We analyze inequality and mobility across generations in a dynastic economy. Nurture, in terms of bequests and the schooling investment into the next generation, is observable but the draw of nature in terms of ability is hidden, stochastic and persistent across generations. We calibrate the model to U.S. data to illustrate mechanisms through which nurture and nature affect mobility and the transmission of income inequality across generations, thus complementing the vast empirical literature. To provide a benchmark for the observed status quo, we solve for the social optimum in which the planner weighs dynasties equally and chooses optimal tax schedules subject to incentive compatibility. Analyzing the transition from the calibrated steady state to this social optimum, we find that insurance against intergenerational ability risk increases on the transition path by making welfare of family dynasties more dependent on nurture relative to nature. The insurance comes at the cost of less social mobility. We compare welfare in the social optimum and economies with a simple history-independent tax and subsidy system.
{"title":"Opportunity and Inequality Across Generations","authors":"Winfried Koeniger, Carlo Zanella","doi":"10.2139/ssrn.3541447","DOIUrl":"https://doi.org/10.2139/ssrn.3541447","url":null,"abstract":"We analyze inequality and mobility across generations in a dynastic economy. Nurture, in terms of bequests and the schooling investment into the next generation, is observable but the draw of nature in terms of ability is hidden, stochastic and persistent across generations. We calibrate the model to U.S. data to illustrate mechanisms through which nurture and nature affect mobility and the transmission of income inequality across generations, thus complementing the vast empirical literature. To provide a benchmark for the observed status quo, we solve for the social optimum in which the planner weighs dynasties equally and chooses optimal tax schedules subject to incentive compatibility. Analyzing the transition from the calibrated steady state to this social optimum, we find that insurance against intergenerational ability risk increases on the transition path by making welfare of family dynasties more dependent on nurture relative to nature. The insurance comes at the cost of less social mobility. We compare welfare in the social optimum and economies with a simple history-independent tax and subsidy system.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123187245","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There has been a rapid growth in the use of investment mandates for the management of fixed-income assets. In this paper, we examine how the limits set in investment mandates can affect the bidding strategy during the issuance of a corporate bond. We apply the uniform-price auction and prove the existence of symmetric Bayesian Nash equilibrium. Under the presence of an exogenous secondary market, an expectation for higher yields on resale increases the demand for the bond. Moreover, the number of participating investors and the oligopolistic market power of each investment manager always affect the bidding strategy inversely.
{"title":"Auctioning Corporate Bonds: A Uniform-Price under Investment Mandates","authors":"Lamprini Zarpala","doi":"10.2139/ssrn.3888636","DOIUrl":"https://doi.org/10.2139/ssrn.3888636","url":null,"abstract":"There has been a rapid growth in the use of investment mandates for the management of fixed-income assets. In this paper, we examine how the limits set in investment mandates can affect the bidding strategy during the issuance of a corporate bond. We apply the uniform-price auction and prove the existence of symmetric Bayesian Nash equilibrium. Under the presence of an exogenous secondary market, an expectation for higher yields on resale increases the demand for the bond. Moreover, the number of participating investors and the oligopolistic market power of each investment manager always affect the bidding strategy inversely.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"72 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134025747","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Robizon Khubulashvili, Sera Linardi, Xiaohong Wang
Outcome bias is pervasive and persistent across different environments. In our noisy gift-exchange game, where agents can perform a real effort task to improve principals' lottery win probability, we replicate outcome bias in effort rewarding when effort is only numerically observable. To investigate the role of principals' beliefs on effort cost, we employed a visual treatment in which principals watch a 30-second video of the agents performing the task. We show that visually observing agents' work corrects asymmetry in rewarding effort. The post-experiment survey suggests that the mechanism through which visually observing effort reduces the outcome bias in reciprocating effort is informing principals about the cost of effort.
{"title":"The Role of Effort Cost Perception in Outcome Bias","authors":"Robizon Khubulashvili, Sera Linardi, Xiaohong Wang","doi":"10.2139/ssrn.3789963","DOIUrl":"https://doi.org/10.2139/ssrn.3789963","url":null,"abstract":"Outcome bias is pervasive and persistent across different environments. In our noisy gift-exchange game, where agents can perform a real effort task to improve principals' lottery win probability, we replicate outcome bias in effort rewarding when effort is only numerically observable. To investigate the role of principals' beliefs on effort cost, we employed a visual treatment in which principals watch a 30-second video of the agents performing the task. We show that visually observing agents' work corrects asymmetry in rewarding effort. The post-experiment survey suggests that the mechanism through which visually observing effort reduces the outcome bias in reciprocating effort is informing principals about the cost of effort.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130707930","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite being considered by many to be harmful for society, inequality has been rising in the past decades. How people experience the level of inequality may be different from the objective levels of inequality. In this literature review we systematically revisit common elicitation methods of perceived inequality and find that they lead to quite different conclusions. Yet, it is clear that most people’s perceptions of inequality are biased. Individuals’ past experience and exposure to local inequality, have profound impact on subjective perception of inequality and on redistribution preferences. Positive expectations about upward mobility explain lack of support for redistribution.
