nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒02‒19
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Dynamic Mechanism Design with Overbooking, Different Deadlines, and Multi-unit Demands By Ryuji Sano
  2. The Explosive Combination of Religious Decentralisation and Autocracy: the Case of Islam By Auriol, Emmanuelle; Platteau, Jean-Philippe
  3. Treading a fine line: (Im)possibilities for Nash implementation with partially-honest individuals By Michele Lombardi; Naomi Yoshihara
  4. Natural implementation with semi-responsible agents in pure exchange economies By Michele Lombardi; Naoki Yoshihara
  5. Perturbed Utility and General Equilibrium Analysis By Wei Ma
  6. The Anatomy of Sentiment-Driven Fluctuations By Sushant Acharya; Jess Benhabib; Zhen Huo
  7. Bankruptcy Games with Nontransferable Utility By Dietzenbacher, Bas
  8. When multiple merged entities lead in Stackelberg oligopolies: Merger paradox and Welfare By Walter Ferrarese
  9. Cooperation in a differentiated duopoly when information is dispersed: A beauty contest game with endogenous concern for coordination By Camille Cornand; Rodolphe Dos Santos Ferreira
  10. Rank dependent expected utility theory explains the St. Petersburg paradox By Ali al-Nowaihi; Sanjit Dhami; Jia Zhu
  11. Political Competition with Endogenous Party Formation and Citizen Activists By Hansen, Emanuel
  12. Collective Memories, Propaganda and Authoritarian Political Support By Alessandro Belmonte; Michael Rochlitz
  13. The Swing Voter's Curse in Social Networks By Buechel, Berno; Mechtenberg, Lydia
  14. Managing a Conflict By Schneider, Johannes; Balzer, Benjamin

  1. By: Ryuji Sano (Institute of Economic Research, Kyoto University)
    Abstract: This paper considers a dynamic mechanism design in which multiple objects with different consumption deadlines are allocated over time. Agents arrive over time and may have multi-unit demand. We characterize necessary and sufficient condition for periodic ex-post incentive compatibility and provide the optimal mechanism that maximizes the seller's expected revenue under regularity conditions. When complete contingent-contracts are available, the optimal mechanism can be interpreted as an "overbooking" mechanism. The seller utilizes overbooking for screening and price-discriminating advance agents. When agents demand multiple objects as complements, the seller may face a tradeoff between the last-minute price of the current object and the future profit.
    Keywords: dynamic mechanism design, optimal auction, overbooking, price discrimination, revenue management
    JEL: D82 D44
    Date: 2017–02
  2. 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; centralized and decentralized religion; Corruption; economic development; instrumentalization of religion; Islam; reforms
    JEL: D02 D72 N40 O57 P48 Z12
    Date: 2017–01
  3. By: Michele Lombardi (Adam Smith Business School, University of Glasgow); Naomi Yoshihara (Department of Economics, University of Massachusetts Amherst)
    Abstract: This paper investigates the robustness of Dutta and Sen (2012) Theorem 1 to weaker notions of truth-telling. An individual honesty standard is modeled as a subgroup of the society, including the individual herself, for which she feels truth-telling concerns. An individual i is honest when she states her true preferences as well as rankings (not necessarily complete) of outcomes that are consistent with the true preferences of individuals in her honesty standard. The paper offers a necessary condition for Nash implementation, called partial-honesty monotonicity, and shows that in an independent domain of preferences that condition is equivalent to Maskin monotonicity.
    Keywords: Nash implementation; partial-honesty; non-connected honesty standards, independent domain
    JEL: C72 D71 D82
    Date: 2017
  4. By: Michele Lombardi (Adam Smith Business School, University of Glasgow); Naoki Yoshihara (Department of Economics, University of Massachusetts Amherst)
    Abstract: We study Nash implementation by natural price-quantity mechanisms in pure exchange economies when agents have intrinsic preferences for responsibility. An agent has an intrinsic preference for responsibility if she cares about truth-telling that is in line with the goal of the mechanism designer besides her material well-being. A semi-responsible agent is an agent who, given what her opponents do, acts in an irresponsible manner when a responsible behavior poses obstacles to her material well-being. The class of efficient allocation rules that are Nash implementable is identified provided that there is at least one agent who is semi-responsible. The Walrasian rule is shown to belong to that class.
