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(Bad) reputation in relational contracting Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Rahul Deb,Matthew Mitchell,Mallesh M. Pai
Motivated by markets for “expertise,” we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with the risky arm. However, only the high type arm can generate value for the principal. Our main insight is that
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Indifference, indecisiveness, experimentation, and stochastic choice Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Efe A. Ok,Gerelt Tserenjigmid
Among the reasons behind the choice behavior of an individual taking a stochastic form are her potential indifference or indecisiveness between certain alternatives, and/or her willingness to experiment in the sense of occasionally deviating from choosing a best alternative to give a try to other options. We introduce methods of identifying if and when a stochastic choice model may be thought of as
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Monologues, dialogues, and common priors Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 A. Di Tillio,E. Lehrer,D. Samet
The main purpose of this paper is to provide a simple criterion enabling to conclude that two agents do not share a common prior. The criterion is simple, as it does not require information about the agents' knowledge and beliefs, but rather only the record of a dialogue between the agents. In each stage of the dialogue, the agents tell each other the probability they ascribe to a fixed event and update
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Dynamic signaling with stochastic stakes Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Sebastian Gryglewicz,Aaron Kolb
We study dynamic signaling in a game of stochastic stakes. Each period, a privately informed agent of binary type chooses whether to continue receiving a return that is an increasing function of both her reputation and an exogenous public stakes variable or to irreversibly exit the game. A strong type has a dominant strategy to continue. In the unique perfect Bayesian equilibrium, the weak type plays
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Games with switching costs and endogenous references Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Begum Guney,Michael Richter
We introduce a game‐theoretic model with switching costs and endogenous references. An agent endogenizes his reference strategy, and then taking switching costs into account, he selects a strategy from which there is no profitable deviation. We axiomatically characterize this selection procedure in one‐player games. We then extend this procedure to multiplayer simultaneous games by defining a Switching
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Correction to “Incentive‐compatible voting rules with positively correlated beliefs” Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Abhigyan Bose,Souvik Roy
Theorem 1 in Bhargava, Majumdar, and Sen (2015) provides a necessary condition for a social choice function to be locally robust ordinal Bayesian incentive compatible with respect to a belief system satisfying top‐set correlation. In this paper, we provide a counterexample to that theorem and consequently provide a new necessary condition for the same in terms of sequential ordinal nondomination.
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A common‐value auction with state‐dependent participation Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Stephan Lauermann,Asher Wolinsky
This paper analyzes a common‐value, first‐price auction with state‐dependent participation. The number of bidders, which is unobservable to them, depends on the true value. For participation patterns with many bidders in each state, the bidding equilibrium may be of a “pooling” type—with high probability, the winning bid is the same across states and is below the ex ante expected value—or of a “partially
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Markov distributional equilibrium dynamics in games with complementarities and no aggregate risk Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Lukasz Balbus,Pawel Dziewulski,Kevin Reffett,Lukasz Wozny
We present a new approach to studying equilibrium dynamics in a class of stochastic games with a continuum of players with private types and strategic complementarities. We introduce a suitable equilibrium concept, called Markov Stationary Nash Distributional Equilibrium (MSNDE), prove its existence, and determine comparative statics of equilibrium paths and the steady‐state invariant distributions
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What were you thinking? Decision theory as coherence test Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Itzhak Gilboa,Larry Samuelson
Decision theory can be used to test the logic of decision making—one may ask whether a given set of decisions can be justified by a decision‐theoretic model. Indeed, in principal–agent settings, such justifications may be required—a manager of an investment fund may be asked what beliefs she used when valuing assets and a government may be asked whether a portfolio of rules and regulations is coherent
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The structure of equilibria in trading networks with frictions Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Jan Christoph Schlegel
Several structural results for the set of competitive equilibria in trading networks with frictions are established: The lattice theorem, the rural hospitals theorem, the existence of side‐optimal equilibria, and a group‐incentive‐compatibility result hold with imperfectly transferable utility and in the presence of frictions. While our results are developed in a trading network model, they also imply
