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on Microeconomics |
| By: | Lionel de Boisdeffre (Centre d'Economie de la Sorbonne) |
| Abstract: | We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange commodities, on spot markets, and securities of all kinds, on incomplete financial markets with no model of how future prices are determined. They have private characteristics, anticipations and beliefs. We show they face an incompressible uncertainty, represented by a so-called “minimum uncertainty set”, typically adding to the ‘exogenous uncertainty’, on tomorrow's state of nature, an ‘endogenous uncertainty’ on future spot prices, which may depend on every agent's private anticipations today. At equilibrium, all agents expect the ‘true’ price, in each realizable state, as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets, ex post. Our main Theorem states that equilibrium exists as long as agents' prior anticipations, which may be refined from observing markets, embed that minimum uncertainty set. This result is stronger than the classical ones of generic existence, along Radner (1979), or Hart (1975), based on the rational expectations of prices |
| Keywords: | sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage |
| JEL: | D52 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17036&r=mic |
| By: | Ascensión Andina-Díaz (Department of Economics, University of Málaga); José A. García-Martínez (Department of Economics, University of Málaga); Antonio Parravano (Department of Economics, University of Málaga) |
| Abstract: | We present a dynamic model of competition and reputation in the media industry, in which firms compete for the publication of scoops and both the publication of scoops and their veracity determine a firm's future reputation. We study the dynamics of firms' reputations and how it relates to two issues: The consumers' preferences for information and the dispersion of the firms' editorial standards for quality. We obtain that in the case of a duopoly, there is only one stable steady state. In this equilibrium the two firms coexist and the identity of the firm that leads the market (i.e., whether it is the firm with the high editorial standard or with the low standard) depends on a combination of the two issues above. We then use numerical simulations to analyze the stochastic dynamics for a larger number of firms. We obtain that most of the insights gained for the duopoly case are robust to the consideration of a higher number of firms. We also draw predictions on the number of firms surviving in the long run, showing that the more severe consumers are with the publication of false stories and/or the more similar the firms' standards for quality are, the higher the number of firms in the stationary state. |
| Keywords: | Media industry; Competition; Reputation; Stochastic dynamics; Deterministic dynamics |
| JEL: | L10 L82 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mal:wpaper:2017-3&r=mic |
| By: | Eric BAHEL; Yves SPRUMONT |
| Abstract: | We model social choices as acts mapping states of nature to (public) outcomes. A social choice function (or SCF) assigns an act to every profile of subjective expected utility preferences over acts. A SCF is strategyproof if no agent ever has an incentive to misrepresent her beliefs about the states of nature or her valuation of the outcomes; it is ex-post efficient if the act selected at any given preference profile picks a Pareto-efficient outcome in every state of nature. We offer a complete characterization of all strategyproof and ex-post efficient SCFs. The chosen act must pick the most preferred outcome of some (possibly different) agent in every state of nature. The set of states in which an agent's top outcome is selected may vary with the reported belief profile; it is the union of all the states assigned to her by a collection of bilaterally dictatorial and bilaterally consensual assignment rules. |
| Keywords: | ocial choice under uncertainty, strategyproofness, subjective expected utility, dictatorship, consensuality, bilaterality |
| JEL: | D71 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:03-2017&r=mic |
| By: | Richard T. Thakor; Andrew W. Lo |
| Abstract: | We develop a theory of optimal financing for R&D-intensive firms that uses their unique features—large capital outlays, long gestation periods, high upside, and low probabilities of R&D success—that explains three prominent stylized facts about these firms: their relatively low use of debt, large cash balances, and underinvestment in R&D. The model relies on the interaction of the unique features of R&D-intensive firms with three key frictions: adverse selection about R&D viability, asymmetric information about the upside potential of R&D, and moral hazard from risk shifting. We establish the optimal pecking order of securities with direct market financing. Using a tradeoff between tax benefits and the costs of risk shifting for debt, we establish conditions under which the firm uses an all-equity capital structure and firms raise enough financing to carry excess cash. A firm may use a limited amount of debt if it has pledgeable assets in place. However, market financing still leaves potentially valuable R&D investments unfunded. We then use a mechanism design approach to explore the potential of intermediated financing, with a binding precommitment by firm insiders to make costly ex post payouts. A mechanism consisting of put options can be used in combination with equity to eliminate underinvestment in R&D relative to the direct market financing outcome. This optimal intermediary-assisted mechanism consists of bilateral “insurance” contracts, with investors offering firms insurance against R&D failure and firms offering investors insurance against very high R&D payoffs not being realized. |
| JEL: | D82 D83 G31 G32 G34 O31 O32 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23831&r=mic |
| By: | Bettina Klaus; Panos Protopapas |
