nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒11‒18
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Does a Second-Hand Market Limit a Durable Goods Monopolist's Market Power? By Meng-Yu Liang
  2. Continuous Implementation with Small Transfers By Chen, Yi-Chun; Kunimoto, Takashi; Sun, Yifei
  3. Insights on the Theory of Robust Games By Giovanni Paolo Crespi; Matteo Rocca; Davide Radi
  4. Implementation via Transfers with Identical but Unknown Distributions By Mariann Ollar; Antonio Penta
  5. Equilibrium in Incomplete Markets with Numeraire Assets and Differential Information: An Existence Proof By Lionel de Boisdeffre
  6. On the Existence of Equilibrium in Bayesian Games Without Complementarities By Idione Meneghel; Rabee Tourky
  7. Relative Maximum Likelihood Updating of Ambiguous Beliefs By Xiaoyu Cheng
  8. Timing of predictions in dynamic cheap talk: experts vs. quacks By Aleksei Smirnov; Egor Starkov
  9. Randomly Selected Representative Committees By Hasday, Michael J.; Peris, Josep E.; Subiza, Begoña
  10. A Theory of Cultural Revivals By Murat Iyigun; Jared Rubin; Avner Seror

  1. By: Meng-Yu Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Deneckere and Liang (2008) show that Swanís independent result fails when the monopolist cannot commit to a price schedule. The ratio between the rate of depreciation and the discount rate affects monopolist's market power when there is a frictionless secondhand market. This paper analyzes the same underlying model, except that resale is not allowed, and the existence of a second-hand market enlarges the range of parameters for the monopolist equilibrium. The presence of substitutes from the second-hand market after selling to the low valuation consumers may make the freshly release price less competitive in the first place.
    Keywords: : durability, market power, second-hand market, Coase Conjecture
    JEL: L12
    Date: 2019–09
  2. By: Chen, Yi-Chun (Department of Economics and Risk Management Institute, National University of Singapore); Kunimoto, Takashi (School of Economics, Singapore Management University); Sun, Yifei (School of International Trade and Economics, University of International Business and Economics)
    Abstract: The robust mechanism design literature investigates the global robustness of op-timal mechanisms to large changes in the environment. Acknowledging the global robustness as an overly demanding requirement, we propose continuous implementa-tion as a local robustness of optimal mechanisms to small changes in the environment. We say that a social choice function is continuously implementable “with small trans-fers” if there exists a mechanism which yields the outcome close to the desired one for all types close to the designer’s initial model. We show that when a generic cor-relation condition is imposed on the class of interdependent values environments, any incentive compatible social choice function is continuously implementable with small transfers. This exhibits a stark contrast with Bergemann and Morris (2005) who show that their global robustness amounts to ex post incentive compatibility as well as Oury and Tercieux (2012) who show that continuous implementation generates a substantial restriction, tightly connected to full implementation in rationalizable strategies.