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Optimal organ allocation policy under blood‐type barriers with the donor‐priority rule Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Jaehong Kim,Mengling Li
Shortages in organs for transplantation have resulted in a renewed interest in designing incentive policies to promote organ supply. The donor‐priority rule, which grants priority for transplantation based on deceased organ donor registration status, has proven to be effective in both theory and practice. This study investigates the implications of the donor‐priority rule for optimal deceased organ
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Transparency and collateral: Central versus bilateral clearing Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Gaetano Antinolfi,Francesca Carapella,Francesco Carli
This paper studies the optimal clearing arrangement for bilateral financial contracts in which an assessment of counterparty credit risk is crucial for efficiency. The economy is populated by borrowers and lenders. Borrowers are subject to limited commitment and hold private information about the severity of such lack of commitment. Lenders can acquire information, at a cost, about the commitment of
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Choosing what to pay attention to Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Chad Fulton
This paper studies static rational inattention problems with multiple actions and multiple shocks. We solve for the optimal signals chosen by agents and provide tools to interpret information processing. By relaxing restrictive assumptions previously used to gain tractability, we allow agents more latitude to choose what to pay attention to. Our applications examine the pricing problem of a monopolist
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Information aggregation in Poisson elections Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Mehmet Ekmekci,Stephan Lauermann
The modern Condorcet jury theorem states that under weak conditions, when voters have common interests, elections will aggregate information when the population is large, in any equilibrium. Here, we study the performance of large elections with population uncertainty. We find that the modern Condorcet jury theorem holds if and only if the expected number of voters is independent of the state. If the
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Incomplete‐information games in large populations with anonymity Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Martin F. Hellwig
The paper provides theoretical foundations for models of strategic interdependence under uncertainty that have a continuum of agents and a decomposition of uncertainty into a macro component and an agent‐specific micro component, with a law of large numbers for the latter. This macro–micro decomposition of uncertainty is implied by a condition of exchangeability of agents' types, which holds at the
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Equilibrium contracts and boundedly rational expectations Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Heiner Schumacher,Heidi Christina Thysen
We study a principal‐agent framework in which the agent forms beliefs about the principal's project based on a misspecified subjective model. She fits this model to the objective probability distribution to predict output under alternative actions. Misspecifications in the subjective model may lead to biased beliefs. However, under mild restrictions, the agent has correct beliefs on the equilibrium
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Equilibrium securitization with diverse beliefs Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Andrew Ellis,Michele Piccione,Shengxing Zhang
We study the effects of diverse beliefs on equilibrium securitization under risk neutrality. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of the traders' diverse beliefs about asset returns. The issuer of securities tranches the asset pool, and traders sort among the tranches according to their beliefs. We show
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Family ties: School assignment with siblings Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Umut Dur,Thayer Morrill,William Phan
We introduce a generalization of the school choice problem motivated by the following observations: students are assigned to grades within schools, many students have siblings who are applying as well, and school districts commonly guarantee that siblings will attend the same school. This last condition disqualifies the standard approach of considering grades independently as it may separate siblings
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Rank‐optimal assignments in uniform markets Theoretical Economics (IF 1.671) Pub Date : 2022-01-01 Afshin Nikzad
We prove that in a market where agents rank objects independently and uniformly at random, there exists an assignment of objects to agents with a constant average rank (i.e., an average rank independent of the market size). The proof builds on techniques from random graph theory and the FKG inequality (Fortuin et al. (1971)). When the agents' rankings are their private information, no Dominant Strategy
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Subgame‐perfect equilibrium in games with almost perfect information: Dispensing with public randomization Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Paulo Barelli,John Duggan
Harris, Reny, and Robson (1995) added a public randomization device to dynamic games with almost perfect information to ensure existence of subgame perfect equilibria (SPE). We show that when Nature's moves are atomless in the original game, public randomization does not enlarge the set of SPE payoffs: any SPE obtained using public randomization can be “decorrelated” to produce a payoff‐equivalent
