Theoretical Economics: Recent Articles
http://econtheory.org
Articles recently published or accepted for publicationTue, 06 Oct 2015 10:05:00 EDTen-usA search-theoretic model of the term premium
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1945/13738/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1945/13738/1Fri, 18 Sep 2015 00:00:00 EDTby <b>Athanasios Geromichalos, Lucas M. Herrenbrueck, and Kevin D. Salyer</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 18, 2015<p>Abstract: A consistent empirical feature of bond yields is that term premia are, on average, positive. The majority of theoretical explanations for this observation have viewed the term premia through the lens of the consumption based capital asset pricing model. In contrast, we harken to an older empirical literature which attributes the term premium to the idea that short maturity bonds are inherently more liquid. The goal of this paper is to provide a theoretical justification of this concept. To that end, we employ a monetary-search model extended to include assets of different maturities.
Short term assets mature in time to take advantage of random consumption opportunities. Long term assets cannot be used directly to purchase consumption, but agents may liquidate them in a secondary asset market characterized by search and bargaining frictions.
Our model delivers three results that are consistent with empirical facts. First, long term assets have higher rates of return in steady state to compensate agents for their relative lack of liquidity. Second, since the difference in the yield of short and long term assets reflects asset market frictions, our model predicts a steeper yield curve for assets that trade in less liquid secondary markets. Third, our model predicts that freshly issued (``on-the-run") assets will sell at higher prices than previously issued (``off-the-run") assets that mature in nearby dates, because sellers of the latter have a more urgent need for liquidity.Condorcet meets Ellsberg
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1284/13731/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1284/13731/1Thu, 17 Sep 2015 00:00:00 EDTby <b>Andrew Ellis</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 17, 2015<p>Abstract: The Condorcet Jury Theorem states that given subjective expected utility maximization and common values, the equilibrium probability that the correct candidate wins goes to one as the size of the electorate goes to infinity. This paper studies strategic voting when voters have pure common values but may be ambiguity averse -- exhibit Ellsberg-type behavior -- as modeled by maxmin expected utility preferences. It provides sufficient conditions so that the equilibrium probability
of the correct candidate winning the election is bounded above by one half in at least one state. As a consequence, there is no equilibrium in which information aggregates.The formation of networks with local spillovers and limited observability
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1524/13625/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1524/13625/1Thu, 03 Sep 2015 00:00:00 EDTby <b>Michael David König</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 3, 2015<p>Abstract: This paper analyzes the formation of networks in which each agent is assumed to possess some information of value to the other agents in the network. Agents derive payoff from having access to the information of others through communication or spillovers via the links between them. Linking decisions are based on network-dependent marginal payoff and a network independent noise capturing exogenous idiosyncratic effects. Moreover, agents have a limited observation radius when deciding to whom to form a link. I find that for small noise the observation radius does not matter and strongly centralized networks emerge. However, for large noise, a smaller observation radius generates networks with a larger degree variance. These networks can also be shown to have larger aggregate payoff. I then estimate the model using a network of coinventors and scientific collaborations in physics and economics, and find that the model can closely reproduce a variety of observed patterns. I show that local search is important in all the empirical networks considered, but that economists tend to search more broadly for new collaboration opportunities.The importance of being honest
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1913/13491/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1913/13491/1Fri, 14 Aug 2015 00:00:00 EDTby <b>Nicolas Klein</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 14, 2015<p>Abstract: This paper analyzes the case of a principal who wants to provide an agent with proper incentives to explore a hypothesis that can be either true or false. The agent can shirk, thus never proving the hypothesis, or he can avail himself of a known technology to produce fake successes. This latter option either makes the provision of incentives for honesty impossible or does not distort its costs at all. In the latter case, the principal will optimally commit to rewarding later successes even though he only cares about the first one. Indeed, after an honest success, the agent is more optimistic about his ability to generate further successes. This, in turn, provides incentives for the agent to be honest before a first success.Monotone threshold representations
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1547/13476/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1547/13476/1Wed, 12 Aug 2015 00:00:00 EDTby <b>Mira Frick</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 12, 2015<p>Abstract: Motivated by the literature on ``choice overload'', we study a boundedly rational agent whose choice behavior admits a \textit{monotone threshold representation}: There is an underlying rational benchmark, corresponding to maximization of a utility function $v$, from which the agent's choices depart in a menu-dependent manner. The severity of the departure is quantified by a threshold map $\delta$, which is monotone with respect to set inclusion. We derive an axiomatic characterization of the model, extending familiar characterizations of rational choice. We classify monotone threshold representations as a special case of Simon's theory of ``satisficing'', but as strictly more general than both Tyson's (2008) ``expansive satisficing'' model as well as Fishburn (1975) and Luce's (1956) model of choice behavior generated by a semiorder. We axiomatically characterize the difference, providing novel foundations for these models.Stability and incentives for college admissions with budget constraints
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1731/13438/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1731/13438/1Wed, 05 Aug 2015 00:00:00 EDTby <b>Azar Abizada</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 5, 2015<p>Abstract: We study two-sided matching where one side (colleges) can make monetary transfers (offer stipends) to the other (students). Colleges have fixed budgets and strict preferences over sets of students. One different feature of our model is that colleges value money only to the extent that it allows them to enroll better or additional students. A student can attend at most one college and receive a stipend from it. Each student has preferences over college-stipend bundles.