    Keywords: Continuous implementation; full implementation; incentive compatibility; robustness; transfers
    JEL: C72 D78 D82
    Date: 2019–10–09
  3. By: Giovanni Paolo Crespi (Department of Economics, University of Insubria, Italy); Matteo Rocca (Department of Economics, University of Insubria, Italy); Davide Radi (Department of Economics and Management, University of Pisa, Pisa, Italy)
    Abstract: Restricting the attention to static games, we consider the problem of ambiguity generated by uncertain values of players’ payoff functions. Uncertainty is represented by a bounded set of possible realizations, and the level of uncertainty is parametrized in such a way that zero means no uncertainty, the so-called nominal counterpart game, and one the maximum uncertainty. Assuming that agents are ambiguity averse and they adopt the worst-case optimization approach to uncertainty, we employ the robust-optimization techniques to obtain a so-called robust game, see Aghassi and Bertsimas (2006). A robust game is a distribution-free model to handle ambiguity in a conservative way. The equilibria of this game are called robustoptimization equilibria and the existence is guaranteed by standard regularity conditions. The paper investigates the sensitivity to the level of uncertainty of the equilibrium outputs of a robust game. Defining the opportunity cost of uncertainty as the extra profit that a player would obtain by reducing his level of uncertainty, keeping fixed the actions of the opponents, we prove that a robust-optimization equilibrium is an e-Nash equilibrium of the nominal counterpart game where the -approximation measures the opportunity cost of uncertainty. Moreover, considering an e-Nash equilibrium of a nominal game, we prove that it is always possible to introduce uncertainty such that the e-Nash equilibrium is a robust-optimization equilibrium. Under some regularity conditions on the payoff functions, we also show that a robust-optimization equilibrium converges smoothly towards a Nash equilibrium of the nominal counterpart game, when the level of uncertainty vanishes. Despite these analogies, the equilibrium outputs of a robust game may be qualitatively different from the ones of the nominal counterpart. An example shows that a robust Cournot duopoly model can admit multiple and asymmetric robust-optimization equilibria despite the nominal counterpart is a simple symmetric game with linear-quadratic payoff functions for which only a symmetric Nash equilibrium exists
    Keywords: Ambiguity aversion; worst-case optimization; robust games
    Date: 2019–11
  4. By: Mariann Ollar; Antonio Penta
    Abstract: We consider mechanism design environments in which agents commonly know that types are identically distributed across agents, but without assuming that the actual distribution is common knowledge, nor that it is known to the designer (common knowledge of identicality). Under these assumptions, we explore problems of partial and full implementation, as well as robustness. First, we characterize the transfers which are incentive compatible under the assumption of common knowledge of identicality, and provide necessary and sufficient conditions for partial implementation. Second, we characterize the conditions under which full implementation is possible via direct mechanisms, as well as the transfer schemes which achieve full implementation whenever it is possible. Finally, we study the robustness properties of the implementing transfers with respect to misspecifications of agents’ preferences and with respect to lower orders beliefs in rationality.
    Keywords: moment conditions, robust full implementation, Rationalizability, interdependent values, identical but unknown distributions, uniqueness, strategic externalities, canonical transfers, loading transfers, equal-externality transfers
    JEL: D62 D82 D83
    Date: 2019–11
  5. By: Lionel de Boisdeffre (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: The paper extends to asymmetric information Geanakoplos-Polemarchakis' (1986) existence theorem for incomplete financial markets with numeraire assets. It builds on a generic existence property of equilibria with real assets and differential information, and applies an asymptotic argument. It presents a two-period pure-exchange economy, with an ex ante uncertainty over the state of nature to be revealed at the second period. Asymmetric information is represented by private sets of states, that each agent is correctly informed to contain the realizable states. Consumers exchange commodities, on spot markets, and securities, on financial markets, which pay off in the same bundle of goods, conditionally on the state of nature to be revealed. Consumers have ordered smooth preferences over consumptions and a perfect foresight of future prices, along Radner (1972). With a different technique of proof, the paper also extends to numeraire assets De Boisdeffre's (2007) existence theorem for nominal assets, which characterizes existence by a no-arbitrage condition.
    Keywords: Sequential Equilibrium,Temporary Equilibrium,Perfect Foresight,Existence,Rational Expectations,Financial Markets,Asymmetric Information,Arbitrage
    Date: 2018–08
  6. By: Idione Meneghel (Australian National University College of Business and Economics); Rabee Tourky (Australian National University College of Business and Economics)
    Abstract: This paper presents new results on the existence of pure-strategy Bayesian equilibria in specified functional forms. These results broaden the scope of methods developed by Reny (2011) well beyond monotone pure strategies. Applications include natural models of first-price and all-pay auctions not covered by previous existence results. To illustrate the scope of our results, we provide an analysis of three auctions: (i) a first-price auction of objects that are heterogeneous and imperfect substitutes; (ii) a first-price auction in which bidders’ payoffs have a very general interdependence structure; and (iii) an all-pay auction with non-monotone equilibrium.
