Economic Theory最新文献

We investigate the existence and nature of momentum in performance in contests and whether momentum arises for reasons in part unrelated to rational strategies in contests. To address this question, we look at a setting where strategic considerations should not generate momentum: a sequence of two rounds of independent contests. We show that if we relax the assumption of payoff maximizing agents, positive momentum (success tends to be followed by more success) or negative momentum (success tends to be followed by less success) can arise through several behavioral mechanisms that have, until now, not been widely considered in the literature. We examine these predictions in an experiment. Using random variations in the participants’ winning chances in a first contest to identify the causal effect of success on later performance, we find that a positive momentum exists. Using several experimental conditions which modulate the effect of the different possible mechanisms, we find that the pattern of momentum is most compatible with players having adaptive preferences, whereby they may gain or lose interest in the second contest after respectively winning or losing the first one. These results suggest that standard models of contests do not fully capture the behavioral dynamics existing in competitive settings.

We analyze the formation of R &D alliances and market sharing (MS) agreements by which firms commit not to enter in each other’s territory in oligopolistic markets. We show that R &D alliance structures are stable only in the presence of MS agreements. Thus, long lasting R &D alliances could signal the existence of some MS agreement in the industry. We characterize the set of stable symmetric pairs of coalition structures with identical R &D and MS structure. In addition, we show the stability of a class of asymmetric pairs of coalition structures where the most efficient firms form both an R &D and a MS agreement while the other firms do not form any MS agreement but form two smaller R &D alliances. Even though MS agreements are detrimental for consumers, we show that the stable pairs of coalition structures are a better outcome for consumers than no cooperation at all.

Abstract

When can exogenous changes in beliefs generate endogenous fluctuations in rational expectation models? We analyze this question in the canonical one-sector and two-sector models of the business cycle with increasing returns to scale. A key feature of our analysis is that we express the uniqueness/multiplicity condition of equilibirum paths in terms of restrictions on five critical and economically interpretable parameters: the Frisch elasticities of the labor supply curve with respect to the real wage and to the marginal utility of wealth, the intertemporal elasticity of substitution in consumption, the elasticity of substitution between capital and labor, and the degree of increasing returns to scale. We obtain two clear-cut conclusions: belief-driven fluctuations cannot exist in the one-sector version of the model for empirically consistent values for these five parameters. By contrast, belief-driven fluctuations are a robust property of the two-sector version of the model—with differentiated consumption and investment goods—, as they now emerge for a wide range of parameter values consistent with available empirical estimates. The key ingredients explaining these different outcomes are factor reallocation between sectors and the implied variations in the relative price of investment, affecting the expected return on capital accumulation.

Level-k thinking has been widely applied as a solution concept for games in normal form in behavioral and experimental game theory. We consider level-k thinking in games in extensive form. Player’s may learn about levels of opponents’ thinking during the play of the game because some information sets may be inconsistent with certain levels. In particular, for any information set reached, a level-k player attaches the maximum level-(ell ) thinking for (ell < k) to her opponents consistent with the information set. We compare our notion of strong level-k thinking with other solution concepts such as level-k thinking in the associated normal form, strong rationalizability, (Delta )-rationalizability, iterated admissibility, backward rationalizability, backward level-k thinking, and backward induction. We use strong level-k thinking to reanalyze data from some prior experiments in the literature.

Abstract

A new proof of the existence of a Walrasian equilibrium with an infinite dimensional commodity space is provided, which allows agents’ preferences to be discontinuous. The new theorems include as corollaries the existence results of Mas-Collel, Yannelis and Zame, Araujo and Monteiro, and Mas-Collel and Richard, among others.

We investigate how a cautious decision maker might aggregate opinions from experts who are concerned with model misspecification. We use Cerreia-Vioglio et al. (in: Working paper or preprint, 2022, https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_2020103.pdf) criterion to account for concerns related to model misspecification. Under a Pareto-type axiom and a cautious axiom, the decision maker, whose preference falls within the class of variational preferences proposed by Maccheroni et al. (Econometrica, 74(6):1447–1498, 2006), also takes model misspecification into account. The decision maker regards all the experts’ structured models as her most accurate approximations of the correct model and penalizes unstructured models less than any expert.

This is the first paper to integrate plea bargaining with costly juror effort. Jurors care about achieving a correct verdict, but experience costs in processing trial-relevant information. There are no fully separating equilibria, where only innocent defendants go to trial, or pooling equilibria, where innocent defendants falsely plead guilty. The first result has been found in literature which does not incorporate costly juror attention, and is thus robust to the inclusion of this phenomenon. The second is new (barring schemes involving post-trial review by external bodies) and shows that laws restricting very lenient plea bargains are unnecessary; costly, unverifiable attention combined with the Cho–Kreps intuitive criterion rules such bargains out in equilibrium, regardless of prosecutor preferences. I characterize feasible semi-separating equilibria that a prosecutor can induce. I also characterize the optimum plea offer for different possible prosecutor preferences. There is a tradeoff between court costs, verdict accuracy and the length of plea sentences. The model generates novel testable implications, and helps to resolve a puzzle noted by legal scholars—that defendants going to trial overwhelmingly opt for jury trials over bench trials, while bench trials, in fact, have a higher rate of acquittal. I perform some robustness checks.

Social and political inequality among individuals is a common driving force behind the breakdown in cooperation. In this paper, we theoretically and experimentally study cooperation among individuals facing a sequence of collective-action problems in which the benefits of cooperation are divided according to political power that is obtained through a contest. We have three main results. First, we find that cooperation predictably responds to the fundamental parameters of the collective-action problem. Specifically, it is increasing in the benefit to cooperation and how much benefit is gained from partial group cooperation, and decreasing in the number of players. Second, we find that when players are unrestricted in their expenditures in the contest, cooperation is much lower than when expenditures are set to a specific proportion of earnings. Finally, we find that individual norms and beliefs account for a substantial proportion of explained variance in individuals’ decisions to cooperate.

This paper studies the general principal-agent framework in which the principal aims to implement his first-best action that is monotone in the unknown state. The principal privately selects a signal structure of the agent whose payoff depends on the principal’s action, the state, and the privately known type. The agent privately observes the generated signal and reports it to the principal, who takes action. We show that by randomizing between two perfectly informative signal structures, the principal can elicit perfect information from the agent about the state and implement his first-best action regardless of the agent’s type. As to the economic application, we consider the bilateral trade model with non-quasilinear preferences and private multi-dimensional information of the buyer, and show that the seller can extract full surplus by privately designing the buyer’s signal structures.

A mechanism allocates one unit of an infinitely divisible commodity among agents reporting a number between zero and one. Nash, Pareto optimal Nash, and strong equilibria are analyzed for the case where the agents have single-dipped preferences. One main result is that when the mechanism satisfies anonymity, monotonicity, the zero–one property, and order preservation, then the Pareto optimal Nash and strong equilibria coincide and result in Pareto optimal allocations that are characterized by so-called maximal coalitions: members of a maximal coalition prefer an equal coalition share over obtaining zero, whereas the outside agents prefer zero over obtaining an equal share from joining the coalition. A second main result is an axiomatic characterization of the associated social choice correspondence as the maximal correspondence satisfying minimal envy Pareto optimality, equal division lower bound, and sharing index order preservation.