nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒06‒05
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Strategic Experimentation with Private Payoffs By Heidhues, Paul; Rady, Sven; Strack, Philipp
  2. Aggregating Tastes, Beliefs, and Attitudes under Uncertainty By Eric Danan; Thibault Gajdos; Brian Hill; Jean-Marc Tallon
  3. Dynamic Revenue Maximization: A Continuous Time Approach By Dirk Bergemann; Philipp Strack
  4. Alliance Formation in Contests with Incomplete Information By Lars P. Metzger
  5. Optimal Information Transmission By Wei Ma
  6. Uncertainty Aversion, Multi Utility Representations and State Independence of Utility By Hill, Brian
  7. A Nash Equilibrium in Electoral Competition Models By Shino Takayama; Yuki Tamura
  8. On the Existence of Approximate Equilibria and Sharing Rule Solutions in Discontinuous Games By Philippe Bich; Rida Laraki
  9. Strategic influence in social networks By Michel Grabisch; Antoine Mandel; Agnieszka Rusinowska; Emily Tanimura
  10. Expertise in Online Markets By Stylianos Despotakis; Isa Hafalir; R Ravi; Amin Sayedi
  11. Dynamic Allocation of Objects to Queuing Agents: The Discrete Model By Francis Bloch; David Cantala
  12. Implementation by Sortition in Nonexclusive Information Economies By Rene Saran; Norovsambuu Tumennasan
  13. A model of scholarly publishing with hybrid academic journals By Damien Besancenot; Radu Vranceanu
  14. Reason-based choice and context-dependence: An explanatory framework By Dietrich, Franz; List, Christian
  15. Necessary and Sufficient Conditions for a Solution of the Bellman Equation to be the Value Function: A General Principle By Takashi Kamihigashi; Cuong Le Van
  16. Wall Street occupations By Ulf Axelson; Philip Bond
  17. Matching with Aggregate Externalities By Isa Hafalir; Fisher James
  18. Financial Markets where Traders Neglect the Informational Content of Prices By Erik Eyster; Matthew Rabin; Dimitri Vayanos
  19. Social Identity and Social Free-Riding By Mark Bernard; Florian Hett; Mario Mechtel
  20. A generalization of the expenditure function By Noé Biheng

  1. By: Heidhues, Paul; Rady, Sven; Strack, Philipp
    Abstract: We consider a game of strategic experimentation in which players face identical discrete-time bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing free-rider problem is so severe that equilibrium experimentation ceases at the same threshold belief at which a single agent would stop, even if players can coordinate their actions through mediated communication. When payoffs are private information and the success probability on the risky arm is not too high, however, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs, even if players can only communicate via binary cheap-talk messages.
    Keywords: Bayesian learning; cheap talk; information externality; mediated communication; strategic experimentation; two-armed bandit
    JEL: C73 D83
    Date: 2015–05
  2. By: Eric Danan (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS); Thibault Gajdos (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - EHESS - École des hautes études en sciences sociales - CNRS - AMU - Aix-Marseille Université); Brian Hill (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - CNRS - GROUPE HEC); Jean-Marc Tallon (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: We provide possibility results on the aggregation of beliefs and tastes for Monotone, Bernoullian and Archimedian preferences of Cerreia-Vioglio, Ghirardato, Maccheroni, Marinacci and Siniscalchi (2011). We propose a new axiom, Unambiguous Pareto Dominance, which requires that if the unambiguous part of individuals' preferences over a pair of acts agree, then society should follow them. We characterize the resulting social preferences and show that it is enough that individuals share a prior to allow non dictatorial aggregation. A further weakening of this axiom on common-taste acts, where cardinal preferences are identical, is also characterized. It gives rise to a set of relevant priors at the social level that can be any subset of the convex hull of the individuals' sets of relevant priors. We then apply these general results to the Maxmin Expected Utility model, the Choquet Expected Utility model and the Smooth Ambiguity model. We end with a characterization of the aggregation of ambiguity attitudes.
