Theoretical Economics: Recent Articles
http://econtheory.org
Articles recently published or accepted for publicationWed, 07 Dec 2022 12:05:00 ESTen-usPathwise concentration bounds for Bayesian beliefs
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5206/35422/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5206/35422/1Tue, 06 Dec 2022 00:00:00 ESTby <b>Drew Fudenberg, Giacomo Lanzani, and Philipp Strack</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on December 6, 2022<p>Abstract: We show that Bayesian posteriors concentrate on the outcome distributions that approximately minimize the Kullback-Leibler divergence from the empirical distribution, uniformly over sample paths, even when the prior does not have full support. This generalizes Diaconis and Freedman (1990)'s uniform convergence result to e.g., priors that have finite support, are constrained by independence assumptions, or have a parametric form that cannot match some probability distributions. The concentration result lets us provide a rate of convergence for Berk (1996)’s result on the limiting behavior of posterior beliefs when the prior is misspecified. We provide a bound on approximation errors in “anticipated-utility” models, and extend our analysis to outcomes that are perceived to follow a Markov procesAttack and interception in networks
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5122/35390/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5122/35390/1Thu, 01 Dec 2022 00:00:00 ESTby <b>Francis Bloch, Kalyan Chatterjee, and Bhaskar Dutta</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on December 1, 2022<p>Abstract: This paper studies a game of attack and interception in a network, where a single attacker chooses a target and a path, and each node chooses a level of protection. We show that the Nash equilibrium of the game exists and is unique. We characterize equilibrium attack paths and attack distributions as a function of the underlying network and target values. We show that adding a link or increasing the value of a target may harm the attacker - a comparative statics effect which is reminiscent of Braess's paradox in transportation economics. Finally, we contrast the Nash equilibrium with the equilibria of two variations of the model: one where all nodes cooperate in interception and one where nodes update their beliefs and make inspection decisions upon observing the arrival of a suspicious object.Efficiency with endogenous population growth. Do children have too many rights?
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/4391/35354/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/4391/35354/1Mon, 28 Nov 2022 00:00:00 ESTby <b>Mikel Pérez-Nievas</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on November 28, 2022<p>Abstract: Fertility rates are declining in many countries. But are fertility rates inefficiently low? This paper addresses this question by exploring the efficiency properties of equilibria in an overlapping generations setting with endogenous fertility and dynastic parental altruism, using a particular formulation of the notion of P-efficiency proposed by Golosov, Jones, and Tertilt (2007). In this formulation, new lives increase social welfare only if the agents living those lives are not worse off than those agents of the same generation living in any allocation. In contrast with Schoonbroodt and Tertilt (2014), who show that any equilibrium for which non-negativity constraints on intergenerational transfers are binding is A-inefficient (and, under the assumption that new lives always increase social welfare, also P-inefficient), I characterize symmetric, P-efficient allocations as the equilibria arising from different distribution of rights among the agents, and show that many equilibria exhibiting binding constraints on transfers are P-efficient. To be more precise, except for dynamically inefficient equilibria, there is no need to alter children's rights in order to achieve efficiency.Collusion enforcement in repeated first-price auctions
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221847
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221847Tue, 22 Nov 2022 00:00:00 ESTby <b>Wenzhang Zhang</b><p>Published in Theoretical Economics 17 (4), 1847–1895 (November 22, 2022)<p>Abstract: In the context of repeated first-price auctions, we explore how a bid-rigging cartel can simultaneously overcome the difficulty of soliciting truthful private information about valuations and the difficulty of enforcing its internal mechanism. Focusing on the class of trigger-strategy collusive agreements, we explicitly characterize the optimal collusive agreement for any given discount factor. Making use of the characterization, we also explore how a long-run seller can use a reserve price to fight the cartel.When Walras meets Vickrey
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221803
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221803Tue, 22 Nov 2022 00:00:00 ESTby <b>David Delacrétaz, Simon Loertscher, and Claudio Mezzetti</b><p>Published in Theoretical Economics 17 (4), 1803–1845 (November 22, 2022)<p>Abstract: We consider general asset market environments in which agents with quasilinear payoffs are endowed with objects and have demands for other agents' objects. We show that if all agents have a maximum demand of one object and are endowed with at most one object, the VCG transfer of each agent is equal to the largest net Walrasian price of this agent. Consequently, the VCG deficit is equal to the sum of the largest net Walrasian prices over all agents. Generally, whenever Walrasian prices exist, the sum of the largest net Walrasian prices is a non-negative lower bound for the deficit, implying that no dominant-strategy mechanism runs a budget surplus while respecting agents' ex post individual rationality constraints.The implications of pricing on social learning
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221761
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221761Tue, 22 Nov 2022 00:00:00 ESTby <b>Itai Arieli, Moran Koren, and Rann Smorodinsky</b><p>Published in Theoretical Economics 17 (4), 1761–1802 (November 22, 2022)<p>Abstract: Two firms produce substitute goods of unknown quality. At each
stage the firms set prices and a consumer with private information and
unit demand buys from one of the firms. Both firms and consumers see
the entire history of prices and purchases. Will such markets aggregate
information? Will the firm with the superior product necessarily prevail? We adapt the classic social-learning model by introducing strategic dynamic pricing.
