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on Microeconomics |
| By: | Fleckinger, Pierre; Mimra, Wanda; Zago, Angelo |
| Abstract: | We build a model of collective reputation under moral hazard to analyze incentives under collective reputation. Producers can produce high quality, but it is only imperfectly detected. Products not detected as of high quality are pooled by to the collective reputation structure. Collective reputation can yield higher quality and welfare than individual reputation. While groups unravel in absence of transfers even when efficient, simple collective reputation contracts implement the First Best. |
| JEL: | D82 D71 L15 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168283&r=mic |
| By: | Eeva Mauring |
| Abstract: | I study a sequential search model where buyers face an unknown distribution of offers and learn about the distribution from other buyers' actions. Each buyer observes whether a randomly chosen buyer traded in the previous period. I show that a cyclical equilibrium exists where the informational content of observing a trade uctuates: a trade is good news about the distribution in every other period and bad news in the remaining periods. This leads to uctuations in the volume and probability of trading. They uctuate more if the unknown distribution is bad rather than good. A steady-state equilibrium where buyers are more likely to continue searching than in the cyclical equilibrium is less ecient than the cyclical equilibrium. A market that starts at date one converges to the cyclical equilibrium for some parameter values. |
| JEL: | D83 L15 E32 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1708&r=mic |
| By: | Raphael Boleslavsky (University of Miami); Christopher Hennessy (London School of Economics); David L. Kelly (University of Miami) |
| Abstract: | We demonstrate constraints on usage of direct revelation mechanisms (DRMs) by corporations inhabiting economies with securities markets. We consider a corporation seeking to acquire decision relevant information. Posting a standard DRM in an environment with a securities market endogenously increases the outside option of the informed agent. If the informed agent rejects said DRM, then she convinces the market that she is uninformed, and she can trade aggressively sans price impact, generating large (off-equilibrium) trading gains. Due to this endogenous outside option effect, using a DRM to screen out uninformed agents may be impossible. Even when screening is possible, refraining from posting a mechanism and instead relying on markets for information is optimal if the endogenous change in outside option value is sufficiently large. Finally, even if posting a DRM dominates relying on markets, outcomes are improved by introducing a search friction, which randomly limits the agent’s ability to observe the DRM, forcing the firm to sometimes rely on markets for information. |
| Keywords: | Market Microstructure, Mechanism Design Publication Status: Submitted |
| JEL: | G32 L14 D83 |
| Date: | 2017–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:mia:wpaper:2017-11&r=mic |
| By: | Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kerim Keskin (Department of Economic, Kadir Has University, Turkey); Cagri Saglam (Department of Economics, Bilkent University, Turkey) |
| Abstract: | Strong Nash equilibrium (see Aumann, 1959) and coalition-proof Nash equilibrium (see Bernheim et al., 1987) rely on the idea that players are allowed to form coalitions and make joint deviations. They both consider a case in which any coalition can be formed. Yet there are many real-life examples where the players cannot form certain types of coalitions/subcoalitions. There may also be instances, when all coalitions are formed, where conflicts of interest arise and prevent a player from choosing an action that simultaneously meets the requirements of the two coalitions to which he or she belongs. Here we address these criticisms by studying an organizational framework where some coalitions/subcoalitions are not formed and where the coalitional structure is formulated in such a way that no conflicts of interest remain. We define an organization as a collection of partitions of a set of players ordered in such a way that any partition is coarser than the partitions that precede it. For a given organization, we introduce the notion of organizational Nash equilibrium. We analyze the existence of equilibrium in a subclass of games with strategic complementarities and illustrate how the proposed notion refines the set of Nash equilibria in some examples of normal form games. |
| Keywords: | Nash Equilibrium, Refinements, Coalitional Structure, Organizational Structure, Games with Strategic Complementarities |
| JEL: | C72 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2017-25&r=mic |
| By: | Alos-Ferrer, Carlos (Department of Economics, University of Cologne); Ritzberger, Klaus (Royal Holloway, University of London) |
