nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒04‒23
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. "Preferences for Randomization and Anticipated Utility" By Yosuke Hashidate
  2. Learning While Setting Precedents By Ying Chen; Hulya Eraslan
  3. Policy Experimentation, Redistribution and Voting Rules By Anesi, Vincent; Bowen, T. Renee
  4. A Variational Approach to Network Games By Emerson Melo
  5. Sion's minimax theorem and Nash equilibrium of symmetric three-players zero-sum game By Satoh, Atsuhiro; Tanaka, Yasuhito
  6. Strategic Default in Financial Networks By Nizar Allouch; Maya Jalloul
  7. Dynamic Mechanism Design: An Introduction By Dirk Bergemann; Juuso Valimaki
  8. Information Gatekeeping and Media Bias By Hulya Eraslan; Saltuk Ozerturk
  9. Ranking Supply Function and Cournot Equilibria in a Differentiated Product Duopoly with Demand Uncertainty By Saglam, Ismail
  10. Standards of proofs in sequential merger control procedures By Gregor Langus; Vilen Lipatovz; Damien Neven
  11. News and Archival Information in Games By Spiegler, Ran
  12. Positively Responsive Collective Choice Rules and Majority Rule : A Generalization of May’s Theorem to Many Alternatives By Sean HORAN; Martin J. OSBORNE; M. Remzi SANVER
  13. Benevolent Mediation in the Shadow of Conflict By Andrea Canidio; Joan-Maria Esteban
  14. The economics of justice as fairness By Antonio Abatemarco; Francesca Stroffolini
  15. The Likelihood of the Consistency of Collective Rankings under Preferences Aggregation with Four Alternatives using Scoring Rules: A General Formula and the Optimal Decision Rule By Eric Kamwa; Vincent Merlin
  16. Equilibrium in a dynamic model of congestion with large and small users By Robin Lindsey; André De Palma; Hugo Silva
  17. Minimax theorem and Nash equilibrium of symmetric three-players zero-sum game with two strategic variables By Hattori, Masahiko; Satoh, Atsuhiro; Tanaka, Yasuhito
  18. Comparative Statics in the Multiple-Partners Assignment Game By David Pérez-Castrillo; Marilda Sotomayor
  19. An Informational Basis for Voting Rules By Alexander V. Karpov
  20. A Not so Myopic Axiomatization of Discounting By Jean-Pierre Drugeon; Thai Ha-Huy

  1. By: Yosuke Hashidate (CIRJE, Faculty of Economics, The University of Tokyo)
    Abstract: This paper presents a theory of preferences for randomization by using the framework of preferences over menus. In the framework, the decision maker chooses a menu at the first stage; at the second stage, she chooses a probability distribution on the chosen menu at the first stage. The resulting behavior is captured by expected utility theory, but at the choice of the first stage, the decision maker may have non-linear preferences due to cognitive effects. This paper introduces a new axiom on preferences for randomization by relaxing the axioms of Strategic Rationality and Independence. Instead, this paper imposes on the axioms of Randomization and Strong Singleton Independence. The new axioms, along with basic axioms, characterize a random anticipated utility representation, in which the subjective belief for the effect of randomization is uniquely identified. Randomization attitudes, captured by probability-weighting functions, and risk attitude are separately identified. By relaxing the two axioms, this paper studies more general cases such as preferences for exibility, subjective learning, and costly randomization. Moreover, the resulting behaviors are characterized by stochastic choice functions.
    Date: 2018–04
  2. By: Ying Chen (Department of Economics, Johns Hopkins University); Hulya Eraslan (Rice University, Department of Economics)
    Abstract: A decision maker (DM) must address a series of problems over time. Each period, a random case arises and the DM must make a yes-or-no decision, which we call a ruling. She is uncertain about the correct ruling until she conducts a costly investigation. A ruling establishes a precedent, which may be costly to violate in the future. We compare the DM's incentive to acquire information, the evolution of standards and the social welfare under two institutions: nonbinding precedent and binding precedent. Under nonbinding precedent, the DM is not required to follow previous rulings, but under binding precedent, she must follow previous rulings where applicable. We find that, compared to nonbinding precedent, the incentive for information acquisition is stronger under binding precedent in earlier periods when few precedents exist, but as more precedents are established over time, the incentive for information acquisition becomes weaker under binding precedent. Even though erroneous rulings may be perpetuated under binding precedent, social welfare can be higher because of the more intensive investigation conducted early on.
