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on Microeconomics |
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Issue of 2005‒02‒01
nineteen papers chosen by Joao Carlos Correia Leitao Universidade da Beira Interior |
| By: | António Caleiro (Department of Economics, University of Évora) |
| Abstract: | One of the most crucial lessons to be taken from the literature on electoral business cycles is that the shortrun electorally induced. uctuations prejudice the long-run welfare. Since the very .rst studies on the matter, some authors o.ered suggestions as to what should be done against this electorally-induced instability. The problem assumes an interesting form, given that we can presume that if electoral business cycles do exist it is because voters, being ignorant, allow them to exist or, indeed, because the government, in the case of implementing policies that are optimal in the long-run for society, may be electorally punished by voters. As the government’s optimal policies depend crucially on the behaviour of voters, the paper analyses the circumstances under which a non-representative behaviour of voters may induce the government to behave as representative of the society’s interests (without punishing it). As is well-known, governments may have the temptation to exploit the Phillips curve. This discretionary way of making economic policy generates an in.ation bias. The literature has then evolved to analyse possible punishment strategies in order to avoid that discretionary behaviour. Traditionally it is considered that the punishment takes the form of people considering announced policies as non-credible. This introduces the problem of arranging the right mechanism or moment in time to implement these punishment strategies. It turns out that elections are indeed the appropriate mechanism to punish or to reward the past behaviour of the incumbent. In fact, elections can be used to turn voters, i.e. the public into the principal who has all the incentives to motivate the government, as the agent, to use the appropriate policies. The paper analyses the circumstances under which an optimal contract can be established between the electorate and the government in order to guarantee that the government behaves in accordance with the true interests of the society. |
| Keywords: | Economic Policies, Elections, Optimal Contracts, Principal-Agent |
| JEL: | D72 E32 E61 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:evo:wpecon:9_2004&r=mic |
| By: | Greg B. Davies |
| Abstract: | There exists no satisfactory theory of risk in current normative decision theories. Notions based on utility curvature, loss aversion and probability weighting are derivative, cannot be applied to non-numerical consequences, and are not psychologically intuitive. I develop a Pure Risk theory which resolves these problems, is consistent with existing normative theories, and both internalises and generalises the intuitive notion of risk being related to the probability of not achieving one’s aspirations. The theory shows that existing models are misspecifed. Effects hitherto modelled as loss aversion or utility curvature may be due instead to Pure Risk. |
| Keywords: | Risk; Pure Risk; Aspiration Levels; Subjective Expected Utility Theory; Prospect Theory; Pure Risk Prospect Theory |
| JEL: | D81 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0507&r=mic |
| By: | Benjamin F. Hobbs; Fieke A. M. Rijkers |
| Abstract: | Market coupling in Belgian and Dutch markets would permit more efficient use of intercountry transmission, 1) by counting only net flows against transmission limits, 2) by improving access to the Belgian market, and 3) by eliminating the mismatch in timing between interface auctions and the energy spot market. A Cournot market model that accounts for the region’s transmission pricing rules and limitations is used to simulate market outcomes with and without market coupling. This accounts for 1) and 2). Market coupling improves social surplus in the order of 108 €/year, unless it encourages the largest producer in the region to switch from a price-taking strategy in Belgium to a Cournot strategy due to a perceived diminishment of the threat of regulatory intervention. Benefit to Dutch consumers depends on the behavior of this company. The results illustrate how large-scale oligopoly models can be useful for assessing market integration. |
| Keywords: | Electric power, Electric transmission, Liberalization, Oligopoly, Complementarity models, Computational models, Netherlands, Belgium, France, Germany, Market Coupling |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0509&r=mic |
| By: | Petra Brhlikova |
| Abstract: | To study the coexistence of two different ownership forms within anindustry, I develop a simple model of competition between one for-profit and one nonprofit firm. The two firms have different objectives and face different constraints due to their choice of ownership status. Assuming heterogenous consumers I derive quality-price bundles provided by the two firms and their market shares under various conditions. |
| Keywords: | Nonprofit firm, For-profit firm, Monopoly, duopoly, mixed industry. |
| JEL: | L31 L1 D42 D43 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp240&r=mic |
| By: | Michal Ostatnicky |
| Abstract: | In this paper Coase's Conjecture is analyzed in a finite-horizon formulation. In addition to utility discounting models decreasing-willingness-to-pay models are analyzed. We find that in contrast to Coase's Conjecture a monopolist may extract full monopoly profit in the finite-horizon problem under certain conditions; in fact, the monopolist does not have any reason to attract traders and waits until they come and trade. However, including utility discounting or decreasing-willingness-to-pay on the purchasers' side the monopolist's profit may dramatically decrease. The monopolist tries to clear trades as soon as possible, which makes him sacrifice a part of his one-shot monopoly profit to attract traders to buy. |