| Abstract: | This paper establishes existence of subgame perfect equilibrium for a general class of sequential multi-lateral bargaining games. The only required hypothesis is that utility functions are continuous on the space of economic outcomes. In particular, no assumption on the space of feasible payoffs is needed. The result covers arbitrary and even time-varying bargaining protocols (acceptance rules), arbitrary specifications of patience or impatience (geometric, hyperbolic, or otherwise), externalities, multiple selves, and other-regarding preferences. |
| Keywords: | bargaining, equilibrium existence, infinite-horizon games, subgame perfection |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:332&r=mic |
| By: | Khalmetski, Kiryl; Rockenbach, Bettina; Werner, Peter |
| Abstract: | In a sender-receiver game we investigate if sanctions for lying induce more truth-telling. Senders may not only choose between truth-telling and (explicit) lying, but may also engage in evasive lying by credibly pretending not to know. Sanctions promote truth-telling if senders cannot engage in evasive lying. If evasive lying is possible, explicit lying is largely substituted by evasive lying, in line with the notion that evasive lying is perceived as sufficiently less psychologically costly. |
| JEL: | C91 D82 D83 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168119&r=mic |
| By: | Guillem Roig |
| Abstract: | In many markets, firms produce and sell complementary components that form a product system. This paper studies the effects of compatibility in product advertisement and entry decisions in a differentiated product market. While advertising enhances the ability of consumers to mix and match components closer to their preferences, more advertising does not always generate larger welfare. In my model, an incumbent uses advertising to increase the prospects of market competition with the objective to deter potential entry. However, under some parameters, entry deterrence does not occur when products are made compatible. With compatible products, the incumbent either obtains large benefits from accommodation or equilibria when all consumers are aware of the existence of the available products emerge. In this latter case, the amount of advertising cannot be further expanded to protect the incumbent’s monopolistic position. As a result, policies in favor of compatibility may encourage entry and generate larger levels of advertisement. |
| Keywords: | Product compatibility; Informative advertising; Entry deterrence; Market structure |
| JEL: | D21 D43 L13 L15 |
| Date: | 2017–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:015773&r=mic |
| By: | Gemmo, Irina; Browne, Mark J.; Gründl, Helmut |
| Abstract: | Telemonitoring devices can be used to screen consumers' characteristics and mitigate information asymmetries that lead to adverse selection in insurance markets. However, some consumers value their privacy and dislike sharing private information with insurers. In the second-best efficient Wilson-Miyazaki-Spence framework, we allow for consumers to reveal their risk type for an individual subjective cost and show analytically how this affects insurance market equilibria as well as utilitarian social welfare. Our analysis shows that the choice of information disclosure with respect to revelation of their risk type can substitute deductibles for consumers whose transparency aversion is sufficiently low. This can lead to a Pareto improvement of social welfare and a Pareto efficient market allocation. However, if all consumers are offered cross-subsidizing contracts, the introduction of a transparency contract decreases or even eliminates cross-subsidies. Given the prior existence of a WMS equilibrium, utility is shifted from individuals who do not reveal their private information to those who choose to reveal. Our analysis provides a theoretical foundation for the discussion on consumer protection in the context of digitalization. It shows that new technologies bring new ways to challenge crosssubsidization in insurance markets and stresses the negative externalities that digitalization has on consumers who are not willing to take part in this development. |
| Keywords: | Adverse Selection,Digitalization,Privacy,Screening,Transparency Aversion |
| JEL: | D41 D52 D60 D82 G22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:icirwp:2517&r=mic |
| By: | Guillermo Ordonez (University of Pennsylvania); Daniel Neuhann (University of Texas at Austin); Harold Cole (University of Pennsylvania) |
| Abstract: | Sovereign bonds are highly divisible (since they are sold in large lots), usually of uncertain quality and sold to a large number of investors. As no bidder can individually affect the bond price, we develop a tractable Walrasian theory of Treasury auctions in which investors are asymmetrically informed about the quality of the bond. We characterize the price of the bond for different degrees of asymmetric information, both under price-discriminating (PD) and uniform-price (UP) protocols. We endogenize information acquisition and show that PD protocols are likely to induce multiple equilibria, one displaying asymmetric information, while UP protocols are unlikely to sustain equilibria with asymmetric information. This result has welfare implications as asymmetric information negatively affects the level and volatility of sovereign bond prices. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:787&r=mic |
