The author offers insight into the social policy implications of the issues raised at the conference "Unequal Incomes, Unequal Outcomes? Economic Inequality and Measures of Well-Being."
{"title":"General Commentary","authors":"T. Smeeding","doi":"10.2139/ssrn.1019000","DOIUrl":"https://doi.org/10.2139/ssrn.1019000","url":null,"abstract":"The author offers insight into the social policy implications of the issues raised at the conference \"Unequal Incomes, Unequal Outcomes? Economic Inequality and Measures of Well-Being.\"","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"85 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123983402","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 short paper analyzes the effect of heterogeneity of markets in terms of income on the exclusion of markets under uniform price by considering linear demand curves in all markets. We show that more markets (and consumers) are excluded the higher are the inter-market income differences, and that adding markets, even with lower reservation prices than in existing ones, helps to decrease the price and thus make more markets served. The multiple market case turns out to be not an insignificant extension of the two-market case. We also address the welfare implications of price discrimination and show that discrimination could be beneficial or inefficient, crucially depending on the inter-market wealth distribution.
{"title":"Third-Degree Price Discrimination, Heterogeneous Markets and Exclusion","authors":"Yong He, Guang-Zhen Sun","doi":"10.2139/ssrn.276929","DOIUrl":"https://doi.org/10.2139/ssrn.276929","url":null,"abstract":"This short paper analyzes the effect of heterogeneity of markets in terms of income on the exclusion of markets under uniform price by considering linear demand curves in all markets. We show that more markets (and consumers) are excluded the higher are the inter-market income differences, and that adding markets, even with lower reservation prices than in existing ones, helps to decrease the price and thus make more markets served. The multiple market case turns out to be not an insignificant extension of the two-market case. We also address the welfare implications of price discrimination and show that discrimination could be beneficial or inefficient, crucially depending on the inter-market wealth distribution.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"240 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-11-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116069409","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}
I analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price. I compare the market advertising level to the socially optimal level, where I find that costly search can improve welfare and that firms may under- or over-advertise relative to the social optimum depending on the costs of search. The results suggest that, in markets with sufficiently low search costs, firms are likely over-advertising relative to the socially optimal level, and vice versa for markets with sufficiently high search costs.
{"title":"Advertising Intensity and Welfare in an Equilibrium Search Model","authors":"Ian Paul McCarthy","doi":"10.2139/ssrn.1087416","DOIUrl":"https://doi.org/10.2139/ssrn.1087416","url":null,"abstract":"I analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price. I compare the market advertising level to the socially optimal level, where I find that costly search can improve welfare and that firms may under- or over-advertise relative to the social optimum depending on the costs of search. The results suggest that, in markets with sufficiently low search costs, firms are likely over-advertising relative to the socially optimal level, and vice versa for markets with sufficiently high search costs.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115542886","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}
We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We provide an algorithm to compute Markov Perfect Equilibria (MPE) in our model. We conduct several numerical experiments to study how the propensity of multi-store retailers to spatial preemptive behavior depends on the magnitude of entry costs, exit value and transportation costs.
{"title":"Dynamic Spatial Competition between Multi-Store Firms","authors":"Victor Aguirregabiria, Gustavo Vicentini","doi":"10.2139/ssrn.926508","DOIUrl":"https://doi.org/10.2139/ssrn.926508","url":null,"abstract":"We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We provide an algorithm to compute Markov Perfect Equilibria (MPE) in our model. We conduct several numerical experiments to study how the propensity of multi-store retailers to spatial preemptive behavior depends on the magnitude of entry costs, exit value and transportation costs.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122302030","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}
I study Nash bargaining when the utility possibility set of the bargaining problem is not convex. A simple variation of Nash’s Symmetry axiom is all that is necessary to establish a set-valued version of Nash’s solution in non-convex settings.
{"title":"'Vintage' Nash Bargaining Without Convexity","authors":"E. Zambrano","doi":"10.2139/ssrn.899377","DOIUrl":"https://doi.org/10.2139/ssrn.899377","url":null,"abstract":"I study Nash bargaining when the utility possibility set of the bargaining problem is not convex. A simple variation of Nash’s Symmetry axiom is all that is necessary to establish a set-valued version of Nash’s solution in non-convex settings.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114989069","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}
R. Banker, Dmitri Byzalov, Mustafa Ciftci, R. Mashruwala
ABSTRACT: Recent research documents the empirical phenomenon of “sticky costs” and attributes it to a theory of deliberate managerial decisions in the presence of adjustment costs. We refine this theoretical explanation and show that it gives rise to a more complex pattern of asymmetric cost behavior that combines two opposing processes: cost stickiness conditional on a prior sales increase, and cost anti-stickiness conditional on a prior sales decrease. These predictions reflect the structure of optimal decisions with adjustment costs and the impact of prior sales changes on managers' expectations about future sales changes. Empirical estimates for Compustat data support our hypotheses. We further verify our predictions using additional proxies for managers' expectations, and show that our model offers important new insights. JEL Classifications: D24; M41.
