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on Microeconomics |
| By: | Philippe Choné (CREST-LEI); Laurent Linnemer (CREST-LEI) |
| Abstract: | We study the exclusionary properties of nonlinear price-quantity schedules in an Aghion-Bolton style model with elastic demand and product differentiation. We distinguish three regimes depending on whether and how the price of the incumbent good is linked to the quantity purchased from the rival firm. We find that the supply of rival good is distorted downwards. Moreover, given the quantity supplied from the rival, the buyer may opportunistically purchase inefficiently many units from the incumbent to pocket quantity rebates. We show that the possibility for the buyer to dispose of unconsumed units attenuates the opportunism problem and limits the exclusionary effects of nonlinear pricing. |
| Keywords: | Inefficient exclusion; buyer opportunism; disposal costs; quantity rebates; incomplete information |
| JEL: | L12 L42 D82 D86 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2014-16&r=mic |
| By: | Philippe Choné (CREST-LEI); Laurent Linnemer (CREST-LEI) |
| Abstract: | We adapt the exclusion model of Choné and Linnemer (2014) to reflect the notion that dominant firms are unavoidable trading partners. In particular, we introduce the share of the buyer’s demand that can be addressed by the rival as a new dimension of uncertainty. Nonlinear price-quantity schedules allow the dominant firm to adjust the competitive pressure placed on the rival to the size of the contestable demand, and to distort the rival supply at both the extensive and intensive margins. When disposal costs are sufficiently large, this adjustment may yield highly nonlinear and locally decreasing schedules, such as “retroactive rebates”. |
| Keywords: | Inefficient exclusion; buyer opportunism; disposal costs; quantity rebates; incomplete information. |
| JEL: | L12 L42 D82 D86 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2014-17&r=mic |
| By: | Alberto Bisin; Piero Gottardi; Guido Ruta |
| Abstract: | This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that shareholders always unanimously support firms' choices. In addition, equilibrium allocations have well-defined welfare properties: they are constrained efficient when information is symmetric, or when agency frictions satisfy certain specific conditions. Furthermore, equilibria may display specialization on the part of identical firms and, when equilibria are constrained inefficient, may exhibit excessive aggregate risk. Financial decisions of the corporate sector are determined at equilibrium and depend not only on the nature of financial frictions but also on the consumers' demand for risk. Financial intermediation and short sales are naturally accounted for at equilibrium. |
| JEL: | G10 G32 G33 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20345&r=mic |
| By: | Pintér, Miklós |
| Abstract: | Meier (2012) gave a "mathematical logic foundation" of the purely measurable universal type space (Heifetz and Samet, 1998). The mathematical logic foundation, however, discloses an inconsistency in the type space literature: a finitary language is used for the belief hierarchies and an infinitary language is used for the beliefs. In this paper we propose an epistemic model to fix the inconsistency above. We show that in this new model the universal knowledgebelief space exists, is complete and encompasses all belief hierarchies. Moreover, by examples we demonstrate that in this model the players can agree to disagree Aumann (1976)'s result does not hold, and Aumann and Brandenburger (1995)'s conditions are not sufficient for Nash equilibrium. However, we show that if we substitute selfevidence (Osborne and Rubinstein, 1994) for common knowledge, then we get at that both Aumann (1976)'s and Aumann and Brandenburger (1995)'s results hold. |
| Keywords: | Incomplete information game, Agreeing to disagree, Nash equilibrium, Epistemic game theory, Knowledge-belief space, Belief hierarchy, Common knowledge, Self-evidence, Nash equilibrium |
| JEL: | C70 C72 D80 D82 D83 |
| Date: | 2014–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2014/02&r=mic |
| By: | Gaurab Aryal; Ronald Stauber |
| Abstract: | Kuhn's Theorem shows that extensive games with perfect recall can equivalently be analyzed using mixed or behavioral strategies, as long as players are expected utility maximizers. This note constructs an example that illustrate the limits of Kuhn's Theorem in an environment with ambiguity averse players who use maxmin decision rule and full Bayesian updating. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1408.1022&r=mic |
| By: | Paul Viefers; Philipp Strack |
| Abstract: | Many economic situations involve the timing of irreversible decisions. E.g. People decide when to sell a stock or stop searching for a better price. We analyze the behavior of a decision maker who evaluates his choice relative to the ex-post optimal choice in an optimal stopping task. We derive the optimal strategy under such regret preferences, and show how it is different from that of an expected utility maximizer. We also show that if the decision maker never commits mistakes the behavior resulting from this strategy is observationally equivalent to that of an expected utility maximizer. We then test our theoretical predictions in the laboratory. The results from a structural discrete choice model we fit to our data provide strong evidence that many people's stopping behavior is largely determined by the anticipation of and aversion to regret. |
| Keywords: | Optimal stopping, Dynamic behavior, Regret |
| JEL: | D3 C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1401&r=mic |
| By: | Zaifu Yang; Rong Zhang |