| By: | Baumann, Florian; Rasch, Alexander |
| Abstract: | We consider a situation of duopolistic competition in which one firm may (falsely) advertise high product quality. Consumers are heterogeneous. One group forms rational beliefs about quality, whereas some consumers are naive and fully trust any advertisement. We compare two scenarios in which either the competitor or a government agency can file an injunction suit. From a welfare perspective, we show that it may be optimal either to have the competitor or the government agency as plaintiff. |
| JEL: | K41 K42 L13 L15 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168142&r=mic |
| By: | Ruben Juarez (Department of Economics, University of Hawaii); Kohei Nitta (Department of Economics, Toyo University) |
| Abstract: | Agents are endowed with time that is invested in different projects that generate profit depending on the allocation of time by the agents. A mechanism divides the profit generated by the projects among agents depending on the allocation of time as well as the amount of profit that every project generates. We study mechanisms that incentivize agents to contribute their time to the level that generates the maximal aggregate profit at the Nash equilibrium regardless of the production functions (efficiency). Our main result is the characterization of all the mechanisms that satisfy efficiency. Furthermore, within this class, a narrow class of mechanisms are monotone in the payoffs of the agents with respect to the addition of agents, time or projects. |
| Keywords: | Profit-sharing, Efficiency, Implementation. |
| JEL: | C72 D44 D71 D82 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201702&r=mic |
| By: | Lionel de Boisdeffre (Centre d'Economie de la Sorbonne) |
| Abstract: | We propose a proof of existence of equilibrium in a pure exchange economy where agents are asymmetrically informed, exchange commodities, on spot markets and securities of all kinds, on incomplete financial markets. The proof does not use Grasmanians, nor differential topology. We show first that the set of payoff matrixes, whose spans never collapse is open and everywhere dense. Then, we show by standard fixed-point-like arguments that an economy where the span of asset's payoffs cannot fall always admits an equilibrium. The resulting existence property is said to be "weakly generic". As a corollary, we prove the full existence of financial equilibrium for numeraire assets, extending Geanakoplos-Polemarchakis (1986) to the asymmetric information setting. The paper, which still retains Radner's (1972) standard perfect foresight assumption, also serves to prove in a companion article, the existence of sequential equilibrium when both Radner's (1972 & 1979) classical rational expectation assumptions are dropped, that is, when agents have private characteristics and beliefs and no model to forecast prices |
| Keywords: | sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage |
| JEL: | D52 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17038&r=mic |
| By: | Jaunaux, Laure; Lefouili, Yassine; Sand-Zantman, Wilfried |
| Abstract: | This note examines the optimal merger policy when competition authorities take into account the e¤ects of their policy on firms'entry decisions. We consider a model featuring ex ante uncertainty about profits and consumer surplus, and derive a simple rule governing the optimal policy in that context. More specifically, we show that the ratio between the loss in ex post consumer surplus and the gain in an entrant's profit induced by an ex post anticompetitive merger is a sufficient statistic to determine when competition authorities should be more lenient. Our findings imply in particular that competition authorities may find it optimal to commit to being more lenient towards successful, rather than unsuccessful, entrants. |
| Keywords: | Merger Policy; Entry; Uncertainty |
| JEL: | K21 L13 L40 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32116&r=mic |
| By: | Hart, Oliver (Harvard University) |
| Abstract: | Interview with the 2016 Laureate in Economic Sciences Oliver Hart on 6 December 2016, during the Nobel Week in Stockholm, Sweden. Interviewer is freelance journalist Henrik Höjer. |
| Keywords: | Contract Theory; |
| JEL: | D86 |
| Date: | 2016–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:nobelp:2016_005&r=mic |
| By: | Jensen, Martin Kaae (Department of Economics, University of Leicester); Rigos, Alexandros (Department of Economics, Lund University) |
| Abstract: | This study considers evolutionary models with non-uniformly random matching when interaction occurs in groups of n>=2 individuals. In such models, groups with different compositions of individuals generally co-exist and the reproductive success (fitness) of a specific strategy – and consequently long-run behavior in the population – varies with the frequencies of different group types. These frequencies crucially depend on the particular matching process at hand. Two new equilibrium concepts are introduced: Nash equilibrium under a matching rule (NEMR) and evolutionarily stable strategy under a matching rule (ESSMR). When matching is uniformly random, these reduce to Nash equilibrium and evolutionarily stable strategy, respectively. Several results that are known to hold for population games under uniform random matching carry through to our setting. In our most novel contribution, we derive results on the efficiency of the Nash equilibria of population games and show that for any (fixed) payoff structure, there always exists some matching rule leading to average fitness maximization in NEMR. Finally, we provide a series of applications to commonly studied normal-form games. |