{"title":"(Mis-)Perception of Inequality: Measures, Determinants, and Consequences","authors":"Ginevra Marandola, Yilong Xu","doi":"10.2139/ssrn.3898673","DOIUrl":"https://doi.org/10.2139/ssrn.3898673","url":null,"abstract":"Despite being considered by many to be harmful for society, inequality has been rising in the past decades. How people experience the level of inequality may be different from the objective levels of inequality. In this literature review we systematically revisit common elicitation methods of perceived inequality and find that they lead to quite different conclusions. Yet, it is clear that most people’s perceptions of inequality are biased. Individuals’ past experience and exposure to local inequality, have profound impact on subjective perception of inequality and on redistribution preferences. Positive expectations about upward mobility explain lack of support for redistribution.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128715748","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The inter-temporal resource allocation efficiency of a property rights-based common-pool resource system is challenged by a cost externality when one user’s extraction raises the extraction cost for others. This paper builds a dynamic resource allocation model to illustrate the efficiency loss from a standard property rights market. We then create a novel inter-temporal allocation mechanism that preserves dynamic efficiency. Our dynamic resource allocation mechanism includes an optimal planning stage where the agents collectively determine a binding extraction target for each period and a market stage where agents can exchange their extraction rights assigned within each period. The theoretical model demonstrates that our mechanism can achieve the socially optimal allocation in two specific environments. A numerical simulation of our mechanism for a general environment consistently tracks the social optimum and significantly outperforms the traditional property rights market.
{"title":"Dynamic Resource Allocation with Cost Externality","authors":"Hao Zhao","doi":"10.2139/ssrn.3926829","DOIUrl":"https://doi.org/10.2139/ssrn.3926829","url":null,"abstract":"The inter-temporal resource allocation efficiency of a property rights-based common-pool resource system is challenged by a cost externality when one user’s extraction raises the extraction cost for others. This paper builds a dynamic resource allocation model to illustrate the efficiency loss from a standard property rights market. We then create a novel inter-temporal allocation mechanism that preserves dynamic efficiency. Our dynamic resource allocation mechanism includes an optimal planning stage where the agents collectively determine a binding extraction target for each period and a market stage where agents can exchange their extraction rights assigned within each period. The theoretical model demonstrates that our mechanism can achieve the socially optimal allocation in two specific environments. A numerical simulation of our mechanism for a general environment consistently tracks the social optimum and significantly outperforms the traditional property rights market.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131512592","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper argues that government policies such as lockdowns and command and control regulation of businesses have not efficiently addressed the nature of the COVID-19 externality because these interventions fail to take account of insights from standard price theory about the reciprocal nature of externalities and the allocation of rights such that least cost avoiders adjust behavior. Furthermore these interventions stifled the market’s entrepreneurial adjustment process that partially ameliorates the externalities over time.
{"title":"Government Failure vs. the Market Process during the COVID-19 Pandemic","authors":"Benjamin Powell","doi":"10.2139/ssrn.3919790","DOIUrl":"https://doi.org/10.2139/ssrn.3919790","url":null,"abstract":"This paper argues that government policies such as lockdowns and command and control regulation of businesses have not efficiently addressed the nature of the COVID-19 externality because these interventions fail to take account of insights from standard price theory about the reciprocal nature of externalities and the allocation of rights such that least cost avoiders adjust behavior. Furthermore these interventions stifled the market’s entrepreneurial adjustment process that partially ameliorates the externalities over time.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123561952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
While it has been argued that money politics magnifies political distrust, little is known about how political distrust affects money politics. To reveal this overlooked aspect, we first construct a static electoral competition model where two candidates propose policy platforms, and an interest group determines the number of campaign contributions for each candidate. We show that political distrust mitigates money politics; that is, in the presence of high political distrust, candidates do not propose a policy favored by the interest group. Based on this mechanism, we identify the dynamic dilemma of political distrust: political distrust improves future democratic performance, whereas it is a signal of past low performance. By extending the model to a dynamic one with short-lived players, we find that this dynamic dilemma could create endogenous cycles of political distrust and money politics when the misalignment of policy preferences between voters and the interest group is severe. Political trust is accumulated, consumed, and then restored, following cycles of money politics.
{"title":"Dynamic Dilemma of Political Distrust","authors":"Satoshi Kasamatsu, Daiki Kishishita","doi":"10.2139/ssrn.3914509","DOIUrl":"https://doi.org/10.2139/ssrn.3914509","url":null,"abstract":"While it has been argued that money politics magnifies political distrust, little is known about how political distrust affects money politics. To reveal this overlooked aspect, we first construct a static electoral competition model where two candidates propose policy platforms, and an interest group determines the number of campaign contributions for each candidate. We show that political distrust mitigates money politics; that is, in the presence of high political distrust, candidates do not propose a policy favored by the interest group. Based on this mechanism, we identify the dynamic dilemma of political distrust: political distrust improves future democratic performance, whereas it is a signal of past low performance. By extending the model to a dynamic one with short-lived players, we find that this dynamic dilemma could create endogenous cycles of political distrust and money politics when the misalignment of policy preferences between voters and the interest group is severe. Political trust is accumulated, consumed, and then restored, following cycles of money politics.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"409 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127598604","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There are matching markets in which objective evaluations such as exam scores, skill qualifications, and priorities, are available in addition to subjective evaluations over agents. To examine these situations, we extend a college admission model by allowing that colleges have two different types of ordinal rankings over students, i.e., common priority order and individual preferences. A matching is called double stable if it is both priority stable and preference stable. While the existence of a double stable matching is not always guaranteed, we provide its characterization through the existing well-known mechanisms in the literature; a double stable matching exists if and only if the resulting outcome of the serial dictatorship mechanism coincides with that of the student-proposing deferred acceptance mechanism.