| Abstract: | We consider the problem of choosing a set of locations of a public good on the real line R. Similarly to Klaus and Storcken (2002), we ordinally extend the agents' preferences over compact subsets of R, and extend the results of Ching and Thomson (1996), Vohra 1999), and Klaus (2001) to choice correspondences. Specifically, we show that efficiency}and either population-monotonicity or one-sided replacement-dominance characterize the class of target set correspondences on the domains of single-peaked preferences and symmetric single-peaked preferences. |
| Keywords: | single-peaked preferences; population-monotonicity; replacement-dominance; target set correspondences |
| JEL: | C71 D63 D78 H41 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:17.13&r=mic |
| By: | Kukushkin, Nikolai S. |
| Abstract: | Philip Reny's approach to games with discontinuous utility functions can work outside its original context. The existence of Nash equilibrium and the possibility to approach the equilibrium set with a finite number of individual improvements are established, under conditions weaker than the better reply security, for three classes of strategic games: potential games, games with strategic complements, and aggregative games with appropriate monotonicity conditions. |
| Keywords: | discontinuous game; potential game; Bertrand competition; strategic complements; aggregative game |
| JEL: | C72 |
| Date: | 2017–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81460&r=mic |
| By: | Yves SPRUMONT |
| Abstract: | Relative Nash welfarism is a solution to the problem of aggregating von Neumann-Morgenstern preferences over a set of lotteries. It ranks such lotteries according to the product of any collection of 0-normalized von Neumann-Morgenstern utilities they generate. We show that this criterion is characterized by the Weak Pareto Principle, Anonymity, and Independence of Harmless Expansions: the social ranking of two lotteries is unaffected by the addition of any alternative that every agent deems at least as good as the one she originally found worst. Relative Nash welfarism is more appealing than relative utilitarianism in contexts where the best relevant alternative for an agent is difficult to identify with confidence. |
| Keywords: | preference aggregation, lotteries, relative utilitarianism, Nash product |
| JEL: | D63 D71 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:07-2017&r=mic |
| By: | Jean Baccelli (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique, IHPST - Institut d'Histoire et de Philosophie des Sciences et des Techniques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - CNRS - Centre National de la Recherche Scientifique); Philippe Mongin (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique, IHPST - Institut d'Histoire et de Philosophie des Sciences et des Techniques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes' contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and distinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes' doctrine with the major deviation from ordinalism that conceives of utility functions as representing preference differences, while being nonetheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism. |
| Keywords: | ordinalism, Suppes, representation theorems, preference differences, cardinalism,ordinal utility, cardinal utility |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01462299&r=mic |
| By: | Rohan DUTTA; Pierre-Yves YANNI |
| Abstract: | A principal needs agents to appropriately select a risky action over a safe one, with replacement as the only incentivizing tool. Agents wish solely to re- main in office and the risky action can reveal his decision-making competence. Aghion and Jackson (2017) show how the inability to commit to a retention pol- icy severely limits the principal’s welfare. We study this problem when agents face two-period term limits and find that this helps the principal considerably. The term limit structure allows the principal to mimic the ability to make commitments and enforce a random dismissal rule following the safe action. The incentive problem becomes even less severe if the agent has private information about his competence and the stakes are high. |
| Keywords: | term-limits, elections, principal-agent, discretion, replacement |
| JEL: | D72 D82 D86 C72 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:06-2017&r=mic |
| By: | David Besanko; Ulrich Doraszelski; Yaroslav Kryukov |
| Abstract: | We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria of a learning-by-doing model to the first-best planner solution. We show that dynamic competition leads to low deadweight loss. This cannot be attributed to similarity between the equilibria and the planner solution. Instead, we show how learning-by-doing causes the various contributions to deadweight loss to either be small or partly offset each other. |
| JEL: | D21 D43 L13 L41 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23829&r=mic |
| By: | Huberman, Gur; Leshno, Jacob; Moalleni, Ciamac |
| Abstract: | Owned by nobody and controlled by an almost immutable protocol the Bitcoin payment system is a platform with two main constituencies: users and profit seeking miners who maintain the system's infrastructure. The paper seeks to understand the economics of the system: How does the system raise revenue to pay for its infrastructure? How are usage fees determined? How much infrastructure is deployed? What are the implications of changing parameters in the protocol? A simplified economic model that captures the system's properties answers these questions. Transaction fees and infrastructure level are determined in an equilibrium of a congestion queueing game derived from the system's limited throughput. The system eliminates dead-weight loss from monopoly, but introduces other inefficiencies and requires congestion to raise revenue and fund infrastructure. We explore the future potential of such systems and provide design suggestions. |
| Keywords: | Bitcoin; blockchain; cryptocurrency; market design; queueing; Two-sided markets |
| JEL: | D20 D40 L10 L50 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12322&r=mic |
| By: | Bernardo Guimarae (Centre for Macroeconomics (CFM); Sao Paulo School of Economics); Bruno Meyerhof Salama (Sao Paulo School of Economics) |
