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on Microeconomics |
| By: | Attar, Andrea; Casamatta, Catherine; Chassagnon, Arnold; Décamps, Jean-Paul |
| Abstract: | We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games. |
| Keywords: | Multiple Lending; Menus; Strategic Default; Common Agency; Bank Competition. |
| JEL: | D43 D82 G33 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31786&r=mic |
| By: | Vladimir Asriyan; William Fuchs; Brett Green |
| Abstract: | How effectively does a decentralized marketplace aggregate information that is dispersed throughout the economy? We study this question in a dynamic setting, in which sellers have private information that is correlated with an unobservable aggregate state.We first characterize equilibria with an arbitrary finite number of informed traders. A common feature is that each seller’s trading behavior provides an informative and conditionally independent signal about the aggregate state. We then ask whether the state is revealed as the number of informed traders goes to infinity. Perhaps surprisingly, the answer is no. We provide generic conditions under which the amount of information revealed is necessarily bounded and does not reveal the aggregate state. When these conditions are violated, there may be coexistence of equilibria that lead to aggregation with those that do not. We discuss the implications for policies meant to enhance information dissemination in markets. Reporting lags combined with segmented trading platforms can be an effective way to ensure information aggregation without sacrificing welfare. In general, a partially revealing information policy can increase trading surplus. |
| Keywords: | Information aggregation, adverse selection, information design |
| JEL: | G14 G18 D47 D82 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1573&r=mic |
| By: | Lionel Richefort (Université de Nantes, LEMNA) |
| Abstract: | This paper explores a voluntary contribution game in the presence of warm-glow effects. There are many public goods and each public good benefits a different group of players. The structure of the game induces a bipartite network structure, where players are listed on one side and the public good groups they form are listed on the other side. The main result of the paper shows the existence and uniqueness of a Nash equilibrium. The unique Nash equilibrium is also shown to be locally asymptotically stable. Then the paper provides some comparative statics analysis regarding pure redistribution, taxation and subsidies. It appears that small redistributions of wealth may sometimes be neutral, but generally, the effects of redistributive policies depend on how public good groups are related in the contribution network structure. |
| Keywords: | Multiple Public Goods, Warm-glow Effects, Bipartite Contribution Structure, Nash Equilibrium, Comparative Statics |
| JEL: | C72 D64 H40 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2017.32&r=mic |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Based on a simple model of compatibility choice under differentiated Cournot duopoly with network externalities, we consider how the levels of a network externality and product substitutability affect the choice of compatibility. In particular, if the level of network externality is larger than that of product substitutability, there are multiple equilibria involving imperfect and perfect compatibility. Furthermore, we demonstrate the conditions for constructing such a network alliance so that firms provide perfectly compatible products. The network alliance is stable and socially optimal. |
| Keywords: | Compatibility; Network Externality; Fulfilled Expectation; Cournot Competition; Horizontally Differentiated Product; Network Alliance |
| JEL: | D21 D43 D62 L15 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:164&r=mic |
| By: | P. Jean-Jacques Herings (Department of Economics, Maastricht University); Ana Mauleon (CEREC, Saint-Louis University and CORE, University of Louvain); Vincent Vannetelbosch (CORE, University of Louvain and CEREC, Saint-Louis University) |
| Abstract: | We study stable sets for marriage problems under the assumption that players can be both myopic and farsighted. We introduce the new notion of the myopic-farsighted stable set. For the special cases where all players are myopic and where all players are farsighted, our concept predicts the set of matchings in the core. When all men are myopic and the top choice of each man is a farsighted woman, we show that the singleton consisting of the woman-optimal stable matching is a myopic-farsighted stable set. The same result holds when all women are farsighted. |
| Keywords: | Marriage Problems, Stable Sets, Myopic and Farsighted Players |
| JEL: | C70 C78 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2017.34&r=mic |
| By: | Francis Bloch (Université Paris 1 and Paris School of Economics); Anne van den Nouweland (Department of Economics, University of Oregon) |