{"title":"The Moderating Effect of Prior Sales Changes on Asymmetric Cost Behavior","authors":"R. Banker, Dmitri Byzalov, Mustafa Ciftci, R. Mashruwala","doi":"10.2139/ssrn.902546","DOIUrl":"https://doi.org/10.2139/ssrn.902546","url":null,"abstract":"ABSTRACT: Recent research documents the empirical phenomenon of “sticky costs” and attributes it to a theory of deliberate managerial decisions in the presence of adjustment costs. We refine this theoretical explanation and show that it gives rise to a more complex pattern of asymmetric cost behavior that combines two opposing processes: cost stickiness conditional on a prior sales increase, and cost anti-stickiness conditional on a prior sales decrease. These predictions reflect the structure of optimal decisions with adjustment costs and the impact of prior sales changes on managers' expectations about future sales changes. Empirical estimates for Compustat data support our hypotheses. We further verify our predictions using additional proxies for managers' expectations, and show that our model offers important new insights. JEL Classifications: D24; M41.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127275635","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}
How robust are economic models to the introduction of irrational agents? The Pareto efficiency of competitive equilibria is not robust since one irrational agent leads to inefficiency. But the property that rational agents cannot use their own resources to Pareto improve on their competitive allocation holds regardless of the number of irrational agents. Full production efficiency can be robust as well, but irrational firms introduce a trade‐off between efficiency and the attainment of Pareto improvements. Regarding games, I show that while existing implementation mechanisms are sensitive to the presence of irrational agents, there are robust alternatives with attractive welfare properties.
{"title":"Irrationality-Proofness: Markets versus Games","authors":"Michael Mandler","doi":"10.2139/ssrn.1140385","DOIUrl":"https://doi.org/10.2139/ssrn.1140385","url":null,"abstract":"How robust are economic models to the introduction of irrational agents? The Pareto efficiency of competitive equilibria is not robust since one irrational agent leads to inefficiency. But the property that rational agents cannot use their own resources to Pareto improve on their competitive allocation holds regardless of the number of irrational agents. Full production efficiency can be robust as well, but irrational firms introduce a trade‐off between efficiency and the attainment of Pareto improvements. Regarding games, I show that while existing implementation mechanisms are sensitive to the presence of irrational agents, there are robust alternatives with attractive welfare properties.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114747387","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}
Interviewing in professional labor markets is a costly process for firms. Moreover, poor screening can have a persistent negative impact on firms' bottom lines and candidates' careers. In a simple dynamic model where firms can pay a cost to interview applicants who have private information about their own ability, potentially large inefficiencies arise from information-based unemployment, where able workers are rejected by firms because of their lack of offers in previous interviews. This effect may make the market less efficient than random matching.
{"title":"Costly Interviews","authors":"Jens Josephson, Joel D. Shapiro","doi":"10.2139/ssrn.1143316","DOIUrl":"https://doi.org/10.2139/ssrn.1143316","url":null,"abstract":"Interviewing in professional labor markets is a costly process for firms. Moreover, poor screening can have a persistent negative impact on firms' bottom lines and candidates' careers. In a simple dynamic model where firms can pay a cost to interview applicants who have private information about their own ability, potentially large inefficiencies arise from information-based unemployment, where able workers are rejected by firms because of their lack of offers in previous interviews. This effect may make the market less efficient than random matching.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125206248","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 presents a strategic model of common value elections with endogenous information acquisition. It proves that majoritarian elections can fail to aggregate information when voters have heterogeneous skills and provides necessary and sufficient conditions for information aggregation. Inefficiencies can be partially corrected by limiting participation to the most competent citizens, a result which provides a rational foundation for epistocratic government.
{"title":"Costly Information Acquisition: Is It Better to Toss a Coin?","authors":"M. Triossi","doi":"10.2139/ssrn.1031841","DOIUrl":"https://doi.org/10.2139/ssrn.1031841","url":null,"abstract":"This paper presents a strategic model of common value elections with endogenous information acquisition. It proves that majoritarian elections can fail to aggregate information when voters have heterogeneous skills and provides necessary and sufficient conditions for information aggregation. Inefficiencies can be partially corrected by limiting participation to the most competent citizens, a result which provides a rational foundation for epistocratic government.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122394387","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 develops a theory to explain the Easterlin Paradox, which holds that average happiness levels do not necessarily increase as countries grow wealthier, by analyzing the different roles of income and non-income factors in promoting happiness. Our theory shows that happiness rises with income only up to a critical point that is determined by the amount of non-income factors. Once the critical income level is achieved, increased income no longer buys more happiness, and so the only way to promote happiness is to improve non-income factors. As a policy implication, governments should promote balanced growth between income and non-income factors to maintain sustained happiness. The empirical analysis provides evidence supporting our theoretical predictions.
{"title":"Balanced Growth: A Potential Resolution to the Easterlin Paradox","authors":"Guoqiang Tian, Xinli Wang, Liyan Yang","doi":"10.2139/ssrn.1087403","DOIUrl":"https://doi.org/10.2139/ssrn.1087403","url":null,"abstract":"This paper develops a theory to explain the Easterlin Paradox, which holds that average happiness levels do not necessarily increase as countries grow wealthier, by analyzing the different roles of income and non-income factors in promoting happiness. Our theory shows that happiness rises with income only up to a critical point that is determined by the amount of non-income factors. Once the critical income level is achieved, increased income no longer buys more happiness, and so the only way to promote happiness is to improve non-income factors. As a policy implication, governments should promote balanced growth between income and non-income factors to maintain sustained happiness. The empirical analysis provides evidence supporting our theoretical predictions.","PeriodicalId":357938,"journal":{"name":"Microeconomic Theory eJournal","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116054391","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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