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on Microeconomics |
| By: | LOMBARDI, Michele; YOSHIHARA, Naoki |
| Abstract: | This paper investigates the robustness of Dutta and Sen’s (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: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-47&r=mic |
| By: | René van den Brink (Department of Econometrics and Tinbergen Institute, VU University); Agnieszka Rusinowska (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | In this paper, we connect the social network theory on centrality measures to the economic theory of preferences and utility. Using the fact that networks form a special class of cooperative TU-games, we provide a foundation for the degree measure as a von Neumann-Morgenstern expected utility function reflecting preferences over being in different positions in different networks. The famous degree measure assigns to every position in a weighted network the sum of the weights of all links with its neighbours. A crucial property of a preference relation over network positions is neutrality to ordinary risk. If an expected utility function over network positions satisfies this property and some regularity properties, then it must be represented by a utility function that is a multiple of the degree centrality measure. We show this in three steps. First, we characterize the degree measure as a centrality measure for weighted networks using four natural axioms. Second, we relate these network centrality axioms to properties of preference relations over positions in networks. Third, we show that the expected utility function is equal to a multiple of the degree measure if and only if it represents a regular preference relation that is neutral to ordinary risk. Similarly, we characterize a class of affine combinations of the outdegree and indegree measure in weighted directed networks and deliver its interpretation as a von Neumann-Morgenstern expected utility function |
| Keywords: | Weigthed network; network centrality; utility function; degree centrality, von Neumann-Morgenstern expected utility function; coopeative TU-game; weighted directed network |
| JEL: | D81 D85 C02 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17035&r=mic |
| By: | LOMBARDI, Michele; YOSHIHARA, Naoki |
| 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: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-48&r=mic |
| By: | Andrea Attar (DEF & CEIS, Università di Roma Tor Vergata and Toulouse School of Economics (CRM, IDEI)); Catherine Casamatta (Toulouse School of Economics (CRM, IDEI)); Arnold Chassagnon (Université de Tours and Paris School of Economics); Jean Paul Décamps (Toulouse School of Economics (CRM, IDEI)) |
| 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: | 2017–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:409&r=mic |
| By: | Chen, Yongmin; Li, Jianpei; Zhang, Jin |
| Abstract: | We study the role of liability in disciplining an expert's behavior in a credence good market. The expert, who can provide two potential treatments for a consumer's problem, may misbehave in two ways: prescribing the "wrong" treatment given his private information, or failing to exert proper effort to diagnose the problem. We show that under a range of liability rules, the expert will choose the efficient treatment based on his information if the price margins for the two treatments are close enough. Moreover, a well-designed liability rule can motivate the expert to choose efficiently both the treatment and the diagnosis effort. This efficiency result continues to hold when the expert's diagnosis effort generates only a noisy signal about the nature of the consumer's problem, provided the signal is sufficiently informative. |
| Keywords: | Credence goods, private information, diagnosis effort, undertreatment, overtreatment, liability |
| JEL: | D82 I18 K13 L23 |
| Date: | 2017–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80206&r=mic |
| By: | Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Laurent Lamy (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Set-asides programs consist in forbidding access to specific participants, and they are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial for revenues to exclude the incumbent in the second-price auction. This exclusion principle is generalized to auction formats that favor the incumbent in the sense that he would always gets the good when he values it most. By contrast, set-asides need not be desirable if the incumbent's payoff is included into the seller's objective or in environments with multiple incumbents. Various applications are discussed. |
| Keywords: | set-asides, entry restrictions, auctions with endogenous entry,entry deterrence, asymmetric buyers, incumbents, government procurement,procurement competition policy |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:ciredw:halshs-01557657&r=mic |
| By: | Sander Heinsalu |
| Abstract: | This paper examines signalling when the sender exerts effort and receives benefits over time. Receivers only observe a noisy public signal about the effort, which has no intrinsic value. The modelling of signalling in a dynamic context gives rise to novel equilibrium outcomes. In some equilibria, a sender with a higher cost of effort exerts strictly more effort than his low-cost counterpart. The low-cost type can compensate later for initial low effort, but this is not worthwhile for a high-cost type. The interpretation of a given signal switches endogenously over time, depending on which type the receivers expect to send it. JEL classification: D82, D83, C73. Keywords: Dynamic games, signalling , incomplete information |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.04699&r=mic |
| By: | Michi Nishihara (Graduate School of Economics, Osaka University); Takashi Shibata (Graduate School of Social Sciences, Tokyo Metropolitan University) |
| Abstract: | We develop a dynamic model in which a distressed firm optimizes the bankruptcy choice and its timing. When the distressed firm fs shareholders sell the assets, they are better informed about the asset value than outsiders are. We show that this asymmetric information can delay the asset sales to signal asset quality to outsiders. More debt and lower asset value can reduce the signaling cost and mitigate the asset sales delay. Notably, we show that the firm changes the bankruptcy choice from selling out to liquidation bankruptcy when the signaling cost associated with selling out is high. This distortion in the bankruptcy choice greatly lowers the debt value, whereas it has a weak impact on the equity value. |
| Keywords: | bankruptcy; adverse selection; asymmetric information; signaling game; real options; M&A |
| JEL: | D82 G13 G33 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1718&r=mic |
| By: | Emilio Calvo (Universidad de Valencia. ERI-CES); Esther Gutiérrez-López (Departamento de Economía Aplicada IV. Universidad del País Vasco U.P.V./E.H.U.) |
