Published since January 1, 2001

The B.E. Journal of Theoretical Economics

ISSN: 1935-1704

Editor-in-chief: Burkhard C. Schipper

Edited by: Ronald Peeters, Daniela Puzzello, Javier Rivas, Marie-Louise Vierø, Jan Wenzelburger

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About this journal

Objective
The B.E. Journal of Theoretical Economics (BEJTE) welcomes submissions in all areas of economic theory, both applied and pure theory, as well as submissions on economic experiments that feature substantial theory components. The journal especially welcomes novel approaches and interdisciplinary work on economic theory. The editors of the BEJTE understand that novel and interdisciplinary approaches may be difficult to evaluate, that their relationship to standard approaches may not be entirely clear yet, and that not all potential applications of such novel and interdisciplinary have been fully developed yet. Pure theory papers to be published in the BEJTE include, but are by no means limited to, those in behavioral economics, decision theory, game theory, general equilibrium theory, information economics, mechanism design, matching theory, networks, and entirely new fields yet to be created. Applications could encompass, but are not restricted to, contract theory, financial economics, industrial organization, internet economics, labor economics, law and economics, personnel economics, public finance, and novel applications yet to be developed.

Topics

behavioral economics
decision theory
game theory
general equilibrium theory
information economics
mechanism design
contract theory
matching theory
social networks

Article formats
BEJTE recently switched from the previous four-tier system (Frontiers, Advances, Contributions, and Topics) to a two-tier system. Besides "Research Articles" we publish now also "Notes", which typically are more concise manuscripts.

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History

Content available since 2001 (Volume 1, Issue 1)

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Volume 23 Issue 1

January 2023

Publicly Available January 23, 2023

Frontmatter

Page range: i-ii

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Research Articles

Publicly Available November 29, 2021

Duty to Read vs Duty to Disclose Fine Print. Does the Market Structure Matter?

Elena D’Agostino, Marco Alberto De Benedetto, Giuseppe Sobbrio

Page range: 1-47

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Abstract

Firms use standard contracts and possibly include unfavorable fine print which consumers may read at some positive cost. We propose a comparison between a monopoly and a perfect competition market under (1) an unregulated legal regime (duty to read) and (2) a regulation that mandates clause disclosure (duty to disclose). If consumers bear the duty to read contract terms, regardless of market structure, sellers disclose in equilibrium only if it is cheaper than reading for consumers. Conversely, if sellers bear the duty to disclose contract terms, then such regulation is never welfare improving in either market; it may turn out to be consumer protective only if there are several sellers, whereas it is uneffective on this regard in a monopoly.

November 25, 2021

Cobb-Douglas Preferences and Pollution in a Bilateral Oligopoly Market

Anicet B. Kabré

Page range: 49-71

Abstract

In this paper, we investigate how pollution changes with preferences, focusing on a finite bilateral oligopoly model where agents have asymmetric Cobb-Douglas preferences. Producers are also consumers and the choice of heterogeneous preferences is related to the psychological foundations and identity aspects of group membership. We compare two strategic equilibria: the Stackelberg-Cournot equilibrium with pollution (SCEP) and the Cournot equilibrium with pollution (CEP). We show that considering the asymmetric preferences helps the public decision-maker to identify precisely the category of agents (consumer–producers or pure-consumers) for which a change in environmental preference parameters will most effectively reduce pollution. Furthermore, we find that firms’ emissions’ elasticity decreases with market power (when the market power increases) if their marginal cost is lower than their competitor. Finally, we show that when producers are also consumers, an action on pure-consumers’ preference parameters reduces more emissions than a similar action on consumer–producers, and this regardless of the timing of interaction.

November 29, 2021

Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard

Vi Cao

Page range: 73-119

Abstract

For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies ϵ - efficiency , periodic Bayesian incentive compatibility , interim individual rationality , and ex-post budget balance . In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent’s current effort affects other agents’ future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.

February 23, 2022

Management Turnover, Strategic Ambiguity and Supply Incentives

Nicolas Pasquier, Pascal Toquebeuf

Page range: 121-154

Abstract

When a firm appoints a new manager, it reopens the possibility of new contractual friction with its partners. We explore strategic ambiguity as a potential for friction with a supplier. The firm’s new manager probably has fuzzy expectations about the supplier’s strategy. An optimistic manager weights favorable strategies more heavily than detrimental ones, whereas a pessimistic manager does the opposite. We show that the manager’s degree of optimism is critical: above a threshold, it can cause the supplier to change the timing of its contracting and increase its profits. We also find that this threshold degree of optimism depends on the degree of product substitution: it is more stringent with imperfect substitutes than with perfect substitutes or unrelated goods.

