Abstract In a setting of choice with an observable status quo, we model an agent who struggles with temptation by exercising (costly) self-control, and who views the status quo as a commitment opportunity that allows him to avoid the self-control costs incurred when making an active choice. Our model is rational in that the agent always maximizes the same ex-post utility function; hence, when the standard indirect utility property holds, the model reduces to classic rational choice model. However, when we allow for costly self-control, our theory provides a rationale for three well-documented phenomena that cannot be captured by the standard model: the status-quo bias, the compromise effect, and the satisficing choice procedure (when ignoring the information on the status quo). A notable feature of our theory is that while it relaxes the indirect utility property, it still allows for a complete identification of an agent’s preference relation over menus. This is found to be important in many practical situations.
{"title":"Self-Control Preferences and Status-Quo Bias","authors":"Guy Barokas","doi":"10.1515/bejte-2020-0136","DOIUrl":"https://doi.org/10.1515/bejte-2020-0136","url":null,"abstract":"Abstract In a setting of choice with an observable status quo, we model an agent who struggles with temptation by exercising (costly) self-control, and who views the status quo as a commitment opportunity that allows him to avoid the self-control costs incurred when making an active choice. Our model is rational in that the agent always maximizes the same ex-post utility function; hence, when the standard indirect utility property holds, the model reduces to classic rational choice model. However, when we allow for costly self-control, our theory provides a rationale for three well-documented phenomena that cannot be captured by the standard model: the status-quo bias, the compromise effect, and the satisficing choice procedure (when ignoring the information on the status quo). A notable feature of our theory is that while it relaxes the indirect utility property, it still allows for a complete identification of an agent’s preference relation over menus. This is found to be important in many practical situations.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"405 - 429"},"PeriodicalIF":0.4,"publicationDate":"2021-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2020-0136","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46661193","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Introduction to the Special Issue on Unawareness","authors":"Burkhard C. Schipper","doi":"10.1515/bejte-2021-0078","DOIUrl":"https://doi.org/10.1515/bejte-2021-0078","url":null,"abstract":"","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"21 1","pages":"355 - 360"},"PeriodicalIF":0.4,"publicationDate":"2021-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2021-0078","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48582353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-06-01DOI: 10.1515/bejte-2021-frontmatter2
{"title":"Frontmatter","authors":"","doi":"10.1515/bejte-2021-frontmatter2","DOIUrl":"https://doi.org/10.1515/bejte-2021-frontmatter2","url":null,"abstract":"","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"1 1","pages":""},"PeriodicalIF":0.4,"publicationDate":"2021-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2021-frontmatter2","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49137784","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The Laffont–Tirole regulator observes the accounting costs of a firm but she can neither observe its true cost-type nor its chosen effort level. This paper considers a Laffont–Tirole regulator who could employ an expert to obtain better, albeit not perfect, knowledge about the firm’s true cost type. Both the welfare gains through superior allocations from better knowledge but also the knowledge acquisition costs increase in the ‘marginal deadweight losses from taxes’ parameter λ ≥ 0. We derive a closed-form expression of the overall welfare benefits from knowledge acquisition as a function in λ. We characterize parameter conditions such that knowledge acquisition could improve social welfare in dependence on the value of λ. For this case we show that knowledge acquisition strictly increases social welfare if and only if λ falls into the interval (λ *, ∞) whereby we present a sharp characterization of the critical threshold-value λ * ≥ 0. In other words, information acquisition through a regulator only increases welfare for economies with comparatively high deadweight losses from taxation whereas welfare is decreased whenever these deadweight losses are low.
