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  • 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

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