| Keywords: | Coase's conjecture, Monopoly, Discounting, Decreasing willingness to pay. |
| JEL: | C72 D42 G14 L11 L12 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp241&r=mic |
| By: | Ondrej Rydval; Andreas Ortmann |
| Abstract: | We investigate experimentally the conjecture that loss avoidance solves the tension in stag-hunt games for which payoff dominance and risk dominance make conflicting predictions. Contrary to received textbook wisdom, money-losing outcomes do shift behavior, albeit not strongly, toward the payoff-dominant equilibrium. |
| Keywords: | Loss avoidance, Selection principle, Stag-hunt games, Coordination games, Experiment |
| JEL: | C72 C9 D9 D84 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp245&r=mic |
| By: | Aitor Ciarreta (Universidad del País Vasco (Spain)); Carlos Gutierrez-Hita (Universitat Jaume I Castellón) |
| Keywords: | collusion, repeated games, electricity market |
| JEL: | L11 L13 L51 |
| Date: | 2005–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:200502&r=mic |
| By: | Svensson , Lars-Gunnar (Department of Economics, Lund University); Torstensson, Pär (Department of Economics, Lund University) |
| Abstract: | We characterize the set of strategy-proof social choice functions (SCFs), the outcome of which are multiple public goods. The set of feasible alternatives is a subset of a product set with a finite number of elements. We do not require the SCFs to be ‘onto’, but instead impose the weaker requirement that every element in each category of public goods is attained at some preference profile. Admissible preferences are arbitrary rankings of the goods in the various categories, while a separability restriction concerning preferences among the various categories is assumed. We find that the range of the SCF is uniquely decomposed into a product set in general coarser than the original product set, and that the SCF must be dictatorial in each component of the range. If the range cannot be decomposed at all, the SCF is dictatorial in spite of the separability assumption on preferences, and a form of the Gibbard-Satterthwaite theorem with a restricted preference domain is obtained. |
| Keywords: | Strategy-proof; multiple public goods; decomposability; weakly onto; component-wise dictatorial. |
| JEL: | D71 D78 H41 |
| Date: | 2005–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_003&r=mic |
| By: | Konrad, Kai A. (Free University of Berlin, WZB Berlin and IZA Bonn); Spadaro, Amedeo (PSE Paris-Jourdan Sciences Economiques and Universitat de les Illes Balears) |
| Abstract: | We consider redistributional taxation between people with and without human capital if education is endogenous and if individuals differ in their perceptions about own ability. Those who see their ability as low like redistributive taxation because of the transfers it generates. Those who see their ability as high may also like redistributive taxation because it stops other people receiving education and increases the quasi rents on their own human capital. It is surprising that this rather indirect effect can overcompensate them for the income loss from taxation and make the overconfident want higher taxes than the less confident do. The results, however, turn out to be in line with empirical evidence on the desired amount of redistribution among young individuals. |
| Keywords: | education, redistribution, confidence |
| JEL: | D78 H23 I21 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1478&r=mic |
| By: | Rob Alessie; Agar Brugiavini; Guglielmo Weber |
| Abstract: | The paper deals with the e.ects of cohabitation of grown children with their parents on household saving, using data from Italy and the Netherlands. It presents a two-period gametheoretical model where the child has to decide whether to move out of the parental home. This decision is affected by transaction costs, the child%u2019s preference for independence, and by the consumption loss induced by the move (consumption is a public good while the child lives in the parental home). We show that the child%u2019s income share affects the household saving decision, in contrast with predictions of the standard unitary model of household decision making. Empirical results from both countries are supportive of the key model predictions. We find strong positive effects of the child income share on the saving rate in Italy, where we calculate saving as the difference between disposable income and consumption but cannot distinguish children who will leave from those who will stay. We also find some significant effects of the child income share on household saving rate in the Netherlands, where saving is computed as the change over time in financial wealth. In the Dutch data we distinguish between children who stay and children who leave. The effect of the child%u2019s income share is significantly negative for those who stay, positive for those who leave. |
| JEL: | E2 D1 D9 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11079&r=mic |
| By: | Peter Cramton (Economics Department, University of Maryland); Steven Stoft |