{"title":"When is Knowledge Acquisition Socially Beneficial in the Laffont–Tirole Regulatory Framework?","authors":"A. Zimper, Mpoifeng Molefinyane","doi":"10.1515/bejte-2020-0069","DOIUrl":"https://doi.org/10.1515/bejte-2020-0069","url":null,"abstract":"Abstract The Laffont–Tirole regulator observes the accounting costs of a firm but she can neither observe its true cost-type nor its chosen effort level. This paper considers a Laffont–Tirole regulator who could employ an expert to obtain better, albeit not perfect, knowledge about the firm’s true cost type. Both the welfare gains through superior allocations from better knowledge but also the knowledge acquisition costs increase in the ‘marginal deadweight losses from taxes’ parameter λ ≥ 0. We derive a closed-form expression of the overall welfare benefits from knowledge acquisition as a function in λ. We characterize parameter conditions such that knowledge acquisition could improve social welfare in dependence on the value of λ. For this case we show that knowledge acquisition strictly increases social welfare if and only if λ falls into the interval (λ *, ∞) whereby we present a sharp characterization of the critical threshold-value λ * ≥ 0. In other words, information acquisition through a regulator only increases welfare for economies with comparatively high deadweight losses from taxation whereas welfare is decreased whenever these deadweight losses are low.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"233 - 266"},"PeriodicalIF":0.4,"publicationDate":"2021-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2020-0069","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44219621","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract In this paper I model a decision maker who forms beliefs and opinions using a dialectic heuristic that depends on their degree of skepticism or credulity. In an application to political spin, two competing parties choose how to frame commonly observed evidence. If the receiver is sufficiently credulous, equilibrium spin is maximally extreme and generates short, superficial news cycles. When receivers vary in their skepticism, there is partisan sorting by skepticism parameter: the more credulous group systematically favors one party and displays hostility to evidence and a media they see as biased. In behavioral applications in which the frames arise from the decision maker’s internal deliberation, a decision maker with the same credulous nature would display known behavioral anomalies in forming beliefs and forming decision weights from stated probabilities. The dialectic model therefore captures a simple psychological mechanism and matches closely some stylized facts across these three disparate applications.
{"title":"Skepticism and Credulity: A Model and Applications to Political Spin, Belief Formation, and Decision Weights","authors":"James David Campbell","doi":"10.1515/bejte-2019-0184","DOIUrl":"https://doi.org/10.1515/bejte-2019-0184","url":null,"abstract":"Abstract In this paper I model a decision maker who forms beliefs and opinions using a dialectic heuristic that depends on their degree of skepticism or credulity. In an application to political spin, two competing parties choose how to frame commonly observed evidence. If the receiver is sufficiently credulous, equilibrium spin is maximally extreme and generates short, superficial news cycles. When receivers vary in their skepticism, there is partisan sorting by skepticism parameter: the more credulous group systematically favors one party and displays hostility to evidence and a media they see as biased. In behavioral applications in which the frames arise from the decision maker’s internal deliberation, a decision maker with the same credulous nature would display known behavioral anomalies in forming beliefs and forming decision weights from stated probabilities. The dialectic model therefore captures a simple psychological mechanism and matches closely some stylized facts across these three disparate applications.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"329 - 367"},"PeriodicalIF":0.4,"publicationDate":"2021-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2019-0184","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44931847","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Bayesian game theory investigates strategic interaction of players with full awareness but incomplete information about their environment. We extend the analysis to players with incomplete awareness, who might not be able to reason about all contingencies in the first place. We develop three logical systems for knowledge, probabilistic beliefs and awareness, and characterize their axiom systems. Bayesian equilibrium is extended to games with incomplete awareness and we show that it is consistent with common prior and speculative trade, when common knowledge of rationality is violated.
