nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒10‒19
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Signaling under Double-Crossing Preferences By Chia-Hui Chen; Junichiro Ishida; Wing Suen
  2. Expectations, Networks, and Conventions By Benjamin Golub; Stephen Morris
  3. Borda rule as an almost first-order stochastic dominance rule By Mostapha Diss; Eric Kamwa; Muhammad Mahajne
  4. Ordinal Bayesian incentive compatibility in random assignment model By Sulagna Dasgupta; Debasis Mishra
  5. Information order in monotone decision problems under uncertainty By Li, Jian; Zhou, Junjie
  6. Assignment Maximization By Afacan, Mustafa Oguz; Bó, Inácio; Turhan, Bertan
  7. Majority properties of positional social preference correspondences By Mostapha Diss; Michele Gori
  8. Welfare as Equity Equivalents * By Loïc Berger; Johannes Emmerling
  9. Ethical Voting in Heterogenous Groups By Alberto Grillo
  10. Market share transparency, signaling and welfare: Cournot and Bertrand By David Spector
  11. Renegotiation in Debt Chains By Vincent Glode; Christian Opp

  1. By: Chia-Hui Chen; Junichiro Ishida; Wing Suen
    Abstract: This paper provides a general analysis of signaling under double-crossing preferences with a continuum of types. There are natural economic environments where indifference curves of two types cross twice, so that the celebrated single-crossing property fails to hold. Equilibrium exhibits a particular form of pooling: there is a threshold type below which types choose actions that are fully revealing and above which they choose actions that are clustered in possibly non-monotonic ways, with a gap separating these two sets of types. We also provide an algorithm to establish equilibrium existence by construction under mild conditions.
    Date: 2020–10
  2. By: Benjamin Golub; Stephen Morris
    Abstract: In coordination games and speculative over-the-counter financial markets, solutions depend on higher-order average expectations: agents' expectations about what counterparties, on average, expect their counterparties to think, etc. We offer a unified analysis of these objects and their limits, for general information structures, priors, and networks of counterparty relationships. Our key device is an interaction structure combining the network and agents' beliefs, which we analyze using Markov methods. This device allows us to nest classical beauty contests and network games within one model and unify their results. Two applications illustrate the techniques: The first characterizes when slight optimism about counterparties' average expectations leads to contagion of optimism and extreme asset prices. The second describes the tyranny of the least-informed: agents coordinating on the prior expectations of the one with the worst private information, despite all having nearly common certainty, based on precise private signals, of the ex post optimal action.
    Date: 2020–09
  3. By: Mostapha Diss (CRESE, Univ. Bourgogne Franche-Comté); Eric Kamwa (LC2S, Univ. des Antilles); Muhammad Mahajne (GATE, Univ Lyon)
    Abstract: In single-winner elections and individuals expressing linear orderings, an alternative has first-order stochastic dominance if the cumulative standing for this alternative at each rank is higher than that of the other alternatives. It is well known that this criterion may fail in ranking the competing alternatives since the first-order stochastic dominance winner may not exist in some situations. Making an adaptation of a centrality measure from network theory, we introduce in this note a rule, called the almost first-order stochastic dominance rule, which selects the alternative having first-order stochastic dominance if such an alternative exists, otherwise it selects the alternative which is close to achieve first-order stochastic dominance. It turns out that this rule is equivalent to the well-studied Borda rule. This result highlights an unknown property of the Borda rule.
    Keywords: Network, centrality, centrality measures, rankings, first-order stochastic dominance, scoring rules, Borda’s rule.
    JEL: C71 D71 D72 D85
    Date: 2020–07
  4. By: Sulagna Dasgupta; Debasis Mishra
    Abstract: We explore the consequences of weakening the notion of incentive compatibility from strategy-proofness to ordinal Bayesian incentive compatibility (OBIC) in the random assignment model. If the common prior of the agents is a uniform prior, then a large class of random mechanisms are OBIC with respect to this prior -- this includes the probabilistic serial mechanism. We then introduce a robust version of OBIC: a mechanism is locally robust OBIC if it is OBIC with respect all independent priors in some neighborhood of a given independent prior. We show that every locally robust OBIC mechanism satisfying a mild property called elementary monotonicity is strategy-proof. This leads to a strengthening of the impossibility result in Bogomolnaia and Moulin (2001): if there are at least four agents, there is no locally robust OBIC and ordinally efficient mechanism satisfying equal treatment of equals.
