nep-mic New Economics Papers
on Microeconomics
Issue of 2014‒11‒01
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Smooth, strategic communication By Deimen, Inga; Szalay, Dezsö
  2. Sequential Information Disclosure in Auctions By Dirk Bergemann; Achim Wambach
  3. Non-existence of general equilibrium with EUU preferences By Joao Correia-da-Silva
  4. Dynamic Adverse Selection and the Supply Size By Ennio Bilancini; Leonardo Boncinelli
  5. Sequential selling and information dissemination in the presence of network effects By Junjie Zhou; Ying-Ju Chen
  6. Natural Implementation with Partially-honest Agents in Economic Environments with Free-disposal By Lombardi, Michele; Yoshihara, Naoki
  7. Extensions and Vagueness of Language under Two-Dimensional State Uncertainty By Saori Chiba
  8. Information and Volatility By Dirk Bergemann; Tibor Heumann; Stephen Morris
  9. A Utility-Based Model of Sales with Informative Advertising By Sandro Shelegia; Chris M Wilson
  10. A note on comparative ambiguity aversion and justi?fiability By Pierpaolo Battigalli; Simone cerreia-Vioglio; Fabio Maccheroni; Massimo Marinacci
  11. A CHaracterization of Single-Peaked Preferences via Random Social Choice Functions By Shurojit Chatterji; Arunava Sen; Huaxia Zeng
  12. Strategic Behavior in Unbalanced Matching Markets By Peter Coles; Yannai Gonczarowski; Ran Shorrer
  13. Foundations and Properties of Time Discount Functions By Ali al-Nowaihi; Sanjit Dhami,
  14. Afriat's theorem for indivisible goods By Francoise Forges; Vincent Iehlé
  15. Switching Costs in Two-sided Markets By Lam, Wing Man Wynne
  16. Exclusive Dealing and Vertical Integration in Interlocking Relationships By Nocke, Volker; Rey, Patrick
  17. On Repeated Games with Imperfect Public Monitoring: From Discrete to Continuous Time By Mathias Staudigl; Jan-Henrik Steg
  18. Political Corruption and Minority Capture By P. Giannoccolo; M. Lisciandra

  1. By: Deimen, Inga; Szalay, Dezsö
    Abstract: We study strategic information transmission in a Sender-Receiver game where players' optimal actions depend on the realization of multiple signals but the players disagree on the relative importance of each piece of news. We characterize a statistical environment - featuring symmetric loss functions and elliptically distributed parameters - in which the Sender's expected utility depends only on the first moment of his posterior. Despite disagreement about the use of underlying signals, we demonstrate the existence of equilibria in differentiable strategies in which the Sender can credibly communicate posterior means. The existence of smooth communication equilibria depends on the relative usefulness of the signal structure to Sender and Receiver, respectively. We characterize extensive forms in which the quality of information is optimally designed of equal importance to Sender and Receiver so that the best equilibrium in terms of ex ante expected payoffs is a smooth communication equilibrium. The quality of smooth equilibrium communication is entirely determined by the correlation of interests. Senders with better aligned preferences are endogenously endowed with better information and therefore give more accurate advice.
    Keywords: strategic information transmission; multi-dimensional cheap talk; monotone strategies; endogenous information; elliptical distributions
    JEL: D82
    Date: 2014–09
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Achim Wambach (Dept. of Economics, University of Cologne)
    Abstract: We propose a sequential auction mechanism for a single object in which the seller jointly determines the allocation and the disclosure policy. A sequential disclosure rule is shown to implement an ascending price auction in which each losing bidder learns his true valuation, but the winning bidder's information is truncated from below. As the auction ends, the winning bidder only has limited information, namely that his valuation is sufficiently high to win the auction. The sequential mechanism implements the allocation of the handicap auction of Esö and Szentes [10] but strengthens the participation constraints of the bidders from interim to posterior constraints. Due to the limited disclosure of information, the participation constraints (and incentive constraints) of all the bidders are satisfied with respect to all information revealed by the mechanism. In the special case in which the bidders have no private information initially, the seller can extract the entire surplus.
