nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒08‒12
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Robust Information Aggregation Through Voting By Rune Midjord; Tomás Rodríguez Barraquer; Justin Mattias Valasek
  2. Selective Sampling with Information-Storage Constraints By Philippe Jehiel; Jakub Steiner
  3. Identity, Beliefs, and Political Conflict By Nicola Gennaioli; Guido Tabellini
  4. Social Loss with Respect to the Core of an Economy with Externalities By Christian Di Pietro; Maria Gabriella Graziano; Vincenzo Platino
  5. The Problem of State-Dependent Utility: A Reappraisal By Jean Baccelli
  6. Optimal make take fees in a multi market maker environment By Bastien Baldacci; Dylan Possama\"i; Mathieu Rosenbaum
  7. Sharing a government By Jaume Ventura
  8. Competition with Indivisibilities and Few Traders By Cesar Martinelli; Jianxin Wang; Weiwei Zheng
  9. Condorcet efficiency of general weighted scoring rules under IAC: indifference and abstention By Mostapha Diss; Eric Kamwa; Issofa Moyouwou; Hatem Smaoui
  10. Modeling Deterrence by Denial and by Punishment By Nakao, Keisuke
  11. Moral Hazard, the Savage Framework, and State-Dependent Utility * By Jean Baccelli
  12. Competitive Elections, Incumbency Advantage,and Accountability By Jan Klingelhöfer
  13. Patent Protection and Threat of Litigation in Oligopoly By Carlo Capuano; Iacopo Grassi; Riccardo Martina
  14. The Gains of Ignoring Risk: Insurance with Better Informed Principals. By Laura Abrardi; Luca Colombo; Piero Tedeschi

  1. By: Rune Midjord; Tomás Rodríguez Barraquer; Justin Mattias Valasek
    Abstract: Numerous theoretical studies have shown that information aggregation through voting is fragile. We consider a model of information aggregation with vote-contingent payoffs and generically characterize voting behavior in large committees. We use this characterization to identify the set of vote-contingent payoffs that lead to a unique outcome that robustly aggregates information. Generally, it is not sufficient to simply reward agents for matching their vote to the true state of the world. Instead, robust and unique information aggregation can be achieved with vote-contingent payoffs whose size varies depending on which option the committee chooses, and whether the committee decision is correct.
    Keywords: information aggregation, voting, vote-contingent payoffs
    JEL: D71 D72
    Date: 2019
  2. 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, UCL - Department of Medical Physics and Biomedical Engineering - UCL - University College of London [London]); Jakub Steiner (UZH - University of Zürich [Zürich], CERGE-EI - Charles University [Prague])
    Abstract: A memoryless agent can acquire arbitrarily many signals. After each signal observation, she either terminates and chooses an action, or she discards her observation and draws a new signal. By conditioning the probability of termination on the information collected, she controls the correlation between the payo_ state and her terminal action. We provide an optimality condition for the emerging stochastic choice. The condition highlights the bene_ts of selective memory applied to the extracted signals. Implications|obtained in a simple class of binary problems| include (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.
    Keywords: bounded rationality,information processing,stochastic choice,confirmation bias,speed-accuracy complementarity,probability weighting,salience
    Date: 2019–07
  3. By: Nicola Gennaioli; Guido Tabellini
    Abstract: We present a theory of identity politics that builds on two ideas. First, voters identify with the social group whose interests are closest to theirs and that features the strongest policy conflict with outgroups. Second, identification causes voters to slant their beliefs of self and others toward group stereotypes. The theory yields two main implications: i) voters’ beliefs are polarized along the distinctive features of salient groups; ii) economic shocks that render new groups salient bring about large and non standard changes in beliefs and policies across many issues. In particular, exposure to globalization or cultural changes may induce voters to switch identities, dampening their demand for redistribution and exacerbating conflicts in other social dimensions. We show that survey evidence is broadly consistent with these implications.
    JEL: H00 Z10
    Date: 2019
  4. By: Christian Di Pietro (Università di Napoli Parthenope); Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Vincenzo Platino (Università di Napoli Federico II and CSEF)
    Abstract: We consider a pure exchange economy with externalities. We adopt a cooperative approach to equilibrium analysis, allowing each individual to cooperate with others and to form coalitions. Individual preferences are affected by the consumption of all other agents in the economy, and the consumption set of each agent is affected by the coalition to which he/she belongs. Following \cite{Montesano02}, we introduce a measure of social loss with respect to the $\gamma$-core and $\alpha$-core of the economy which completely characterizes the corresponding core allocations.
