nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒04‒11
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Asymmetric Information and Adverse Selection By Ian Jewitt; Clare Leaver; Heski Bar-Isaac
  2. Information Transmission in Nested Sender-Receiver Games By Sidartha Gordon; Ying Chen
  3. Online Concealed Correlation and Bounded Rationality By Gilad Bavly; Abraham Neyman
  4. Targeted vs. collective information sharing in networks By Alexey Kushnir; Alexandru Nichifor
  5. Rumors and Social Networks By Francis Bloch; Gabrielle Demange; Rachel Kranton
  6. Deliberation, Leadership and Information Aggregation By Javier Rivas; Carmelo Rodríguez-Álvarez
  7. Disclosure of information in matching markets with non-transferable utility By Ennio Bilancini; Leonardo Boncinelli
  8. Overlapping coalitions, bargaining and networks By Messan Agbaglah
  9. Optimal Project Selection Mechanisms By Talia Bar; Sidartha Gordon
  10. Competing for Attention: Is the Showiest also the Best? By Paola Manzini; Marco Mariotti
  11. Communicating Judicial Retirement By AÌlvaro Bustos; Tonja Jacobi
  12. Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Markets By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  13. On luxury and equilibrium By A. Mantovi
  14. On the core and bargaining set of a veto game By Eric Bahel
  15. Stochastic Stability in Assignment Problems By Bettina Klaus and; Jonathan Newton
  16. The Housing Problem and Revealed Preference Theory: Duality and an application By Ivar Ekeland; Alfred Galichon
  17. Transaction-Specific Investments and Organizational Choice: A Coase-to-Coase Theory By Thomas J. Miceli
  18. Advances in Auctions By Todd R. Kaplan; Shmuel Zamir

  1. By: Ian Jewitt; Clare Leaver; Heski Bar-Isaac
    Abstract: This paper develops a framework for the analysis of how asymmetric information impacts on adverse selection and market efficiency.� We adopt Akerlof's (1970) unit-demand model extended to a setting with multidimensional public and private information.� Adverse selection and efficiency are defined quantitatively as real valued random variables.� We characterize how public information disclosure and private information acquisition affect the relationship between adverse selection and efficiency.� These results are applied to inform welfare and empirical analysis and, in an employer learning setting, to study the endogenous choice of information structures.� Equilibrium information structures impose adverse selection efficiently.� We show that this makes adverse selection hard to detect using standard positive correlation tests.
    Keywords: asymmetric information, adverse selection, information structures, information acquisition, information disclosure, employer learning
    JEL: D82 J30
    Date: 2014–01–24
  2. By: Sidartha Gordon (Département d'économie); Ying Chen (Key Laboratory of Inorganic Functional Materials and Devices)
    Abstract: We introduce a “nestedness” relation for a general class of sender-receiver games and compare equilibrium properties, in particular the amount of information transmitted, across games that are nested. Roughly, game is nested in game if the players’s optimal actions are closer in game. We show that under some conditions, more information is transmitted in the nested game in the sense that the receiver’s expected equilibrium payoff is higher. The results generalize the comparative statics and welfare comparisons with respect to preferences in the seminal paper of Crawford and Sobel (1982). We also derive new results with respect to changes in priors in addition to changes in preferences. We illustrate the usefulness of the results in three applications: (i) delegation to an intermediary with a different prior, the choice between centralization and delegation, and two-way communication with an informed principal.
    Keywords: sender-receiver games, information transmission, nestedness, inter- mediary, delegation, informed principal.
