nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒01‒01
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information aggregation with continuum of types By Bozbay, Irem; Peters, Hans
  2. Sequential equilibrium without rational expectations of prices: A theorem of full existence By Lionel De Boisdeffre
  3. Oligopoly Equilibrium with differentiated commodities: a computation of two models By Bio-Akanni ELEGBEDE
  4. Relative Nash welfarism By SPRUMONT, Yves
  5. The multiplier effect in two-sided markets with bilateral investments By Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
  6. Eliciting Second-Order Beliefs By Subir Bose; Arup Daripa
  7. The Demand and Supply of Favours in Dynamic Relationships By Jean Guillaume Forand; Jan Zapal
  8. Information Transmission Through Infl uence Activities By Chongwoo Choe; In-Uck Park
  9. Too Big to Jail? Key-Player Policies When the Network is Endogenous By Timo Hiller
  10. Two-sided strategy-proofness in many-to-many matching markets By Triossi, Matteo; Romero-Medina, Antonio
  11. A model of anonymous influence with anti-conformist agents By Michel Grabisch; Alexis Poindron; Agnieszka Rusinowka
  12. Efficient audits by pooling projects By Anna Maria C. Menichini; Peter J. Simmons
  13. Bounded rationality in differential games By Beckmann, Klaus B.
  14. Information Order Shifts Criterion Placement in Perceptual Decisions By Thomas Garcia; Ismaël Rafaï; Sébastien Massoni
  15. Patent licensing in the presence of a differentiated good By Jiyun Cao; Uday Bhanu Sinha
  16. Description-dependent Choices By Dino Borie; Dorian Jullien
  17. Financial equilibrium with differential information: An existence theorem By Lionel De Boisdeffre

  1. By: Bozbay, Irem (university of surrey); Peters, Hans (QE / Mathematical economics and game the)
    Abstract: We consider an information aggregation problem where a group of voters wants to make a `yes' or `no' decision over a single issue. Voters have state-dependent common preferences, but hold possibly conflicting private information about the state in the form of types (signals). We assume that types are distributed from a state-dependent continuous distribution. In this model, Bayesian equilibrium voting and efficient voting coincide, and informative voting means that a voter votes in favor of the issue if and only if the signal exceeds a cut-point level. Our main result is an answer, in the form of a condition on the parameters of the model, to the question when informative voting is efficient.
    Keywords: private information, efficient information aggregation, strategic voting
    JEL: C70 D70 D71 D80 D82
    Date: 2017–12–12
  2. By: Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange commodities, on spot markets, and securities of all kinds, on incomplete financial markets with no model of how future prices are determined. They have private characteristics, anticipations and beliefs. We show they face an incompressible uncertainty, represented by a so-called “minimum uncertainty set”, typically adding to the ‘exogenous uncertainty’, on tomorrow's state of nature, an ‘endogenous uncertainty’ on future spot prices, which may depend on every agent's private anticipations today. At equilibrium, all agents expect the ‘true’ price, in each realizable state, as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets, ex post. Our main Theorem states that equilibrium exists as long as agents' prior anticipations, which may be refined from observing markets, embed that minimum uncertainty set. This result is stronger than the classical ones of generic existence, along Radner (1979), or Hart (1975), based on the rational expectations of prices.
    Abstract: L'on considère une économie d'échange pure, où des agents, asymétriquement informés et sans modèle de prix, échangent des biens de consommation, sur des marchés spots, et des actifs financiers sur des marchés incomplets. Leurs caractéristiques, croyances et anticipations sont privées. Nous montrons qu'ils sont alors confrontés à une incertitude incompressible sur les prix futurs sur chaque marché spot, représentée par un ensemble dit “d'incertitude minimale”. Celle-ci combine l'incertitude “ exogène ” sur l'état aléatoire de la nature à l'incertitude “ endogène ” sur ces prix spots, qui dépendent des anticipations privées des agents et que ceux-ci ne peuvent déterminer. A l'équilibre, le vrai prix dans chaque état réalisable sera anticipé comme possible par chaque agent qui optimisera sa consommation, et tous les marchés s'équilibreront ex post. Notre principal théorème montre que l'équilibre existe sous des conditions standard, dès que les anticipations de chaque agent s'étendent à l'ensemble minimal d'incertitude. Ce résultat d'existence est plus fort que le résultat classique, qui n'est que générique, que ce soit en régime d'asymétrie d'information ou en marché d'actifs réels. Cette existence génŕrique résulte notamment des travaux de Radner (1979), Hart (1975) et Duffie-Schaffer (1985), et est fondée sur des hypothèses d'anticipations rationnelles de prix que nous abandonnons ici.
