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Publications
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W. Daher, L.J. Mirman, and M. Santugini.
Information in Cournot:
Signaling with Incomplete Control.
Accepted for publication at Int. J. Ind. Organ., January 2012.
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Working Papers
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E. Fesselmeyer, L.J. Mirman and M. Santugini.
Spreading Risk: Limiting Cases. January 2012.
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We show that a large number of agents sharing risk
does not remove concern for risk
(through risk spreading)
when entrepreneurial activity is not insignificant
in the economy.
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L.J. Mirman and M. Santugini.
Noisy Signaling in Monopoly. January 2012.
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We provide a closed-form solution of the monopoly problem when the price imperfectly signals
quality to the uninformed buyers,
as well as expressions for the effects of noise on output, price, and information flows.
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L.J. Mirman and M. Santugini.
On Risk Aversion, Classical Demand Theory, and KM Preferences. October 2011.
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Building on Kihlstrom and Mirman (1974)'s formulation of risk
aversion in the case of multidimensional utility functions, we study
the effect of risk aversion on optimal behavior in a general consumer's
maximization problem under uncertainty. We completely characterize
the relationship between changes in risk aversion and classical demand
theory. We show that the effect of risk aversion on optimal behavior
is determined not by the riskiness of the risky good, but rather the
riskiness of the utility gamble associated with each decision. We also
discuss the appropriateness of an (alternative) approach to study risk
aversion suggested by Selden (1978), which has been widely popularized
in the field of macroeconomics through the parametric model of
Epstein and Zin (1989) (henceforth, the Selden-EZ approach). We
show that the Selden-EZ approach cannot disentangle risk aversion
from tastes, and, thus, cannot be used to isolate the effect of risk
aversion.
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E. Fesselmeyer and M. Santugini.
Strategic Exploitation of a Common Resource under Environmental Risk. October 2011.
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We study the effect of environmental risk
on the extraction of a common resource.
Using a dynamic and non-cooperative game
in which an environmental event impacts
both the renewability (the future quantity)
and the quality of the resource,
we show that the anticipation of such an event
has an ambiguous effect on present extraction
and the tragedy of the commons.
On the one hand,
a risk of reduction in the renewability
induces the agents to extract less in the present.
On the other hand, a risk of a deterioration in the quality
of the resource induces the agents to extract more in the present.
We then establish a negative relation between conservative behavior and the tragedy of the commons.
In particular,
when environmental risk induces conservation
(when the risk of less renewability
is more important than the risk of quality deterioration),
there is a stronger
decrease in present harvesting
under social planning than
in the non-cooperative game,
and the tragedy of the commons is worsened.
The reason is that,
due to strategic interactions,
each agent in the non-cooperative game anticipates
that the other agents will also harvest less,
which dampens the incentive to conserve
and leads to free-riding.
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L.J. Mirman and M. Santugini.
Firms, Shareholders, and Financial Markets. January 2012.
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We study the influence of the financial market
on the decisions of firms in the real market.
To that end,
we present a model in which the shareholders'
portfolio selection of assets
and the decisions of the publicly-traded firms
are integrated
through the market process.
Financial access
alters the objective function of the firms,
and the market interaction of shareholders
substantially influences firms' behavior in the real sector.
After characterizing the unique equilibrium,
we show that the financial sector
integrates the preferences of all shareholders
into the decisions for production
and ownership structure.
The participation from investors in the financial market
also limits the firms' ability
to manipulate real prices,
i.e., there is a loss of market power in the real sector.
Note that,
while the loss of market power changes expected profits,
it is not detrimental to shareholders
since the expected return of equity share
depends on the variance (and not the mean) of profits.
Indeed,
any changes in expected profits is absorbed by the financial price.
We also show that financial access increases production,
thereby altering the distribution of profits.
In particular,
financial access induces firms to take on more risk.
Finally,
financial access
renders the relationship between risk-aversion
and risk-taking ambiguous.