    Keywords: Bayesian games, Monotone strategies, Pure-strategy equilibrium, Auctions
    JEL: C72 D44
    Date: 2019–08
  7. By: Xiaoyu Cheng
    Abstract: In the case where beliefs are ambiguous and represented by multiple priors, a decision maker (DM)'s updating behavior may also include a revision and refinement of her initial belief, a process which is absent from the Bayesian updating. As known in the literature, Maximum Likelihood (ML) updating provides one method of such refinement. The present paper provides an axiomatization of ML for preferences admit Maxmin Expected Utility (MEU) representation. ML and Full Bayesian (FB) are two updating rules with polar opposite methods of refining ambiguous beliefs. The present paper proposes and axiomatizes a new updating rule, Relative Maximum Likelihood (RML), for when a DM's conditional preference is not as extreme as either case. RML updates a linear contraction of the set of priors with respect to the maximum likelihood priors. The linear contraction parameter captures the relative attitudes of the DM towards ML with respect to FB. In particular, when the parameter takes either one of the two extreme values (0 or 1), RML reduces to FB or ML respectively. This paper also characterizes the Extended RML updating rule for ex-ante preferences that in addition satisfy comonotonic independence. This rule, which is related to RML, further preserves comonotonic independence for the updated preferences
    Date: 2019–11
  8. By: Aleksei Smirnov; Egor Starkov
    Abstract: The paper studies a dynamic communication game in the presence of adverse selection and career concerns. A forecaster of privately known competence, who cares about his reputation, chooses the timing of the forecast regarding the outcome of some future event. We find that in all equilibria in a sufficiently general class earlier reports are more credible. Further, any report hurts the forecaster’s reputation in the short run, with later reports incurring larger penalties. The reputation of a silent forecaster, on the other hand, gradually improves over time.
    Keywords: Career concerns, reputation, dynamic games, games of timing, strategic information transmission
    JEL: C73 D82 D83 D84
    Date: 2019–11
  9. By: Hasday, Michael J. (Anderson & Ochs, LLP.); Peris, Josep E. (University of Alicante, D. Quantitative Methods and Economic Theory); Subiza, Begoña (University of Alicante, D. Quantitative Methods and Economic Theory)
    Abstract: When selecting a committee that decides for an entire body of members of a society (a court, legislature, etc.) two main methods are used: random assignment and direct election (whereby the latter method is made by some authority). It is known that both methods have some flaws (Hasday, 2017). We present a new method that proposes a pool of committees so that by randomly selecting a committee within this pool, all members in the society have equal opportunities of being selected and properties of representativeness and coherence are fulfilled.
    Keywords: Representative Committee; Panel Assignment; Institutional Design; Random Assignment; Outlier Panel
    JEL: D63 D71 K40
    Date: 2019–09–06
  10. By: Murat Iyigun (University of Colorado, Boulder); Jared Rubin (Chapman University); Avner Seror (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France)
    Abstract: Why do some societies fail to adopt more efficient institutions? And why do such failures often coincide with cultural movements that glorify the past? We propose a model highlighting the interplay—or lack thereof—between institutional change and cultural beliefs. The main insight is that institutional change by itself will not lead to a more efficient economy unless culture evolves in tandem. This is because institutional change can be countered by changes in cultural values complementary to a more "traditional" economy. In our model, forward-looking elites, who benefit from a traditional, inefficient economy, may over-provide public goods that are complementary to the production of traditional goods. This encourages individuals to transmit cultural beliefs complementary to the provision of traditional goods. A horse race results between institutions, which evolve towards a more efficient (less traditional) economy, and cultural norms, which are pulled towards "tradition" by the elites. When culture wins the horse race, institutions respond by giving more political power to traditional elites—even if in doing so more efficient institutions are left behind. We call the interaction between these cultural and institutional dynamics a cultural revival.
    Keywords: institutions, cultural beliefs, cultural transmission, institutional change
    JEL: D02 N40 N70 O33 O38 O43 Z10
    Date: 2019–11

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