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on Utility Models and Prospect Theory |
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Issue of 2021‒09‒27
24 papers chosen by |
| By: | Christophe Bontemps (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Douadia Bougherara (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Céline Nauges (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Even if there exists an extensive literature on the modeling of farmers' behavior under risk, actual measurements of the quantitative impact of risk aversion on input use are rare. In this article, we use simulations to quantify the impact of risk aversion on the optimal quantity of input and farmers' welfare when production risk depends on how much of the input is used. The assumptions made on the technology and form of farmers' risk preferences were chosen such that they are fairly representative of crop farming conditions in the USA and Western Europe. In our benchmark scenario featuring a traditional expected utility model, we find that less than 4% of the optimal pesticide expenditure is driven by risk aversion and that risk induces a decrease in welfare that varies from −1.5 to −3.0% for individuals with moderate to normal risk aversion. We find a stronger impact of risk aversion on quantities of input used when farmers' risk preferences are modeled under the cumulative prospect theory framework. When the reference point is set at the median or maximum profit, and for some levels of the parameters that describe behavior toward losses, the quantity of input used that is driven by risk preferences represents up to 19% of the pesticide expenditure. |
| Keywords: | Pesticides,Production risk,Risk preferences |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03342609&r= |
| By: | Benoit Carmichael; Gilles Boevi Koumou; Kevin Moran |
| Abstract: | We use an equivalent form of Markowitz's mean-variance utility function, based on Rao's Quadratic Entropy (RQE), to enrich the standard capital asset pricing model (CAPM), both in the presence and in the absence of a risk-free asset. The resulting equilibrium, which we denote RQE-CAPM, offers important new insights about the pricing of risk. Notably, it reveals that the reason for which the standard CAPM does not price idiosyncratic risk is not only because the market portfolio is law of large numbers diversified but also because the model implicitly assumes agents' total risk aversion and their correlation diversification risk preference balance each other exactly. We then demonstrate that idiosyncratic risk is priced in a general RQE-CAPM where agents' total risk aversion and their correlation diversification risk preference coefficients are not necessary equal. Our general RQE-CAPM therefore offers a unifying way of thinking about the pricing of idiosyncratic risk, including cases where such risk is negatively priced, and is relevant for the literature assessing the idiosyncratic risk puzzle. It also provides a natural theoretical underpinning for the empirical tests of the CAPM or the pricing of idiosyncratic risk performed in some existence studies. |
| Keywords: | : Rao's Quadratic Entropy, Mean-Variance Model, Capital Asset Pricing Model, Idiosyncratic Risk, Correlation Diversification. |
| JEL: | D81 G11 G12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:crrecr:2107&r= |
| By: | Laczó, Ferenc |
| Abstract: | In this study the concept of commodities is formulated according to the utility theory; following the principle of price elasticity of demand, differences of uncompensated and compensated price changes will be clearly interpreted; as the uncompensated and compensated price changes have different averaging properties, so two different CPI formulas need to be defined; arbitrary price changes are broken down into uncompensated and compensated price change to obtain a complete, dual CPI formula. |
| Keywords: | Economic Value of a Commodity; Uncompensated vs. Compensated Price Change; Common Units in Measurements; Dual CPI Formula; Supply-Driven and Demand-Driven Economy |
| JEL: | E31 |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109810&r= |
| By: | Ata Atay; Eric Bahel; Tam\'as Solymosi |
| Abstract: | This paper studies matching markets in the presence of middlemen. In our framework, a buyer-seller pair may either trade directly or use the services of a middleman; and a middleman may serve multiple buyer-seller pairs. Direct trade between a buyer and a seller is costlier than a trade mediated by a middleman. For each such market, we examine an associated cooperative game with transferable utility. First, we show that an optimal matching for a matching market with middlemen can be obtained by considering the two-sided assignment market where each buyer-seller pair is allowed to use the mediation service of the middlemen free of charge and attain the maximum surplus. Second, we prove that the core of a matching market with middlemen is always non-empty. Third, we show the existence of a buyer-optimal core allocation and a seller-optimal core allocation. In general, the core does not exhibit a middleman-optimal matching. Finally, we establish the coincidence between the core and the set of competitive equilibrium payoff vectors. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.05456&r= |