We provide necessary and sufficient conditions for asymptotic learning. In contrast to previous results, we show that asymptotic learning can occur when signals are bounded, namely, happens when the density of the consumers at the boundaries of the posterior belief distribution goes to zero. We refer to this property of the signal structure as the ``vanishing margins'' property.Regulating a monopolist with uncertain costs without transfers
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221719
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221719Tue, 22 Nov 2022 00:00:00 ESTby <b>Manuel Amador and Kyle Bagwell</b><p>Published in Theoretical Economics 17 (4), 1719–1760 (November 22, 2022)<p>Abstract: We analyze the Baron and Myerson (1982) model of regulation under the restriction that transfers are infeasible. Extending techniques from the delegation literature to incorporate an ex-post participation constraint, we report sufficient conditions under which optimal regulation takes the form of price-cap regulation. We establish conditions under which the optimal price cap is set at a level such that no types are excluded and show that exclusion of higher cost types can be optimal when these conditions fail. We also provide conditions for the optimality of price-cap regulation when an ex post participation constraint is present and exclusion is infeasible.Maskin meets Abreu and Matsushima
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221683
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221683Tue, 22 Nov 2022 00:00:00 ESTby <b>Yi-Chun Chen, Takashi Kunimoto, Yifei Sun, and Siyang Xiong</b><p>Published in Theoretical Economics 17 (4), 1683–1717 (November 22, 2022)<p>Abstract: The theory of full implementation has been criticized for using
integer/modulo games which admit no equilibrium (Jackson (1992)). To address the critique, we revisit the classical Nash implementation problem due to Maskin (1977, 1999) but allow for the use of lotteries and monetary transfers as in Abreu and Matsushima (1992, 1994). We unify the two well-established but somewhat orthogonal approaches in full implementation theory. We show that Maskin monotonicity is a necessary and sufficient condition for (exact) mixed-strategy Nash
implementation by a finite mechanism. In contrast to previous papers, our
approach possesses the following features: finite mechanisms (with
no integer or modulo game) are used; mixed strategies are handled
explicitly; neither undesirable outcomes nor transfers occur in equilibrium;
the size of transfers can be made arbitrarily small; and our mechanism is
robust to information perturbations.On the revealed preference analysis of stable aggregate matchings
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221651
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221651Tue, 22 Nov 2022 00:00:00 ESTby <b>Thomas Demuynck and Umutcan Salman</b><p>Published in Theoretical Economics 17 (4), 1651–1682 (November 22, 2022)<p>Abstract: Echenique, Lee, Shum, and Yenmez (2013) established the testable revealed preference restrictions for stable aggregate matching with transferable (TU) and non-transferable utility (NTU) and for extremal stable matchings. In this paper, we rephrase their restrictions in terms of properties on a corresponding bipartite graph. From this, we obtain a simple condition that verifies whether a given aggregate matching is rationalisable. For matchings that are not rationalisable, we provide a simple greedy algorithm that computes the minimum number of matches that needs to be removed to obtain a rationalisable matching. We also show that the related problem of finding the minimum number of types that we need to remove in order to obtain a rationalisable matching is NP-complete.Stable matching under forward-induction reasoning
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221619
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221619Tue, 22 Nov 2022 00:00:00 ESTby <b>Luciano Pomatto</b><p>Published in Theoretical Economics 17 (4), 1619–1649 (November 22, 2022)<p>Abstract: A standing question in the theory of matching markets is how to define stability under incomplete information. This paper proposes an epistemic approach. Agents negotiate through offers, and offers are interpreted according to the highest possible degree of rationality that can be ascribed to their proponents. A matching is deemed ``stable'' if maintaining the current allocation is a rationalizable action for each agent. The main result shows an equivalence between this notion and ``incomplete-information stability,'' a cooperative solution concept put forward by Liu, Mailath, Postlewaite and Samuelson (2014) for markets with incomplete information.Dynamic delegation with a persistent state
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221589
