On redundant types and Bayesian formulation of incomplete information

A type structure is non-redundant if no two types of a player represent the same hierarchy of beliefs over the given set of basic uncertainties, and it is redundant otherwise. Under a mild necessary and sufficient condition termed separativity, we show that any redundant structure can be identified with a non-redundant structure with an extended space of basic uncertainties. The belief hierarchies induced by the latter structure, when “marginalized,” coincide with those induced by the former. We argue that redundant structures can provide different Bayesian equilibrium predictions only because they reflect a richer set of uncertainties entertained by players but unspecified by the analyst. The analyst shall make use of a non-redundant structure, unless he believes that he misspecified the players' space of basic uncertainties. We also consider bounding the extra uncertainties by the action space for Bayesian equilibrium predictions.     

Surplus extraction with rich type spaces

We characterize revenue maximizing mechanisms in auction settings with ‘rich’ type spaces, where bidders obtain information from sources other than their own valuation. By considering a relaxed problem, we provide an upper bound on revenue extraction that explicitly builds on the richness of the information structure. We provide a condition under which this upper bound is achieved and describe an optimal mechanism. Under this condition, we also show that the optimal revenue can be achieved through dominant strategy implementation.     

No-arbitrage Equilibria with Differential Information: An Existence Proof

On the example of a pure exchange financial economy with two periods incomplete nominal-asset markets and differential information of the adverse selection’s type, Cornet-De Boisdeffre (J Math Econ 38:393-410, 2002) introduced refined concepts of no-arbitrage prices and equilibria, which extended to the asymmetric information setting the classical concepts of the symmetric information literature. We now assess existence issues and extend a standard property of symmetric information models. Namely, we prove that a no-arbitrage equilibrium always exists, as long as financial markets preclude arbitrage, under the same standard conditions, whether agents have symmetric or asymmetric information.     

Rank-order tournaments and selection

Rank-order tournaments are often presented as devices for aligning incentives in a principal-agent setting. In most of this literature agents are expected to be identical so that the principal is indifferent ex ante as to who wins the contest, implying that the selection properties of the tournament can be ignored. In this paper we consider a tournament which is not necessarily symmetric, and in which agent type is private information. The principal cares about who wins, but the basic tournament will not achieve perfect selection; the lower-type agent may sometimes win. In a two-player tournament we present a simple reward system in which the winner's reward depends upon which (if any) of two “test standards” is passed; conditions are presented under which this system allows the principal to choose the best agent. This system can be extended in a simple manner to rank types in ann-player tournament. We suggest that the theory can be applied to internal labor markets and research contests.     

Evolution of Walrasian equilibrium in an exchange economy

We study the stochastic stability of a dynamic trading process in an exchange economy. We use a simplified version of a trading model à la Shapley and Shubik (J Polit Econ 85:937–968, 1977). Two types of agents equipped with Leontief preferences trade goods in markets by offering endowments, and actual trades occur at market clearing prices. Better behavior tends to spread through the same type of agents by imitation, and agents also make mistakes occasionally. We provide a sufficient condition for the perturbed dynamic process to have a unique stochastically stable state that is a Walrasian equilibrium allocation. In this sense, we give a rationale for Walrasian behavior.     

Rationalizability, Strong Rationality, and Expectational Stability

We examine the connection between two stability concepts of rational expectations equilibria: expectational stability, based on the convergence of iterations of expectations, and strong rationality, based on uniqueness of the rationalizable solutions of an associated game with restrictions on beliefs. To compare the concepts we embed a standard expectations model in a game-theoretic framework. It is shown that the two stability concepts coincide when agents are homogeneous. For the general case of heterogeneous agents we show that expectational stability is a necessary condition for strong rationality and we provide a sufficient condition for the latter. Journal of Economic Literature Classification Numbers: C72, C62.     

Happiness and relational goods: well-being and interpersonal relations in the economic sphere

The present paper provides an introduction to this special issue devoted to Happiness and Relational Goods. We start by presenting a few concepts that have recently appeared in the economic literature with the aim of capturing some of the peculiarities of personalised interactions. We claim that these concepts can be subsumed fairly well under the concept of ‘relational goods’. We then review the recent empirical literature on happiness and relational goods. Finally, we briefly introduce the papers contained in this special issue by outlining their respective contributions.     

Strategic managerial delegation and cross-border mergers

The purpose of this paper is to clarify the relationship between the market structure in equilibrium and the most preferred structure with respect to each country’s social welfare and/or total social welfare, when all existing firms can freely merge with each other in an international oligopoly under the segmented market assumption in three cases: the case wherein all the firms are entrepreneurial and the cases wherein they use two different types of managerial delegation contracts. We focus our attention on the coincidence/non-coincidence between the equilibrium market structure (EMS) and the most socially preferred structure with respect to each country’s social welfare and/or total social welfare, as each firm’s production efficiency varies. When each firm’s production efficiency is relatively low, in all the three cases, the EMS coincides with the most socially preferred structure with respect to each country’s social welfare and total social welfare in a large area of the physical trade cost. On the other hand, when each firm’s production efficiency is relatively high, in the cases wherein they use the two different types of managerial delegation contracts, there exists an area of each firm’s production efficiency such that the EMS does not coincide with the most socially preferred structure with respect to each country’s social welfare and total social welfare. Therefore, as each firm’s organizational structure proceeds from entrepreneurial to managerial delegation, a more active merger policy is needed with respect to each country’s social welfare and total social welfare.     