| Abstract: | We argue that a capacity market is needed in most restructured electricity markets, and present a design that avoids the many problems found in the early capacity markets. The proposed locational capacity market pays suppliers based on their demonstrated ability to supply energy or reserves in shortage hours—hours in which there is a shortage of operating reserves. Thus, only supply that contributes to reliability is rewarded. The capacity price responds to market conditions. When capacity is scarce the capacity price is high; when capacity is plentiful the capacity price is low or zero. Market power in the capacity market is addressed by setting the capacity price based on actual capacity, rather than bid capacity, so generators cannot increase the capacity price by withholding supply. Ex post peak energy rents (the short-run energy profits of a benchmark peaking unit) are subtracted from the capacity price. Thus, a supplier does not have an incentive to create real-time shortages—the high shortage price resulting from a shortage is subtracted from the capacity price, so there is no net gain from the high price. By defining a capacity product closely tied to reliability and directly addressing market power both in the capacity market and in the spot energy market, the proposed design results in a market participants can trust to encourage efficient behavior both in the short run and long run. |
| Keywords: | Auctions, Electricity Auctions, Capacity Auctions, Market Design |
| JEL: | D44 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:05licap&r=mic |
| By: | Dequiedt, V. |
| Abstract: | We consider mechanism design problems in which the players can veto the proposed mechanism. We identify a general class of mechanisms that satisfy this veto property and show that the mechanisms studied in the literature that assumes veto power are generally restricted to belong to a strictly smaller class. We then turn to the analysis of equilibrium refinements in such a setting. A refinement criterion that does not rely on forward induction arguments is proposed to eliminate outcomes sustained with implausible beliefs. ...French Abstract : Nous étudions un problème de design de mécanisme dans lequel les joueurs peuvent opposer leur veto à la règle de décision proposée. Nous identifions une classe générale de mécanismes satisfaisant cette propriété de veto et montrons que les mécanismes étudiés dans la littérature faisant cette hypothèse sont généralement supposés appartenir à une classe strictement plus petite. Nous analysons ensuite la possibilité d'appliquer des raffinements à la notion d'équilibre dans un tel contexte. Un critère de raffinement ne reposant pas sur des arguments d'induction forward est proposé pour éliminer les équilibres soutenus par des croyances improbables. |
| Keywords: | MECHANISM DESIGN; PARTICIPATION CONSTRAINTS; VETO; EQUILIBRIUM REFINMENTS |
| JEL: | C72 D78 D82 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:rea:gaelwp:200413&r=mic |
| By: | Ambec, S. |
| Abstract: | The paper examines the implementation of Bayesian allocation rules that satisfy non-negative ex post payoffs for one player in a two-players bilateral asymmetric information setting. It focuses on sequential mechanisms in which players communicate in turn among themselves. First, it shows that, under general conditions, any such allocation rule can be equivalently implemented by a sequential mechanism. Second, when allocation rules are negotiated ex ante, the order matters. The player who communicates first must have bargaining power of unbouded ex post payoffs. ...French Abstract : L'article examine l'implémentation des règles d'allocation Bayesiennes qui satisfont la contrainte de gains ex post non-négatifs pour un joueur dans le cadre d'un modèle de deux joueurs avec information asymétrique bilatérale. Nous montrons que, sous des conditions générales, ces allocations peuvent être implémentées par un mécanisme séquentiel dans lequel les joueurs se communiquent leur information l'un après l'autre. De plus, lorsque les règles d'allocation sont négociées ex ante, l'ordre est important : le joueur qui communique le premier doit avoir le pouvoir de négociation ou des gains ex post non-bornées. |
| Keywords: | IMPLEMENTATION; ASYMMETRIC INFORMATION; CONTRACT; PRINCIPAL AGENT |
| JEL: | D23 D82 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:rea:gaelwp:200415&r=mic |
| By: | Ambec, S. |
| Abstract: | The paper examines the implementation of Bayesian allocation rules that satisfy non-negative ex post payoffs for one player in a two-players bilateral asymmetric information setting. It focuses on sequential mechanisms in which players communicate in turn among themselves. First, it shows that, under general conditions, any such allocation rule can be equivalently implemented by a sequential mechanism. Second, when allocation rules are negotiated ex ante, the order matters. The player who communicates first must have bargaining power of unbouded ex post payoffs. ...French Abstract : L'article examine l'implémentation des règles d'allocation Bayesiennes qui satisfont la contrainte de gains ex post non-négatifs pour un joueur dans le cadre d'un modèle de deux joueurs avec information asymétrique bilatérale. Nous montrons que, sous des conditions générales, ces allocations peuvent être implémentées par un mécanisme séquentiel dans lequel les joueurs se communiquent leur information l'un après l'autre. De plus, lorsque les règles d'allocation sont négociées ex ante, l'ordre est important : le joueur qui communique le premier doit avoir le pouvoir de négociation ou des gains ex post non-bornées. |
| Keywords: | IMPLEMENTATION; ASYMMETRIC INFORMATION; CONTRACT; PRINCIPAL AGENT |
| JEL: | D23 D82 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:rea:inrawp:200415&r=mic |
| By: | John A. Weymark (Department of Economics, Vanderbilt University) |