| Abstract: | Legislation is less likely to be enforced when courts disagree with it. Building on this premise, we propose a model of Bayesian adjudicators that use their own prior knowledge to evaluate the appropriateness of legislation. The model yields a non-monotonic relation between written rules and effectively enforced rules. Hence the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. Moreover, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of effects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model. |
| Keywords: | Adjudication, Courts, Prohibitions, Interest rate cap |
| JEL: | K41 K22 K12 G21 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1729&r=mic |
| By: | Mostafa Beshkar (Indiana University); Jee-Hyeong Park |
| Abstract: | We analyze a settlement bargaining game in which one player receives a private and noisy signal of another player’s private type, thereby generating second-order uncertainty. Specifically, we develop a pretrial settlement bargaining game on contingent protection between governments in the presence of random and private pressure for protection. When the bargaining is a signaling game, the divine equilibrium entails a fully separating and inefficient action combination. As the quality of noisy signal improves, the likelihood of litigation decreases and the settlement tariff pair moves toward the Paretoefficient frontier. If the noisy signal of types is known to both players prior to the settlement offer stage, eliminating the second-order uncertainty, then the informational value associated with the signal of types completely disappears. For the presence or absence of second-order uncertainty to drastically affect the equilibrium of a settlement bargaining game, the player with private type information should be the one to make an offer. |
| Keywords: | Dispute Settlement, Second Order Uncertainty |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2017010&r=mic |
| By: | Michela Chessa (Université Côte d'Azur, France; GREDEG CNRS); Patrick Loiseau (EURECOM; Max Planck Institute for Software Systems (MPI-SWS)) |
| Abstract: | We propose a non-monetary incentive mechanism to encourage high levels of contribution in public good provision. Based on a generic public good game, we implement a variation that imposes a minimum individual contribution level and offers individuals the choice between respecting it if they decide to contribute, or contributing zero. Restricting the individuals' strategy space in that way can stimulate them toward higher eorts while leaving them the possibility of contributing zero ensures that such eorts remain voluntary. We investigate how to tune the minimum contribution level in order to maximize the total contribution and to reach a stable outcome where no individual has incentive to free-ride. Exploiting the potential nature of the game, we show that one can set the minimum contribution level such that there exists a unique potential maximizer equilibrium in which all the individuals contribute to the public good. Our work is of particular relevance to the growing eld of information economics. Specically, we provide an application of our model to data analytics projects using information with privacy implications, a domain where individuals (and regulatory provisions) consider as fundamental to be able to exercise control and where monetary compensation has so-far received little traction in practical scenarios. |
| Keywords: | Public goods, Potential games, Non-monetary incentives, Minimum contribution level |
| JEL: | C72 H41 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2017-24&r=mic |
| By: | Johan N. M. Lagerlöf (Department of Economics, University of Copenhagen) |
| Abstract: | In many contests in economic and political life, both all-pay and winner-pay expenditures matter for winning. This paper studies such hybrid contests under symmetry and asymmetry. The symmetric model is very general but still yields a simple closed-form solution. More contestants tend to lead to substitution toward winner-pay investments, and total expenditures are always lower than in the corresponding all-pay contest. With a biased decision process and two contestants, the favored contestant wins with a higher likelihood, chooses less winner-pay investments, and contributes more to total expenditures. An endogenous bias that maximizes total expenditures disfavors the high-valuation contestant but still makes her the more likely one to win. |
| Keywords: | rent-seeking, lobbying, influence activities, multiple influence channels, producer theory |
| JEL: | C72 D24 D72 D74 |
| Date: | 2017–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1720&r=mic |
| By: | Persson, Petra |
| Abstract: | Limits on consumer attention give firms incentives to manipulate prospective buyers' allocation of attention. This paper models such attention manipulation and shows that it limits the ability of disclosure regulation to improve consumer welfare. Competitive information supply, from firms competing for attention, can reduce consumers' knowledge by causing information overload. A single firm subjected to a disclosure mandate may deliberately induce such information overload to obfuscate financially relevant information, or engage in product complexification to bound consumers' financial literacy. Thus, disclosure rules that would improve welfare for agents without attention limitations can prove ineffective for consumers with limited attention. Obfuscation suggests a role for rules that mandate not only the content but also the format of disclosure; however, even rules that mandate "easy-to-understand" formats can be ineffective against complexification, which may call for regulation of product design. |
| Keywords: | Complexity; consumer protection; Disclosure regulation; Information Overload; Persuasion; salience |
| JEL: | D11 D14 D18 D83 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12297&r=mic |
| By: | David Ettinger (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique); Fabio Michelucci (CERGE-EI - Charles University [Prague]) |
