Microeconomics
http://lists.repec.orgmailman/listinfo/nep-mic
Microeconomics
2015-11-21
On Competing Mechanisms under Exclusive Competition
http://d.repec.org/n?u=RePEc:tse:wpaper:29906&r=mic
We study games in which several principals design incentive schemes in the presence of privately informed agents. Competition is exclusive: each agent can participate with at most one principal, and principal-agents corporations are isolated. We analyze the role of standard incentive compatible mechanisms in these contexts. First, we provide a clarifying example showing how incentive compatible mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling equilibria are robust against unilateral deviations toward arbitrary mechanisms. We then consider the single agent case and exhibit sufficient conditions for the validity of the revelation principle.
Attar, Andrea
Campioni, Eloisa
Piaser, Gwenaël
Competing Mechanisms, Exclusive Competition, Incomplete Information.
2015-11
Strategy proofness and unanimity in private good economies with single-peaked preferences
http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01226803&r=mic
In this paper we examine the relation between strategy-proofness and unanimity in a domain of private good economies with single-peaked preferences. We prove that, under a mild condition, a social choice function satisfies strategy-proofness if and only if it is unanimous. As implication, we show that when the property of citizen sovereignty holds, strategy proofness and Maskin monotonicity become equivalent. We also give applications to implementation literature: We provide a full characterization for dominant strategy implementation, standard Nash implementation, and partially honest Nash implementation and we prove that these theories are equivalent.
Mostapha Diss
Ahmed Doghmi
Abdelmonaim Tlidi
Single-peaked preferences, Maskin monotonicity, Private good economies,Strategy-proofness, Unanimity
2015
Optimal public information dissemination: Introducing observational learning into a generalized beauty contest
http://d.repec.org/n?u=RePEc:zbw:hwwirp:169&r=mic
We develop a dynamic two-period generalized beauty contest to study the optimal level of publicity when disclosed information is subject to multiplier effects inherent to social learning. We build upon the static case, where all agents receive a private signal about an unknown fundamental state and only a fraction of all agents receive an additional public signal. However, in our model, agents no longer act simultaneously; rather, agents informed by both signals act in the first period, while those uninformed about the public signal delay their action and learn about informed agents' actions. We show that in the unique equilibrium of our dynamic game, informed agents overreact more strongly to public signals. The optimal dissemination of public information is thus considerably lower than the static case suggests. If the social learning signal is reasonably precise, aggregate welfare is higher than in the static case. Our results hold relevance for the optimal information policy design of public authorities.
Hüning, Hendrik
Meub, Lukas
generalized beauty contest,monetary policy,optimal communication,social learning,strategic complementarities
2015
Diffusing Coordination Risk
http://d.repec.org/n?u=RePEc:red:sed015:1350&r=mic
This paper designs an optimal mechanism to correct coordination failure. A planner wants her agents to coordinate on a cooperative action. Agents gather noisy private information regarding the underlying fundamental and decide whether to cooperate or not. The global game literature uniquely identifies the chance of coordination failure when the coordination risk is concentrated at one point in time. We analyze the case when the planner diffuses the coordination risk over time. The planner approaches the agents sequentially - only a proportion of agents at a time and advancing further only when the coordination failure has been averted so far. The public information of survival works as a coordination device and helps in mitigating the coordination risk. We show that if the planner can diffuse the coordination risk enough, then she can achieve the first best as the unique equilibrium outcome. However, if the planner has only limited power to diffuse the coordination risk, multiple equilibria can arise. A max-min planner should diffuse the coordination risk as much as possible. We also show that if some groups are more reluctant to cooperate than others, a max-min planner should approach the more reluctant groups first. Our mechanism is robust to various generalizations and can be applied to a wide range of coordination games.
