Theoretical Economics: Recent Articles
http://econtheory.org
Articles recently published or accepted for publicationMon, 20 Oct 2014 22:05:00 EDTen-usMonotonic redistribution of performance-based allocations: a case for proportional taxation
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1897/11636/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1897/11636/1Tue, 07 Oct 2014 00:00:00 EDTby <b>André Casajus</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on October 7, 2014<p>Abstract: Within a simple setup, we show that proportional taxation is implied by three properties: efficiency, symmetry, and monotonicity. Efficiency: redistribution has no cost. Symmetry: members of the society with the same performance obtain the same reward after redistribution. Monotonicity: whenever both the performance of a certain member of the society as well as the overall performance of the society do not decrease, then this member's reward after redistribution does not decrease.A ranking method based on handicaps
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140915
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140915Mon, 06 Oct 2014 00:00:00 EDTby <b>Gabrielle Demange</b><p>Published in Theoretical Economics 9 (3), 915–942 (October 6, 2014)<p>Abstract: Ranking methods are fundamental tools in many areas. Popular methods aggregate the statements of `experts' in different ways. As such, there are various reasonable ranking methods, each one of them more or less adapted to the environment under consideration.This paper introduces a new method, called the handicap-based method, and characterizes it through appealing properties. This method assigns not only scores to the items but also weights to the experts. Scores and weights form an equilibrium for a relationship based on the notion of handicaps. The method is, in a sense made precise in the paper, the counterpart to the counting method in environments that require intensity-invariance. Intensity-invariance is a desirable property when the intensity of the experts' statements has to be controlled. Otherwise, both the counting and handicap-based methods satisfy a property called homogeneity, which is a desirable property when cardinal statements matter, as is the case in many applications.Dynamic contracts when agent's quality is unknown
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140865
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140865Mon, 06 Oct 2014 00:00:00 EDTby <b>Julien Prat and Boyan Jovanovic</b><p>Published in Theoretical Economics 9 (3), 865–914 (October 6, 2014)<p>Abstract: We solve a long-term contracting problem with symmetric uncertainty about the agent's quality, and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on "career concerns" in which incentives via short-term contracts become harder to provide as the agent's quality is revealed over time.Free riding and participation in large scale, multi-hospital kidney exchange
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140817
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140817Mon, 06 Oct 2014 00:00:00 EDTby <b>Itai Ashlagi and Alvin E. Roth</b><p>Published in Theoretical Economics 9 (3), 817–863 (October 6, 2014)<p>Abstract: As multi-hospital kidney exchange has grown, the set of players has grown
from patients and surgeons to include hospitals. Hospitals can choose to
enroll only their hard-to-match patient-donor pairs, while conducting
easily-arranged exchanges internally. This behavior has already been
observed.
We show that as the population of hospitals and patients grows the cost of
making it individually rational for hospitals to participate fully becomes
low in almost every large exchange pool (although the worst-case cost is
very high), while the cost of failing to guarantee individual rationality
is high, in lost transplants. We identify a mechanism that gives hospitals incentives to reveal all
patient-donor pairs. We observe that if such a mechanism were to be implemented and hospitals enrolled all their pairs, the resulting patient pools would allow efficient matchings that could be implemented with two and three way exchanges.Second order beliefs models of choice under imprecise risk: non-additive second order beliefs vs. nonlinear second order utility
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140779
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140779Mon, 06 Oct 2014 00:00:00 EDTby <b>Raphaël Giraud</b><p>Published in Theoretical Economics 9 (3), 779–816 (October 6, 2014)<p>Abstract: This paper discusses models of choice under imprecise objective probabilistic information featuring beliefs about beliefs -- second order beliefs. A new model, called Second Order Dual Expected Utility (SODEU) featuring non-additive second order beliefs is introduced, axiomatized and systematically contrasted with the leading alternative model of this kind, the Second Order Subjective Expected Utility (SOSEU) model (Klibanoff, Marinacci, Mukerji, 2005; Nau, 2006; Seo, 2009) for which, for the sake of comparison, we provide a new axiomatization, dispensing with the complex constructs used in extant axiomatizations. Ambiguity attitude and attitude toward information in general are discussed and characterized.Budget-balance, fairness and minimal manipulability
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140753
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140753Mon, 06 Oct 2014 00:00:00 EDTby <b>Tommy Andersson, Lars Ehlers, and Lars-Gunnar Svensson</b><p>Published in Theoretical Economics 9 (3), 753–777 (October 6, 2014)<p>Abstract: A common real-life problem is to fairly allocate a number of indivisible objects and a fixed amount of money among a group of agents. Fairness requires that each agent weakly prefers his consumption bundle to any other agent's bundle. In this context, fairness is incompatible with budget-balance and non-manipulability (Green and Laffont, 1979). Our approach here is to weaken or abandon non-manipulability. We search for the rules which are minimally manipulable among all
fair and budget-balanced rules. First, we show for a given preference profile, all fair and budget-balanced rules are either (all) manipulable or (all) non-manipulable.