| Keywords: | evolutionary game theory; evolutionarily stable strategy; ESS; non-uniformly random matching |
| JEL: | C72 C73 |
| Date: | 2017–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2017_011&r=mic |
| By: | Han Han (School of Economics Peking University); Benoit Julien (UNSW Australia); Asgerdur Petursdottir (University of Bath); Liang Wang (University of Hawaii Manoa) |
| Abstract: | We study asset pricing of divisible assets based on consumption decisions of indivisible goods in a frictional market. Indivisibility matters for equilibria along with the trading mechanism. Bargaining generates a good's price that is not linked to the dividend value of the asset or the number of active buyers of the asset. In contrast, competitive search generates a price as a continuous function of the dividend and the number of buyers. In both cases, when the asset supply is scarce, the asset price bears a liquidity premium that closely relates to the dividend and the number of buyers. We also find that, for positive dividend values on the asset, unique stationary asset price equilibrium exists, while for negative dividend values, multiple equilibria occur. We show that lotteries are not used in any equilibria, but sellers are able to extract a positive surplus under bargaining with lotteries. |
| Keywords: | Asset, Competitive Search, Indivisibility, Lottery, Nash Bargaining |
| JEL: | D51 G12 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201705&r=mic |
| By: | Louis Kaplow |
| Abstract: | Despite decades of research on mechanism design and on many practical aspects of cost-benefit analysis, one of the most basic and ubiquitous features of regulation as actually implemented throughout the world has received little theoretical attention: exemptions for small firms. These firms may generate a disproportionate share of harm due to their being exempt and because exemption induces additional harmful activity to be channeled their way. This article analyzes optimal regulation with exemptions where firms have different productivities that are unobservable to the regulator, regulated and unregulated output each cause harm although at different levels, and the regulatory regime affects entry as well as the output choices of regulated and unregulated firms. In many settings, optimal schemes involve subtle effects and have counterintuitive features: for example, higher regulatory costs need not favor higher exemptions, and the incentives of firms to drop output to become exempt can be too weak as well as too strong. A final section examines the optimal use of output taxation alongside regulation, which illustrates the contrast with the mechanism design approach that analyzes the optimal use of instruments of a type that are not in widespread use. |
| JEL: | D61 D62 H23 J88 K20 K23 K32 K42 L51 Q58 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23887&r=mic |
| By: | Fehrler, Sebastian; Fischbacher, Urs; Schneider, Maik |
| Abstract: | We examine the incentives to self-select into politics. To this end, we set up a two-stage political competition model and test its key mechanisms in the lab. At the entry stage, potential candidates compete in a contest to become their party’s nominee. At the election stage, the nominated candidates campaign by making non-binding promises to voters. Confirming the model’s key predictions, we find that dishonest people over-proportionally self-select into the political race. |
| JEL: | C92 D71 D83 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168083&r=mic |
| By: | Mechtenberg, Lydia; Büchel, Berno |
| 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 that communication can undermine effciency of the vote and hence reduce welfare in a common interest setting. We test the model in a lab experiment and find strong support for the predicted effects. |
| JEL: | D72 D83 D85 C91 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168094&r=mic |
| By: | Committee, Nobel Prize (Nobel Prize Committee) |
| Abstract: | Economists aim to develop models of human behavior and interactions in markets and other economic settings. But we humans behave in complex ways. Although we try to make rational decisions, we have limited cognitive abilities and limited willpower. While our decisions are often guided by self-interest, we also care about fairness and equity. Moreover cognitive abilities, self-control, and motivation can vary significantly across different individuals. |
| Keywords: | Behavioral economics; |
| JEL: | D03 D90 G02 |
| Date: | 2017–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:ris:nobelp:2017_001&r=mic |