| By: | Sandro Ambuehl; B. Douglas Bernheim |
| Abstract: | We investigate how individuals think groups should aggregate members’ ordinal preferences – that is, how they interpret “the will of the people.” In an experiment, we elicit revealed attitudes toward ordinal preference aggregation and classify subjects according to the rules they apparently deploy. Majoritarianism is rare. Instead, people employ rules that place greater weight on compromise options. The classification’s fit is excellent, and clustering analysis reveals that it does not omit important rules. We ask whether rules are stable across domains, whether people impute cardinal utility from ordinal ranks, and whether attitudes toward aggregation differ across countries with divergent traditions. |
| Keywords: | Experiment, welfare economics, social choice, Borda, Condorcet |
| JEL: | C91 D71 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:395&r= |
| By: | Stoian, Andreea; Vintila, Nicoleta; Iorgulescu, Filip; Cepoi, Cosmin Octavian; Dina Manolache, Aurora |
| Abstract: | This study investigates the relationship between risk aversion, financial literacy, and investment preferences of young adults in higher education in Romania. For this purpose, we conducted a survey that measured the basic, advanced and overall financial literacy, risk aversion, and parental financial behaviours. We had 479 respondents and a similar number of useable surveys. Resorting to OLS and IV econometric methods, we show that financial literacy, regardless of its level, contributes to reducing risk aversion quantified by the risk premium. Moreover, positive financial behaviours of parents also decrease the risk aversion. This finding is invalid in the case of a self-assessed risk tolerance. We also found that young adults' investment preferences are influenced by the self-assessed risk tolerance and not by the risk aversion. However, financial literacy increases the probability of young adults to select bonds or funds as investment options, but does not have a statistically significant influence on the selection of stocks, which is mainly driven by the self-assessed risk profile as well as bank deposits. |
| Keywords: | financial literacy, risk aversion, risk premium, investment choices, survey methods |
| JEL: | C83 G11 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109755&r= |
| By: | Demeze-Jouatsa, Ghislain-Herman (Center for Mathematical Economics, Bielefeld University); Pongou, Roland (Center for Mathematical Economics, Bielefeld University); Tondji, Jean-Baptiste (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Frequent violations of fair principles in real-life settings raise the fundamental question of whether such principles can guarantee the existence of a self-enforcing equilibrium in a free economy. We show that elementary principles of distributive justice guarantee that a pure-strategy Nash equilibrium exists in a finite economy where agents freely (and non- cooperatively) choose their inputs and derive utility from their pay. Chief among these principles is that: 1) your pay should not depend on your name; and 2) a more productive agent should not earn less. When these principles are violated, an equilibrium may not exist. Moreover, we uncover an intuitive condition|technological monotonicity|that guarantees equilibrium uniqueness and efficiency. We generalize our findings to economies with social justice and inclusion, implemented in the form of progressive taxation and redistribution, and guaranteeing a basic income to unproductive agents. Our analysis uncovers a new class of strategic form games by incorporating normative principles into non-cooperative game theory. Our results rely on no particular assumptions, and our setup is entirely non- parametric. Illustrations of the theory include applications to exchange economies, surplus distribution in a firm, contagion and self-enforcing lockdown in a networked economy, and bias in the academic peer-review system. |
| Keywords: | Market justice, Social justice, Inclusion, Ethics, Discrimination, Self-enforcing contracts, Fairness in non-cooperative games, Pure strategy Nash equilibrium, Efficiency |
| Date: | 2021–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:653&r= |
| By: | Fabien Perez (CREST, ENSAE, INSEE); Guillaume Hollard (CREST, EcolePolytechnique, CNRS); Radu Vranceanu (ESSEC Business School and THEMA) |