基于财务数据的信息甄别——以通信产业为例

在证券市场上 ,始终存在着信息不足和信息过载的情况。低效率的信息处理方法无法令投资者做出正确的投资判断。本文以通信类上市公司为例 ,对上市公司公开可获得的财务数据的甄别做些理论探讨。具体地讲是为当前通信类上市公司转型阶段的确定提供一种与定性的基本面分析相结合的转型阶段判别模型分析方法 ,使投资者能够拨开“概念和题材”的迷雾 ,对通信类上市公司的转型有一个科学、客观的判断。本文模型的判别结果与基本面的分析具有高度的一致性     

Legal Doctrine and Political Control

We model legal doctrine as an instrument of political controlby higher courts over lower courts and the case outcomes theyproduce. We focus on the choice between determinate and indeterminatedoctrines within a hierarchy of courts where political–ideologicalalignment between lower and higher courts varies. We show thatthe choice over doctrinal determinacy depends on the distributionof cases, the distribution of litigants, judicial types, andthe level of policy alignment between higher and lower courtjudges. The model suggests the optimal doctrinal choice fora high court, given the political–ideological alignmentbetween the high court and the lower court, the control characteristicsof doctrines themselves, and the matching of doctrines to litigantpools. This has implications regarding preference divergencewithin the judicial hierarchy, the interaction of differentdoctrines, and interplay between doctrinal specificity and doctrinalreach.     

Alertness, local knowledge, and Johnny Appleseed

Anderson and Hill argue that property rights entrepreneurs, driven by non-replicable Kirznerian alertness, identify unowned and unpriced attributes of a resource and capture rents to those resources by limiting access to them. I argue that alertness is non-replicable, but it is also not random. Kirzner’s analytical framework emphasizes an individual’s local knowledge and subjective interpretative schema. Incorporating these concepts and emphasizing two types of local knowledge, about social and commercial conditions, explains why some people are alert to profit opportunities and others are not. This implies that economic restrictions are more detrimental to entrepreneurship than previously understood. I provide evidence by examining Johnny Appleseed’s successful nursery business.     

Generalized contest success functions

The key element of models of contest is the contest success function (CSF) which specifies the winning probabilities of agents. The existing axiomatizations of CSFs assume that contestants can make only one type of investment. This paper generalizes these axiomatizations to the case where each agent can have multiple types of investments. This allows us to provide a unified framework to extend and interpret the results of Skaperdas (Econ Theory 7:283–290, 1996) and Clark and Riis (Econ Theory 11:201–204, 1998), and rationalize some seemingly ad hoc CSFs used by applied researchers. This paper has benefitted from the comments of Aicke Hinrichs, Rene Levinsky, and two anonymous referees. We are especially thankful to one of the referees for detailed comments which have helped improve every aspect of this paper.     

Heterogeneous outside options in contests

This article describes a large number of contestants with high and low levels of talent who individually decide to enter a contest or take their heterogeneous outside options. We derive a critical condition for which only high types, only low types or both types participate in the contest. If a contest organizer is worried about the type participating in the contest, then he/she should provide a contest with low noise to attract high types. However, if a contest organizer's objective is to maximize the individual effort, he/she will not necessarily prefer to have the high types in the contest.     

The structure of Nash equilibrium tariffs

This paper examines theoretically the structure of optimal (Nash equilibrium) tariff rates in a two-country economy with more than two traded goods. We provide a condition under which the equilibrium tariff rates are uniform in both countries, and explore the relative size of the equilibrium tariff rates in each country when the uniform tariff condition is not satisfied. The elasticities of compensated excess demand for goods play an important role in characterizing the structure of the equilibrium tariff rates. This paper undertakes the analysis using a dual approach.     

Minimal stable sets in tournaments

We propose a systematic methodology for defining tournament solutions as extensions of maximality. The central concepts of this methodology are maximal qualified subsets and minimal stable sets. We thus obtain an infinite hierarchy of tournament solutions, encompassing the top cycle, the uncovered set, the Banks set, the minimal covering set, and the tournament equilibrium set. Moreover, the hierarchy includes a new tournament solution, the minimal extending set, which is conjectured to refine both the minimal covering set and the Banks set.     

The public and private provision of pure public goods and the distortionary effects of income taxation: a political economy approach

Abstract .  A pure public good is provided by the government and the voluntary contributions of two types of households. The government finances its contribution by means of income taxation. The latter has distortionary effects. A third type of household never makes contributions. We analyse the effects of changes in the income tax rate on (a) the provision of the public good, (b) the private contributions of the households, and (c) changes in the distribution of income and welfare between contributing and non-contributing households. We derive a simple and testable condition under which the lowering of the income tax entails a Pareto improvement.     

Convergence for difference equations with vanishing time-dependence, with applications to adaptive learning

Summary. We provide conditions for local stability and instability of an equilibrium point in certain systems of nonautonomous nonstochastic difference equations. In the systems under study the influence of time is present through a positive scalar “gain” parameter which converges in the limit to zero. These systems have recently been used to study the dynamics of adaptive learning in economic models, and we provide two economic illustrations of the formal results. Received: October 7, 1997; revised version: February 8, 1999     

Model Uncertainty,Ambiguity and the Precautionary Principle: Implications for Biodiversity Management

We analyze ecosystem management under ‘unmeasurable’ Knightian uncertainty or ambiguity which, given the uncertainties characterizing ecosystems, might be a more appropriate framework relative to the classic risk case (measurable uncertainty). This approach is used as a formal way of modelling the precautionary principle in the context of least favorable priors and maxmin criteria. We provide biodiversity management rules which incorporate the precautionary principle. These rules take the form of either safety margins and minimum safety standards or optimal harvesting under precautionary approaches.     

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.