning the duration of the concession to the realization of the demand and includes payments for not carrying out some projects.
    Keywords: Concession contracts, information acquisition, flexible-term concessions.
    JEL: D82 D86 H21 L51
    Date: 2017–01
  5. By: Auriol, Emmanuelle; PLATTEAU, Jean Philippe
    Abstract: The relationship between religion and politics is explored from a theoretical standpoint. Religious clerics can be seduced by an autocrat and political stability is at stake. The autocrat's decisions consist of two measures susceptible of antagonising religious clerics: adopting secular reforms and unduly appropriating part of national wealth, which generally are complement. Compared to centralized religions, decentralized religions, such as Islam, tend to discourage secular reforms and corruption but those effects are not guaranteed if the autocrat accepts political instability. The main hypotheses and the central results of the theory are illustrated with regime case studies that refer to contemporary times.
    Keywords: Autocracy, instrumentalization of religion, centralized and decentralized religion, Islam, economic development, reforms, corruption
    JEL: D02 D72 N40 O57 P48 Z12
    Date: 2017–01
  6. By: László Á. Kóczy (Centre for Economic and Regional Studies, Hungarian Academy of Sciences and and Keleti Faculty of Business and Management, Óbuda University); János Kiss Hubert (Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: The 2016 Nobel Memorial Prize in Economic Sciences was awarded to Oliver Hart and Bengt Holmström for their work on contract theory. Contract theory is a subfield of game theory where the conflict between the owner - the principal - and the CEO - or agent is at the centre of interest. In the following we explain the principal-agent model of Holmström with some extensions and then look at the property right aspects of these models based on Hart's work. Although the two researchers are recognised for their theoretical work, in our simple introduction we avoid complex formulae and illustrate the models with examples.
    Keywords: contract theory, incentives, principal-agent problem, Nobel prize, risk, property rights JEL Codes: C72, D82, D86
    Date: 2017
  7. By: Sara Biancini (Université de Caen-Normandie, CREM UMR CNRS 6211, France); David Ettinger (Université Paris Dauphine, PSL, LEDa and CEREMADE, France); Baptiste Venet (Université Paris Dauphine, PSL, IRD, LEDa, UMR225, DIAL, France)
    Abstract: We analyze the relationship between Micro nance Institutions (MFIs) and external donors, with the aim of contributing to the debate on ``mission drift" in microfinance. We assume that both the donor and the MFI are pro-poor, possibly at different extents. Borrowers can be (very) poor or wealthier (but still unbanked). Incentives have to be provided to the MFI to exert costly effort to identify the more valuable projects and to choose the right share of poorer borrowers (the optimal level of poor outreach). We first concentrate on hidden action. We show that asymmetric information can distort the share of very poor borrowers reached by loans, thus increasing mission drift. We then concentrate on hidden types, assuming that MFIs are characterized by unobservable heterogeneity on the cost of effort. In this case, asymmetric information does not necessarily increase the mission drift. The incentive compatible contracts push efficient MFIs to serve a higher share of poorer borrowers, while less efficient ones decrease their poor outreach.
    Keywords: Microfinance, Donors, Poverty, Screening
    JEL: O12 O16 G21
    Date: 2017–02
  8. By: Fabrizio Germano; Jonathan Weinstein; Peio Zuazo-Garin
    Abstract: Predictions under common knowledge of payoffs may differ from those under arbitrarily, but finitely, many orders of mutual knowledge; Rubinstein's (1989) Email game is a seminal example. Weinstein and Yildiz (2007) showed that the discontinuity in the example generalizes: for all types with multiple rationalizable (ICR) actions, there exist similar types with unique rationalizable action. This paper studies how a wide class of departures from common belief in rationality impact Weinstein and Yildiz's discontinuity. We weaken ICR to ICR-x, where x is a sequence whose n-th term is the probability players attach to (n - 1)th-order belief in rationality. We find that Weinstein and Yildiz's discontinuity holds when higher-order belief in rationality remains above some threshold (constant x), but fails when higher-order belief in rationality eventually becomes low enough (x converging to 0).
    Keywords: Robustness, rationalizability, bounded rationality, incomplete information, belief hierarchies.
