
on Microeconomics 
By:  SchweighoferKodritsch, Sebastian (Humboldt University Berlin and WZB Berlin) 
Abstract:  This paper presents an analysis of general time preferences in the canonical Rubinstein (1982) model of bargaining, allowing for arbitrarily historydependent strategies. I derive a simple sufficient structure for optimal punishments and thereby fully characterize (i) the set of equilibrium outcomes for any given preference profile, and (ii) the set of preference profiles for which equilibrium is unique. Based on this characterization, I establish that a weak notion of present bias  implied, e.g., by any hyperbolic or quasihyperbolic discounting  is sufficient for equilibrium to be unique, stationary and efficient. Conversely, I demonstrate how certain violations of present bias give rise to multiple (nonstationary) equilibria that feature delayed agreement under gradually increasing offers. 
Keywords:  time preferences; dynamic inconsistency; alternating offers; bargaining; optimal punishments; delay; 
JEL:  C78 D03 D74 
Date:  2017–06–18 
URL:  http://d.repec.org/n?u=RePEc:rco:dpaper:38&r=mic 
By:  Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Graduate School of Business, Columbia University); Gabriel Weintraub (Graduate School of Business, Stanford University) 
Abstract:  We study the classic sequential screening problem under expost participation constraints. Thus the seller is required to satisfy buyers’ expost participation constraints. A leading example is the online display advertising market, in which publishers frequently cannot use upfront fees and instead use transactioncontingent fees. We establish when the optimal selling mechanism is static (buyers are not screened) or dynamic (buyers are screened), and obtain a full characterization of such contracts. We begin by analyzing our model within the leading case of exponential distributions with two types. We provide a necessary and sufficient condition for the optimality of the static contract. If the means of the two types are sufficiently close, then no screening is optimal. If they are sufficiently apart, then a dynamic contract becomes optimal. Importantly, the latter contract randomizes the low type buyer while giving a deterministic allocation to the high type. It also makes the low type worseoff and the high type betteroff compared to the contract the seller would offer if he knew the buyer’s type. Our main result establishes a necessary and sufficient condition under which the static contract is optimal for general distributions. We show that when this condition fails, a dynamic contract that randomizes the low type buyer is optimal. 
Keywords:  Sequential screening, Expost participation constraints, Static contract, Dynamic contract 
JEL:  C72 D82 D83 
Date:  2017–06 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2078r&r=mic 
By:  Hassan Nosratabadi (Rutgers University) 
Abstract:  Referencedependent choice behavior implies behavioral anomalies such as the socalled attraction effect, status quo bias, and endowment effect. This paper builds a new theory of revealed preference capturing preferences that depend on a reference point. The first main contribution of this work is a decomposition of the Weak Axiom of Revealed Preference (WARP) into three independent axioms. Referential revealed preference theory is then, naturally, constructed by only removing the WARPrationales that are inconsistent with the data. This minimal deviation, in addition to explaining the mentioned behavioral anomalies, preserves the predictive power of the classical theory to the extent possible. Therefore, all sensible results are endogenously derived from the model. These results include: formation of references and reference preferences, the connection of the latter concept to the classical revealed preference, the nature of referential effects, and the characterization of choice. Interestingly, the notion of sequential rationalizability arises, endogenously, as a result in the referential revealed preference theory. 
Keywords:  ReferenceDependent Choice, Reference Preferences, Attraction Effect, StatusQuo Bias 
JEL:  D11 D81 
Date:  2017–06–19 
URL:  http://d.repec.org/n?u=RePEc:rut:rutres:201705&r=mic 
By:  Franz Dietrich; Christian List; Richard Bradley 
Abstract:  We present a general framework for representing beliefrevision rules and use it to characterize Bayes's rule as a classical example and Jeffrey's rule as a nonclassical one. In Jeffrey's rule, the input to a belief revision is not simply the information that some event has occurred, as in Bayes's rule, but a new assignment of probabilities to some events. Despite their differences, Bayes's and Jeffrey's rules can be characterized in terms of the same axioms: responsiveness, which requires that revised beliefs incorporate what has been learnt, and conservativeness, which requires that beliefs on which the learnt input is ‘silent’ do not change. To illustrate the use of nonBayesian belief revision in economic theory, we sketch a simple decisiontheoretic application. 