| Abstract: | This paper analyzes within-session test/retest data from four different tasks used to elicit risk attitudes. Maximum-likelihood and non-parametric estimations on 16 datasets reveal that, irrespective of the task, measurement error accounts for approximately 50% of the variance of the observed variable capturing risk attitudes. The consequences of this large noise element are evaluated by means of simulations. First, as predicted by theory, the coefficient on the risk measure in univariate OLS regressions is attenuated to approximately half of its true value, irrespective of the sample size. Second, the risk-attitude measure may spuriously appear to be insignificant, especially in small samples. Unlike the measurement error arising from within-individual variability, rounding has little influence on significance and biases. In the last part, we show that instrumental-variable estimation and the ORIV method, developed by Gillen et al. (2019), both of which require test/retest data, can eliminate the attenuation bias, but do not fully solve the insignificance problem in small samples. Increasing the number of observations to N=500 removes most of the insignificance issues. |
| Keywords: | Measurement error, Risk-aversion, Test/retest, ORIV, Sample size |
| JEL: | C18 C26 C91 D81 |
| Date: | 2021–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2021-13&r= |
| By: | Eitan Sapiro-Gheiler |
| Abstract: | I describe a Bayesian persuasion problem where Receiver has a private type representing a cutoff for choosing Sender's preferred action, and Sender has maxmin preferences over all Receiver type distributions with a known mean. Sender's utility from any distribution of posterior means is a function of its concavification; this result leads Sender to linearize the prior distribution by inducing a truncated uniform distribution of posterior means. When the prior belief about the state of the world is binary, Sender's unique optimal distribution is an upper-truncated uniform with an atom at 0. When the prior belief about the state of the world is continuous and unimodal, one optimal distribution for Sender is a double-truncated uniform with an atom at the end of the lower truncation. In both cases, the shape and support of the optimal distribution differ qualitatively from the corresponding solution when Sender holds a prior belief over Receiver types. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.11536&r= |
| By: | Els Bekaert; Amelie F. Constant; Killian Foubert; Ilse Ruyssen |
| Abstract: | Aspirations provide the underlying dynamics of the behavior of individuals whether they are realized or not. Knowledge about the characteristics and motives of those who aspire to leave the host country is key for both host and home countries to formulate appropriate and effective policies in order to keep their valued immigrants or citizens and foster their (re-)integration. Based on unique individual-level Gallup World Polls data, a random utility model, and a multinomial logit we model the aspirations or stated preferences of immigrants across 138 countries worldwide. Our analysis reveals selection in characteristics, a strong role for soft factors like social ties and sociocultural integration, and a faint role for economic factors. Changes in circumstances in the home and host countries are also important determinants of aspirations. Results differ by the host countries’ level of economic development. |
| Keywords: | economics of immigrants, geographic labor mobility, public policy, microeconomic behaviour, underlying principles, international migration, large data sets, modelling and analysis |
| JEL: | J15 J61 J68 D01 F22 C55 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9301&r= |
| By: | Olivier Bochet; Mathieu Faure; Yan Long; Yves Zenou (Division of Social Science) |
| Abstract: | We consider an aggregative game of competition in which agents have an imperfect knowledge about the set of agents they are in competition with. We model agent’s perceived competitors by a network in which each agent is assumed to only have information on the activities of their direct neighbors. In this framework, a natural equilibrium concept emerges, the peer-consistent equilibrium (PCE). In a PCE, each agent chooses an action level that maximizes her subjective perceived utility and the action levels of all individuals in the network must be consistent. We decompose the network into communities and completely characterize peer-consistent equilibria by identifying which sets of agents can be active in equilibrium. An agent is active if she either belongs to a strong community or if few agents are aware of her existence. We show that there is a unique stable PCE. We provide a behavioral foundation of eigenvector centrality, since, in any stable PCE, agents’ action levels are proportional to their eigenvector centrality in the network. We illustrate our results with two well-known models: Tullock contest function and Cournot competition. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20210069&r= |
| By: | James Holehouse; Hector Pollitt |