    JEL: C72 D82 D83
    Date: 2016–12
  9. By: Beißner, Patrick (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University)
    Abstract: Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and establish their existence. In general, such equilibria lead to Pareto inefficiency and coincide with Arrow-Debreu equilibria only if the values of net trades are ambiguity-free in the mean. Without aggregate uncertainty, inefficiencies arise generically. We introduce a constrained efficiency concept, uncertainty-neutral efficiency and show that Knight-Walras equilibrium allocations are efficient in this constrained sense. Arrow-Debreu equilibria turn out to be non-robust with respect to the introduction of Knightian uncertainty.
    Keywords: Knightian Uncertainty, Ambiguity, General Equilibrium
    Date: 2016–05–30
  10. By: Decerf, Benoit (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University)
    Abstract: Riedel and Sass (2013) study complete information normal form games in which ambiguity averse players use ambiguous randomization strategies, in addition to pure and mixed strategies. The solution concept they propose, the Ellsberg equilibrium, is a coarsening of the classical Nash equilibrium. We provide a foundation of the new equilibrium concept in the spirit of Harsanyi. We prove an extension of the Purification Theorem for 2x2 normal form games. Our result implies that any Ellsberg equilibrium of such game is the limit case of a mixed strategy equilibrium in a disturbed version of the game for which payoffs are ambiguously disturbed.
    Keywords: Knightian uncertainty, Ellsberg games, Ambiguity aversion, Purification, Disambiguation
    Date: 2016–03–03
  11. By: Sela, Aner
    Abstract: We use the theoretical framework of signaling games to determine whether pre-contest communications would occur in contest models with asymmetric information. We find that in Tullock contests signals can be effectively used in equilibrium. We then study all-pay contests and show that such signals are not effective, and therefore pre-contest communications will not occur in equilibrium.
    Date: 2017–01
  12. By: Matthias Dahm (School of Economics, University of Nottingham)
    Abstract: This paper studies the effects of a specific affirmative action policy in complete information all-pay auctions when players differ in ability. We call this policy an extra prize. The contest organiser splits the prize of the competition into a main prize and an extra prize. Extra prizes differ from second prizes, because they are targeted towards disadvantaged (low-ability) agents. We consider a setting with one high-ability and two low-ability contestants and fully characterise equilibrium. Assuming that the contest organiser aims to maximise expected total effort, we show that (i) almost any extra prize is preferable to a standard all-pay auction without extra prize; (ii) the exclusion principle (Baye, Kovenock and de Vries, 1993) can be implemented by a wide range of sufficiently large extra prizes; and (iii) partial exclusion by means of an appropriately chosen extra prize benefits the organiser more than complete exclusion.
    Keywords: Asymmetric contests, multi-prize contests, equality of opportunity, affirmative action, discrimination, prize structure, exclusion principle
    Date: 2017–01
  13. By: Steg, Jan-Henrik (Center for Mathematical Economics, Bielefeld University)
    Abstract: The seminal work of Fudenberg and Tirole (1985) on how preemption erodes the value of an option to wait raises general questions about the relation between models in discrete and continuous time and thus about the interpretation of its central result, relying on an “infinitely fine grid†. Here it is shown that the preemption equilibrium is the limit of the unique symmetric equilibria of the game when reduced to any sequence of grids becoming infinitely fine. Furthermore, additional subgame perfect equilibria using conventional continuous-time mixed strategies are identified.
    Keywords: Preemption, discrete time, continuous time, subgame perfect equilibrium, convergence
    Date: 2016–04–11
  14. By: Konstantinos Georgalos; Sonali Sen Gupta; Indrajit Ray
    Abstract: In a coarse correlated equilibrium (Moulin and Vial 1978), each player finds it optimal to commit ex ante to the future outcome from a probabilistic correlation device instead of playing any strategy of their own. In this paper, we consider a specific two-person game with unique pure Nash and correlated equilibrium and test the concept of coarse correlated equilibrium with a device which is an equally weighted lottery over three symmetric outcomes in the game including the Nash equilibrium, with higher expected payoff than the Nash payoff (as in Moulin and Vial 1978). We also test an individual choice between a lottery over the same payoffs with equal probabilities and the sure payoff as in the Nash equilibrium of the game. Subjects choose the individual lottery, however, they do not commit to the device in the game and instead coordinate to play the Nash equilibrium. We explain this behaviour as an equilibrium in the game.
