General equilibrium with asymmetric information: a dual approach

We study markets where the characteristics or decisions of certain agents are relevant but not known to their trading partners. Assuming exclusive transactions, the environment is described as a continuum economy with indivisible commodities. We characterize incentive efficient allocations as solutions to linear programming problems and appeal to duality theory to demonstrate the generic existence of external effects in these markets. Because under certain conditions such effects may generate non-convexities, randomization emerges as a theoretic possibility. In characterizing market equilibria we show that, consistently with the personalized nature of transactions, prices are generally non-linear in the underlying consumption. On the other hand, external effects may have critical implications for market efficiency. With adverse selection, in fact, cross-subsidization across agents with different private information may be necessary for optimality, and so, the market need not even achieve an incentive efficient allocation. In contrast, for the case of a single commodity, we find that when informational asymmetries arise after the trading period (e.g. moral hazard; ex post hidden types) external effects are fully internalized at a market equilibrium.

Candidate stability and voting correspondences

We study the incentives of candidates to enter or to exit elections in order to strategically affect the outcome of a voting correspondence. We extend the results of Dutta, Jackson and Le Breton (2000), who only considered single-valued voting procedures by admitting that the outcomes of voting may consist of sets of candidates. We show that, if candidates form their preferences over sets according to Expected Utility Theory and Bayesian updating, every unanimous and non dictatorial voting correspondence violates candidate stability. When candidates are restricted to use even chance prior distributions, only dictatorial or bidictatorial rules are unanimous and candidate stable. We also analyze the implications of using other extension criteria to define candidate stability that open the door to positive results.

Stable coalition structures with fixed decision scheme

This paper studies the stability of a finite local public goods economy in horizontal differentiation, where a jurisdiction's choice of the public good is given by an exogenous decision scheme. In this paper, we characterize the class of decision schemes that ensure the existence of an equilibrium with free mobility (that we call Tiebout equilibrium) for monotone distribution of players. This class contains all the decision schemes whose choice lies between the Rawlsian decision scheme and the median voter with mid-distance of the two median voters when there are ties. We show that for non-monotone distribution, there is no decision scheme that can ensure the stability of coalitions. In the last part of the paper, we prove the non-emptiness of the core of this coalition formation game

Sources of Competitiveness in Tourist Local Systems

At the end of the XIX Century, Marshall described the existence of some concentrations of small and medium enterprises specialised in a specific production activity in certain districts of some industrial English cities. Starting from his contribute, Italian scholars have paid particular attention to this local system of production coined by Marshall under the term industrial district. In other countries, different but related territorial models have played a central role as the milieu or the geographical industrial clusters. Recently, these models have been extended to non-industrial fields like culture, rural activities and tourism. In this text, we explore the extension of these territorial models to the study of tourist activities in Italy, using a framework that can be easily applied to other countries or regions. The paper is divided in five sections. In the first one, we propose a review of the territorial models applied to tourism industry. In the second part, we construct a tourist filiere and we apply a methodology for the identification of local systems through GIS tools. Thus, taxonomy of the Italian Tourist Local Systems is presented. In the third part, we discuss about the sources of competitiveness of these Tourist Local Systems. In the forth section, we test a spatial econometrics model regarding different kinds of Italian Tourist Local Systems (rural systems, arts cities, tourist districts) in order to measure external economies and territorial networks. Finally, conclusions and policy implications are exposed.

Constrained school choice

Recently, several school districts in the US have adopted or consider adopting the Student-Optimal Stable Mechanism or the Top Trading Cycles Mechanism to assign children to public schools. There is clear evidence that for school districts that employ (variants of) the so-called Boston Mechanism the transition would lead to efficiency gains. The first two mechanisms are strategy-proof, but in practice student assignment procedures impede students to submit a preference list that contains all their acceptable schools. Therefore, any desirable property of the mechanisms is likely toget distorted. We study the non trivial preference revelation game where students can only declare up to a fixed number (quota) of schools to be acceptable. We focus on the stability of the Nash equilibrium outcomes. Our main results identify rather stringent necessary and sufficient conditions on the priorities to guaranteestability. This stands in sharp contrast with the Boston Mechanism which yields stable Nash equilibrium outcomes, independently of the quota. Hence, the transition to any of the two mechanisms is likely to come with a higher risk that students seek legal actionas lower priority students may occupy more preferred schools.

Payoff-dependent balancedness and cores (revised version)

We prove the non-emptiness of the core of an NTU game satisfying a condition of payoff-dependent balancedness, based on transfer rate mappings. We also define a new equilibrium condition on transfer rates and we prove the existence of core payoff vectors satisfying this condition. The additional requirement of transfer rate equilibrium refines the core concept and allows the selection of specific core payoff vectors. Lastly, the class of parametrized cooperative games is introduced. This new setting and its associated equilibrium-core solution extend the usual cooperative game framework and core solution to situations depending on an exogenous environment. A non-emptiness result for the equilibrium-core is also provided in the context of a parametrized cooperative game. Our proofs borrow mathematical tools and geometric constructions from general equilibrium theory with non convexities. Applications to extant results taken from game theory and economic theory are given.

