Theoretical Economics: Recent Articles
http://econtheory.org
Articles recently published or accepted for publicationTue, 28 Jun 2016 09:05:00 EDTen-usGeneral revealed preference theory
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1924/15705/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1924/15705/1Tue, 21 Jun 2016 00:00:00 EDTby <b>Christopher P. Chambers, Federico Echenique, and Eran Shmaya</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on June 21, 2016<p>Abstract: We generalize the standard revealed-preference exercise in
economics, and prove a sufficient condition under which the
revealed-preference formulation of an economic theory has
universal implications, and when these implications can be recursively
enumerated. We apply our theorem to two theories of group behavior:
the theory of group preference and of Nash equilibrium.Computational principal agent problems
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1815/15630/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1815/15630/1Sat, 11 Jun 2016 00:00:00 EDTby <b>Pablo D. Azar and Silvio Micali</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on June 11, 2016<p>Abstract: Collecting and processing large amounts of data is becoming increasingly crucial in our society.
We model this task as evaluating a function f over a large vector $x=(x_1,...,x_n)$, which is unknown, but drawn from a publicly known distribution $X$.
In our model learning each component of the input $x$ is costly, but computing the output $f(x)$ has zero cost once $x$ is known.
We consider the problem of a principal who wishes to delegate the evaluation of $f$ to an agent, whose cost of learning any number of components of $x$ is always lower than the corresponding cost of the principal.
We prove that, for every continuous function $f$ and every $\varepsilon >0$, the principal can---by learning a single component $x_i$ of $x$---incentivize the agent to report the correct value $f(x)$ with accuracy $\varepsilon$.Social distance and network structures
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1873/15530/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1873/15530/1Tue, 24 May 2016 00:00:00 EDTby <b>Ryota Iijima and Yuichiro Kamada</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on May 24, 2016<p>Abstract: This paper analyzes how agents' perception of relationships with others determines the structures of networks. In our model, agents are endowed with their own multi-dimensional characteristics and form links depending on the social
distance between them. We characterize average path length and clustering coefficient in stable networks, and analyze how they are related to the way social distances are measured by agents. One implication is that the introduction of new
communication technology makes a network closely connected but not cliquish. We relate our model and results to Granovetter's ``strength of weak ties hypothesis," Tversky's ``similarity scale," and Mobius-Rosenblat's ``communication externality."Competing with asking prices
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1846/15520/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/1846/15520/1Mon, 23 May 2016 00:00:00 EDTby <b>Benjamin Lester, Ludo Visschers, and Ronald Wolthoff</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on May 23, 2016<p>Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. We construct an environment with a few simple, realistic ingredients and demonstrate that, by using an asking price, sellers both maximize their revenue and implement the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the implications of this pricing mechanism for transaction prices and allocations.One dimensional mechanism design
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/2307/15550/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/2307/15550/1Mon, 23 May 2016 00:00:00 EDTby <b>Hervé Moulin</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on May 23, 2016<p>Abstract: We prove a general possibility result for collective decision problems where individual allocations are one-dimensional, preferences are single-peaked (strictly convex), and feasible allocation profiles cover a closed convex set. Special cases include the celebrated median voter theorem and the division of a non disposable commodity by the uniform rationing rule.
We construct a canonical peak-only rule equalizing in the leximin sense individual gains from an arbitrary benchmark allocation: it is efficient, group-strategyproof, fair, and (for most problems) continuous. These properties leave room for many other rules, except for symmetric non disposable division problems.Stability and incentives for college admissions with budget constraints
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160735
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160735Wed, 18 May 2016 00:00:00 EDTby <b>Azar Abizada</b><p>Published in Theoretical Economics 11 (2), 735–756 (May 18, 2016)<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/viewArticle/20160711
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160711Wed, 18 May 2016 00:00:00 EDTby <b>Shurojit Chatterji, Arunava Sen, and Huaxia Zeng</b><p>Published in Theoretical Economics 11 (2), 711–733 (May 18, 2016)<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/viewArticle/20160683
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160683Wed, 18 May 2016 00:00:00 EDTby <b>Scott Duke Kominers and Tayfun Sönmez</b><p>Published in Theoretical Economics 11 (2), 683–710 (May 18, 2016)<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/viewArticle/20160641
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160641Wed, 18 May 2016 00:00:00 EDTby <b>Simon Grant, Idione Meneghel, and Rabee Tourky</b><p>Published in Theoretical Economics 11 (2), 641–682 (May 18, 2016)<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.Dynamic markets for lemons: performance, liquidity, and policy intervention
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160601
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160601Wed, 18 May 2016 00:00:00 EDTby <b>Diego Moreno and John Wooders</b><p>Published in Theoretical Economics 11 (2), 601–639 (May 18, 2016)<p>Abstract: We study non-stationary dynamic decentralized markets with adverse selection in which trade is bilateral and prices are determined by bargaining. Examples include labor markets, housing markets, and markets for financial assets. We characterize equilibrium, and identify the dynamics of transaction prices, trading patterns, and the average quality in the market. When the horizon is finite, the surplus in the unique equilibrium exceeds the competitive surplus; as traders become perfectly patient the market becomes completely illiquid at all but the first and last dates, but the surplus remains above the competitive surplus. When the horizon is infinite, the surplus realized equals the static competitive surplus. We study policies aimed at improving market performance, and show that subsidies to low quality or to trades at a low price, taxes on high quality, restrictions on trading opportunities, or government purchases may raise the surplus. In contrast, interventions like the Public-Private Investment Program for Legacy Assets reduce the surplus when traders are patient.List-rationalizable choice
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160587
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160587Wed, 18 May 2016 00:00:00 EDTby <b>Kemal Yıldız</b><p>Published in Theoretical Economics 11 (2), 587–599 (May 18, 2016)<p>Abstract: A choice function is \textit{list rational(izable)}, if there is a fixed \textit{list} such that
for each \textit{choice set}, successive comparison of the alternatives by following the \textit{list} retrieves the chosen alternative.