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Market power and welfare in asymmetric divisible good auctions Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Carolina Manzano,Xavier Vives
We analyze a divisible good uniform‐price auction that features two groups, each with a finite number of identical bidders, who compete in demand schedules. In the linear‐quadratic‐normal framework, this paper presents conditions under which the unique equilibrium in linear demands exists and derives novel comparative statics results that highlight the interaction between payoff and information parameters
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Bottleneck links, essential intermediaries, and competing paths of diffusion in networks Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Mihai Manea
We investigate how information goods are priced and diffused over links in a network. A new equivalence relation between nodes captures the effects of network architecture and locations of sellers on the division of profits, and characterizes the topology of competing (and potentially overlapping) diffusion paths. Sellers indirectly appropriate profits over intermediation chains from buyers in their
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A dominant strategy double clock auction with estimation‐based tâtonnement Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Simon Loertscher,Claudio Mezzetti
The price mechanism is fundamental to economics but difficult to reconcile with incentive compatibility and individual rationality. We introduce a double clock auction for a homogeneous good market with multidimensional private information and multiunit traders that is deficit‐free, ex post individually rational, constrained efficient, and makes sincere bidding a dominant strategy equilibrium. Under
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Comparing school choice and college admissions mechanisms by their strategic accessibility Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Somouaoga Bonkoungou,Alexander Nesterov
Dozens of school districts and college admissions systems around the world have reformed their admissions rules in recent years. As the main motivation for these reforms, the policymakers cited the strategic flaws of the rules in place: students had incentives to game the system. However, after the reforms, almost none of the new rules became strategy‐proof. We explain this puzzle. We show that the
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When is a monotone function cyclically monotone? Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Alexey I. Kushnir,Lev V. Lokutsievskiy
We provide sufficient conditions for a monotone function with a finite set of outcomes to be cyclically monotone. Using these conditions, we show that any monotone function defined on the domain of gross substitutes is cyclically monotone. The result also extends to the domain of generalized gross substitutes and complements.
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Approval voting without ballot restrictions Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Federica Ceron,Stéphane Gonzalez
We axiomatically study voting rules without making any assumption on the ballots that voters are allowed to cast. In this setting, we characterize the family of “endorsement rules,” which includes approval voting and the plurality rule, via the imposition of three normative conditions. The first condition is the well known social‐theoretic principle of consistency; the second one, unbiasedness, roughly
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Equilibrium in misspecified Markov decision processes Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Ignacio Esponda,Demian Pouzo
We provide an equilibrium framework for modeling the behavior of an agent who holds a simplified view of a dynamic optimization problem. The agent faces a Markov decision process, where a transition probability function determines the evolution of a state variable as a function of the previous state and the agent's action. The agent is uncertain about the true transition function and has a prior over
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Local agency costs of political centralization Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Roger B. Myerson
We analyze a model of moral hazard in local public services, which could be efficiently managed by officials under local democratic accountability, but not by officials who are appointed by the ruler of a centralized autocracy. The ruler might prefer to retain an official who diverted resources from public services but contributed part to benefit the ruler. The autocratic ruler would value better public
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Evolution, heritable risk, and skewness loving Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Yuval Heller,Arthur Robson
Our understanding of risk preferences can be sharpened by considering their evolutionary basis. The existing literature has focused on two sources of risk: idiosyncratic risk and aggregate risk. We introduce a new source of risk—heritable risk—in which there is a positive correlation between the fitness of a newborn agent and the fitness of her parent. Heritable risk was plausibly common in our evolutionary
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Information aggregation in competitive markets Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Lucas Siga,Maximilian Mihm
We study when equilibrium prices can aggregate information in an auction market with a large population of traders. Our main result identifies a property of information—the betweenness property—that is both necessary and sufficient for information aggregation. The characterization provides novel predictions about equilibrium prices in complex, multidimensional environments.