    Keywords: exchange economy, interdependent preferences, core, social loss
    JEL: C71 D11 D62 D64
    Date: 2019–07–30
  5. By: Jean Baccelli (MCMP - Munich Center for Mathematical Philosophy, IHPST - Institut d'Histoire et de Philosophie des Sciences et des Techniques - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - DEC - Département d'Etudes Cognitives - ENS Paris - ENS Paris - École normale supérieure - Paris)
    Abstract: State-dependent utility is a problem for the behavioral branch of decision theory under uncertainty. It questions the very possibility that beliefs be revealed by choice data. According to the current literature, all models of beliefs are equally exposed to the problem. Moreover, the problem is solvable only when the decision-maker can influence the resolution of uncertainty. This paper gives grounds to reject these two views. The various models of beliefs can be shown to be unequally exposed to the problem of state-dependent utility. The problem can be argued to be solved even when the decision-maker has no influence over the resolution of uncertainty. The implications of such reappraisal for a philosophical appreciation of the revealed preference methodology are discussed.
    Date: 2019–06–27
  6. By: Bastien Baldacci; Dylan Possama\"i; Mathieu Rosenbaum
    Abstract: Following the recent literature on make take fees policies, we consider an exchange wishing to set a suitable contract with several market makers in order to improve trading quality on its platform. To do so, we use a principal-agent approach, where the agents (the market makers) optimise their quotes in a Nash equilibrium fashion, providing best response to the contract proposed by the principal (the exchange). This contract aims at attracting liquidity on the platform. This is because the wealth of the exchange depends on the arrival of market orders, which is driven by the spread of market makers. We compute the optimal contract in quasi explicit form and also derive the optimal spread policies for the market makers. Several new phenomena appears in this multi market maker setting. In particular we show that it is not necessarily optimal to have a large number of market makers in the presence of a contracting scheme.
    Date: 2019–07
  7. By: Jaume Ventura
    Abstract: This paper develops a simple theoretical framework to study a set of regions, each with its own regional government, who share a union or central government. These governments must decide whether to implement or discard a large number of projects that produce local beneÖts for the region that implements them, and externalities for the rest of the regions. Conáict or disagreement arises since di§erent regions value projects di§erently. The classic assignment problem consists of deciding who decides these projects, either the union or the regional governments. It is well known that regional governments are insensitive to externalities. The key observation here is that the union government is insensitive to local benefits. Thus, each government maximizes only a piece of the value of projects, and disregards the other one. This observations leads to simple and clear rules for solving the assignment problem.
    Keywords: European integration, centralization and decentralization, public goods, externalities, fiscal federalism.
    JEL: D72 D79 F15 F55 H77
    Date: 2019–07
  8. By: Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Jianxin Wang (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Weiwei Zheng (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We study minimal conditions for competitive behavior with few agents. We adapt the strategic market game of Dubey (1982), Simon (1984) and Benassy (1986) to an indivisible good environment. We show that all Nash equilibrium outcomes with active trading are competitive if and only if there are at least two intramarginal traders in each side of the market. Unlike previous formulations, this condition can be verified directly by checking the set of competitive equilibria. In laboratory experiments, the condition we provide turns out to be enough to induce competitive results. Moreover, the performance of a sealed-bid auction following the rules of the strategic market game approaches that of its dynamic counterpart, the double auction, over time.
    Date: 2019–07
  9. By: Mostapha Diss (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Eric Kamwa (LC2S - Laboratoire caribéen de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UA - Université des Antilles); Issofa Moyouwou (MASS - Université de Yaoundé I [Yaoundé]); Hatem Smaoui (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)
    Abstract: In an election, individuals may sometimes abstain or report preferences that include ties among candidates. How abstention or ties within individual preferences impact the performances of voting rules is a natural question addressed in the literature. We reconsider this question with respect to one of the main characteristics of a voting rule: its Condorcet efficiency; that is the conditional probability that the rule selects a Condorcet winner assuming that one exists. We explore the impact of both ties and abstention on the Condorcet efficiency of the whole class of weighted scoring rules in three-candidate elections under the Impartial Anonymous Culture assumption. It appears in general that the possibility of indifference or abstention increases or decreases the Condorcet efficiency of weighted scoring rules depending of the rule in consideration or the probability distribution on the set of observable voting situations.
