nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒01‒10
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Global Game with Heterogenous Priors By Wolfgang Kuhle
  2. Regular economies with ambiguity aversion. By Noé Biheng; Jean-Marc Bonnisseau
  3. Attention Manipulation and Information Overload By Persson, Petra
  4. Information Sharing and Incentives in Organizations By Jean-Etienne de Bettignies; Jan Zabojnik
  5. When trust fades...: Can optimal mechanisms for policy decisions always be designed? By Major, Iván
  6. Strategic complexities in the combinatorial clock auction By Knapek, Stephan; Wambach, Achim
  7. From …fixed to state-dependent duration in public-private contracts By Daniel Danau; Annalisa Vinella
  8. Heterogenous switching costs By Biglaiser, Gary; Crémer, Jacques; Dobos, Gergely
  9. The dynamics of innovation and risk By Biais, Bruno; Rochet, Jean-Charles; Woolley, Paul
  10. Competitive Cross-Subsidization By Chen, Zhijun; Rey, Patrick
  11. Pay What You Want – But Pay Enough! Information Asymmetries and PWYW Pricing By Greiff, Matthias; Egbert, Henrik; Xhangolli, Kreshnik
  12. Human Trafficking and Regulating Prostitution By Lee, Samuel; Persson, Petra

  1. By: Wolfgang Kuhle
    Abstract: This paper relaxes the common prior assumption in the public and private information game of Morris and Shin (2000, 2004). For the generalized game, where the agent's prior expectations are heterogenous, it derives a sharp condition for the emergence of unique/multiple equilibria. This condition indicates that unique equilibria are played if player's public disagreement is substantial. If disagreement is small, equilibrium multiplicity depends on the relative precisions of private signals and subjective priors. Extensions to environments with public signals of exogenous and endogenous quality show that prior heterogeneity, unlike heterogeneity in private information, provides a robust anchor for unique equilibria. Finally, irrespective of whether priors are common or not, we show that public signals can ensure equilibrium uniqueness, rather than multiplicity, if they are sufficiently precise.
    Date: 2013–12
  2. By: Noé Biheng (Centre d'Economie de la Sorbonne); Jean-Marc Bonnisseau (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We consider a family of exchange economies where consumers have multiprior preferences representing their ambiguity aversion. Under a linear independence assumption, we prove that regular economies are generic. Regular economies exhibit enjoyable properties: odd finite number of equilibrium prices, local constancy of this number and local differentiable selections of the equilibrium prices. Thus, even if ambiguity aversion is represented by non-differentiable multiprior preferences, economies retain generically the properties of the differentiable approach.
    Keywords: Demand function, general equilibrium, ambiguity aversion, multiprior preferences, regular economies, Lipschitz behavior.
    JEL: C6 D4 D5
    Date: 2013–12
  3. By: Persson, Petra (Research Institute of Industrial Economics (IFN))
    Abstract: When a decision-maker’s attention is limited, her decisions depend on what she focuses on. This gives interested parties an incentive to manipulate not only the substance of communication but also the decision-maker’s attention allocation. This paper models such attention manipulation. In its presence, competitive information supply can reduce the decision-maker’s knowledge by causing information overload. Further, a single information provider may deliberately induce information overload to conceal information. These findings, pertinent to consumer protection, suggest a role for rules that restrict communication, mandate not only the content but also the format of disclosure, and regulate product design.
    Keywords: Communication; Information Overload; Limited Attention; Persuasion; Disclosure; Complexity; Consumer Protection; Salience
    JEL: D18 D82 D83 M38
    Date: 2013–12–13
  4. By: Jean-Etienne de Bettignies (Queen); Jan Zabojnik (Queen)
    Abstract: We examine optimal information flows between a manager and a worker who is in charge of evaluating a parameter of interest, e.g. the value of a project. The manager may possesses information about the parameter, and, if informed, may divulge her information to the worker. We show that information sharing may weaken the worker's incentives and that, consequently, the manager may find it optimal to conceal her information from the worker. Moreover, the manager faces a time-inconsistency problem, which leads her to conceal her information more often than she would if she could commit to an information sharing policy. We build on these results to address issues related to authority in organizations.