    Keywords: Precedent; binding precedent; information acquisition; transparency.
    JEL: D02 D23 D83 K4
    Date: 2018–04
  3. By: Anesi, Vincent; Bowen, T. Renee
    Abstract: We study conditions under which optimal policy experimentation can be implemented by a committee. We consider a dynamic bargaining game in which, each period, committee members choose to implement a risky reform or implement a policy with known returns. We first show that when no redistribution is allowed the unique equilibrium outcome is generically inefficient. When committee members are allowed to redistribute resources (even arbitrarily small amounts), there always exists an equilibrium that supports optimal experimentation for any non-collegial voting rule. With collegial voting rules, however, optimal policy experimentation is possible only with a sufficient amount of redistribution. We conclude that veto rights, not constraints on redistribution, constitute the main obstacle to optimal policy experimentation.
    Keywords: Committees; Endogenous Status Quo; Experimentation; redistribution; reforms; Voting rules
    JEL: C73 C78 D61 D71 H23
    Date: 2018–03
  4. By: Emerson Melo (Indiana University, Department of Economics)
    Abstract: This paper studies strategic interaction in networks. We focus on games of strategic substitutes and strategic complements, and departing from previous literature, we do not assume particular functional forms on players' payoffs. By exploiting variational methods, we show that the uniqueness, the comparative statics, and the approximation of a Nash equilibrium are determined by a precise relationship between the lowest eigenvalue of the network, a measure of players' payoff concavity, and a parameter capturing the strength of the strategic interaction among players. We apply our framework to the study of aggregative network games, games of mixed interactions, and Bayesian network games.
    Keywords: Network Games, Variational Inequalities, Lowest Eigenvalue, Shock Propagation
    JEL: C72 D85 H41 C61 C62
    Date: 2018–02
  5. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: About a symmetric three-players zero-sum game we will show the following results. 1. A modified version of Sion's minimax theorem with the coincidence of the maximin strategy and the minimax strategy are proved by the existence of a symmetric Nash equilibrium. 2. The existence of a symmetric Nash equilibrium is proved by the modified version of Sion's minimax theorem with the coincidence of the maximin strategy and the minimax strategy. Thus, they are equivalent. If a zero-sum game is asymmetric, maximin strategies and minimax strategies of players do not correspond to Nash equilibrium strategies. If it is symmetric, the maximin strategies and the minimax strategies constitute a Nash equilibrium. However, without the coincidence of the maximin strategy and the minimax strategy there may exist an asymmetric equilibrium in a symmetric three-players zero-sum game.
    Keywords: three-players zero-sum game, Nash equilibrium, Sion's minimax theorem
    JEL: C72
    Date: 2018–03–24
  6. By: Nizar Allouch (University of Kent); Maya Jalloul (Queen Mary University of London)
    Abstract: This paper investigates a model of strategic interactions in financial networks, where the decision by one agent on whether or not to default impacts the incentives of other agents to escape default. Agents' payoffs are determined by the clearing mechanism introduced in the seminal contribution of Eisenberg and Noe (2001). We first show the existence of a Nash equilibrium of this default game. Next, we develop an algorithm to find all Nash equilibria that relies on the financial network structure. Finally, we explore some policy implications to achieve efficient coordination.
    Keywords: Systemic risk, default, financial networks, coordination games, central clearing, counterparty, financial regulation
    JEL: C72 D53 D85 G21 G28 G33
    Date: 2018–02–06
  7. By: Dirk Bergemann (Cowles Foundation, Yale University); Juuso Valimaki (Aalto School of Economics)
    Abstract: We provide an introduction into the recent developments of dynamic mechanism design with a primary focus on the quasilinear case. First, we describe socially optimal (or efficient) dynamic mechanisms. These mechanisms extend the well known Vickrey-Clark-Groves and D’Aspremont-Gérard-Varet mechanisms to a dynamic environment. Second, we discuss results on revenue optimal mechanism. We cover models of sequential screening and revenue maximizing auctions with dynamically changing bidder types. We also discuss models of information management where the mechanism designer can control (at least partially) the stochastic process governing the agent’s types. Third, we consider models with changing populations of agents over time. This allows us to address new issues relating to the properties of payment rules. After discussing related models with risk-averse agents, limited liability, and different performance criteria for the mechanisms, we conclude by discussing a number of open questions and challenges that remain for the theory of dynamic mechanism design.
