Papers by Stephane Gauthier
This paper analyzes how agents coordinate their forecasts on a Rational Expectations Equilibrium ... more This paper analyzes how agents coordinate their forecasts on a Rational Expectations Equilibrium under asymmetric information about fundamentals. We consider the class of linear one-dimensional models where the price is determined by price expectations. We
nd that REE stability is favored by a small sensitivity of the economy to forecasts, and, more surprinsingly, by a small proportion of informed agents. Still, price informational e¢ ciency is favored by a small sensitivity of the economy to forecasts but also by a large proportion of informed agents, suggesting a conict between the two issues of stabilizing uctuations and transmitting information to the market. Keywords: Common Knowledge, Coordination of Expectations, Informational Asymmetries, Rational Expectations Equilibrium. JEL classi
cation: C62, D82, D84
This paper studies the e¤ect of asymmetric information on equilibrium stability in a class of lin... more This paper studies the e¤ect of asymmetric information on equilibrium stability in a class of linear models where the actual state depends on the forecasts about it. Stability is de
ned by the so-called eductive criterion which relies on common knowledge of rationality. The main result is that stability obtains when the proportion of uninformed agents is high enough. The expectational behavior of these agents indeed displays more inertia. This behavior, and then the actual outcome, are therefore easier to predict. This result is linked to the issue of informational e¢ ciency. Extensions to cases with higher order uncertainty, additional agentsheterogeneity, and sunspots are also considered. Keywords: Asymmetric information, eductive stability, rational expectations, stabilization. JEL classi
cation: C62, D82, D84. We thank George Evans, Roger Guesnerie, Seppo Honkapohja and participants to the 2006 Learning Week workshop at the Federal Reserve Bank of Saint-Louis, Missouri. yTHEMA,...
Journal of Public Economic Theory, 2016
A government agency delegates to a provider (hospital, medical gatekeeper, school, social worker)... more A government agency delegates to a provider (hospital, medical gatekeeper, school, social worker) the decision to supply a service or treatment to individual recipients. The agency does not perfectly know the distribution of individual treatment costs in the population. The single-crossing property is not satisfied when the uncertainty pertains to the dispersion of the distribution. We find that the provision of service should then be distorted upwards relative to efficiency when the (first-best) efficient number of recipients is sufficiently high.
Le comportement des allocataires du RMI face aux politiques publiques d'incitation à l'emploi * S... more Le comportement des allocataires du RMI face aux politiques publiques d'incitation à l'emploi * S. GAUTHIER 1 Objet du texte Ce texte décrit les incitations à l'emploi qui sont offertes aux allocataires du Revenu Minimum d'Insertion augmenté des aides temporaires à l'emploi dites « d'intéressement ». Il suggère que, si une prime d'intéressement bénéficie uniquement aux allocataires qui conservent leur droit au RMI ouvert lorsqu'ils sont en emploi, elle doit être suffisamment généreuse pour inciter les allocataires à l'emploi ; qu'elle devient plus susceptible de favoriser l'entrée dans l'emploi lorsqu'elle est versée aux allocataires qui perdent le droit au RMI du fait de l'emploi ; qu'elle implique une plus grande instabilité de l'épisode d'emploi ; et qu'elle facilite l'entrée et le maintien dans l'emploi lorsque la prise en compte des revenus d'activité se fait de façon différée dans le temps. Enfin, il contient des prédictions sur les relations qui unissent la forme prise par l'épisode d'emploi à différentes caractéristiques observables des allocataires.
Economic Theory, 2012
We study how asymmetric information affects the set of rationalizable solutions in a linear setup... more We study how asymmetric information affects the set of rationalizable solutions in a linear setup where the outcome is determined by forecasts about this same outcome. The unique rational expectations equilibrium is also the unique rationalizable solution when the sensitivity of the outcome to agents' forecasts is less than one, provided that this sensitivity is common knowledge. Relaxing this common knowledge assumption, multiple rationalizable solutions arise when the proportion of agents who know the sensitivity is large, and the uninformed agents believe it is possible that the sensitivity is greater than one. Instability is equivalent to existence of some kind of sunspot equilibria.