February 28, 2022

Uninformed Bidding in Sequential Auctions

Emmanuel Lorenzon

Page range: 155-179

Abstract

We consider a private-value auction with one-sided incomplete information in which two objects are sold in a sequence of two second-price auctions. The buyers have multiunit demand and are asymmetrically informed at the ex ante stage of the game. One buyer perfectly knows his type, and the other buyer is uninformed about her own type. We consider interim information acquisition by the uninformed buyer and derive an asymmetric equilibrium that is shown to produce a declining price sequence across both sales. The supermartingale property of the price sequence stems from the uninformed buyer’s incentives to gather private information, which leads to aggressive bidding in the first-stage auction.

February 28, 2022

Arrowian Social Equilibrium: Indecisiveness, Influence and Rational Social Choices under Majority Rule

Abhinash Borah, Raghvi Garg, Nitesh Singh

Page range: 181-194

Abstract

We introduce the concept of an Arrowian social equilibrium that inverts the schemata of the famous impossibility theorem of Arrow (1950. “A Difficulty in the Concept of Social Welfare.” Journal of Political Economy 58 (4): 328–46) and captures the possibility of aggregating non-rational individual preferences into rational social preferences while respecting the Arrowian desiderata. Specifically, we consider individuals whose preferences may not be complete and who, accordingly, may be indecisive when faced with an issue. Breaking with tradition, we consider the possibility of such individuals drawing on their beliefs about society’s preferences that result from the aggregation process to resolve their indecisiveness. Formally, individual choices are modeled as a rational shortlist method (Manzini and Mariotti 2007. “Sequentially Rationalizable Choice.” The American Economic Review 97 (5): 1824–39), with own preferences followed by society’s as the pair of ordered rationales. This results in a mutual interaction between individual and social choices. We study this interaction using majority rule as the aggregator, with an Arrowian social equilibrium specifying how individual and social choices are co-determined , while requiring the latter to be rational. Our main result identifies minimal levels of societal indecisiveness needed to guarantee the existence of such equilibrium.

Open Access March 14, 2022

Family Ties and Corruption

Anastasia Litina, Dimitrios Varvarigos

Page range: 195-222

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Abstract

We study the relation between nuclear family ties and corruption. Our theoretical model shows that the population share of people who desire close ties with their families (i.e. the extensive margin) has an ambiguous effect on the level of corruption, due to the presence of conflicting mechanisms. However, the strength of this desire among people who want close family ties (i.e. the intensive margin) has an unambiguously negative effect on corruption. The latter outcome finds support from our empirical analysis: Using micro-level data, we show that, in contrast to conventional wisdom and cross-country reflections, stronger family ties are negatively correlated with a broad set of activities that measure corruption.

March 3, 2022

Social Efficiency of Entry in a Vertical Structure with Third Degree Price Discrimination

Junlin Chen, Arijit Mukherjee, Chenhang Zeng

Page range: 223-243

Abstract

We study social efficiency of entry in the presence of downstream cost asymmetry and upstream price discrimination. We show that entry is excessive when the entrants are highly inefficient, and it is insufficient when either the entrants are efficient or their inefficiency is low. The results are in sharp contrast to the existing literature considering upstream uniform pricing (Cao, H., and L. F. S. Wang. 2020. “Social Efficiency of Entry in a Vertically Related Industry Revisited.” Economics Letters 129. Art. no. 109200), as discriminatory pricing alters the relative strengths of the business-stealing, business-creation and production-(in)efficiency effects.

March 1, 2022

Insufficient Entry and Consumer Search

Toshiki Matsuoka

Page range: 245-258

Abstract

This study considers a search market with an outside option and shows that entry may be insufficient. When a firm enters the search market, the price decreases, and consumers can search for more products, which increases the market demand and improves social welfare. However, firms do not internalize the effect, and insufficient entry can occur. Additionally, insufficient entry is likely to occur in a search market with low search costs and/or an attractive outside option, as these factors increase the socially optimal number of firms but decrease the firms’ profits.

February 24, 2022

Quality Competition and Market-Share Leadership in Network Industries

Yi-Ling Cheng, Ya-Yuan Chan

Page range: 259-289

Abstract

This paper incorporates network externalities into a model of vertical product differentiation to examine how firms determine product quality and network size. We show that, with significant network benefits from quality improvement, the effects of network externalities differ depending on the type of competition. In response to an increase in network externalities, vertical product differentiation enlarges under price competition but shrinks under quantity competition. Moreover, under price competition, the network size of a high-quality product increases, whereas that of a low-quality product decreases for a sufficiently large extent of network externalities, resulting in a reversal in the leading position in terms of network size from the low- to the high-quality product. By contrast, the network sizes of high- and low-quality products both increase under quantity competition; moreover, the gap between their network sizes shrinks for a sufficiently large extent of network externalities.

