Search

We study nonstationary dynamic decentralized markets with adverse selection in which trade is bilateral and prices are determined by bargaining. Examples include labor markets, housing markets, and markets for financial assets. We characterize equilibrium, and identify the dynamics of transaction prices, trading patterns, and the average quality in the market. When the horizon is finite, the surplus in the unique equilibrium exceeds the competitive surplus; as traders become perfectly patient, the market becomes completely illiquid at all but the first and last dates, but the surplus remains above the competitive surplus. When the horizon is infinite, the surplus realized equals the static competitive surplus. We study policies aimed at improving market performance, and show that subsidies to low quality or to trades at a low price, taxes on high quality, restrictions on trading opportunities, or government purchases may raise the surplus. In contrast, interventions like the Public-Private Investment Program for Legacy Assets reduce the surplus when traders are patient. We gratefully ac-knowledge financial support from the Spanish Ministry of Science and Innovation, Grant ECO2011-29762.Wooders is grateful for financial support from the Australian Research Council’s Discovery Projects fundingscheme (project number DP140103566).

We show that under standard assumptions a Tullock contest with asymmetric information has a pure strategy Bayesian equilibrium. Moreover, two-player common-value Tullock contests in which one of the players has an information advantage have a unique equilibrium. In equilibrium both players exert the same expected effort, and although the player with information advantage wins the prize with probability less than one-half, his payoff is greater or equal to that of his opponent. In common-value Tullock contests with more players any information advantage is rewarded, but the other properties of two players contests do not hold Moreno gratefully acknowledges financial support from the Ministerio de Ciencia e Innovación, grant ECO2011-­29762

Even though adverse selection pervades markets for real goods and financial assets, equilibrium in such markets is not well understood. What are the properties of equilibrium in dynamic markets for lemons? What determines the liquidity of a good? Which market structures perform better, decentralized ones, in which trade is bilateral and prices are negotiated, or centralized ones, in which trade is multilateral and agents are price‐takers? Is there a role for government intervention? We show that when the horizon is finite and frictions are small, decentralized markets are more liquid and perform better than centralized markets. Moreover, the surplus realized is above the static competitive surplus, and decreases as the horizon grows larger, approaching the static competitive surplus as the horizon becomes infinite even if frictions are non‐negligible. Subsidies on low quality or taxes on high quality raise surplus. We gratefully acknowledge financial support from Spanish Ministry of Science and Innovation, grants SEJ2007-67436 and ECO2011-29762. This paper builds on Moreno and Wooders (2001), http://econ.arizona.edu/docs/Working_Papers/Misc%20Years/quality_y2.pdf.

The Arm's Length Principle (ALP) has been broadly adopted by OECD countries to avoid the use of firms' internal transfer pricing as a device for shifting profits into low tax jurisdictions. While the ALP does not affect market outcomes under perfect competition, we show that under imperfect competition its adoption is non-neutral: a strict (lax) application of the ALP softens competition among subsidiaries (parents). Thus, under imperfect competition regulating transfer pricing optimally requires trading off its impact on market outcomes and tax revenue. Moreno Acknowledges financial support of the Ministerio Economía (Spain), grants PGC2018-098510-B-I00.

We show that strategy-proof allocation mechanisms for economies with public goods are dictatorial -- i.e., they always select an allocation in their range that maximizes the welfare of the same single individual (the dictator). Further, strategy-proof and efficient allocation mechanisms are strongly dictatorial -- i.e., they select the dictator's preferred allocation on the entire feasible set. Thus, our results reveal the extent to which the conflict between individual incentives and other properties that may be deemed desirable (e.g., fairness, equal treatment, distributive justice) pervades resource allocation problems.

Publicado

We show that even in very simple oligopolies with differential information a (Bayesian) Cournot equilibrium in pure strategies may not exist, or be unique. However, we find sufficient conditions for existence, and for uniqueness, of Cournot equilibrium in a certain class of industries. More general results arise when negative prices are allowed.

In markets with adverse selection, only low-quality units trade in the competitive equilibrium when the average quality of the good held by sellers is low. Under decentralized trade, however, both high and lowquality units trade, although with delay. Moreover, when frictions are small the surplus realized is greater than the (static) competitive surplus. Thus, decentralized trade mitigates the lemons problem. Remarkably, payoffs are competitive as frictions vanish, even though both high and low-quality units continue to trade and there is trade at several prices.

