walrasian equilibria as limits of noncooperative equilibria part i mixed strategies abstract we examine the connection between walrasian equilibria of a limit economy with infinitesimal firms and the noncooperative cournot equilibria of approximating finite economies with significant firms following earlier work of novshek and sonnenschein we allow for set up cost and permit a minimal form of mixed strategies we depart from them by requiring that the aggregate production set exhibits some degree however small of decreasing returns contrasting with their results it is shown that a regular walrasian equilibrium of a limit economy can always be approximated by a sequence of noncooperative equilibria for the tail of the approximating finite economies thus there is a surprising qualitative discontinuity when one passes from the novshek sonnenschein case of aggregate constant returns to scale of the decreasing returns case of this paper

the effects of effort and intrinsic motivation on risky choice people often need to trade off between the probability and magnitude of the rewards that they could earn for investing effort the present paper proposes that the conjunction of two simple assumptions relating effort induced reward expectations to prospect theory s value function provides a parsimonious theory that predicts that the nature of the required effort will have a systematic effect on such trade offs using the case of frequency or loyalty programs a series of five studies involving both real and hypothetical choices demonstrated that a the presence as opposed to absence of effort requirements enhances the preference for sure small rewards over large uncertain rewards b the preference for reward certainty is attenuated when the effort activity is intrinsically motivating and c continuously increasing the effort level leads to an inverted u effect on the preference for sure small over largeuncertain rewards the studies also employ process measures and examine the mechanisms underlying the impact of the effort stream on the trade off between the certainty and magnitude of rewards the final section discusses the theoretical implications of this research as well as the practical implications with respect to frequency programs and other types of incentive systems

plant closings and exit behaviour in declining industries the plant closing and exit strategies of firms operating in a declining industry are examined a dynamic game theoretic model is utilized the perfectness criterion is used to restrict the set of nash equilibria there are two key equilibrium results first when firms have the same number of plants high cost plants close before lower cost plants second a larger firm i e a firm operating more plants begins closing plants before a smaller firm as long as cost differences are not large copyright 1988 by the london school of economics and political science

industrial organization and public policy competition policy has been dominated by politics industrial organization can expect to exert an influence only insofar as it commands superior knowledge that is true with respect to the long run since economies of scale are limited to the short run competition is feasible in the long run therefore a trade off approach seeking to identify optimal market structures is misleading competition policy should instead be directed at prohibiting protective strategies of incumbents to deter entry competition being a process of creative destruction political viability of a competitive order requires competition policy to be supplemented by a social welfare policy

environmental impacts of coal subsidies in turkey a general equilibrium analysis abstract in this study we aim at providing an analytical framework for turkey to study the macroeconomics and environmental impacts of the existing coal subsidization scheme to this end we develop a regionally differentiated applied general equilibrium model spanning over 2015 2030 our analytical apparatus focuses exclusively on the fiscal implications as well as the environmental repercussions of the removal of the subsidies on greenhouse gas emissions with the aid of a set of alternative policy scenarios against a business as usual path we study the regional and sectorial performances of growth employment investment and capital accumulation consumption welfare and trade balance our results indicate that by simple elimination of the coal subsidization scheme turkey can reduce its aggregate gaseous emissions by as much as 5 without a significant loss in its gdp

bertrand the cournot paradigm and the theory of perfect competition in this paper we extend to a general equilibrium context bertrand s classic critique of cournot we present a game theoretic model of a pure exchange monetary economy in which buyers as well as sellers announce both quantities and prices when buyers act strategically the edgeworth nonexistence problem is circumvented under weak conditions a pure strategy nash equilibrium exists for this game we make precise the bertrand idea that when agents in a finite economy are permitted to compete by price the resulting allocations will be competitive specifically the nash equilibria for our game yield allocations that are competitive allocations for the underlying exchange economy provided that there are at least two buyers and two sellers actively trading in every market under this characterization of strategic behaviour then two is enough for competition our objective is to provide a general equilibrium game theoretic formulation of the idea of bertrand price competition bertrand s classic critique of cournot can be paraphrased as follows when agents regard price rather than quantity as the strategic variable no price above the competitive equilibrium price can be sustained as a noncooperative equilibrium this idea is made precise in our game theoretic model of a pure exchange economy in which buyers as well as sellers act strategically our treatment of buyers behaviour is novel while sellers announce price and quantity vectors buyers specify sums of money and menus of alternative nonmonetary commodity bundles a buyer s action is a commitment to purchase any one of the specified commodity bundles in exchange for the sum of money our first result is that under weak conditions a nash equilibrium in pure strategies exists the paper thus also points to a way of resolving the classical edgeworth nonexistence problem second all nash equilibria yield allocations that are competitive for the underlying economy provided that in every market at least two buyers and two sellers are actively trading under this characterization of strategic

