nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒02‒18
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Incorporating Belief-Dependent Motivation in Games By Pierpaolo Battigalli; Roberto Corrao; Martin Dufwenberg
  3. Social Acceptability of Condorcet Committees By Mostapha Diss; Muhammad Mahajne
  4. Research funding and price negotiation for new drugs By Francesca Barigozzi; Izabela Jelovac
  5. The role of markets and preferences on resource conflicts By Alex Dickson; Ian A MacKenzie; Petros G Sekeris
  6. Local Circularity of Six Classic Price Indexes By Jesus T. Pastor; C. A. Knox Lovell
  7. The relation between degrees of belief and binary beliefs: A general impossibility theorem By Franz Dietrich; Christian List
  8. Stackelberg equilibrium of dynamic symmetric multi-players zero-sum game with a leader and followers without differentiability of payoff functions By Tanaka, Yasuhito
  9. Strategic Product Design under Duopoly By Didier Laussel
  10. Public-Private Partnerships with Infrastructure Funds: an Optimal Incentive Device By ODA Keiichiro
  11. The good MOOC and the universities By Emilie Dargaud; Frédéric Jouneau-Sion

  1. By: Pierpaolo Battigalli; Roberto Corrao; Martin Dufwenberg
    Abstract: Psychological game theory (PGT), introduced by Geanakoplos, Pearce & Stacchetti (1989) and signi cantly generalized by Battigalli & Dufwenberg (2009), extends the standard game theoretic framework by letting playersutility at endnodes depend on their interactive beliefs. While it is understood that a host of applications that model and/or test the role of emotional and other psychological forces nd their home in PGT, the framework is abstract and comprises complex mathematical objects, such as playersin nite hierarchies of beliefs. Thus, PGT provides little guidance on how to model speci c belief-dependent motivations and use them in game theoretic analysis. This paper takes steps to fi ll this gap. Some aspects are simplifi ed e.g., which beliefs matter but others are refi ned and brought closer to applications by providing more structure. We start with belief-dependent motivations and show how to embed them in game forms to obtain psychological games. We emphasize the role of time and of the perception of players' intentions. We take advantage of progress made on the foundations of game theory to expand and improve on PGT solution concepts. JEL classi fication: C72; C73; D81; D82; D92Keywords: Psychological game theory; Belief-dependent motivation; Intentions; Time; Rationalizability; Self-confi rming equilibrium; Bayesian sequential equilibrium
    Date: 2019
  2. By: Creane, Anthony; Manduchi, Agostino
    Abstract: In their seminal paper Grossman and Shapiro (1984) find that informative advertising is socially excessive in an oligopoly (entry is also socially excessive). However, the analysis assumed that all consumers receive at least one advertisement. Christou and Vettas (2008), among others, present counter-examples in alternative settings, showing when the assumption does not hold, the equilibrium advertising may, instead, be inefficiently low. Christou and Vettas (2008) also show there may be non-existence due to discontinuities from undercutting, that quasiconcavity may not hold, and present examples in which the equilibrium does not exist as firms would deviate to a higher price. We revisit the question by modeling firms (like consumers) as a continuum, which mitigates the discontinuity that exists in both papers and allows the general analysis to include the cases when some consumers receive no advertisements. As a result, we are able to derive explicit and intuitive conditions for an equilibrium. More importantly, we find, instead, that advertising is socially insufficient regardless of the fraction of the consumers who receive an ad, including when all consumers receive at least one ad. We also find that there is insufficient entry instead of excess entry. We provide intuition for the difference between our and previous results.
    Keywords: Informative advertising, product differentiation, monopolistic competition, welfare.
    JEL: D83 L13 L15
    Date: 2019–02–11
  3. By: Mostapha Diss (Univ Lyon, UJM Saint-Etienne, CNRS, GATE L-SE UMR 5824, F-42023 Saint-Etienne, France); Muhammad Mahajne (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)
    Abstract: We define and examine the concept of social acceptability of committees, in multi-winner elections context. We say that a committee is socially acceptable if each member in this committee is socially acceptable, i.e., the number of voters who rank her in their top half of the candidates is at least as large as the number of voters who rank her in the least preferred half, otherwise she is unacceptable. We focus on the social acceptability of Condorcet committees, where each committee member beats every non-member by a majority, and we show that a Condorcet committee may be completely unacceptable, i.e., all its members are unacceptable. However, if the preferences of the voters are single-peaked or single-caved and the committee size is not "too large" then a Condorcet committee must be socially acceptable, but if the preferences are single-crossing or group-separable, then a Condorcet committee may be socially acceptable but may not. Furthermore, we evaluate the probability for a Condorcet committee, when it exists, to be socially (un)acceptable under Impartial Anonymous Culture (IAC) assumption. It turns to be that, in general, Condorcet committees are significantly exposed to social unacceptability.