    Keywords: Correlation, Coordination, Lottery
    JEL: C72 C91 C92 D63 D83
    Date: 2017
  15. By: Johansen, Bjørn Olav (Department of Economics, University of Bergen, Norway); Vergé, Thibaud (CREST, ENSAE, Université Paris-Saclay and Norwegian School of Economics)
    Abstract: In the context of vertical contractual relationships, where competing sellers distribute their products directly as well as through competing intermediation platforms, we analyze the welfare effects of price parity clauses. These contractual clauses prevent a seller from offering its product at a lower price on other platforms or through its own direct sales channel. Recently, they have been the subject of several antitrust investigations. Contrary to the theories of harm developed by competition agencies and in some of the recent literature, we show that when we account for the sellers’ participation constraints, price parity clauses do not always lead to higher commissions and final prices. Instead, we find that they may simultaneously bene.t all the actors (platforms, sellers and consumers), even in the absence of traditional efficiency arguments.
    Keywords: Vertical contracts; price parity clauses; platforms; endogenous participation
    JEL: L13 L42
    Date: 2017–01–27
  16. By: Gauer, Florian (Center for Mathematical Economics, Bielefeld University); Kuzmics, Christoph (Center for Mathematical Economics, Bielefeld University)
    Abstract: Two individuals are involved in a conflict situation in which preferences are ex ante uncertain. While they eventually learn their own preferences, they have to pay a small cost if they want to learn their opponent’s preferences. We show that, for sufficiently small positive costs of information acquisition, in any Bayesian Nash equilibrium of the resulting game of incomplete information the probability of getting informed about the opponent’s preferences is bounded away from zero and one.
    Keywords: Incomplete Information, Information Acquisition, Theory of Mind, Conflict, Imperfect Empathy
    Date: 2016–01–15
  17. By: Cheremukhin, Anton A. (Federal Reserve Bank of Dallas); Restrepo-Echavarria, Paulina (Federal Reserve Bank of St. Louis); Tutino, Antonella (Federal Reserve Bank of Dallas)
    Abstract: We endogenize the degree of randomness in the matching process by proposing a model where agents have to pay a search cost to locate potential matches more accurately. The model features a tension between an agent’s desire to find a more productive match and to maximize the odds of finding a match. This tension drives a wedge between the shape of sorting patterns and the shape of the underlying match payoff function. We show the empirical relevance of the latter prediction by applying the model to the U.S. marriage market.
    Keywords: Matching; sorting; assignment; search
    JEL: C78 D83 E24 J64
    Date: 2016–05–20
  18. By: Caleb Stroup (Department of Economics, Davidson College); Matthew L. Gentry (Department of Economics, London School of Economics and Political Science)
    Abstract: We show that in many cases target shareholders would obtain higher prices if their company were sold via a negotiation, rather than via an auction. We show that fewer than half of invited potential bidders participate in takeover auctions. Endogenous participation is thus an important feature of takeover auction markets. Accounting for the endogenous determination of the size and composition of the bidder pool, we show that possible bidders in takeover auctions face substantial uncertainty prior to their entry into an auction, but that this uncertainty encourages participation in competitive bidding, thus making auctions preferable when uncertainty is high. In negotiations, uncertainty reduces the effectiveness of upward bid-shading to deter potential competitors, so negotiations are preferable when uncertainty is low. Cross-sectional averages thus mask dramatic variation in the best way to sell a company, but over 40 percent of this variation is accounted for by pre-entry uncertainty and the costs of overcoming it. Our results call into question claims that target directors necessarily violate their fiduciary duty by selling a company via a negotiated transaction, even in the absence of a formal market check.
    Keywords: Takeover Auctions, Mergers and Acquisitions
    JEL: D44
    Date: 2017–01
  19. By: Hans Gersbach (Swiss Federal Institute of Technology Zurich, Institute for the Study of Labor (IZA), CESifo (Center for Economic Studies and Ifo Institute) and Centre for Economic Policy Research (CEPR)); Jean-Charles Rochet (University of Zurich, University of Toulouse I, Ecole Polytechnique Fédérale de Lausanne, and Swiss Finance Institute)
    Abstract: Evidence suggests that banks tend to lend a lot during booms, and very little during recessions. We propose a simple explanation for this phenomenon. We show that, instead of dampening productivity shocks, the banking sector tends to exacerbate them, leading to excessive fluctuations of credit, output and asset prices. Our explanation relies on three ingredients that are characteristic of modern banks' activities. The first ingredient is moral hazard: banks are supposed to monitor the small and medium sized enterprises that borrow from them, but they may shirk on their monitoring activities, unless they are given sufficient informational rents. These rents limit the amount that investors are ready to lend them, to a multiple of the banks' own capital. The second ingredient is the banks' high exposure to aggregate shocks: banks' assets have positively correlated returns. Finally the third ingredient is the ease with which modern banks can reallocate capital between different lines of business. At the competitive equilibrium, banks offer privately optimal contracts to their investors but these contracts are not socially optimal: banks' decisions of reallocating capital react too strongly to aggregate shocks. This is because banks do not internalize the impact of their decisions on asset prices. This generates excessive fluctuations of credit, output and asset prices. We examine the efficacy of several possible policy responses to these properties of credit markets, and show that it can provide a rationale for macroprudential regulation.
