nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒05‒27
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Reciprocity in dynamic employment relationships By Matthias Fahn
  2. Vague lies and lax standards of proof: On the law and economics of advice By Mikhail Drugov; Marta Troya-Martinez
  3. Preemption Contests Between Groups By Barbieri, Stefano; Konrad, Kai A.; Malueg, David A.
  4. Extreme Lobbyists and Policy Convergence By Hirata, Daisuke; Kamada, Yuichiro
  5. Information Acquisition with Endogenously Determined Cost in Cournot Markets with Stochastic Demand By Catilina, Eliane
  6. Busy Doing Nothing – Why Politicians Implement Ineffcient Policies By Gustafsson, Anders
  7. Proportional Systems with Free Entry. A Citizen-Candidate Model By Paolo Balduzzi; Sandro Brusco
  8. Decomposition of games: some strategic considerations By Joseph Abdou; Nikolaos Pnevmatikos; Marco Scarsini; Xavier Venel
  9. Efficiency and stability in sender-receiver games under the selection-mutation dynamics By Seigo Uchida
  10. Stability against Robust Deviations in the Roommate Problem By Hirata, Daisuke; Kasuya, Yusuke; Tomoeda, Kentaro
  11. A Perfectly Robust Approach to Multiperiod Matching Problems By Kotowski, Maciej

  1. By: Matthias Fahn
    Abstract: This paper explores how a relational contract establishes a norm of reciprocity and how such a norm shapes the provision of informal incentives. Developing a model of a long-term employment relationship, I show that generous upfront wages that activate the norm of reciprocity are more important when an employee is close to retirement. In earlier stages, direct incentives promising a bonus in exchange for effort are more effective. Then, a longer remaining time horizon increases the employer’s commitment. Generally, direct and reciprocity-based incentives reinforce each other and should thus optimally be used in combination. I also show that more competition can magnify the use of reciprocity-based incentives. Moreover, with asymmetric information on the employee’s responsiveness to the norm of reciprocity, an early separation of types is generally optimal. Then, the principal might benefit from asymmetric information because a firing threat is only credible if the employee potentially is not reciprocal.
    Keywords: reciprocity, relational contracts, dynamic incentives
    JEL: C73 D21 D22 D86 D90 D91
    Date: 2019
  2. By: Mikhail Drugov (New Economic School and CEPR); Marta Troya-Martinez (New Economic School and CEPR)
    Abstract: This paper analyses a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.
    Keywords: Advice, Persuasion, Legal Procedure, Consumer Protection
    JEL: D18 D8 K4 L1
    Date: 2018–06
  3. By: Barbieri, Stefano; Konrad, Kai A.; Malueg, David A.
    Abstract: We consider a preemption game between groups where the first agent to take a costly action wins the prize on behalf of his group. We describe the equilibrium solution of this problem when players differ in their own costs of action and these costs are private information. The equilibrium is typically characterized by delay. The nature of the equilibrium depends on key parameters such as the number of groups and their size. More competition between groups reduces delay, whereas in larger groups members of a given cost type are more reluctant to act but may yield an earlier resolution of the conflict. We analyze asymmetries across groups, focusing on group size and strength of the externalities within groups.
    Keywords: dynamic conflict; free riding; incomplete information; inter-group conflict; preemption; waiting
    JEL: D74 H41 L13
    Date: 2019–05
  4. By: Hirata, Daisuke; Kamada, Yuichiro
    Abstract: We consider a two-candidate election model with campaign contributions. In the first stage of the game, each of two candidates chooses a policy position. In the second stage, each of n lobbyists chooses the amount of contribution to each candidate. The winning probability of each candidate depends on the total amount of contributions that she raised from the lobbyists. In any equilibrium of our model, only extreme lobbyists contribute at any subgame, and the policies converge on the unique equilibrium path. Our results suggest that extreme lobbyists and their contributions do not necessarily cause policies to diverge.
    Keywords: Interest groups, campaign contributions, Hotelling model
    JEL: C72 D72 D78
    Date: 2019–05
  5. By: Catilina, Eliane
    Abstract: This paper presents a model of information acquisition in Cournot Market with stochastic demand where the acquisition cost is endogenously determined. The novelty is to consider the possibility of cost reducing alliances to be formed in the first-stage of a two-stage acquisition game. This paper encompasses the main assumptions found in the current literature on information acquisition regarding the role of information and how it affects firms’ profits in a two stage the game. However, we argue that by adding natural assumptions regarding the choices and trade-offs between cost reduction and loss of strategic value we provide a better prediction for the outcome of information acquisition games and welfare implications.
    Keywords: Information acquisition; Cost Sharing Alliances; Information Asymmetry; Strong Nash Equilibrium.
