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on Microeconomics |
| By: | Veronica Guerrieri; Robert Shimer |
| Abstract: | This paper explores price formation when sellers are privately informed both about their preferences and the quality of their asset. In equilibrium, sellers recognize that it will be harder to sell their asset at higher prices, while buyers recognize that they will get higher quality assets on average at higher prices. There are many equilibria of this model, including one in which all trade takes place at one price. Under a behavioral restriction, we find a unique semi-separating equilibrium in which trade takes place over an interval of prices. We characterize necessary and sufficient conditions for this equilibrium to be Pareto optimal. Even though the semi-separating equilibrium allows for more trading opportunities, it may be Pareto dominated and may have less trade than the one-price equilibrium. |
| JEL: | D82 G12 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20623&r=mic |
| By: | Felipe Balmaceda (Facultad de Economía y Empresa, Universidad Diego Portales) |
| Abstract: | This paper studies optimal task assignments in a risk neutral principal-agent model in which agents are compensated according to an aggregated performance measure. The main trade-off involved is one in which specialization allows the implementation of any possible effort profile, while multitasking constraint the set of implementable effort profiles. Yet, the implementation of any effort profile in this set is less expensive than that under specialization. The principal prefers multitasking to specialization except when tasks are complements and the output after success is small enough so that it is not second-best optimal to implement high effort in each task. This result is robust to several extensions such as the existence of multiple performance measures. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:ptl:wpaper:54&r=mic |
| By: | Rose-Anne Dana (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine, IPAG Business School - Ipag Business School); Cuong Le Van (IPAG Business School - Ipag Business School, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment) |
| Abstract: | This article reconsiders the theory of existence of efficient allocations and equilibria when consumption sets are unbounded below under the assumption that agents have incomplete preferences. It is motivated by an example in the theory of assets with short-selling where there is risk and ambiguity. Agents have Bewley's incomplete preferences. As an inertia principle is assumed in markets, equilibria are individually rational. It is shown that a necessary and sufficient condition for the existence of an individually rational efficient allocation or of an equilibrium is that the relative interiors of the risk adjusted sets of probabilities intersect. The more risk averse, the more ambiguity averse the agents, the more likely is an equilibrium to exist. The paper then turns to incomplete preferences represented by a family of concave utility functions. Several definitions of efficiency and of equilibrium with inertia are considered. Sufficient conditions and necessary and sufficient conditions are given for the existence of efficient allocations and equilibria with inertia. |
| Keywords: | Uncertainty; risk; risk adjusted prior; no arbitrage; equilibrium with short-selling; incomplete preferences; equilibrium with inertia |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01020646&r=mic |
| By: | Robert Becker (Department of Economics, Indiana University - Indiana University); Stefano Bosi (EPEE - Université d'Evry-Val d'Essonne); Cuong Le Van (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment, IPAG Business School - Ipag Business School); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)) |
| Abstract: | We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying a Kakutani's fixed-point theorem, we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey. |
| Keywords: | Existence of equilibrium; bubbles; Ramsey model; heterogeneous agents; borrowing constraint; endogenous labor |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01020635&r=mic |
| By: | Waddell, Glen R. (University of Oregon); Lee, Logan M. (University of Oregon) |
| Abstract: | We model a hiring process in which the candidate is evaluated sequentially by two agents of the firm who each observe an independent signal of the candidate's productivity. We introduce the potential for taste-based discrimination and characterize how one agent's private valuation of the candidate influences the other agent's hiring practices. This influence is often in an offsetting direction and is partially corrective. Yet, this offsetting response can also be large enough that even a high-productivity candidate who is privately favoured by one agent, as may be the case in efforts to increase gender or racial diversity, is less likely to be hired even when the other agent has no preference over private, non-productive attributes. |
| Keywords: | hiring, race, gender, diversity, discrimination |
| JEL: | J1 J7 D8 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8445&r=mic |
| By: | Francesca Busetto; Giulio Codognato; Simone Tonin |
| Abstract: | In the line opened by Kalai and Muller (1977), we explore new con- ditions on preference domains which make it possible to avoid Arrow's impossibility result. In our main theorem, we provide a complete char- acterization of the domains admitting nondictatorial Arrovian social welfare functions with ties (i.e. including indierence in the range) by introducing a notion of strict decomposability. In the proof, we use integer programming tools, following an approach rst applied to so- cial choice theory by Sethuraman, Teo and Vohra ((2003), (2006)). In order to obtain a representation of Arrovian social welfare functions whose range can include indierence, we generalize Sethuraman et al.'s work and specify integer programs in which variables are allowed to assume values in the set indeed, we show that there exists a one-to-one correspondence between the solutions of an integer program dened on this set and the set of all Arrovian social welfare functions - without restrictions on the range |
| JEL: | D71 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2014_13&r=mic |
| By: | Yehuda Levy |
