Incentives in decentralized random matching markets

Decentralized markets are modeled by means of a sequential game where, starting from any matching situation, firms are randomly given the opportunity to make job offers. In this random context, we prove the existence of ordinal subgame perfect equilibria where firms act according to a list of preferences. Moreover, every such equilibrium preserves stability for a particular profile of preferences. In particular, when firms best reply by acting truthfully, every equilibrium outcome is stable for the true preferences. Conversely, when the initial matching is the empty matching, every stable matching can be reached as the outcome of an ordinal equilibrium play of the game.     

Preemptive entry in differentiated product markets

Summary. Models of spatial competition are typically static, and exhibit multiple free-entry equilibria. Incumbent firms can earn rents in equilibrium because any potential entrant expects a significantly lower market share (since it must fit into a niche between incumbent firms) along with fiercer price competition. Previous research has usually concentrated on the zero-profit equilibrium, at which there is normally excessive entry, and so an entry tax would improve the allocation of resources. At the other extreme, the equilibrium with the greatest rent per firm normally entails insufficient entry, so an entry subsidy should be prescribed. A model of sequential firm entry (with an exogenous order of moves) resolves the multiplicity problem but raises a new difficulty: firms that enter earlier can expect higher spatial rents, and so firms prefer to be earlier in the entry order. This tension disappears when firms can compete for entry positions. We therefore suppose that firms can commit capital early to the market in order to lay claim to a particular location. This temporal competition dissipates spatial rents in equilibrium and justifies the sequential move structure. However, the policy implications are quite different once time is introduced. An atemporal analysis of the sequential entry process would prescribe an entry subsidy, but once proper account is taken of the entry dynamics, a tax may be preferable. Received: April 26, 1999; revised version: September 22, 1999     

Stability,sequential rationality,and subgame consistency

In this paper we analyze dynamic strategic behavior by means of the idea of "stability." We develop a solution concept of "sequentially stable equilibrium (SSE)" that satisfies subgame consistency. All SSEs are characterized by the largest stable set that yields exactly all the backward induction outcomes. We also provide a refinement of the SSE. We compare the SSE and its refinement with some existing solution concepts in the literature We are grateful to the editor and two anonymous referees for very useful comments and suggestions that led to this revision. We thank Chih Chang, Yi-Chun Chen, Chenying Huang, Huiwen Koo, Man-Chung Ng, Shyh-fang Ueng, and Chun-Hsien Yeh for helpful comments and discussions. We also thank participants in seminars at Academia Sinica, National Dong Hwa University, and the Third Pan-Pacific Game Theory Conference. Financial support from the Social Sciences and Humanities Research Council of Canada (SSHRC), the National Science Council of Taiwan, and the Economic and Social Research Council of the UK is gratefully acknowledged. The usual disclaimer applies.     

Communication in financial markets with several informed traders

This paper investigates the incentives for informed traders in financial markets to reveal their information truthfully to the public. In the model, a subset of traders receive noisy signals about the value of a risky asset. The signals are composed of a directional component (“high” vs. “low”) as well as a precision component that represents the quality of the directional component. Between trading periods, the informed agents make public announcements to the uninformed traders. With a sufficiently large number of informed traders, an equilibrium exists in which the directional components are credibly revealed, but not the precision components. Even though the informed traders retain some of their rivate information, the post-communication estimate of the asset value converges in probability to the full-information estimate as the number of informed traders increases. The paper is based on a chapter of my Ph.D. thesis at the University of Western Ontario and was circulated previously under the title “Public Communication Devices in Financial Markets.” I thank my dissertation committee Arthur Robson, Hari Govindan, and Al Slivinski for their guidance and support. I also thank Murali Agastya, Roland Benabou, Philippe Grégoire, Rick Harbaugh, Mike Peters, an anonymous referee and an associate editor, and seminar participants at various universities and conferences at which this paper was presented.     

Overcoming free riding in multi-party computations—The anonymous case

This paper addresses the question of multi-party computation in a model with asymmetric information. Each agent has a private value (secret), but in contrast to standard models, the agent incurs a cost when retrieving the secret. There is a social choice function the agents would like to compute and implement. All agents would like to perform a joint computation, which input is their vector of secrets. However, agents would like to free-ride on others' contribution.A mechanism which elicits players' secrets and performs the desired computation defines a game. A mechanism is ‘appropriate’ if it (weakly) implements the social choice function for all secret vectors. namely, if there exists an equilibrium in which it is able to elicit (sufficiently many) agents' secrets and perform the computation, for all possible secret vectors. We show that ‘appropriate’ mechanisms approach agents sequentially and that they have low communication complexity.     