holding on for too long an experimental study on inertia in entrepreneurs and non entrepreneurs disinvestment choices abstract disinvestment in the sense of project termination and liquidation of assets including the cession of a venture is an important realm of entrepreneurial decision making this study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non entrepreneurs our experimental results reject the standard net present value approach as an account of observed behavior instead most individuals seem to understand the value of waiting their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real options reasoning we also observe a pronounced psychological inertia i e most individuals hold on to a losing project for even longer than real options reasoning would predict the study provides evidence for entrepreneurs and non entrepreneurs being quite similar in their behavior

price quantity strategic market games this paper is yet another in a rapidly growing series e g 2 11 on strategic approaches to economic equilibrium our aim here is to make precise the remark implicitly due to bertrand 1 or 10 ch 4 5 that if the agents in an economy use price setting strategies then the strategic nash equilibria will in fact be walrasian and this without any assumption of a large number of small agents however in our models not only prices but also quantities are set by the agents thus it might actually be more appropriate to call them bertrand cournot types of models we begin with a standard walras exchange economy with a finite number of traders and commodities this is recast as a game in strategic form in essentially two different ways there is a trading post for each commodity to which traders send contingent statements about how much they wish to buy and sell and at what prices in model 1 the trading point is determined by the intersection of the aggregate supply and demand curves in model 2 trade takes place so as to meet as many contingent statements as possible each buyer whose orders are filled pays the price he quoted using a fiat money which can be borrowed costlessly and limitlessly but after trade is over there is a settlement of accounts and a penalty is levied on those who are bankrupt no attempt is made to model the penalty in any detail it is simply described in the form of a disutility but this in turn may be imagined to stem from confiscation of assets see remark 5 or the necessity of procuring highly priced loans etc call a noncooperative equilibrium active if it turns out that no trader is isolated i e trapped as the sole buyer or seller at some trading post then our results may be described as follows in model 1 the active2 n e of the game coincide with the c e of the market furthermore there is a subset of tight active n e which also coincide with the c e and each n e in this subset is strong

carbon abatement and international spillovers carbon abatement policies in large open economies affect both the allocation of domestic resources and international market prices a change in international prices implies an indirect secondary burden or benefit for all trading countries based on simulations with a large scale computable general equilibrium model of global trade and energy use we show that international spillovers have important welfare implications for carbon abatement policies designed to meet exogenous emission reduction targets we present a decomposition of the total welfare effect of carbon abatement policies into a primary domestic market effect at constant international prices and a secondary international spillover impact as a result of changes in international prices this decomposition reveals the extent to which domestic abatement costs are increased or decreased as a result of the impact of carbon abatement on international prices

eu climate policy up to 2020 an economic impact assessment in its fight against climate change the eu is committed to reducing its overall greenhouse gas emissions to at least 20 below 1990 levels by 2020 to meet this commitment the eu builds on segmented market regulation with an eu wide cap and trade system for emissions from energy intensive installations ets sectors and additional measures by each eu member state covering emission sources outside the cap and trade system the non ets sector furthermore the eu has launched additional policy measures such as renewable energy subsidies in order to promote compliance with the climate policy target basic economic reasoning suggests that emission market segmentation and overlapping regulation can create substantial excess costs if we focus only on the climate policy target in this paper we evaluate the economic impacts of eu climate policy based on numerical simulations with a computable general equilibrium model of international trade and energy use our results highlight the importance of initial market distortions and imperfections as well as alternative baseline projections for the appropriate assessment of eu compliance cost