| Abstract: | We present a general bargaining protocol between n players in the setting of coalitional games with transferable utility. We consider asymmetric players. They are endowed with di¤erent probabilities of being chosen as proposers and with di¤erent probabilities of leaving the game if o¤ers are rejected. Two particular speci…cations of this bargaining protocol yield equilibrium proposals that we refer to as weighted solidarity values and weighted Shapley values. We compare the behavior of these values when the players’ probabilities are changed. We supplement the analysis with axiomatic characterizations of both values. |
| Keywords: | n-person bargaining; transferable utility games; asymmetric players; solidarity value; Shapley value. |
| JEL: | C71 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0217&r=mic |
| By: | Michail Anthropelos; Constantinos Kardaras; Georgios Vichos |
| Abstract: | We consider thin financial markets involving a finite number of tradeable securities. Traders with heterogeneous preferences and risk exposures have motive to behave strategically regarding the level of risk aversion they reveal through the transaction, thereby impacting prices and allocations. We argue that traders relatively more exposed to market risk tend to submit more elastic demand functions, revealing higher risk tolerance. Non-competitive equilibrium prices and allocations result as an outcome of a game among traders. General sufficient conditions for existence and uniqueness of such equilibrium are provided, with an extensive analysis of two-trader transactions. Even though strategic behaviour causes inefficient social allocations, traders with sufficiently high risk tolerance and/or large initial exposure to market risk obtain more utility surplus in the non-competitive equilibrium, when compared to the competitive one. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.05096&r=mic |
| By: | Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Laurent Lamy (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We revisit the Tiebout hypothesis in a world in which agents may learn extra information as to how they value the various local public goods once located, and jurisdictions are free to commit to whatever mechanism to attract citizens. It is shown in quasi-linear environments that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare. Interpretations and limitations of the result are discussed. |
| Keywords: | mechanism design,competing mechanisms,endogenous entry,Tiebout hypothesis,local public goods |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:ciredw:halshs-01557585&r=mic |
| By: | Martin Szydlowski (University of Minnesota); Briana Chang (University of Wisconsin-Madison) |
| Abstract: | We study decentralized markets in which advisers have conflicts of interest and compete for customers via information provision. We show that competition partially disciplines conflicted advisers. The equilibrium features information dispersion and sorting of heterogeneous customers and advisers: advisers with expertise in more information sensitive assets attract less informed customers, provide worse information, and earn higher profits. We apply our framework to the market for financial advice and establish new insights: while the conflicted fee structure affects asset return, it is irrelevant for the welfare of consumers. It is the underlying distribution of financial literacy that determines the consumers’ welfare. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:133&r=mic |
| By: | Maarten C. W. Janssen; Santanu Roy |
| Abstract: | Firms communicate private information about product quality through a combination of pricing and disclosure where disclosure may be deliberately false. In a competitive setting, we examine the effect of regulation penalizing false disclosure. Stronger regulation reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it often creates incentives for excessive disclosure. Regulation is suboptimal unless disclosure itself is inexpensive and even in the latter case, only strong regulation is welfare improving. Weak regulation is always worse than no regulation. Even high quality firms suffer due to regulation. |
| JEL: | L13 L15 D82 D43 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1705&r=mic |
| By: | Aguirre, Iñaki |
| Abstract: | This paper extends the traditional analysis of the output effect under monopoly (third-degree) price discrimination to a multimarket Cournot oligopoly. Under symmetric Cournot oligopoly (all firms selling in all markets) similar results to those under monopoly are obtained: in order for price discrimination to increase total output the demand and inverse demand of the strong market (the high price market) should be, as conjectured by Robinson (1933), more concave than the demand and inverse demand of the weak market (the low price one). When competitive pressure (measured by the number of firms) varies across markets the effect of price discrimination on total output crucially depends on what market, the strong or the weak, is more competitive. |
| Keywords: | Third-Degree Price Discrimination, Output, Oligopoly, Welfare. |
| JEL: | D43 D61 L13 |
| Date: | 2017–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80166&r=mic |
| By: | Yu-Jui Huang; Zhou Zhou |
| Abstract: | We study an infinite-horizon discrete-time optimal stopping problem under non-exponential discounting. A new method, which we call the iterative approach, is developed to find subgame perfect Nash equilibriums. When the discount function induces decreasing impatience, we establish the existence of an equilibrium through fixed-point iterations. Moreover, we show that there exists a unique optimal equilibrium, which generates larger value than any other equilibrium does at all times. To the best of our knowledge, this is the first time a dominating subgame perfect Nash equilibrium is shown to exist in the literature of time-inconsistency. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.04981&r=mic |
| By: | Francesca Biagini; Yinglin Zhang |
| Abstract: | In this paper we extend the classic reduced-form setting for credit and insurance markets to the case under model uncertainty, when we consider a family of priors possibly mutually singular to each other. To this end, we introduce on a progressively enlarged filtration a sublinear conditional expectation with respect to a family of possibly nondominated probability measures. Furthermore, we study the superhedging approach in continuous time for payment streams under model uncertainty, and establish several equivalent versions of dynamic robust superhedging duality. These results close the gap between robust framework for financial market, which is recently studied in an intensive way, and the one for credit and insurance markets, which is limited in the present literature only to some very specific cases. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.04475&r=mic |