A class of multipartner matching markets with a strong lattice structure

Summary. For a two-sided multipartner matching model where agents are given by path-independent choice functions and no quota restrictions, Blair [7] had shown that stable matchings always exist and form a lattice. However, the lattice operations were not simple and not distributive. Recently Alkan [3] showed that if one introduces quotas together with a monotonicity condition then the set of stable matchings is a distributive lattice under a natural definition of supremum and infimum for matchings. In this study we show that the quota restriction can be removed and replaced by a more general condition named cardinal monotonicity and all the structural properties derived in [3] still hold. In particular, although there are no exogenous quotas in the model there is endogenously a sort of quota; more precisely, each agent has the same number of partners in every stable matching. Stable matchings also have the polarity property (supremum with respect to one side is identical to infimum with respect to the other side) and a property we call {\it complementarity}. Received: May 5, 2000; revised version: January 25, 2001     

Characterizations of strategy-proof and fair mechanisms for allocating indivisible goods

We study the problem of allocating indivisible goods when monetary compensations are possible. First, we characterize the set of strategy-proof and envy-free mechanisms. Second, we identify the Pareto undominated subset in the set of strategy-proof and envy-free mechanisms. These characterizations can be interpreted as envy-free selections of Groves mechanisms.JEL Classification Numbers C72, D63, D71, D82I would like to thank Jun Matsuyama, Hervé Moulin, Satoko Okuyama, Takehiko Yamato, Naoki Yoshihara, an associate editor, two anonymous referees, and seminar participants at Rice University and Tokyo Institute of Technology for helpful suggestions and detailed comments. Research was partially supported by Grant-in-Aid for Scientific Research 17730126 of the Ministry of Education, Culture, Sports, Science and Technology in Japan.     

A characterization of efficient, bayesian incentive compatible mechanisms

Summary. A mechanism that is both efficient and incentive compatible in the Bayesian-Nash sense is shown to be payoff-equivalent to a Groves mechanism at the point in time when each agent has just acquired his private information. This equivalence result simplifies the question of whether or not an efficient, Bayesian incentive compatible mechanism can satisfy other desired objectives, for the search for an appropriate mechanism can be restricted to the family of Groves mechanisms. The method is used to extend the result of Myerson and Satterthwaite on the inefficiency of bilateral bargaining to a multilateral setting. Received: June 30, 1997; revised version: May 22, 1998     

Temporal and thermodynamic irreversibility in production theory

Summary. The two notions of temporal and thermodynamic irreversibility are distinguished. It is shown that the irreversibility concept of Arrow-Debreu, while establishing temporal irreversibility, does not encompass thermodynamic irreversibility. This means, the standard irreversibility concept of production theory is too weak to be in full accordance with the laws of nature.Received: 8 October 2001, Revised: 5 April 2004, JEL Classification Numbers: D20,D51,D92.For helpful comments and discussion I am grateful to Malte Faber, Andreas Lange, Martin Quaas, Armin Schmutzler and seminar participants at Berkeley, Il Ciocco, Delft, Strasbourg and Rethymno.     

Incentive mechanisms for cost revelation with intermodal competition

To set regulated utility prices that are sustainable against uneconomic bypass alternatives, regulators must estimate the costs of the alternative bypass technologies; this entails a series of theoretical and institutional problems that regulators cannot practically resolve. This paper now develops a simple incentive mechanism that effectively solves those problems associated with producing an optimal amount of bypass. In the suggested procedure, regulators use readily available accounting data to specify one two-part tariff that covers the utility's revenue requirements and is deemed fair by regulators and consumers; as long as it offers this fair tariff, the company may subsequently offer as many alternative tariffs as it sees fit, including some particularly aimed to deter bypass. This procedure gives a utility the correct incentive to determine its own and its rivals' cost structures; with accurate cost information, the utility will design a menu of tariffs that would eliminate uneconomic bypass and would be responsive to changing cost conditions in the emerging bypass markets.     

Finite allocation mechanisms: approximate Walrasian versus approximate Direct Revelation

Summary. This paper obtains finite counterparts of previous results that showed the informational efficiency of the Walrasian mechanism among all mechanisms yielding Pareto-optimal individually rational trades in exchange economies while using a continuum of possible messages. In particular, we develop finite counterparts of the superiority, with respect to message-space dimension, of the Walrasian mechanism over Direct Revelation (DR). We measure a finite mechanism's cost by the number of its (equilibrium) messages. Our two main results are as follows: (1) For exchange economies we find that the overall (maximum) error of a (sufficiently fine) approximate Walrasian mechanism is less than the overall error of a not-more-costly approximate DR mechanism whose equilibrium outcomes are trades that are (approximately) Pareto optimal and individually rational; more generally, approximate Walrasian mechanisms are superior, in the same sense, to approximations of any continuum mechanism whose outcomes are Pareto optimal individ ually rational trades and whose message space has higher dimension than that of the Walrasian mechanism. (2) As we increase without limit the dimension of the set of environments (characteristics) defining our class of exchange economies, the extra cost of DR approximations relative to Walrasian approximations, when both achieve the same overall error, also grows without limit. Thus the informational superiority of the Walrasian mechanism emerges again when we approximate it and take the finite number of messages in the approximation as our cost measure. Received: June 16, 2002; revised version: July 22, 2002 RID="*" ID="*" The second author is grateful for support from National Science Foundation grant #IIS-0118600. Correspondence to: T. Marschak     

Optimal compatibility in systems markets

We investigate private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. We develop a new methodology to analyze competition on a torus and show that there is a fundamental conflict of interests between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers a better match with their ideal specifications. However, firms are likely to choose the minimal compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility.     