| Abstract: | This paper analyzes farsighted stable sets when agents have heterogeneous expectations over the dominance paths. We consider expectation functions satisfying two properties of path-persistence and consistency. We show that farsighted stable sets with heterogeneous expectations always exist and that any singleton farsighted stable set with common expectations is a farsighted stable set with heterogeneous expectations. We characterize singleton farsighted stable sets with heterogeneous expectations in one-to-one matching models and voting models, and show that the relaxation of the hypothesis of common expectations greatly expands the set of states that can be supported as singleton farsighted stable sets. |
| Keywords: | Farsighted Stable Sets, Heterogeneous Expectations, One-to-one Matching, Voting, Effectivity Functions |
| JEL: | C71 D72 D74 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2017.31&r=mic |
| By: | Hitoshi Sadakane |
| Abstract: | We examine multistage information transmission with voluntary monetary transfer in the framework of Crawford and Sobel (1982). In our model, an informed expert can send messages to an uninformed decision maker more than once, and the uninformed decision maker can pay money to the informed expert voluntarily whenever she receives a message. Our results are that under some conditions (i) the decision maker can obtain more detailed information from the expert than that in the Crawford and Sobel model and (ii) there exists an equilibrium whose outcome Pareto dominates all the equilibrium outcomes in the Crawford and Sobel model. Moreover, we find the upper bound of the receiver's equilibrium payoff, and provide a sufficient condition for it to be approximated by the receiver's payoff under a certain equilibrium. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1006&r=mic |
| By: | Anthony Heyes (Department of Economics, University of Ottawa); Marcel Oestreich (Department of Economics, Brock University) |
| Abstract: | Firms face social pressure to behave well. We provide the first formal model in which social penalties for wrong-doing emerge endogenously and are jointly produced between a state regulator and an NGO. Armed with the instruments of coercion the regulator plays the primary role in information provision while through attitude-leadership the NGO manipulates the social atmosphere into which information about misbehavior of firms emerges. The strategies of the regulator and the NGO are classified in a taxonomy of regulatory settings that vary in; (a) the weight that the NGO places on environmen- tal versus business outcomes and (b) community alertness to NGO messaging. In the strategic setting that results an NGO funder will typically want to delegate his bidding to an NGO chief who has values di¤erent to his own. |
| Keywords: | Environmental regulation; private politics; strategic delegation; NGOs; social license |
| JEL: | D62 H83 L51 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:brk:wpaper:1701&r=mic |
| By: | Pierre C. Boyer; Kai A. Konrad; Brian Roberson |
| Abstract: | We consider campaign competition in which candidates compete for votes among a continuum of voters by engaging in persuasive e orts that are targetable. Each individual voter is persuaded by campaign e ort and votes for the candidate who targets more persuasive e ort to this voter. Each candidate chooses a level of total campaign e ort and allocates their e ort among the set of voters. We completely characterize equilibrium for the majoritarian objective game and compare that to the vote-share maximizing game. If the candidates are symmetric ex ante, both types of electoral competition dissipate the rents from oce in expectation. However, the equilibria arising under the two electoral objectives qualitatively di er. In majoritarian elections, candidates randomize over their level of total campaign e ort, which provides support for the puzzling phenomenon of the emergence of supermajorities in majoritarian systems. Vote-share maximization leads to an equilibrium in which both candidates make deterministic budget choices and reach a precise fty- fty split of vote shares. We also study how asymmetry between the candidates a ects the equilibrium. If some share of the voters is loyal to one of the candidates, then both candidates expend the same expected e orts in equilibrium, but the advantaged candidate wins with higher probability for majoritarian voting or a higher share of voters for vote-share maximization. |
| Keywords: | Campaign competition; continuous General Lotto game; vote buying; exible budgets; supermajorities, loyal voters |
| JEL: | D72 D78 D82 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1290&r=mic |
| By: | Bielagk, Jana (Humboldt University Berlin); Horst, Ulrich (Humboldt University Berlin); Moreno-Bromberg, Santiago (University of Zurich) |
| Abstract: | We use a model with agency frictions to analyze the structure of a dealer market that faces competition from a crossing network. Traders are privately informed about their types (e.g. their portfolios), which is something the dealer must take into account when engaging his counterparties. Instead of participating in the dealer market, the traders may take their business to a crossing network. We show that the presence of such a network results in more trader types being serviced by the dealer and that, under certain conditions, the book\'s spread shrinks. We allow for the pricing on the dealer market to determine the structure of the crossing network and show that the same conditions that lead to a reduction of the spread imply the existence of an equilibrium book or crossing network pair. |