Equilibrium play and best response to (Stated) beliefs in constant sum games

We report experimental results on one-shot two person 3x3 constant sum games played by non-economists without previous experience in the laboratory. Although strategically our games are very similar to previous experiments in which game theory predictions fail dramatically, 80% of actions taken in our experiment coincided with the prediction of the unique Nash equilibrium in pure strategies and 73% of actions were best responses to elicited beliefs. We argue how social preferences, presentation effects and belief elicitation procedures may influence how subjects play in simple but non trivial games and explain the diferences we observe with respect to previous work.

Cooperative production and efficiency

We characterize the sharing rule for which a contribution mechanism achieves efficiency in a cooperative production setting when agents are heterogeneous. The sharing rule bears no resemblance to those considered by the previous literature. We also show for a large class of sharing rules that if Nash equilibrium yields efficient allocations, the production function displays constant returns to scale, a case in which cooperation in production is useless.

The EU as a security provider in its neighbourhood: the case of non-proliferation of WMD in the Mediterranean area

As a consequence of the terrorist attacks of 9/11 and the US-led war against Iraq, WMD and their proliferation have become a central element of the EU security agenda. In December 2003, the European Council adopted even a EU Strategy against Proliferation of WMD. The approach adopted in this Strategy can be largely described as a ‘cooperative security provider’ approach and is based on effective multilateralism, the promotion of a stable international and regional environment and the cooperation with key partners. The principal objective of this paper is to examine in how far the EU has actually implemented the ‘cooperative security provider’ approach in the area which the Non-proliferation Strategy identifies as one of its priorities – the Mediterranean. Focusing on the concept of security interdependence, the paper analyses first the various WMD dangers with which the EU is confronted in the Mediterranean area. Afterwards, it examines how the EU has responded to these hazards in the framework of the Barcelona process and, in particular, the new European Neighbourhood Policy. It is argued that despite its relatively powerful rhetoric, the EU has largely failed, for a wide range of reasons, to apply effectively its non-proliferation approach in the Mediterranean area and, thus, to become a successful security provider.

Who Ultimately Bears the Burden of Greater Non-Wage Labour costs?

We investigate the effect of a rise in non-wage labour costs (NWLC) on real anufacturing labour costs in OECD countries, taking into account the degree of coordination in the wage bargaining process. We find that, in countries in which wage bargaining is not highly coordinated, 55% of an increase in NWLC appears to be shifted to workers in the long run, whereas in countries operating under a highly coordinated bargaining regime, full shifting occurs. Overall, our results suggest that high NWLC can be associated with a high equilibrium unemployment rate, but only in those OECD countries that do not have highly coordinated wage bargaining.

Strategic investment and international outsourcing in unionised oligopoly

We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms.

Revisiting the Dollar-Euro Permanent Equilibrium Exchange Rate: Evidence from Multivariate Unobserved Components Models

We propose an alternative approach to obtaining a permanent equilibrium exchange rate (PEER), based on an unobserved components (UC) model. This approach offers a number of advantages over the conventional cointegration-based PEER. Firstly, we do not rely on the prerequisite that cointegration has to be found between the real exchange rate and macroeconomic fundamentals to obtain non-spurious long-run relationships and the PEER. Secondly, the impact that the permanent and transitory components of the macroeconomic fundamentals have on the real exchange rate can be modelled separately in the UC model. This is important for variables where the long and short-run effects may drive the real exchange rate in opposite directions, such as the relative government expenditure ratio. We also demonstrate that our proposed exchange rate models have good out-of sample forecasting properties. Our approach would be a useful technique for central banks to estimate the equilibrium exchange rate and to forecast the long-run movements of the exchange rate.

The effects of entry in thin markets

We consider entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. We show that the market is quasi-competitive, in that the inclusion of an additional seller lowers the price and increases the volume of trade, as expected. However, whilst buyers benefit from this change under reasonable conditions on preferences, we cannot conclude that sellers are always made worse off in the face of more intense competition, contrary to the conventional wisdom. We characterize the conditions under which entry by new sellers may raise the equilibrium profit of existing sellers, which will depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass completely standard economic environments.

Monetary Policy Delegation and Equilibrium Coordination

This paper revisits the argument that the stabilisation bias that arises under discretionary monetary policy can be reduced if policy is delegated to a policymaker with redesigned objectives. We study four delegation schemes: price level targeting, interest rate smoothing, speed limits and straight conservatism. These can all increase social welfare in models with a unique discretionary equilibrium. We investigate how these schemes perform in a model with capital accumulation where uniqueness does not necessarily apply. We discuss how multiplicity arises and demonstrate that no delegation scheme is able to eliminate all potential bad equilibria. Price level targeting has two interesting features. It can create a new equilibrium that is welfare dominated, but it can also alter equilibrium stability properties and make coordination on the best equilibrium more likely.

Bilateral oligopoly and quantity competition

Bilateral oligopoly is a strategic market game with two commodities, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game) and, appealing to results in the literature on contests, show that this yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.