tail expectation and imperfect competition in limit order book markets abstract perfect competition in liquidity provision in limit order markets is characterized by a tail expectation condition glosten 1994 in this paper we model imperfect competition in schedules by infinitely many liquidity suppliers quoting on a limit order book we show that there are zero rent mixed strategy equilibria featuring finite numbers of active liquidity suppliers none of the equilibria satisfies the competitive outcome not even on average considering a sequence of equilibria with the number of active liquidity suppliers becoming large we show that the aggregate stochastic marginal price schedule converges to the deterministic competitive marginal price schedule

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

economic and environmental implications of turkish accession to the european union a cge analysis abstract the purpose of this paper is to analyze the economic and environmental implications of turkey s possible accession to the european union eu the paper focuses on the impacts of three main components of turkey s possible eu membership i the free movement of labor between the eu and turkey ii the free movement of capital and iii the burden sharing of turkey in terms of the eu s environmental objectives in the horizon of 2020 that is the reduction of carbon emissions among these a particular focus is placed on the influence of the co 2 emission reduction targets in both regions and their consequences on the carbon price in 2020 we estimate the resource allocation effects of eu climate change policies on both regions by taking into account the likely labor movement from turkey to the eu and capital movement in the reverse direction the results show that different emission targets for the two regions bring about a change in comparative advantages and thus a change in interregional competitiveness

timid choices and bold forecasts decision makers have a strong tendency to consider problems as unique they isolate the current choice from future opportunities and neglect the statistics of the past in evaluating current plans

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

the long and short of it why are stocks with shorter runs preferred this article examines how consumers process graphical financial information to estimate risk we propose that consumers sample the local maxima and minima of a graph to infer the variation around a trend line which is used to estimate risk the local maxima and minima are more extreme the higher the run length of the stocks the consecutive number of upward or downward movements of a price series with identical mean variance skewness and kurtosis three experiments show that this leads to stocks with higher run lengths being perceived as riskier the run length effect importantly the run length effect is greater for investors who are more educated are employed full time trade more frequently have had longer experience trading and trade a wider range of financial instruments implications for the communication of financial products public policy and consumer welfare are discussed as are theoretical implications for the processing of visual and financial information and behavioral finance

economic impact assessment of turkey s post kyoto vision on emission trading for the post kyoto period turkey strongly emphasizes the establishment of national emission trading system by 2015 and its integration with the eu ets along its accession process to the eu in this paper we study the mechanisms of adjustment and economic welfare consequences of various ets regimes that turkey considers to apply by 2020 i e regional ets and international trading within the eu ets we conduct our analysis under the current eu 20 20 20 emission target 20 and also under its revised version 30 we find that turkey has economic gains from linking with the eu ets under the 20 cap in comparison to the domestic etss despite the eu s welfare loss under linkage in comparison to the case where turkey has domestic abatement efforts it still prefers linking as it increases economic well being compared to the case where turkey does not abate under 30 cutback turkey has critical output loss under linkage due to high abatement burden on the eu while the eu is better off as it passes some of its abatement burden to turkey therefore emission quotas and their allocation across the ets and non ets sectors become highly critical in distributing the overall economic gains from bilateral trading

approximate bertrand equilibria in a replicated industry this paper considers the existence and properties of approximate bertrand equilibria in a replicated industry price setting firms produce a homogeneous product with weakly convex costs the main results are that a given e 0 an e equilibrium exists if the industry is large enough b if the e is small enough and the industry large enough any e equilibrium is approximately competitive these results depend on how contingent demand is specified

bertrand edgeworth equilibria with unobservable output uncoordinated consumers and large number of firms abstract we examine a bertrand edgeworth model of price competition where the output levels of the firms are unobservable and consumers are uncoordinated we show that if the number of firms is large enough then any price greater than the competitive one can be sustained as a pure strategy nash equilibrium