    Date: 2014–07
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Philipp Strack (Microsoft Research New England & UC Berkeley)
    Abstract: We characterize the revenue-maximizing mechanism for time separable allocation problems in continuous time. The willingness-to-pay of each agent is private information and changes over time. We derive the dynamic revenue-maximizing mechanism, analyze its qualitative structure and frequently derive its closed form solution. In the leading example of repeat sales of a good or service, we establish that commonly observed contract features such as at rates, free consumption units and two-part tariffs emerge as part of the optimal contract. We investigate in detail the environments in which the type of each agent follows an arithmetic or geometric Brownian motion or a mean-reverting process. We analyze the allocative distortions and show that depending on the nature of the private information the distortion might increase or decrease over time.
    Keywords: Dynamic mechanism design, Repeated sales, Stochastic flow, Flat rates, Two-part Tariffs, Leasing
    JEL: D44 D82 D83
    Date: 2014–07
  4. By: Lars P. Metzger
    Abstract: This paper studies a contest in which players with unobservable types may form an alliance in a pre-stage of the game to join their forces and compete for a prize. We characterize the pure strategy equilibria of this game of incomplete information. We show that if the formation of an alliance is voluntary, players do not reveal private information in the process of alliance formation in any equilibrium. In this case there exists a pooling equilibrium without alliances with a unique effort choice in the contest and there exist equilibria in which all types prefer to form an alliance. If the formation of an alliance can be enforced by one player with positive probability there exists an equilibrium in which only the low types prefer to form an alliance.
    Keywords: Service quality; non-essential benefits; prices; health plan switching; German sickness funds; SOEP
    JEL: C72 D72 D74 D82
    Date: 2015–03
  5. By: Wei Ma (Department of Economics, University of Pretoria)
    Abstract: This paper addresses the issue of how a given piece of information should be transmitted from a better-informed doctor to an ill-informed patient. The information to be transmitted is expressed as a probability distribution on a space of the patient’s possible health states. For a formal analysis of the issue we develop a two-person dynamic game, in which the doctor sends a sequence of messages to the patient to inform him of his health state, and the patient, after receiving each message, chooses an action in an attempt to improve upon his current health status. We study some standard properties of the equilibria of this game; in particular, we show that it has a subgame perfect equilibrium.
    Keywords: Information transmission, Dynamic game theory, Subgame perfect equilibrium
    JEL: D73 D83
    Date: 2015–05
  6. By: Hill, Brian
    Abstract: This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously accommodate three divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi utility), and state dependence of utility. Moreover, it characterises, in this context, a notion of state independence of utility borrowed from the literature on incomplete preferences. This notion is then shown to be basically inconsistent with the standard state-independence axiom, monotonicity, whenever tastes are imprecise. A new notion of state independence in the context of imprecise tastes, which is characterised by monotonicity, is proposed.
    Keywords: State independence of utility; imprecise tastes; uncertainty aversion; multi utility; multiple priors; state-dependent utility
    JEL: D81
    Date: 2015–01–22
  7. By: Shino Takayama (School of Economics, The University of Queensland); Yuki Tamura (School of Economics, The University of Queensland)
    Abstract: Since the introduction of better-reply security by Reny (1999), the literature studying the existence of a pure strategy Nash equilibrium (PSNE) in discontinuous games has grown substantially. In this paper, we introduce a weak notion of better-reply security, which is applicable to both quasiconcave and nonquasiconcave games. Our conditions for feeble better-reply security are simple, easy to verify and particularly useful in electoral competition games. We also provide necessary and sufficient conditions for the existence of a PSNE in a canonical electoral competition game. Finally, this paper demonstrates why a PSNE fails to exist when a particular type of discontinuity exists in a model.