    Keywords: Independent private value auction, Sequential disclosure, Ascending auctions, Information structure, Interim equilibrium, Posterior equilibrium
    JEL: C72 D44 D82 D83
    Date: 2013–07
  3. By: Joao Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto)
    Abstract: In the presence of events that are seen as ambiguous by all agents in an economy, if preferences are representable by expected uncertain utility functions (Gul and Pesendorfer, 2014), general equilibrium does not typically exist.
    Keywords: Expected uncertain utility, General equilibrium, Non-existence.
    JEL: C62 D51 D81
    Date: 2014–10
  4. By: Ennio Bilancini; Leonardo Boncinelli
    Abstract: In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information while the realized distribution of qualities is public information. We show that in equilibrium all goods can be traded if the size of the supply is publicly available to market participants. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. We also identify circumstances under which only full trade equilibria exist. Further, we give conditions for full trade to obtain when the realized distribution of qualities is not public information and when new goods enter the market at later stages.
    Keywords: dynamic adverse selection; supply size; frequency of exchanges; asymmetric information
    JEL: D82 L15
    Date: 2014–04
  5. By: Junjie Zhou (School of International Business Administration, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China); Ying-Ju Chen (School of Business and Management & School of Engineering, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)
    Abstract: In this paper, we examine how a seller sells a product/service with a positive consumption externality, and customers are uncertain about the product's/service's value. Because early adopters learn this value, we consider the customers' intrinsic signaling incentives and positive feedback effects. Anticipating this, the seller commits to provide price discounts to the followers, and charges the leader a high price. Thus, the profit-maximizing pricing features the cream skimming strategy. We also show that the lack of seller's commitment is detrimental to the social welfare; nonetheless, the sequential selling still boosts up the seller's profit. Embedding a physical network with arbitrary payoff externality among customers, we investigate the optimal targeting strategy in the presence of information asymmetry. We provide precise indices for this leader selection problem. For undirected graphs, we should simply choose the player with the highest degree, irrespective of the seller's commitment power. Going beyond this family of networks, in general the seller's commitment power affects the optimal targeting strategy.
    Keywords: revenue management; signaling; information transmission; social networks;
    JEL: D82 L14 L15
    Date: 2014–10
  6. By: Lombardi, Michele; Yoshihara, Naoki
    Abstract: We study Nash implementation by natural price-quantity mechanisms in pure exchange economies with free-disposal (Saijo et al., 1996, 1999) where agents have weak/strong intrinsic preferences for honesty (Dutta and Sen, 2012). Firstly, the Walrasian rule is shown to be non-implementable where all agents have weak (but not strong) intrinsic preferences for honesty. Secondly, the class of efficient allocation rules that are implementable is identifi?d provided that at least one agent has strong intrinsic preferences for honesty. Lastly, the Walrasian rule is shown to belong to that class.
    Keywords: Natural implementation, Nash equilibrium, exchange economies, intrinsic preferences for honesty
    JEL: C72 D71
    Date: 2014–09
  7. By: Saori Chiba
    Abstract: We examine languages under two-dimensional uncertainty about the stateÑ the type and support of the state-distribution as well as the state is ex-ante uncertain. We consider communication between an uninformed decision maker and an imperfectly informed speaker. We show that this two-dimensional uncertainty leads the extension of language to be vague in the sense that the speaker with different knowledge of the state-distribution uses the same symbol for the different extent of information on the state. We also explore languages when the players contract over the number of symbols due to bounded rationality and when they possesses different prior beliefs.
    Keywords: Bounded Rationality, Extensions of Languages, Uncertainty, Vagueness.