    Keywords: sequential equilibrium,temporary equilibrium,perfect foresight,rational expectations,financial markets,asymmetric information,équilibre séquentiel,équilibre temporaire,anticipations parfaites,existence,anticipations rationnelles,marchés financiers,asymétrie d'information,arbitrage
    Date: 2017–06
  3. By: Bio-Akanni ELEGBEDE (IAE DIJON - Université de Bourgogne (CREGO))
    Abstract: In this paper, we define the concept of symmetric Cournot-Walras equilibrium (SCWE thereafter) in a pure exchange economy with differentiated commodities based on Julien and Tricou (2005). We compute this concept of equilibrium to two economies where the oligopolists offer their differentiated goods on the market in order to obtain the competitive good. We obtain three main results. First, we find that, under certain conditions, SCWE-DP allocations and price converge to Walrasian ones. Second, we also find that whether the SCWE-DP is Pareto-dominated or not by Walrasian equilibrium depends on the type of economic agent (oligopolist or competitive). Third, the two economies are linked.
    Keywords: Di erentiated commodity; General equilibrium; Cournot-Walras Equilibrium
    JEL: C72 D43 D51 L13 L38
    Date: 2017–12
  4. By: SPRUMONT, Yves
    Abstract: Relative Nash welfarism is a solution to the problem of aggregating von Neumann-Morgenstern preferences over a set of lotteries. It ranks such lotteries according to the product of any collection of 0-normalized von Neumann-Morgenstern utilities they generate. We show that this criterion is characterized by the Weak Pareto Principle, Anonymity, and Independence of Harmless Expansions: the social ranking of two lotteries is unaffected by the addition of any alternative that every agent deems at least as good as the one she originally found worst. Relative Nash welfarism is more appealing than relative utilitarianism in contexts where the best relevant alternative for an agent is difficult to identify with confidence.
    Keywords: Preference aggregation; lotteries; relative utilitarianism; Nash product
    JEL: D63 D71
    Date: 2017
  5. By: Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
    Abstract: Agents in a finite two-sided market make costly investments and are then matched assortatively based on these investments. Besides signaling complementary types, investments also generate benefits for partners. We shed light on quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents' uncertainty about their rank within their own market side and on their uncertainty about the types and investments of potential partners. We study how the multiplier effect depends on market size and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition for more desirable partners. We use our results to characterize equilibrium utilities in large markets. For small markets, our results lead to bounds on the hold-up problem.
    Keywords: matching,signaling,investment,multiplier effect
    JEL: C78 D44 D82
    Date: 2017
  6. By: Subir Bose (University of Leicester); Arup Daripa (Birkbeck, University of London)
    Abstract: We study elicitation of subjective beliefs of an agent facing ambiguity (model uncertainty): the agent has a non-singleton set of (first-order) priors on an event and a second-order prior on these first-order belief-states. Such a two-stage decomposition of uncertainty and non-reduction of compound lotteries resulting from nonneutrality to the second-order distribution plays an important role in resolving the Ellsberg Paradox. The problem of eliciting beliefs on unobservable belief-states with ambiguity-sensitive agents is novel, and we introduce new elicitation techniques using report-dependent prize variations. We construct a direct revelation mechanism that induces truthful reporting of the first-order belief states as well as the secondorder distribution on the belief-states as the unique best response. The technique requires knowledge of the sensitivity function to second-order distribution (capturing ambiguity attitude) and the vN-M utility function, which we also elicit.
    Keywords: Ambiguity, second-order beliefs, elicitation of second-order beliefs (support and distribution), Klibanoff-Marinacci-Mukerji (2005) representation, elicitation of second-order-distribution-sensitivity function, elicitation of the vN-M utility function.
    JEL: D81 D82
    Date: 2017–12
  7. By: Jean Guillaume Forand (Department of Economics, University of Waterloo); Jan Zapal (CERGE-EI, Prague, Czech Republic)
    Abstract: We characterise the optimal demand and supply of favours in a dynamic principal-agent model of joint production, in which heterogenous project opportunities arrive stochastically and are publicly observed upon arrival, utility from these projects is non-transferable and commitment to future production is limited. Our results characterise the optimal dynamic contract, and we establish that the principal's supply of favours (the production of projects that benefit the agent but not the principal) is backloaded, that the principal's demand for favours (the production of projects that benefit the principal but not the agent) is frontloaded, and that the production of projects is ordered by their comparative advantage, that is, by their associated efficiency in extracting (for demanded projects) and providing (for supplied projects) utility to the agent. Furthermore, we provide an exact construction of the optimal contract when project opportunities follow a Markov process.