March 3, 2022

The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV

Helmut Dietl, Markus Lang, Panlang Lin

Page range: 291-326

Abstract

The television broadcasting industry is of crucial economic and social importance. Traditionally, this industry has been dominated by free-to-air TV (FTV) but due to technological progress, subscription-based pay TV (PTV) has emerged as a competing business model. A key question for the PTV broadcasters is whether to air commercials in addition to charging subscription fees. Based on a theoretical model of asymmetric competition between a PTV and an FTV broadcaster, we examine the effects of placing PTV advertising on broadcaster market strategies, viewer demands, broadcaster profits and consumer surplus. We find that introducing advertising on PTV can induce a higher viewer demand on this channel but a lower viewer demand on the FTV channel. Surprisingly, consumers can benefit through the introduction of advertising in PTV and broadcaster profits can increase if the viewer disutility of advertising is sufficiently large. Our study provides an analytical framework for choosing and implementing an optimal PTV strategy when an FTV competitor preexists in the market. Furthermore, our study derives implications for policymakers and regulatory authorities by showing that additional PTV advertising is not necessarily socially undesirable due to the strategic market reactions.

June 13, 2022

Redistributive Unemployment Benefit and Taxation

Homa Esfahanian, Ali Moghaddasi Kelishomi

Page range: 327-343

Abstract

This paper suggests a simple rule which identifies the coordination between optimal unemployment benefits paid and the tax system in the case of risk neutral workers but with moral hazard and hidden information on the worker’s type. Our model posits that, given a universal, linear income tax scheme, the optimal unemployment benefits paid does not depend on workers’ types. Standard government policy pays a positive replacement rate to unemployed workers. Optimal redistribution, taking moral hazard and adverse selection into account, instead suggests that the benefit paid should be the same for all and only depends on the underlying tax structure.

June 13, 2022

Constrained Persuasion with Private Information

Andrew Kosenko

Page range: 345-370

Abstract

I study a model of strategic communication between a privately informed sender who can persuade a receiver using Blackwell experiments. Hedlund (2017). “Bayesian Persuasion by a Privately Informed Sender.” Journal of Economic Theory 167 (January): 229–68, shows that private information in such a setting results in extremely informative equilibria. I make three points: first, the informativeness of equilibria relies crucially on two features – the mere availability of a fully revealing experiment, and a compact action space for the receiver. I show by examples that absent these features, equilibria may be uninformative. Secondly, I characterize equilibria in a simple model with constraints for the sender (only two experiments available, none are fully revealing) and the receiver (discrete action space). I argue that noisy experiments and discrete actions are the norm rather than the exception (and therefore, private information need not result in information revelation). Thirdly, I define a novel refinement that selects the most informative equilibria in most cases.

June 6, 2022

A Dynamic Graph Model of Strategy Learning for Predicting Human Behavior in Repeated Games

Afrooz Vazifedan, Mohammad Izadi

Page range: 371-403

Abstract

We present a model that explains the process of strategy learning by the players in repeated normal-form games. The proposed model is based on a directed weighted graph, which we define and call as the game’s dynamic graph . This graph is used as a framework by a learning algorithm that predicts which actions will be chosen by the players during the game and how the players are acting based on their gained experiences and behavioral characteristics. We evaluate the model’s performance by applying it to some human-subject datasets and measure the rate of correctly predicted actions. The results show that our model obtains a better average hit-rate compared to that of respective models. We also measure the model’s descriptive power (its ability to describe human behavior in the self-play mode) to show that our model, in contrast to the other behavioral models, is able to describe the alternation strategy in the Battle of the sexes game and the cooperating strategy in the Prisoners’ dilemma game.

June 13, 2022

Relative Income Concerns, Dismissal, and the Use of Pay-for-Performance

Dominique Demougin, Harvey Upton

Page range: 405-441

Abstract

This paper studies optimal incentive contracting under moral hazard when workers exhibit relative income concerns and compare their earnings with the economy’s average wage. We show that when firms have access to a rich performance measure, the optimal contract takes a binary form if effort is sufficiently low and a ternary form otherwise. We then use these results to investigate how contractual structure varies throughout the economy when firm-worker pairs are heterogeneous with respect to either their productivity, or the information system used to align incentives. We argue that our findings suggest that the incidence of pay-for-performance should be highest for jobs which significantly contribute to overall firm profitability and for which a worker’s performance is difficult to measure. These predictions appear largely consistent with recent empirical evidence.

June 27, 2022

Delegation in Vertical Relationships: The Role of Reciprocity

Marco Castellani

Page range: 443-468

Abstract

We analyze the decision of a firm to produce an input internally or to delegate the production to a better-informed supplier. The supplier can produce inputs of different qualities. As quality is not verifiable, a selfish supplier always produces the quality that minimizes his costs. A supplier that is motivated by reciprocity may instead produce the quality that maximizes the revenues of the buyer. Accordingly, reciprocity could increase the use of the market. To trigger reciprocal behavior the buyer must propose a contract that the seller perceives to be kind. We find that for reciprocal behavior to show up, it is enough that the supplier is moderately reciprocal. Lastly, we provide some intuitions about how our results change if the supplier is liquidity-constrained and must be granted non-negative profits in all circumstances.