Research Papers in Economics, Sep 1, 2021
This paper assesses the usefulness of stochastic contracts in the presence of informational asymm... more This paper assesses the usefulness of stochastic contracts in the presence of informational asymmetries. It identifies circumstances where a stochastic redistribution policy is socially dominated by the deterministic policy where after-tax income lotteries are replaced with their certainty equivalent. It also provides a parametric example where every stochastic menu which has the optimal deterministic menu as certainty equivalent is dominated by the deterministic menu, while there exist feasible and incentive compatible lotteries improving locally upon the deterministic menu.
∗I thank Guy Laroque and Shlomo Yitzhaki for thoughtful comments on the paper. The usual disclaim... more ∗I thank Guy Laroque and Shlomo Yitzhaki for thoughtful comments on the paper. The usual disclaimers apply.
étudions le rôle joué par les asymétries d’information sur la volatilité de marché dans un cadre ... more étudions le rôle joué par les asymétries d’information sur la volatilité de marché dans un cadre linéaire où le prix est déterminé par les anticipations sur ce prix. L’unique équilibre à anticipations rationnelles est dit stable lorsqu’il est aussi l’unique solution rationalisable. Il est connu dans la littérature que la stabilité s’obtient lorsque la sensibilité du prix aux anticipations de prix est plus petite que 1, lorsque cette sensitibilité est connaissance commune. Nous relâchons cette hypothèse de connaissance commune de la sensibilité du prix aux anticipations de prix. L’équilibre est instable lorsque beaucoup d’agents connaissent la véritable sensibilité, et que parmi le petit nombre d’agents qui ne la connaissent pas, certains pensent qu’elle peut être plus grande que 1. We study how asymmetric information affects market volatility in a linear setup where the outcome is determined by forecasts about this same outcome. The unique rational expectations equilibrium will be s...
We study competition in the U.S. airline industry relaxing the Nash equilibrium assumption that a... more We study competition in the U.S. airline industry relaxing the Nash equilibrium assumption that airlines are able to predict perfectly the behavior of their competitors. We assess empirically whether an equilibrium is more likely to occur if it is the unique rationalizable outcome. We find that equilibria of short distance routes with high traffic and low concentration are the most fragile, and low-cost companies appear detrimental to their occurrence. Our analysis is applied to the measurement of welfare gains from firms' entry, and to the characterization of the relevant market when some products are unobserved.
Consider a simple general equilibrium economy with one representative consumer, a single competit... more Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. This note shows that, if the tax rate on profits cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology. JEL classification numbers: H21
We provide a necessary condition for optimal commodity taxes when agents differ according to labo... more We provide a necessary condition for optimal commodity taxes when agents differ according to labor skill and consumption tastes and when the government can also use a general nonlinear tax on labor income. The discouragement index of commodities in shown to be the sum of (1) the distributive factors over the different income classes and (2) the excess demand of mimickers. The first component arises whenever there is taste heterogeneity within income classes. The second one arises whenever there is taste heterogeneity between income classes. In an empirical application from Canadian microdata we delineate groups of households with homogeneous tastes based on nonviolation of revealed preferences. Assuming that indirect taxes are set optimally, we identify the relevant incentive constraints and provide estimates for social values of the different groups. Redistribution from indirect taxes favors households living in rural Quebec.
This note studies how the optimal base for indirect taxation responds to changes in the distribut... more This note studies how the optimal base for indirect taxation responds to changes in the distribution of price elasticity of taxable commodities. In the standard Ramsey setup with a continuum of taxable commodities but only one available positive rate of tax, it provides a necessary and sufficient condition for an increase in the dispersion of price elasticities to yield a narrower base. In the particular case of a small tax rate this condition is met when the initial dispersion of the price elasticity is low enough with respect to the average price elasticity of taxed commodities. JEL classification: H21.
