nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒02‒08
nine papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information and consumer fraud in a signalling model By Silvia Martínez-Gorricho
  2. How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish By Tanja Hörtnagl; Rudolf Kerschbamer
  3. Optimal Altruism in Public Good Provision By Robert Hahn; Robert Ritz
  4. Lobbying in a multidimensional policy space with salient issues By P. Roberti
  5. Endogenous product compatibility choice under Cournot competition with a network externality By Tsuyoshi Toshimitsu
  6. Revealed Preference, Rational Inattention, and Costly Information Acquisition By Andrew Caplin; Mark Dean
  7. Some Unpleasant Bargaining Arithmetic? By Hülya Eraslan; Antonio Merlo
  8. Organizational Coordination and Costly Communication with Boundedly Rational Agents By Dietrichson, Jens; Jochem, Torsten
  9. Managing Innovation in a Crowd By Daron Acemoglu; Mohamed Mostagir; Asuman Ozdaglar

  1. By: Silvia Martínez-Gorricho (Dpto. Análisis Económico Aplicado)
    Abstract: This article considers a two-sided private information model. We assume that two exogenously given qualities are offered in a monopolistic market. Prices are ¿xed. A low quality seller chooses to be either honest (by charging the lower market price) or dishonest (by charging the higher price). We discuss the signaling role of the consumer’s private information on the equilibrium level of dishonesty, incidence of fraud and trade. We demonstrate that the equilibrium incidence of fraud is nonmonotonic in the buyer’s private information when the prior belief favors the low-quality seller strongly enough. This result holds as long as information is noisy and regardless of its private or public nature. Welfare consequences are ambiguous.
    Keywords: Consumer Fraud; Asymmetric Information; Price Signalling
    JEL: D42 D82 G14 L15 L51
    Date: 2014–01
  2. By: Tanja Hörtnagl; Rudolf Kerschbamer
    Abstract: This paper challenges recent results on the fragility of the value of commitment. It introduces a specific notion of the ’value of information’ for a later-moving player about the action choice of a previously-moving player, gives conditions under which this value is positive and shows that a positive value of information for the latermoving player is sufficient for a positive value of commitment for the previouslymoving player. It then argues that the value of information for a later-moving player is unlikely to vanish in real-world applications, implying that the value of commitment for the previously-moving player does not vanish either.
    Keywords: Value of Information, Value of Commitment, Sequential Move Game, Imperfect Observability, Stackelberg Duopoly, First-Mover Advantage
    JEL: C72 D82 D83 L13
    Date: 2014–02
  3. By: Robert Hahn; Robert Ritz
    Abstract: We present a model of altruistically-minded-yet rational-players contributing to a public good. A key feature is the tension between altruism and "crowding-out" effects (players' efforts are strategic substitutes). We find that more altruistic behaviour can raise or reduce welfare, depending on the fine details of the environment. It is almost always optimal for a player to act more selfishly than her true preference. We discuss applications to a range of public good problems, including global climate policy. Our results highlight that it may be difficult to infer social preferences from observed behaviour.
    Keywords: Altruism, climate policy, crowding out, public goods
    JEL: D03 H23 H41 Q58
    Date: 2014–01–29
  4. By: P. Roberti
    Abstract: We present a citizen-candidate model on a multidimensional policy space with lobbying, where citizens regard some issues more salient than others. We find that special interest groups that lobby on less salient topics move the implemented policy closer to their preferred policy, compared to the ones that lobby on more salient issues. When we introduce two types of citizens, who differ with respect to the salience of issues, we find pooling equilibria where voters are not able to offset the effect of lobbying on the implemented policy. This result is in sharp contrast with previous work on unidimensional citizen-candidate models that predict the irrelevance of lobbying on the implemented policy. In an extension of the model we provide citizens with the possibility of giving monetary contributions to lobbies in order to increase their power. With more than one lobby per dimension we have two findings. First, under some conditions only the most extreme lobbies receive contributions. Second, the effectiveness of a lobby is maximized when the salience of an issue is low in the population and high for a small group of citizens.
    JEL: D72 D74 D78
    Date: 2014–01
  5. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We provide a simple model of endogenous product compatibility choice under Cournot competition with a network externality. Using the model, we consider how the degree of a network externality and product substitutability affects the choice regarding product compatibility. In particular, if the degree of the network externality is larger than that of the product substitutability, there exist multiple equilibria, involving imperfect, partial, and perfect compatibility. However, if another assumption formula regarding a spillover effect, which is a component of network size, is made, i.e., the converter case, there is a unique equilibrium, i.e., perfect compatibility, irrespective of the degree of the network effect versus product substitutability. Furthermore, we show that a perfectly compatible product standard is socially optimal and analyze, therefore, whether a social dilemma arises in the network products market.
    Keywords: product compatibility, network externality, fulfilled expectation; Cournot duopoly, horizontally differentiated product
    JEL: D21 D43 D62 L15
    Date: 2014–01
  6. By: Andrew Caplin; Mark Dean
    Abstract: We develop a revealed preference test for optimal acquisition of costly information. The test encompasses models of rational inattention, sequential signal processing, and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit state dependent stochastic choice data of the form the tests require. In simple cases, tests confirm that subjects adjust their attention in response to incentives as the theory dictates.
    JEL: D80
    Date: 2014–01
  7. By: Hülya Eraslan (Department of Economics, John Hopkins University); Antonio Merlo (Department of Economics, University of Pennsylvania)
    Abstract: It is commonly believed that, since unanimity rule safeguards the rights of each individual, it protects minorities from the possibility of expropriation, thus yielding more equitable outcomes than majority rule. We show that this is not necessarily the case in bargaining environments. We study a multilateral bargaining model à la Baron and Ferejohn (1989), where players are heterogeneous with respect to the potential surplus they bring to the bargaining table. We show that unanimity rule may generate equilibrium outcomes that are more unequal (or less equitable) than under majority rule. In fact, as players become perfectly patient, we show that the more inclusive the voting rule, the less equitable the equilibrium allocations.
    Keywords: Multilateral bargaining, voting rules, inequality
    JEL: C78 D70
    Date: 2014–01–03
  8. By: Dietrichson, Jens (Department of Economics, Lund University); Jochem, Torsten (Faculty of Economics and Business, University of Amsterdam)
    Abstract: How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.
    Keywords: Organizational coordination; Commmunication; Stochastic stability; Bounded rationality; Simulation
    JEL: C73 D23 L22 L23
    Date: 2014–02–03
  9. By: Daron Acemoglu; Mohamed Mostagir; Asuman Ozdaglar
    Abstract: Crowdsourcing is an emerging technology where innovation and production are sourced out to the public through an open call. At the center of crowdsourcing is a resource allocation problem: there is an abundance of workers but a scarcity of high skills, and an easy task assigned to a high-skill worker is a waste of resources. This problem is complicated by the fact that the exact difficulties of innovation tasks may not be known in advance, so tasks that require high-skill labor cannot be identified and allocated ahead of time. We show that the solution to this problem takes the form of a skill hierarchy, where tasks are first attempted by low-skill labor, and high-skill workers only engage with a task if less skilled workers are unable to finish it. This hierarchy can be constructed and implemented in a decentralized manner even though neither the difficulties of the tasks nor the skills of the candidate workers are known. We provide a dynamic pricing mechanism that achieves this implementation by inducing workers to self select into different layers. The mechanism is simple: each time a task is attempted and not finished, its price (reward upon completion) goes up.
    JEL: D20 D83 L22
    Date: 2014–01

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