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on Microeconomics |
| By: | Arina Nikandrova (Department of Economics, Mathematics & Statistics, Birkbeck); Romans Pancs (University of Rochester) |
| Abstract: | We consider a single-item, independent private value auction environment with two bidders: the leader, who knows his valuation, and the follower, who exerts an effort that affects the probability distribution of his valuation, which he then learns. We provide sufficient conditions under which an ex-post efficient revenue-maximizing auction solicits bids sequentially and partially discloses the leader’s bid to the follower, thereby influencing the follower’s effort. This disclosure rule, which is novel, is non-monotone and prescribes sometimes revealing only a pair to which the leader’s bid belongs and sometimes revealing the bid itself. The induced effort distortion relative to the first-best is discussed. |
| Keywords: | Information Disclosure, Conjugate Disclosure, Optimal Auction, Moral Hazard. |
| JEL: | D82 D83 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1504&r=mic |
| By: | Han, Jungsuk (Stockholm School of Economics); Sangiorgi, Francesco (Stockholm School of Economics) |
| Abstract: | This paper provides a microfounded information acquisition technology based on a simple framework with information search. When searchable information is limited, an agent encounters increasingly more redundant information in his search for new information. Redundancy slows down the learning process and generates decreasing returns. Further- more, as multiple agents search for information from the same source, limited searchabil- ity leads to covariance as the acquired information becomes increasingly more overlapped among agents. Using an asymptotic approach, we construct a tractable mapping from resource (attention) allocations to the precision and the correlation of agents’information under varying degrees of searchability of information. We study two economic applica- tions with endogenous information acquisition using our model: (i) a “beauty contest” coordination game, and (ii) a noisy rational expectations equilibrium. |
| Keywords: | information processing; concavity; precision; asymptotic analysis; coordina- tion games; portfolio choice; …nancial equilibrium |
| JEL: | C65 D80 D81 D83 G11 G14 |
| Date: | 2015–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0300&r=mic |
| By: | Aytimur, R. Emre; Bruns, Christian |
| Abstract: | We show that a large electorate of ignorant voters can succeed in establishing high levels of electoral accountability. In our model an incumbent politician is confronted with a large number of voters who receive very noisy signals about her performance. We find that the accountability problem can be solved well in the sense that the incumbent exerts effort as if she faced a social planner who receives a perfect signal about her performance. Our results thus shed light on another potential blessing of large electorates in addition to information aggregation as postulated by the jury theorem. |
| Keywords: | accountability,elections,information,jury theorem |
| JEL: | D72 D82 H41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:252&r=mic |
| By: | Subir Bose (University of Leicester); Arup Daripa (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | Online auctions with a fixed end-time often experience a sharp increase in bidding towards the end despite using a proxy-bidding format. We provide a novel explanation of this phenomenon under private values. We study a correlated private values environment in which the seller bids in her own auction (shill bidding). Bidders selected randomly from some large set arrive randomly in an auction, then decide when to bid (possibly multiple times) over a continuous time interval. A submitted bid arrives over a continuous time interval according to some stochastic distribution. The auction is a continuous-time game where the set of players is not commonly known, a natural setting for online auctions. We show that there is a late-bidding equilibrium in which bids are delayed to the latest instance involving no sacrifice of probability of bid arrival, but shill bids fail to arrive with positive probability, and in this sense optimal late bidding serves to snipe the shill bids. We show conditions under which the equilibrium outcome is unique. Our results suggest that under private values, the case against shill-bidding might be weak. |
| Keywords: | Online auctions, correlated private values, last-minute bidding, sniping, shill bidding, random bidder arrival, continuous bid time, continuous bid arrival process. |
| JEL: | D44 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1510&r=mic |
| By: | aniko oery (Yale); Andrzej Skrzypacz (Stanford University); William Fuchs (University of California - Berkeley) |
| Abstract: | We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good that is sold by an informed seller suering a liquidity shock. We contrast public versus pri- vate price oers and show that equilibria coincide only if oers are infrequent. All equilibria with private oers Pareto-dominate the equilibrium with public oers. If not trading by a deadline im- poses an eciency loss, public oers induce a market breakdown for some time before the deadline; in contrast, trade never stops with private oers, creating a further benet of opacity. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:73&r=mic |