    Keywords: Noncooperative games, discontinuous payoffs, pure strategy Nash equilibrium, existence of equilibrium, better-reply security, electoral competitions
    Date: 2015–05–27
  8. By: Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Rida Laraki (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique, IMJ - Institut de Mathématiques de Jussieu - UPMC - Université Pierre et Marie Curie - Paris 6 - UP7 - Université Paris Diderot - Paris 7 - CNRS)
    Abstract: This paper studies the existence of some known equilibrium solution concepts in a large class of economic models with discontinuous payo functions. The issue is well understood for Nash equilibria, thanks to Reny's better-reply security condition [34], and its recent improvements [3, 25, 35, 36]. We propose new approaches, related to Reny's work, and obtain tight conditions for the existence of an approximate equilibrium and of a sharing rule solution in pure and mixed strategies (Simon and Zame [38]). As byproducts, we prove that many auction games with correlated types admit an approximate equilibrium, and that in any general equilibrium model with discontinuous preferences, there is a sharing rule solution.
    Date: 2014–10–06
  9. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Emily Tanimura (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: We consider a model of influence with a set of non-strategic agents and two strategic agents. The non-strategic agents have initial opinions and are linked through a simply connected network. They update their opinions as in the DeGroot model. The two strategic agents have fixed opinions, 1 and 0 respectively, and are characterized by the magnitude of the impact they can exert on non-strategic agents. Each strategic agent forms a link with one non-strategic agent in order to alter the average opinion that eventually emerges in the network. This procedure defines a zero-sum game whose players are the two strategic agents and whose strategy set is the set of non-strategic agents. We focus on the existence and the characterization of equilibria in pure strategy in this setting. Simple examples show that the existence of a pure strategy equilibrium does depend on the structure of the network. The characterization of equilibrium we obtain emphasizes on the one hand the influenceability of target agents and on the other hand their centrality whose natural measure in our context defines a new concept, related to betweenness centrality, that we call intermediacy. We also show that in the case where the two strategic agents have the same impact, symmetric equilibria emerge as natural solutions whereas in the case where the impacts are uneven, the strategic players generally have differentiated equilibrium targets, the high-impacts agent focusing on centrality and the low-impact agent on influenceability.
    Abstract: Nous considérons un modèle d'influence avec un ensemble d'agents non-stratégiques et deux agents stratégiques. Les agents non-stratégiques sont liés par un réseau simplement convexe et leurs opinions évoluent comme dans le modèle de DeGroot. Les deux agents stratégiques ont des opinions fixes, respectivement 1 et 0, et sont caractérisés par l'impact qu'ils exercent sur les croyances des agents non-stratégiques. Chaque agent stratégique forme exactement un lien avec un agent non-stratégique en vue d'influencer l'opinion moyenne limite qui se forme dans le réseau. Cette procédure définie un jeu à somme nulle où les ensembles de stratégie des deux joueurs sont l'ensemble des agents non-stratégiques. Nous nous intéressons à l'existence et à la caractérisation des équilibres de Nash en stratégie pure dans ce cadre. Des exemples simples montrent que l'existence d'équilibres en stratégie pure dépend de la structure du réseau. La caractérisation des équilibres que nous obtenons met en avant d'une part l'influençabilité et d'autre part l'influence des agents cibles que nous mesurons à travers un nouveau concept mesurant l'intermédiation effectuée par un agent.
    Date: 2015–01
  10. By: Stylianos Despotakis; Isa Hafalir; R Ravi; Amin Sayedi
    Abstract: The phenomenon of sniping - submitting bids in the last minute - in online auctions has highlighted the existence of knowledgeable buyers or experts in such markets. In this paper, we consider online markets with auctions with hard or soft close and posted prices, and examine the effect of the presence of experts on other buyers, the platform and the sellers. We model buyer expertise as the ability to accurately predict the quality, or condition, of an item. In auctions with a hard close, while sniping emerges as an equilibrium strategy for experts, we show that non-experts bid more aggressively as the proportion of experts increases. As a consequence, we obtain the surprising implication that the auction platform may obtain a higher revenue by enforcing a hard close rather than a soft close in online auctions, thus providing a simple explanation for the prevalence of this format. In online markets where both auctions and posted prices are available, we show that the presence of experts allows the sellers of high quality items to signal their quality by choosing to sell via auctions.
