Bilateral redistribution

We explore the implications of three basic and intuitive axioms for income redistribution problems: continuity, no transfer paradox and stability. The combination of the three axioms characterizes in the two-agent case a large family of rules, which we call threshold rules. For each level of total income in society, a threshold is considered for each agent. It is impossible for both agents to be below their respective thresholds. If an agent’s income is below the threshold, the difference is redistributed from the other agent; otherwise, the rule imposes laissez-faire.     

Eliciting the socially optimal allocation from responsible agents

We consider designing a mechanism to allocate objects among agents without monetary transfers. There is a socially optimal allocation, which is commonly known by the agents but not observable by the designer. The designer possibly has information about the existence of responsible agents. A responsible agent, when indifferent between his objects at two different allocations, prefers the first allocation to the second if the first allocation is closer to the optimal allocation than the second, in the sense that all the agents who are allocated their optimal objects in the second allocation are allocated their optimal objects also in the first allocation, and there is at least one more agent in the first allocation receiving his optimal object. We show that, if the designer knows that there are at least three responsible agents, even if the identities of the responsible agents are not known, the optimal allocation can be elicited.     

Swap-flexibility in the assignment of houses

A house allocation rule should be flexible in its response to changes in agents’ preferences. We propose a specific notion of this flexibility. An agent is said to be swap-sovereign over a pair of houses at a profile of preferences if the rule assigns her one of the houses at that profile and assigns her the other house when she instead reports preferences that simply swap the positions of the two houses. A pair of agents is said to be mutually swap-sovereign over their assignments at a profile if the rule exchanges their assignments when they together report such ‘swap preferences’. An allocation rule is individually swap-flexible if any pair of houses has a swap-sovereign agent, and is mutually swap-flexible if any pair of houses has either a swap-sovereign agent or mutually swap-sovereign agents. We show for housing markets that the top-trading-cycles rule is the unique strategy-proof, individually rational and mutually swap-flexible rule. In house allocation problems, we show that queue-based priority rules are uniquely strategy-proof, individually swap-flexible and envy non-bossy. Varying the strength of non-bossiness, we characterise the important subclasses of sequential priority rules (additionally non-bossy) and serial priority rules (additionally pair-non-bossy and pair-sovereign).     

Strategy-proofness and population-monotonicity for house allocation problems

We study a simple model of assigning indivisible objects to agents, such as dorm rooms to students, or offices to professors, where each agent receives at most one object and monetary compensations are not possible. For these problems population-monotonicity, which requires that agents are affected by population changes in the same way, is a compelling property because tentative assignments are made in many typical situations, which may have to be revised later to take into account the changing population. We completely describe the allocation rules satisfying population-monotonicity, strategy-proofness, and efficiency. The characterized rules assign the objects by an iterative procedure in which at each step no more than two agents “trade” objects from their hierarchically specified “endowments.”     

Pareto optima,non-convexities and regulated market equilibria

In a differentiable setting without convexity assumptions, a typical local Pareto optimum can be sustained by a combination of a price system and a system of market regulations. Some consumers are required to consume fixed amounts of some basic commodity bundles, and some producers are required to produce fixed amounts of other basic commodity bundles. The agents are otherwise free to maximize utility and profit (locally). No more than l–1 agents are subject to regulation, where l is the number of commodities.     

Survival and the art of profit maximization

We study the relationship between rationality and economic survival in a simple dynamic model, where agents from different populations interact repeatedly through random matching. An explicit criterion (“bankruptcy”) determines whether agents survive each interaction; all agents are presumed to be aware of this criterion. Survival in each interaction depends on two factors: the strategies agents adopt when they interact, and the wealth levels they bring to the game. The model is completely symmetric with the only difference between the agents of different populations being their objectives. We consider the case where there are two populations of agents in which all agents from one group have as their objective, maximizing the expected profits from each interaction, while all agents from the other attempt simply to maximize the probability of surviving (i.e., not going bankrupt in) the interaction. We show that under the equilibrium dynamics, the proportions of each group in the total population must be bounded away from zero, but the balance is in favor of the survival-probability maximizers in that their numbers as a fraction of total population must always exceed 1/2, and can be arbitrarily close to unity. On the other hand, the fraction of total wealth controlled by the expected profit maximizers must also be at least 1/2, and can asymptotically tend to unity.     

Equilibrium participation in public goods allocations

We consider a notion of voluntary participation for mechanism design in public goods economies in which mechanisms select public goods allocations and individuals then choose whether or not to submit their requested transfer to the central planner. The set of allocations that are robust to non-participation is shown to be sub-optimal in a wide variety of environments and may shrink to the endowment as the economy is replicated. When agents become small as the economy becomes large, any non-trivial mechanism suffers from non-participation when agents cannot be coerced to contribute.     