We study the impact of public and secret reserve prices in auctions where buyers have independent private values and heterogeneous entry costs. We find that in a standard auction the optimal (i.e., revenue maximizing) public reserve price is typically above the seller's value. Moreover, an appropriate entry fee together with a public reserve price equal to the seller's value generates greater revenue. Secret reserve prices, however, differ across auction formats. In a second-price sealed-bid auction the secret reserve price is above the optimal public reserve price; hence there is less entry, a smaller probability of sale, and both the seller revenue and the bidders' utility are less than with an optimal public reserve price. In contrast, in a first-price sealed-bid auction the secret reserve is equal to the seller's value, and the bidders' expected utility (seller revenue) is greater (less) than with an optimal public reserve price.

Publicado

We establish uniform continuity of the value for zero-sum games with differential information, when the distance between changing information fields of each player is measured by the Boylan (1971) pseudo-metric. We also show that the optimal strategy correspondence is upper semicontinuous when the information fields of players change, even with the weak topology on players' strategy sets.

We study upper semi-continuity of the private core, the coarse core, and the Radner equilibrium correspondences for economies with differential information, with Boylan (1971) topology on agents' information fields.

We derive alternative sufficient conditions for the value of public information to be either positive or negative in a Cournot duopoly where firms technology exhibits constant returns to scale.

Juan Urrutia ha sido profesor de economía en las Universidades del País Vasco y Carlos III de Madrid. Su impulso a la investigación en el área de economía ha tenido un impacto decisivo en estas dos universidades. En este documento se recogen los textos de las intervenciones que se realizaron en un acto de homenaje a Juan Urrutia que se celebró el 12 de diciembre de 2001 en la Universidad Carlos III de Madrid.

In markets with adverse selection, when average quality is low and frictions are small decentralized trade produces a greater surplus than predicted by the competitive model: under decentralized trade some high-quality units of the good trade whereas, due to the "lemons problem", only low-quality units trade in the competitive equilibrium. This suggests a reason why these markets are often decentralized. Remarkably, under some conditions payoffs are competitive as frictions vanish, even though all qualities trade.

We study an industry of a homogeneous good where n firms with identical technology compete by first building capacity, and then, after observing the capacity decisions, choosing a "reservation price" at which they are willing to sell their entire capacities. We show that every pure strategy equilibrium yields the Cournot outcome, and that the Cournot outcome can be sustained by a pure strategy subgame perfect equilibrium.

We study the properties of mechanisms for deciding upon the provision of public goods when the feasible set is exogenously given (by financial and/or technological constraints), and individuals' preferences are represented by continuous, increasing and concave utility functions, and we establish a result analog to the Gibbard-Satterthwaite Theorem: strategy-proof mechanisms are dictatorial. Further, efficient and strategy-proof mechanisms are strongly dictatorial (i.e., maximize the dictator's welfare on the entire feasible set.)

We characterize trading patterns and their dynamics in a market in which trade is bilateral, finding a trading partner is costly, prices are determined by bargaining, and preferences are private information. We also determine how the trading pattern depends on the market composition. Our analysis reveals that market equilibria may be inefficient and may exhibit delay. As the market becomes frictionless the welfare loss due to inefficiency vanishes; delay persists, however, and in this respect frictionless markets are not competitive.

El alto grado de concentración del mercado español de producción de energía eléctrica y la escasa interconexión de la red existente pone en cuestión el impacto de la liberalización sobre los precios de la energía eléctrica a corto y a medio plazo. Cuando las empresas compiten vía funciones de oferta cualquier precio entre el precio de equilibrio de Coumot y el precio competitivo puede sustentarse como un equilibrio. Así, aunque la entrada de nuevas empresas en el sector reduce y desplaza hacia el origen el conjunto de precios de equilibrio, su efecto final sobre el precio es ambiguo. La tradición de actuación coordinada entre las empresas del sector sugiere que los equilibrios que resulten han de ser inmunes a desviaciones creíbles de coaliciones. Dada de la forma de las funciones de costes de las empresas eléctricas y la demanda de energía eléctrica, el análisis del mercado revela que el precio de Coumot es el único que puede sustentarse como un equilibrio en funciones de oferta a prueba de coaliciones. Por consiguiente, es de esperar que a corto y medio plazo el precio de la electricidad sea substancialmente superior al precio competitivo.

We show that the set of fine value allocations of a pure exchange economy with a continuum of traders and differential information coincides with the set of competitive allocations of an associated symmetric information economy in which each trader has the "joint infomation" of all the traders in the original economy.

