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on Microeconomics |
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Issue of 2011‒11‒21
eleven papers chosen by Jing-Yuan Chiou IMT Lucca Institute for Advanced Studies |
| By: | Bulow, Jeremy (Stanford University); Klemperer, Paul (Oxford University) |
| Abstract: | Price controls lead to misallocation of goods and encourage rent-seeking. The misallocation effect alone is enough to ensure that consumer surplus is always reduced by a price control in an otherwise-competitive market with convex demand if supply is more elastic than demand; or when demand is log-convex (e.g., constant-elasticity) even if supply is inelastic. The same results apply both when rationed goods are allocated by costless lottery among interested consumers, and when costly rent-seeking and/or partial de-control mitigates the allocative inefficiency. The results are best understood using the fact that in any market, consumer surplus equals the area between the demand curve and the industry marginal revenue curve. |
| JEL: | D45 D60 D61 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:2086&r=mic |
| By: | Iñaki Aguirre (UPV/EHU) |
| Abstract: | The paper investigates the effects on welfare of price discrimination when a multimarket seller faces competition in one of its two markets. Whit respect to uniform pricing, price discrimination changes competition in such a way, that even with linear demands, price discrimination can be welfare-improving, both under strategic substitutes and strategic complements. |
| Keywords: | Price discrimination, multimsarket competition, welfare analysis |
| JEL: | L13 L41 |
| Date: | 2011–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:201155&r=mic |
| By: | Iñaki Aguirre (UPV/EHU) |
| Abstract: | Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination. |
| JEL: | D42 L12 L13 |
| Date: | 2011–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:201154&r=mic |
| By: | Simone Galperti |
| Abstract: | I analyze common agency games in which the principals, and possibly the agent,have private information. I distinguish between games in which the principals delegate the fi nal decisions to the agent, and games in which they retain some decision power after offering their mechanisms. I show that,in contrast with mechanism design models with one informed Myerrson's Inscrutability Principle fails when there are many informed principals. I also find that, in contrast with common agency models with uninformed principals, the Delegation Principle (Menu Theorem) fails when principals are informed. I then focus on Perfect Bayesian Equilibria in which principals offer their mechanisms without randomizing. I characterize the outcomes of arbitrary games with delegation as outcomes of a new game in which principals offer menus and send cheap-talk signals. Next, I characterize the outcomes of arbitrary games without delegation as outcomes of a new game in which principals offer menus of direct revelation mechanisms, to which they truthfully report their types. JEL Code: C18, C53, D89 |
| Keywords: | Common agency, informed principals, Inscrutability Principle, Delegation Principle, menus, signals, direct revelation mechanisms. |
| Date: | 2011–30–31 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1541&r=mic |
| By: | Kaito Sato |
| Abstract: | Raiffa (1961) criticizes ambiguity-averse preferences by claiming that hedging is possible with randomization of choices. We argue that the timing of randomization is crucial for hedging. Ex-ante randomizations, which are randomizations before a state is realized, could provide only ex-ante hedging but not ex-post hedging, in contrast to ex-post randomizations, which are randomizations after a state is realized. However, these two randomizations have been assumed to be indifferent under the reversal of order axiom proposed by Anscombe and Aumann (1963). We, therefore, propose a weaker axiom, the indifference axiom, which allows heterogeneous attitudes toward the timing of randomization. By using this new axiom as well as standard axioms, we provide an extension of Gilboa and Schmeidler’s (1989) Maxmin preferences that treats a preference for ex-ante randomizations separately from a preference for ex-post randomizations. In the representation, a single parameter characterizes a preference for ex-ante randomizations. By parsimoniously changing only the value of that single parameter, the representation can be consistent with Raiffa’s (1961) normative argument as well as recent experimental evidence. |
| JEL: | D81 |
| Date: | 2011–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1524&r=mic |
| By: | Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | The paper concerns a dynamic model of influence in which agents have to make a yes-no decision. Each agent has an initial opinion, which he may change during different phases of interaction, due to mutual influence among agents. The influence mechanism is assumed to be stochastic and to follow a Markov chain. In the paper, we investigate a model of influence based on aggregation functions. Each agent modifies his opinion independently of the others, by aggregating the current opinion of all agents, possibly including himself. We provide a general analysis of convergence in the aggregation model and give more practical conditions based on influential players. We show that the process of influence converges always to one of the two consensus states, and there may exist other terminal classes, which are either cyclic or union of Boolean lattices. We give sufficient conditions for avoiding these additional terminal classes, based on properties of the graph of influence and influential players. We also introduce the notion of influential coalition and show that it can fully describe terminal classes. Some important families of aggregation functions are discussed. |
