On algorithmic solutions to simple allocation problems

We interpret solution rules to a class of simple allocation problems as data on the choices of a policy-maker. We study the properties of rational rules. We show that every rational rule falls into a class of algorithmic rules that we describe. The Equal Gains rule is a member of this class and it uniquely satisfies rationality, continuity, and equal treatment of equals. Its dual, the Equal Losses rule, uniquely satisfies continuity, equal treatment of equals, and two properties that constitute the dual of rationality: translation down and translation up

On the investment implications of bankruptcy laws

Axiomatic analysis of bankruptcy problems reveals three major principles: (i) proportionality (PRO), (ii) equal awards (EA), and (iii) equal losses (EL). However, most real life bankruptcy procedures implement only the proportionality principle. We construct a noncooperative investment game to explore whether the explanation lies in the alternative implications of these principles on investment behavior. Our results are as follows (i) EL always induces higher total investment than PRO which in turn induces higher total investment than EA; (ii) PRO always induces higher egalitarian social welfare than both EA and EL in interior equilibria; (iii) PRO induces higher utilitarian social welfare than EL in interior equilibria but its relation to EA depends on the parameter values (however, a numerical analysis shows that on a large part of the parameter space, PRO induces higher utilitarian social welfare than EA)

A Revealed preference analysis of solutions to simple allocation problems

We interpret solution rules on a class of simple allocation problems as data on the choices of a policy-maker. We analyze conditions under which the policy maker’s choices are (i) rational (ii) transitive-rational, and (iii)representable; that is, they coincide with maximization of a (i) binary relation, (ii) transitive binary relation, and (iii) numerical function on the allocation space. Our main results are as follows: (i) a well known property, contraction independence (a.k.a. IIA) is equivalent to rationality; (ii) every contraction independent and other-c monotonic rule is transitive-rational;and (iii) every contraction independent and other-c monotonic rule, if additionally continuous, can be represented by a numerical function

Consistency, converse consistency, and aspirations in TU-games

In problems of choosing ‘aspirations’ for TU-games, we study two axioms, ‘MW-consistency’ and ‘converse MW-consistency.’ In particular, we study which subsolutions of the aspiration correspondence satisfy MW-consistency and/or converse MW-consistency. We also provide axiomatic characterizations of the aspiration kernel and the aspiration nucleolus

An experimental study of the investment implications of bankruptcy laws

In bankruptcy laws, proportionality is the universal norm when allocating the liquidation value of a bankrupt firm among creditors. The theoretical literature on bankruptcy proposes two prominent alternatives to proportionality: the equal awards and the equal losses principles. We use an experiment to analyze and compare actual creditor behavior under these three principles. More specifically, we test the following hypotheses: replacing proportionality with equal losses increases total investment while replacing proportionality with equal awards decreases total investment; under all three principles individual investment choices decrease in response to an increase in the probability of bankruptcy or an increase in risk aversion; total investment difference between proportionality and either of the other two principles is independent of the probability of bankruptcy as long as both induce an interior equilibrium. The results of the nonparametric tests and random effects Tobit regression analyses we conduct on our experimental data offer support for all hypotheses

On the investment implications of bankruptcy laws

Axiomatic analysis of bankruptcy problems reveals three major principles: (i) proportionality (PRO), (ii) equal awards (EA), and (iii) equal losses (EL). However, most real life bankruptcy procedures implement only the proportionality principle. We construct a noncooperative investment game to explore whether the explanation lies in the alternative implications of these principles on investment behavior. Our results are as follows (i) EL always induces higher total investment than PRO which in turn induces higher total investment than EA; (ii) PRO always induces higher egalitarian social welfare than both EA and EL in interior equilibria; (iii) PRO induces higher utilitarian social welfare than EL in interior equilibria but its relation to EA depends on the parameter values (however, a numerical analysis shows that on a large part of the parameter space, PRO induces higher utilitarian social welfare than (C)