A re-examination of the “zero is enough” hypothesis in the emergence of financial stylized facts

In recent years, a growing literature has claimed that the market microstructure is sufficient to generate the so-called stylized facts without any reference to the behaviour of market players. Indeed, qualitative stylized-facts can be generated with zero-intelligence traders (ZITs) but we stress that they are without any quantitative predictive power. In this paper we show that in most of the cases, such qualitative stylized facts hide unrealistic price motions at the intraday level and ill-calibrated return processes as well. To generate realistic price motions and return series with adequate quantitative values is out-of-reach using pure ZIT populations. To do so, one must increasingly constrain agents?? choices to a point where it is hard to claim that their behaviour is completely random. In addition we show that even with highly constrained ZIT agents, one cannot reproduce real time series from these. Except in a few cases, first order moments of ZITs never equal real data ones. We therefore claim that stylized facts produced by means of ZIT agents are useless for financial engineering.     

A conceptual framework for platform-based design of non-assembled products

In this study, the use of platform-based product family design of assembled products has been reconceptualised into a framework of platform-based design of non-assembled products for the process industries. As a point of departure, platform-based design is defined as shared logic in a company's activities, and a “function-based” leveraging strategy is employed to identify non-assembled products with similar characteristics and commonalities among product families, related production processes and raw materials. It is proposed that a production platform philosophy and platform-based design of non-assembled products should rely on Product platforms, Process platforms and Raw-material platforms that are well-integrated into common Production platforms, in an end-to-end perspective. However, platform-based design of non-assembled products may differ depending on whether company production relies solely on a captive raw material base or on purchased raw materials on the open market, or on both. The congruence of the development of Production platforms with the QFD methodology and House of Quality was noted in this study, as well as the simplicity of using the methodology on homogeneous products compared to multi-level hierarchical assembled products. It is argued that the proposed conceptual framework can be used in internal company discussions and reviews whether and how such an approach in product innovation can be a fruitful avenue to explore and adapt.     

Indescribability and its irrelevance for contractual incompleteness

The incomplete contracts literature often cites indescribable contingencies as a major obstacle to the creation of complete contracts. Using agents’ minimum foresight concerning possible future payoffs, Maskin and Tirole (Rev Econ Stud 66:83–114, 1999) show that indescribability does not matter for contractual incompleteness as long as there is symmetric information at both the contracting stage and the trading stage. This is called the irrelevance theorem. The following generalization of the irrelevance theorem is shown here: indescribability does not matter even in the presence of asymmetric information at the trading stage, as long as there is symmetric information at the contracting stage. This is an important clarification because Kunimoto (Econ Lett 99:367–370, 2008) shows that indescribability can matter if there is asymmetric information at both stages. It is thus argued that asymmetric information at the contracting stage is necessary for indescribability to be important in the rational agents contracting model.     

Antibody tests: They are more important than we thought

Antibody testing is a non-pharmaceutical intervention – not recognized so far in the literature – to prevent COVID-19 contagion. I show this in a simple economic model of an epidemic in which agents choose social activity under health state uncertainty. In the model, susceptible and asymptomatic agents are more socially active when they think they might be immune. And this increased activity escalates infections, deaths, and welfare losses. Antibody testing, however, prevents this escalation by revealing that those agents are not immune. Through this mechanism, I find that antibody testing prevents about 12% of COVID-19 related deaths within 12 months.     

R-optimal designs for multi-factor models with heteroscedastic errors

In this paper, we consider the R-optimal design problem for multi-factor regression models with heteroscedastic errors. It is shown that a R-optimal design for the heteroscedastic Kronecker product model is given by the product of the R-optimal designs for the marginal one-factor models. However, R-optimal designs for the additive models can be constructed from R-optimal designs for the one-factor models only if sufficient conditions are satisfied. Several examples are presented to illustrate and check optimal designs based on R-optimality criterion.     

Empirical properties of a heterogeneous agent model in large dimensions

We introduce a variant of the Adaptive Beliefs System (ABS) of Brock and Hommes (1998) based on returns instead of prices. Agents form their demands according to the degree to which they are trend-following or contrarian. Empirically, the model requires that agents’ demands be coerced by leverage constraints. Using five samples of US stock returns, we show that the fit to realized returns is essentially driven by the total dispersion of the model’s returns. We also find that the latter are more realistic when forecasts are based on short-term estimates and when trend-followers and contrarians have the same ex-ante importance. We then provide evidence that the model is able to mimic most stylized facts observed on financial markets (tail decay, volatility clustering and autocorrelation patterns) quite closely. Finally, we find that portfolio policies designed according to the model’s predictions outperform the naive 1/N portfolio out-of-sample by 2% per annum.     

