nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒09‒25
twenty-one papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Should Auctions be Transparent? By Dirk Bergemann; Johannes Horner
  2. Group contests of incomplete information By Philip Brookins; Dmitry Ryvkin
  3. Maximally Informative Decision Rules In a Two-Person Decision Problem By Kei Kawakami
  4. Strongly Symmetric Equilibria in Bandit Games By Hörner, Johannes; Klein, Nicolas; Rady, Sven
  5. Aggregating sets of von Neumann-Morgenstern utilities By Eric Danan; Thibault Gajdos; Jean-Marc Tallon
  7. An Efficient and Strategy-Proof Double-Track Auction for Substitutes and Complements By Ning Sun; Zaifu Yang
  8. Competing for Attention: Is the Showiest also the Best? By Manzini, Paola; Mariotti, Marco
  9. Nash equilibria of games when players'preferences are quasi-transitive By Basu, Kaushik; Pattanaik, Prasanta K.
  10. Stable Networks in Homogeneous Societies By Tim Hellmann; Jakob Landwehr
  11. Consumer information networks By Simon MIEGIELSEN
  12. Categorization Based Belief Formations By Joerg Bleile
  13. Asymptotic utilitarianism in scoring rules By Marcus Pivato
  14. A Global Game with Strategic Substitutes and Complements: Comment By Eric Hoffmann; Tarun Sabarwal
  15. Computation of equilibrium values in the Baron and Ferejohn bargaining model By Tasos Kalandrakis
  16. Should a Non-Rival Public Good Always Be Provided Centrally? By Nicolas Gravel; Michel Poitevin
  17. Tractable Valuations Under Uncertainty. By József Sákovics (The University of Edinburgh)
  18. Competition and Screening with Skilled and Motivated Workers By F. Barigozzi; N. Burani
  19. Decision theory without finite standard expected value By Peter VALLENTYNE; Luc LAUWERS
  20. The Liberal Ethics of Non-Interference and the Pareto Principle By Mariotti, Marco; Veneziani, Roberto
  21. Tractable Consumer Choice By Sákovics, József; Friedman, Daniel

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Johannes Horner (Cowles Foundation, Yale University)
    Abstract: We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
    Keywords: First price auction, Repeated auction, Private bids, Information revelation
    JEL: D44 D82 D83
    Date: 2010–08
  2. By: Philip Brookins (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We prove the existence of monotone pure strategy Bayesian equilibria in two types of contests between groups under incomplete information: (i) individual-level private information group contests, where each player only knows her own ability, and (ii) group-level private information group contests, where each player knows the abilities of all members of her group. In the latter case, we also show that the equilibrium is unique. We provide the results of exploratory numerical computations and discuss the qualitative properties of the equilibria.
    Keywords: contest, group, incomplete information
    JEL: D72 C72 C02
    Date: 2014–09
  3. By: Kei Kawakami
    Abstract: This paper studies how much information can be revealed when agents with private information lack commitment to actions in a given mechanism as well as to the mechanism itself. In a two-person decision problem, agents are allowed to hold on to an outcome in one mechanism while they play another mechanism and learn new information. Formally, decision rule is maximally informative if it is (i) posterior im-plementable and (ii) robust to a posterior proposal of another posterior implementable decision rule. Focusing on a two-person problem, we identify environments where maximally informative decision rules exist. We also show that a maximally informative decision rule must be implemented by a mechanism with a small number of actions (at most 5 for two agents). The result indicates that lack of commitment to a mechanism signi?cantly reduces the amount of information revelation in equilibrium. Keywords: Information aggregation, Limited commitment, Posterior e¢ ciency, Posterior implementation, Renegotiation-proofness.
    Keywords: Information aggregation, Limited commitment, Posterior effeciency,Posterior implementation, Renegotiation-proofness.