Hence, measures based on counting profiles where a rule is manipulable or
considering a possible inclusion of profiles where rules are manipulable do not distinguish fair and budget-balanced rules. Thus, a ``finer'' measure is needed. Our new concept compares two rules with respect to their degree of manipulability
by counting for each profile the number of agents who can manipulate the rule.
Second, we show that maximally preferred fair allocation rules are the minimally
(individually and coalitionally) manipulable fair and budget-balanced allocation rules according to our new concept. Such rules choose allocations with the maximal number of agents for whom the utility is maximized among all fair and budget-balanced allocations.Nestedness in networks: A theoretical model and some applications
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140695
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140695Mon, 06 Oct 2014 00:00:00 EDTby <b>Michael D. König, Claudio J. Tessone, and Yves Zenou</b><p>Published in Theoretical Economics 9 (3), 695–752 (October 6, 2014)<p>Abstract: We develop a dynamic network formation model that can explain the observed nestedness in real-world networks. Links are formed on the basis of agents' centrality and have an exponentially distributed life time. We use stochastic stability to identify the networks to which the network formation process converges and find that they are nested split graphs. We completely determine the topological properties of the stochastically stable networks and show that they match features exhibited by real-world networks. Using four different network datasets, we empirically test our model and show that it fits well the observed networks.Repeated games with incomplete information and discounting
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140651
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140651Mon, 06 Oct 2014 00:00:00 EDTby <b>Marcin Peski</b><p>Published in Theoretical Economics 9 (3), 651–694 (October 6, 2014)<p>Abstract: Abstract. We analyze discounted repeated games with incomplete information, such that the players' payoffs depend only on their own type (known-own payoff case). We describe an algorithm for finding all equilibrium payoffs in games for which there exists an open set of belief-free equilibria of Hörner and Lovo (2009). This includes generic games with one-sided incomplete information and a large and important class of games with multi-sided incomplete information. When players become sufficiently patient, all Bayesian Nash equilibrium payoffs can be approximated by payoffs in sequential equilibria in which information is revealed finitely many times. The set of equilibrium payoffs is typically larger than the set of equilibrium payoffs in repeated games without discounting, and larger than the set of payoffs obtained in belief-free equilibria. The results are illustrated in bargaining and oligopoly examples.Escaping the repugnant conclusion: rank-discounted utilitarianism with variable population
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140629
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140629Mon, 06 Oct 2014 00:00:00 EDTby <b>Geir B. Asheim and Stéphane Zuber</b><p>Published in Theoretical Economics 9 (3), 629–650 (October 6, 2014)<p>Abstract: We contribute to population ethics by proposing and axiomatizing rank-discounted critical-level generalized utilitarianism (RDCLU). Population ethics is needed for evaluation of policies, e.g., concerning climate change, where population size depends on the chosen policy. We show that critical-level generalized utilitarianism and (a version of) critical-level leximin are the limits of RDCLU for extreme values of the rank utility discount factor. Moreover, we establish how RDCLU avoids serious objections raised against other variable population criteria. In particular, it escapes both the Repugnant Conclusion and the Very Sadistic Conclusion (one of which critical-level generalized utilitarianism fails for any critical level).Search with multi-worker firms
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140583
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140583Mon, 06 Oct 2014 00:00:00 EDTby <b>Daron Acemoglu and William B. Hawkins</b><p>Published in Theoretical Economics 9 (3), 583–628 (October 6, 2014)<p>Abstract: We present a generalization of the standard random-search model of unemployment in which firms hire multiple workers and in which the hiring process is time-consuming as well as costly. We follow Stole and Zwiebel (1996a,b) and assume that wages are determined by continuous bargaining between the firm and its employees. The model generates a non-trivial dispersion of firm sizes; when firms' production technologies exhibit decreasing returns to labor, it also generates wage dispersion, even when all firms and all workers are ex ante identical. We characterize the steady-state equilibrium and show that, with a suitably chosen distribution of ex ante heterogeneity across firms, it is consistent with several important stylized facts about the joint distribution of firm size, firm growth, and wages in the U.S. economy. We also conduct a numerical investigation of the out-of-steady state dynamics of our model. We find that the responses of unemployment and of the vacancy to unemployment ratio to a shock to labor productivity can be somewhat more persistent than in the Mortensen-Pissarides benchmark where each firm employs a single worker.Refinements of Nash equilibrium in potential games