| Abstract: | We show that jump bids can be used by a bidder to create a winner's curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The effect of the winner's curse is to create allocative distortions and reduce the seller's expected revenue. Two novel features of equilibrium jump bids are derived. First, the jump bid may fail to hide completely the value of the common value component. Second, a bidder with a higher type might jump bid less frequently than a bidder with a lower type. |
| Keywords: | jump bids,auctions,efficiency |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01432861&r=mic |
| By: | Pablo Kurlat; Florian Scheuer |
| Abstract: | We study competitive equilibrium in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high type workers forgo signaling and are hired by better informed firms, who make positive profits. Workers’ education decisions and firms’ use of their expertise are strategic complements, allowing for multiple equilibria. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. The market can create insufficient or excessive incentives for firms to acquire information, and we provide a formula to measure this inefficiency. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy. |
| JEL: | D4 D5 D8 G1 G2 H2 J2 J3 L1 L2 M3 M50 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23817&r=mic |
| By: | Jean Guillaume Forand; Jan Zapal |
| Abstract: | We characterise the optimal demand and supply of favours in a dynamic principal-agent model of joint production, in which heterogenous project opportunities arrive stochastically and are publicly observed upon arrival, utility from these projects is non-transferable and commitment to future production is limited. Our results characterise the optimal dynamic contract, and we establish that the principal's supply of favours (the production of projects that benefit the agent but not the principal) is backloaded, that the principal's demand for favours (the production of projects that benefit the principal but not the agent) is frontloaded, and that the production of projects is ordered by their comparative advantage, that is, by their associated efficiency in extracting (for demanded projects) and providing (for supplied projects) utility to the agent. Furthermore, we provide an exact construction of the optimal contract when project opportunities follow a Markov process. |
| Keywords: | dynamic contracts; trading favours; team production |
| JEL: | D86 C73 L24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp605&r=mic |
| By: | Bernardo Guimaraes (Centre for Macroeconomics (CFM); Sao Paulo Scool of Economics); Caio Machado (Pontificia Universidad Católica de Chile); Ana Elisa Pereira (Universidad de los Andes Chile) |
| Abstract: | We start by presenting the general model of dynamic coordination with timing frictions and some key theoretical results. We prove the model features a unique rationalizable equilibrium, present a method to solve the social planner problem and derive expressions for the equilibrium threshold in limiting cases. With this toolkit in hand, we get analytical results for a case with linear preferences and present several applications, ranging from network externalities to statistical discrimination and to macroeconomics. Besides generating insights for speci c questions, the applications illustrate the potential of the model to accommodate a large set of economic problems. Last, we show extensions of the framework that allow for endogenous hazard rates, preemption motives and ex-ante heterogeneous agents. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1726&r=mic |
| By: | Marc Fleurbaey (Woodrow Wilson School and Center for Human Values - Princeton University); Stéphane Zuber (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | Utilitarianism plays a central role in economics, but there is a gap between theory, where it is dominant and applications, where monetary criteria are often used. For applications, a key difficulty for utilitarianism remains to define how utilities should be measured and compared across individuals. Drawing on Harsanyi's approach (Harsanyi, 1955) involving choices in risky situations, we introduce a new normalization of utilities that is the only one ensuring that: 1) a transfer from a rich to a poor is welfare enhancing, and 2) populations with more risk averse people have lower welfare. We embed these requirements in a new characterization of utilitarianism and study some implications of this "fair utilitarianism" for risk sharing, collective risk aversion and the design of health policy |
| Keywords: | Fairness; social risk; utilitarianism |
| JEL: | D63 D81 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17005r&r=mic |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises. |
| Keywords: | merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game |
| JEL: | D43 K21 L13 L14 L15 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:167&r=mic |
| By: | David Ettinger (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Fabio Michelucci (CERGE-EI - Charles University [Prague]) |
| Abstract: | We analyse a rationale for hiding information in open ascending auction formats. We focus on the incentives for a bidder to call a price higher than the highest standing one in order to prevent the remaining active bidders from aggregating more accurate information by observing the exact drop out values of the opponents who exit the auction. We show that the decision whether to allow jump bids or not can have a drastic impact on revenue and efficiency. |
| Keywords: | Auction, jump bids, efficiency, revenue |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01432853&r=mic |
| By: | Stacey H. Chen (National Graduate Institute for Policy Studies, Tokyo, Japan); Wu-Hsiung Huang (National Taiwan University) |
| Abstract: | This paper considers the infinite alternative case to prove the existence of continuous social welfare aggregation that is anonymous and respects the unanimity. It clarifies the controversy between Chichilnisky (1982, QJE) and Huang for their contradictory results for the continuum case. Compared to their topological frameworks, the infinite alternative case is easier to understand and pinpoint their difference. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:17-09&r=mic |