Factor market effects upon product market equilibrium

Conventional duopoly models typically assume agents possess specific conjectures concerning other agents’ behavior. In this paper equilibrium conjectures are endogenous and are a result of a joint factor market and product market equilibrium. Factor markets affect product markets since potential managers or owners of firms engage in product market competition and compete for corporate control in labor or capital markets. The resulting factor and product market joint equilibrium (FPE) endogenizes conjectures and can thus potentially endogenize market structure. This approach provides economic rationales for both Stackelberg and consistent conjectural equilibria. Copyright © 1999 John Wiley & Sons, Ltd.     

Exchangeability and non-self-averaging

To pass from a deterministic dynamics of aggregate quantities to a probabilistic dynamics of a system of microvariables that describe the individual strategies of a population of economic agents, the route is that of Boltzmann??s kinetic theory at the half of XIX century (more suitable than that of Gibbs?? statistical mechanics), that is the introduction of n ??elements?? (molecules, agents,??), submitted to some microdynamics, wherefrom to derive the macroscopic behavior. The macrovariate is interpreted as a (time) mean of the average (on all elements) of the individual study-property at time t. The micro-derivation looks unproblematic if means and averages tend to constant values in the limit n ?? ??. If this property, defined ??self-averaging?? in some recent papers by Aoki, holds, it would separate a deterministic result from fluctuations; consequently well defined macroeconomic deterministic relations prevail. However it is easy to show that in most cases in economy this property does not hold, due to long-range correlation existing among economic agents. If individual agents are not independent but exchangeable, also in the limit n ?? ?? the coefficient of variation of the macrovariable is finite, which tends to a random limit rather than a constant. Finally the term ??indistinguishable agent?? is criticized, and the alternative ??exchangeable agent?? is discussed.     

Endogenous product substitutability strategy under duopoly

This article develops endogenous product substitutability theory. With game theory approach, the effects of endogenous product substitutability are characterized. First, equilibrium under endogenous product substitutability is achieved. Second, product substitutability strategy promotes price, total outputs, and social welfare. Outputs under high‐efficiency firm's product substitutability are compared with those under low‐efficiency firm's product substitutability. Third, compared with the other cases, joint product substitutability improves price difference. Finally, the outputs of all firms under endogenous product substitutability are shown to be lower than the social optimality level. The policy implication is to encourage firms investing product substitutability.     

Coordination in the El Farol Bar problem: The role of social preferences and social networks

In this paper, we continue the pursuit of the self-coordination mechanism as studied in the El Farol Bar problem. However, in addition to efficiency (the optimal use of the public facility), we are also interested in the distribution of the public resources among all agents. Hence, we consider variants of the El Farol Bar problem, to be distinguished from many early studies in which efficiency is the only concern. We ask whether self-coordinating solutions can exist in some variants of the El Farol Bar problem so that public resources can be optimally used with neither idle capacity nor congestion being incurred and, in the meantime, the resources can be well distributed among all agents. We consider this ideal situation an El Farol version of a “good society”. This paper shows the existence of a positive answer to this inquiry, but the variants involve two elements, which were largely left out in the conventional literature on the El Farol Bar problem. They are social networks and social preferences. We first show, through cellular automata, that social networks can contribute to the emergence of a “good society”. We then show that the addition of some inequity-averse agents can even guarantee the emergence of the “good society”.     

No-envy,solidarity, and strategy-proofness in the queueing problem

Given a group of agents, the queueing problem is concerned with finding the order to serve agents and the monetary transfers they should receive. In this paper, we characterize interesting subfamilies of the VCG mechanisms by investigating the implications of either no-envy or solidarity requirements. First, we present a characterization of the strategy-proofand envy-freemechanisms. Next, we present characterizations of VCG mechanisms satisfying one of two different formulations of cost monotonicity or population monotonicity. Finally, we show that among the envy-free and strategy-proof mechanisms, the only ones that satisfy one of two formulations of cost monotonicity or population monotonicity are extensions of the pivotal or the reward-based pivotal mechanisms.     

Compensating the dead

An early death is, undoubtedly, a serious disadvantage. However, the compensation of short-lived individuals has remained so far largely unexplored, probably because it appears infeasible. Indeed, short-lived agents can hardly be identified ex ante, and cannot be compensated ex post. We argue that, despite those difficulties, a compensation can be carried out by encouraging early consumption in the life cycle. In a model with heterogeneous preferences and longevities, we show how a specific social criterion can be derived from intuitive principles, and we study the corresponding optimal policy under various informational assumptions.     

Land Value: Seven Major Questions in the Analysis of Urban Land Values

A review of the literature on land and its value reveals seven sources of ambiguity: 1) a precise definition of the type of land under investigation is frequently absent, 2) the temporal, and 3) the spatial aspects of the land value attributes might be inconsistently specified, 4) the relevance of the valuation methods used is often overlooked, 5) the separate land value is a mere by‐product of the total property value as a rule, and thus lacks proper focus, 6) the different agents involved in land markets are not always taken into account, and finally, 7) the explanations for the unpredictable aspects of land value are sporadic. This article explores each of these areas of ambiguity.