International Journal of Economic Theory
- Publication date:
- Nbr. 17-1, March 2021
- Nbr. 16-4, December 2020
- Nbr. 16-3, September 2020
- Nbr. 16-2, June 2020
- Nbr. 16-1, March 2020
- Nbr. 15-4, December 2019
- Nbr. 15-3, September 2019
- Nbr. 15-2, June 2019
- Nbr. 15-1, March 2019
- Nbr. 14-4, December 2018
- Nbr. 14-3, September 2018
- Nbr. 14-2, June 2018
- Nbr. 14-1, March 2018
- Nbr. 13-4, December 2017
- Nbr. 13-3, September 2017
- Nbr. 13-2, June 2017
- Nbr. 13-1, March 2017
- Nbr. 12-4, December 2016
- Nbr. 12-3, September 2016
- Nbr. 12-2, June 2016
- Perfect regular equilibrium
We extend the solution concept of perfect Bayesian equilibrium to general games that allow a continuum of types and strategies. In finite games, a perfect Bayesian equilibrium is weakly consistent and a subgame perfect Nash equilibrium. In general games, however, it might not satisfy these criteria. To solve this problem, we revise the definition of perfect Bayesian equilibrium by replacing Bayes’ rule with regular conditional probability. The revised solution concept is referred to as perfect regular equilibrium. We present the conditions that ensure the existence of this equilibrium. Then we show that every perfect regular equilibrium is always weakly consistent and a subgame perfect Nash equilibrium, and is equivalent to a simple version of perfect Bayesian equilibrium in a finite game.
- Export versus FDI: Learning through propinquity
This paper considers the strategic role learning plays on the choice between FDI and export under demand and cost uncertainty. FDI allows a foreign firm to learn local demand, which is beneficial. However, as it buys inputs from the same local input markets as the rival home firm, two firms’ costs become perfectly correlated, which we prove harmful to the foreign firm. Thus, the interplay of the demand acquisition and the cost correlation effect affects FDI decisions. We show that FDI is more likely to occur when firms produce more differentiated goods and that FDI almost always reduces host country welfare.
- The Footloose Entrepreneur model with a finite number of equidistant regions
We study the Footloose Entrepreneur model with a finite number of equidistant regions, focusing on the analysis of stability of agglomeration, total dispersion, and boundary dispersion. As the number of regions increases, there is more tendency for agglomeration and less tendency for dispersion. As it tends to infinity, agglomeration always becomes stable while dispersion always becomes unstable. These results are robust to any composition of the global workforce and its dependence on the number of regions. Numerical evidence suggests that boundary dispersion is never stable. We introduce exogenous regional heterogeneity and obtain a general condition for stability of agglomeration.
- Instructions for Authors
- Issue Information: International Journal of Economic Theory 4/2020
- Heterogeneous human capital, inequality and growth: The role of patience and skills
We extend the Lucas (1988) model, introducing two classes of agents with heterogeneous skills, discount factors and initial human capital endowments. We consider two regimes according to the planner's political constraints. In the meritocratic regime, the planner faces individual constraints. In the redistributive regime, the planner faces an aggregate constraint. We find that heterogeneity matters, particularly with redistribution. In the meritocratic regime, the optimal solution coincides with the balanced growth path (BGP) found by Lucas (1988) for the representative agent's case. In contrast, in the case of redistribution, the solution for time devoted to capital accumulation is never interior for both agents. Either the less talented agents do not accumulate human capital or the more skilled agents do not work. Moreover, social welfare under the redistributive regime is always higher than under meritocracy, and it is optimal to exploit existing differences. Finally, we find that inequality in human capital distribution increases in time and that, in the long run, inequality always promotes growth.
- Advance selling of new products considering retailers’ learning
When a retailer launches a new product, the lack of information on market size and consumer valuation lead to yield uncertainty for the retailer concerning demand and therefore lead to risks in production. Under advance selling, the pre‐orders may signal the future demand for the retailer, which helps to reduce demand uncertainty. This paper studies the retailer's optimal advance selling price and production quantity in a two‐period model where the demand uncertainty comes from both the market size and the distribution of consumer valuations. We characterize the conditions under which the retailer adopts advance selling and perform comparative statics analysis of the equilibrium.