Environmental groups in monopolistic markets

We examine a market in which a monopolistic firm supplies a good. The production of the good causes damage to the environment. Consumers are heterogeneous with respect to their disutility of the environmental damage. An environmental group can enter the market and set up a campaign in order to influence consumers’ preferences. We characterize the equilibrium of the resulting entry-deterrence game and investigate its properties. It turns out that the aggregated environmental damage is lowest if the firm is able to deter entry of the environmental group and, moreover, the fixed entry cost of the environmental group is small enough.      

Payoff equivalence between Bayesian and ex post individually rational dominant strategy mechanisms

Summary. An efficient, interim individually rational, ex post budget balanced Bayesian mechanism is shown to be payoff equivalent to an ex post individually rational and ex ante budget balanced dominant strategy mechanism. This result simplifies the search for mechanisms that implement efficient allocation rules by pointing to a class of Groves mechanisms. It eliminates the strict requirement of common knowledge of priors and can be applied to many problems of incomplete information. Received: October 22 1996; revised version: November 25, 1997     

Randomized,open-label study to evaluate patient-reported outcomes with fingolimod after changing from prior disease-modifying therapy for relapsing multiple sclerosis: EPOC study rationale and design

Abstract

Objective:

The study to Evaluate Patient OutComes, Safety, and Tolerability of Fingolimod (EPOC; NCT01216072) aimed to test the hypothesis that therapy change to oral Gilenya (Novartis AG, Stein, Switzerland) (fingolimod) improves patient-reported outcomes compared with standard-of-care disease-modifying therapy (DMT) in patients with relapsing multiple sclerosis; safety and tolerability were also assessed. This communication describes the study rationale and design.

Methods:

EPOC is a phase 4, open-label, multi-center study conducted in the US and Canada of patients with relapsing forms of multiple sclerosis who are candidates for therapy change. Therapy change eligibility was determined by the treating physician (US patients) or required an inadequate response to or poor tolerance for at least 1 MS therapy (Canadian patients). Patients were randomly assigned in a 3:1 ratio to 6 months of treatment with once-daily oral fingolimod 0.5?mg or standard-of-care DMTs. The primary study end-point was the change from baseline in treatment satisfaction as determined by the global satisfaction sub-scale of the Treatment Satisfaction Questionnaire for Medication. Secondary end-points included changes from baseline in perceived effectiveness and side-effects, and measures of activities of daily living, fatigue, depression, and quality-of-life. A 3-month open-label fingolimod extension was available for patients randomly assigned to the DMT group who successfully completed all study visits.

Results:

Enrollment has been completed with 1053 patients; the patient population is generally older and has a longer duration of disease compared with populations from phase 3 studies of fingolimod.

Limitations:

Inclusion criteria selected for patients with a sub-optimal experience with a previous DMT, limiting the collection of data on therapy change in patients who were satisfied with their previous DMT.

Conclusions:

Results of the EPOC study are anticipated in early 2013 and will inform treatment selection by providing patient-centered data on therapy switch to fingolimod or standard-of-care DMTs.

Trial Registration:

ClinicalTrials.gov NCT01216072.     

Mergers in asymmetric Stackelberg markets

It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.      

Secret information acquisition in Cournot markets

Summary. Two-stage game models of information acquisition in stochastic oligopolies require the assumption that firms observe the precision of information chosen by their competitors before determining quantities. This paper analyzes secret information acquisition as a one-stage game. Relative to the two-stage game firms are shown to acquire less information. Policy implications based on the two-stage game yield, therefore, too high taxes or too low subsidies for research activities. For the case of heterogeneous duopoly we briefly discuss comparative statics results. Received: August 9, 1999; revised version: May 31, 2000     

Performance competition in local media markets

This paper investigates the impact of tax and public service performance on English local government popularity by using data on local property taxes, service performance ratings and local election results after the introduction of a system of evaluation of local government performance (Comprehensive Performance Assessment). The evidence emerging from estimation of a re-election equation offers a somewhat more rounded portrait of the voter than the conventional fiscal conservative icon, by highlighting the beneficial consequences of public service performance on government popularity and pointing to the role of local media networks (the BBC regional television, local radio and web network) in shaping consensus by spreading tax-related information.     

The irreversibility effect in environmental decisionmaking

We provide a new, more general, definition for the irreversibility effect and demonstrate its relevance to problems involving environmental and other decisions under uncertainty. We establish several analytical and numerical results that suggest both that the effect holds more widely than generally recognized, and that an existing result (Epstein’s Theorem), giving a sufficient condition for determining whether the effect holds, can be applied more widely than previously indicated, in particular to problems involving intertemporally nonseparable benefit functions. We further show that a low elasticity of intertemporal substitution will however result in failure of the effect.