| Keywords: | asymmetric information; crossing networks; dealer markets; non-linear pricing; principal-agent games; |
| JEL: | D42 D53 G12 G14 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:39&r=mic |
| By: | de Cornière, Alexandre; Taylor, Greg |
| Abstract: | Motivated by recent investigations over Google's practices in the smartphone industry, we study bundling in markets for devices that allow consumers to use applications. The presence of applications on a device increases demand for it, and application developers earn revenues by interacting with consumers. A firm that controls multiple applications can offer them to device manufacturers either individually or as a bundle. We present a novel mechanism through which anticompetitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multiapplication developer to capture a larger share of industry profit. Bundling can also strengthen competition between manufacturers and thereby increase consumer surplus, even if it leads to foreclosure of application developers and a loss in product variety. |
| Keywords: | Antitrust; Bundling; Mobile telecommunications |
| JEL: | L4 L86 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12129&r=mic |
| By: | Paolo Bertoletti (Department of Economics and Management, University Of Pavia); Federico Etro (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | We study imperfect and monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms. We show how to compute equilibria through the Morishima elasticities of substitution. Simple pricing rules and closed-form solutions emerge under monopolistic competition when demands depend on common aggregators. This is the case for Generalized Additively Separable preferences (encompassing additive preferences and their Gorman-Pollak extensions), implicitly additive preferences and others. For applications to trade, with markups variable across goods of different quality, and to macroeconomics, with markups depending on aggregate variables, we propose specifications of indirectly additive, self-dual addilog and implicit CES preferences. |
| Keywords: | Imperfect competition, Monopolistic competition, Asymmetric preferences, Heterogeneous firms |
| JEL: | D11 D43 L11 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2017:08&r=mic |
| By: | Fahn, Matthias (LMU Munich and CESifo); Wamser, Georg (University of Tuebingen and CESifo); Merlo, Valeria (University of Tuebingen and CESifo) |
| Abstract: | Existing theories of a firm\'s optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for firms that show a strong commitment towards their workforce and are popular among employees. We demonstrate that such financing behavior may be driven by implicit arrangements made between a firm and its managers or employees. Equity financing generally strengthens a firm\'s credibility to honor implicit promises. Debt, however, has an adverse effect on the enforceability of these arrangements because too much debt increases the firm\'s reneging temptation, as some of the negative consequences of breaking implicit promises can be shifted to creditors. Our analysis provides an explanation for why some firms only use little debt financing. Predictions made by our theory are in line with a number of empirical results, which seem to stay in contrast to existing theories on capital structure. |
| Keywords: | relational contracts; capital structure; corporate finance; debt financing; |
| JEL: | C73 D24 D86 G32 |
| Date: | 2017–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:41&r=mic |
| By: | Matteo Burzoni; Frank Riedel; H. Mete Soner |
| Abstract: | We reconsider the microeconomic foundations of financial economics under Knightian Uncertainty. In a general framework, we discuss the absence of arbitrage, its relation to economic viability, and the existence of suitable nonlinear pricing expectations. Classical financial markets under risk and no ambiguity are contained as special cases, including various forms of the Efficient Market Hypothesis. For Knightian uncertainty, our approach unifies recent versions of the Fundamental Theorem of Asset Pricing under a common framework. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.03335&r=mic |
| By: | Dold, Malte |
| Abstract: | In light of behavioral findings regarding inconsistent individual decision-making, economists have begun to re-conceptualize the notion of welfare. One prominent account is the preference purification approach (PP), which attempts to reconstruct preferences from revealed choices based on a normative understanding of neoclassical rationality. Using Buchanan's notion of creative choice, this paper criticizes PP's epistemic, ontological, and psychological assumptions. It identifies PP as a static position that assumes the satisfaction of given 'true preferences' as the normative standard for welfare. However, following Buchanan, choice should be understood dynamically as a process whereby preferences constantly regenerate. Accordingly, the meaning of welfare emerges from an ongoing quest for individual self-constitution. If this holds true, then rationality axioms cannot serve as a priori normative standards. Instead, creative imagination and learning processes must re-main central to any understanding of welfare in economics. |