We study the Mas-Collel bargaining set of an exchange economy with differential information and a continuum of traders. We established the equivalence of the private bargaining set and the set of Radner competitive equilibrium allocations. As for the weak fine bargaining set, we show that it contains the set of competitive equilibrium allocations of an associated symmetric information economy in which each trader has the "joint information» of all the traders in the original economy, but unlike the weak fine core and the set of fine value allocations, it may also contain allocations which are not competitive in the associated economy. Einy acknowledges the flnancial support of the Universidad Carlos III de Madrid. Moreno acknowledges the support of the Spanish Ministry of Education (DGICYT), grant PB97-0091. Shitovitz acknowledges the support of the Spanish Ministry of Education, grant SAB98-0059.

We model an oligopolistic industry where a number of firms that are asymmetrically informed about the environment compete via quantities, and we study how the information available to a firm affects its equilibrium profits. Indeed we find that if all firms have access to the same constant returns to scale technology, in any Bayesian equilibrium the information advantage of a firm is rewarded.

In an industry where firms compete via supply functions the set of market outcomes that can arise is large. If decreasing supply functions are ruled out, the set of equilibrium outcomes reduces somewhat, but it remains large: any price between the competitive price and the Cournot price can be sustained by a supply function equilibrium. In sharp contrast, this multiplicity disappears when firms take into account the gains they can attain by coordinating their actions: if the number of firms is above a threshold we identify (e.g., three if demand is linear), then the Cournot equilibrium is the unique outcome that can be sustained by a coalition-proof supply function equilibrium.

En la teoría clásica del oligopolio, los efectos de la concentración sobre el equilibrio de mercado y el bienestar de consumidores y productores se estudian atendiendo exclusivamente al número y tamaño de las empresas en la industria, e ignorando las relaciones de propiedad entre las mismas. El análisis del modelo de Cournot ampliado para incorporar las relaciones de propiedad revela que la existencia de relaciones cruzadas de propiedad entre las empresas de una misma industria tiene un efecto anticompetitivo significativo sobre el precio, la producción, los beneficios, el excedente y el grado de concentración de una industria, incluso cuando las empresas participadas retienen su independencia operativa. Se propone una modificación del índice de Herfindahl-Hirschman que incorpora las relaciones de propiedad en la industria como determinante del grado de concentración, y que retiene las propiedades y la interpretación del índice estándar.

We study the relationship between the rational expectations equilibrium allocations and the ex -post core of exchange economies with asymmetric information.

We show that the (interim) fine core of an atomless exchange economy with differential information is a subset of the ex-post core of the economy. Moreover, the interim fine core may be empty, and therefore it may be a proper subset of the ex-post core. The inclusion relation does not hold for economies with a finite number of traders.

We study the asymptotic nucleolus of large differentiable monopolistic games. We show that if v is a monopolistic game which is a composition of a non-decreasing concave and differentiable function with a vector of measures, then v has an asymptotic nucleolus. We also provide an explicit formula for the asymptotic nucleolus of v and show that it coincides with the center of symmetry of the subset of the core of v in which all the monopolists obtain the same payoff. We apply this result to large monopolistic market games to obtain a relationship between the asymptotic nucleolus of the game and the competitive payoff distributions of the market.

We prove a representation theorem for the core of a non-atomic game of the form v = fOil, where Il is a finite dimensional vector of non-atomic measures and f is a non-decreasing continuous concave function on the range of Il. The theorem is stated in terms of the sub gradients of the function f. As a consequence of this theorem we show that the game v is balanced (i. e., has a non-empty core) iff the function f is homogeneous of degree one along the diagonal of the range of Il, and it is totally balanced (i.e., every subgame of v has a non-empty core) iff the function f is homogeneous of degree one in the entire range of Il. We also apply our results to some non-atomic games which occur in economic applications.

This paper reports the results of an experiment designed to test the usefulness of alternative solution concepts to explain players' behavior in noncooperative games with preplay communication. In the experiment subjects communicate by plain conversation prior to playing a simple game. In this setting, we find that the presumption of individualistic and independent behavior underlying the concept of Nash equilibrium is inappropriate. Instead, we observe behavior to be cooperative and correlated. Statistical tests reject Nash equilibrium as an explanation of observed play. The coalition proof equilibrium of the game, however, explains the data when the possibility of errors by players is introduced.

Many 01 the «real world» situations analyzed using the theory of noncooperative games are clwracterized by the lact tlwt players can communicate with one another. The possibility of communication introduces opportunities lor cooperation among players tlwt must be taken into account as they can alter the outcome in a fundamental way. In this essay different equilibrium concepts lor this kind of situations are presented and discussed. Publicado

Muchas de las situaciones "reales" que se analizan utilizando la teoría de los juegos no cooperativos se caracterizan porque los jugadores pueden comunicarse entre si. La posibilidad de comunicación introduce oportunidades de cooperación entre los jugadores que han de ser tenidas en cuenta, pues pueden alterar el resultado de una manera fundamental. En este ensayo se presentan y discuten nociones de equilibrio alternativas para este tipo de situaciones.