    Keywords: Dynamic Mechanism Design, Sequential Screening, Dynamic Pivot Mechanism, Bandit Auctions, Information Management
    JEL: D44 D82 D83
    Date: 2017–08
  8. By: Hulya Eraslan (Rice University, Department of Economics); Saltuk Ozerturk (Southern Methodist University, Department of Economics)
    Abstract: We develop a model to study the political economy implications of information gatekeeping, i.e., a policy of granting access only to friendly media outlets and denying access to critical ones. While an incumbent prefers positive bias, granting access improves her re-election probability only if coverage is sufficiently credible in the eyes of the public. Information gatekeeping can induce a quid pro quo relationship: media provides coverage with positive bias in exchange of future access, thereby affecting electoral outcomes in favor of incompetent incumbents. The degree of access media enjoy increases with competence of incumbents over those issues under public focus.
    Keywords: Information gatekeeping, media outlet, electoral competition, access, media bias.
    JEL: D72 D83 L82
    Date: 2018–03
  9. By: Saglam, Ismail
    Abstract: In this paper, we provide a welfare ranking for the equilibria of the supply function and quantity competitions in a differentiated product duopoly with demand uncertainty. We prove that the expected consumer surplus is always higher under the supply function competition. By numerical simulations, we also show that if the degree of product substitution is extremely low, then the supply function competition can become a superior form of competition for the duopolistic producers, as well. However, if the degree of product substitution is not extremely low, then the expected producer profits under the supply function competition can be lower than under the quantity competition in situations where the size of the demand uncertainty is below a critical level. We find that this critical level is non-decreasing in the degree of product substitution, while non-increasing both in the marginal cost of producing a unit output and in the own-price sensitivity of each inverse demand curve. Our results imply that in electricity markets with differentiated products, the regulators should not intervene to impose the quantity competition in favor of the supply function competition unless the degree of product substitution is sufficiently high and the predicted demand fluctuations are sufficiently small.
    Keywords: Supply function competition; Cournot competition; duopoly; differentiated products; uncertainty
    JEL: D43 L13
    Date: 2018
  10. By: Gregor Langus (CET, European Commission); Vilen Lipatovz (Compass Lexecon Brussels); Damien Neven (Graduate Institute of International and Development Studies)
    Abstract: We model merger control procedures as a process of sequential acquisition of information in which mergers can be cleared after a ?first phase of investigation. We fi?nd that the enforceability of clearance decisions at the end of the fi?rst phase is unattractive to the extent that it prevents the authorities to use their expectations as to whether evidence gathered in the fi?rst phase will be confi?rmed in the second phase. This deprives the ?first phase of its potential as an effective screening mechanism. We also fi?nd that when clearance decisions in the fi?rst phase are enforceable, a different (higher) standard in the fi?rst phase is only desirable when Phase I decisions are captured by merging parties (as opposed to complainants).
    Keywords: merger procedure, competition policy
    JEL: K21 K40 L40
    Date: 2018–01
  11. By: Spiegler, Ran
    Abstract: I enrich the typology of players in the standard model of games with incomplete information, by allowing them to have incomplete "archival information" - namely, piecemeal knowledge of correlations among relevant variables. A player is characterized by the conventional Harsanyi type (a.k.a "news-information") as well as the novel "archive-information", formalized as a collection of subsets of variables. The player can only learn the marginal distributions over these subsets of variables. The player extrapolates a well-specified probabilistic belief according to the maximum-entropy criterion. This formalism expands our ability to capture strategic situations with "boundedly rational expectations." I demonstrate the expressive power and use of this formalism with some examples.