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A model of weighted network formation Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Leonie Baumann
This paper proposes a game of weighted network formation in which each agent has a limited resource to form links of possibly different intensities with other agents and to use for private purposes. We show that every equilibrium is either “reciprocal” or “nonreciprocal.” In a reciprocal equilibrium, any two agents invest equally in the link between them. In a nonreciprocal equilibrium, agents are
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Bilateral trade with a benevolent intermediary Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Ran Eilat,Ady Pauzner
We study intermediaries who seek to maximize gains from trade in bilateral negotiations. Intermediaries are players: they cannot commit to act against their objective function and deny, in some cases, trade they believe to be beneficial. This impairs their ability to assist the parties relative to conventional mechanisms. We analyze this limited commitment environment as a standard mechanism design
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The implications of finite‐order reasoning Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Adam Brandenburger,Alexander Danieli,Amanda Friedenberg
The epistemic conditions of rationality and mth‐order strong belief of rationality (R mSBR; Battigalli and Siniscalchi, 2002) formalize the idea that players engage in contextualized forward‐induction reasoning. This paper characterizes the behavior consistent with R mSBR across all type structures. In particular, in a class of generic games, R( m − 1)SBR is characterized by a new solution concept
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Renegotiation of long‐term contracts as part of an implicit agreement Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Rumen Kostadinov
I study a repeated principal–agent game with long‐term output contracts that can be renegotiated at will. Actions are observable but not contractible, so they can only be incentivized through implicit agreements formed in equilibrium. I show that contract renegotiation is a powerful tool for incentive provision, despite the stationarity of the environment. Continuation contracts are designed to punish
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Payoff implications of incentive contracting Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Daniel F. Garrett
In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across
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Local‐global equivalence in voting models: A characterization and applications Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Ujjwal Kumar,Souvik Roy,Arunava Sen,Sonal Yadav,Huaxia Zeng
The paper considers a voting model where each voter's type is her preference. The type graph for a voter is a graph whose vertices are the possible types of the voter. Two vertices are connected by an edge in the graph if the associated types are “neighbors.” A social choice function is locally strategy‐proof if no type of a voter can gain by misrepresentation to a type that is a neighbor of her true
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Strict pure strategy Nash equilibria in large finite‐player games Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Guilherme Carmona,Konrad Podczeck
In the context of anonymous games (i.e., games where the payoff of a player is, apart from his/her own action, determined by the distribution of the actions made by the other players), we present a model in which, generically (in a precise sense), finite‐player games have strict pure strategy Nash equilibria if the number of agents is large. A key feature of our model is that payoff functions have
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Trust and betrayals: Reputational payoffs and behaviors without commitment Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Harry Pei
I study a repeated game in which a patient player wants to win the trust of some myopic opponents, but can strictly benefit from betraying them. His benefit from betrayal is strictly positive and is his persistent private information. I characterize every type of patient player's highest equilibrium payoff and construct equilibria that attain this payoff. Since the patient player's Stackelberg action
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Asymptotic synthesis of contingent claims with controlled risk in a sequence of discrete‐time markets Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 David M. Kreps,Walter Schachermayer
We examine the connection between discrete‐time models of financial markets and the celebrated Black–Scholes–Merton (BSM) continuous‐time model in which “markets are complete.” Suppose that (a) the probability law of a sequence of discrete‐time models converges to the law of the BSM model and (b) the largest possible one‐period step in the discrete‐time models converges to zero. We prove that, under
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A general analysis of boundedly rational learning in social networks Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Manuel Mueller-Frank,Claudia Neri
We analyze boundedly rational learning in social networks within binary action environments. We establish how learning outcomes depend on the environment (i.e., informational structure, utility function), the axioms imposed on the updating behavior, and the network structure. In particular, we provide a normative foundation for quasi‐Bayesian updating, where a quasi‐Bayesian agent treats others' actions
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Macro‐financial volatility under dispersed information Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Jianjun Miao,Jieran Wu,Eric R. Young