| Abstract: | We develop a new model of addictive behavior that takes as a starting point the classic rational addiction model of Becker and Murphy, but incorporates uncertainty. We model uncertainty through the Wiener stochastic process. This process captures both random events such as anxiety, tensions and environmental cues which can precipitate and exacerbate addictions, and those sober and thought-provoking episodes that discourage addictions. We derive closed-form expressions for optimal (and expected optimal) addictive consumption and capital trajectories and examine their global and local properties. Our theory provides plausible explanations of several important patterns of addictive behavior, and has novel implications for addiction control policy. |
| Keywords: | Rational Addiction; Stochastic Control; Uncertainty |
| JEL: | C61 D01 D11 I10 I18 K32 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/12&r=mic |
| By: | Alex Gershkov; Jianpei Li; Paul Schweinzer |
| Abstract: | We study the role of information exchange, leadership and coordination in team or partnership structures. For this purpose, we view individuals jointly engaging in productive processes -- a 'team' -- as endowed with individual and privately held information on the joint production process. Once individual information is shared, team members decide individually on the effort they exert in the joint production process. This effort, however, is not contractible; only the joint output (or profit) of the team can be observed. Our central question is whether or not incentives can be provided to a team in this environment such that team members communicate their private information and exert efficient productive efforts on the basis of this communication. Our main result shows that there exists a simple ranking-based contract which implements both desiderata in a wide set of situations. |
| Keywords: | Moral hazard, Adverse selection, Leadership, Teams |
| JEL: | C7 D7 D8 L2 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/08&r=mic |
| By: | Marco D'Errico; Gulnur Muradoglu; Silvana Stefani; Giovanni Zambruno |
| Abstract: | Opinions and beliefs determine the evolution of social systems. This is of particular interest in finance, as the increasing complexity of financial systems is coupled with information overload. Opinion formation, therefore, is not always the result of optimal information processing. On the contrary, agents are boundedly rational and naturally tend to observe and imitate others in order to gain further insights. Hence, a certain degree of interaction, which can be envisioned as a network, occurs within the system. Opinions, the interaction network and prices in financial markets are then heavily intertwined and influence one another. We build on previous contributions on adaptive systems, where agents have hetereogenous beliefs, and introduce a dynamic confidence network that captures the interaction and shapes the opinion patterns. The analytical framework we adopt for modeling the interaction is rooted in the opinion dynamics problem. This will allow us to introduce a nonlinear model where the confidence network, opinion dynamics and price formation coevolve in time. A key aspect of the model is the classification of agents according to their topological role in the network, therefore showing that topology matters in determining how of opinions and prices will coevolve. We illustrate the dynamics via simulations, discussing the stylized facts in finance that the model is able to capture. Last, we propose an empirical validation and calibration scheme that makes use of social network data. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1408.0308&r=mic |
| By: | Francisco Robles (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)); Marina Núñez (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)) |
| Abstract: | We consider one-seller assignment markets with multi-unit demands and prove that the associated game is buyers-submodular. Therefore the core is non-empty and it has a lattice structure which contains the allocation where every buyer receives his marginal contribution. We prove that in this kind of market, every pairwise-stable outcome is associated to a competitive equilibrium and vice versa. We study conditions under which the buyers-optimal and the seller-optimal core allocations are competitive equilibrium payoff vectors. Moreover, we characterize the markets for which the core coincidences with the set of competitive equilibria payoff vectors. When agents behave strategically, we introduce a procedure that implements the buyers-optimal core allocation as the unique subgame perfect Nash equilibrium outcome. |
| Keywords: | Many-to-many assignment markets, Core, Pairwise-stability, Competitive equilibrium. |
| JEL: | C71 C78 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:316web&r=mic |
| By: | Makoto Shimoji |
| Abstract: | We employ weak dominance to analyze both first-price and second-price auctions under the discrete private-value setting. We provide a condition under which the expected revenue from second-price auction is higher than that of first-price auction. We also provide implications for large auctions, including the “virtual†revenue equivalence. |
| Keywords: | Discrete Private-Value Auctions, Revenue Comparison, Weak Dominance. |
| JEL: | C72 D44 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/13&r=mic |
| By: | Author-Name: Luca Di Corato (Department of Economics, Swedish University of Agricultural Sciences, Sweden); Cesare Dosi (Department of Economics and Management, University of Padova and Centro di Ricerca Interuniversitario sull’Economia Pubblica (CRIEP), Italy); Michele Moretto (Department of Economics and Management, University of Padova, Fondazione Eni Enrico Mattei (FEEM) and Centro Studi Levi-Cases, Italy) |