    Date: 2020–09
  5. By: Li, Jian; Zhou, Junjie
    Abstract: This paper examines the robustness of Lehmann’s ranking of experiments (Lehmann, 1988) for decisionmakers who are uncertainty-averse à la Cerreia- Vioglio et al. (2011). We show that, assuming commitment, for all uncertaintyaverse indices satisfying some mild assumptions, Lehmann’s informativeness ranking is equivalent to the induced uncertainty-averse value ranking of experiments for all agents with single-crossing vNM utility indices (Theorem 1). Moreover, Lehmann ranking can also be detected by varying the uncertainty-averse indices for a fixed finite collection of vNM utility indices (Theorem 2). Our findings suggest that Lehmann’s ranking can be a useful enrichment of Blackwell’s ranking for monotone decision problems even if ambiguity is present. We apply our results to social aggregation of information preferences and investment decision problems.
    Date: 2019–07–02
  6. By: Afacan, Mustafa Oguz; Bó, Inácio; Turhan, Bertan
    Abstract: We evaluate the goal of maximizing the number of individuals matched to acceptable outcomes. We show that it implies incentive, fairness, and implementation impossibilities. Despite that, we present two classes of mechanisms that maximize assignments. The first are Pareto efficient, and undominated, in terms of number of assignments, in equilibrium. The second are fair for unassigned students and assign weakly more students than stable mechanisms in equilibrium. We provide comparisons with well-known mechanisms through computer simulations. Those show that the difference in number of matched agents between the proposed mechanisms and others in the literature is large and significant.
    Date: 2020–01–09
  7. By: Mostapha Diss (CRESE, Univ. Bourgogne Franche-Comté); Michele Gori (Dipartimento di Scienze per l’Economia e l’Impresa, Università degli Studi di Firenze)
    Abstract: We characterize the positional social preference correspondences (spc) satisfying the qualified majority property for any given majority threshold. We also characterize the positional spcs satisfying the minimal majority property. We next evaluate the probability that the Borda, the Plurality and the Antiplurality spcs fulfil the two aforementioned properties under two assumptions on individuals’ preferences in the presence of three and four alternatives for various sizes of the society. Our results show that the Borda spc is the positional spc which better behaves in relation with the qualified majority principle and the minimal majority principle. Finally, we propose some remarks on the concept of Condorcet consistency for social choice correspondences.
    Keywords: social preference correspondence, social choice correspondence, positional rule, qualified majority, probability, Condorcet consistency.
    JEL: D71
    Date: 2020–07
  8. By: Loïc Berger (CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux], LEM - Lille économie management - LEM - UMR 9221 - Université de Lille - UCL - Université catholique de Lille - CNRS - Centre National de la Recherche Scientifique); Johannes Emmerling (EIEE - European Institute on Economics and the Environment)
    Abstract: Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfare in different dimensions. In this paper, we revisit the concept of inequity-in the sense of unequal distributions-across individuals, time, and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach. We propose a general measure of welfare as equity equivalents and a corresponding inequity index. We show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations. We then prove that the order of aggregation across the different dimensions matters for welfare evaluations. Finally, we show that many of the welfare-theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework.
    Keywords: Utilitarianism,Inequality,Inequity Aversion,Risk aversion,Intertemporal Welfare
    Date: 2020–09–01
  9. By: Alberto Grillo (Aix Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: Voting in large elections appears to be both ethically motivated and influenced by strategic considerations. One way to capture this interplay postulates a rule-utilitarian calculus, which abstracts away from heterogeneity in the intensity of support (Feddersen and Sandroni 2006, Coate and Conlin 2004). I argue that this approach is unsatisfactory when such heterogeneity is considered, since it implies that idiosyncratic preferences are irrelevant for participation, in contrast to the empirical evidence. A model of Kantian optimizationà la Roemer (2019), based on the maximization of individual utility under a universalization principle, predicts instead differential participation and links ethical motivation to the spatial theory of voting.
    Keywords: voting, turnout, ethical voter, rule-utilitarian, kantian optimization
    JEL: D72
    Date: 2020–10
  10. By: David Spector (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics)
    Abstract: When demand is noisy and firms' costs are uncertain, the availability of market share data increases the accuracy of each firm's information, and it creates incentives for signaling. Taking both effects into account, we find that under quantity competition with a homogeneous good, the availability of market share data has a positive impact on total surplus and an ambiguous one on consumer surplus. Under price competition with differentiated substitutes, it has a negative impact on consumer surplus and an ambiguous one on total surplus. If the cost difference is small, the effect of first-period signaling dominates the effect of second-period full information. Accordingly, in this case, the availability of market share data causes total and consumer surplus to increase in the case of quantity competition and to decrease in the case of price competition.
    Date: 2020–09
  11. By: Vincent Glode; Christian Opp
    Abstract: We develop a tractable model of strategic debt renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a debt chain, gives rise to externalities as a lender’s willingness to provide concessions to his privately-informed borrower depends on how this lender’s own liabilities are expected to be renegotiated. Our analysis reveals how targeted government subsidies and debt reductions as well as incentives for early renegotiation following large economic shocks such as COVID-19 or a financial crisis can prevent default waves.
    JEL: G21 G32 G33 G38
    Date: 2020–10

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