| Abstract: | A long-standing open question raised in the seminal paper of Kalai and Lehrer (1993) is whether or not the play of a repeated game, in the rational learning model introduced there, must eventually resemble play of exact equilibria, and not just play of approximate equilibria as demonstrated there. This paper shows that play may remain distant - in fact, mutually singular - from the play of any equilibrium of the repeated game. We further show that the same inaccessibility holds in Bayesian games, where the play of a Bayesian equilibrium may continue to remain distant from the play of any equilibrium of the true game. |
| Keywords: | Rational Learning, Repeated Games, Nash Equilibrium |
| JEL: | C65 C72 C73 |
| Date: | 2014–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:731&r=mic |
| By: | Vetter, Henrik |
| Abstract: | The author analyses delegation in homogenous duopoly under the assumption that the firm-managers compete in supply functions. In supply function equilibrium, managers' decisions are strategic complements. This reverses earlier findings in that the author finds that owners give managers incentives to act in an accommodating way. As a result, optimal delegation reduces per-firm output and increases profits to above-Cournot profits. Moreover, in supply function equilibrium the mode of competition is endogenous. This means that the author avoids results that are sensitive with respect to assuming either Cournot or Bertrand competition. |
| Keywords: | Delegation,incentives,supply function equilibrium |
| JEL: | D22 D43 L22 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201438&r=mic |
| By: | Gaëtan Fournier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Marco Scarsini (Engineering and System Design Pillar - Singapore University of Technology and Design) |
| Abstract: | We consider a Hotelling game where a finite number of retailers choose a location, given that their potential customers are distributed on a network. Retailers do not compete on price but only on location, therefore each consumer shops at the closest store. We show that when the number of retailers is large enough, the game admits a pure Nash equilibrium and we construct it. We then compare the equilibrium cost bore by the consumers with the cost that could be achieved if the retailers followed the dictate of a benevolent planner. We perform this comparison in term of the induced price of anarchy, i.e., the ratio of the worst equilibrium cost and the optimal cost, and the induced price of stability, i.e., the ratio of the best equilibrium cost and the optimal cost. We show that, asymptotically in the number of retailers, these ratios are two and one, respectively. |
| Keywords: | Induced price of anarchy; induced price of stability; location games on networks; pure equilibria; large games |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00983085&r=mic |
| By: | Georgy Egorov; Konstantin Sonin |
| Abstract: | In elections that take place in a less-than-perfect democracy, incumbency advantages are different from those in mature democracies. The incumbent can prevent credible challengers from running, organize vote fraud, or even physically eliminate his main opponents. At the same time, formally winning the election does not guarantee staying in power. We present a unified model of elections and mass protests where the purpose of competitive elections is to reveal information about the relative popularity of the incumbent and the opposition. Citizens are heterogenous in their attitudes toward the dictator, and these individual preferences serve as private signals about the aggregate distribution of preferences; this ensures a unique equilibrium for any information the incumbent may reveal. We show that the most competent or popular dictators run in competitive elections, mediocre ones prevent credible opponents from running or cancel elections, and the least competent ones use outright repressions. A strong opposition makes competitive elections more likely but also increases the probability of repression. A totalitarian regime, where repression is cheaper, will have more repression, but even in the absence of repression, competitive elections will be rarer. A crueler, say, military, regime, where protesting is costly, makes repression less likely and, surprisingly, competitive elections more likely. |
| JEL: | D72 D82 H00 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20519&r=mic |
| By: | Florent Buisson (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne) |
| Abstract: | I show that a loss averse consumer who must share her budget between two goods prefer allocations for which consumption equals reference point for at least one good. The phenomenon intensity depends on the curvature of the utility curve. These results are consistent with several stylized facts which cannot be explained by the standard consumer theory. |
| Keywords: | Loss aversion; prospect theory |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00820722&r=mic |
| By: | Mark Armstrong; John Vickers |
| Abstract: | We provide a simple necessary and sufficient condition for when a multiproduct demand system can be generated from a discrete choice model with unit demands. |
| Keywords: | Discrete choice, unit demand, multiproduct demand functions |
| JEL: | D01 D11 |
| Date: | 2014–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:729&r=mic |
| By: | Svetlana Boyarchenko (Department of Economics, University of Texas at Austin); Sergei Levendorskii (Department of Mathematics, University of Leicester) |
| Abstract: | We study a stochastic version of Fudenberg--Tirole's preemption game. Two firms contemplate entering a new market with stochastic demand. Firms differ in sunk costs of entry. If the demand process has no upward jumps, the low cost firm enters first, and the high cost firm follows. If leader's optimization problem has an interior solution, the leader enters at the optimal threshold of a monopolist; otherwise, the leader enters earlier than the monopolist. If the demand admits positive jumps, then the optimal entry threshold of the leader can be lower than the monopolist's threshold even if the solution is interior; simultaneous entry can happen either as an equilibrium or a coordination failure; the high cost firm can become the leader. We characterize subgame perfect equilibrium strategies in terms of stopping times and value functions. Analytical expressions for the value functions and thresholds that define stopping times are derived. |
| Keywords: | stopping time games, preemption, Levy uncertainty |
| JEL: | C73 C61 D81 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:tex:wpaper:131101&r=mic |
| By: | Caprice, Stéphane; von Schlippenbach, Vanessa; Wey, Christian |
| Abstract: | Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes. |
| Keywords: | Fixed Costs,Vertical Contracting,Monopolization |
| JEL: | L13 L14 L42 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:164&r=mic |