June 16, 2022

Step by Step Innovation without Mutually Exclusive Patenting: Implications for the Inverted U

Norman Sedgley

Page range: 469-485

Abstract

The step by step model of innovation is a benchmark model in research investigating the relationship between competition and innovation. The model assumes an industry can be in one of two states; leveled or unleveled. In an unleveled state the lagging firm is the only innovator. In a leveled state firms compete in a patent race. In this patent race successful innovation probabilities are mutually exclusive. This formulation provides mathematical tractability, but it has no other justification. I relax this assumption and use numerical simulation to demonstrate that allowing for non mutually exclusive success in innovation has important consequences for the inverted U relationship. The inverted U relationship is no longer a prediction of the model. In addition, the model predicts that patent measures will under count innovation from the leveled state, allowing for an inverted U relationship between competition and patenting under a narrow set of parameter restrictions. This theoretical exercise has important implications for understanding the current state of the empirical record on this topic.

June 2, 2022

Data and Competitive Markets: Some Notes on Competition, Concentration and Welfare

António Osório

Page range: 487-517

Abstract

Companies are increasingly using data to predict behavior and improve the relation with their customers. In this context, data exchange raises important concerns regarding competition, concentration and welfare. This paper presents a novel linear demand approach that captures data and information effects in competitive markets, which are conveniently summarized in a precision parameter. Subsequently, the proposed approach is applied to study the firm’s incentives to exchange data and their impact in fundamental market variables, welfare and market concentration measures. We found that the incentives for data exchange between competitor firms emerge when the individual information gains are strong enough to compensate for the competitor’s information gains, and the associated strategic correlation effect between varieties. The results also suggest that market concentration tends to increase after data exchange, but both consumers and producers benefit from it. The reason is that better data allows firms to positioning closer to consumers’ needs.

Notes

November 24, 2021

Optimality of a Linear Decision Rule in Discrete Time AK Model

Myungkyu Shim

Page range: 519-527

Abstract

Surprisingly, formal proof on the optimality of a linear decision rule in the discrete time AK model with a CRRA utility function has not been established in the growth literature while that in the continuous time counterpart is well-established. This note fills such a gap: I provide a formal proof that consumption being linearly related to investment is a sufficient and necessary condition for Pareto optimality in the discrete time AK model.

February 23, 2022

Equilibrium Pricing under Concave Advertising Costs

Klaus Kultti, Teemu Pekkarinen

Page range: 529-535

Abstract

We study Butters’s (1977. “Equilibrium Distributions of Sales and Advertising Prices.” The Review of Economic Studies 44 (3): 465–91) model under concave advertising costs, and determine a class of cost functions such that each seller sends the same finite number of ads in equilibrium. Then we consider the limit economy where the number of buyers and sellers grow indefinitely, and show that the equilibrium of the finite economy does not converge to an equilibrium in the limit economy.

Ahead of Print / Just Accepted

Ahead of Print / Just Accepted

Volume 23 (2023)

Issue 1

Volume 22 (2022)

Volume 21 (2021)

Volume 20 (2020)

Volume 19 (2019)

Volume 18 (2018)

Volume 17 (2017)

Volume 16 (2016)

Volume 15 (2015)

Volume 9 (2009)

Volume 8 (2008)

Issue 1

Volume 7 (2007)

Issue 1

Volume 6 (2006)

Issue 1

Volume 2 (2006)

Volume 5 (2005)

Issue 1

Volume 4 (2004)

Issue 1

Volume 3 (2003)

Issue 1

Volume 1 (2001)

5-year Journal Impact Factor	0.366
CiteScore	0.7
European Reference Index for the Humanities
Journal Impact Factor	0.288
Journal Citation Indicator	0.11
Mathematical Citation Quotient	0.05
SCImago Journal Rank	0.195
Source Normalized Impact per Paper	0.331

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Editorial

Editors
Ronald Peeters, University of Otago, New Zealand
Daniela Puzzello, Indiana University, USA
Javier Rivas, University of Bath, UK
Burkhard C. Schipper, University of California–Davis, USA
Marie-Louise Vierø, Aarhus University, Denmark
Jan Wenzelburger, Technische Universitat, Kaiserslautern, Germany

(Deutsch)

Online ISSN: 1935-1704
Type: Journal
Language: English
Publisher: De Gruyter
First published: January 1, 2001
Publication Frequency: 2 Issues per Year
Audience: researchers and professionals in the field of industrial organization, public finance, labor and law and economics