We provide a production‐based asset pricing model with dispersed information and small deviations from full rational expectations. In the model, aggregate output and equity prices depend on the higher‐order beliefs about aggregate demand and individual stochastic discount factors. We prove that equity price volatility becomes arbitrarily large as the volatility of idiosyncratic shocks diverges to infinity
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Agendas in legislative decision‐making Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Sean Horan
Despite the wide variety of agendas used in legislative settings, the literature on sophisticated voting has focused on two formats: the so‐called Euro–Latin and Anglo–American agendas. In the current paper, I introduce a broad class of agendas whose defining structural features—history‐independence and persistence—are common in legislative settings. I then characterize the social choice rules implemented
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Chain stability in trading networks Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 John William Hatfield,Scott Duke Kominers,Alexandru Nichifor,Michael Ostrovsky,Alexander Westkamp
In a general model of trading networks with bilateral contracts, we propose a suitably adapted chain stability concept that plays the same role as pairwise stability in two‐sided settings. We show that chain stability is equivalent to stability if all agents' preferences are jointly fully substitutable and satisfy the Laws of Aggregate Supply and Demand. In the special case of trading networks with
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Convergence in models of misspecified learning Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Paul Heidhues,Botond Koszegi,Philipp Strack
We establish convergence of beliefs and actions in a class of one‐dimensional learning settings in which the agent's model is misspecified, she chooses actions endogenously, and the actions affect how she misinterprets information. Our stochastic‐approximation‐based methods rely on two crucial features: that the state and action spaces are continuous, and that the agent's posterior admits a one‐dimensional
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A maximum likelihood approach to combining forecasts Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Gilat Levy,Ronny Razin
We model an individual who wants to learn about a state of the world. The individual has a prior belief and has data that consist of multiple forecasts about the state of the world. Our key assumption is that the decision maker identifies explanations that could have generated this data and among these focuses on those that maximize the likelihood of observing the data. The decision maker then bases
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Minimally unstable Pareto improvements over deferred acceptance Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Battal Dogan,Lars Ehlers
We investigate efficient and minimally unstable Pareto improvements over the deferred acceptance (DA) mechanism—a popular school choice mechanism that is stable but not efficient. We show that there is no Pareto improvement over the DA mechanism that is minimally unstable among efficient assignments when the stability comparison is based on counting the number of blocking pairs. Our main result characterizes
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Mechanism design with financially constrained agents and costly verification Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Yunan Li
A principal distributes an indivisible good to budget‐constrained agents when both valuation and budget are agents' private information. The principal can verify an agent's budget at a cost. The welfare‐maximizing mechanism can be implemented via a two‐stage scheme. First, agents report their budgets, receive cash transfers, and decide whether to enter a lottery over the good. Second, recipients of
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Simple bets to elicit private signals Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Aurélien Baillon,Yan Xu
This paper introduces two simple betting mechanisms—top‐flop and threshold betting—to elicit unverifiable information from crowds. Agents are offered bets on the rating of an item about which they received a private signal versus that of a random item. We characterize conditions for the chosen bet to reveal the agents' private signal even if the underlying ratings are biased. We further provide microeconomic
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The implementation of stabilization policy Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Olivier Loisel
In locally linearized dynamic stochastic rational‐expectations models, I introduce the concepts of feasible paths (paths on which the policy instrument can be expressed as a function of the policymaker's observation set) and implementable paths (paths that can be obtained, in a minimally robust way, as the unique local equilibrium under a policy‐instrument rule consistent with the policymaker's observation
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On selecting the right agent Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Geoffroy Clippel,Kfir Eliaz,Daniel Fershtman,Kareen Rozen
Each period, a principal must assign one of two agents to a new task. Each agent privately learns whether he is qualified for the task. An agent wishes to be chosen independently of qualification and chooses whether to apply for the task. The principal wishes to appoint the most qualified agent and chooses which agent to assign as a function of the public history of profits. We fully characterize when