  11. By: Francis Bloch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); David Cantala (El Colegio de Mexico - El Colegio de México)
    Abstract: This paper analyzes the optimal allocation of objects which arrive sequentially to agents organized in a waiting list. Applications include the assignment of social housing, deceased donor organs and daycare slots. A mechanism is a probability distribution over all priority orders which are consistent with the waiting list. We consider three efficiency criteria: first order stochastic dominance in the vector of agents' values, the probability of misallocation and the expected waste. We show that the strict seniority order dominates uniform random order according to the two first criteria, and the uniform random order dominates strict priority according to the third criterion. If agents values are perfectly correlated, strict priority dominates all other probabilistic mechanisms for all agents values.
    Date: 2014–05
  12. By: Rene Saran (Yale University); Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University, Denmark and IZA)
    Abstract: We study the Bayesian implementation problem in economies that are divided into groups consisting of two or more individuals with the same information. Our results cover problems like that of allocating public funds among states, regulating activities causing externalities among firms, locating public facilities in neighborhoods, electing candidates from multiple districts etc. Instead of the standard communication protocol of direct democracy whereby the planner consults all individuals, we analyze sortition schemes whereby the planner consults only a subset of the individuals, called senators, who are selected via some kleroterion (i.e., a lottery machine) p. In general environments, under mild "economic" assumptions on preferences, we show that every social choice function (SCF) that is implementable by direct democracy is also p-implementable if p always selects two or more individuals from each group and the selection process does not partition any group into "disconnected" subgroups (in the sense that individuals belonging to different subgroups are never selected together). In quasilinear environments satisfying a generic condition on individuals' beliefs, every SCF can be implemented by a simple and economically meaningful mechanism in which the kleroterion selects a predesignated group leader and one other randomly chosen individual from each group.
    Keywords: Bayesian implementation, Nonexclusive information, p-Implementation, Sortition
    JEL: C72 D02 D82
    Date: 2015–05–26
  13. By: Damien Besancenot (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - CNRS); Radu Vranceanu (ESSEC - Economics Department - Essec Business School)
    Abstract: In April 2013, all of the major academic publishing houses moved thousands of journal titles to an original hybrid model, under which authors of accepted papers can choose between an expensive open access track and the traditional track available only to subscribers. This paper argues that authors might use publication strategy as a quality signaling device. The imperfect information game between authors and readers presents several types of Perfect Bayesian Equilibria, including a separating equilibrium in which only authors of high quality papers are driven toward the open access track. The publishing house will choose the open-access publication fee that supports the emergence of the highest return equilibrium. Journal structures will evolve over time according to the journals' accessibility - quality profiles.
    Date: 2014–03–23
  14. By: Dietrich, Franz; List, Christian
    Abstract: We introduce a “reason-based” framework for explaining and predicting individual choices. It captures the idea that a decision-maker focuses on some but not all properties of the options and chooses an option whose motivationally salient properties he/she most prefers. Reason-based explanations allow us to distinguish between two kinds of context-dependent choice: the motivationally salient properties may (i) vary across choice contexts, and (ii) include not only “intrinsic” properties of the options, but also “context-related” properties. Our framework can accommodate boundedly rational and sophisticatedly rational choice. Since properties can be recombined in new ways, it also o↵ers resources for predicting choices in unobserved contexts.
    Keywords: Rational choice, reasons, context-dependence, bounded and sophisticated rationality, prediction of choice.
    JEL: B40 B49 B5 B50 C0 C00 C02 D0 D01 D03 D8 D80
    Date: 2015–05
  15. By: Takashi Kamihigashi (RIEB, Kobe University - Kobe University); Cuong Le Van (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, IPAG - Business School, VCREME - VanXuan Center of Research in Economics, Management and Environment - VanXuan Center of Research in Economics, Management and Environment)
    Abstract: In this paper, we give Necessary and Sufficient Conditions for a Solution of the Belman Equation to be the Value Function. This result is a general principle. It requires no structure beyond the common framework of discrete-time stationary optimization problems with time-additive returns. In particular, the state space X is an arbitrary set.