    Date: 2013
  4. By: Hörner, Johannes; Klein, Nicolas; Rady, Sven
    Abstract: This paper studies strongly symmetric equilibria (SSE) in continuous-time games of strategic experimentation with Poisson bandits. SSE payoffs can be studied via two functional equations similar to the HJB equation used for Markov equilibria. This is valuable for three reasons. First, these equations retain the tractability of Markov equilibrium, while allowing for punishments and rewards: the best and worst equilibrium payoff are explicitly solved for. Second, they capture behavior of the discrete-time game: as the period length goes to zero in the discretized game, the SSE payoff set converges to their solution. Third, they encompass a large payoff set: there is no perfect Bayesian equilibrium in the discrete-time game with frequent interactions with higher asymptotic efficiency.
    Keywords: Two-Armed Bandit; Bayesian Learning; Strategic Experimentation; Strongly Symmetric Equilibrium
    JEL: C73 D83
    Date: 2014–08–17
  5. By: Eric Danan (THEMA - THéorie Economique, Modélisation et Applications - université de Cergy-Pontoise); Thibault Gajdos (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR7316); Jean-Marc Tallon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We analyze the aggregation problem without the assumption that individuals and society have fully determined and observable preferences. More precisely, we endow individuals ans society with sets of possible von Neumann-Morgenstern utility functions over lotteries. We generalize the classical neutrality assumption to this setting and characterize the class of neutral social welfare function. This class turns out to be considerably broader for indeterminate than for determinate utilities, where it basically reduces to utilitarianism. In particular, aggregation rules may differ by the relationship between individual and social indeterminacy. We characterize several subclasses of neutral aggregation rules and show that utilitarian rules are those that yield the least indeterminate social utilities, although they still fail to systematically yield a determinate social utility.
    Keywords: Aggregation ; vNM utility ; indeterminacy ; neutrality ; utilitarianism
    Date: 2013
  6. By: Marcus Pivato (Université de Cergy-Pontoise, THEMA and Department of Mathematics, Trent University, Canada)
    Abstract: We show that if the statistical distribution of utility functions in a population satisfies a certain condition, then a Condorcet winner will not only exist, but will also maximize the utilitarian social welfare function. We also show that, if people's utility functions are generated according to certain plausible random processes, then in a large population, this condition will be satisfied with very high probability. Thus, in a large population, the utilitarian outcome will be selected by any Condorcet consistent voting rule. In particular, it will be the subgame-perfect equilibrium outcome of several voting games.
    Date: 2014
  7. By: Ning Sun (Shanghai University of Finance and Economics); Zaifu Yang (Department of Economics and Related Studies, University of York, United Kingdom)
    Abstract: We propose a dynamic auction mechanism for efficiently allocating multiple heterogeneous indivisible goods. These goods can be split into two distinct sets so that items in each set are substitutes but complementary to items in the other set. The seller has a reserve value for each bundle of goods and is assumed to report her values truthfully. In each round of the auction, the auctioneer announces the current prices for all items, bidders respond by reporting their demands at these prices, and then the auctioneer adjusts simultaneously the prices of items in one set upwards but those of items in the other downwards. We prove that although bidders are not assumed to be price-takers and thus can strategically exercise their market power, this dynamic auction always induces the bidders to bid truthfully as price-takers, yields an efficient outcome and also has the merit of being a detail-free, transparent and privacy preserving mechanism.
    Keywords: Dynamic auction, gross substitutes and complements, incentives, efficiency, indivisibility, incomplete information
    JEL: D44
    Date: 2014–09
  8. By: Manzini, Paola; Mariotti, Marco
    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 â€the showiest is the bestâ€: 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,
    Date: 2014
  9. By: Basu, Kaushik; Pattanaik, Prasanta K.
    Abstract: Much of game theory is founded on the assumption that individual players are endowed with preferences that can be represented by a real-valued utility function. However, in reality human preferences are often not transitive. This is especially true for the indifference relation, which can lead an individual to make a series of choices which in their totality would be viewed as erroneous by the same individual. There is a substantial literature that raises intricate questions about individual liberty and the role of government intervention in such contexts. The aim of this paper is not to go into these ethical matters but to provide a formal structure for such analysis by characterizing games where individual preferences are quasi-transitive. The paper identifies a set of axioms which are sufficient for the existence of Nash equilibria in such'games.'
