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on Microeconomics |
| By: | Roland Bénabou; Armin Falk; Jean Tirole |
| Abstract: | By downplaying externalities, magnifying the cost of moral behavior, or suggesting not being pivotal, exculpatory narratives can allow individuals to maintain a positive image when in fact acting in a morally questionable way. Conversely, responsibilizing narratives can help sustain better social norms. We investigate when narratives emerge from a principal or the actor himself, how they are interpreted and transmitted by others, and when they spread virally. We then turn to how narratives compete with imperatives (general moral rules or precepts) as alternative modes of communication to persuade agents to behave in desirable ways. |
| JEL: | D62 D64 D78 D83 D91 H41 K42 L14 Z13 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24798&r=mic |
| By: | Julien Daubanes (ETH Zurich); Jean-Charles Rochet (University of Zurich, University of Toulouse I, and Swiss Finance Institute) |
| Abstract: | WActivist NGOs increasingly oppose industrial projects that were approved by public regulators. We develop a model that explains this phenomenon. We consider a potentially-harmful industrial project that is subject to regulatory approval. The regulator can be influenced by the industry, and may approve the project even though it is harmful. However, an NGO may oppose it. We characterize the circumstances under which NGO opposition occurs and under which it is socially beneficial. The theory explains the role that NGOs have assumed in the last decades, and has implications for the social legitimacy of NGO activism and the appropriate degree of transparency of industrial activities. |
| Keywords: | NGO activism, Public regulation, Industry influence, Private politics, Transparency |
| JEL: | D02 D74 D82 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1740&r=mic |
| By: | Bruno Biais (University of Toulouse 1); Christophe Bisiere (University of Toulouse); Matthieu Bouvard (McGill University); Catherine Casamatta (University of Toulouse 1) |
| 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, but are they? We model the proof-of-work blockchain protocol as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. Mining the longest chain is a Markov perfect equilibrium, without forking, in line with Nakamoto (2008). The blockchain protocol, however, is a coordination game, with multiple equilibria. There exist equilibria with forks, leading to orphaned blocks and persistent divergence between chains. We also show how forks can be generated by information delays and software upgrades. Last we identify negative externalities implying that equilibrium investment in computing capacity is excessive. |
| Keywords: | blockchain, forks, proof-of-work, distributed ledger, multiplicity of equilibria, coordination game |
| JEL: | C73 G2 L86 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1775&r=mic |
| By: | Gilles Saint-Paul (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, New York University Abu Dhabi); Davide Ticchi (Marche Polytechnic University); Andrea Vindigni (University of Genova) |
| Abstract: | If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the .first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt .which makes crises more likely .is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits. |
| Keywords: | Public Debt,In- equality,Political Economy,Fiscal Crises,Favoritism,Entitlements,State Capacity |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01584043&r=mic |
| By: | Fahn, Matthias (JKU Linz); Klein, Nicolas (University of Montreal) |
| Abstract: | We analyze a relational contracting problem, in which the principal has private information about the future value of the relationship. In order to reduce bonus payments, the principal is tempted to claim that the value of the future relationship is lower than it actually is. To induce truth-telling, the optimal relational contract may introduce distortions after a bad report. For some levels of the discount factor, output is reduced by more than would be sequentially optimal. This distortion is attenuated over time even if prospects remain bad. Our model thus provides an alternative explanation for indirect short-run costs of downsizing. |
| Keywords: | relational contracts; sequential inefficiencies; downsizing; |
| JEL: | C73 D86 |
| Date: | 2018–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:106&r=mic |
| By: | Stefan Terstiege; Cédric Wasser |
| Abstract: | We study buyer-optimal information structures under monopoly pricing. The information structure determines how well the buyer learns his valuation and affects, via the induced distribution of posterior valuations, the price charged by the seller. Motivated by the regulation of product information, we assume that the seller can disclose more if the learning is imperfect. Robust information structures prevent such disclosure, which is a constraint in the design problem. Our main result identifies a two-parameter class of information structures that implements every implementable buyer payoff. An upper bound on the buyer payoff where the social surplus is maximized and the seller obtains just her perfect-information payoff is attainable with some, but not all priors. When this bound is not attainable, optimal information structures can result in an inefficient allocation. |
| Keywords: | information design, monopoly, regulation |
| JEL: | D42 D82 D83 L51 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_034_2018&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 - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement) |
| 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:wpaper:halshs-01557657&r=mic |
| By: | Max Reppen (ETH Zurich); Jean-Charles Rochet (University of Zurich, University of Toulouse I, and Swiss Finance Institute); H. Mete Soner (ETH Zurich) |
