McAfee and Reny(1992)have given a necessary and sufficient condition for full surplus extraction in naive type spaces with a continuum of payoff types. We generalize their characterization to arbitrary abstract type spaces and to the universal type space and show that in each setting, full surplus extraction is generically possible. We interpret the McAfee–Reny condition as a much stronger version of injectiveness of belief functions and prove genericity by arguments similar to those used to prove the classical embedding theorem for continuous functions. Our results can be used to also establish the genericity of common priors that admit full surplus extraction.
We study the division of trade surplus in a natural field experiment conducted on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. A random selection of buyers, the subjects of our experiment, make price offers according to the rules of eBay. Using a novel decomposition method, we infer the offered shares of trade surplus from the data and find that the average share proposed to the seller amounts to about 30%. Additionally, we document: (i) insignificant effects of the stake size; (ii) poor use of strategically relevant public information; and (iii) differences in behaviour between East and West German subjects.
This paper empirically examines the business-stealing effect of store entry in the Swiss grocery retail industry. A uniquely spatially detailed dataset of all Swiss retail stores and residents is constructed, that captures important drivers of demand and competition with great detail. I employ Entropy Balancing to control for systematic differences across local markets and provide non-parametric estimates of local entry effects. I find that markets for grocery retailing stores are highly localized in a tight 4 kilometer radius. Larger retailing stores react more on the intensive margin to entry and contract their employment hours and numbers, while smaller stores are particularly impacted on the extensive margin. In addition, I find evidence that the local market size for a small store is smaller than for a large store.
Almost all important decisions in people’s lives entail risky consequences. Some of these decisions involve events that materialize with a low probability but lead to extreme consequences such as loss of total wealth or accidental death. When facing such rare extreme events, people display considerable risk aversion in some situations whereas in others the opposite is the case. For example, the prospect of airplane and stock market crashes triggers high risk aversion but there is a low willingness to take out hazard or life insurance. We address this puzzle by arguing that the timing of the consequences and of uncertainty resolution are crucial for understanding these phenomena. We show that future uncertainty conjointly with people’s proneness to probability distortions generates a unifying framework for explaining the coexistence of over- and underweighting of rare extreme events.