{"title":"Knowledge, Awareness and Probabilistic Beliefs","authors":"Tomasz Sadzik","doi":"10.1515/BEJTE-2019-0014","DOIUrl":"https://doi.org/10.1515/BEJTE-2019-0014","url":null,"abstract":"Abstract Bayesian game theory investigates strategic interaction of players with full awareness but incomplete information about their environment. We extend the analysis to players with incomplete awareness, who might not be able to reason about all contingencies in the first place. We develop three logical systems for knowledge, probabilistic beliefs and awareness, and characterize their axiom systems. Bayesian equilibrium is extended to games with incomplete awareness and we show that it is consistent with common prior and speculative trade, when common knowledge of rationality is violated.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"21 1","pages":"489 - 524"},"PeriodicalIF":0.4,"publicationDate":"2021-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2019-0014","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42450601","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We examine free riding for entry deterrence in license auctions with heterogeneous incumbents. We establish the monotonicity of randomized preemptive bidding equilibria: an incumbent with a higher entry-loss rate has greater free-riding incentive, choosing a lower deterring probability. We then identify conditions for the existence of a series of fully or partially participating equilibria such that two or more incumbents with bounded heterogeneity in their entry-loss rates participate in randomized preemptive bidding. As an application, we examine a simple case of a bipartite group of participating incumbents consisting of one “leader” and many “followers”. We show that the policy of limiting the leader’s participation (set-asides for entrants, limiting participation of incumbents with excessive market shares, etc.) may or may not increase entry probability.
{"title":"Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity","authors":"Biung-Ghi Ju, S. Yoo","doi":"10.2139/ssrn.3765246","DOIUrl":"https://doi.org/10.2139/ssrn.3765246","url":null,"abstract":"Abstract We examine free riding for entry deterrence in license auctions with heterogeneous incumbents. We establish the monotonicity of randomized preemptive bidding equilibria: an incumbent with a higher entry-loss rate has greater free-riding incentive, choosing a lower deterring probability. We then identify conditions for the existence of a series of fully or partially participating equilibria such that two or more incumbents with bounded heterogeneity in their entry-loss rates participate in randomized preemptive bidding. As an application, we examine a simple case of a bipartite group of participating incumbents consisting of one “leader” and many “followers”. We show that the policy of limiting the leader’s participation (set-asides for entrants, limiting participation of incumbents with excessive market shares, etc.) may or may not increase entry probability.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"199 - 231"},"PeriodicalIF":0.4,"publicationDate":"2021-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45287586","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract When consumers have preference costs, two opposing effects need to be assessed to analyse the incentives of firms to set collusive prices. On the one hand, preference costs make a deviation from collusion less attractive, as the deviating firm must offer a large enough discount to cover the preference costs. On the other hand, preference costs lock in consumers and make punishment from rivals less effective. When preference costs are low, the latter of the two effects dominates and collusion is more challenging to sustain than in a situation with no preference costs. With high enough preference costs, collusion is a (weakly) dominant strategy. These results do not eventuate in a model with switching costs.
{"title":"Tacit Collusion with Consumer Preference Costs","authors":"Guillem Roig","doi":"10.1515/BEJTE-2020-0042","DOIUrl":"https://doi.org/10.1515/BEJTE-2020-0042","url":null,"abstract":"Abstract When consumers have preference costs, two opposing effects need to be assessed to analyse the incentives of firms to set collusive prices. On the one hand, preference costs make a deviation from collusion less attractive, as the deviating firm must offer a large enough discount to cover the preference costs. On the other hand, preference costs lock in consumers and make punishment from rivals less effective. When preference costs are low, the latter of the two effects dominates and collusion is more challenging to sustain than in a situation with no preference costs. With high enough preference costs, collusion is a (weakly) dominant strategy. These results do not eventuate in a model with switching costs.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"297 - 310"},"PeriodicalIF":0.4,"publicationDate":"2021-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2020-0042","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49566019","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.