| Abstract: | We solve the binary decision model of Brock and Durlauf (2001) in time using methods often employed in studies of stochastic complex systems. This solution is valid when not at equilibrium and can be used to exemplify path-dependent behaviours of their model. The solution is computationally fast and is indistinguishable from Monte Carlo simulation. Lock-in effects are observed in some regions of the model's parameter space, and we calculate the time scale of the lock-ins. Curiously, we find that although altruistic agents coalesce more strongly on a particular decision, increasing their utility in the short-term, they are also more prone to being stuck in a non-optimal decision lock-in as compared to selfish agents. Finally, we construct a likelihood function that can be used on non-equilibrium data for model calibration. Even with a well-defined likelihood function, model calibration is difficult unless one has access to data representative of the underlying model. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.09633&r= |
| By: | Claudia Cerrone; Francesco Feri; Philip R. Neary |
| Abstract: | The outcome of a foregone alternative is not always learnt. We incorporate this observation into a model of regret, supposing that the ex-post information available depends on choice. We show that a more informative ex-post environment is never desirable for a regret averse individual. We then suppose that there are multiple regret averse individuals where the ex-post information available depends on own choice and the choices of others. This implies that what appears to be a series of isolated decision problems is in fact a behavioural game with multiple equilibria. We experimentally test the model and find support for our theory. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.10968&r= |
| By: | Roc Armenter; Michèle Müller-Itten; Zachary Strangebye |
| Abstract: | We present a geometric approach to the finite Rational Inattention (RI) model, recasting it as a convex optimization problem with reduced dimensionality that is well-suited to numerical methods. We provide an algorithm that outperforms existing RI computation techniques in terms of both speed and accuracy. We also introduce methods to quantify the impact of numerical inaccuracy on the behavioral predictions and to produce robust predictions regarding the most frequently implemented actions. |
| Keywords: | rational inattention; Shannon entropy; information acquisition; learning; consideration sets |
| JEL: | C63 D81 D83 |
| Date: | 2021–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:93054&r= |
| By: | Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer |
| Abstract: | We review the fast-growing work on salience and economic behavior. Psychological research shows that salient stimuli attract human attention “bottom up” due to their high contrast with surroundings, their surprising nature relative to recalled experiences, or their prominence. The Bordalo, Gennaioli and Shleifer (2012, 2013, 2020) models of salience show how bottom up attention can distort economic choice by distracting decision makers from their immediate goals or from certain choice attributes. We show that this approach explains many puzzles: separately treated departures from “rationality” such as probability weighting, menu effects, reference point effects, and framing, emerge as distinct manifestations of the same principle of bottom up attention to salient stimuli. We highlight new predictions and discuss open conceptual questions, as well as potential applications in finance, industrial organization, advertising, and politics. |
| JEL: | D0 D03 D81 D90 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29274&r= |
| By: | Mohit Batham; Soudeh Mirghasemi; Mohammad Arshad Rahman; Manini Ojha |
| Abstract: | This chapter presents an overview of a specific form of limited dependent variable models, namely discrete choice models, where the dependent (response or outcome) variable takes values which are discrete, inherently ordered, and characterized by an underlying continuous latent variable. Within this setting, the dependent variable may take only two discrete values (such as 0 and 1) giving rise to binary models (e.g., probit and logit models) or more than two values (say $j=1,2, \ldots, J$, where $J$ is some integer, typically small) giving rise to ordinal models (e.g., ordinal probit and ordinal logit models). In these models, the primary goal is to model the probability of responses/outcomes conditional on the covariates. We connect the outcomes of a discrete choice model to the random utility framework in economics, discuss estimation techniques, present the calculation of covariate effects and measures to assess model fitting. Some recent advances in discrete data modeling are also discussed. Following the theoretical review, we utilize the binary and ordinal models to analyze public opinion on marijuana legalization and the extent of legalization -- a socially relevant but controversial topic in the United States. We obtain several interesting results including that past use of marijuana, belief about legalization and political partisanship are important factors that shape the public opinion. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.10122&r= |
| By: | Christiane Baumeister |
