Strategies as states

We define rationality and equilibrium when states specify agents’ actions and agents have arbitrary partitions over these states. Although some suggest that this natural modeling step leads to paradox, we show that Bayesian equilibrium is well defined and puzzles can be circumvented. The main problem arises when player j's partition informs j of i's move and i knows j's strategy. Then i's inference about j's move will vary with i's own move, and i may consequently play a dominated action. Plausible conditions on partitions rule out these scenarios. Equilibria exist under the same conditions, and more generally ε equilibria usually exist.     

Representing roommates’ preferences with symmetric utilities

In the context of the stable roommates problem, it is shown that acyclicity of preferences is equivalent to the existence of symmetric utility functions, i.e. the utility of agent i when matched with j is the same as j's utility when matched with i.     

Price characterization of stable allocations in exchange economies with externalities

A pure exchange economy where the consumers have utility functions U_i(v₁(x₁),…, v_m(x_m)) for i = 1,…, m and where x_j is the consumption of consumer j, is studied. U_i may be nonincreasing or nondecreasing in v_j for j ≠ i. i is said to be nonbenevolent or nonmalevolent towards j, accordingly.An allocation is stable if no coalition can redistribute what it receives in the allocation to get an allocation which is preferred, given the consumptions of the consumers in the complementary coalition. Results concerning the relation among the Paretooptimal, stable and equilibrium allocations (under different definitions of equilibrium) are given. In particular, it turns out that in case every consumer is non-benevolent towards every other consumer, the classical results, concerning the relation between Paretooptimal allocations and equilibrium allocations, can be generalized in a satisfactory way.     

Matching for teams

We are given a list of tasks Z and a population divided into several groups X _j of equal size. Performing one task z requires constituting a team with exactly one member x _j from every group. There is a cost (or reward) for participation: if type x _j chooses task z, he receives p _j (z); utilities are quasi-linear. One seeks an equilibrium price, that is, a price system that distributes all the agents into distinct teams. We prove existence of equilibria and fully characterize them as solutions to some convex optimization problems. The main mathematical tools are convex duality and mass transportation theory. Uniqueness and purity of equilibria are discussed. We will also give an alternative linear-programming formulation as in the recent work of Chiappori et al. (Econ Theory, to appear).     

Anonymous yes–no voting with abstention and multiple levels of approval

Symmetric (3,2) simple games serve as models for anonymous voting systems in which each voter may vote “yes,” abstain, or vote “no,” the outcome is “yes” or “no,” and all voters play interchangeable roles. The extension to symmetric (j,2) simple games, in which each voter chooses from among j ordered levels of approval, also models some natural decision rules, such as pass–fail grading systems. Each such game is determined by the set of (anonymous) minimal winning profiles. This makes it possible to count the possible systems, and the counts suggest some interesting patterns. In the (3,2) case, the approach yields a version of May's Theorem, classifying all possible anonymous voting rules with abstention in terms of quota functions. In contrast to the situation for ordinary simple games these results reveal that the class of simple games with 3 or more levels of approval remains large and varied, even after the imposition of symmetry.     

The separability axiom and equal-sharing methods

A quasi-linear social choice problem is defined as selecting one (among finitely many) indivisible public decision and a vector of monetary transfers among agents to cover the cost of this decision. This decision is based upon individual preferences, which are assumed to be additively separable and linear in money. The Separability axiom is a consistency property for choice methods on societies with variable size: the decision is not affected if we remove an arbitrary agent under the condition that he be guaranteed his original utility level and the cost to the remaining agents is modified accordingly. Thus the utility level assigned by the social choice function to agent i is the price at which the other agents are unanimously willing to buy agent is share of the decision power. A general characterization of choice methods satisfying this axiom is provided. Three subclasses of particular interest are characterized by additional milder axioms. Those are: (i) equal sharing of the surplus left over some reference utility (e.g., the utility at a status quo decision), (ii) utilitarian methods that merely select the efficient public decision and perform no monetary transfers, and (iii) equal allocation of nonseparable costs, which divides equally the surplus left over from the utility derived from the pivotal mechanism (also known as the Vickrey-Clarke-Groves mechanism).     