This paper explores a typical public finance problem where there are m public goods (education, transportation, police, etc.) provided in limited amounts due to budget constraints, and where individual's preferences are not known. It is shown that all institutions (i.e., decision mechanisms) available to decide the allocation of goods have very unattractive properties: either the decision mechanisms are not compatible with individual's incentives, or they are dictatorial (i.e, they are based on a single individual's preferences).

This paper provides a characterization of the class of incentive compatible (i.e., strategy-proof) allocation mechanisms for decision problems associated with classical economic environments. It is shown that when at least one public good is provided, then only dictatorial allocation mechanisms are incentive compatible. Dictatorial mechanisms are very unsatisfactory, as any conflict of interest is always resolved in favor of a single individual (the dictator). This result reveals a basic incompatibility between incentive compatibility and any other desirable property (e.g., any kind of efficiency, fairness, etc.) of an allocation mechanism. In particular, incentive compatible allocation mechanisms typically produce inefficient outcomes.

We characterize the set of agreements that the players of a non-cooperative game may reach when they have the opportunity to communicate prior to play. We show that communication allows the players to correlate their actions. Therefore, we take the set of correlated strategies as the space of agreements. Since we consider situations where agreements are non-binding, they must not be subject to profitable self-enforcing deviations by coalitions of players. A coalition-proof equilibrium is a correlated strategy from which no coalition has an improving and self-enforcing deviation. A coalition-proof equilibrium exists when there is a correlated strategy which (i) has a support contained in the set of actions that survive the iterated elimination of strictly dominated strategies, and (ii) weakly Pareto dominates every other correlated strategy whose support is contained in that set. Consequently, the unique equilibrium of a dominance solvable game is coalition-proof.

The thesis consists of three chapters. In Chapter I (Price Caps with Capacity Precommitment), we study the effectiveness of price cap regulation in a monopolistic setting under demand uncertainty. In our model, a monopolist facing an uncertain demand. In the absence of capacity precommitment, price caps remain an effective regulatory instrument, just as they are when demand is deterministic. Price caps are also an effective instrument to regulate a monopoly that makes irreversible capacity investments ex-ante, and then chooses its output up to capacity upon observing the realization of demand. In this scenario, however, the optimal price cap must trade off the incentives for capacity investment and capacity withholding, is well above the unit cost of capacity and, when the unit cost of capacity is low, is below the price cap that maximizes capacity. Moreover, a price cap alone cannot eliminate inefficiencies. Under standard regularity assumptions on the demand distribution, the comparative static properties of price caps above the optimal price cap are analogous to those they have in the absence of capacity precommitment. The Chapter II and Chapter III are aimed at analyzing the competitive consequences of imposition of the Arm s Length Principle (ALP, henceforth) requirements for international transfer pricing. In order to discourage tax shifting activities by multinational fi rms, most countries follow taxation policies that are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which recommend that, for tax purposes, internal pricing policies be consistent with ALP (i.e., that transfer prices between companies of multinational enterprises for tax purposes be established on a market value basis, thus comparable to transactions between independent, unrelated, parties). Moreover, ALP puts associated and independent enterprises on a more equal footing for tax purposes, it avoids the creation of tax advantages that would otherwise distort the relative competitive positions of either type of entity. The failure to comply with the ALP may result in a penalty. The OECD s recommendation that transfer prices between parent firms and their subsidiaries be consistent with the ALP for tax purposes does not restrict internal pricing policies. In Chapter II ( Strategic Incentives for Keeping One Set of Books under the Arm s Length Principle ), we show that under imperfect competition parent rms accounting policies determine the properties of market outcomes: if parents keep one set of books (i.e., their internal transfer prices are consistent with the ALP), then competition in the external (home) market softens (intensi es) relative to an equilibrium where parent fi rms and subsidiaries are integrated. In contrast, if rms keep two sets of books (i.e., their internal transfer prices differ from those used for tax purposes) or maintain asymmetric accounting policies, then competition intensi es in both markets. Keeping one set of books turns out to be an equilibrium for most of the parameter space. In Chapter III ( The Non-Neutrality of the Arm s Length Principle with Imperfect Competition ), we show that under imperfect competition the Arm s Length Principle is non-neutral: a strict (lax) application of the ALP softens competition among subsidiaries (parents). Thus, under imperfect competition regulating transfer pricing optimally requires trading off its impact on market outcomes and tax revenue.