AbstractWe study games with two possibilities for the strategic variable and find that contrary to the Nash equilibrium the evolutionarily stable equilibrium – provided it uniquely exists – does not depend on which possibility is chosen. Our result generalizes recent findings of Satoh, Tanaka and Wagener who studied this issue in various special cases.
AbstractIn this paper, we introduce production into the standard general equilibrium model with asymmetric information, which was proposed by Dubey et al. (Cowles Foundation Discussion Paper 2000; Econometrica 2005). In such an economy, there is no rational explanation for producers' delivery upper bounds while the endowments naturally limit consumers' deliveries. However, we show that the typical equilibrium allocation of the asymmetric information economy necessarily and substantially depends on such exogenous upper bounds (Example 1 and Theorem 1). In other words, an equilibrium existence theorem without such upper bounds, even if such exists, will typically fail to treat the asymmetric information problem, e.g., the adverse selection problem. Hence, to treat the equilibrium existence problem under the informational asymmetry appropriately, we have to extend the standard model so that the delivery upper bounds need not to be specified explicitly. For this purpose, we propose a quite natural and realistic assumption with respect to the technological condition related to the market delivery, i.e., the existence of some small standardization, commoditization, and/or transaction costs of market deliveries is shown to be sufficient (Theorem 3).
AbstractWe study the problem of allocating projects to heterogeneous workers. The simultaneous execution of multiple projects imposes constraints across project teams. Each worker has preferences over the combinations of projects in which he can potentially participate and his team members in any of these projects. We propose a revelation mechanism that is Pareto-efficient and group strategy-proof (Theorem 1). We also identify two preference domains on which the mechanism is strongly group strategy-proof (Theorem 2). Our results subsume results by Monte and Tumennasan (2013) and Kamiyama (2013) .
Abstract:We consider a frictional market where an element of the terms of trade (price or quantity) is posted ex-ante (before the matching process) while the other is determined ex-post. By doing so, sellers can exploit their local monopoly power by adjusting prices or quantities once the local demand is realized. We find that when sellers can adjust quantities ex-post, there exists a unique symmetric equilibrium where an increase in the buyer-seller ratio leads to higher quantities and prices. When buyers instead can choose quantities ex-post, a higher buyer-seller ratio leads to higher prices but lower traded quantities. These equilibrium allocations are generically constrained inefficient in both intensive and extensive margins. When sellers post ex-ante quantities and adjust prices ex-post, a symmetric equilibrium exists where buyers obtain no surplus from trade. This equilibrium allocation is not constrained efficient either. If buyers choose prices ex-post, there is no trade in equilibrium when entry is costly.
AbstractThis paper explores the impact of intensity of rivalry in downstream market on the equilibrium locations of the downstream firms under a vertical market structure á la Hotelling. We find that: (i) the presence of upstream firms softens the spatial competition in downstream market; (ii) minimum differentiation cannot be achieved as the equilibrium outcome and the equilibrium product differentiation is insufficient relative to socially optimum; (iii) social welfare is higher with a higher weight attached to intensity of rivalry, which is different from the non-monotonic relationship under the horizontal market case; (iv) the equilibrium product differentiation is independent of bargaining power under the two-part tariff contracts, which is different from Brekke and Straume (2004) under linear pricing.
AbstractIn this paper, we study a Cournot competition where there are a group of firms producing a homogeneous product and another group producing a differentiated product. We find that, fixing the total number of firms in the market, each firm's profit is U-shaped and convex in the number of firms producing the same product when the degree of substitution is large, and each firm's profit is U-shaped in the cross-price effect parameter when the number of firms producing the same product is large.
AbstractThis article investigates the strategic environmental corporate social responsibility (ECSR) of polluting firms in the presence of eco-firms. When the firms decide to adopt ECSR sequentially within the framework of the managerial incentive design and then face simultaneous price competition, we show that firms will adopt ECSR and purchase abatement goods to mitigate competition if the products are more substitutable, but the late adopter chooses lower ECSR and thus earns higher profit. It can partially explain the current expansive adoption of ECSR as an industry-wide wave.
AbstractDebt, as one of basic human relations, has profound effects on economic growth. Debt accumulation in the global economy was modeled by the stochastic logistic equation reflecting causality between leverage and its rate of change. The model, identifying interactions and feedbacks in aggregate behaviour of creditors and borrowers, addressed various issues of macrofinancial stability. Qualitatively diverse patterns, including the Wicksellian (normal) market, the Minsky financial bubbles and the Fisherian debt-deflation, were discerned by appropriate combinations of rates of return, spreads and leverage. The Kolmogorov-Fokker-Plank equation was used to find out the stationary gamma distribution of leverage that was instrumental for the evaluation of appropriate failure and survival functions. Two patterns corresponding to different forms of a stationary gamma distribution were recognized in the long run leverage dynamics and were simulated as scenarios of a possible system evolution. In particular, empirically parameterized asymptotical distribution indicated excessive leverage and unsustainable global debt accumulation. It underlined the necessity of comprehensive reforms aiming to decrease uncertainty, debt and leverage. Assuming these reforms were successfully implemented, global leverage distributions would have converged in the long run to a peaked gamma distribution with the mode identical to the anchor leverage. The latter corresponded to a balanced long run debt demand and supply, hence to fairly evaluated financial assets fully collateralized by real resources. A particular case of macrofinancial Tobin's q-coefficients following the Ornstein-Ulenbeck process was studied to evaluate a reasonable range of squeezing the bloated world finance. The model was verified on data published by the IMF in Global Financial Stability Reports for the period 2003–2013.