Keywords:  Belief revision; subjective probability; Bayes's rule; Jeffrey's rule; axiomatic foundations; finegrained versus coarsegrained beliefs; unawareness 
JEL:  C73 D01 D80 D81 D83 D90 
Date:  2015–12–02 
URL:  http://d.repec.org/n?u=RePEc:ehl:lserod:64836&r=mic 
By:  Daniel Heyen 
Abstract:  Maximum likelihood updating (MLU) is a wellknown approach for extending static ambiguity sensitive preferences to dynamic setups. This paper develops an example in which MLU induces an ambiguity averse maxmin expected utility (MEU) decisionmaker to (i) prefer a bet on an ambiguous over a risky urn and (ii) be more willing to bet on the ambiguous urn compared to an (ambiguity neutral) subjective expected utility (SEU) decisionmaker. This is challenging since prior to observing (symmetric) draws from the urns, the MEU decisionmaker (in line with the usual notion of ambiguity aversion) actually preferred the risky over the ambiguous bet and was less willing to bet on the ambiguous urn than the SEU decisionmaker. The identified switch in betting preferences is not due to a violation of dynamic consistency or consequentialism. Rather, it results from MLU's selection of extreme priors, causing a violation of the stability of setinclusion over the course of the updating process. 
Keywords:  learning under ambiguity; maxmin expected utility; ambiguity aversion; maximum likelihood updating; dynamic decision making; belief dynamics 
JEL:  D81 D83 
Date:  2017 
URL:  http://d.repec.org/n?u=RePEc:ehl:lserod:80342&r=mic 
By:  Piero Gottardi (European University Institute  Department of Economics); JeanMarc Tallon (PSE  Paris School of Economics); Paolo Ghirardato (Collegio Carlo Alberto  Via Real Collegio 30) 
Abstract:  This paper studies the costs and benefits of delegating decisions to superiorly informed agents, that is of adopting flexible contracts, relative to the use of rigid, non discretionary contracts. The main focus of the paper lies in the analysis of the costs of delegation, primarily agency costs, versus their benefits, primarily the flexibility of the action choice in two different environments, one with risk and one with ambiguity. We first determine and characterize the properties of the optimal flexible contract. We then show that the higher the agent's degree of risk aversion, the higher is the agency costs of delegation and the less profitable a flexible contract relative to a rigid one. When the parties have imprecise probabilistic beliefs, the agent's degree of imprecision aversion introduces another agency cost, which again reduces the relative profitability of flexible contracts. JEL Classification: D86, D82, D81. 
Keywords:  Multiple Priors,Imprecision Aversion,Flexibility,Delegation,Agency Costs 
Date:  2017–05 
URL:  http://d.repec.org/n?u=RePEc:hal:journl:hal01238046&r=mic 
By:  Olivier Gossner; Jakub Steiner 
Abstract:  We study perception biases arising under secondbest perception strategies. An agent correctly observes a parameter that is payoffrelevant in many decision problems that she encounters in her environment but is unable to retain all the information until her decision. A designer of the decision process chooses a perception strategy that determines the distribution of the perception errors. If some information loss is unavoidable due to cognition constraints, then (under additional conditions) the optimal perception strategy exhibits the illusion of control, overconfidence, and optimism. 
URL:  http://d.repec.org/n?u=RePEc:edn:esedps:276&r=mic 
By:  Gottfries, A. 
Abstract:  This paper analyzes a model of wage bargaining with onthejob search. The model in Shimer (2006) is extended to include an opportunity of withinmatch wage renegotiation. This opportunity arrives at a Poisson rate. I show that once an opportunity for wage renegotiation is introduced there is a unique equilibrium wage distribution, in contrast to the indeterminacy found by Shimer. Furthermore, the model provides a natural bridge between the results of Shimer (2006) and Pissarides (1994). When the arrival rate of renegotiation opportunities tends to infinity, the equilibrium of the model converges to the equilibrium payoffs found by Pissarides, and when the arrival rate converges to zero, the equilibrium in the model converges to one of the equilibria found by Shimer. 
Keywords:  Onthejob search, Bargaining, Renegotiation, Wage contracts 
JEL:  C78 J31 J41 J64 
Date:  2017–05–31 
URL:  http://d.repec.org/n?u=RePEc:cam:camdae:1725&r=mic 
By:  Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) 
Abstract:  Based on a horizontally differentiated duopoly model with network externalities, in which we focus on the role of compatibility between the products, we consider the effect of collusion on social welfare. We demonstrate that collusion improves social welfare, compared to the case of noncooperative Cournot competition, if the level of compatibility between the products under collusion is sufficiently large, given that a network externality is strong. In this case, the collusion is sustainable. 