| Abstract: | Asset prices are a valuable source of information about financial market participants.expectations about key macroeconomic variables. However, the presence of time-varying risk premia requires an adjustment of market prices to obtain the market’s rational assessment of future price and policy developments. This paper reviews empirical approaches for recovering market-based expectations. It starts by laying out the two canonical modeling frameworks that form the backbone for estimating risk premia and highlights the proliferation of risk pricing factors that result in a wide range of different asset-price-based expectation measures. It then describes a key methodological innovation to evaluate the empirical plausibility of risk premium estimates and to identify the most accurate market-based expectation measure. The usefulness of this general approach is illustrated for price expectations in the global oil market. Then, the paper provides an overview of the body of empirical evidence for monetary policy and inflation expectations with a special emphasis on market-specific characteristics that complicate the quest for the best possible market-based expectation measure. Finally, it discusses a number of economic applications where market expectations play a key role for evaluating economic models, guiding policy analysis, and deriving shock measures. |
| Keywords: | futures markets, risk premia, monetary policy, commodities, market expectations, financial markets, asset pricing, return regressions, affine term structure models, risk adjustment, model uncertainty, forecasting, expectational shocks |
| JEL: | C52 E31 E43 E52 G14 Q43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9305&r= |
| By: | Joshua Bernstein (Indiana University); Rupal Kamdar (Indiana University) |
| Abstract: | This paper studies optimal monetary policy under rational inattention: the policy maker optimally chooses her information subject to a processing constraint. Our analytical results emphasize how the policy maker’s information choices shape her expectations and the dynamics of the macroeconomy. Paying attention to demand shocks lowers output volatility and causes untracked supply shocks to drive inflation. Because persistent supply shocks have a minor impact on interest rates under full information in the New Keynesian model, the policy maker should focus her limited attention on demand shocks. Improvements in information can explain a declining slope of the empirical Phillips curve. |
| Keywords: | optimal monetary policy, rational inattention, expectations |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2021003&r= |
| By: | Pedro Bordalo; John J. Conlon; Nicola Gennaioli; Spencer Yongwook Kwon; Andrei Shleifer |
| Abstract: | People often estimate probabilities, such as the likelihood that an insurable risk will materialize or that an Irish person has red hair, by retrieving experiences from memory. We present a model of this process based on two established regularities of selective recall: similarity and interference. The model accounts for and reconciles a variety of conflicting empirical findings, such as overestimation of unlikely events when these are cued vs. neglect of non-cued ones, the availability heuristic, the representativeness heuristic, as well as over vs. underreaction to information in different situations. The model makes new predictions on how the content of a hypothesis (not just its objective probability) affects probability assessments by shaping the ease of recall. We experimentally evaluate these predictions and find strong experimental support. |
| JEL: | C91 D01 D84 D90 D91 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29273&r= |
| By: | Venmans, Frank; Groom, Ben |
| Abstract: | Measures of inequality aversion are elicited using hypothetical decision tasks. The tasks require an assessment of projects in the presence of environmental inequalities across space and time. We also test the effect of different environmental domains (air pollution, recreational forest and soil fertility) and contextual framings (gain/loss, within/between regions and present–future/past–present inter-temporal trade-offs). Estimated mean inequality aversion is higher in the intra-temporal framing (an elasticity of 2.9), than in the inter-temporal framing with either negative (2.0) or positive (1.4) growth in environmental quality. Differences across environmental domains exist but are less pronounced. Similar results hold for pure time preference. Losses are associated with a lower pure rate of time preference but higher inequality aversion compared to gains. The results indicate how domain-specific ‘dual’ discount rates or rather changing relative shadow prices for the environment might be calibrated. Yet, seen as an exercise in empirical social choice, the context dependent results reject the classical Utilitarian formulation of a single Ramsey Rule. |
| Keywords: | social discount rate; inequality; inequality aversion; cost benefit analysis; Ramsey rule; ES/R009708/1; UKRI block grant |
| JEL: | D31 H43 D61 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:110739&r= |
| By: | Takaaki Abe (School of Political Science and Economics, Waseda University, 1-6-1, Nishi-Waseda, Shinjuku-ku, Tokyo 169-8050, Japan.); Satoshi Nakada (School of Management, Department of Business Economics, Tokyo University of Science, 1-11-2, Fujimi, Chiyoda-ku, Tokyo, 102-0071, Japan.) |