| By: | Marco Pelliccia (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | We study a Rubinstein-Stahl two-player non-cooperative bargaining game played by n players connected in a communication network. We allow the players to communicate with any peer in the same component via the existing paths connecting the peers in a given communication network (global interaction). The unique stationary subgame perfect equilibrium profile characterizes the players’ expected payoff as function of their betweenness centrality score. Secondly, we study a dynamic link-formation game which allows the players to activate new linkages or sever existing ones in order to increase their bargaining power for a given marginal cost per link. We identify the conditions under which the pairwise stable network structures which arise belong to the family of the nested split graphs. These are graphs where the neighbourhood of each node is contained in the neighbourhoods of nodes with higher degrees. |
| Keywords: | Communication; Network; Noncooperative bargaining; Network formation. |
| JEL: | C72 C78 D85 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1507&r=mic |
| By: | Kota Murayama (Department of Economics, Northwestern University, USA) |
| Abstract: | When players have a finite depth of reasoning, it is usually assumed that each player has a commonly known anchor behavior. This paper provides a general framework to examine whether predictions are robust to uncertainty about other players' anchors. We give two different sufficient conditions for the robustness. The first condition shows that any p-dominant equilibrium is robust if players put sufficiently small probability (decreasing in p) on high-depth types. This result highlights a distinction between two prominent finite depth of reasoning models: a risk dominated equilibrium is robust in the cognitive hierarchy model, but not in the level-k model. We also show that equilibria of dominance solvable models are robust. |
| Keywords: | Robustness, Iterative reasoning, Level-k model, Cognitive-hierarchy model, Higher-order belief, Bounded rationality |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2015-28&r=mic |
| By: | Mitra, Manipushpak; De, Parikshit |
| Abstract: | We address the mechanism design issue for the sequencing problem. We identify the just sequencing rule that serves the agents in the non-increasing order of their waiting costs and prove that it is a Rawlsian rule. We identify all rVCG mechanisms that implement the just sequencing rule. The other properties of the just sequencing rule that we identify are the following. It is an affine cost minimizer. It can be implemented with budget balanced rVCG mechanisms. Finally, when waiting cost and processing time are private information, we identify all generalized rVCG mechanisms that ex-post implement the just sequencing rule. |
| Keywords: | sequencing, implementation, outcome efficient sequencing rule, just sequencing rule, budget balance, ex-post implementation. |
| JEL: | C72 D63 D82 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65447&r=mic |
| By: | Arina Nikandrova (Department of Economics, Mathematics & Statistics, Birkbeck); Romans Pancs (University of Rochester) |
| Abstract: | We study a normative model of an internal capital market, used by a company to choose between its two divisions’ pet projects. Each project’s value is initially unknown to all but can be dynamically learned by the corresponding division. Learning can be suspended or resumed at any time and is costly. We characterize an internal capital market that maximizes the company’s expected cash flow. This market has indicative bidding by the two divisions, followed by a spell of learning and then firm bidding, which occurs at an endogenous deadline or as soon as either division requests it. |
| Keywords: | Internal Capital Market, Irreversible Project Selection. |
| JEL: | D82 D83 G32 G31 |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1505&r=mic |
| By: | C.-Philipp Heller (Humboldt-Universitaet zu Berlin); Johannes Johnen (European School of Management and Technology); Sebastian Schmitz (Freie Universitae Berlin) |
| Abstract: | We study road congestion as a mechanism design problem. In our basic model we analyze the allocation of a set of drivers among two roads, one of which may be congested. An additional driver on the congestible road imposes an externality on the other drivers by increasing their travel time. Each driver is privately informed about her value of time and asked to report that value to the mechanism designer, who assigns drivers to roads. With a nite number of drivers, there is aggregate uncertainty and the efficient allocation is ex ante unknown. Setting a single Pigouvian price is then not optimal. However, the efficient allocation is implementable by a Vickrey-Clarke-Groves price schedule that lets each driver pay the externality she imposes on other drivers. This allows drivers to pay to have other drivers use the slow road instead of the congestible road. As the number of drivers becomes large, there is a single optimal Pigouvian price that leads to an efficient allocation. However, finding this price requires the mechanism designer to either know the precise distribution of the value of time or the use of our mechanism. We analyze some extensions and apply our model to various congestion problems arising in other contexts. Creation Date: 2015-06-26 |