Keywords:  collusion, network externality, compatibility, horizontally differentiated duopoly, welfare 
JEL:  D43 D62 L13 L14 L15 L41 
Date:  2017–06 
URL:  http://d.repec.org/n?u=RePEc:kgu:wpaper:163&r=mic 
By:  Fabian Gouret; Stéphane Rossignol (Université de CergyPontoise, THEMA) 
Abstract:  This paper studies a continuous onedimensional spatial model of electoral competition with two officemotivated candidates differentiated by their “intensity” valence. All voters agree that one candidate will implement more intensively his announced policy than his opponent. However, and contrary to existing models, the intensity valence has a different impact on the utility of voters according to their position in the policy space. The assumption that voters have utility functions with intensity valence, an assumption which has been found to be grounded empirically, generates very different results than those obtained with traditional utility functions with additive valence. First, the candidate with low intensity valence is supported by voters whose ideal points are on both extremes of the policy space. Second, there exist pure strategy Nash equilibria in which the winner is the candidate with high intensity if the distribution of voters in the policy space is sufficiently homogeneous. On the contrary, if the distribution of voters in the policy space is very heterogeneous, there are pure strategy Nash equilibria in which the candidate with low intensity wins. For moderate heterogeneity of the distribution of voters, there is no pure strategy Nash equilibrium. 
Keywords:  valence, voter’s utility functions, Downsian model, spatial voting. 
JEL:  D72 
Date:  2016 
URL:  http://d.repec.org/n?u=RePEc:ema:worpap:201607&r=mic 
By:  Lee, SangHo; Muminov, Timur; Tomaru, Yoshihiro 
Abstract:  This study investigates R&D and output subsidies in a mixed duopoly with partial privatization. We show that an output subsidy is welfaresuperior to an R&D subsidy policy, but the government has a higher incentive to privatize the public firm under the output subsidy than the R&D subsidy. However, when the government uses the policy mix of R&D and output subsidies together, it can achieve the firstbest allocation, in which the degree of privatization does not influence output subsidies but influences R&D subsidies. 
Keywords:  Mixed duopoly; Partial privatization; R&D subsidy; Output subsidy 
JEL:  H2 L1 L3 
Date:  2017–06–19 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:79778&r=mic 
By:  Petri, Henrik (Department of Finance); Voorneveld, Mark (Dept. of Economics) 
Abstract:  We give an elementary proof of Brouwer's fixedpoint theorem. The only mathematical prerequisite is a version of the BolzanoWeierstrass theorem: a sequence in a compact subset of ndimensional Euclidean space has a convergent subsequence with a limit in that set. Our main tool is a `nobullying' lemma for agents with preferences over indivisible goods. What does this lemma claim? Consider a finite number of children, each with a single indivisible good (a toy) and preferences over those toys. Let's say that a group of children, possibly after exchanging toys, could bully some poor kid if all group members find their own current toy better than the toy of this victim. The nobullying lemma asserts that some group S of children can redistribute their toys among themselves in such a way that all members of S get their favorite toy from S, but they cannot bully anyone. 
Keywords:  Brouwer; fixed point; indivisible goods; KKM lemma 
JEL:  C62 C63 C69 D51 
Date:  2016–04–16 
URL:  http://d.repec.org/n?u=RePEc:hhs:hastec:2016_003&r=mic 
By:  Ed Hopkins 
Abstract:  Fictitious play and "gradient" learning are examined in the context of a large population where agents are repeatedly randomly matched. We show that the aggregation of this learning behaviour can be qualitatively different from learning at the level of the individual. This aggregate dynamic belongs to the same class of simply defined dynamic as do several formulations of evolutionary dynamics. We obtain sufficient conditions for convergence and divergence which are valid for the whole class of dynamics. These results are therefore robust to most specifications of adaptive behaviour. 
Keywords:  games, fictitious play, reinforcement learning, evolution 
JEL:  C72 D83 
URL:  http://d.repec.org/n?u=RePEc:edn:esedps:2&r=mic 
By:  Kesavayuth, Dusanee; Lee, SangHo; Zikos, Vasileios 
Abstract:  In this paper, we consider a duopoly with product differentiation and examine the interaction between merger and innovation incentives. The analysis reveals that a merger tends to discourage innovation, unless the investment cost is sufficiently low. This result holds whether or not side payments between firms are allowed. When side payments are permitted, a bilateral mergertomonopoly is always profitable, a standard result in the literature. When side payments are not permitted, however, we show that a merger is not profitable when the efficiency of the new technology is relatively high and the investment cost is below a particular level. 
