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Register a new userOn the meaning of the Critical Cost Efficiency Index
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Federico Echenique
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This note provides a critical discussion of the textit{Critical Cost-Efficiency Index} (CCEI) as used to assess deviations from utility-maximizing behavior. I argue that the CCEI is hard to interpret, and that it can disagree with other plausible measures of irrational behavior. The common interpretation of CCEI as wasted income is questionable. Moreover, I show that one agent may have more unstable preferences than another, but seem more rational according to the CCEI. This calls into question the (now common) use of CCEI as an ordinal and cardinal measure of degrees of rationality.
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A common assumption in auction theory is that the information available to the agents is given exogenously and that the auctioneer has full control over the market. In practice, agents might be able to acquire information about their competitors before the auction (by exerting some costly effort), and might be able to resell acquired items in an aftermarket. The auctioneer has no control over those aspects, yet their existence influences agents strategic behavior and the overall equilibrium welfare can strictly decrease as a result. We show that if an auction is smooth (e.g., first-price auction, all-pay auction), then the corresponding price of anarchy bound due to smoothness continues to hold in any environment with (a) information acquisition on opponents valuations, and/or (b) an aftermarket satisfying two mild conditions (voluntary participation and weak budget balance). We also consider the special case with two ex ante symmetric bidders, where the first-price auction is known to be efficient in isolation. We show that information acquisition can lead to efficiency loss in this environment, but aftermarkets do not: any equilibrium of a first-price or all-pay auction combined with an aftermarket is still efficient.
We propose an extended version of Gini index defined on the set of infinite utility streams, $X=Y^mathbb{N}$ where $Ysubset mathbb{R}$. For $Y$ containing at most finitely many elements, the index satisfies the generalized Pigou-Dalton transfer principles in addition to the anonymity axiom.
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Transition System Specifications provide programming and specification languages with a semantics. They provide the meaning of a closed term as a process graph: a state in a labelled transition system. At the same time they provide the meaning of an n-ary operator, or more generally an open term with n free variables, as an n-ary operation on process graphs. The classical way of doing this, the closed-term semantics, reduces the meaning of an open term to the meaning of its closed instantiations. It makes the meaning of an operator dependent on the context in which it is employed. Here I propose an alternative process graph semantics of TSSs that does not suffer from this drawback. Semantic equivalences on process graphs can be lifted to open terms conform either the closed-term or the process graph semantics. For pure TSSs the latter is more discriminating. I consider five sanity requirements on the semantics of programming and specification languages equipped with a recursion construct: compositionality, applied to n-ary operators, recursion and variables, invariance under $alpha$-conversion, and the recursive definition principle, saying that the meaning of a recursive call should be a solution of the corresponding recursion equations. I establish that the satisfaction of four of these requirements under the closed-term semantics of a TSS implies their satisfaction under the process graph semantics.
We study the implications of endogenous pricing for learning and welfare in the classic herding model . When prices are determined exogenously, it is known that learning occurs if and only if signals are unbounded. By contrast, we show that learning can occur when signals are bounded as long as non-conformism among consumers is scarce. More formally, learning happens if and only if signals exhibit the vanishing likelihood property introduced bellow. We discuss the implications of our results for potential market failure in the context of Schumpeterian growth with uncertainty over the value of innovations.
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