    JEL: D43 D81 L13
    Date: 2019–03–25
  6. By: Gustafsson, Anders (The Ratio Institute)
    Abstract: A substantial body of literature suggests that politicians are blocked from implementing efficient reforms that solve substantial problems because of special interest groups or budget constraints. Despite the existing mechanisms that block potentially efficient reforms, real-world data show that a large number of new programs and policies are implemented every year in developed countries. These policies are often selective and considered to be fairly inefficient by ex post evaluation, and they tend to be small in size and scope. With this background, this paper studies the reasons why a rational politician would implement an inefficient public policy that is intended to obfuscate the difficulties in achieving reforms. The paper uses a simple competence signaling model that suggests that if an effective reform is impossible, engaging in strategic obfuscation through an inefficient program increases the probability of winning a re-election compared to doing nothing at all. This is because an inefficient reform does not lead voters to believe that the politician is incompetent, which a lack of action risks doing. Intentional inefficiency aiming to obfuscate the difficulty of efficient reforms can therefore complement the previous theories’ explanations of political failure.
    Keywords: Special Interest Groups; Reforms; Inefficiency; Strategic Obfuscation
    JEL: D72 H11 L82 P16
    Date: 2019–05–13
  7. By: Paolo Balduzzi; Sandro Brusco
    Abstract: We analyze the equilibrium of a proportional electoral system with free entry in a citizen candidate model. In proportional systems the policy outcomes are typically decided through legislative bargaining and a perspective entrant has to worry about the governing coalitions that will be able to reach 50% of the seats. We show that there are equilibria with medium-sized parties, i.e. no party has absolute majority but the number of parties is relatively small. However, when the number of seats is su±ciently large, all equilibria must have at least 4 parties. We also discuss the impact of variations of the electoral formula, such as the introduction of of thresholds.
    Date: 2019
  8. By: Joseph Abdou (Centre d'Economie de la Sorbonne, Paris School of Economics,Université Paris1 Panthéon-Sorbonne); Nikolaos Pnevmatikos (LEMMA, Université Paris2 Panthéon-Assas); Marco Scarsini (LUISS, Dipartimento di Economia e Finanza); Xavier Venel (Centre d'Economie de la Sorbonne, Paris School of Economics,Université Paris1 Panthéon-Sorbonne)
    Abstract: Candogan et al. (2011) provide an orthogonal direct-sum decomposition of finite games into potential, harmonic and non-strategic components. In this paper we study the issue of decomposing games that are strategically equivalent from a game-theoretical point of view, for instance games obtained via duplications of strategies or suitable linear transformations of payoffs. We consider classes of decompositions and show when two decompositions of equivalent games are coherent
    Keywords: Decomposition of games; Potential games; Harmonic games; Duplicate strategies; Gradient operator; Projection operator
    Date: 2019–02
  9. By: Seigo Uchida
    Abstract: Our study aims to reveal the relationship between the efficiency of neutrally stable strategies and asymptotic stability of rest points close to those strategies in Lewis-type sender-receiver games under the selection-mutation dynamics. We focus on the game in which the number of states is not equal to that of signals. While no strict Nash strategy exists in our case, we show that there are some neutrally stable strategies that have rest points close to these strategies, and that these rest points can be asymptotically stable under the selection-mutation dynamics. Moreover, those neutrally stable strategies give agents the maximal payoff. We name those neutrally stable strategies the extended signaling system, the unilaterally mixed strategy, and the max hybrid strategy.
    Date: 2019–04
  10. By: Hirata, Daisuke; Kasuya, Yusuke; Tomoeda, Kentaro
    Abstract: We propose a new solution concept in the roommate problem, based on the "robustness" of deviations (i.e., blocking coalitions). We call a deviation from a matching robust up to depth k, if none of the deviators gets worse off than at the original matching after any sequence of at most k subsequent deviations. We say that a matching is stable against robust deviations (for short, SaRD) up to depth k, if there is no robust deviation up to depth k. As a smaller k imposes a stronger requirement for a matching to be SaRD, we investigate the existence of a matching that is SaRD with a minimal depth k. We constructively demonstrate that a SaRD matching always exists for k=3, and establish sufficient conditions for k=1 and 2.
    Date: 2019–05
  11. By: Kotowski, Maciej (Harvard Kennedy School)
    Abstract: Many two-sided matching situations involve multiperiod interaction. Traditional cooperative solutions, such as stability and the core, often identify unintuitive outcomes (or are empty) when applied to such markets. As an alternative, this study proposes the criterion of perfect alpha-stability. An outcome is perfect alpha-stable if no coalition prefers an alternative assignment in any period that is superior for all plausible market continuations. Behaviorally, the solution combines foresight about the future and a robust evaluation of contemporaneous outcomes. A perfect alpha-stable matching exists, even when preferences exhibit inter-temporal complementarities. A stronger solution, the perfect alpha-core, is also investigated. Extensions to markets with arrivals and departures, transferable utility, and many-to-one assignments are proposed.
    JEL: C71 C78
    Date: 2019–05

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