We study optimal commodity taxes in the presence of non-linear income taxes when agents differ in... more We study optimal commodity taxes in the presence of non-linear income taxes when agents differ in skills and tastes for consumption. We show that commodity taxes are partly determined by a many-person Ramsey rule when there is taste heterogeneity within income classes. The usual role of consumption taxes in relaxing incentive constraints explains the remaining part of these taxes when there is taste heterogeneity between income classes. We quantify the importance of these two components on Canadian microdata using a new method to identify empirically the binding incentive constraints. Incentives matter but tax exemptions are mostly justified by Ramsey considerations.
Social Choice and Welfare, 2018
Consider a simple general equilibrium economy with one representative consumer, a single competit... more Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. This note shows that, if the tax rate on profits cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology.
Social Choice and Welfare, 2018
We use the Targeted Subsidies Reform implemented in Iran in 2011 to recover empirically the socia... more We use the Targeted Subsidies Reform implemented in Iran in 2011 to recover empirically the social valuations of Iranian households relying on the assumption of optimal taxes. Unlike the existing literature, we do not restrict attention to a specific pattern for the incentive constraints associated with nonlinear income taxation. Instead we recover the Lagrange multipliers corresponding to these constraints. We find evidence of a significant redistribution toward the bottom three deciles of the income distribution before the reform. This redistribution is however limited by an incentive constraint where the rich envy the social treatment of the poor. At the outcome of the reform incentives no longer matter and the social welfare function of the government of Iran displays a Benthamite-like form.
European Economic Review, 2018
We study optimal linear commodity taxes in the presence of non-linear income taxes when agents di... more We study optimal linear commodity taxes in the presence of non-linear income taxes when agents differ in skills and tastes for consumption. We show that optimal commodity taxes are partly determined by a many-person Ramsey rule when there is taste heterogeneity within income classes. The usual role of commodity taxes in relaxing incentive constraints explains the remaining part of these taxes when there is taste heterogeneity between income classes. We quantify these two parts using French consumption microdata and find that commodities taxes are only shaped by many-person Ramsey considerations.
Journal of Economic Theory, 2017
A government designs transfers to agents in the absence of information on their preferences. The ... more A government designs transfers to agents in the absence of information on their preferences. The second-best allocation is equal sharing among citizens when the awards are deterministic. We provide a necessary and sucient condition under which lotteries improve upon the egalitarian outcome. The condition requires that the citizens with large social weights have low risk aversion, and that the left tail of the distribution of risk aversion be suciently dispersed.
This note shows that introducing into the economy a few number of agents who do not support sunsp... more This note shows that introducing into the economy a few number of agents who do not support sunspots theories magnifies endogenous business cycles fluctuations when the current state of the economic system is sensitive enough to traders' forecasts, or equivalently, in presence of indeterminacy.
International Journal of Industrial Organization, 2016
This paper studies rationalizability in a linear asymmetric Cournot oligopoly with a unique Nash ... more This paper studies rationalizability in a linear asymmetric Cournot oligopoly with a unique Nash equilibrium. It shows that mergers favors uniqueness of the rationalizable outcome. When one requires uniqueness of the rationalizable outcome maximization of consumers' surplus may involve a symmetric oligopoly with few firms. We interpret uniqueness of the rationalizable outcome as favoring a dampening of strategic 'coordination' uncertainty. An illustration to the merger between Delta Air Lines and Northwest shows that a reallocation of 1% of market share from a small carrier to a larger one has implied a lower production volatility over time, yielding a 1.5% decrease in the coefficient of variation of number of passengers.
This paper studies the eect of asymmetric information on equilibrium stability in a class of line... more This paper studies the eect of asymmetric information on equilibrium stability in a class of linear models where the actual state depends on the forecasts about it. Stability is de…ned by the so-called eductive criterion which relies on common knowledge of rationality. The main result is that stability obtains when the proportion of uninformed agents is high enough. The expectational
Uploads
Papers by Stephane Gauthier