    JEL: D86 C73 L24
    Date: 2017–09
  8. By: Chongwoo Choe; In-Uck Park
    Abstract: We study information transmission aspect of influence activities in an organization where privately informed division managers manipulate information about their divisional ‘state’ in order to sway the headquarters’ decision in their favor. We formalize a notion of informativeness of influence activities, which we show is equivalent to sharpening the headquarters inference on the underlying state in the sense of second-order stochastic dominance, thus enhancing its surplus. We then provide sufficient conditions for the influence activities to be necessarily informative (detrimental, resp.) in equilibrium; and conditions on what kind of changes may induce more informative influence activities. Applying these results to various cases in which managers are motivated differently, we find that more conducive to informative influence activities are organizations that are less averse to risk taking, that rely more on higher-powered incentives such as bonus, and promote suitably-designed competition such as internal promotion.
    Keywords: infl uence activities, information transmission.
    JEL: C72 D23 D82 L22
    Date: 2017–12–19
  9. By: Timo Hiller
    Abstract: This paper endogenizes the network for the seminal model presented in Ballester et al. (2006) by way of a simple simultaneous move game. Agents choose with whom to associate and how much effort to exert. Effort levels display local strategic complementarities and global strategic substitutes. I show that all pairwise Nash equilibrium networks are nested split graphs. As in Ballester et al. (2006), agents’ equilibrium effort levels are proportional to Bonacich centrality. However, their ranking now coincides with a simpler measure, which is also easier to identify: degree centrality. I then study key player policies, which aim at minimizing aggregate effort levels via the elimination of an agent. In the spirit of network formation, after an agent was eliminated from a pairwise Nash equilibrium network, the remaining agents may revise their effort decisions and adapt their linking behavior. It is shown that, if the parameter governing global strategic substitutes is sufficiently small, then eliminating a most central agent also decreases aggregate effort levels most. This mirrors results obtained by Ballester et al. (2006). However, when global strategic substitutes are large, then, different from Ballester et al. (2006), eliminating a most central agent may not be optimal. Eliminating a most central agent, who in equilibrium also exerts highest criminal effort, decreases competition/congestion effects and increases incentives of the remaining agents to create new links. The latter effect on the aggregate level of crime may outweigh the former. These results are relevant for a wide range of applications, such as juvenile delinquency and crime, R&D expenditure of firms, bank bailouts and trade.
    Keywords: Strategic network formation, peer effects, local strategic complements, global strategic substitutes, positive externalities, negative externalities.
    JEL: D62 D85
    Date: 2017–12–20
  10. By: Triossi, Matteo; Romero-Medina, Antonio
    Abstract: We study the existence of group strategy-proof stable rules in many to-many matching markets. We show that when firms have acyclical preferences over workers the set of stable matchings is a singleton, and the worker-optimal stable mechanism is a stable and group strategy-proof rule for firms and workers. Furthermore, acyclicity is the minimal condition guaranteeing the existence of stable and strategy-proof mechanisms in many-to-many matching markets.
    Keywords: Singleton core; Two-sided Group Strategy-proofness; Stability; Acyclicity; Many-to-many markets
    JEL: D78 D71 C78 C71
    Date: 2017–12–18
  11. By: Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Alexis Poindron (Centre d'Economie de la Sorbonne); Agnieszka Rusinowka (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We study a stochastic model of anonymous influence with conformist and anti-conformist individuals. Each agent with a ‘yes’ or ‘no’ initial opinion on a certain issue can change his opinion due to social influence. We consider anonymous influence, which depends on the number of agents having a certain opinion, but not on their identity. An individual is conformist/anti-conformist if his probability of saying ‘yes’ increases/decreases with the number of ‘yes’- agents. In order to consider a society in which both conformists and anti-conformists co-exist, we investigate a generalized aggregation mechanism based on ordered weighted averages. Additionally, every agent has a coefficient of conformism which is a real number in [-1, 1], with negative/positive values corresponding to anti-conformists/conformists. The two extreme values -1 and 1 represent a pure anti-conformist and a pure conformist, respectively, and the remaining values - so called ‘mixed’ agents. We consider two kinds of a society: without mixed agents, and with mixed agents who play randomly either as conformists or anti-conformists. For both cases of the model, we deliver a qualitative analysis of convergence, i.e., find all absorbing classes and conditions for their occurence
    Keywords: influence; anonymity; anti-conformism; convergence; absorbing class
    JEL: C7 D7 D85
    Date: 2017–10
  12. By: Anna Maria C. Menichini; Peter J. Simmons
    Abstract: In a costly state verification model under commitment, the paper shows that jointly financing multiple independent projects reduces the deadweight loss of inefficient audits. This is true for both simultaneous and sequential audit, since each system reveals the same information about the project outcomes at the same cost. Moreover, the audit combination under sequential audit is indeterminate. Audits are decreasing in the reported income and, for sufficiently high projects profitability, deterministic for lower income reports. We explore robustness of the results, including commitment issues. The results are interpreted in the light of observed features of financial contracts.
    Keywords: contracts, auditing, diversification.