    Keywords: Voting, Multiwinner Elections, Committee, Condorcet, Social Acceptability
    JEL: D71 D72
    Date: 2019
  4. By: Francesca Barigozzi (University of Bologna, Italy); Izabela Jelovac (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69131 Ecully, France)
    Abstract: Pharmaceutical innovations result from the successful achievement of basic research, produced by an upstream lab, and applied research, produced by a downstream lab. We focus on the negotiation process to finance basic research by setting public and private grants and to agree on the final price of a new drug. We show that exclusive funding of basic research is desirable. To increase consumers’ surplus and reduce negotiated prices for new drugs, basic and applied research should be integrated if the lab producing applied research has a relatively large bargaining power. When instead the health authority has the larger bargaining power, integration with the producer of basic research increases negotiated prices for new drugs and should be avoided, unless the gain in bargaining power after the integration is extremely high.
    Keywords: Pharmaceutical innovation, drug prices, negotiation, basic research, applied research
    JEL: D8
    Date: 2019
  5. By: Alex Dickson (Department of Ecoomics, University of Strathclyde); Ian A MacKenzie (School of Econimics, University of Queensland, Brisbane); Petros G Sekeris (Montpellier Business School, France)
    Abstract: This article investigates a generalized resource curse. The existing empirical and theoretical literature on the resources-conflict nexus argues that higher resource rents (or a lower opportunity cost of appropriation) exacerbates conflict. We demonstrate that these widely accepted results rely on two fundamental elements relating to market conditions and agents’ preferences. When resource prices are treated as exogenous, we obtain the conventional result, where an increase in the profitability of either the appropriative or productive activity incentivizes agents to reorient efforts accordingly. However, when the price of the contestable resource is endogeneously set (i.e., locally determined), we find the opposite result may hold depending on the nature of agents’ preferences: conflict can increase when the contestable resource becomes scarcer. Intuitively, if the contestable resource is abundant, players’ relative marginal utility of the resource will be low, thereby resulting in low relative prices. Increases in the size of the contestable resource will lead to a reduction in appropriation effort, whereas scarcities will be conducive to conflict. We show an identical result is obtained if markets are absent for the contestable resource, such as when considering civil liberties and political rights.
    Keywords: Resource curse, conflict
    JEL: C72 D72
    Date: 2018–12
  6. By: Jesus T. Pastor (Centro de Investigación Operativa, Universidad Miguel Hernández, Spain); C. A. Knox Lovell (School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia)
    Abstract: In this paper we characterize local circularity for the Laspeyres, Paasche and Fisher price indexes. In the first two cases we begin by deriving a sufficient condition for achieving circularity that establishes that at least one of two proposed equalities must hold. We end up showing that the sufficient condition is also necessary. We continue with the Fisher price index that is the geometric mean of the two, and we find a sufficient circularity condition that is a direct consequence of the corresponding sufficient conditions for its two component indexes. However we also show that, unlike its Laspeyres and Paasche components, this sufficient circularity condition for the Fisher price index is not necessary. We reach different conclusions when we consider the circularity properties of the geometric Laspeyres, geometric Paasche and Törnqvist price indexes, for which none of the proposed sufficient conditions is necessary. Throughout we distinguish local circularity, which all six price indexes satisfy, from global circularity, which none of the price indexes satisfies.
    Keywords: price index, local circularity
    JEL: C43
    Date: 2019–02
  7. By: Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Christian List (LSE - London School of Economics and Political Science)
    Abstract: Agents are often assumed to have degrees of belief ("credences") and also binary beliefs ("beliefs simpliciter"). How are these related to each other? A much-discussed answer asserts that it is rational to believe a proposition if and only if one has a high enough degree of belief in it. But this answer runs into the "lottery paradox": the set of believed propositions may violate the key rationality conditions of consistency and deductive closure. In earlier work, we showed that this problem generalizes: there exists no local function from degrees of belief to binary beliefs that satisfies some minimal conditions of rationality and non-triviality. "Locality" means that the binary belief in each proposition depends only on the degree of belief in that proposition, not on the degrees of belief in others. One might think that the impossibility can be avoided by dropping the assumption that binary beliefs are a function of degrees of belief. We prove that, even if we drop the "functionality" restriction, there still exists no local relation between degrees of belief and binary beliefs that satisfies some minimal conditions. Thus functionality is not the source of the impossibility; its source is the condition of locality. If there is any non-trivial relation between degrees of belief and binary beliefs at all, it must be a "holistic" one. We explore several concrete forms this "holistic" relation could take.