    Date: 2015–01
  16. By: Ulf Axelson; Philip Bond
    Abstract: Many finance jobs entail the risk of large losses, and hard-to-monitor effort. We analyze the equilibrium consequences of these features in a model with optimal dynamic contracting. We show that finance jobs feature high compensation, up-or-out promotion and long work hours, and are more attractive than other jobs. Moral hazard problems are exacerbated in booms, even though pay increases. Employees whose talent would be more valuable elsewhere can be lured into finance jobs, while the most talented employees might be unable to land these jobs because they are “too hard to manage.”
    Keywords: investment banking; compensation contracts
    JEL: E24 G24 J31 J33 J41 M51 M52
    Date: 2015
  17. By: Isa Hafalir; Fisher James
    Abstract: Certain aggregate externalities, like those due to knowledge and public goods, do not change very much in response to changes in two individuals’ actions. Thus, individuals rationally regard the level of the externality as fixed in their negotiations with each other. We leverage this observation to develop a general framework for the existence of stable matchings in large and finite one-to-one matching games, and we characterize intuitive restrictions on preferences that are sufficient for existence.
  18. By: Erik Eyster; Matthew Rabin; Dimitri Vayanos
    Abstract: We present a model of a financial market where some traders are "cursed" when choosing how much to invest in a risky asset, failing to fully take into account what prices convey about others' private information. Cursed traders put more weight on their private signals than rational traders. But because they neglect that the price encodes other traders' information, prices depend less on private signals and more on public signals than rational-expectation-equilibrium (REE) prices. Markets comprised entirely of cursed traders generate more trade than those comprised entirely of rationals; mixed markets can generate even more trade, as rationals employ momentum-trading strategies to exploit cursed traders. We contrast our results to other models of departures from REE and show that per-trader volume with cursed traders increases when the market becomes large, while natural forms of overconfidence predict that volume should converge to zero.
    JEL: D53 D84 G02 G11 G12 G14
    Date: 2015–05
  19. By: Mark Bernard (Department of Management and Microeconomics, Goethe University Frankfurt); Florian Hett (Department of Management and Microeconomics, Goethe University Frankfurt); Mario Mechtel (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: We model individual identification choice as a strategic group formation problem. When choosing a social group to identify with, individuals appreciate high social status and a group stereotype to which they have a small social distance. A group's social status and stereotype are shaped by the (exogenous) individual attributes of its members and hence endogenous to individuals' choices. Unless disutility from social distance is strong enough, this creates a strategic tension as individuals with attributes that contribute little to group status would like to join high-status groups, thereby diluting the latters' status and changing stereotypes. Such social free-riding motivates the use of soft exclusion technologies in high-status groups, which provides a unifying rationale for phenomena such as hazing rituals, charitable activities or status symbols that is not taste-based or follows a standard signaling mechanism.
    Keywords: social identity, social status, social distance, categorization, group formation
    JEL: Z13 D01 D03
    Date: 2015–05
  20. By: Noé Biheng (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: We consider a generalized expenditure function and the associated Hicksian demand. First, we provide some economic interpretation of the problem that we study. Then, we study different properties of the solution: existence, Lipschitz behavior and differential properties. We conclude by a Slutsky-type property.
    Abstract: Nous considérons une fonction de dépense généralisée et la demande compensée qui lui est associée. Premièrement, nous proposons différentes applications économiques du problème étudié. Nous étudions ensuite différentes propriétés de la solution de ce problème. Celles-ci concernent l'existence, le caractère lipschitzien et la différentiabilité de la solution. Enfin, nous obtenons une propriété similaire à la propriété de Slutsky.
    Date: 2014–11

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