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140555
http://econtheory.org/ojs/index.php/te/article/viewArticle/20140555Mon, 06 Oct 2014 00:00:00 EDTby <b>Oriol Carbonell-Nicolau and Richard P. McLean</b><p>Published in Theoretical Economics 9 (3), 555–582 (October 6, 2014)<p>Abstract: We prove the existence of a pure-strategy trembling-hand perfect equilibrium in upper semicontinuous potential games, and we show that generic potential games possess pure-strategy strictly perfect and essential equilibria. We also establish a more powerful result: the set of maximizers of an upper semicontinuous potential contains a strategically stable set of pure-strategy Nash equilibria.Incentive-compatible voting rules with positively correlated beliefs
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1529/11588/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1529/11588/1Thu, 02 Oct 2014 00:00:00 EDTby <b>Mohit Bhargava, Dipjyoti Majumdar, and Arunava Sen</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on October 2, 2014<p>Abstract: We study the consequences of positive correlation of beliefs in the design of voting rules in a model with an arbitrary number of voters. We propose a notion of positive correlation, based on the likelihood of agreement
of the k best alternatives (for any k) of two orders called TS correlation. We characterize the set of Ordinally Bayesian Incentive-Compatible (OBIC) (d'Aspremont and Peleg (1988)) voting rules with TS-correlated beliefs and additionally satisfying robustness with respect to local perturbations. We provide an example of a voting rule that satisfies OBIC with respect to all TS-correlated beliefs. The generally positive results contrast sharply with the negative results obtained for the independent case by Majumdar and Sen (2004) and parallel similar results in the auction design model (Cremer anf McLean (1988)).Gross substitutes and endowed assignment valuations
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1840/11441/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1840/11441/1Tue, 02 Sep 2014 00:00:00 EDTby <b>Michael Ostrovsky and Renato Paes Leme</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 2, 2014<p>Abstract: We show that the class of preferences satisfying the Gross Substitutes condition of Kelso and Crawford (1982) is strictly larger than the class of Endowed Assignment Valuations of Hatfield and Milgrom (2005), thus resolving the open question posed by the latter paper. In particular, our result implies that not every substitutable valuation function can be "decomposed" into a combination of unit-demand valuations.Information diffusion in networks through social learning
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1549/11440/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1549/11440/1Tue, 02 Sep 2014 00:00:00 EDTby <b>Ilan Lobel and Evan Sadler</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 2, 2014<p>Abstract: We study perfect Bayesian equilibria of a sequential social learning model in which agents in a network learn about an underlying state by observing neighbors' choices. In contrast with prior work, we do not assume that the agents' sets of neighbors are mutually independent. We introduce a new metric of information diffusion in social learning, which is weaker than the traditional aggregation metric. We show that if a minimal connectivity condition holds and neighborhoods are independent, information always diffuses. Diffusion can fail in a well-connected network if neighborhoods are correlated. We show that information diffuses if neighborhood realizations convey little information about the network, as measured by network distortion, or if information asymmetries are captured through beliefs over the state of a finite Markov chain.Rationalizable partition-confirmed equilibrium
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1362/11299/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1362/11299/1Thu, 31 Jul 2014 00:00:00 EDTby <b>Drew Fudenberg and Yuichiro Kamada</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on July 31, 2014<p>Abstract: Rationalizable partition-confirmed equilibrium (RPCE) describes the steady state
outcomes of rational learning in extensive-form games, when rationality is common knowledge and players observe a partition of the terminal nodes. RPCE allows players to make inferences about unobserved play by others. We discuss the implications of this using numerous examples, and discuss the relationship of RPCE to other solution concepts in the literature.