    Keywords: Bank Credit Fluctuations, Macroprudential Regulation, Investment Externalities
    JEL: G21 G28 D86
  20. By: Ioannis Pinopoulos (Department of Economics, University of Macedonia)
    Abstract: We consider an upstream supplier who bargains with two cost-asymmetric downstream firms over the terms of interim observable two-part tariff contracts: contracts are initially secret (acceptance decisions are based on beliefs) but downstream firms observe the accepted contract terms before competing in prices. We show that the more efficient downstream firm pays a higher input price than its less efficient rival, a finding that is in stark contrast to the previous findings in the literature on input price discrimination with two-part tariff contracts. We also show that a ban on input price discrimination will reduce both consumer and total welfare when the upstream supplier bargains the common two-part tariff contract with the less efficient firm. This result is interesting from a policy perspective since it implies that even though under discriminatory input prices the upstream supplier favors the “wrong” firm, non-discriminatory input pricing can make things even worse in terms of welfare.
    Keywords: Vertical relations, input price discrimination, two-part tariffs, bargaining, welfare.
    JEL: D4 L1 L4
    Date: 2017–01
  21. By: Nicolas GRAVEL; Brice MAGDALOU; Patrick MOYES
    Abstract: What would be the analogue of the Lorenz quasi-ordering when the variable of interest is of a purely ordinal nature? We argue that it is possible to derive such a criterion by substituting for the Pigou-Dalton transfer used in the standard inequality literature what we refer to as a Hammond progressive transfer. According to this criterion, one distribution of utilities is considered to be less unequal than another if it is judged better by both the lexicographic extensions of the maximin and the minimax, henceforth referred to as the leximin and the antileximax, respectively. If one imposes in addition that an increase in someone\'s utility makes the society better off, then one is left with the leximin, while the requirement that society welfare increases as the result of a decrease of one person\'s utility results in the antileximax criterion. Incidently, the paper provides an alternative and simple characterisation of the leximin principle widely used in the social choice and welfare literature.
    Keywords: Ordinal inequality, Hammond equity principle, Leximin, Antileximax.
    JEL: D30 D63
    Date: 2017
  22. By: Sun, Lan (Center for Mathematical Economics, Bielefeld University)
    Abstract: In this paper, we propose a definition of Hypothesis Testing Equilibrium (HTE) for general signaling games with non-Bayesian players nested by an updating rule according to Hypothesis Testing model characterized by Ortoleva (2012). An HTE may be different from a sequential Nash equilibrium because of the dynamic inconsistency. However, when player 2 only takes zero-probability message as an unexpected news, an HTE is a refinement of sequential Nash equilibrium and it survives Intuitive Criterion, but not vice versa. We provide existence theorem covering a broad class of signaling games often studied in economics, and the constrained HTE is unique in such signaling games.
    Keywords: Signaling Games, Hypothesis Testing Equilibrium, Equilibrium Refinement
    Date: 2016–05–30
  23. By: Bettina Klaus; Flip Klijn
    Abstract: We study many-to-many matching markets in which agents from a set A are matched to agents from a disjoint set B through a two-stage non-revelation mechanism. In the first stage, A-agents, who are endowed with a quota that describes the maximal number of agents they can be matched to, simultaneously make proposals to the B-agents. In the second stage,B-agents sequentially, and respecting the quota, choose and match to available A-proposers. We study the subgame perfect Nash equilibria of the induced game. We prove that stable matchings are equilibrium outcomes if all A-agents' preferences are substitutable. We also show that the implementation of the set of stable matchings is closely related to the quotas of the A-agents. In particular, implementation holds when A-agents' preferences are substitutable and their quotas are non-binding.