Keywords:  Merger, R&D, innovation, differentiated products 
JEL:  D21 L13 L41 O31 
Date:  2017–06–21 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:79821&r=mic 
By:  Francesco Caruso (Università di Napoli Federico II); Maria Carmela Ceparano (Università di Napoli Federico II); Jacqueline Morgan (Università di Napoli Federico II and CSEF) 
Abstract:  In oneleader onefollower twostage games, multiplicity of Subgame Perfect Nash Equilibria (henceforth SPNE) arises when the optimal reaction of the follower to any choice of the leader is not always unique, i.e. when the best reply correspondence of the follower is not a singlevalued map. This paper concerns a new selection method for SPNE which makes use of a sequence of games designed using a proximal point algorithm, wellknown optimization technique related to the socalled MoreauYosida regularization (Moreau 1965, Martinet 1972, Rockafellar 1976, Parikh and Boyd 2014 and references therein). Any game of the obtained sequence is a classical Stackelberg game (Von Stack elberg 1952), i.e. a oneleader onefollower twostage game where the best reply correspondence of the follower is singlevalued. This mechanism selection is in line with a previous one based on Tikhonov regularization, in Morgan and Patrone (2006), but using the class of proximal point algorithms has a twofold advantage: on the one hand, it can provide improvements in numerical implementations and, on the other hand, it has a clear interpretation: the follower payoff function is modified subtracting a term that can represent a physical and behavioural cost to move (Attouch and Soubeyran 2009). The constructive method and its effectiveness are illustrated and existence results for the selection are provided under mild assumptions on data, together with connections with other possible selection methods. 
Keywords:  Noncooperative game; Stackelberg game; bilevel optimization problem; subgame perfect Nash equilibrium; selection. 
Date:  2017–04–21 
URL:  http://d.repec.org/n?u=RePEc:sef:csefwp:476&r=mic 
By:  Kai Spiekermann; Arne Weiss 
Abstract:  We propose a cognitivedissonance model of norm compliance to identify conditions for selfishly biased information acquisition. The model distinguishes between: (i) objective norm compliers, for whom the right action is a function of the state of the world; (ii) subjective norm compliers, for whom it is a function of their belief. The former seek as much information as possible; the latter acquire only information that lowers, in expected terms, normative demands. The source of 'moral wiggle room' is not belief manipulation, but the coarseness of normative prescriptions under conditions of uncertainty. In a novel experimental setup, we find evidence for such strategic information uptake. Our results suggest that attempts to change behavior by subjecting individuals to norms can lead to biased information acquisition instead of compliance. 
Keywords:  norm compliance; uncertainty; experiment; selfserving biases; strategic learning; dictator game 
JEL:  C91 D63 D83 
Date:  2016–03 
URL:  http://d.repec.org/n?u=RePEc:ehl:lserod:64643&r=mic 
By:  David, McCarthy; Kalle, Mikkola 
Abstract:  A strongly independent preorder on a possibly infinite dimensional convex set that satisfies two of the following conditions must satisfy the third: (i) the Archimedean continuity condition; (ii) mixture continuity; and (iii) comparability under the preorder is an equivalence relation. In addition, if the preorder is nontrivial (has nonempty asymmetric part) and satisfies two of the following conditions, it must satisfy the third: (i') a modest strengthening of the Archimedean condition; (ii) mixture continuity; and (iii') completeness. Applications to decision making under conditions of risk and uncertainty are provided. 
Keywords:  Continuity Completeness Archimedean Strong independence Expected utility 
JEL:  D81 
Date:  2017–06–17 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:79755&r=mic 
By:  George Akerlof; Pascal Michaillat 
Abstract:  This paper develops a theory of promotion based on evaluations by the already promoted. The already promoted show some favoritism toward candidates for promotion with similar beliefs, just as beetles are more prone to eat the eggs of other species. With such eggeating bias, false beliefs may not be eliminated by the promotion system. Our main application is to scientific revolutions: when tenured scientists show favoritism toward candidates for tenure with similar beliefs, science may not converge to the true paradigm. We extend the statistical concept of power to science: the power of the tenure test is the probability (absent any bias) of denying tenure to a scientist who adheres to the false paradigm, just as the power of any statistical test is the probability of rejecting a false null hypothesis. The power of the tenure test depends on the norms regarding the appropriate criteria to use in promotion and the empirical evidence available to apply these criteria. We find that the scientific fields at risk of being captured by false paradigms are those with low power. Another application is to hierarchical organizations: eggeating bias can result in the capture of the top of organizations by the wrongminded. 
JEL:  I23 M51 Z13 
Date:  2017–06 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:23523&r=mic 