Resource egalitarianism with a dash of efficiency

We study the problem of defining inequality-averse social orderings over allocations of commodities when individuals have different preferences. We formulate a notion of egalitarianism based on the axiom that any dominance between consumption bundles should be reduced. This Dominance Aversion requirement is compatible with Consensus, a version of the Pareto principle saying that an allocation y is better than x whenever everybody finds that everyone?s bundle at y is better than at x. We characterize a family of multidimensional leximin orderings satisfying Dominance Aversion and Consensus.     

Conservative belief and rationality

Playersʼ beliefs may be incompatible, in the sense that player i can assign probability 1 to an event E to which player j assigns probability 0. One way to block incompatibility is to assume a common prior. We consider here a different approach: we require playersʼ beliefs to be conservative, in the sense that all players must ascribe the actual world positive probability. We show that common conservative belief of rationality (CCBR) characterizes strategies in the support of a subjective correlated equilibrium where all playersʼ beliefs have common support. We also define a notion of strong rationalizability, and show that it is characterized by CCBR.     

Von Neumann-Morgenstern solution social choice functions: An impossibility theorem

Recent literature has made significant progress in characterizing those social choice functions that can arise, or be “implemented,” as the equilibria of an underlying noncooperative game. This paper studies the implementability of social choice functions via cooperative games. Specifically, we show that if a social choice function arises, in each environment, as a Von Neumann-Morgenstern solution of an underlying cooperative game, whose dominance structure is monotonic and neutral, then the social choice function is essentially oligarchic, in exactly the same sense that “core” selecting choice functions are oligarchic.     

Measuring Inequalities without Linearity in Envy: Choquet Integrals for Symmetric Capacities

The (generalized) Gini indices rely on the social welfare function of a decision maker who behaves in accordance with Yaari's model, with a function f that transforms frequencies. This SWF can also be represented as the weighted sum of the welfare of all the possible coalitions in the society, where the welfare of a coalition is defined as the income of the worst-off member of that coalition. We provide a set of axioms (Ak) and prove that the three following statements are equivalent: (i) the decision maker respects (Ak), (ii) f is a polynomial of degree k, (iii) the weight of all coalitions with more than k members is equal to zero. Journal of Economic Literature Classification Number: D63.     

Output commitment through product bundling: Experimental evidence

We analyze the impact of product bundling in experimental markets. One firm has monopoly power in a first market but competes with another firm à la Cournot in a second market. We compare treatments where the multi-product firm (i) always bundles, (ii) never bundles, and (iii) chooses whether to bundle or not. We also contrast the simultaneous and the sequential order of moves in the duopoly market. Our data indicate support for the theory of product bundling: with bundling and simultaneous moves, the multi-product firm offers the predicted number of units. When the multi-product firm is the Stackelberg leader, the predicted equilibrium is better attained with bundling, especially when it chooses to bundle, even though in theory bundling should not make a difference here. In sum, bundling works as a commitment device that enables the transfer of market power from one market to another.     

Migration,trade and spillover effects

This paper identifies a new channel through which migrants can affect the import demand of goods in the host country. In migrating from origin to destination country, migrants observe a change in the price of the bundle of consumable goods. In particular, the migration decision can imply a reduction in the price of imported goods for the consumption bundle of migrants: emigration towards less (tariff) protected countries allows the consumption of products that were prohibitively protected in the origin countries of migrants. To test this channel we estimate the import demand effect of migrant groups coming from third high (tariff) protected countries. Our empirical results strongly confirm this channel and suggest a new perspective about how migration can affect welfare and trade in destination countries.     

Conditional cooperation in a sequential move game

Cooperation is a pervasive social phenomenon, but more often than not economic theories have little to say about its causes and consequences. In this paper, we explore the hypothesis that cooperative behaviour might be motivated by pure self-interest when the “social” payoff in a game is increasing. We report the results of a series of experiments on the Centipede game. The experiments are organised in two subsequent steps. Subjects first participate in a 2-period trust game, randomly matched with unknown partners. We apply the strategy method in order to elicit their social preferences. On the basis of their pre-game behaviour, individuals are divided into three main social groups: selfish individuals, pure altruists and reciprocators. At the second step of the experiment, subjects play a repeated 6-move Centipede game with an increasing final payoff. Each subject plays twice, in a low and in a high-stake Centipede game, and he/she is informed about his/her co-player social preferences. We provide statistical evidence to identify the origin of cooperation within homogeneous and heterogeneous social groups. We construct a Poisson regression model to assess the determinants of the duration of conditional cooperation in the Centipede.     