    Abstract: Il est souvent supposé que des acteurs ont à la fois des degrés de croyance (des « probabilités subjectives ») et des croyances binaires (« croyances » simplement). Comment sont-ils reliés ? Une réponse discutée est qu'il faut croire une proposition si et seulement si l'on a une probabilité subjective suffisamment haute en cette proposition. Mais cette réponse amène au paradoxe de loterie ("lottery paradox") : l'ensemble des propositions crues peut violer deux conditions de rationalité centrales, la cohérence et la clôture déductive. Dans un travail antérieur nous avions généralisé ce paradoxe : il n'existe aucune fonction de binarisation des croyances qui soit "locale" et satisfait des conditions de rationalité et de non trivialité. On aurait pu croire que cette impossibilité puisse être évitée en enlevant la restriction que les croyances binaires sont une fonction des probabilités subjectives. Dans ce papier nous généralisons l'impossibilité en supprimant la restriction de fonctionnalité, c'est-à-dire en partant non pas d'une fonction de binarisation mais d'une relation quelconque entre les deux types de croyances. Ceci montre que la fonctionnalité n'est pas le source du paradoxe de loterie. La seule source en est la « localité ». Nous explorons une série de relations non locales (holistes) entre les deux types de croyances.
    Keywords: binary beliefs (yes/no),subjective probabilities,construction of binary beliefs from subjective probabilities,impossibility theorem,croyances binaires (oui/non),probabilités subjectives,construction de croyances binaires à partir des probabilités subjectives,théorème d'impossibilité
    Date: 2019–01
  8. By: Tanaka, Yasuhito
    Abstract: This paper studies a Stackelberg type symmetric dynamic $n$-players zero-sum game. There is one leader and $n-1$ followers. Players have the symmetric payoff functions. The game is a two-stages game. In the first stage the leader determines the value of its strategic variable. In the second stage the followers determine the values of their strategic variables given the value of the leader's strategic variable. In the static game, on the other hand, all players simultaneously determine the values of their strategic variable. We do not assume differentiability of payoff functions. This paper shows that the sub-game perfect equilibrium of the Stackelberg type symmetric dynamic zero-sum game is equivalent to the equilibrium of the static game if and only if the game is fully symmetric.
    Keywords: Stackelberg equilibrium, leader, follower, dynamic symmetric zero-sum game
    JEL: C72
    Date: 2019–02–02
  9. By: Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Two duopolists first decide in which proportions to incorporate in their product two different Lancasterian characteristics and then compete in quantities or prices. In the Cournot case, minimum differentiation obtains at equilibrium whatever the degree of substituability between the characteristics. In the Bertrand one, the equilibrium depends crucially on the degree of substituability/complementarity between the two characteristics. Maximal differential obtains if and only if the characteristics are strong enough substitutes. On the contrary as characteristics become closer and closer complements one obtains in the limit a minimal differentiation result. JEL Codes: L13. Keyword: Horizontal Product Differentiation, Lancasterian Characteristics.
    Keywords: Horizontal Product Differentiation,Lancasterian Characteristics.,Duopoly
    Date: 2018
  10. By: ODA Keiichiro
    Abstract: We study the scheme of public-private partnerships (PPP) from an incomplete contracting perspective. We show that PPP can implement an efficient level of investment in a public project with externalities through a bargaining game played by the public sector and the delegated private agent, which functions as a device in internalizing the externalities. Also, we analyze the governance role of an infrastructure fund in PPP through its interaction with the financial market.
    Date: 2018–12
  11. By: Emilie Dargaud (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Frédéric Jouneau-Sion (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)
    Abstract: We propose a model to analyze competition between an on-line course and a traditional brick-and-mortar supply for higher education. The brick and mortar supplier is physically located and students pay a transportation cost to attend the traditional course. On the contrary, the on-line course is free, without transportation cost but students incurred a fixed homogeneous disutility when choosing this type of course. We derive the optimal fee policy of a single university as a function of its location and the fixed cost associated with the on-line course. We also study the impact of distant learning on the competition between two brick and mortar universities. One university is assumed to enjoy a central position, whereas the other one is located at the extreme left of the town. We discuss equilibria and market sharing in non-regulated (i.e pure fee competition) and regulated (i.e. quantity competition) settings. Finally, public issues are addressed. In particular, the socially optimal provision of MOOC and the supply of MOOC by universities are carefully discussed.
    Keywords: On-line learning, spatial competition
    JEL: I21 I23 L13 L17 R12 R39
    Date: 2019

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