| Keywords: | Influence, aggregation function, convergence, terminal class, influential coalition, social network. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00639677&r=mic |
| By: | Richard M. H. Suen (University of Connecticut) |
| Abstract: | This paper examines the theoretical foundations of precautionary wealth accumulation in a multi-period model where consumers face uninsurable earnings risk and borrowing constraints. We begin by characterizing the consumption function of individual consumers. We show that consumption function is concave when the utility function has strictly positive third derivative and the inverse of absolute prudence is a concave function. These conditions encompass all HARA utility functions with strictly positive third derivative as special cases. We then show that when consumption function is concave, a mean-preserving spread in earnings risk would encourage wealth accumulation at both the individual and aggregate levels. |
| Keywords: | Consumption function, borrowing constraints, precautionary saving |
| JEL: | D81 D91 E21 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2011-23&r=mic |
| By: | Etienne Billette De Villemeur (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université des Sciences et Technologies de Lille - Lille I); Richard Ruble (EMLYON RECHERCHE - EMLYON Business School, GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon); Bruno Versaevel (EMLYON RECHERCHE - EMLYON Business School, GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon) |
| Abstract: | We characterize sequential (preemption) and simultaneous (coordination) equilibria, as well as joint-value maximizing (cooperation) solutions, in a model of investment timing allowing for externalities in both flow pro...ts and investment costs. For two ex-ante symmetric ...rms, either preemption or attrition occur depending on the size of the investment externality. Coordination is less likely with more discounting, as in a repeated game, and more likely with higher growth and volatility. Optimal cooperation involves either monopoly or duopoly investment, the latter being either symmetric or asymmetric. Finally, these characterizations are validated by applications to standard speci...cations of capacity accumulation and of R&D investment. In the former setup, coordination is likelier if installed capacities and lumpy investments are both large. With R&D input choices, if investment synergies are large, coordination and cooperation result in the same outcomes. |
| Keywords: | Investment Timing; Real Options; Simultaneous Equilibrium; Joint-Value Maximization; Cooperation; Investment Externalities |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00639471&r=mic |
| By: | Rachmilevitch, Shiran (Department of Economics, University of Haifa) |
| Abstract: | A bargaining solution guarantees minimal equity if each player's payoff is at least as large as the minimum of the payoffs assigned to him by the equal-gain (i.e., egalitarian) and equal-loss solutions. The Kalai-Smorodinsky solution is the unique scale-invariant 2-person solution with this property. There does not exist a scale-invariant n-person solution with this property. |
| Keywords: | Bargaining; fairness; Kalai-Smorodinsky solution |
| JEL: | D63 D71 |
| Date: | 2011–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:haf:huedwp:wp201112&r=mic |
| By: | Declerck C.H.; Boone Ch.; Kiyonari T. |
| Abstract: | Shame is often considered a moral emotion with action tendencies shaped by natural selection to elicit socially beneficial behavior. Yet, unlike guilt or other social emotions, prior experimental studies do not indicate that incidental shame boosts prosocial behavior. Based on the affect as information theory, we hypothesize that incidental feelings of shame increase cooperative behavior, but only for self-interested individuals, and only in situations where shame is relevant with regards to its action tendency of avoiding reputation losses. To test this hypothesis, cooperation levels are compared between a classic prisoner’s dilemma (where “defect” may result from multiple motives) and a sequential prisoner’s dilemma (where “defect” is the result of intentional greediness). The results indicate that, as hypothesized, proself individuals cooperate more following incidental shame, but only in a sequential prisoner’s dilemma. Hence ashamed proselfs become inclined to cooperate when they believe they have no way to hide their greediness, and not necessarily because they want to make up for earlier wrong-doing. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2011018&r=mic |
| By: | Nagore Iriberri (Universitat Pompeu Fabra); José Ramón Uriarte (UPV/EHU) |
| Abstract: | We study a society inside which two official languages, the majority language A and the minority language B, are in contact and compete for the same social functions. We propose a non-cooperative game to capture some features of this competitive situation. In the game, there are two types of players: the bilingual one who speaks both A and B and the monolingual one who speaks only A. The information about which type is each player is private. A real life situation captured by the game is that in many interactions bilingual players must decide under incomplete information about which language to use. One implication of this information structure is that while A satisfies the main properties of a public good, B does not. Another implication is that it may have dangerous consequences on the language diversity of the society. We show that in many equilibria bilingual players fail to coordinate in their preferred language and end up using the majority language A. |
| Date: | 2011–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:200624&r=mic |