    Keywords: archival information; causal models; high-order beliefs; maximum entropy; non-rational expectations
    JEL: C70 D01
    Date: 2018–03
  12. By: Sean HORAN; Martin J. OSBORNE; M. Remzi SANVER
    Abstract: A collective choice rule selects a set of alternatives for each collective choice problem. Suppose that the alternative x is in the set selected by a collective choice rule for some collective choice problem. Now suppose that x rises above another selected alternative y in some individual’s preferences. If the collective choice rule is “positively responsive”, x remains selected but y is no longer selected. If the set of alternatives contains two members, an anonymous and neutral collective choice rule is positively responsive if and only if it is majority rule (May 1952). If the set of alternatives contains three or more members, a large set of collective choice rules satisfy these three conditions. We show, however, that in this case only the rule that assigns to every problem its strict Condorcet winner satisfies the three conditions plus Nash’s version of “independence of irrelevant alternatives” for the domain of problems that have strict Condorcet winners. Further, no rule satisfies the four conditions for the domain of all preference relations.
    Keywords: Majority rule, Condorcet winner, May's theorem, positive responsiveness, Nash independence
    JEL: D70 D71
    Date: 2018
  13. By: Andrea Canidio; Joan-Maria Esteban
    Abstract: Before the start of a negotiation, the negotiating parties may try to affect the disagreement outcome of the negotiation by making socially-wasteful investments, such as purchasing weapons or asking for legal opinions. The incentives to make such investments depend on how the negotiation is conducted. We study the problem of a benevolent mediator who wishes to minimize pre-negotiation wasteful investments. Or main result is that the mediator should favor the strongest player, who has the lowest incentive to make wasteful investments. This result is robust to different specifications of the information available to the mediator. We therefore highlight a conflict between fairness and efficiency arising in negotiations.
    Keywords: bargaining, negotiation, mediation, conflict
    JEL: D74 F51 J51
    Date: 2018–03
  14. By: Antonio Abatemarco (University of Salerno, Italy); Francesca Stroffolini (University of Naples ``Federico II'', Italy)
    Abstract: In this paper we challenge the common interpretation of Rawls' Theory of Justice as Fairness by showing that this Theory, as outlined in the Restatement (Rawls 2001), goes well beyond the definition of a distributive value judgment, in such a way as to embrace efficiency issues as well. A simple model is discussed to support our interpretation of the Difference Principle, by which inequalities are shown to be permitted as far as they stimulate a greater effort in education in the population, and so economic growth. To our knowledge, this is the only possibility for the inequality to be `bought' by both the most-, and above all, the least-advantaged individual as suggested by the Difference Principle. Finally, by recalling the old tradition of universal ex-post efficiency (Hammond 1981), we show that a unique optimal social contract does not exist behind the veil of ignorance; more precisely, the sole set of potentially optimal social contracts can be identified a priori, and partial justice orderings derived accordingly.
    Date: 2017–03
  15. By: Eric Kamwa (LC2S - Laboratoire Caribéen de Sciences Sociales - UAG - Université des Antilles et de la Guyane); Vincent Merlin (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In most of the social choice literature dealing with the computation of the exact probability of voting events under the impartial culture assumption, authors deal with no more than four constraints to describe voting events. With more than four constraints, most of the authors rely on Monte-Carlo simulations. It is usually more tricky to estimate the probability of events described by five constraints. Gehrlein and Fishburn (1980) have tried, but their conclusions are based on conjectures. In this paper, we circumvent this conjecture by having recourse to the technique suggested by Saari and Tataru (1999) in order to compute the limit probability of the consistency of collective rankings when there are four competing alternatives given that the decision rule is a scoring rule. We provide a general formula for the limit probability of the consistency and we determine the optimal decision rules among the scoring rules that provide the best guarantee of consistency. Given the collective ranking on a set A, we have consistency if the collective ranking on B a proper subset of A is not altered after some alternatives are removed from A.