    Date: 2014–04
  3. By: Gilad Bavly; Abraham Neyman
    Abstract: Correlation of players' actions may evolve in the common course of the play of a repeated game with perfect monitoring (``obline correlation''). In this paper we study the concealment of such correlation from a boundedly rational player. We show that ``strong'' players, i.e., players whose strategic complexity is less stringently bounded, can orchestrate the obline correlation of the actions of ``weak'' players, where this correlation is concealed from an opponent of ``intermediate'' strength. The feasibility of such ``\ol concealed correlation'' is reflected in the individually rational payoff of the opponent and in the equilibrium payoffs of the repeated game. This result enables the derivation of a folk theorem that characterizes the set of equilibrium payoffs in a class of repeated games with boundedly rational players and a mechanism designer who sends public signals. The result is illustrated in two models, each of which captures a different aspect of bounded rationality. In the first, players use bounded recall strategies. In the second, players use strategies that are implementable by finite automata.
    Date: 2014–02
  4. By: Alexey Kushnir; Alexandru Nichifor
    Abstract: We introduce a simple two-stage game of endogenous network formation and information sharing for reasoning about the optimal design of social networks like Facebook or Google+. We distinguish between unilateral and bilateral connections and between targeted and collective information sharing. Agents value being connected to other agents and sharing and receiving information. We consider multiple utility specifications. We show that the game always has an equilibrium in pure strategies and then we study how the network design and the utility specifications affect welfare. Surprisingly, we find that in general, targeted information sharing is not necessarily better than collective information sharing. However, if all agents are either "babblers" or "friends", irrespective of whether the network is unilateral or bilateral, in equilibrium, targeted information sharing yields higher welfare than collective information sharing.
    Keywords: Networks, network formation, unilateral connections, bilateral connections, targeted information sharing, collective information sharing, Google, Facebook, babblers, friends
    JEL: D85 C72 C62
    Date: 2014–04
  5. By: Francis Bloch (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Gabrielle Demange (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Rachel Kranton (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))
    Abstract: Why do people spread rumors? This paper studies the transmission of possibly false information---by rational agents who seek the truth. Unbiased agents earn payoffs when a collective decision is correct in that it matches the true state of the world, which is initially unknown. One agent learns the underlying state and chooses whether to send a true or false message to her friends and neighbors who then decide whether or not to transmit it further. The papers hows how a social network can serve as a filter. Agents block messages from parts of the network that contain many biased agents; the messages that circulate may be incorrect but sufficiently informative as to the correct decision.
    Keywords: Bayesian updating ; Rumors ; Misinformation ; Social networks
    Date: 2014–03
  6. By: Javier Rivas (Department of Economics University of Bath); Carmelo Rodríguez-Álvarez (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa) Facultad de Ciencias Económicas y Empresariales Universidad Complutense de Madrid; Instituto Complutense de Analisis Economico (ICAE) Facultad de Ciencias Económicas y Empresariales Universidad Complutense de Madrid)
    Abstract: We analyse committees of voters who take a decision between two options as a two- stage process. In a discussion stage, voters share non-verifiable information about a private signal concerning what is the best option. In a voting stage, votes are cast and one of the options is implemented. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study information transmission and characterize the effects of the leader on the deliberation process. We find, amongst others, that both the quality of the decision taken by the committee and how truthful voters are at the discussion stage depends non-monotonically on how influential the leader is. In particular, although a leader whose influence is weak does not disrupt the decision process of the committee in any way, a very influential leader is less disruptive than a moderately influential leader.
    Keywords: Committees; Information Aggregation; Leadership; Voting.
    JEL: D71 D72 D82
    Date: 2013–11
  7. By: Ennio Bilancini; Leonardo Boncinelli
    Abstract: We present a model of two-sided matching where utility is non-transferable and information about individuals’skills is private, utilities are strictly increasing in the partner’s skill and satisfy increasing differences. Skills can be either revealed or kept hidden, but while agents on one side have verifiable skills, agents on the other side have skills that are unverifiable unless certified, and certification is costly. Agents who have revealed their skill enter a standard matching market, while others are matched randomly. We find that in equilibrium only agents with skills above a cutoff reveal, and then they match assortatively. We show that an equilibrium always exists, and we discuss multiplicity. Increasing differences play an important role to shape equilibria, and we remark that this is unusual in matching models with non-transferable utility. We close the paper with some comparative statics exercises where we show the existence of non-trivial externalities and welfare implications.