    Keywords: Nash equilibrium, exchange economies, intrinsic preferences for responsibility, boundary problem, price-quantity mechanism
    JEL: C72 D71
    Date: 2017
  5. By: Wei Ma
    Abstract: We study general equilibrium theory of complete markets in an otherwise standard economy with each household having an additive perturbed utility function. Since this function represents a type of stochastic choice theory, the equilibrium of the corresponding economy is defined to be a price vector that makes its mean expected demand equal its mean endowment. We begin with a study of the economic meaning of this notion, by showing that at any given price vector, there always exists an economy with deterministic utilities whose mean demand is just the mean expected demand of our economy with additive perturbed utilities. We then show the existence of equilibrium, its Pareto inefficiency, and the upper hemi-continuity of the equilibrium set correspondence. Specializing to the case of regular economies, we finally demonstrate that almost every economy is regular and the equilibrium set correspondence in this regular case is continuous and locally constant.
    Keywords: general equilibrium, Stochastic choice, Regular economy
    Date: 2017–01
  6. By: Sushant Acharya; Jess Benhabib; Zhen Huo
    Abstract: We characterize the entire set of linear equilibria of beauty contest games under general information structures. In particular, we focus on equilibria in which sentiments, that is self-fulfilling changes in beliefs that are orthogonal to fundamentals and exogenous noise, can drive aggregate fluctuations. We show that, under rational expectations, there exists a continuum of sentiment-driven equilibria that generate aggregate fluctuations. Without having to take a stance on the private information agents might possess, we provide a general characterization of necessary and sufficient conditions under which a change in sentiments can have prolonged effects on aggregate outcomes and when it can only have short-lived effects. In addition, we also provide a practical way to characterize these equilibria.
    JEL: E20 E32 F44
    Date: 2017–02
  7. By: Dietzenbacher, Bas (Tilburg University, Center For Economic Research)
    Abstract: This paper analyzes bankruptcy games with nontransferable utility as a generalization of bankruptcy games with monetary payoffs. Following the game theoretic approach to NTU-bankruptcy problems, we study some appropriate properties and the core of NTU-bankruptcy games. Generalizing the core cover and the reasonable set to the class of NTU-games, we show that NTU-bankruptcy games are compromise stable and reasonable stable. Moreover, we derive a necessary and sufficient condition for an NTU-bankruptcy rule to be game theoretic.
    Keywords: NTU-bankruptcy problem,; NTU-bankruptcy game,; compromise stability,; reasonable stability; game theoretic bankruptcy rule
    JEL: C71
    Date: 2017
  8. By: Walter Ferrarese (University of Rome "Tor Vergata")
    Abstract: The merger paradox refers to the fact that in a symmetric static Cournot oligopoly horizontal mergers are generally unprofitable. Moreover, even in case of profitable mergers, remaining outside the merger is better than participating (free-riding issue). In this paper we tackle both issues in a model with linear inverse demand, in which we allow for multiple simoltaneous mergers from a static symmetric Cournot market. Once the mergers occur, each merged entity acquires the right of becoming the leader over the remaining firms outside the mergers (outsiders). We allow the leaders to be heterogeneous in the number of members (insiders). Our model connects and extendes Liu and Wang (2015), who are the first to explore the feature of the leadership acquisiton. They show that if a unique merged entity acquires the leadership, then there is always an incetive for such merger to occur. However, they do not tackle the free riding aspect of mergers. We obtain that the case of a unique leader is the only one in which the merged entity has always an incentive to form. We carry out a welfare analysis and show that, in our setting, despite the symmetry of firms total output can often rise and make consumers better off. Moreover, the adoption of consumers surplus only or consumer surplus plus industry profits as welfare measures does not change the set of welfare improving mergers. This suggests that the common view on horizontal mergers among symmetric firms being unambiguously welfare reducing requires, in some cases a deeper analysis, since the change in the market structure alone can be enough to increase welfare. It also suggests parsimony for the antitrust authorities in evaluating the welafre implications of mergers.
    Keywords: horizontal mergers, market power, merger paradox, stackelberg competition, welfare.
    JEL: L11 L13 L14
    Date: 2017–02–10
  9. By: Camille Cornand; Rodolphe Dos Santos Ferreira
    Abstract: The paper provides a micra-founded differentiated duopoly illustration of a beauty contest, in which the weight put on the strategic vs. the fundamental motive of the pay­ offs is not exogenous but may be manipulated by the players. We emphasize the role of the competition component of the strategic motive as a source of conflict with the fun­ damental motive. This conflict, already present in an oligopolistic setting under perfect information, is only exacerbated when information is imperfect and dispersed. We show how firm owners ease such conflict by opting for sorne cooperation, thus moderating the competitive toughness displayed by their managers. By doing so, they also influence the managers' strategic concern for coordination and consequently the weight put on public relative to private information.
    Keywords: beauty contest, competition, cooperation, coordination, differentiated duopoly, dispersed information, public information.