| Abstract: | Our objective is to analyze the relationship between the Shapley value and the core of cooperative games with transferable utility. We first characterize balanced games, namely, the set of games with a nonempty core, by means of geometric properties. We show that the set of balanced games generates a polyhedral cone and that a game is balanced if and only if it is a nonnegative linear combination of some simple games. Moreover, we show that the set of games whose Shapley value is in the core also yields a polyhedral cone and that a game obeys this property if and only if it is a nonnegative linear combination of some “easy” games. In addition, we also show that the number of games that correspond to the extreme rays of the polyhedron coincides with the number of minimal balanced collections. |
| Keywords: | Cooperative games; Shapley value; Core; Minkowski-Weyl’s Theorem |
| JEL: | C71 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:2112&r= |
| By: | Backhaus, Teresa; Breitmoser, Yves |
| Abstract: | Reanalyzing 12 experiments on the repeated prisoner's dilemma (PD), we robustly observe three distinct subject types: defectors, cautious cooperators and strong cooperators. The strategies used by these types are surprisingly stable across experiments and uncorrelated with treatment parameters, but their population shares are highly correlated with treatment parameters. As the discount factor increases, the shares of defectors decrease and the relative shares of strong cooperators increase. Structurally analyzing behavior, we next find that subjects have limited foresight and assign values to all states of the supergame, which relate to the original stage-game payoffs in a manner compatible with inequity aversion. This induces the structure of coordination games and approximately explains the strategies played using Schelling's focal points: after (c,c) subjects play according to the coordination game's cooperative equilibrium, after (d,d) they play according to its defective equilibrium, and after (c,d) or (d, c) they play according to its mixed equilibrium. |
| Keywords: | Repeated game,Behavior,Tit-for-tat,Mixed strategy,Memory,Belief-freeequilibrium,Laboratory experiment |
| JEL: | C72 C73 C92 D12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2021303&r= |
| By: | Deepak Malghan; Hema Swaminathan |
| Abstract: | Di?erences in economic outcomes between men and women within a household, or intra-household gender inequality has su?ered from relative neglect despite a renewed focus on gender inequality. Using global micro-data from nearly three million house-holds, we present evidence that this neglect renders our understanding of the relation-ship between gender inequality and economic development analytically and empirically incomplete. We show that intra-household gender inequality in earnings is persistent across the income distribution, across a wide range to countries, and over four-decades. For a sub-sample of countries, we show that the relationship between intra-household gender inequality and household economic status is non-monotonic – that we refer to as the “micro-Kuznets” relationship. We also develop an empirical framework to mea-sure the aggregate welfare loss from intra-household gender inequality. For a range of plausible inequality aversion assumptions, we report an median welfare loss of over 15% of aggregate earnings. |
| JEL: | D63 I31 J16 D10 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:lis:lwswps:34&r= |
| By: | Saglam, Ismail |
| Abstract: | Revelation principle implies that given any admissible social welfare function, the outcome of Baron and Myerson's (1982) (BM) optimal direct-revelation mechanism under incentive constraints cannot be dominated by any other mechanism in expected utilities. However, since the expected total surplus varies with a change in the social welfare function, Pareto improvements should be possible if the monopolist and consumers can agree, by means of side payments that reveal no additional information to the regulator, on the use of an alternative social welfare function which would generate a lower expected deadweight loss. We check the validity of this intuition by integrating the BM mechanism with an induced cooperative bargaining model where unilateral pre-donation by consumers or the producer is allowed. Under this new mechanism producer's pre-donation in the ex-ante stage always leads to ex-ante Pareto improvement while a certain amount of it completely eliminates the expected deadweight loss. Moreover, if optimally designed in the interim stage, the producer's pre-donation may also lead under some cost parameters to interim (and also (ex-post) Pareto improvement. Consumers, on the other hand, have no incentive to make a unilateral pre-donation, nor to reverse the optimal pre-donation of the monopolist. |
| Keywords: | Monopoly regulation; cooperative bargaining; pre-donation. |
| JEL: | C78 D42 L51 |
| Date: | 2021–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109741&r= |