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on Utility Models and Prospect Theory |
| By: | Thomas Demuynck; Per Hjertstrand |
| Abstract: | We propose a revealed preference method to non-parametrically bound the coefficients of relative (and absolute) risk aversion in an expected utility framework.Our approach abstains from placing functional form restrictions on the Bernoulliutility function. Our method is applicable to any finite number of observations onchoices over Arrow-Debreu contingent claims, and can be efficiently implementedusing linear or quadratic programming techniques. We illustrate our results usinga large-scaled experimental data set |
| Keywords: | Expected Utility; revealed preference; risk aversion |
| JEL: | D11 C14 D81 |
| Date: | 2026–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/405675 |
| By: | Mogens Fosgerau; Jesper R. -V. S{\o}rensen |
| Abstract: | This paper develops a highly general convex duality framework for the perturbed utility route choice (PURC) model. We show that the traveler's constrained, potentially non-smooth utility maximization problem admits a dual formulation: an unconstrained concave maximization problem with a differentiable objective. The unique optimal flow can be recovered link-by-link from any dual solution via the convex conjugates of link perturbation functions. These properties enable efficient gradient-based optimization for large-scale networks and fast computation for sensitivity analysis. Finally, the framework reveals a structural analogy between PURC and current flow in electrical circuits. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.20220 |
| By: | Pierre-Andre Chiappori; Dam Linh Nguyen; Bernard Salanie |
| Abstract: | Since Choo and Siow (2006), a burgeoning literature has analyzed matching markets when utility is perfectly transferable and the joint surplus is separable. We take stock of recent methodological developments in this area. Combining theoretical arguments and simulations, we show that the separable approach is reasonably robust to omitted variables and/or non-separabilities. We conclude with a caveat on data requirements and imbalanced datasets. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.16127 |
| By: | Andrew Hertzberg |
| Abstract: | I present a model of consumption and savings for a multi-person household in which members are imperfectly altruistic, derive utility from both private and shared public goods, and share wealth. I show that, despite having standard exponential time preferences, the household is time-inconsistent: members save too little and overspend on private consumption goods. The household remains time-inconsistent even when members save separately, because the possibility of voluntary transfers or joint contribution to the public good preserves the dynamic commons problem. The household will choose to share wealth when the risk sharing benefits outweigh the utility cost of overconsumption. |
| Keywords: | Time-Inconsistency; Savings; Families; Intra-Household Decision Making |
| JEL: | D13 D91 D14 G41 G51 |
| Date: | 2026–04–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:103023 |
| By: | Xia Han; Bin Li |
| Abstract: | This paper studies optimal insurance design under asymmetric information in a Stackelberg framework, where a monopolistic insurer faces uncertainty about both the insured's risk attitude, captured by a risk-aversion parameter, and the insured's risk type, characterized by the loss distribution. In particular, when the risk type is unobservable, we allow the risk-aversion parameter to depend on the risk type. We construct a menu of contracts that maximizes the mean-variance utilities of both parties under the expected-value premium principle, subject to a truth-telling constraint that ensures the truthful revelation of private information. We show that when risk attitude is private information, the optimal coverage takes the form of excess-of-loss insurance with linear pricing in terms of the risk loading (defined as the premium minus the expected loss), designed to screen risk preferences. In contrast, when risk type is unobserved, we restrict the coverage function to an excess-of-loss form and derive an ordinary differential equation that characterizes the optimal risk loading. Under mild conditions, we establish the existence and uniqueness of the solution. The results show that equilibrium contracts exhibit nonlinear pricing with decreasing risk loadings, implying that higher-risk individuals face lower risk loadings in order to induce self-selection. Finally, numerical illustrations demonstrate how parameter values and the distributions of unobserved heterogeneity affect the structure of optimal contracts and the resulting pricing schedule. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.15881 |
| By: | Sonedda, Daniela (University of Insubria); Matranga, Marcello (University of Piemonte Orientale); Vernasca, Gianluigi (University of Essex); Rossi, Mariacristina (University of Turin); Figari, Francesco (University of Piemonte Orientale) |