Zhen Zhou
Deepal Basak
2015
Screening and Adverse Selection in Frictional Markets
http://d.repec.org/n?u=RePEc:red:sed015:1379&r=mic
We develop a tractable framework for analyzing adverse selection economies with imperfect competition. Applications include markets for insurance, loans and financial assets. In our environment, uninformed buyers offer a general menu of screening contracts to trade with a privately informed seller. Imperfect competition is captured by allowing some sellers to trade with multiple buyers while others can only trade with one buyer (as in Burdett and Judd (1983)). Thus, the framework allows us to consider variations to the degree of competition in the market where one extreme is perfect competition a la Rothschild and Stiglitz (1976) while the other extreme is the standard non-linear pricing problem of a monopolist. We show that the unique symmetric mixed strategy equilibrium can be summarized by a probability distribution of indirect utilities offered by each buyer to each type of seller. Furthermore, we prove that the equilibrium exhibits a strict rank-preserving property, in that different types of sellers have an identical ranking of different menus offered in equilibrium. The equilibrium features menus that are all separating, all pooling or a mixture of both. When both types of menus are offered in equilibrium, those which offer higher utility to the seller are more likely to be separating. Ex-ante welfare is maximized when competition is imperfect. Finally, we study the effects of various policies - such as mandates, non-discrimination requirements and other restrictions on contracts - on welfare and the extent of competition.
Venky Venkateswaran
Ariel Zetlin-Jones
Ali Shourideh
Benjamin Lester
2015
Markets for leaked information
http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2015305&r=mic
We study markets for sensitive personal information. An agent wants to communicate with another party but any revealed information can be intercepted and sold to a third party whose reaction harms the agent. The market for information induces an adverse sorting effect, allocating the information to those types of third parties who harm the agent most. In equilibrium, this limits information transmission by the agent, but never fully deters it. We also consider agents who naively provide information to the market. Their presence renders traded information more valuable and, thus, harms sophisticated agents by increasing the third party's demand for information. Half-baked regulatory interventions may hurt naive agents without helping sophisticated agents. Comparing monopoly and oligopoly markets, we find that oligopoly is often better for the agent: it requires a higher value of traded information and therefore has to grant the agent more privacy.
Huck, Steffen
Weizsäcker, Georg
privacy,markets for information,naivete
2015
Optimal Dynamic Contracts for a Large-Scale Principal-Agent Hierarchy: A Concavity-Preserving Approach
http://d.repec.org/n?u=RePEc:arx:papers:1506.05497&r=mic
We present a continuous-time contract whereby a top-level player can incentivize a hierarchy of players below him to act in his best interest despite only observing the output of his direct subordinate. This paper extends Sannikov's approach from a situation of asymmetric information between a principal and an agent to one of hierarchical information between several players. We develop an iterative algorithm for constructing an incentive compatible contract and define the correct notion of concavity which must be preserved during iteration. We identify conditions under which a dynamic programming construction of an optimal dynamic contract can be reduced to only a one-dimensional state space and one-dimensional control set, independent of the size of the hierarchy. In this sense, our results contribute to the applicability of dynamic programming on dynamic contracts for a large-scale principal-agent hierarchy.
Christopher W. Miller
Insoon Yang
2015-06
Disagreement, information and welfare
http://d.repec.org/n?u=RePEc:red:sed015:1344&r=mic
In a stylized strategic situation, two individuals form consistent (self-confirming) assessments as classical statisticians. In equilibrium, where individuals are rational and sophisticated, there are two outcomes: (i) disagreement bears no idiosyncratic risks, minimizes aggregate welfare, individuals cannot recover the truth, and may hold different assessments; (ii) agreement is robust, maximizes welfare, and assessments coincide with the truth. A subjective Pareto criterion compares outcomes based on assessments that players may hold. Whereas agreement is Pareto efficient, disagreement subjectively Pareto- dominates agreement. Under equilibrium assessments, individuals disagree on redistribution. The example relates to 'agreeing to disagree' (Aumann 1976), trade and information (Milgrom and Stokey 1982), and a toy macroeconomic example.
Jernej Copic
2015
Locating a public good on a sphere
http://d.repec.org/n?u=RePEc:unm:umagsb:2015028&r=mic
It is shown that in a model where agents have single-peaked preferences on the sphere, every Pareto optimal social choice function that is strict or coalitional strategy-proof, is dictatorial.
Chatterjee S.
Peters H.J.M.
Storcken A.J.A.
