Global vs. Local Information

In this paper I apply stochastic stability to compare local information to global information in terms of welfare. Under global information agents potentially imitate anyone else, while under local information choices are grouped into information sets and agents can observe and hence imitate only those within their own information set. The welfare evaluation of information is ambiguous over finite time horizons, while in the long run less (more) information is better in the presence of pure negative (positive) spillovers. However, when a selection issue is considered a further ambiguity emerges making the comparison, in general, uncertain.imitation; local information; global information; stochastic stability

Where do Personal Experience and Imitation Drive Choice?

This papers investigates the efficiency of aggregate choice in the long run when the individual decision is driven by both personal experience and imitation. Personal experience is represented by choice sets depending upon previous choices. Imitation is modeled first through popularity weighting and then through a network of social influences. Intuition suggests imitation can work as a source of variety, spreading behaviors among which memory can make selection. However inefficiencies will persist in the stochastically stable distribution whenever the length of memory is not sufficiently long to stop inferior behaviors from moving perpetually along periodic cycles of social influences.imitation; personal experience; limited cognitive capabilities

Manifesto of Dynamic Social Economics

Numerous contributions in the last decades are based on similar inspiratory principles, which, at least if considered altogether, are highly innovative with respect to the existing tradition in economics. This paper is a perspective and speculative guess aiming at identifying the gist of this ongoing change in economics and at promoting its accomplishment. First, the features characterizing what I argue is a new approach to economic theorizing – labelled “dynamic social economics” – are presented and extensively discussed. Then, given the prominence of some mathematical techniques as general tools of analysis for this kind of models, a synthetic survey of the main relevant results is provided.evolution; dynamics; social economics; limited cognitive capabilities; perturbed Markov chains

Choice under Markovian Constraints

In this paper I provide a descriptive model of choice over time by a population of constrained maximizing agents. Agents’ choice sets are markovian in the sense that they depend on previous choices. The unperturbed dynamics turns out to be trapped into local maxima whatever the length of memory. In the presence of perturbations efficiency is got with a memory of at least two periods. This provides a useful insight for what drives to efficient evolution in this setting: perturbations create variety and a two period long memory allows comparisons and selectionpersonal experience; limited cognitive capabilities; stochastically stable distribution

Cooperation with Defection

The Prisoner Dilemma is a typical structure of interaction in human societies. In spite of a long tradition dealing with the matter from different perspectives, the emergence of cooperation or defection still remains a controversial argument from both empirical and theoretical point of views. In this paper an innovative model is presented and analyzed in the attempt to provide a reasonable framing of the issue. A population of boundedly rational agents repeatedly chooses to cooperate or defect. Each agent’s action affects only her interacting mates, according to a network of relationships which is endogenously modifiable since agents are given the possibility to substitute undesired mates with unknown ones. Full cooperation, full defection and coexistence of both cooperation and defection in homogeneous clusters are possible outcomes of the model. A computer program is developed with the purpose of understanding the impact of parameters values on the type of outcome. Numerous simulations are run and the resulting evidence is analyzed and interpretedPrisoner Dilemma; cooperation; segregation; networks; simulation

Ordinal vs Cardinal Status: Two Examples

We demonstrate that in models where agents have concerns for status the model predictions can drastically change depending on whether status is modelled as an ordinal or cardinal magnitude. As a proof, we show that two well known theoretical findings are not robust to the substitution of ordinal status with cardinal status (Frank (1985)) and viceversa (Clark and Oswald (1998)).Status, Social Comparison, Ordinality, Cardinality

Signalling, Social Status and Labor Income Taxes

We investigate the effects of introducing a linear labor income tax under the assumptions that individuals have concerns for social status, that they can signal their relative standing by spending on a conspicuous good, and that the tax revenue is redistributed by means of lump sum transfers. We show that the way social status is defined – i.e. how relative standing is computed and evaluated – crucially affects the desirability of the tax policy. More precisely, if status is ordinal then a labor income tax can decrease waste in conspicuous consumption only if the distribution of pre-tax incomes (or earning potentials) is not too unequal. The same applies for the tax to induce a Pareto improvement, but with the bound on pre-tax inequality being smaller. Instead, if status is cardinal then neither requirement applies: for any degree of pre-tax inequality we can find a cardinal notion of status such that the introduction of a labor income tax induces both a waste reduction and a strict Pareto improvement. However, under cardinal status a labor income tax is not necessarily more desirable than under ordinal status. Indeed, if status is cardinal in the sense that the status differential between being considered rich and being considered poor is strongly dependent on the income of the rich, then a labor income tax is more likely to increase social waste than under ordinal status.social status; relative standing; consumption externalities; labor income; income tax; signalling; conspicuous consumption; income inequality

Dynamic Adverse Selection and the Size of the Informed Side of the Market

In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information. We show that in equilibrium all goods can be traded if a simple piece of information is made publicly available: the size of the informed side of the market. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. More precisely we prove that, if the size of the informed side of the market is a public information at each trading stage, then there exists a weak perfect Bayesian equilibrium where all goods are sold in finite time and where the price and quality of traded goods are increasing over time. Moreover, we show that as the time between exchanges becomes arbitrarily small, full trade still obtains in finite time – i.e., all goods are actually traded in equilibrium – while total surplus from exchanges converges to the entire potential. These results suggest two policy interventions in markets suffering from dynamic adverse selection: first, the public disclosure of the size of the informed side of the market in each trading stage and, second, the increase of the frequency of trading stages.dynamic adverse selection; full trade; size of the informed side; frequency of exchanges; asymmetric information

Stochastic Stability in the Best Shot Game

The best shot game applied to networks is a discrete model of many processes of contribution to local public goods. It has generally a wide multiplicity of equilibria that we refine through stochastic stability. In this paper we show that, depending on how we define perturbations, i.e. the possible mistakes that agents can make, we can obtain very different sets of stochastically stable equilibria. In particular and non-trivially, if we assume that the only possible source of error is that of an agent contributing that stops doing so, then the only stochastically stable equilibria are those in which the maximal number of players contributes.Networks, Best Shot Game, Stochastic Stability

Redistribution and the Notion of Social Status

In this paper we study the impact of redistributive policies when agents can signal their relative standing by spending on a conspicuous good. In particular, we analyze how the shape of the status function (i.e. how relative standing is computed and evaluated) may affect the equilibrium outcome of the model. Our main nding is that, if status depends in a cardinal way on individuals' relative standing, then a redistribution from the rich to the poor can be Pareto improving. We identify a necessary and sucient condition for the latter case.social status, relative standing, consumption externalities, redistribution, signalling, conspicuous consumption, income inequality