| Keywords: | Behavioral Welfare Economics,Creative Choice,James M. Buchanan,Rationality,Methodology,Subjectivism |
| JEL: | B41 D03 P46 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wgspdp:201703&r=mic |
| By: | Biais, Bruno; Heider, Florian; Hoerova, Marie |
| Abstract: | We study the interaction between contracting and equilibrium pricing when risk- averse hedgers purchase insurance from risk-neutral investors subject to moral hazard. Moral hazard limits risk-sharing. In the individually optimal contract, margins are called (after bad news) to improve risk-sharing. But margin calls depress the price of investors' assets, affecting other investors negatively. Because of this fire-sale externality, there is too much use of margins in the market equilibrium compared to the utilitarian optimum. Moreover, equilibrium multiplicity can arise: In a pessimistic equilibrium, hedgers who fear low prices request high margins to obtain more insurance. Large margin calls trigger large price drops, confirming initial pessimistic expectations. Finally, moral hazard generates endogenous market incompleteness, raises risk premia, and induces contagion between asset classes. |
| Keywords: | Insurance; Derivatives; Moral hazard; Risk-management; Margin requirements; Contagion; Fire-sales |
| JEL: | D82 G21 G22 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31769&r=mic |
| By: | Takeshi Ebina; Noriaki Matsushima; Katsumasa Nishide |
| Abstract: | We investigate the entry timing and location decisions under market-size uncertainty with Brownian motions in a continuous-time spatial competition duopoly model a la d’Aspremont et al. (1979). Under a sequential equilibrium, the threshold of the follower non-monotonically increases in volatility, which is in stark contrast to the extant results in the real options literature. Also, although the follower's entry timing tends to be late as the volatility becomes amplified, the leader is more likely to increase the degree of product differentiation as the volatility gets higher. Finally, we compare the equilibrium entry decisions with the second-best ones. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1007&r=mic |
| By: | Biais, Bruno; Bisière, Christophe; Bouvard, Matthieu; Casamatta, Catherine |
| Abstract: | Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective, way to record transactions and asset ownership, but are they? We model the blockchain as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. We show that mining the longest chain is a Markov perfect equilibrium, without forking on the equilibrium path, in line with the seminal vision of Nakamoto (2008). We also clarify, however, that the blockchain game is a coordination game, which opens the scope for multiple equilibria. We show there exist equilibria with forks, leading to orphaned blocks and also possibly to persistent divergence between different chains. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31770&r=mic |
| By: | S. Bolatto; L. Lambertini |
| Abstract: | We investigate the possibility for two vertically related firms to at least partially collude on the wholesale price over an infinite horizon to mitigate or eliminate the effects of double marginalisation, thereby avoiding contracts which might not be enforceable. We characterise alternative scenarios envisaging different deviations by the upstream firm and different punishments. This allows us to show that the most efficient case is that in which the upstream firm deviates along its best reply function and the punishment prescribes the disruption of the vertical relation for good after a deviation from the collusive path. |
| JEL: | D43 L13 L42 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1103&r=mic |
| By: | Rey, Patrick; Salant, David |
| Abstract: | We study the design of auctions for the allocation of essential inputs, such as spectrum rights, transmission capacity or airport landing slots, to firms using these inputs to compete in a downstream market. When welfare matters in addition to auction revenues, there is a trade-off: provisions aimed at fostering post-auction competition in the downstream market typically result in lower prices for consumers, but also in lower auction proceeds. We first characterize the optimal auction design from the standpoints of consumer and total welfare. We then examine how various regulatory instruments can be used to implement the desired allocation. |
| Keywords: | Auctions; Market design; Essential inputs; Regulation; Antitrust. |
| JEL: | D43 D44 D47 D61 L13 L42 L43 L51 |
| Date: | 2017–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31784&r=mic |