# CES Economic Theory Seminar

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The Economic Theory workshop is a weekly seminar taking place on fridays 12-13h at the Maison des Sciences Economiques (106-112 Boulevard de l'Hôpital). This seminar is a venue for theoretical work in Economics and for work drawing on quantitative methods in Economics. Defined by an approach rather than by a specific theme, the topics of the seminar can concern a variety of areas in Economics, such as (non exhaustively), micro economics, game theory, mathematical economics, decisions theory, finance or macro economics. The seminar functions as an internal workshop but also regularly greets speakers from other institutions.

Organizers: Emily Tanimura, Stéphane Zuber, Anna Bogomolnaia and Hervé Moulin,

If you want to be added to the seminar mailing list, or for any other query about the Economic Theory seminar, please feel free to contact Emily Tanimura (emily(dot)tanimura(at)univ-paris1(dot)fr).

It is supported by the Centre d'économie de la Sorbonne, CNRS and Université Paris 1 Panthéon-Sorbonne.

April 5th: Kevin Refett (Arizona State University)

Title : Multiple Recursive Equilibria in Open Economies with Equilibrium Collateral Constraints

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary : Using order theoretic techniques, we provide a constructive characterization of the set of minimal state space recursive competitive equilibria (RCE) in the canonical small open economy models of sudden stops with price dependent collateral constraints. In doing so, we show that multiplicity of RCE arises in these models because of the presence of dynamic complementarities associated with well-known pecuniary externalities that arise in these models. We also provide a complete qualitative theory of robust recursive equilibrium comparative statics in the deep parameters of the model for all RCE, as well as provide tight sufficient conditions for uniqueness of RCE. Extensions of the results to more general models of sudden stops are also discussed.

April 12th : University holiday

April 19th: Federica Ceron (GATE)

Title: Prioritize and Choose: an axiomatic characterization of the Knapsack and Greedy budgeting rules

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary: We investigate the axiomatic properties of two popular budget allocation rules over discrete goods, the knapsack and the greedy rules. Goods are described by a price and a utility value. The knapsack rule selects the affordable bundle that maximizes the sum of the utility values attached to its items, while the greedy one sequentially selects the items with the highest utility until the budget is exhausted. We show that, despite their differences, these rules belong to the same family of budget allocation rules, the family of Prioritize and Choose rules, which we characterized axiomatically.

April 26th: Charles-Thierry Lacaussade (Université Paris Dauphine)

Title: European option pricing with market frictions and elicitation of probability distortion functions

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary: This paper considers an asset pricing model assuming the absence of arbi- trage, the existence of market frictions and the Put-Call Parity. This model constitutes a special case of the Choquet Pricing Rule where the non-additive probability measure (or capacity) is the objective probability measure distorted by a weighting function. The necessary conditions for a Choquet Pricing Rule to be a Rank-Dependent Pricing Rule are given in the finite and the infinite cases. Subsequently, the empirical validity of the Put-Call and Call-Put Pari- ties assumptions is tested. The Rank-Dependent Pricing Rule is then calibrated on Bid and Ask call option prices from the S&P500, utilizing two new families of distortion functions tailored for flexibility, along with two other functions referred to as (Generalized) Neo-Additive Capacity. The impact of time to expiration (time value) and moneyness (intrinsic value) on the shape of the dis- tortion function is investigated. The resulting models exhibit always a greater accuracy compared to the benchmark (linear model). Moreover, the calibrated distortion functions display a remarkably similar shape. The results from the calibration procedure allow us, through the inverted S-shape distortion func- tion, to conclude the risk-seeking behaviour of the market in evaluating call options prices. Finally, the robustness of the calibration is confirmed on an- other dataset.

May 3rd : Tamas Solymosi (Corvinus University of Budapest)

Title : On core allocations in many-to-one assignment markets

Summary: We consider a two-sided market, one side formed by a set of firms and the other by a set of workers. Firms want to hire many workers, up to each firm’s capacity, but each worker can work for only one firm. We assume firms value groups of workers additively. A coalitional game is introduced where the worth of a coalition is the highest value that can be obtained by matching firms and workers in the coalition without violating the capacity of each firm.