    Keywords: Disease Control&Prevention,Economic Theory&Research,Teaching and Learning,Information Security&Privacy,Biodiversity
    Date: 2014–09–01
  10. By: Tim Hellmann (Center for Mathematical Economics, Bielefeld University); Jakob Landwehr (Center for Mathematical Economics, Bielefeld University)
    Abstract: We study the structure of pairwise stable networks from a very general point. Rather than assuming a particular functional form of utility, we simply assume that the society is homogeneous, i.e. that agents’ utilities differ only with respect to their network position while their names do not matter. Existence of certain stable network structures is then implied by fairly general assumptions on externalities between links. Depending on the form of link externalities, either the empty or complete network are always pairwise stable, stable symmetric networks exist, or stable networks with a connected subgroup exist. If the society becomes more homogeneous, then it is possible to characterize the set of all pairwise stable networks: they are nested split graphs (NSG). We illustrate these results with many examples from the literature, including utility profiles that depend on centrality measures such as Bonacich centrality. In particular, for low discount factors every pairwise stable network is an NSG if utility is given by Bonacich centrality.
    Keywords: Network Formation, Pairwise Stability, Existence, Homogeneity, Convexity, Strategic Complements, Bonacich Centrality
    JEL: A14 C72 D85
    Date: 2014–08
  11. By: Simon MIEGIELSEN
    Abstract: This paper examines the informativeness of consumer information networks and their effect on price competition between .rms. Under the proposed information mechanism, consumers share their initial information with the members of their network and as such become better informed. The main result of this paper shows how informative such networks are by characterizing how many different pieces of information a network is likely to contain. This informativeness is crucial for the degree of competition, as consumers comparing more prices induce firms to compete more fiercely. We find that larger networks imply better information transmission, which intensifies competition and decreases all the percentiles of the price distribution. An increase in the number of firms makes networks more informative, and decreases all the percentiles as well. Our results are robust to the introduction of sequential search and network segregation, but an increase in segregation decreases information transmission and increases all percentiles.
    Date: 2014–06
  12. By: Joerg Bleile (Center for Mathematical Economics, Bielefeld University)
    Abstract: An agent needs to determine a belief over potential outcomes for a new problem based on past observations gathered in her database (memory). There is a rich literature in cognitive science showing that human minds process and order information in categories, rather than piece by piece. We assume that agents are naturally equipped (by evolution) with a efficient heuristic intuition how to categorize. Depending on how available categorized information is activated and processed, we axiomatize two different versions of belief formation relying on categorizations. In one approach an agent relies only on the estimates induced by the single pieces of information contained in so called target categories that are activated by the problem for which a belief is asked for. Another approach forms a prototype based belief by averaging over all category-based estimates (so called prototypical estimates) corresponding to each category in the database. In both belief formations the involved estimates are weighted according to their similarity or relevance to the new problem. We impose normatively desirable and natural properties on the categorization of databases. On the stage of belief formation our axioms specify the relationship between different categorized databases and their corresponding induced (category or prototype based) beliefs. The axiomatization of a belief formation in Billot et al. (Econometrica, 2005) is covered for the situation of a (trivial) categorization of a database that consists only of singleton categories and agents basically do not process information categorical.
    Keywords: Belief formation, prior, case-based reasoning, similarity, categorization, prototype
    JEL: D81 D83
    Date: 2014–07
  13. By: Marcus Pivato (Université de Cergy-Pontoise, THEMA and Department of Mathematics, Trent University)
    Abstract: Given a large enough population of voters whose utility functions satisfy certain statistical regularities, we show that voting rules such as the Borda rule, approval voting, and evaluative voting have a very high probability of selecting the social alternative which maximizes the utilitarian social welfare function. We also characterize the speed with which this probability approaches one as the population grows.
    Keywords: utilitarian; relative utilitarian; approval voting; Borda; scoring rule.
    JEL: D63 D71
    Date: 2014
  14. By: Eric Hoffmann (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: In a 2007 paper, "A global game with strategic substitutes and complements", by Karp, L., I.H. Lee, and R. Mason, Games and Economic Behavior, 60(1), 155-175, an argument is made to show existence of Bayesian-Nash equilibrim in global games that may include both strategic substitutes and complements. This note documents a gap in the proof of that statement.