the costs of compliance a cge assessment of canada s policy options under the kyoto protocol canada has committed itself under the kyoto protocol to reduce greenhouse gas emissions between 2008 and 2012 on average by six per cent from the base 1990 level as of 2009 however canada s greenhouse gas emissions are far above its 1990 level which calls for stringent short term policy measures if canada is to meet its legally binding commitment this paper uses a multi region multi commodity static general equilibrium model to quantify the economic impacts of alternative compliance strategies for canada in the context of climate policies undertaken by other kyoto parties the numerical results confirm fears by canadian policymakers of substantial economic adjustment costs should canada fulfill its kyoto commitments solely through domestic action however a rigorous use of the project based cdm on top of international emissions trading could allow canada to live up to its international climate policy commitment at politically much more tolerable costs

rational expectations with imperfect competition a bertrand edgeworth example we study a model in which price setting oligopolists have private information about the commodity they sell we construct an equilibrium in which some but not all of the information is transmitted by prices we show that when the number of sellers increases this equilibrium converges in distribution to the perfectly revealing competitive equilibrium

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

portfolio choice and risk attitudes an experiment i introduction suppose an investor is faced with a decision concerning how to allocate financial resources between a risky lottery asset with a higher expected return and an asset with a fixed and guaranteed lower return is the choice of portfolio independent of preferences outside the standard neoclassical model in experiments with financial incentives we study how portfolio choice depends on three well documented behavioral phenomena ambiguity aversion the illusion of control and myopic loss aversion we also investigate whether participants are willing to explicitly pay a small sum of money to indulge such preferences pay for more perceived control less ambiguity or more frequent opportunities to change the portfolio based on feedback about its performance while standard finance theory presumes that investors successfully identify and process information relevant to reaching optimal decisions in recent years a body of empirical evidence suggests that there are systematic departures from this behavior behavioral finance is concerned with psychological influences in financial decision making and markets investors make decisions while trying to stay afloat in a sea of uncertainty when predictability is low people may be prone to unjustified beliefs that may survive and even flourish in such an environment 1 people may resort to rules of thumb on a conscious or subconscious level to the extent that psychological influences are present it is economically important to consider which of these actually affect risk attitudes and portfolio choice a key issue is whether any such influences disappear when monetary incentives are present we pursue a systematic experimental comparison of three of the most prominent behavioral phenomena documented in the literature the illusion of control langer 1975 is concerned with greater confidence in one s predictive ability or in a favorable outcome when one has a higher degree of personal involvement even when one s involvement is not actually relevant ambiguity aversion ellsberg 1961 is the desire to avoid unclear circumstances even when this will not increase the expected utility myopic loss aversion benartzi and thaler 1995 combines loss aversion kahneman and tversky 1979 tversky and kahneman 1992 and a tendency to evaluate outcomes frequently this combination leads investors to be more willing to invest a greater proportion of their portfolio in risky assets if they evaluate their investments less frequently we show that these phenomena are present with monetary incentives and also investigate whether people are willing to pay money to accommodate such preferences or whether they are closer to the rational model when incentives are present with the procedure we chose the willingness to actually pa for such preferences depends on the preference the great majority of investors pay for less ambiguity or more frequent feedback investment opportunities but fewer than 10 pay to roll a determinative die themselves 2 we then examine how the preferences between lotteries in the different treatments affect portfolio choice we have participants allocate their investment capital between an asset with a sure return and a risky asset with a higher expected rate of return in fact there is very little variation in investment behavior across any of the illusion of control or ambiguity aversion treatments in contrast the results found in previous experimental studies of myopic loss aversion suggest that participants invest less in their preferred option the main conclusion we draw from these findings is that the relation between which procedure or lottery people prefer and how much they are willing to actually invest in this lottery is not trivial at all people are generally unwilling to pay even small amounts of money to indulge the illusion of control and it does not influence their portfolio choice people are generally willing to pay money for less ambiguity but having less ambiguity does not influence their portfolio choice finally in some cases people are willing to pay money for more frequent feedback and opportunities to change their portfolio but again previous studies have shown that people invest less with this additional information and greater flexibility