    Date: 2019–07–28
  10. By: Nakao, Keisuke
    Abstract: We explore a defender's prewar allocation of military resources between denial and punishment strategies for deterrence. While denial disproportionately raises the probability to countervail aggression by disrupting military forces ("guns"), punishment proportionately raises costs on the aggressor by damaging civilian values ("butter"). Because these countervailing and deterrence effects are so divergent, the deployment that minimizes the risk of war can vary, depending on the defender's military capacity relative to the aggressor's. Namely, inferior parties resort only to punishment (e.g., post-Cold War North Korea), competitive parties concentrate solely on denial (e.g., Germany, Italy, and Japan), and superior parties develop both denial and punishment capabilities (e.g., Permanent Five).
    Keywords: denial vs. punishment, countervailing vs. deterrence effects, guns vs. butter, military strategy
    JEL: D30 D74 F51 F52
    Date: 2019–07–06
  11. By: Jean Baccelli (MCMP - Munich Center for Mathematical Philosophy, IHPST - Institut d'Histoire et de Philosophie des Sciences et des Techniques - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - DEC - Département d'Etudes Cognitives - ENS Paris - ENS Paris - École normale supérieure - Paris)
    Abstract: In this paper, I investigate the betting behavior of a decision-maker who can influence the likelihood of the events upon which she is betting. In decision theory, this is best known as a situation of moral hazard. Focusing on a particularly simple case, I sketch the first systematic analysis of moral hazard in the canonical Savage framework. From the results of this analysis, I draw two philosophical conclusions. First, from an observational and a descriptive point of view, there need to be no incompatibility between moral hazard and the Savage framework. This qualifies the incompatibility view, that is ubiquitous in decision theory. Second, in general, moral hazard is not sufficient to overcome the challenges posed by state-dependent utility to the behav-ioral identification of beliefs. This qualifies the sufficiency view, that is influential in decision theory. These two philosophical conclusions are the main contributions of my paper.
    Date: 2019–03–16
  12. By: Jan Klingelhöfer (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: I present a model of repeated electoral competition between two parties. Parts of the electorate vote retrospectively and consider the amount of rent-seeking by the incumbent party, while the prospective voters follow probabilistic party preferences when casting their votes. I show that it is possible to distinguish the effects of incumbency advantage and electoral punishment on the minimum level of rent-seeking that is consistent with equilibrium. As long as there is electoral punishment for excessive rent-seeking, a larger incumbency advantage increases accountability by decreasing the minimum amount of rent-seeking consistent with equilibrium. The reason is that the larger the incumbency advantage is, the more important is the result of the next election for all future election outcomes. Consequently, the incumbent party is willing to give up more rent-seeking opportunities to improve its electoral prospects.
    Keywords: Incumbency Advantage, Accountability, Competitive Elections, Probabilistic voting, Rent-seeking
    JEL: D72
    Date: 2019–07
  13. By: Carlo Capuano (Università di Napoli Federico II); Iacopo Grassi (Università di Napoli Federico II); Riccardo Martina (Università di Napoli Federico II and CSEF)
    Abstract: In a context of imperfect patent protection, this paper analyses the strategic use of patents from a novel perspective; patents are seen as a means available to the incumbent firm to control entry and, more importantly, to influence the post-entry market interaction process effectively, by creating the conditions that favour collusion. The level of patent protection chosen by the incumbent affects the likelihood that a potential entrant will be found guilty of patent infringement. This mechanism can operate as a punishment device that eases the conditions for collusion sustainability. Therefore, in a sense, patent protection can be regarded as an instrument allowing replication of the monopoly outcome in the context of a contestable market.
    Keywords: patents, patent portfolio, litigation, collusion, foreclosing, entry game
    JEL: D43 K21 L13
    Date: 2019–07–27
  14. By: Laura Abrardi; Luca Colombo (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Piero Tedeschi
    Abstract: We study a competitive insurance market in which insurers have an imperfect informative advantage over policyholders. We show that the presence of insurers privately and heterogeneously informed about risk can explain the concentration levels, the persistent profitability and the pooling of risk observed in some insurance markets. Furthermore, we find that a lower market concentration may entail an increase in insurance premia
    Keywords: Insurance markets, Asymmetric information, Risk assessment, Market concentration.
    JEL: D43 D82 G22
    Date: 2019–07

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