On demand responsiveness in additive cost sharing

Under partial responsibility, the ranking of cost shares should never contradict that of demands.The Solidarity axiom says that if agent i demands more, j should not pay more if k pays less. It characterizes the quasi-proportional methods, sharing cost in proportion to `rescaled' demands.Full responsibility rules out cross-subsidization for additively separable costs. Restricting solidarity to submodular cost characterizes the fixed-flow methods, containing the Shapley-Shubik and serial methods.The quasi-proportional methods meet—but most fixed-flow methods fail—Group Monotonicity: if a group of agents increase their demands, not all of them pay less. Serial cost sharing is an exception.     

The dynamics of entrepreneurship: hysteresis, business cycles and government policy

This article estimates two unobserved components models to explore the macrodynamics of entrepreneurship in Spain and the USA. We ask whether entrepreneurship exhibits hysteresis, defined as a macrodynamic structure in which the cyclical component of entrepreneurship has persistent effects on the natural rate of entrepreneurship. We find evidence of hysteresis in Spain, but not the USA, while in Spain business cycle output variations significantly affect future rates of entrepreneurship. The article discusses implications of the findings for the design of entrepreneurship policies.     

Cognition,competition, and catallaxy in memory of Friedrich August von Hayek

The paper focuses on central elements of the scientific work of Friedrich A. v. Hayek since the 1930s. In a first part, his epistemological position and its implications for his understanding of the tasks of the social sciences are presented as he set them out particularly in theSensory Order (1952). Then, it is shown how his findings in economic theory as well as in the analysis of economic and societal systems are formed by these foundations. His emphasis on the subjectivity and the constitutional limitations of human knowledge is identified as a precondition for the outstanding analytical insights which he gained with regard to the functioning of a market order and the role of institutions in societal development. Furthermore, it is argued that Hayek's enduring campaign for freedom and against the socialist tendencies in welfare states was not simply a matter of personal conviction. It was also the result of his analysis in constitutional political economy which revealed to him that freedom as a normative basis of economic and societal institutions is the key to the explanation of European cultural evolution.     

Von Neumann-Morgenstern stable sets, discounting, and Nash bargaining

We establish a link between von Neumann-Morgenstern stable set and the Nash solution in a general n-player utility set. The stable set-solution is defined with respect to a dominance relation: payoff vector u dominates v if one player prefers u even with one period delay. We show that a stable set exists and, if the utility set has a smooth surface, any stable set converges to the Nash bargaining solution when the length of the period goes to zero.     

Social memory,evidence, and conflict

This paper examines an equilibrium model of social memory — a society's vicarious beliefs about its past. We show that incorrect social memory is a key ingredient in creating and perpetuating destructive conflicts.We analyze an infinite-horizon model in which two countries face off each period in a game of conflict characterized by the possibility of mutually destructive “all out war” that yields catastrophic consequences for both sides. Each country is inhabited by a dynastic sequence of individuals. Each individual cares about future individuals in the same country, and can communicate with the next generation of their countrymen using private messages. Social memory is based on these messages, and on physical evidence — a sequence of imperfectly informative public signals of past behavior. We find that if the future is sufficiently important for all individuals, then regardless of the precision of physical evidence from the past there is an equilibrium in which the two countries engage in all out war with arbitrarily high frequency, an outcome that cannot arise in the standard repeated game. In our construction, each new generation “repeats the mistakes” of its predecessors, leading to an endless cycle of destructive behavior.Surprisingly, we find that degrading the quality of information that individuals have about current decisions may “improve” social memory. This in turn ensures that arbitrarily frequent all out wars cannot occur.     

Governance,resources and growth

Using a large sample of 50 oil exporting countries, we extend the prior literature by examining the role of quality of governance (QOG) on economic growth under the condition of heterogeneity and cross-sectional independence in errors. We document that QOG is by far the most consistent driver of economic growth both in the long- and short-run. Our result is robust to an alternative and an inverse measure of QOG. We also investigate a number of mediating factors contributing the QOG and economic growth linkage. We show that the long-run positive effect of QOG on economic growth is stronger in countries with higher information communication technology (ICT) diffusion; and such effect works only in countries with higher social capital, economic globalization, and financial development (FD). We also show that the ‘resource curse’ or ‘resource blessing’ debate in growth literature is sensitive to methodological choices.