    JEL: D43 D82 L13 L21
    Date: 2017
  10. By: Ali al-Nowaihi; Sanjit Dhami; Jia Zhu
    Abstract: We show that rank dependent expected utility theory can explain the St. Petersburg paradox. This complements recent work by Blavatskyy (2005), Camerer (2005), Rieger and Wang (2006) and Pfiffelmann (2011).
    Keywords: St. Petersburg paradox, Rank dependent expected utility theory.
    JEL: C60 D81
    Date: 2015–09
  11. By: Hansen, Emanuel
    Abstract: The paper studies political competition between endogenously formed parties instead of independent candidates. Party formation allows policy-motivated citizens to nominate one of their fellow party members as their candidate for a general election and to share the cost of running in this election. Thus, like-minded citizens are able to coordinate their political behavior in order to improve the policy outcome. The paper focuses on political equilibria with two active parties, and investigates the properties of stable parties and the policy platforms offered in equilibrium. The platforms of both parties can neither be fully convergent as in the median voter model (Downs 1957) nor extremely polarized as in the citizen candidate model (Besley & Coate 1997). In the benchmark case of full electoral certainty, a unique political equilibrium with positive platform distance exists. Endogenous party formation thus eliminates a major weakness of the citizen candidate model, the extreme multiplicity of equilibria. The model remains tractable, and the qualitative results are shown to be robust under the assumption of electoral uncertainty, where vote results cannot be perfectly predicted.
    JEL: D72 D78 C72
    Date: 2016
  12. By: Alessandro Belmonte (IMT Alti Studi Lucca); Michael Rochlitz (National Research University Higher School of Economics)
    Abstract: To what extent does the degree of authoritarian political support depend on collective memories of a past experience with democracy? And how costly is it for a dictator to manipulate such memories with the help of propaganda? In this paper, we develop a political economy model with endogenous reference points, where a dictator strategically recalls traumatic collective memories of past political instability with the help of propaganda, to convince the population that an autocratic status quo is superior to a potential democratic alternative. In our model, both the optimal level of propaganda and collective memories are jointly determined. We show how the marginal bene t of propaganda is positively correlated both with the amount of rent distribution within the elite, and the intensity of a past traumatic experience with democracy. We illustrate our theoretical findings with case-studies of two authoritarian regimes that were preceded by periods of political instability|the Russian Federation under Vladimir Putin, and Chile under Augusto Pinochet. We then also provide cross-country empirical evidence in support of our argument.
    Keywords: collective memory, propaganda, political support, rebellion, private investment
    JEL: D74 D83 P16 Z13
    Date: 2017
  13. By: Buechel, Berno; Mechtenberg, Lydia
    Abstract: We study private communication in social networks prior to a majority vote on two alternative policies. Some (or all) agents receive a private imperfect signal about which policy is correct. They can, but need not, recommend a policy to their neighbors in the social network prior to the vote. We show theoretically and empirically that communication can undermine efficiency of the vote and hence reduce welfare in a common interest setting. Both efficiency and existence of fully informative equilibria in which vote recommendations are always truthfully given and followed hinge on the structure of the communication network. If some voters have distinctly larger audiences than others, their neighbors should not follow their vote recommendation; however, they may do so in equilibrium. We test the model in a lab experiment and strong support for the comparative-statics and, more generally, for the importance of the network structure for voting behavior.
    Keywords: Strategic Voting, Social Networks, Swing Voter's Curse, Information Aggregation, Research Methods/ Statistical Methods, D72, D83, D85, C91,
    Date: 2017–02–08
  14. By: Schneider, Johannes; Balzer, Benjamin
    Abstract: We study the optimal design of alternative dispute resolution (ADR) mechanisms by a third-party mediator. ADR takes place before two litigants face each other in court. Litigation is a legal contest with players who are privately informed about the cost of collecting admissible evidence. Players update their beliefs after the mediation process, but before they decide on evidence collection. Different from standard mechanism design problems, the belief-system post-ADR is important for the outcome of the continuation game: within litigation, choice variables are strategic complements and the evidence supplied is driven by the belief system. There is an incentive for parties to misreport in ADR to profit from this deviation in litigation should ADR fail to resolve the conflict. We show that optimal ADR has to break down on-path in some cases to screen the players with respect to their costs. Furthermore, ADR induces truthful reporting by creating post-breakdown beliefs which are independent of own type-reports during ADR. To reduce inefficiency vis-à-vis symmetric litigation, optimal ADR induces asymmetric breakdown beliefs even for ex-ante symmetric types to increase the settlement rate compared to symmetric mechanisms. Independent of the set of parameters, ADR achieves settlement for the majority of cases.
    JEL: D82 D74 K41
    Date: 2016

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