| Keywords: | Mechanism Design, Congestion Pricing, VCG Mechanism, Externalities, Value of Time |
| JEL: | D82 D62 R48 R41 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:wpaper:2015008&r=mic |
| By: | Mikhail Freer (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Mariia Titova (National Research University Higher School of Economics, Moscow, Russia) |
| Abstract: | In this paper, we present a solution to the many-to-many matching problem with quotas. In our setting, we have students who select an exact number of courses (exact quota qs), and courses that must admit at least qc students (lower quota). We present a generalization of the deferred acceptance mechanism introduced in Gale and Shapley (1962), which returns the best pairwise-stable matching for courses, which is also uniform: every course has approximately the same number of students.Length: 7 |
| Keywords: | two-sided matching, stability |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1052&r=mic |
| By: | Arup Daripa (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | We study repayment incentives generated through social sanctions and under pure in- dividual liability. In our model agents are heterogeneous, with differing degrees of risk aversion. We consider a simple setting in which agents might strategically default from a loan program. We remove the usual assumption of exogenous social penalties, and consider the endogenous penalty of exclusion from an underlying social cooperation game, modeled here as social risk-sharing. For some types of agents social risk-sharing can be sustained by the threat of exclusion from this arrangement. These types have social capital and can be given a loan that bootstraps on the risk-sharing game by using the threat of exclusion from social risk-sharing to deter strategic default. We show that the use of such sanctions can only cover a fraction of types participating in social risk sharing. Further, coverage is decreasing in loan duration. We then show that an individual loan programaugmented by a compulsory illiquid savings plan (such schemes are used by the Grameen Bank) can deliver greater coverage, and can even cover types excluded from social risk-sharing (i.e. types for whom social penalties are not available at all). Further, the coverage of an individual loan program has the desirable property of increasing with loan size as well as loan duration. Finally, we show that social cooperation enhances the performance of individual loans. Thus fostering social cooperation is beneficial under individual liability loans even though it has limited usefulness as a penalty under social enforcement of repayment. The results offer an explanation for the Grameen Bank’s adoption of individual liability replacing group liability in its loan programs since 2002. |
| Keywords: | Strategic default, social cooperation, social penalties, individual liability, loan coverage, loan duration, loan size. |
| JEL: | O12 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1509&r=mic |
| By: | Schmitz, Patrick W |
| Abstract: | The government and a non-governmental organization (NGO) can invest in the provision of a public good. Who should be the owner of the public project? In an incomplete contracting model in which ex post negotiations are without frictions, the party that values the public good most should be the owner, regardless of technological aspects. However, under the plausible assumption that there are bargaining frictions, the optimal ownership structure depends on technological aspects and on the parties' valuations. We show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought. |
| Keywords: | bargaining frictions; incomplete contracts; investment incentives; ownership; public goods |
| JEL: | C78 D23 D86 H41 L31 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10686&r=mic |
| By: | Yuyu Zeng (VU University Amsterdam, the Netherlands); Harold Houba (VU University Amsterdam, the Netherlands); Gerard van der Laan (VU University Amsterdam, the Netherlands) |
| Abstract: | We extend the models in ("Competition in two-sided markets" of Armstrong (2006, <I>Rand Journal of Economics</I>) by adding within-group externalities. In the monopoly and duopoly cases, positive within-group externalities reduce the price of the own group. Negative externalities have an opposite price effect. In the case of a competitive bottleneck, we show by examples that within a certain range of parameter values, a novel phenomenon arises that the platform attracts more agents from one of the groups compared with the social optimum. |
| Keywords: | Competition economics; two-sided market |
| JEL: | D4 L4 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20150080&r=mic |