market size and substitutability in imperfect competition a bertrand edgeworth chamberlin model competition is often associated with the idea that there are many traders in the market or that each price maker is small as compared to the market this paper introduces this notion of market size in a model of price competition with imperfect substitutes by constructing a model which creates a bridge between the chamberlin and bertrand edge worth lines of work on price competition we investigate the role of two fundamental parameters in the existence of an equilibrium the market size given by the number n of competitors and the degree of substitutability we prove that a for a given number of n 2 of competitors a sufficiently large but finite degree of substitutability entails nonexistence this thus generalizes the bertrand edgeworth nonexistence result which applies only to perfect substitutes b conversely for a given upper bound on the degree of substitutability a sufficiently large number of competitors ensures existence which thus introduces a significant role for market size in models of imperfect competition we finally investigate the proximity of an equilibrium when it exists to a competitive outcome and we find that both high substitutability and large market size are a condition for competitiveness

assessment of european union transition scenarios with a special focus on the issue of carbon leakage this paper uses the model gemini e3 to simulate and assess the transition scenario to 2020 framed by the european union in its energy climate directive and it raises several issues in this connection after a brief description of the model the paper presents the results of the scenarios mainly the values of the major indicators of carbon price both in the ets and in non ets sectors and the welfare cost of the eu policy under the various configurations considered while it is independent of the scenario in the ets sector in the non ets sector the value of carbon is very sensitive to the provisions of the directive and in particular the option of resorting to the flexibility mechanisms the welfare cost also varies significantly according to scenarios and its value for the entire eu is more than double in the scenario closest to the directive as compared to the least cost one the paper also addresses the very sensitive issue of carbon leakage and argues in favor of a new concept of net leakage the analysis shows that while carbon leakage may affect some specific sectors at the aggregate level it does not represent a real concern with a magnitude of at most a few percent of ghg abatement by annex b countries

walrasian equilibria as limits of noncooperative equilibria part ii pure strategies abstract we examine the connection between walrasian equilibria of a limit economy with infinitesimal firms and noncooperative cournot equilibria of approximating finite economies with significant firms nonconvex production sets decreasing returns in the aggregate and endogenous determination of the number of active firms are allowed a walrasian equilibrium is a limit of pure strategy noncooperative equilibria only if a condition loosely analogous to downward sloping demand in the partial equilibrium constant returns to scale case holds the condition is also sufficient to guarantee the existence of a robust sequence of pure strategy noncooperative equilibria which converges to the walrasian equilibrium

bertrand edgeworth equilibrium with a large number of firms abstract we examine a model of price competition with strictly convex costs where the firms simultaneously decide on both price and quantity are free to supply less than the quantity demanded and there is discrete pricing if firms are symmetric then for a large class of residual demand functions there is a unique equilibrium in pure strategies whenever for a fixed grid size the number of firms is sufficiently large moreover this equilibrium price is within a grid unit of the competitive price the results go through to a large extent when the firms are asymmetric or they are symmetric but play a two stage game and the tie breaking rule is weakly manipulable

need for cognitive closure risk aversion uncertainty changes and their effects on investment decisions investment decisions play a crucial role in the way consumers manage their wealth and therefore it is important to understand how consumers make these decisions this research contributes to this attempt by examining consumers investment decisions in response to new information about changes in uncertainty in financial markets the authors identify possible conditions under which consumers despite having new information about changes in market uncertainty are less likely to assimilate the new information and consequently do not make investment decisions that are in line with their risk aversion levels specifically in a series of studies the authors show that high rather than low need for cognitive closure can lead to a lack of openness to new information and therefore may dilute consumers tendency to update their investment portfolios in a way that reflects their risk preferences in addition the authors address possible ways to influence consumers assimilation of new information to help even

bertrand edgeworth oligopoly in large markets the relation between perfectly competitive and monopolistically competitive equilibria is analysed for a bertrand edgeworth model of a single market in which capacity constrained firms choose prices as strategies the market always has a nash equilibrium in pure or mixed strategies as the number of firms increases the corresponding equilibria converge in distribution to a perfectly competitive price this result provides a justification for perfect competition that is based on an explicit account of price formation however monopoly prices persist with a positive but vanishing probability regularity or well defined inverse demand functions are not required