AbstractAs the tax authority releases or withholds relevant information, it decrease or increases the extent of uncertainty about the audit probability taxpayers perceive, affecting their reporting behavior and expected tax revenues. The effects of an increase in enforcement uncertainty on the expected tax revenues depend on taxpayer pessimism or optimism and on additional information about the audit probability taxpayers receive. The expected tax revenues tend to increase in response to an increase in audit uncertainty, and the tax authority would have little incentive to release more information to the extent that it cares about tax revenues.
AbstractIn the canonical model of frictionless markets, arbitrage is usually taken to force all trades of homogeneous goods to occur at essentially the same price. In the real world, however, arbitrage possibilities are often severely restricted and this may lead to substantial price heterogeneity. Here we focus on frictions that can be modeled as the bargaining constraints induced by an incomplete trading network. In this context, the interplay among the architecture of the trading network, the buyers' valuations, and the sellers' costs shapes the effective arbitrage possibilities of the economy. We characterize the configurations that, at an intertemporal bargaining equilibrium, lead to a uniform price. Conceptually, this characterization involves studying how the network positions and valuations/costs of any given set of buyers and sellers affect their collective bargaining power relative to a notional or benchmark situation in which the connectivity is complete. Mathematically, the characterizing conditions can be understood as price-based counterparts of those identified by the celebrated Marriage Theorem in matching theory.
AbstractReductions in search costs are generally found to increase efficiency and welfare. Using a simple search model we show that when an upstream firm incurs a search cost to identify a potential trading partner and the two parties then negotiate the wholesale price, a reduction in search cost can actually reduce welfare. Furthermore, in a market driven by seller search, a search cost of zero is never socially optimal.
AbstractIt is known that if the number of entering firms is endogenous (free entry markets), privatization is not necessarily welfare neutral in mixed oligopolies under a uniform production subsidy policy. We revisit this problem by considering another policy tool, the output floor regulation. We investigate three free entry models with different time structures, a Cournot and two Stackelberg models. We find that neutrality is restored in free entry markets under the optimal output floor regulation, regardless of the time structure.
AbstractAs the cost of financial information dissemination continues to decline, investors, firms, and regulators are gradually adopting the principle of fair disclosure, which requires no preferential public disclosure. We use a simple model to examine the impact of this change on information acquisition with two alternative assumptions: (1) Investors have symmetric awareness about the underlying uncertainties, or (2) this awareness is asymmetric among them. Under the first assumption, the change reduces information asymmetry among investors and induces acquisition of high-quality information. Under the second assumption, however, the reduction of information asymmetry may be limited, and information acquisition is either reduced or less efficient. Specifically, investors with high awareness may either acquire high-quality information at a higher cost or not acquire it; investors with low awareness only acquire low-quality information. The loss in overall information quality is greater when awareness asymmetry is moderate than when it is high or low; this causes information asymmetry between the insiders and outside investors as a whole. These results offer explanations for intriguing empirical findings regarding the effect of a recent accounting regulation (Regulation Fair Disclosure).
AbstractIt is well-known that in the monetary OLG models, a deviation from the Friedman rule can improve welfare because it generates intergenerational wealth transfers; however, the rule becomes optimal if the age-specific lump-sum tax policy is available. We revisit the issue using a microfounded model of money with centralized and decentralized markets. The individuals live for two periods. The young individuals work, receive wage income and hold money and capital in the centralized market. They also trade goods in the decentralized markets either as a buyer or a seller. Only money is accepted as a means of payment in the decentralized markets. The old individuals consume all their wealth in the centralized market. The quantity in the decentralized market negatively depends on the seller's wealth, because the marginal utility of consumption in the centralized market is diminishing, but the buyer takes it as exogenous. Therefore, the equilibrium wealth exceeds the socially optimal level under the Friedman rule. A positive nominal interest rate makes money holdings costly, reduces wealth and improves welfare, even if the government optimally uses the age-specific tax.
AbstractThis paper discusses an alternative explanation for the empirical findings contradicting the positive relationship between risk (variance) and reward (expected return). We show that these contradicting results might be due to the false definition of risk-perception, which we correct by introducing Expected Downside Risk (EDR). The EDR parameter, similar to the Expected Shortfall or Conditional Value-at-Risk, measures the tail risk, however, fits and better explains the utility perception of investors. Our results indicate that when using the EDR as risk measure, both the positive and negative relationship between expected return and risk can be derived under standard conditions (e. g. expected utility theory and positive risk-aversion). Therefore, no alternative psychological explanation or additional boundary condition on utility theory is required to explain the phenomenon. Furthermore, we show empirically that it is a more precise linear predictor of expected return than volatility, both for individual assets and portfolios.