| Abstract: | We study the interaction between need- and merit-based university grants in a non-selective higher education system. Using administrative data from a northern Italian university, we analyse how eligibility criteria affect enrolment, academic performance, and labour market outcomes. We document a trade-off between the two criteria, with merit requirements acting as endogenous screening. We rationalise this trade-off with a three-period model predicting that merit thresholds increase effort among students with higher expected ability but may discourage effort among students at risk of falling short, as losing the grant reduces expected utility. We support these predictions using a difference-in-differences estimator for multiple treatments, separately analysing students switching into and out of need- and merit-based eligibility. Our results show that grants target disadvantaged but academically strong students, generate perverse incentive effects that vary by gender, and fail to retain a substantial share of initial recipients. |
| Keywords: | university grants, educational outcomes, non selective higher education |
| JEL: | I22 I23 J24 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18547 |
| By: | Elija Perrier |
| Abstract: | The First Fundamental Theorem of Welfare Economics assumes that welfare-bearing agents are autonomous and implicitly relies on a binary distinction between autonomy and instrumentality. Welfare subjects are those who have autonomy and therefore the capacity to choose and enter into utility comparisons, while everything else does not. In post-AGI economies this presupposition becomes nontrivial because artificial systems may exhibit varying degrees of autonomy, functioning as tools, delegates, strategic market actors, manipulators of choice environments, or possible welfare subjects. We argue that the theorem ought to be subject to an autonomy qualification where the impact of these changes in autonomy assumptions is incorporated. Using a minimal general-equilibrium model with autonomy-conditioned welfare, welfare-status assignment, delegation accounting, and verification institutions, we set out conditions for which autonomy-complete competitive equilibrium is autonomy-Pareto efficient. The classical theorem is recovered as the low-autonomy limit. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.21216 |
| By: | Emilio Barucci; Yuheng Lan; Daniele Marazzina |
| Abstract: | We investigate the optimal execution of contracts that are used in merger\&acquisition deals. We consider cash-settled and physically delivered contracts between a broker and a counterpart. Contracts are linear (total returns swaps), nonlinear (collar contracts) or Asian type (TWAP based contracts). We derive the optimal execution strategy and the optimal fee through indifference utility arguments allowing for linear market effects of trades. We show that linear cash-settled contracts are more expensive and more exposed to manipulation/statistical arbitrages by the broker. Also nonlinear and Asian type contracts are exposed to these phenomena. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.21581 |
| By: | Ryo Masuyama (Kushiro Public University of Economics and Kobe University) |
| Abstract: | This study evaluates personalized pricing in supply chain competition. We consider two supply chains, each comprising an upstream firm with Corporate Social Responsibility (CSR) and a downstream firm investing in quality. A downstream firm's quality investment has two effects: it raises its own consumers' utility and induces the rival downstream firm to lower its price, consequently benefiting the rival's consumers. As personalized pricing is exploitative, the former effect is entirely captured. First, we find that under personalized pricing, a downstream firm's investment benefits only the rival's consumers. In response, the upstream firm with CSR sets a higher input price to expand the rival's market share and increase consumer surplus, which weakens downstream investment incentives and moderates quality competition. Second, we find that personalized pricing may harm consumers while remaining profitable for downstream firms. |
| Keywords: | personalized pricingï¼› uniform pricingï¼› Corporate Social Responsibilityï¼› quality investmentï¼› supply chain management |
| JEL: | D43 L10 L13 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2607 |
| By: | Laurens Cherchye; Bram De Rock; Frederic Vermeulen; Paula Eugenia Gobbi |