    Date: 2014–09
  15. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: Computation of exact equilibrium values for n-player divide-the-dollar legislative bargaining games as in Baron and Ferejohn (1989) with general quota voting rules, recognition probabilities, and discount factors, can be achieved by solving at most n bivariate square linear systems of equations. This approach recovers Eraslan's (2002) uniqueness result and relies on a characterization of equilibria in terms of two variables that satisfy a pair of piecewise linear equations.
    Date: 2014–08
  16. By: Nicolas Gravel (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Michel Poitevin (CIREQ - Centre interuniversitaire de recherche en économie quantitative - Université de Montréal, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal)
    Abstract: This paper discusses the problem of optimal design of a jurisdiction structure from the view point of a welfarist social planner when households with identical utility functions for non-rival public good and private consumption have private information about their contributive capacities. It shows that the superiority of a centralized provision of a non-rival public good over a federal one does not always hold. Specifically, when differences in households contributive capacities are large, it is better to provide the public good in several distinct jurisdictions rather than to pool these jurisdictions into a single one. In the specific case where households have logarithmic utilities, the paper provides a complete characterization of the optimal jurisdiction structure in the two-type case. "C'est pour unir les avantages divers qui résultent de la grandeur et de la petitesse des nations que le fédératif a été créé." (Alexis de Toqueville)
    Keywords: federalism; jurisdictions; asymmetric information; equalization; city mergers
    Date: 2014–09
  17. By: József Sákovics (The University of Edinburgh)
    Abstract: I put forward a concise and intuitive formula for the calculation of the valuation for a good in the presence of the expectation that further, related, goods will soon become available. This valuation is tractable in the sense that it does not require the explicit resolution of the consumer's life-time problem.
    Keywords: distributed choice, quasi-linear utility, value for money.
    JEL: D01 D03 D11 D91
    Date: 2014–09–10
  18. By: F. Barigozzi; N. Burani
    Abstract: We study optimal contracts offered by two firms competing for the exclusive services of one worker, who is privately informed about her ability and her motivation. Firms differ both in their production technology and in the mission they pursue and a motivated worker is keen to be hired by the mission-oriented firm. We find that the matching of worker types to firms is always Pareto-efficient. When the difference in firms’ technology is high, only the most efficient firm is active. When the difference is not very high, then agent types sort themselves by motivation: the mission-oriented firm hires motivated types and the profit-oriented firm employs non-motivated ones, independently of ability. Effort provision is higher when the worker is hired by the mission-oriented firm, but a compensating wage differential might exist: the motivated worker is paid less by the mission-oriented firm. Such an earnings penalty is driven entirely by motivation, is increasing in ability and is associated to low power of incentives.
    JEL: D82 D86 J31 M55
    Date: 2014–06
    Date: 2014–09
  20. By: Mariotti, Marco; Veneziani, Roberto
    Abstract: We analyse the liberal ethics of non-interference applied to social choice. A liberal principle capturing noninterfering views of society and inspired by John Stuart Mill s conception of liberty, is examined. The principle captures the idea that society should not penalise agents after changes in their situation that do not a¤ect others. An impossibility for liberal approaches is highlighted: every social decision rule that satis es unanimity and a general principle of noninterference must be dictatorial. This raises some important issues for liberal approaches in social choice and political philosophy.
    Keywords: Liberalism, Harm Principle, Non-Interference, Impossibility,
    Date: 2014
  21. By: Sákovics, József; Friedman, Daniel
    Abstract: We derive a rational model of separable consumer choice which can also serve as a behavioral model. The central construct is [lambda] , the marginal utility of money, derived from the consumer's rest-of-life problem. We present a robust approximation of [lambda], and show how to incorporate liquidity constraints, indivisibilities and adaptation to a changing environment. We fi nd connections with numerous historical and recent constructs, both behavioral and neoclassical, and draw contrasts with standard partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive description of consumer choice.
    Keywords: distributed choice, moneysworth demand, value for money,
    Date: 2013

This nep-mic issue is ©2014 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.