    JEL: D82 D83 M14
    Date: 2014–10
  8. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Dept. of Economics, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by providing a characterization of the set of all joint distributions over actions and states that can arise in equilibrium under any information structure. This tractable characterization, extending results in Bergemann and Morris [8], can be used to address a wide variety of questions linking information with the statistical moments of the economy.
    Keywords: Incomplete information, Idiosyncratic shocks, Aggregate shocks, Volatility, Confounding information, Moment restrictions, Linear best responses, Quadratic payoffs, Bayes correlated equilibrium
    JEL: C72 C73 D43 D83
    Date: 2013–12
  9. By: Sandro Shelegia (University of Vienna, Austria); Chris M Wilson (School of Business and Economics, Loughborough University)
    Abstract: This paper presents a generalised framework to understand mixed-strategy sales behaviour with informative advertising. By introducing competition in the utility space into a clearinghouse sales model, we oer a highly tractable framework that can i) provide a novel welfare analysis of intra-personal price discrimination in sales markets, ii) characterise sales in a range of new contexts including complex market settings and situations where rms conduct sales with two-part taris or non-price variables such as package size, and iii) synthesise past research and highlight its key forces and assumptions.
    Keywords: Sales; Price Dispersion; Advertising; Clearinghouse; Utility Space; Intra-personal; Price Discrimination; Two-Part Taris; Bonus Packs; Package Size
    JEL: L13 D43 M37 D83
    Date: 2014–10
  10. By: Pierpaolo Battigalli; Simone cerreia-Vioglio; Fabio Maccheroni; Massimo Marinacci
    Abstract: An action is justi?fiable if it is a best reply to some belief. We show that higher ambiguity aversion enlarges the set of justifi?able actions.
    Date: 2014
  11. By: Shurojit Chatterji (School of Economics, Singapore Management University, Singapore, 178903); Arunava Sen (Indian Statistical Institute, New Delhi, India.); Huaxia Zeng (School of Economics, Singapore Management University, Singapore, 178903)
    Abstract: The paper proves the following result: every path-connected domain of preferences that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a compromise property, is single-peaked. Conversely, every single-peaked domain admits a random social choice function satisfying these properties. Single-peakedness is dened with respect to arbitrary trees. We also show that a maximal domain that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a stronger version of the compromise property, is single-peaked on a line. A converse to this result also holds. The paper provides justication of the salience of single-peaked preferences and evidence in favour of the Gul conjecture (Barbera (2010)).
    Keywords: Random Social Choice Functions, Strategy-proofness, Compromise, Single- peaked Preferences
    JEL: D71
    Date: 2014–09
  12. By: Peter Coles; Yannai Gonczarowski; Ran Shorrer
    Abstract: In this paper we explore how the balance of agents on the two sides of a matching market impacts their potential for strategic manipulation. Coles and Shorrer [2014] previously showed that in large, balanced, uniform markets using the Men-Proposing Deferred Acceptance Algorithm, each woman's best response to truthful behavior by all other agents is to truncate her list substantially. In fact, the optimal degree of truncation for such a woman goes to 100% of her list as the market size grows large. Recent findings of Ashlagi et. al. [2014] demonstrate that in unbalanced random markets, the change in expected payoffs is small when one reverses which side of the market “proposes,†suggesting there is little potential gain from manipulation. Inspired by these findings, we study the implications of imbalance on strategic behavior in the incomplete information setting. We show that the “long†side has significantly reduced incentives for manipulation in this setting, but that the same doesn't always apply to the “short†side. We also show that risk aversion and correlation in preferences affect the extent of optimal manipulation.
    Date: 2014–10
  13. By: Ali al-Nowaihi; Sanjit Dhami,
    Abstract: A critical element in all discounted utility models is the specification of a discount function. We introduce three functions: the delay, speedup and generating functions. Each can be uniquely elicited from behaviour. The delay function determines stationary and the common difference effect. The speedup function determines impatience. Additivity is jointly determined by the delay and speedup functions. The speedup and generating functions jointly determine a unique discount function. Conversely, a continuous discount function determines unique speedup and generating functions.