    Keywords: costly disclosure of information; matching markets; non-transferable utility; partial unraveling; positive assortative matching; increasing differences
    JEL: C78 D82 L15
    Date: 2014–03
  8. By: Messan Agbaglah (Département d'économique, Université de Sherbrooke)
    Abstract: We introduce the game in cover function form, which is a bargaining game of sequential offers for endogenous overlapping coalitions. This extension of games in partition function form removes the restriction to disjoint coalitions. We discuss the existence of equilibria, and we develop an algorithm to compute equilibrium outcomes, under some conditions. We define the key properties that overlapping coalition structures must verify to uniquely identify networks. We show that each network is defined as an equilibrium outcome of a game in cover function form. Our results bridge the two strands of literature devoted to the formation networks and coalitions.
    Keywords: Overlapping coalitions, Bargaining, Network formation, Coalition formation, Game in cover function form, Symmetric game
    JEL: C72 C78 D62 D85
    Date: 2014–03
  9. By: Talia Bar (University of Connecticut); Sidartha Gordon (Département d'économie)
    Abstract: We study mechanisms for selecting up to m out of n projects. Project managers’ private information on quality is elicited through transfers. Under limited liability, the optimal mechanism selects projects that maximize some function of the project’s observable and reported characteristics. When all reported qualities exceed their own project-specific thresholds, the selected set only depends on observable characteristics, not reported qualities. Each threshold is related to (i) the outside option level at which the cost and benefit of eliciting information on the project cancel out and (ii) the optimal value of selecting one among infinitely many ex ante identical projects.
    Keywords: adverse selection, information acquisition, mechanism design, project selection, limited liability, R&D.
    JEL: D82 O32
    Date: 2013–07
  10. By: Paola Manzini (University of St Andrews and IZA); Marco Mariotti (University of St Andrews)
    Abstract: We introduce attention games. Alternatives ranked by quality (producers, politicians, sexual partners...) desire to be chosen and compete for the imperfect attention of a chooser by investing in their own salience. We prove that if alternatives can control the attention they get, then "the showiest is the best": the equilibrium ordering of salience (weakly) reproduces the quality ranking and the best alternative is the one that gets picked most often. This result also holds under more general conditions. However, if those conditions fail, then even the worst alternative can be picked most often.
    Keywords: Consideration sets, bounded rationality, stochastic choice
    JEL: D01
    Date: 2014–04–08
  11. By: AÌlvaro Bustos; Tonja Jacobi
    Abstract: Even justices who have already decided to retire may not wish to make that information public immediately. Strategically shaping perceptions of their own retirement possibilities can maximize justices’ chances of leaving behind a Court with an ideology aligned with their own ideologies. An obvious mechanism to achieve this is to influence the President and the Senate to choose an ideologically compatible replacement. More specifically, a retiring justice can manipulate his perceived probability of retirement in a way that exploits the fact that case votes of relatively new members of the Court shape how their own ideologies are perceived; influencing the expression of preferences of newer justices can in turn induce the President and the Senate to fill the vacancy with a nominee whose ideology is preferred by the retiring justice. We show that "strong messages" (indicating a high probability of retirement) are more likely when relatively new members of the Court engage in untruthful voting and the ideologies of the retiring justice and the new members are aligned. In contrast, "weak messages" (indicating a low probability of retirement) are more likely when the relatively new members of the Court vote sincerely or, if they do vote untruthfully, the ideologies of the retiring justice and the new members are not aligned.
    JEL: K10 K30 K40
    Date: 2014
  12. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In a market in which sellers compete by posting mechanisms, we allow for a general meeting technology and show that its properties crucially affect the mechanism that sellers select in equilibrium. In general, it is optimal for sellers to post an auction without a reserve price but with a fee, paid by all buyers who meet with the seller. However, we deï¬ne a novel condition on meeting technologies, which we call invariance, and show that meeting fees are equal to zero if and only if this condition is satisï¬ed. Finally, we discuss how invariance is related to other properties of meeting technologies identiï¬ed in the literature.