    Keywords: implementation; matching; mechanisms; stability; substitutability
    JEL: C78 D78
    Date: 2017–01
  24. By: Miettinen, Paavo
    Abstract: This paper considers equilibrium behavior in a descending price auction with two players that are asymmetrically informed. The ”informed” player knows his valuation while the other does not. The uninformed player can acquire information about his valuation with a positive cost during the auction. We assume that the information acquisition activity is covert and we characterize the equilibrium behavior in the setting where players’ valuations are independently and identically distributed. We derive the explicit ”inverse bid” functions in the case of the uniformly distributed valuations and provide a revenue comparison between the ascending and descending price auctions in this case.
    JEL: D44 D82
    Date: 2017–01–27
  25. By: Kuzmics, Christoph (Center for Mathematical Economics, Bielefeld University); Steg, Jan-Henrik (Center for Mathematical Economics, Bielefeld University)
    Abstract: Consider a mechanism for the binary public good provision problem that is dominant strategy incentive compatible (DSIC), ex-post individually rational (EPIR), and ex-post budget balanced (EPBB). Suppose this mechanism has the additional property that the utility from participating in the mechanism to the lowest types is zero for all agents. Such a mechanism must be of a threshold form, in which there is a fixed threshold for each agent such that the public good is not provided if there is an agent with a value below her threshold and is provided if all agents’ values exceed their respective threshold. There are mechanism that are DSIC, EPIR, and EPBB that are not of the threshold form. Mechanisms that maximize welfare subject to DSIC, EPIR, and EPBB must again have the threshold form. Finally, mechanisms that are DSIC, EPIR, EPBB and that furthermore satisfy the condition that there is at least one type profile in which all agents can block the provision of the public good, also must be of the threshold form. As we allow individuals’ values for the public good to be negative and positive, our results cover examples including bilateral trade, bilateral wage negotiations, a seller selling to a group of individuals (who then have joint ownership rights), and rezoning the use of land.
    Keywords: Public good provision, asymmetric information, dominant strategy
    Date: 2016–03–02
  26. By: Thomas Demuynck; Jean-Jacques Herings; Riccardo Saulle; Christian Seel
    Abstract: We introduce a new solution concept for models of coalition formation, called the myopic stable set. The myopic stable set is defined for a very general class of social environments and allows for an infinite state space. We show that the myopic stable set exists and is non-empty. Under minor continuity conditions, we also demonstrate uniqueness. Furthermore, the myopic stable set is a superset of the core and of the set of pure strategy Nash equilibria in noncooperative games. Additionally, the myopic stable set generalizes and unifies various results from more specific environments. In particular, the myopic stable set coincides with the coalition structure core in coalition function form games if the coalition structure core is non-empty; with the set of stable matchings in the standard one-to-one matching model; with the set of pairwise stable networks and closed cycles in models of network formation; and with the set of pure strategy Nash equilibria infinite supermodular games, finite potential games, and aggregative games. We illustrate the versatility of our concept by characterizing the myopic stable set in a model of Bertrand competition with asymmetric costs, for which the literature so far has not been able to fully characterize the set of all (mixed) Nash equilibria.
    Keywords: social environments; group formation; stability; Nash equilibrium
    JEL: C70 C71
    Date: 2017–01
  27. By: Duman, Papatya (Center for Mathematical Economics, Bielefeld University); Trockel, Walter (Center for Mathematical Economics, Bielefeld University)
    Abstract: The alternating offers game due to Rubinstein (1982) had been used by Binmore (1980) and by Binmore (1986) to provide via its unique subgame perfect equilibrium an approximate non-cooperative support for the Nash bargaining solution of associated cooperative two-person bargaining games. These results had strengthened the prominent role of the Nash bargaining solution in cooperative axiomatic bargaining theory and its application, for instance in labor markets, and have often even be interpreted as a mechanism theoretical implementation of the Nash solution. Our results in the present paper provide exact non-cooperative foundations first, in our Proposition, via weakly subgame perfect equilibria of a game that is a modification of Rubinstein´s game, then in our Theorem, via sub-game perfect equilibria of a game that is a further modification of our first game. Moreover, they provide a general rule how to transform approximate support results into exact ones. Finally, we discuss the relation of the above mentioned support results, including our present ones, with mechanism theoretic implementation in (weakly) subgame perfect equilibrium of the Nash solution. There we come to the conclusion that a sound interpretation as an implementation can hardly be found except in very rare cases of extremely restricted domains of players´ preferences.
    Keywords: Nash program, Non-cooperative foundation, Implementation, Nash solution, Rubinstein game, Subgame perfect equilibrium
    Date: 2016–01–15

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