Conditions that are essential for most of the results in the literature fail in the presence of budget constraints. We define pairwise stability and show that a pairwise stable allocation always exists. We construct an algorithm that always selects a pairwise stable allocation. The rule defined through this algorithm is incentive compatible for students: no student should benefit from misrepresenting his preferences. Finally, we show that no incentive compatible rule selects Pareto-undominated pairwise stable allocation.A characterization of single-peaked preferences via random social choice functions
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1972/13407/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1972/13407/1Mon, 27 Jul 2015 00:00:00 EDTby <b>Shurojit Chatterji, Arunava Sen, and Huaxia Zeng</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on July 27, 2015<p>Abstract: The paper proves the following result: every path-connected domain of preferences that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a compromise property, is single-peaked. Conversely, every single-peaked domain admits a random social choice function satisfying these properties. Single-peakedness is defined with respect to arbitrary trees. The paper provides a justification of the salience of single-peaked preferences and evidence in favour of the Gul conjecture (\citet{barbsurvey}).Matching with slot-specific priorities: theory
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1839/13357/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1839/13357/1Sun, 19 Jul 2015 00:00:00 EDTby <b>Scott Duke Kominers and Tayfun Sonmez</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on July 19, 2015<p>Abstract: We introduce a two-sided, many-to-one matching with contracts model in which agents with unit demand match to branches that may have multiple slots available to accept contracts. Each slot has its own linear priority order over contracts; a branch chooses contracts by filling its slots sequentially, according to an order of precedence. We demonstrate that in these matching markets with slot-specific priorities, branches' choice functions may not satisfy the substitutability conditions typically crucial for matching with contracts. Despite this complication, we are able to show that stable outcomes exist in the slot-specific priorities framework and can be found by a cumulative offer mechanism that is strategy-proof and respects unambiguous improvements in priority.Savage games
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/2068/13090/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/2068/13090/1Thu, 04 Jun 2015 00:00:00 EDTby <b>Simon Grant, Idione Meneghel, and Rabee Tourky</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on June 4, 2015<p>Abstract: We define and discuss Savage games, which are ordinal games of
incomplete information set in L. J. Savage's framework of purely
subjective uncertainty. Every Bayesian game is ordinally equivalent to a Savage game. However, Savage games are free of priors,
probabilities and payoffs. Players' information and subjective
attitudes toward uncertainty are encoded in the state-dependent
preferences over state contingent action profiles. In the class of
games we consider, player preferences satisfy versions of Savage's
sure thing principle and small event continuity postulate. Savage games provide a tractable framework for studying attitudes towards uncertainty in a strategic setting. The work eschews any notion of objective randomization, convexity, monotonicity, or independence of beliefs. We provide a number of examples illustrating the usefulness of the framework, including novel results for a purely ordinal matching game that satisfies all of our assumptions and for games for which the preferences of the players admit representations from a wide class of decision-theoretic models.Communication and influence
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150649
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150649Wed, 27 May 2015 00:00:00 EDTby <b>Antoni Calvó-Armengol, Joan de Martí, and Andrea Prat</b><p>Published in Theoretical Economics 10 (2), 649–690 (May 27, 2015)<p>Abstract: We study the information flows that arise among a set of agents with local knowledge and directed payoff interactions, which differ among pairs of agents. First, we study the equilibrium of a game where, before making decisions, agents can invest in pairwise active communication (speaking) and pairwise passive communication (listening). This leads to a full characterization of information and influence flows. Second, we show that, when the coordination motive dominates the adaptation motive, the influence of an agent on all his peers is approximately proportional to his eigenvector centrality. Third, we use our results to explain organizational phenomena such as: the emergence of work cliques; the adoption of human resources practices that foster communication (especially active communication); and the discrepancy between formal hierarchy and actual influence.Price discrimination through communication
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150597