We extend the formulation of list rationality to stochastic choice setup. We say two alternatives are related if the \textit{stochastic path independence condition} is violated between these alternatives.
We show that a random choice function is list rational if and only if this relation is acyclic. Our characterization for deterministic choice functions follows as a corollary. By using this characterization, we relate list rationality to two-stage choice procedures.Comparing generalized median voter schemes according to their manipulability
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160547
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160547Wed, 18 May 2016 00:00:00 EDTby <b>R. Pablo Arribillaga and Jordi Massó</b><p>Published in Theoretical Economics 11 (2), 547–586 (May 18, 2016)<p>Abstract: We propose a simple criterion to compare generalized median voter schemes according to their manipulability. We identify three necessary and sufficient conditions for the comparability of two generalized median voter schemes in terms of their vulnerability to manipulation. The three conditions are stated using the two associated families of monotonic fixed ballots and depend very much on the power each agent has to unilaterally change the outcomes of the two generalized median voter schemes. We perform a specific analysis of all median voter schemes, the anonymous subfamily of generalized median voter schemes.Objective rationality and uncertainty averse preferences
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160523
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160523Wed, 18 May 2016 00:00:00 EDTby <b>Simone Cerreia-Vioglio</b><p>Published in Theoretical Economics 11 (2), 523–545 (May 18, 2016)<p>Abstract: As in Gilboa, Maccheroni, Marinacci, and Schmeidler \cite{GMMS}, we consider a
decision maker characterized by two binary relations: $\succsim^{\ast}$ and
$\succsim^{{\small \wedge}}$. The first binary relation is a Bewley
preference. It\ models the rankings for which the decision maker is sure. The
second binary relation is an uncertainty averse preference, as defined by
Cerreia-Vioglio, Maccheroni, Marinacci, and Montrucchio \cite{CMMM}. It models
the rankings that the decision maker expresses if he has to make a choice. We
assume that $\succsim^{{\small \wedge}}$ is a completion of $\succsim^{\ast}%
$.\ We identify axioms under which the set of probabilities and the utility
index representing $\succsim^{\ast}$ are the same as those representing
$\succsim^{{\small \wedge}}$. In this way, we show that Bewley preferences and
uncertainty averse preferences, two different approaches in modelling decision
making under Knightian uncertainty, are complementary. As a by-product, we
extend the main result of Gilboa, Maccheroni, Marinacci, and Schmeidler
\cite{GMMS}, who restrict their attention to maxmin expected utility completions.Bayes correlated equilibrium and the comparison of information structures in games
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160487
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160487Wed, 18 May 2016 00:00:00 EDTby <b>Dirk Bergemann and Stephen Morris</b><p>Published in Theoretical Economics 11 (2), 487–522 (May 18, 2016)<p>Abstract: A game of incomplete information can be decomposed into a basic game and an information structure. The basic game defines the set of actions, the set of payoff states the payoff functions and the common prior over the payoff states. The information structure refers to the signals that the players receive in the game. We characterize the set of outcomes that can arise in Bayes Nash equilibrium if players observe the given information structure but may also observe additional signals. The characterization corresponds to the set of (a version of) incomplete information correlated equilibria which we dub Bayes correlated equilibria. We identify a partial order on many player information structures (individual sufficiency) under which more information shrinks the set of Bayes correlated equilibria. This order captures the role of information in imposing (incentive) constraints on behavior.A model of price discrimination under loss aversion and state-contingent reference points
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160455
http://econtheory.org/ojs/index.php/te/article/viewArticle/20160455Wed, 18 May 2016 00:00:00 EDTby <b>Juan Carlos Carbajal and Jeffrey C. Ely</b><p>Published in Theoretical Economics 11 (2), 455–485 (May 18, 2016)<p>Abstract: We study optimal price discrimination when a monopolist faces a continuum of consumers with reference-dependent preferences. A consumer's valuation for product quality consists of an intrinsic valuation affected by a private state signal
(type), and a gain-loss valuation that depends on deviations of purchased quality from a reference point. Following Koszegi Rabin (2006), we consider loss-averse
buyers who evaluate gains and losses in terms of changes in the consumption valuation, but in our model each buyer evaluates consumption outcomes relative to his own state-contingent reference quality level. We capture the process by which reference qualities are formed via a reference consumption plan, and use a generalization of the Mirrlees representation of the indirect utility to fully characterize optimal contracts for loss-averse consumers. We find that, depending on the reference plan, optimal price discrimination may exhibit (i) downward distortions beyond the standard downward distortions due to screening; (ii) efficiency gains relative to second best contracts without
loss aversion; (iii) upward distortions above first best quality levels without loss aversion. We consider ex-ante and ex-post consistent contracts in which
quality offers by the firm coincide, in expectations or at every state realization, respectively, with the reference quality levels. We find the firm's unique preferred ex-ante and ex-post consistent contract menu and specify conditions under
which, for the second case, it also constitutes the consumers' preferred menu.