Although it is well-known that the core of this model is non-empty, the structure of the core has not been fully investigated. To the known dissimilarities with the one-to-one assignment game, we add that the bargaining set does not coincide with the core and the kernel may not be included in the core. Besides, not all extreme core allocations can be obtained by means of a lexicographic maximization or a lexicographic minimization procedure.

On the positive side, the maximum and minimum core allocations are characterized in two ways: axiomatically and by means of easily verifiable properties of an associated directed graph. Regarding the remaining extreme core allocations of the many-to-one assignment game, we propose a lexicographic procedure that, for each order on the set of workers, sequentially maximizes or minimizes each player's core payoff. This procedure provides all extreme core allocations.

May 17th : Gerd Muehlheusser (University of Hamburg)

Title : Honesty of groups: Effects of size and gender composition (with A. Roider, T. Promann, & N. Wallmeier)

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary: This paper studies unethical behavior by groups and provides systematic evidence on how lying decisions are affected by group size and group gender composition. We conduct an online experiment with 1,677 participants (477 groups) where group members can communicate with each other via a novel video chat tool. Our key findings are that (i) larger groups lie more, (ii) all-male groups stand out in their proclivity to lie, (iii) already the first female in a group causes an honesty shift, and (iv) group behavior cannot be fully explainedby members’ individual honesty preferences.

May 24th : José Heleno Faro (Insper, Brésil)

Title : The peculiarity criteria (with M. Ribeiro)

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary: We study a broad class of preferences over menus (or opportunity sets) that obey the independence of common alternatives axiom and admit a representation that suits the peculiarity criteria, that is, there exists a utility function V over the collection of all menus in which the menu A is at least as good a B if and only if the value V(A\B) is greater or equal than V(B\A). We show that, under mild conditions, the standard utility maximization model is incompatible with this criteria. Further, in dealing with some special cases, we discuss the well-known class of additive representations and characterize a novel representation called maximum peculiarity criteria.

June 7th : Jeanne Mansoux (CES)

Title : Climate scenarios and low-carbon targets of companies: A theoretical approach on alignment strategies and market equilibrium

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary: This paper introduces a two-phase model formalizing the concept of alignment to a climate scenario within an economy of publicly traded companies and investors. During the first phase, companies must make a choice between announcing their commitment to low-carbon target, which compels them to abate their emissions, or refusing to make any announcement. Their decision is based on a required minimum level of abatement and on their ability to abate their greenhouse gas emissions. In the second phase, investors make their portfolio allocation decisions based on the companies’ announcements, which provide signals on the long-term climate risk exposure of stocks. We show that companies with the highest abilities always have profit opportunities to commit to low-carbon targets. We also identify a cost to announcing a low-carbon target in the climate risk premium of stock returns. Finally, we show that the investors’ climate preferences are essential to maximizing the number of companies committing to low-carbon targets.

June 14th : Adam Dominiak (Virginia Tech, USA)

Title : Communication under Ambiguity

Location and time: Maison des Sciences Économiques, S17 , 12-13h

Summary:

We study communication in ambiguous environments. Agents communicate

individual decisions sequentially. Based on the signal that an agent receives, she

revises her private information. When signals are ambiguous, we show that agents

may agree to disagree forever. Although the learning process converges, leading

to common knowledge of the individual decisions, the decisions differ no matter

how long the communication lasts. Such persistent disagreements are precluded

in Bayesian frameworks endowed with a common prior. When communication is

private and nobody is excluded from it, we show that ambiguity-free communica-

tion is a necessary and sufficient condition for a consensus to emerge. However,

when communication is public, ambiguity-free communication is only sufficient for

reaching a consensus. We apply our model to economic forecasting, providing an

alternative account for persistently disagreeing forecasters. Finally, we outline an

"advisor's dilemma" and explain why deliberation in democracy may never end.