{"title":"Matching with Subjective and Objective Evaluations","authors":"Yuanju Fang, Yosuke Yasuda","doi":"10.2139/ssrn.3914551","DOIUrl":"https://doi.org/10.2139/ssrn.3914551","url":null,"abstract":"There are matching markets in which objective evaluations such as exam scores, skill qualifications, and priorities, are available in addition to subjective evaluations over agents. To examine these situations, we extend a college admission model by allowing that colleges have two different types of ordinal rankings over students, i.e., common priority order and individual preferences. A matching is called double stable if it is both priority stable and preference stable. While the existence of a double stable matching is not always guaranteed, we provide its characterization through the existing well-known mechanisms in the literature; a double stable matching exists if and only if the resulting outcome of the serial dictatorship mechanism coincides with that of the student-proposing deferred acceptance mechanism.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"162 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126153389","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The present paper revisits the path by which Coase came to set down the result now generally known as the Coase theorem in his 1960 article. I draw on both the published record and archival resources in an effort to clear away some of the mist and, as it will emerge, dispel some of the mythology. As good as the traditional story is—thanks in no small part to Stigler’s hyperbole—the reality is far more interesting, both for what it tells us about Coase’s result and for our understanding of the messy process behind how it came to be. For as we shall see, Coase set out at least three versions of his result, two of them assuredly incorrect, in 1959–60 and had at best a faint sense for the implications of transaction costs for his conclusion—something which he was only put on to by others to whom he showed the original draft of his 1959 article. And as for that fateful evening during which he "converted" the Chicagoans to his point of view, we shall see both that the extent of the conversion necessary was far less than the traditional story suggests and that it is not at all clear what it was that the Chicagoans believed at the end of the evening, Coase’s 1960 argument notwithstanding.
{"title":"What Happened on Blackstone Avenue? Exorcising Coase Theorem Mythology","authors":"Steven G. Medema","doi":"10.2139/ssrn.3886896","DOIUrl":"https://doi.org/10.2139/ssrn.3886896","url":null,"abstract":"The present paper revisits the path by which Coase came to set down the result now generally known as the Coase theorem in his 1960 article. I draw on both the published record and archival resources in an effort to clear away some of the mist and, as it will emerge, dispel some of the mythology. As good as the traditional story is—thanks in no small part to Stigler’s hyperbole—the reality is far more interesting, both for what it tells us about Coase’s result and for our understanding of the messy process behind how it came to be. For as we shall see, Coase set out at least three versions of his result, two of them assuredly incorrect, in 1959–60 and had at best a faint sense for the implications of transaction costs for his conclusion—something which he was only put on to by others to whom he showed the original draft of his 1959 article. And as for that fateful evening during which he \"converted\" the Chicagoans to his point of view, we shall see both that the extent of the conversion necessary was far less than the traditional story suggests and that it is not at all clear what it was that the Chicagoans believed at the end of the evening, Coase’s 1960 argument notwithstanding.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"168 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126680817","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we introduce a new approach to measure the dissatisfaction for coalitions of players in cooperative transferable utility games. This is done by considering affine (and convex) combinations of the classical excess and the proportional excess. Based on this so-called alpha-excess, we defi ne new solution concepts for cooperative games, such as the alpha-prenucleolus and the alpha-prekernel. The classical prenucleolus and prekernel are a special case. We characterize the alpha-prekernel by strong stability and the alpha-balanced surplus property. Also, we show that the payoff vector generated by the alpha-prenucleolus belongs to the alpha-prekernel.
{"title":"The Prekernel of Cooperative Games with Alpha-Excess","authors":"R. van den Brink, Xia Zhang, A. Estévez-Fernández","doi":"10.2139/ssrn.3889313","DOIUrl":"https://doi.org/10.2139/ssrn.3889313","url":null,"abstract":"In this paper, we introduce a new approach to measure the dissatisfaction for coalitions of players in cooperative transferable utility games. This is done by considering affine (and convex) combinations of the classical excess and the proportional excess. Based on this so-called alpha-excess, we defi ne new solution concepts for cooperative games, such as the alpha-prenucleolus and the alpha-prekernel. The classical prenucleolus and prekernel are a special case. We characterize the alpha-prekernel by strong stability and the alpha-balanced surplus property. Also, we show that the payoff vector generated by the alpha-prenucleolus belongs to the alpha-prekernel.","PeriodicalId":129815,"journal":{"name":"Microeconomics: Welfare Economics & Collective Decision-Making eJournal","volume":"297 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131937356","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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