{"title":"Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition","authors":"Lili Xu, Sang‐Ho Lee","doi":"10.1515/BEJTE-2020-0028","DOIUrl":"https://doi.org/10.1515/BEJTE-2020-0028","url":null,"abstract":"Abstract This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"123 - 151"},"PeriodicalIF":0.4,"publicationDate":"2020-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/BEJTE-2020-0028","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45637810","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper formulates a mathematical model that combines the dynamics of interest group formation with electoral politics, involving office-seeking and corrupt political candidates and voting population with well-defined policy as well as ideological preferences. The analysis provides several interesting insights into the factors affecting lobby membership, free-riding incentives of citizen-voters and aggregate monetary donations garnered by lobby groups. Besides this, the paper also explores the impact of the formation of distinct lobby groups, the presence of swing voters and the corrupt practices or financial embezzlement on the equilibrium policy choice of electoral contenders. The findings reveal that more honest spending of campaign donations by electoral contenders reduces both the size of the lobby (or membership) as well as aggregate campaign contributions in equilibrium. In contrast, a rise in the fixed cost of organization is found to augment lobby membership along with the total amount of campaign contributions. In addition, a reduction in the level of electoral uncertainty as well as a rise in the ideological or swing voter density is found to increase the effectiveness of campaign contributions in raising an electoral candidate’s perceived popularity and, therefore, a smaller lobby group with lower aggregate donations is deemed as sufficient in influencing electoral outcomes. Moreover, the results indicate that a lower utility difference derived by the citizen-voters when comparing the two electoral candidate’s policy choices translates into smaller dispersion of the voters’ ideological bias, and consequently results in an increase in the size of lobby groups and their corresponding aggregate donations. As regards the choice of equilibrium policy, evidence of full policy convergence is not found in the case when citizen-voters of the two groups have separable preferences. In addition, policy equilibrium for a more realistic case in which the two policy platforms exhibit strategic interaction by reacting to each other has also been estimated with the help of simulations. Finally, this paper helps in categorically deciphering the influence of the median voter effect (or the centripetal force) and the distinct centrifugal forces in the form of lobbying effect, swing voter effect and the financial embezzlement effect on the equilibrium policy choice by employing different parametric specifications of the model.
{"title":"Examining the Impact of Electoral Competition and Endogenous Lobby Formation on Equilibrium Policy Platforms","authors":"Deepti Kohli","doi":"10.1515/bejte-2020-0085","DOIUrl":"https://doi.org/10.1515/bejte-2020-0085","url":null,"abstract":"Abstract This paper formulates a mathematical model that combines the dynamics of interest group formation with electoral politics, involving office-seeking and corrupt political candidates and voting population with well-defined policy as well as ideological preferences. The analysis provides several interesting insights into the factors affecting lobby membership, free-riding incentives of citizen-voters and aggregate monetary donations garnered by lobby groups. Besides this, the paper also explores the impact of the formation of distinct lobby groups, the presence of swing voters and the corrupt practices or financial embezzlement on the equilibrium policy choice of electoral contenders. The findings reveal that more honest spending of campaign donations by electoral contenders reduces both the size of the lobby (or membership) as well as aggregate campaign contributions in equilibrium. In contrast, a rise in the fixed cost of organization is found to augment lobby membership along with the total amount of campaign contributions. In addition, a reduction in the level of electoral uncertainty as well as a rise in the ideological or swing voter density is found to increase the effectiveness of campaign contributions in raising an electoral candidate’s perceived popularity and, therefore, a smaller lobby group with lower aggregate donations is deemed as sufficient in influencing electoral outcomes. Moreover, the results indicate that a lower utility difference derived by the citizen-voters when comparing the two electoral candidate’s policy choices translates into smaller dispersion of the voters’ ideological bias, and consequently results in an increase in the size of lobby groups and their corresponding aggregate donations. As regards the choice of equilibrium policy, evidence of full policy convergence is not found in the case when citizen-voters of the two groups have separable preferences. In addition, policy equilibrium for a more realistic case in which the two policy platforms exhibit strategic interaction by reacting to each other has also been estimated with the help of simulations. Finally, this paper helps in categorically deciphering the influence of the median voter effect (or the centripetal force) and the distinct centrifugal forces in the form of lobbying effect, swing voter effect and the financial embezzlement effect on the equilibrium policy choice by employing different parametric specifications of the model.","PeriodicalId":44773,"journal":{"name":"B E Journal of Theoretical Economics","volume":"22 1","pages":"153 - 198"},"PeriodicalIF":0.4,"publicationDate":"2020-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1515/bejte-2020-0085","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45928777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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