For example,
it is possible that
an increase in risk-aversion
leads to more risk-taking,
i.e., the variance of real profits increases.
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C. Koulovatianos, L.J. Mirman, and M. Santugini.
Investment in a Monopoly with Bayesian Learning. April 2011.
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We study how learning affects an uninformed monopolist’s supply
and investment decisions under multiplicative uncertainty in demand.
The monopolist is uninformed because it does not know one of the parameters defi…ning the distribution of the random demand.
Observing prices reveals this information slowly. We …rst show how to incorporate Bayesian learning into dynamic programming
by focusing on sufficient statistics and conjugate families of distributions.
We show their necessity in dynamic programming to be able to solve dynamic programs either analytically or numerically.
This is important since it is not true that a solution to the in…nite-horizon program can be found
either analytically or numerically for any kinds of distributions.
We then use specificc distributions to study the monopolist’s behavior.
Specifically, we rely on the fact that the family of normal distributions
with an unknown mean is a conjugate family for samples from a normal distribution
to obtain closed-form solutions for the optimal supply and investment decisions.
This enables us to study the effect of learning on supply and investment decisions,
as well as the steady state level of capital.
Our findings are as follows.
Learning affects the monopolist’s behavior.
The higher the expected mean of the demand shock given its beliefs, the higher the supply and the lower the investment.
Although learning does not a¤ect the steady state level of capital since the uninformed monopolist becomes informed in the limit,
it reduces the speed of convergence to the steady state. |
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L.J. Mirman and M. Santugini.
The Simple Analytics of Price Signaling Quality. February 2012.
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We present a diagrammatic and step-by-step
analysis of price signaling quality.
Because quality is a continuum on the real positive line,
out-of-equilibrium beliefs need not be specified,
i.e., every positive price is a positive outcome
in equilibrium.
We first study the behavior of the monopoly
when price conveys information about quality.
We then show the effect of information flows
on welfare, i.e., profit and consumer surplus.
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L.J. Mirman and M. Santugini.
Monopoly Signaling: Non-Existence and Existence. February 2011.
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We study the signaling role of prices in monopoly. To that end,
we consider a monopolist supplying a good whose quality is unknown
to some buyers. When the good is potentially valueless (i.e., the lowest
quality generates no demand), and demand is composed of both
informed and uninformed buyers, there does not exist an equilibrium
in which the price signals quality to the uninformed buyers (hereafter,
a signaling equilibrium). By extending the monopoly model to the
framework of a dominant firm with a competitive fringe, we show
that the threat of competition can allow the monopolist to credibly
signal quality. Without competition, the monopolist selling the valueless
good always has an incentive to deceive the uninformed buyers by
charging a higher price and mimicking a monopolist of higher quality,
thereby preventing the price from conveying information. With
competition (e.g., a dominant firm with a competitive fringe), deceiving
the uninformed buyers becomes costly. Indeed, while charging a
higher price yields more profit from the deceived uninformed buyers,
it also triggers the entry of the competitive fringe, which reduces demand,
and, thus, profits. When the fringe competition is large enough,
the cost of facing competition outweighs the benefit of deceiving the
uninformed buyers, which reestablishes informational content in the
price.
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M. Santugini.
On the Consumer Problem under an Informational Externality. April 2009.
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We use the Hendricks and Kovenock (1989) framework to study
the consumer problem under an informational externality. The informational
externality arises when each consumer of a social network
is endowed with private information regarding the quality of a good.
In such situations, the past purchasing decisions of the consumers are
informative and, thus, are used as partially revealing signals of private
information. Asymmetric information and the observability of
actions render the consumer problem dynamic and strategic because
the purchasing decision of a consumer affects the other consumers' future
payoffs through the learning process. We show that there exists
a unique symmetric Bayesian Nash equilibrium. The informational
externality increases the likelihood for a consumer to refrain from
purchasing the good immediately in order to make a more informed
decision in the future.
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| Last update: February 27, 2008 |
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© 2011 Marc Santugini, All Rights Reserved. |
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