| Abstract: | Contracts providing payments for not developing natural areas, or for removing cropland from production, generally require long-term commitments. Landowners, however, can decide to prematurely terminate the contract when the opportunity cost of complying with conservation requirements increases. The paper investigates how this can affect bidding behavior in multi-dimensional auctions, where agents bid on both the conservation plan and the required payment, when contracts do not provide for sufficiently strong incentives against early exit. Integrating the literature on scoring auctions with that which views non-enforcement of contract terms as a source of real-options, the paper offers the following contributions. First, it is shown that bidders’ expected payoff is higher when facing enforceable project deadlines. Second, that failure to account for the risk of opportunistic behavior could lead to the choice of sellers who will not provide the contracting agency with the highest potential payoff. Finally, we examine the role that eligibility rules and the degree of competition can play in avoiding such potential bias in contract allocation. |
| Keywords: | Conservation Contracts, Scoring Auctions, Non-enforceable Contract Duration, Real Options |
| JEL: | C61 D44 D86 Q24 Q28 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2014.65&r=mic |
| By: | Masaki Aoyagi; Manaswini Bhalla; Hikmet Gunay |
| Abstract: | This paper studies dynamic price competition over two periods between two firms selling differentiated durable goods to two buyers who are privately informed about their types, but have valuations of the two goods dependent on the other buyer's type. The firms' pricing strategy in period 1 must take into account the buyers' incentive to wait and learn from the other buyer's decision. We construct an equilibrium based on the key observation that the expected price of either good in period 2 is the same as its price in period 1 on and off the path of play. The equilibrium is shown to be non-preemptive in the sense that even if either firm fails to make a sale in period 1, it still makes a sale with positive probability in period 2. A characterization of the equilibrium is given in terms of the probability of delay as a function of the degree of interdependence between the two buyers. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0909&r=mic |
| By: | Salvador Barberà; Dolors Berga; Bernardo Moreno |
| Abstract: | We observe that three salient solutions to matching, division and house allocation problems are not only (partially) strategy-proof, but (partially) group strategy-proof as well, in appropriate domains of definition. That is the case for the Gale-Shapley mechanism, the uniform rule and the top trading cycle solution, respectively. We embed these three types of problems into a general framework. We then notice that the three rules, as well as many others, do share a common set of properties, which together imply their (partial) group strategy-proofness. This proves that the equivalence between individual and group strategy-proofness in all these cases is not a fortuitous event, but results from the structure of the functions under consideration. |
| Keywords: | matching, division, house allocation, strategy-proofness, group strategy-proofness, group monotonicity, non-bossiness |
| JEL: | C78 D71 D78 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:773&r=mic |
| By: | Puppe, Clemens; Tasnádi, Attila |
| Abstract: | In a framework with two parties, deterministic voter preferences and a type of geographical constraints, we propose a set of simple axioms and show that they jointly characterize the districting rule that maximizes the number of districts one party can win, given the distribution of individual votes (the "optimal gerrymandering rule"). As a corollary, we obtain that no districting rule can satisfy our axioms and treat parties symmetrically. |
| Keywords: | districting, gerrymandering |
| JEL: | D72 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2014/01&r=mic |
| By: | Toni Ahnert; Ali Kakhbod |
| Abstract: | We propose a parsimonious model of information choice in a global coordination game of regime change that is used to analyze debt crises, bank runs or currency attacks. A change in the publicly available information alters the uncertainty about the behavior of other investors. Greater strategic uncertainty makes private information more valuable, so more investors acquire information. This change in the proportion of informed investors amplifies the impact of the initial change in public information on the probability of a crisis. Our amplification result explains how a small deterioration in public information can cause a financial crisis. |
| Keywords: | Financial Institutions, Financial stability |
| JEL: | D83 G01 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-30&r=mic |
| By: | Csató, László |
| Abstract: | The paper reviews some additive and multiplicative properties of ranking procedures used for generalized tournaments with missing values and multiple comparisons. The methods analysed are the score, generalised row sum and least squares as well as fair bets and its variants. It is argued that generalised row sum should be applied not with a fixed parameter, but a variable one proportional to the number of known comparisons. It is shown that a natural additive property has strong links to independence of irrelevant matches, an axiom judged unfavourable when players have different opponents. |
| Keywords: | Preference aggregation, Tournament ranking, Paired comparison, Axiomatic approach |
| JEL: | D71 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cvh:coecwp:2014/03&r=mic |
| By: | Christoph Aymanns; Co-Pierre Georg |
| Abstract: | When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of the world and a social belief formed from observing the actions of peers. Observing a larger group of peers conveys more information and thus leads to a stronger social belief. Extending the standard model of Bayesian updating in social networks, we show that the probability that banks synchronize their investment strategy on a state non-matching action critically depends on the weighting between private and social belief. This effect is alleviated when banks choose their peers endogenously in a network formation process, internalizing the externalities arising from social learning. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1408.0440&r=mic |