    Keywords: search frictions, matching function, meeting technology, competing mechanisms
    JEL: C78 D44 D83
    Date: 2014–04–02
  13. By: A. Mantovi
    Abstract: Building on a class of transcendental preferences for luxury, explicit solutions for price taking behavior and exchange equilibrium are discussed, which share the analytical tractability of Cobb-Douglas models and display positive relevance, along the lines discussed by Freixas and Mas-Colell (1987). The monotone comparative statics of the luxury effect is discussed. Pareto sets admit a simple characterization which generalizes the one set forth by Afriat (1987) for Cobb-Douglas exchange economies. Potential lines of progress are envisaged.
    Keywords: Edgeworth Box; General Equilibrium; Luxury; Necessity; Comparative Statics; Pareto Set
    JEL: D50 D51 D58
    Date: 2014
  14. By: Eric Bahel
    Abstract: The notion of veto player was originally introduced in simple games [see Nakamura (1979)], for which every coalition has a value of 0 or 1. In this paper we extend it to monotonic cooperative games with transferable utility: a player has veto power if all coalitions not containing her are worthless. We examine and characterize the core for each one of these "veto games". Moreover, we show the equivalence of the core and the bargaining set. Our work extends the clan games and big-boss games introduced respectively by Potters et al. (1989) and Muto et al. (1988).
    Keywords: TU game, veto power, core, objection, bargaining set.
    Date: 2014
  15. By: Bettina Klaus and; Jonathan Newton
    Abstract: In a dynamic model of assignment problems, small deviations suffice to move between stable outcomes. This result is used to obtain no-selection and almost-no-selection results under the stochastic stability concept for uniform and payoff-dependent errors. There is no-selection of partner or payoff under uniform errors, nor for agents with multiple optimal partners under payoff-dependent errors. There can be selection of payoff for agents with a unique optimal partner under payoff-dependent errors. However, when every agent has a unique optimal partner, almost-no-selection is obtained.
    Keywords: Assignment problem; (core) stability; decentralization; stochastic stability
    JEL: C71 C78 D63
    Date: 2014–04
  16. By: Ivar Ekeland (Université Paris-Dauphine - Paris IX); Alfred Galichon (Département d'économie)
    Abstract: This paper exhibits a duality between the theory of revealed preference of Afriat and the housing allocation problem of Shapley and Scarf. In particular, it is shown that Afriat’s theorem can be interpreted as a second welfare theorem in the housing problem. Using this duality, the revealed preference problem is connected to an optimal assignment problem, and a geometrical characterization of the rationalizability of experiment data is given. This allows in turn to give new indices of rationalizability of the data and to define weaker notions of rationalizability, in the spirit of Afriat’s efficiency index.
    Keywords: Afriat's theorem; Indivisible allocations; Optimal assignment; Revealed preferences
    JEL: D11 C60 C78
    Date: 2013–11
  17. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This paper examines markets, firms, and the law as alternative institutional arrangements for organizing transactions that involve transaction-specific investments and uncertain performance. The analysis is the logical extension of Coase’s seminal analysis of the market-firm boundary on one hand, and the market-law boundary on the other. It thus combines insights from the literature on industrial organization and law and economics. The result is a unified framework that reveals the relative advantages and disadvantages, within a fairly simple economic setting, of market exchange, court ordering (contracts), and internal governance (agency).
    Keywords: Asset specificity, contracts, firms, holdup problem, market exchange
    JEL: D23 K12 L14 L22
    Date: 2014–03
  18. By: Todd R. Kaplan; Shmuel Zamir
    Abstract: As a selling mechanism, auctions have acquired a central position in the free market econ-omy all over the globe. This development has deepened, broadened, and expanded the theory of auctions in new directions. This chapter is intended as a selective update of some of the developments and applications of auction theory in the two decades since Wilson (1992) wrote the previous Handbook chapter on this topic.
    Date: 2014–03

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