| Abstract: | We study an optimal dividend problem under a bankruptcy constraint. Firms face a trade-off between potential bankruptcy and extraction of profits. In contrast to previous works, general cash flow drifts, including Ornstein–Uhlenbeck and CIR processes, are considered. We provide rigorous proofs of continuity of the value function, whence dynamic programming, as well as uniqueness of the solution to the Hamilton–Jacobi–Bellman equation, and study its qualitative properties both analytically and numerically. The value function is thus given by a nonlinear PDE with a gradient constraint from below in one dimension. We find that the optimal strategy is both a barrier and a band strategy and that it includes voluntary liquidation in parts of the state space. Finally, we present and numerically study extensions of the model, including equity issuance and gambling for resurrection. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1746&r=mic |
| By: | Bernard Caillaud (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); Ariane Lambert-Mogiliansky (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) |
| Abstract: | This paper addresses the issue of favoritism at the design stage of complex procurement auctions. A local community of citizens wants to procure a complex good or project and lacks the ability to translate its preferences into operational technical specifications. This task is delegated to a public officer who may collude with one of the firms at the design stage of the procurement auction in exchange of a bribe. Assuming that it is prohibitively costly to provide a justification for many aspects, we investigate two simple accountability mechanisms that ask the public officer to justify one aspect of the project, with the threat of being punished if he fails: a random challenge mechanism and an alert-based mechanism that requires justifying one aspect on which the rivals of the winning contractor send a red ag. Relying on losing contractors enables the community to deter favoritism significantly more easily than the random challenge procedure as it allows to use information that is shared by potential contractors in the industry. The level of penalty needed to fully deter corruption is lower, independent of the complexity of the project and depends on the degree of differentiation within the industry. Below this threshold, favoritism occurs in some states of nature and we characterize and compare the different equilibrium patterns of corruption under both mechanisms. A more elaborate example suggests that the alert-based mechanism tends to lead to more standard specifications of projects. |
| Keywords: | Procurement auctions,favoritism,accountability mechanism,D73, D82, H57 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01547102&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 - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement) |
| 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:wpaper:halshs-01557585&r=mic |
| By: | Kukushkin, Nikolai S. |
| Abstract: | Several agents choose positions on the real line (e.g., their levels of conspicuous consumption). Each agent's utility depends on her choice and her "status," which, in turn, is determined by the number of agents with greater choices (the fewer, the better). If the rules for the determination of the status are such that the set of the players is partitioned into just two tiers ("top" and "bottom"), then a strong Nash equilibrium exists, which Pareto dominates every other Nash equilibrium. Moreover, the Cournot tatonnement process started anywhere in the set of strategy profiles inevitably reaches a Nash equilibrium in a finite number of steps. If there are three tiers ("top," "middle," and "bottom"), then the existence of a Nash equilibrium is ensured under an additional assumption; however, there may be no Pareto efficient equilibrium. With more than three possible status levels, there seems to be no reasonably general sufficient conditions for Nash equilibrium existence. |
| Keywords: | status game; strong equilibrium; Nash equilibrium; Cournot tatonnement |
| JEL: | C72 |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87635&r=mic |
| By: | Robinson, James A |
| Abstract: | Societies under similar geographic and economic conditions and subject to similar external influences nonetheless develop very different types of states. At one extreme are weak states with little capacity and ability to regulate economic or social relations. At the other are despotic states which dominate civil society. Yet there are others which are locked into an ongoing competition with civil society and it is these, not the despotic ones, that develop the greatest capacity. We develop a model of political competition between state (controlled by a ruler or a group of elites) and civil society (representing non-elite citizens), where both players can invest to increase their power. The model leads to different types of steady states depending on initial conditions. One type of steady state, corresponding to a weak state, emerges when civil society is strong relative to the state (e.g., having developed social norms limiting political hierarchy). Another type of steady state, corresponding to a despotic state, originates from initial conditions where the state is powerful and civil society is weak. A third type of steady state, which we refer to as an inclusive state, emerges when state and civil society are more evenly matched. In this last case, each party has greater incentives to invest to keep up with the other, which undergirds the rise of high-capacity states and societies. Our framework highlights that comparative statics with respect to structural factors such as geography, economic conditions or external threats, are conditional - in the sense that depending on initial conditions they can shift a society into or out of the basin of attraction of the inclusive state. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13031&r=mic |