    Keywords: Information non-disclosure, expert evaluation, agency costs, authority
    JEL: D21 D82 L23
    Date: 2013–12
  5. By: Major, Iván
    Abstract: Governments must usually take policy decisions with an imperfect knowledge of the economic actors' type or the actors' effort level. These issues are addressed within the framework of classic adverse selection or moral hazard models. I discuss in this paper how would the government's and the economic actors' behavior change if relevant information is double asymmetric, that is, it is not just the government that has limited information about the agents' type or effort level, but the economic actors also lack perfect information about the government's trustworthiness. Using the modeling tools of mechanism design I prove in the paper, that government - as principal - is only capable of applying perverse incentives towards the economic agents: it punishes well-behaving agents while it rewards the badly behaving ones. I apply the theoretical models to the regulatory issues of network industries, and specifically to the ICT industry. --
    Keywords: mechanism design,incentive theory,adverse selection,moral hazard,Bayesian games
    JEL: C73 D82
    Date: 2013
  6. By: Knapek, Stephan; Wambach, Achim
    Abstract: Recently, the combinatorial clock auction has become more and more common in the auctioning of telecommunication licenses. Although the auction design is complex, the promise is that bidding becomes simple - truthtelling is close to optimal. We show that this claim is too strong. The auction entails several strategic complexities which make bidding non-trivial. --
    Keywords: combinatorial clock auction
    Date: 2013
  7. By: Daniel Danau (University of Caen Basse-Normandie, CREM CNRS UMR 6211, France); Annalisa Vinella (Università degli Studi di Bari "Aldo Moro", Italy)
    Abstract: A government delegates a build-operate-transfer project to a private firm. At the contracting stage, the operating cost is unknown. The firm can increase the likelihood of facing a low cost (the good state) by exerting effort when building the infrastructure. Once this is in place, the firm learns the true cost and begins to operate. Under limited commitment, either the firm or the government may renege on the contract. Within this context, we explore how well a contract with a state-dependent duration performs, as compared to the more standard fixed-term contract. Under full commitment, the efficient allocation is decentralized, whether the contractual term is fixed or state-dependent. Under limited commitment, in situations where break-up of the partnership is little costly for the government, the efficient allocation can be decentralized only if it is stipulated that the duration of the contract will be longer in the good state than in the bad state. This result is at odds with the prescription of the literature on "flexible-term" contracts, which recommends a longer contractual length when the operating conditions are unfavourable.
    Keywords: Fixed-term contract, state-dependent duration, limited commitment, renegotiation, public-private partnerships
    JEL: D82 H57 H81
    Date: 2013–12
  8. By: Biglaiser, Gary; Crémer, Jacques; Dobos, Gergely
    Abstract: We consider a simple two period model where consumers have different switching costs. Before the market opens, there was an incumbent who sold to all consumers. We identify the equilibrium both with Stackelberg and Bertrand competition and show how the presence of low switching cost consumers benefits the incumbent, despite the fact that it never sells to any of them.
    Keywords: switching, cost
    JEL: D43 L13
    Date: 2013–12
  9. By: Biais, Bruno; Rochet, Jean-Charles; Woolley, Paul
    Abstract: We study the dynamics of an innovative industry when agents learn about its strength, i.e., the likelihood that it gets hit by negative shocks. Managers can exert risk-prevention export to mitigate the consequences of such shocks. As time goes by, if no shock occurs, con…dence improves. This attracts managers to the innovative sector. But, when con…dence becomes high, less managers exerting low risk-prevention export also enter. This accelerates the growth of the industry, while inducing a decline in risk-prevention. The longer the boom, the stronger the con…dence, the larger the losses if a shock occurs. While the above dynamics arise in the fi…rst best, with asymmetric information there is excessive entry of inefficient managers, earning informational rents at the expense of inneficient managers. This inflates the innovative sector and increases its vulnerability.
    Date: 2013–10
  10. By: Chen, Zhijun; Rey, Patrick
    Abstract: This paper analyzes competitive pricing policies by multiproduct firms facing heterogeneous buying patterns. We show that cross-subsidization arises when firms have comparative advantages on different products but are equally efficient overall: Firms earn a profit from multi-stop shoppers by charging positive margins on their strong products but, as price competition for one-stop shoppers drives total margins down to zero, they price weaker products below cost. Banning below-cost pricing leads to higher profits and higher prices for one-stop shoppers, and may reduce consumer surplus as well as total social welfare.
    Keywords: Bertrand competition, cross-subsidization, buying patterns, one-stop and multi-stop shopping
    JEL: L11 L41
    Date: 2013–12–14
  11. By: Greiff, Matthias; Egbert, Henrik; Xhangolli, Kreshnik
    Abstract: Pay What You Want (PWYW) pricing has received considerable attention recently. Empirical studies show that when PWYW pricing is implemented buyers do not behave selfishly in a number of cases and that some sellers are able to use PWYW to increase turnover as well as profits. In this paper we present a theoretical model of buyer behavior under asymmetric information about production costs. Our model shows that information asymmetries provide an explanation for the results found in empirical studies.
    Keywords: PWYW pricing, information asymmetry, fairness, buyer behavior
    JEL: D4 M2 M3
    Date: 2013–12–12
  12. By: Lee, Samuel (New York University); Persson, Petra (Research Institute of Industrial Economics (IFN))
    Abstract: We study sex trafficking in a marriage market model of prostitution. When traffickers can coerce women to sell sex, trafficked prostitutes constitute a non-zero share of supply in any unregulated market for sex. We ask if regulation can eradicate trafficking and restore the equilibrium that would arise in an unregulated market without traffickers. While all existing approaches – criminalization of prostitutes (“the traditional model”), licensed prostitution (“the Dutch model”), and criminalization of johns (“the Swedish model”) – fail to accomplish this goal, we show that there exists an alternative regulatory model that does. Political support for regulation hinges on the level of gender income inequality.
    Keywords: Prostitution; Trafficking; Contemporary slavery; Marriage; Illegal goods
    JEL: D10 J16 J47 J49 K14 K23
    Date: 2013–12–13

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