| Abstract: | Diamond and Mirrlees have shown that public sector shadow prices should be set equal to the private producer prices in some circumstances even if taxes are not optimal when the public production technology is convex and some of the private sector firms have constant-returns-to-scale technologies. In this article, it is shown that the optimal public production plan maximizes profits using the private producer prices on a subset of the public production set if this set is nonconvex. Sufficient conditions for profit maximization using these prices to identify the optimal public production plan on the whole public production set are also identified. |
| Keywords: | Shadow prices, public sector pricing, Diamond and Mirrlees |
| JEL: | D61 H21 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0501&r=mic |
| By: | Arnaud Lefranc (THEMA, Université de Cergy-Pontoise); Alain Trannoy (EHESS, GREQAM-IDEP) |
| Abstract: | This paper examines the extent and evolution of intergenerational earnings mobility in France. We use data from five waves of the French Education- Training-Employment (FQP) surveys covering the period 1964 to 1993. Our estimation procedure follows Bj¨orklund and J¨antti (1997)’s two-sample instrumental variable method. On our samples, the elasticity of son’s (respectively daughter’s) long-run income with respect to father’s long run income is around .4 (resp. .3) with no significant change over the period under scrutiny. Comparing these estimates to results obtained from other studies suggest that intergenerational mobility is higher in France than in the United States and United Kingdom and lower than in Scandinavian countries. |
| Keywords: | Intergenerational mobility, earnings, split-sample instrumental variables. |
| JEL: | D1 D3 J3 |
| Date: | 2004–02 |
| URL: | http://d.repec.org/n?u=RePEc:iep:wpidep:0401&r=mic |
| By: | Udo Ebert (Institut für Volkswirtschaftslehre, Carl von Ossietzky Universität Oldenburg); Patrick Moyes (CNRS, IDEP and GRAPE, Université Montesquieu Bordeaux IV) |
| Abstract: | Considering an economy with two goods { a private good and a household good with a variable degree of publicness { and identical individuals, the paper investigates the implications for economies of size of two extreme households' decision rules: (i) the cooperative model, where households maximize the welfare of their members, and (ii) the non-cooperative model, where each household's member maximizes her own utility. Under the cooperative rule, publicness of the household good is necessary and sucient for positive economies of size and for these to increase with family size. This no longer holds true under the non-cooperative rule where negative economies of size may appear even in the case where the household consumption good is purely public. The results suggest that it is the ineciency of the non-cooperative rule that is at the origin of the problem. Furthermore comparison of the scale factors' values indicates that the cooperative rule leads to less generous scales than the non-cooperative one. |
| Keywords: | Equivalence scales, Household decision rule,Welfare maximization, Non-cooperative behaviour, Returns to size. |
| JEL: | D31 D63 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:iep:wpidep:0404&r=mic |
| By: | Alain Chateauneuf (CERMSEM, Université Paris 1 Panthéon-Sorbonne); Patrick Moyes (CNRS, IDEP and GRAPE, Université Montesquieu Bordeaux IV) |
| Abstract: | inequality decreases and welfare increases as a result of a progressive transfer. We explore the implications for welfare and inequality measurement of substituting the weaker absolute di erentials and deprivation quasi-orderings for the Lorenz quasi-ordering. Restricting attention to distributions of equal means, we show that the utilitarian model { the so-called expected utility model in the theory of risk { does not permit one to make a distinction between the views embedded in the di erentials, deprivation and Lorenz quasi-orderings. In contrast it is possible within the dual model of M. Yaari (Econometrica 55 (1987), 99{115) to derive the restrictions to be placed on the weighting function which guarantee that the corresponding welfare orderings are consistent with the di erentials and deprivation quasi-orderings respectively. Finally we drop the equal mean condition and indicate the implications of our approach for the absolute ethical inequality indices. |
| Keywords: | Income Differentials, Deprivation, Lorenz Dominance, Expected Utility, Dual model of choice under risk, Generalized Gini social welfare functions. |
| JEL: | D31 D63 |
| Date: | 2002–06 |
| URL: | http://d.repec.org/n?u=RePEc:iep:wpidep:0406&r=mic |
| By: | Eugenio Peluso (THEMA, Université de Cergy-Pontoise); Alain Trannoy (EHESS, GREQAM-IDEP) |
| Abstract: | Consider an income distribution among households of the same size in which individuals, equally needy from the point of view of an ethical observer, are treated unfairly. Individuals are split into two types, the dominant and the dominated. We look for conditions under which welfare and inequality quasi-orders established at the household level still hold at the individual one. A necessary and sufficient condition for the Generalized Lorenz test is that the income of dominated individuals is a concave function of the household income: individuals of poor households have to stand more together than individuals of rich households. This property also proves to be crucial for the preservation of the Relative and Absolute Lorenz criteria, when the more egalitarian distribution is the poorest. Extensions to individuals heterogeneous in needs and more than two types are also provided. |
| Keywords: | Lorenz dominance, Intra-household inequality, concavity, sharing rule. |
| JEL: | D13 D63 D31 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:iep:wpidep:0407&r=mic |