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Bounded rationality and limited data sets Theoretical Economics (IF 1.671) Pub Date : 2021-01-01 Geoffroy Clippel,Kareen Rozen
Bounded rationality theories are typically characterized over exhaustive data sets. We develop a methodology to understand the empirical content of such theories with limited data, adapting the classic revealed‐preference approach to new forms of revealed information. We apply our approach to an array of theories, illustrating its versatility. We identify theories and data sets testable in the same
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Short‐term investments and indices of risk Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Yuval Heller,Amnon Schreiber
We study various decision problems regarding short‐term investments in risky assets whose returns evolve continuously in time. We show that in each problem, all risk‐averse decision makers have the same (problem‐dependent) ranking over short‐term risky assets. Moreover, in each problem, the ranking is represented by the same risk index as in the case of constant absolute risk aversion utility agents
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Gradual pairwise comparison and stochastic choice Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Rohan Dutta
Guided by evidence from eye‐tracking studies of choice, pairwise comparison is assumed to be the building block of the decision‐making procedure. A decision‐maker with a rational preference may nevertheless consider the constituent pairwise comparisons gradually, easier comparisons preceding difficult ones. Facing a choice problem, she may be unable to complete all relevant comparisons and choose with
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School choice with asymmetric information: Priority design and the curse of acceptance Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Andrew Kloosterman,Peter Troyan
We generalize standard school choice models to allow for interdependent preferences and differentially informed students. We show that, in general, the commonly used deferred acceptance mechanism is no longer strategy‐proof, the outcome is not stable, and may make less informed students worse off. We attribute these results to a curse of acceptance. However, we also show that if priorities are designed
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Private and public liquidity provision in over‐the‐counter markets Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 David M. Arseneau,David E. Rappoport W.,Alexandros P. Vardoulakis
We show that trade frictions in over‐the‐counter (OTC) markets result in inefficient private liquidity provision. We develop a dynamic model of market‐based financial intermediation with a two‐way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient due to a congestion externality operating through market liquidity in the OTC market.
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Countering the winner's curse: Optimal auction design in a common value model Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Dirk Bergemann,Benjamin Brooks,Stephen Morris
We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of the bidders' independent signals. If the revenue maximizing solution is to sell the object with probability 1, then an optimal mechanism is simply a posted price, namely, the highest price such that every type of every bidder is willing to buy the object. If the object
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An explicit representation for disappointment aversion and other betweenness preferences Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Simone Cerreia-Vioglio,David Dillenberger,Pietro Ortoleva
One of the most well known models of non‐expected utility is Gul's (1991) model of disappointment aversion. This model, however, is defined implicitly, as the solution to a functional equation; its explicit utility representation is unknown, which may limit its applicability. We show that an explicit representation can be easily constructed, using solely the components of the implicit representation
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First‐price auctions with budget constraints Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Maciej H. Kotowski
Consider a first‐price sealed‐bid auction with interdependent valuations and private budget constraints. Focusing on the two‐bidder case, we identify new sufficient conditions for the existence of a symmetric equilibrium in pure strategies. In equilibrium, agents may adopt discontinuous bidding strategies that result in a stratification of competition along the budget dimension. Private budgets can
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Information design and sequential screening with ex post participation constraint Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Tibor Heumann
We study a principal–agent model. The parties are symmetrically informed at first; the principal then designs the process by which the agent learns his type and, concurrently, the screening mechanism. Because the agent can opt out of the mechanism ex post, it must leave him with nonnegative rents ex post. We characterize the profit‐maximizing mechanism. In that optimal mechanism, learning proceeds
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Transferable utility and demand functions Theoretical Economics (IF 1.671) Pub Date : 2020-01-01 Pierre-André Chiappori, Elisabeth Gugl
While many theoretical works, particularly in family economics, rely on the transferable utility (TU) assumption, its exact implications in terms of individual preferences have never been fully worked out. In this paper, we provide a set of necessary and sufficient conditions for a group to satisfy the TU property. We express these conditions in terms of both individual indirect utilities and individual