On optimality in intergenerational risk sharing

This paper defines and studies optimality in a dynamic stochastic economy with finitely lived agents, and investigates the optimality properties of an equilibrium with or without sequentially complete markets. Various Pareto optimality concepts are considered, including interim and ex ante optimality. We show that, at an equilibrium with a productive asset (land) and sequentially complete markets, the intervention of a government may be justified, but only to improve risk sharing between generations. If markets are incomplete, constrained interim optimality is investigated in two-period lived OLG economies. We extend the optimality properties of an equilibrium with land and examine conditions under which introducing a pay-as-you-go system would not lead to any Pareto improvement upon an equilibrium.Overlapping generations; Incomplete markets; Optimality

The strategy structure of some coalition formation games

In coalitional games with side payments, the core predicts which coalitions form and how benefits are shared. The predictions however run into difficulties if the core is empty or if some coalitions benefit from not blocking truthfully. These difficulties are analyzed in games in which an a priori given collection of coalitions can form, as the collection of pairs of buyer-seller in an assignment game. The incentive properties of the core and of its selections are investigated in function of the collection. Furthermore the relationships with Vickrey-Clarke-Groves mechanisms are drawn.coalition formation ; assignment ; manipulability ; substitutes ; incremental value ; Vickrey-Clarke-Groves mechanism

Group formation: The interaction of increasing returns and preferences' diversity

The chapter is organized as follows. Section 2 focuses on competition in a simple economy under increasing returns to scale and heterogeneous consumers. The concept of sustainable oligopoly is discussed and analyzed. Section 3 studies in a more general and abstract set up competition among groups in the absence of spillovers. Whereas Section 3 develops some insights of Section 2, it can be read first. Finally Section 4 analyzes public decisions in a simple public good economy through the previous approach, and addresses the interaction between free mobility and free entry under negative externalities.group formation

On group stability in hierarchies and networks

A hierarchical structure is a widespread organizational form in many areas. My aim in this paper is to provide a rationale for this fact based on two premises. First, a group organizes itself so as to achieve efficient coordination. Second, efficient coordination is achieved only if subgroups as well as individuals agree to cooperate. Even in situations in which there are gains to coordination, the agreement of each possible subgroup may be impossible to reach, resulting in instabilities. I argue that a hierarchical organization avoids such instabilities by distributing in an optimal way autonomy and blocking power to a restricted set of subgroups. Comparisons with nondirected networks are drawn.Efficient Coordination; Instabilities; Hierarchical structure

On the influence of rankings

Ranking systems are becoming increasingly important in many areas, in the Web environment and academic life for instance. In a world with a tremendous amount of choices, rankings play the crucial role of influencing which objects are 'tasted' or selected. This selection generates a feedback when the ranking is based on citations, as is the case for the widely used invariant method. The selection affects new stated opinions (citations), which will, in turn, affect next ranking. The purpose of this paper is to investigate this feedback in the context of journals by studying some simple but reasonable dynamics. Our main interest is on the long run behavior of the process and how it depends on the preferences, in particular on their diversity. We show that multiple long run behavior may arise due to strong self enforcing mechanisms at work with the invariant method. These effects are not present in a simple search model in which individuals are influenced by the cites of the papers they first read.ranking, scoring, invariant method, search

On sustainable pay as you go systems

An unfunded Social Security system faces the major risk, sometimes referred to as "political risk", that future generations modify or even suppress the contributions. In order to account properly for this risk, the paper considers a political process in which the support to the system is asked from each new born generation. The analysis is conducted in an overlapping generations economy that is subject to macro-economic shocks. As a consequence, the political support varies with the evolution of the economy. The impact of various factors -intra-generational redistribution, risk aversion, financial markets, governmental debt- on the political sustainability of a pay-as-you-go system is discussed.pay-as-you-go ; intra-generational redistribution ; overlapping generations ; social security system ; political economy ; risk

Sharing aggregate risks under moral hazard

This paper analyzes the efficient design of insurance schemes in the presence of aggregate shocks and moral hazard. The population is divided into groups, the labour force in different sectors for instance. In each group, individuals are ex ante identical but are subject to idiosyncratic shocks. Without moral hazard, optimality requires (1) full insurance against idiosyncratic shocks, which gives rise to a representative agent for each group and (2) optimal sharing of macro-economic risks between these representative agents. The paper investigates what remains of this analysis when the presence of moral hazard conflicts with the full insurance of idiosyncratic shocks. In particular, how is the sharing of macro-economic risks across groups affected by the partial insurance against idiosyncratic risks? The design of unemployment insurance schemes in different economic sectors, and the design of pension annuities in an unfunded social security system are two potential applications.moral hazard ; insurance ; mutuality principle ; macro-economic risk

Sharing information in web communities

The paper investigates information sharing communities. The environment is characterized by the anonymity of the contributors and users, as on the Web. It is argued that a community may be worth forming because it facilitates the interpretation and understanding of the posted information. The admission within a community and the stability of multiple communities are examined when individuals differ in their tastes.value of information ; communities ; anonymity ; preference diversity

Information revelation in a security market: The impact of uncertain participation

The paper analyzes how uncertainty on traders' participation affects a competitive security market in which there are some informed traders. We show that discontinuities, or "crashes", can arise at equilibrium, even when no investor posts a priori an increasing demand. Because of uncertain participation, the precision of the information brought by a price is endogenous, affected by the size of the trades. As a result, two prices with different volumes and information revelation may clear the market for the same values of the fundamentals. At one price, insurance motives drive the exchanges, noise is large and little information is revealed. At another price, uninformed trades are small, which makes the clearing price much more informative. This multiplicity of prices with different precision of information generates discontinuities.rational expectations equilibrium ; asymmetric information ; crashes

Competition in the quality of higher education: the impact of students' mobility

This paper analyzes in a two-country model the impact of students' mobility on the country-specific level of higher educational quality. Individuals decide whether and where to study based on their individual ability and the implemented quality of education. We show that the mobility of students affects educational quality in countries and welfare in a very different way depending on the degree of return migration. With a low return probability, countries choose suboptimally differentiated levels of educational quality, or even no differentiation at all.higher education ; migration ; tuition fees ; education quality ; vertical differentiation