    Date: 2018–04–03
  16. By: Robin Lindsey (University of Alberta [Edmonton]); André De Palma (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Hugo Silva (Instituto Superior Técnico - Technical University of Lisbon)
    Abstract: Individual users often control a significant share of total traffic flows. Examples include airlines, rail and maritime freight shippers, urban goods delivery companies and passenger transportation network companies. These users have an incentive to internalize the congestion delays their own vehicles impose on each other by adjusting the timing of their trips. We investigate simultaneous trip-timing decisions by large users and small users in a dynamic model of congestion. Unlike previous work, we allow for heterogeneity of trip-timing preferences and for the presence of small users such as individual commuters and fringe airlines. We derive the optimal fleet departure schedule for a large user as a best-response to the aggregate departure rate of other users. We show that when the vehicles in a large user's fleet have a sufficiently dispersed distribution of desired arrival times, there may exist a pure-strategy Nash-equilibrium (PSNE) in which the large user schedules vehicles when there is a queue. This resolves the problem of non-existence of a PSNE identified in Silva et al. (2017) for the case of symmetric large users. We also develop some examples to identify under what conditions a PSNE exists. The examples illustrate how self-internalization of congestion by a large user can affect the nature of equilibrium and the travel costs that it and other users incur.
    Keywords: departure-time decisions,bottleneck model,congestion,schedule delay costs,large users,user heterogeneity,existence of Nash equilibrium $
    Date: 2018–04–06
  17. By: Hattori, Masahiko; Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We consider a symmetric three-players zero-sum game with two strategic variables. Three players are Players A, B and C. Two strategic variables are ti and si, i = A;B;C. They are related by invertible functions. Using the minimax theorem by Sion (1958) and the fixed point theorem by Glicksberg (1952) we will show that Nash equilibria in the following four states are equivalent. 1. All players, Players A, B and C choose ti; i = A;B;C, (as their strategic variables). 2. Two players choose ti's, and one player chooses si. 3. One player chooses ti, and two players choose si's. 4. All players, Players A, B and C choose si; i = A;B;C.
    Keywords: symmetric three-person zero-sum game, Nash equilibrium, two strategic variables
    JEL: C72
    Date: 2018–03–26
  18. By: David Pérez-Castrillo; Marilda Sotomayor
    Abstract: The multiple partners game (Sotomayor, 1992) extends the assignment game to a matching model where the agents can have several partners, up to their quota, and the utilities are additively separable. The present work fills a gap in the literature of that game by studying the effects on agents’ payoffs caused by the entrance of new agents in the market under both the cooperative and the competitive approaches. The results obtained have no parallel in the one-to-one assignment game.
    Keywords: Matching, stability, Competitive Equilibrium, comparative statics.
    JEL: C78 D78
    Date: 2018–04
  19. By: Alexander V. Karpov (National Research University Higher School of Economics)
    Abstract: This paper presents a novel combinatorial approach for voting rule analysis. Applying reversal symmetry, we introduce a new class of preference profiles and a new representation (bracelet representation). By applying an impartial, anonymous, and neutral culture model for the case of three alternatives, we obtain precise theoretical values for the number of voting situations for the plurality rule, the run-off rule, the Kemeny rule, the Borda rule, and the scoring rules in the extreme case. From enumerative combinatorics, we obtain an information utilization index for these rules. The main results are obtained for the case of three alternative
    Keywords: ANEC, IANC, plurality, run-off, Kemeny, Borda, scoring rules, reversal symmetry
    JEL: D70
    Date: 2018
  20. By: Jean-Pierre Drugeon (PSE - Paris School of Economics, 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); Thai Ha-Huy (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)
    Abstract: This article builds an axiomatization of inter-temporal trade-offs that makes an explicit account of the distant future and therefore encompasses motives related to sustainability, transmission to offsprings and altruism. The focus is on separable representations and the approach is completed following a decision-theory index based approach that is applied to utility streams. This enlightens the limits of the commonly used tail intensity requesites for the evaluation of utility streams: in this article, these are supersed and replaced by an axiomatic approach to optimal myopia degrees that in its turn precedes the determination of optimal discount. The overall approach is anchored in the new and explicit proof of a temporal decomposition of the preference orders between the distant future and the close future itself directly related to the determination of the optimal myopia degrees. The argument is shown to provide a novel understanding of temporal biases with the scope for a distant future bias when the finite dimensional gets influenced by the infinite dimensional. The reference to robust orders and pessimism-like axioms finally allows for determining tractable representations for the indexes.
    Abstract: JEL Codes: D11, D15, D90.
    Keywords: Discount,Temporal Order Decompositions,Infinite Dimensional Topologies,Axiomatization,Myopia
    Date: 2018–04

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