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221589Tue, 22 Nov 2022 00:00:00 ESTby <b>Yi Chen</b><p>Published in Theoretical Economics 17 (4), 1589–1618 (November 22, 2022)<p>Abstract: In this paper, I study the dynamic delegation problem in a principal-agent model wherein an agent privately observes a persistently evolving state, and the principal commits to actions based on the agent's reported state. There are no transfers. While the agent has state-independent preferences, the principal wants to match a state-dependent target. I solve the optimal delegation in closed form, which sometimes prescribes actions that move in the opposite direction of the target. I provide a simple necessary and sufficient condition for that to occur. Generically, the principal fares strictly better in the optimal delegation than in the babbling outcome. Over time, the principal is worse off in expectation, but the agent is better or worse off depending on the shape of the principal's state-dependent target.Rational bubbles and middlemen
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221559
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221559Tue, 22 Nov 2022 00:00:00 ESTby <b>Yu Awaya, Kohei Iwasaki, and Makoto Watanabe</b><p>Published in Theoretical Economics 17 (4), 1559–1587 (November 22, 2022)<p>Abstract: This paper develops a model of rational bubbles where trade of an asset takes place through a chain of middlemen. We show that there exists a unique and robust equilibrium, and a bubble can occur due to information frictions in bilateral and decentralized markets. Under reasonable assumptions, the equilibrium price is increasing and accelerating during bubbles although the fundamental value is constant over time. Bubbles may be detrimental to the economy, but any announcement from the central bank has no effect on welfare with risk neutral agents. Middlemen are the source of financial fragility.Sufficientarianism
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221529
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221529Tue, 22 Nov 2022 00:00:00 ESTby <b>José Carlos R. Alcantud, Marco Mariotti, and Roberto Veneziani</b><p>Published in Theoretical Economics 17 (4), 1529–1557 (November 22, 2022)<p>Abstract: Sufficientarianism is a prominent approach to distributive justice in political philosophy and in policy analyses. However, it is virtually absent from the formal normative economics literature. We analyse sufficientarianism axiomatically in the context of the allocation of 0-1 normalised well-being in society. We present three characterisations of the core sufficientarian criterion, which counts the number of agents who attain a “good enough” level of well-being. The main characterisation captures the “hybrid” nature of the criterion, which embodies at the same time a threshold around which the worst off in society is prioritised, and an indifference to equality in other regions. The other two characterisations relate sufficientarianism, respectively, to a liberal principle of non-interference and to a classic Neutrality property.Deep and shallow thinking in the long run
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221501
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221501Tue, 22 Nov 2022 00:00:00 ESTby <b>Heinrich Harald Nax and Jonathan Newton</b><p>Published in Theoretical Economics 17 (4), 1501–1527 (November 22, 2022)<p>Abstract: Humans differ in their strategic reasoning abilities and in beliefs about others’ strategic reasoning abilities. Studying such cognitive hierarchies has produced new insights regarding equilibrium analysis in economics. This paper investigates the effect of cognitive hierarchies on long run behavior. Despite short run behavior being highly sensitive to variation in strategic reasoning abilities, this variation is not replicated in the long run. In particular, when generalized risk dominant strategy profiles exist, they emerge in the long run independently of the strategic reasoning abilities of players. These abilities may be arbitrarily low or high, heterogeneous across players and evolve over time.Which networks permit stable allocations? A theory of network-based comparisons
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221473
http://econtheory.org/ojs/index.php/te/article/viewArticle/20221473Tue, 22 Nov 2022 00:00:00 ESTby <b>Chen Cheng and Yiqing Xing</b><p>Published in Theoretical Economics 17 (4), 1473–1499 (November 22, 2022)<p>Abstract: Economic agents care about their relative well-being, and the comparisons are usually local. We capture this using a network model, in which an agent's payoff depends on the ranking of their allocation among their network neighbors’. Given a network, an allocation is called α-stable if no blocking coalition whose size is an α fraction of the population can strictly improve their payoffs. We find a sufficient and necessary condition for a network to permit an α-stable allocation: the network has an independent set whose size is at least 1−α of the network population. The characterization of permissive networks holds not only for our baseline ranking preference but also for a range of preferences under which the sets of stable allocations are expanded. We also provide a sufficient condition for an allocation to be stable. Extensions of the model concern directed networks and the case where agents have limited enforcement power.