    JEL: D82 D83 D86
    Date: 2017–12
  13. By: Beckmann, Klaus B. (Helmut Schmidt University, Hamburg)
    Abstract: The present paper proposes a myopic, boundedly rational heuristic for individual decision-making in differential game settings. I demonstrate that this type of behaviour converges to Nash equilibrium in infinitely repeated stage games without a state variable if the stage game is strategically symmetric. Two examples are used to illustrate the application of the heuristic in differential games.
    Keywords: differential games; simulation; bounded rationality
    JEL: C72
    Date: 2017–12–19
  14. By: Thomas Garcia (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France); Ismaël Rafaï (GREDEG, Université Côte d’Azur, Nice, France); Sébastien Massoni (QuBE - School of Economics and Finance, QUT, Brisbane, Australia; Australian Centre for Entrepreneurship Research, QUT, Brisbane, Australia)
    Abstract: Facing perceptual decisions with asymmetric stakes, individuals exhibit a conservative criterion placement. This bias prevents them from reaching the optimal decision process defined as the one which maximizes their expected payoffs. We propose in the present experimental study a non-invasive method to correct behaviors toward more optimality. We manipulate the information order between payoff information and perceptual evidence for three different incentive levels invariant regarding Signal Detection Theory predictions. Our results support the effectiveness of such manipulation: the decision strategy shifts toward optimality when payoff information is displayed last. The shift toward optimality is more pronounced for higher payoff contrasts. These results, which cannot be explained within the Signal Detection Theory framework, give new insights on the cognitive processes responsible for the conservative criterion placement
    Keywords: conservative criterion placement, signal detection theory, optimality accuracy, information order
    JEL: D81 D91 Y8
    Date: 2017
  15. By: Jiyun Cao (The School of Economics, Nankai University and Collaborative Innovation Center for China Economy, Tianjin, China); Uday Bhanu Sinha (Department of Economics, Delhi School of Economics)
    Abstract: The existing literature has considered licensing of a patented innovation either in a homogenous good industry or in a differentiated goods industry. We consider the licensing problem between two firms i.e., licensor and licensee producing the homogenous goods when there is a third firm producing a differentiated good in the market. We find that when the costs of non-innovators are not high, the optimal licensing contract depends on the degree of product differentiation and the innovator has more incentive for innovation when it is an insider than when it is an outsider of this market.
    Keywords: licensing, two-part tariff, Cournot oligopoly, homogenous and differentiated goods, incentive for innovation.
    JEL: D43 D45 L13
    Date: 2017–12
  16. By: Dino Borie (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - UCA - Université Côte d'Azur); Dorian Jullien (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - UCA - Université Côte d'Azur)
    Abstract: The standard model of choice behavior relies on an implicit assumption that a decision maker is not affected by different descriptions of a given problem (description invariance). However, the behavioral economics and psychology literatures provide well-established evidence that descriptions do in fact influence decision makers. In this paper, we distinguish between descriptions of objects of choice and consequences of objects of choice in order to deduce a decision maker's preferences over the descriptions from observed choices over the consequences. We provide a choice theoretical foundation for maximizing preference relations subject to the class of framing effects where description invariance is violated. JEL Classification: D89, D90, D91.
    Keywords: Choice correspondence,framing effects,rational choice,description invariance,description dependence
    Date: 2017–11–28
  17. By: Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    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.
    Abstract: L'article propose une preuve d'existence de l'équilibre dans une économie d'échange pur, où les agents, asymétriquement informés échangent des biens de consommation sur des marchés spots et des actifs financiers quelconques, sur des marchés incomplets. La démonstration n'utilise pas les Grasmaniens, ni la topologie differentielle. Elle montre, d'abord que les matrices de rendements dont le « spam » a toujours plein rang forment un ensemble ouvert partout dense dans l'ensemble des matrices. Ensuite, l'on montre qu'une économie où les rendements sont toujours de plein rang admet un équilibre. La propriété d'existence qui en résulte est dite « faiblement générique ». En corollaire, le papier démontre la pleine existence de l'équilibre lorsque les actifs sont numéraires et étend ainsi le résultat de Geanakoplos-Polemarchakis (1986) à l'asymétrie d'information. Il s'appuie toujours sur l'hypothèse d'anticipations parfaits à la Radner (1972), mais constitue une étape pour démontrer, dans un article, la pleine existence de l'équilibre lorsqu'on abandonne ces anticipations rationnelles au double sens de Radner (1972 & 1979), c'est-à-dire lorsque des agents aux caractéristiques privées et sans modèle de prix ne peuvent plus anticiper parfaitement ces prix.
    Keywords: sequential equilibrium,temporary equilibrium,perfect foresight,rational expectations,financial markets,asymmetric information,équilibre séquentiel,équilibre temporaire,anticipations parfaites,existence,anticipations rationnelles,marchés financiers,asymétrie d'information,arbitrage
    Date: 2017–07

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