- Strategy‐proof and group strategy‐proof stable mechanisms: An equivalence
We prove that group strategy‐proofness and strategy‐proofness are equivalent requirements on stable mechanisms in priority‐based resource allocation problems with multi‐unit demand. The result extends to the model with contracts.
- Court‐appointed experts and accuracy in adversarial litigation
Concerned about distortion of evidence arising from litigants’ strong incentive to misrepresent information provided to fact‐finders, legal scholars and commentators have long suggested that courts appoint their own advisors for neutral information regarding disputes. This paper examines the litigants’ problem of losing incentive to provide information when judges seek the advice of court‐appointed experts. Within a standard litigation‐game framework, we find that assigning court‐appointed experts involves a trade‐off: although such experts help judges obtain more information overall, thereby reducing the number of errors during trials, they weaken litigants’ incentive to supply expert information, thus undermining the adversarial nature of the current American legal system.
- Instructions for Authors
- Bank regulation when both deposit rate control and capital requirements are socially costly
The bank regulation reforms in the 1980s and 1990s saw deposit rate ceilings being replaced by minimum capital requirements. However, there seem to be no theoretical studies supporting these reforms; either the two instruments are considered for all practical purposes equivalent, or the conclusion...
- Cooperation in the repeated prisoner's dilemma game with local interaction and local communication
This paper considers a repeated prisoner's dilemma game in a network in which each agent interacts with his neighbors and cannot observe the actions of other agents who are not directly connected to him. If there is global information processing through public randomization and global communication,...
- Optimal collusion with limited liability
Collusion sustainability depends on firms’ ability to impose sufficiently severe punishments in the event of deviation from the collusive rule. We extend results from the literature on optimal collusion by investigating the role of a limited liability constraint. We examine all situations in which...
- Job search inefficiency and optimal policies in the presence of an informal sector
In this paper I use a search and matching model to analyze efficiency in an economy with an informal sector, defined as unregulated self‐employment that cannot be observed by the government. Initially I show that the market solution for this kind of economy is inefficient. Subsequently I introduce...
- The second‐tier trap: Theory and experimental evidence
Winner‐take‐all competitions can lead to the person in the second‐tier (middle‐tier) environment having the worst expected payoff when players exclusively choose their environment and exert effort before their random, heterogeneous environmental supports are realized. The tiers are defined by the...
- Local comparative advantage: Trade costs and the pattern of trade
When there are costs of trade, such as transport or other costs, the pattern of trade may not be well described by the usual measures of comparative advantage, which simply compare a country's costs or autarky prices to those of the world. Instead, a better comparison takes into account the costs...
- Anticipated consumption and its impact on capital accumulation and growth: “Forward‐looking” versus “backward‐looking” consumption reference
This paper introduces the idea of anticipated pleasure into the Ramsey growth model, by assuming that in addition to current consumption, an agent's current utility depends upon a reference consumption level based on expected future consumption. Two alternative specifications of the anticipated...
- Public funding of higher education: Who gains, who loses?
This paper analyses the effects of public funding of higher education on individuals’ welfare, taking into account the hierarchical nature of the education system and the fact that parents may complement basic public education with private tutoring. Although public funding financed by a...
- Outsourcing versus vertical integration: Ethier–Markusen meets the property‐rights approach
Early analyses of direct investment versus outsourcing focused on the existence of knowledge‐based assets, knowledge being non‐rivaled and non‐excludable. Ethier was the first to formally model the consequences of non‐excludability for the vertical integration versus outsourcing decision. Later...
- Retirement date effects on saving behavior: Endogenous labor supply and non‐separable preferences
This paper analyzes the effect of changing retirement dates on pre‐retirement saving, looking at the effect of a negative cross derivative of the utility function with respect to consumption and leisure. This effect is analyzed in the contexts of both exogenous and endogenous labor supply before...