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150597Wed, 27 May 2015 00:00:00 EDTby <b>Itai Sher and Rakesh Vohra</b><p>Published in Theoretical Economics 10 (2), 597–648 (May 27, 2015)<p>Abstract: We study a seller's optimal mechanism for maximizing revenue when a buyer may present evidence relevant to her value. We show that a condition very close to transparency of buyer segments is necessary and sufficient for the optimal mechanism to be deterministic--hence akin to classic third degree price discrimination--independently of non-evidence characteristics. We also find another sufficient condition depending on both evidence and valuations, whose content is that evidence is hierarchical. When these conditions are violated, the optimal mechanism contains a mixture of second and third degree price discrimination, where the former is implemented via sale of lotteries. We interpret such randomization in terms of the probability of negotiation breakdown in a bargaining protocol whose sequential equilibrium implements the optimal mechanism.A theory of school choice lotteries
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150543
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150543Wed, 27 May 2015 00:00:00 EDTby <b>Onur Kesten and M. Utku Ünver</b><p>Published in Theoretical Economics 10 (2), 543–595 (May 27, 2015)<p>Abstract: A new mechanism was introduced in New York City and Boston to assign students to public schools. This mechanism was advocated for its superior fairness property, besides others. We introduce a new framework for school-choice problems and two notions of fairness in lottery design based on ex-ante stability. This framework unifies known many-to-one and one-sided matching models. We show that the NYC/Boston mechanism fails to satisfy these fairness properties. We then propose two new mechanisms, one that is ordinally Pareto-dominant within the class of strongly ex-ante stable mechanisms and one that satisfies ex-ante stability, equal treatment, and constrained ordinal-Pareto-efficiency.Hidden actions and preferences for timing of resolution of uncertainty
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150489
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150489Wed, 27 May 2015 00:00:00 EDTby <b>Haluk Ergin and Todd Sarver</b><p>Published in Theoretical Economics 10 (2), 489–541 (May 27, 2015)<p>Abstract: We study preferences for timing of resolution of objective uncertainty in a menu-choice model with two stages of information arrival. We characterize a general class of utility representations called hidden action representations, which interpret an intrinsic preference for timing of resolution of uncertainty as if an unobservable action is taken between the resolution of the two periods of information arrival. These representations permit a richer class of preferences for timing than was possible in the model of Kreps and Porteus (1978) by incorporating a preference for flexibility. Our model contains several special cases where this hidden action can be given a novel economic interpretation.Strategy-proofness and efficiency with non-quasi-linear preferences: a characterization of minimum price Walrasian rule
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150445
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150445Wed, 27 May 2015 00:00:00 EDTby <b>Shuhei Morimoto and Shigehiro Serizawa</b><p>Published in Theoretical Economics 10 (2), 445–487 (May 27, 2015)<p>Abstract: We consider the problem of allocating objects to a group of agents and how
much agents should pay. Each agent receives at most one object and has
non-quasi-linear preferences. Non-quasi-linear preferences describe
environments where payments influence agents' abilities to utilize objects
or derive benefits from them. The ``minimum price Walrasian
(MPW) rule'' is the rule that assigns a minimum price
Walrasian equilibrium allocation to each preference profile. We establish
that the MPW rule is the unique rule satisfying \textit{strategy-proofness},
\textit{efficiency}, \textit{individual rationality}, and \textit{no subsidy
for losers}. Since the outcome of the MPW rule coincides with that of the
simultaneous ascending (SA) auction, our result supports SA auctions adopted
by many governments.Merging with a set of probability measures: a characterization
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150411
http://econtheory.org/ojs/index.php/te/article/viewArticle/20150411Wed, 27 May 2015 00:00:00 EDTby <b>Yuichi Noguchi</b><p>Published in Theoretical Economics 10 (2), 411–444 (May 27, 2015)<p>Abstract: In this paper, I provide a characterization of a \textit{set} of probability
measures with which a prior ``weakly merges.'' In this regard, I introduce
the concept of ``conditioning rules'' that represent the \textit{regularities%
} of probability measures and define the ``eventual generation'' of
probability measures by a family of conditioning rules. I then show that a
set of probability measures is learnable (i.e., all probability measures in
the set are weakly merged by a prior) if and only if all probability
measures in the set are eventually generated by a \textit{countable} family
of conditioning rules. I also demonstrate that quite similar results are
obtained with ``almost weak merging.'' In addition, I argue that my
characterization result can be extended to the case of infinitely repeated
games and has some interesting applications with regard to the impossibility
result in Nachbar (1997, 2005).