Social Choice; Clubs; Committees; Associations;
2015
Dynamic Bidding in Second Price Auction
http://d.repec.org/n?u=RePEc:red:sed015:1346&r=mic
We consider equilibrium bidding behavior in a dynamic second price auction where agents have the option to increase bids at random times and values follow a Markov process. We prove that equilibrium exists and is unique and give an algorithm to solve for bids as a function of time and values. Equilibrium bids equal the expected final value conditional on the bid placed being the final one, meaning that either the agent doesn't get another opportunity to rebid or chooses not to increase this bid if given the option. This results in adverse selection with respect to a bidder's own future strategy, and as a result bids are shaded relative to the bidder's expected value. This is true in spite of values being independent across bidders. Under mild conditions, desired bids increase as time increases and the close of the auction is approached. Our results are consistent with repeated bidding and sniping, two puzzling observations in eBay auctions.
Maryam Saeedi
Hugo A. Hopenhayn
2015
Vertical Integration, Knowledge Disclosure and Decreasing Rival's Cost
http://d.repec.org/n?u=RePEc:crt:wpaper:1507&r=mic
We study vertical integration taking into account the fact that, by facilitating the exchange of information within the integrated firm, it allows its upstream unit to disclose to the non-integrated downstream customer-rival the knowledge that it acquires regarding its downstream partner's innovation. We show that a vertically integrated firm chooses to disclose its knowledge to its downstream rival. Knowledge disclosure intensifies downstream competition but, at the same time, expands the size of the downstream market. We also show that, due to knowledge disclosure, vertical integration increases firms' innovation incentives, consumer and total welfare, and decreases, instead of raises, the rival's cost.
Chrysovalantou Miliou
Emmanuel Petrakis
vertical integration; R&D investments; market foreclosure; knowledge disclosure
2015-11-17
A Theory of Crowdfunding - a mechanism design approach with demand uncertainty and moral hazard
http://d.repec.org/n?u=RePEc:trf:wpaper:527&r=mic
Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare.
Roland, Strausz
Crowdfunding; finance; marketing; demand; uncertainty; moral hazard
2015-11-14
Preemptive Investment under Uncertainty
http://d.repec.org/n?u=RePEc:bie:wpaper:549&r=mic
This paper provides a general characterization of subgame-perfect equilibria for a strategic timing problem, where two firms have the (real) option to invest irreversibly in some market. Profit streams are uncertain and depend on the market structure. The analysis of the problem emphasizes its dynamic nature and exploits only its economic structure. In particular, the determination of equilibria with preemption is reduced to solving a single class of constrained stopping problems. The general results are applied to typical state-space models from the literature, to point out common deficits in equilibrium arguments and to suggest alternative equilibria that are Pareto improvements.
Steg, Jan-Henrik
optimal stopping. , equilibrium, Preemption, irreversible investment, real options
2015-11-12
Discrimination as a coordination device : markets and the emergence of identity
http://d.repec.org/n?u=RePEc:wbk:wbrwps:7490&r=mic
The paper develops a new theory of group discrimination in which the discrimination in favor or against certain groups is simply a coordination device. It is built on the axiom that a person who gets to perform many tasks is more effective in carrying out each task, which implies increasing returns to productivity in doing the same task or strategic complementarity between doing different tasks. The theory helps us understand discrimination in free markets and the .finding of some empirical studies that show that people discriminate in job markets against certain groups even when all other traits are held constant. The model gives insight into the relation between group size, discrimination, and productivity.
Basu,Kaushik
Housing&Human Habitats,Race in Society,Economic Theory&Research,Labor Policies,Markets and Market Access
2015-11-13
Equilibrium pricing under relative performance concerns
http://d.repec.org/n?u=RePEc:arx:papers:1511.04218&r=mic
We investigate the effects of the social interactions of a finite set of agents on an equilibrium pricing mechanism. A derivative written on non-tradable underlyings is introduced to the market and priced in an equilibrium framework by agents who assess risk using convex dynamic risk measures expressed by Backward Stochastic Differential Equations (BSDE). Each agent is not only exposed to financial and non-financial risk factors, but she also faces performance concerns with respect to the other agents. Within our proposed model we prove the existence and uniqueness of an equilibrium whose analysis involves systems of fully coupled multi-dimensional quadratic BSDEs. We extend the theory of the representative agent by showing that a non-standard aggregation of risk measures is possible via weighted-dilated infimal convolution. We analyze the impact of the problem's parameters on the pricing mechanism, in particular how the agents' performance concern rates affect prices and risk perceptions. In extreme situations, we find that the concern rates destroy the equilibrium while the risk measures themselves remain stable.
Jana Bielagk
Arnaud Lionnet
Goncalo Dos Reis
2015-11