    Keywords: hyperbolic discounting, nonadditivity, impatience, prospect theory, delay function, speedup function, generating function.
    JEL: C60 D91
    Date: 2014–09
  14. By: Francoise Forges (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Vincent Iehlé (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine)
    Abstract: We identify a natural counterpart of the standard GARP for demand data in which goods are all indivisible. We show that the new axiom (DARP, for "discrete axiom of revealed preference") is necessary and sufficient for the rationalization of the data by a well-behaved utility function. Our results complement the main finding of Polisson and Quah, Am. Econ. J.: Micro. 5(1) p.28-34 (2013), who rather minimally modify the original consumer problem with indivisible goods so that the standard GARP still applies.
    Keywords: Afriat's theorem, GARP; indivisible goods; rationalization; revealed preference
    Date: 2014–10–01
  15. By: Lam, Wing Man Wynne
    Abstract: This paper studies a dynamic two-sided market in which consumers face switching costs between competing products. I first show that, in a symmetric equilibrium, switching costs lower the first-period price if network externalities are strong. By contrast, switching costs soften price competition in the initial period if network externalities are weak and consumers are more patient than the platforms. Second, an increase in switching costs on one side decreases the first-period price on the other side. Finally, consumer heterogeneity such as the presence of more loyal and naive customers on one side intensifies first-period competition on this side but softens first-period competition on the other side.
    Keywords: switching costs, two-sided markets, network externality, naivety, loyalty
    JEL: D4 L1
    Date: 2014–08
  16. By: Nocke, Volker; Rey, Patrick
    Abstract: We develop a model of interlocking bilateral relationships between upstream manufacturers that produce differentiated goods and downstream retailers that compete imperfectly for consumers. Contract offers and acceptance decisions are private information to the contracting parties. We show that both exclusive dealing and vertical integration between a manufacturer and a retailer lead to vertical foreclosure, at the detriment of consumers and society. Finally, we show that firms have indeed an incentive to sign such contracts or to integrate vertically.
    Keywords: vertical relations, exclusive dealing, vertical merger, foreclosure, bilateral contracting
    JEL: D43 L13 L42
    Date: 2014–07
  17. By: Mathias Staudigl (Center for Mathematical Economics, Bielefeld University); Jan-Henrik Steg (Center for Mathematical Economics, Bielefeld University)
    Abstract: Motivated by recent path-breaking contributions in the theory of repeated games in continuous time, this paper presents a family of discrete-time games which provides a consistent discrete-time approximation of the continuous-time limit game. Using probabilistic arguments, we prove that continuous-time games can be defined as the limit of a sequence of discrete-time games. Our convergence analysis reveals various intricacies of continuous-time games. First, we demonstrate the importance of correlated strategies in continuous-time. Second, we attach a precise meaning to the statement that a sequence of discrete-time games can be used to approximate a continuous-time game.
    Keywords: continuous-time game theory, stochastic optimal control, weak convergence
    Date: 2014–09
  18. By: P. Giannoccolo; M. Lisciandra
    Abstract: This analysis investigates a political corruption model that builds on previous literature on corruption in hierarchies. Our study enriches the literature on political corruption emphasizing the contrasting role of the minorities having a control role of the majorities. In particular, this paper provides a set-up for the conditions in which a briber can choose between either bribing only the majority and accepting the monitoring of the minority, or alternatively, bribing also the minority, which gives up to its control role and increases the probability of success of the illicit action. Minorities can exploit their typical monitoring role in modern democracies either to gain a reputational premium or to get involved in bribing and raising higher stakes. Thus, policy-makers face a sort of paradox when attempting to strengthen the control role of minorities and reduce corrupt behavior because this may cause the opposite effect of inducing the minorities to get involved into the illicit activity and, eventually, spread the corruption disease.
    JEL: D72 D73 K42
    Date: 2014–10

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