Economic Theory最新文献

We provide a unified analysis of dynamically consistent menu preferences in which an agent may exhibit a preference for flexibility, a preference for commitment, or both. Our work generalizes prior results, which investigated this problem for an agent who always exhibits preference for flexibility. By using two types of consistency conditions, we characterize an agent with a subjective state space who reacts to information about her subjective states in a dynamically consistent way. We apply our results to the uncertain strength of temptation and the anticipating regret representations, and characterize a dynamically consistent updating of the no-uncertainty representation.

We analyze the infinite repetition with imperfect feedback of a simultaneous or sequential game, assuming that players are strategically sophisticated—but impatient—expected-utility maximizers. Sophisticated strategic reasoning in the repeated game is combined with belief updating to provide a foundation for a refinement of self-confirming equilibrium. In particular, we model strategic sophistication as rationality and common strong belief in rationality. Then, we combine belief updating and sophisticated reasoning to provide sufficient conditions for a kind of learning—that is, the ability, in the limit, to exactly forecast the sequence of future observations—thus showing that impatient agents end up playing a sequence of self-confirming equilibria in strongly rationalizable conjectures of the one-period game.

We introduce expectations-based loss aversion, which can explain the empirically well-documented endowment and attachment effect, into the classical bilateral-trade setting (Myerson and Satterthwaite in J. Econ. Theory 29:265–281, 1983). We derive optimal mechanisms for different objectives and find that relative to no loss aversion, the platform designer optimally provides agents with partial insurance in the ownership dimension and with full insurance in the money dimension. Notably, the former is achieved either by increasing or decreasing the trade frequency, depending on the distribution of types. Finally, we show that the impossibility of inducing materially efficient trade persists with loss aversion.

Severance savings accounts (SSA) is an important government program aimed at protecting laid-off workers and stimulating savings. We analyze the distributive and aggregate effects of SSA in a rich life-cycle model with heterogeneous agents and incomplete markets. The model is estimated to be consistent with micro and macro data from Brazil. Our analysis reveals that, despite a decrease in voluntary savings, the policy expands aggregate savings, output, and wages, leading to long-run welfare gains. We show that although better risk sharing is important for our findings, the bulk of the gains come from improved efficiency as labor productivity increases and labor supply is reallocated towards highly educated workers and the early stages of the life cycle where agents are generally poorer and leisure is less valued. Interestingly, most of the gains we find accrue to less educated agents as the distribution of this group is skewed towards the informal sector, and they do not directly incur the additional burden from the increase in contributions. We also explore an alternative policy design in which households are allowed to access their severance savings accounts only after retirement, as in a defined contribution pension system. We find that despite greater uncertainty in medical costs later in life, households prefer a more flexible system that provides access to the SSA fund during working-age and after retirement.

This paper presents a dynamic general equilibrium model with two structurally identical open economies. Trade liberalization promotes innovation and growth when intellectual property rights (IPR) protection is sufficiently weak. Trade on the other hand does not affect innovation and growth when IPR protection is strong. We show that this result holds for both horizontal and vertical endogenous growth models, which have so far had contradictory predictions on how trade affects innovation. The reason for this supposed contradiction are implicit IPR protection assumptions in the two different types of growth models, strong protection in the horizontal model and weak protection in the vertical model. The IPR protection assumption makes a big difference for the size of the gains from trade. In a simple numerical example we show that assuming weak IPR protection can imply more than five times higher overall gains from trade. We also build a North–South model and add another aspect of IPR protection influencing the duration of Northern patents, namely imitation in the South. In the asymmetric model with a competitive fringe in the South, IPR protection no longer plays a crucial role for the dynamic gains from trade.

This paper explores the role of identity in voters’ decision to retain corrupt politicians. We build up a model of electoral accountability with pure moral hazard and bring it to the lab. Politicians must decide whether to invest in a public project with uncertain returns or to keep the funds for themselves. Voters observe the outcome of the project but not the action of the politician; if the project is unsuccessful, they do not know whether it was because of bad luck or because the politician embezzled the funds. We run two treatments; a control and a treatment where subjects are assigned an identity using the minimal group paradigm. Our main result is that, upon observing a failed project, voters approve politicians of their same identity group significantly more often than in the control and compared to politicians of a different identity group. This is partially driven by a belief on same-identity politicians being more honest. We also observe that subjects acting as politicians embezzle funds less often than expected by the equilibrium prediction.

We study the licensing of a cost-reducing innovation in a Cournot oligopoly where an outside innovator uses three part tariffs that are combinations of upfront fees, per unit royalties and ad valorem royalties. Under general demand, the maximum possible licensing revenue under three part tariffs can be always attained by a policy that uses at most two of the three components. For relatively significant innovations, there exists an optimal policy consisting of a per unit royalty and upfront fee and a continuum of other optimal policies that are three part tariffs whose all components are positive. Completely characterizing optimal policies under linear demand, we show that for oligopolies with four or more firms: (i) pure upfront fees are optimal for insignificant innovations; (ii) for intermediate and significant innovations: (a) there is a continuum of optimal policies which always includes a two part tariff with a unit royalty and upfront fee and (b) a two part tariff with an ad valorem royalty and fee or a two part royalty can be optimal for some, but not all parametric configurations.

How will structural change unfold beyond the rise of services? Motivated by the observed dynamics within the service sector we propose a model of structural change in which productivity is endogenous and output is produced with two intermediate substitutable capital goods. In the productive sector the accumulation of specialized skills leads to an unbounded increase in TFP, as sector becoming asymptotically dominant. We are then able to recover the increasing shares of workers, the increasing real and nominal shares of the output observed in productive service and IT sectors in the US. Interestingly, the economy follows a growth path converging to a particular level of wealth that depends on the initial price of capital and knowledge. As a consequence, countries with the same fundamentals but lower initial wealth will be characterized by lower asymptotic wealth.

This paper examines the usefulness of Kalai (Viable Nash equilibria: formation and defection. Working paper, 2020)’s measure of the viability of Nash equilibrium. We experimentally study a class of participation games, which differ in the number of players, the success threshold, and the payoff to not participating. We find that Kalai’s measure captures well how the viability of the everyone-participates (eP) equilibrium depends on the success threshold; the measure does not capture other elements of the game which affect the likelihood that the eP equilibrium is played.

In a model of priority-based allocation of indivisible objects where there may not be outside options, we characterize the priority structures under which the deferred acceptance algorithm (DA) satisfies various desiderata. We first identify an acyclicity condition that is necessary and sufficient for DA to be group strategy-proof, robustly stable, weakly group robustly stable, or to implement the stable allocation correspondence in Nash equilibria. When there is no outside option and there are more agents than total resources, the condition becomes considerably weaker, and no longer requires the priorities between any pair of objects to be similar. We further find a condition on priorities that is necessary and sufficient for the efficiency or consistency of DA, which is in general stronger than the above incentive properties for this mechanism.