| Abstract: | Fertility has declined almost everywhere, yet the pattern of decline differs sharplyacross countries, education groups, and family forms. We argue that this heterogeneity is best understood through the value of marriage, that is, the surplus generated bypartnership relative to outside options. This surplus depends on preferences, the organization of work and childcare, bargaining positions, marriage market opportunities, social norms, and public policy. Children therefore do not simply enter utility; theyreshape both the gains from partnership and the way these gains are shared over time.Collective models enriched with marriage markets and limited commitment providea coherent framework for analyzing these mechanisms jointly. This perspective showshow similar fertility outcomes can emerge from very different underlying forces, such ashigh maternal career costs in one context and fragile unions with limited commitmentin another. It also highlights why structural models are essential for counterfactualpolicy analysis: they help isolate whether observed fertility patterns reflect changes inchildcare burdens, bargaining positions, or marriage-market conditions, and how thesemechanisms interact. |
| Keywords: | Value of marriage; fertility decisions; limited commitment; bargaining and intrahousehold allocation |
| JEL: | J12 J13 D13 C61 |
| Date: | 2026–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/405189 |
| By: | Julian Keutz (Institute of Energy Economics at the University of Cologne gGmbH) |
| Abstract: | Price premia between day-ahead and intraday electricity markets are well documented and often attributed to factors such as forecast errors or market frictions. However, existing explanations provide limited insight into why these price premia can exhibit a systematic diurnal structure, as observed in the German market. This paper provides a structural explanation by linking price premia to the bidding behavior of renewable producers. I develop a stylized two-stage model in which renewable producers determine their day-ahead bids under different bidding rationales, including expected-production bidding, risk-neutral bidding, and risk-averse bidding that accounts for tail risk. Closed-form solutions for day-ahead bids and the resulting price premia are derived and evaluated using a calibration to German market data. The results show how bidding behavior interacts with supply curve convexity and forecast uncertainty to translate risk preferences of renewable producers into systematic price premia. In particular, heterogeneous bidding behavior across renewable technologies replicates the diurnal pattern of price premia observed in the German market: negative premia around midday and positive premia during morning and evening hours arise when PV producers bid expected production while wind producers follow a risk-averse strategy. The findings suggest that observed price premia reflect both risk preferences and institutional features of renewable energy marketing, which may warrant reconsideration. |
| Keywords: | Sequential Markets;Renewable Energy Bidding; Price Premia; Risk Preferences |
| JEL: | Q41 Q42 L94 D81 |
| Date: | 2026–04–14 |
| URL: | https://d.repec.org/n?u=RePEc:ris:ewikln:022437 |
| By: | Alexander Karaivanov (Simon Fraser University) |
| Abstract: | I analyze the role of prepayment in a dynamic risk-sharing setting with information and commitment frictions. An insurance platform contracts with a risk-averse agent with stochastic income. Part of the income can be withheld in escrow as a prepayment. I consider three endogenously incomplete markets settings with different obstacles to risk sharing: limited commitment, private information due to hidden income, and both. I show that prepayment alleviates the limited commitment problem and improves the degree of risk sharing, including possibly to full insurance depending on the model parameters; however, prepayment is ineffective in the private information settings. In the setting with both limited commitment and private information frictions, I show that private information is the binding constraint. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:sfu:sfudps:dp26-06 |
| By: | Gotoh, Reiko; Kambayashi, Ryo (Musashi University) |
| Abstract: | This study addresses a fundamental challenge in the empirical application of the Capability Approach: the measurement of the “capability set” as an opportunity set. Unlike standard utility-based measures that focus solely on achieved outcomes, measuring capability requires assessing the welfare of potential activities—including those not chosen (counterfactuals). We propose a novel methodology that bridges normative social choice theory and econometric causal inference. Specifically, we interpret the Average Treatment Effect (ATE) derived from panel data fixed-effects models as capturing marginal counterfactual welfare differences between alternative actions, rather than level comparisons of chieved outcomes. Using a unique panel dataset of elderly individuals in Japan, focusing on “going-out” versus “staying-home” behavior, we evaluate the size of capability sets and the degree of “unfreedom” (the welfare gap between options). Furthermore, we propose and apply several aggregation rules—ranging from Utilitarian to Rawlsian—to construct group-level capability measures. Our empirical results demonstrate that the ranking of social groups varies significantly depending on the normative aggregation rule employed, highlighting the importance of explicitly defining the informational basis of social evaluation. |
| Date: | 2026–04–14 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:2c549_v1 |