nep-mic New Economics Papers
on Microeconomics
Issue of 2015‒10‒25
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Electoral Competition with Rationally Inattentive Voters By Matejka, Filip; Tabellini, Guido
  2. Price Discrimination by a Two-sided Platform: with Applications to Advertising and Privacy Design By Doh-Shin Jeon; Byung-Cheol Kim; Domenico Menicucci
  3. Cheap Talk with Correlated Signals By A.K.S. Chand; Sergio Currarini; Giovanni Ursino
  4. On the Maximal Domain Theorem By Yang, Yi-You
  5. Time Preferences and Bargaining By Sebastian Schweighofer-Kodritsch
  6. Oligopolistic Equilibrium and Financial Constraints By Beviá, Carmen; Corchón, Luis C.; Yasuda, Yosuke
  7. Risk Sharing in the Presence of a Public Good By Josef Schroth
  8. How Limiting Deceptive Practices Harms Consumers By Salvatore Piccolo; Piero Tedeschi; Giovanni Ursino
  9. Premuneration Values and Investments in Matching Markets By George J. Mailath; Andrew Postlewaite; Larry Samuelson
  10. The structure of Nash equilibria in Poisson games By Claudia Meroni; Carlos Pimienta
  11. Technology, team production and incentives By Smirnov, Vladimir; Wait, Andrew
  12. Indecisiveness, Undesirability and Overload Revealed Through Rational Choice Deferral By Gerasimou, Georgios
  13. Privacy-Constrained Network Formation By Daron Acemoglu; Ali Makhdoumi; Azarakhsh Malekian; Asuman E. Ozdaglar
  14. A Strategic Model of Magical Thinking: Axioms and Analysis By Philipp Sadowski; Brendan Daley
  15. Sustaining Cooperation: Community Enforcement vs. Specialized Enforcement By Daron Acemoglu; Alexander Wolitzky

  1. By: Matejka, Filip; Tabellini, Guido
    Abstract: This paper studies how voters optimally allocate costly attention in a model of probabilistic voting. The equilibrium solves a modified social planning problem that reflects voters’ choice of attention. Voters are more attentive when their stakes are higher, when their cost of information is lower and prior uncertainty is higher. We explore the implications of this in a variety of applications. In equilibrium, extremist voters are more influential and public goods are under-provided. The analysis also yields predictions about the equilibrium pattern of information, and about policy divergence by two opportunistic candidates. Endogenous attention can lead to multiple equilibria, explaining how poor voters in developing countries can be politically empowered by welfare programs.
    Keywords: behavioural political economy; electoral competition; rational inattention; salience
    JEL: H00 P16
    Date: 2015–10
  2. By: Doh-Shin Jeon (Toulouse School of Economics and CEPR. Manufacture de Tabacs, 21 allees de Brienne - 31000 Toulouse, France.); Byung-Cheol Kim (School of Economics, Georgia Institute of Technology. 221 Bobby Dodd Way, Atlanta, GA 30332, USA.); Domenico Menicucci (Dipartimento di Scienze per l’Economia e l’impresa, Universit`a degli Studi di Firenze. Via delle Pandette 9, I-50127 Firenze (FI), Italy)
    Abstract: We study price discrimination by a monopoly two-sided platform who mediates interactions between two different groups of agents. We adapt a canonical model of second-degree price discrimination `a la Mussa and Rosen (1978) to a two-sided platform by focusing on non-responsiveness, a clash between the allocation the platform wants to achieve and the incentive compatible allocations. In this framework we address the key question of when a price discrimination on one side complements or substitutes a price discrimination on the other side. We offer two applications on advertising platforms and also highlight the role of commitment in eliciting personal information for targeted advertising.
    Keywords: price discrimination, two-sided markets, non-responsiveness, privacy, advertising, positive/negative sorting
    JEL: D4 D62 D82 M3
    Date: 2015–10
  3. By: A.K.S. Chand; Sergio Currarini; Giovanni Ursino (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: We consider a game of information transmission, with one informed decision maker gathering information from one or more informed senders. Private information is (conditionally) correlated across players, and communication is cheap talk. For the one sender case, we show that correlation unambiguously tightens the existence conditions for a truth-telling equilibrium. We then generalize the model to an arbitrary number of senders, and we find that, in this case, the effect of correlation on the incentives to report information truthfully is non monotone, and correlation may discipline senders' equilibrium behavior, making it easier to sustain truth-telling.
    Keywords: Cheap Talk, Multiple Senders, Correlation
    JEL: C72 D82 D83
    Date: 2015–05
  4. By: Yang, Yi-You
    Abstract: The maximal domain theorem by Gul and Stacchetti (J. Econ. Theory 87 (1999), 95-124) implies that for markets with indivisible objects and sufficiently many agents, the set of gross substitutable preferences is a largest set for which the existence of a competitive equilibrium is guaranteed, and hence no relaxation of the gross substitutability can ensure the existence of a competitive equilibrium. However, we note that there is a flaw in their proof, and give an example to show that a claim used in the proof may fail to be true. We correct the proof and sharpen the result by showing that even there are only two agents in the market, if the preferences of one agent are not gross substitutable, then gross substitutable preferences can be found for another agent such that no competitive equilibrium exists. Moreover, we introduce the new notion of implicit gross substitutability, which is weaker than the gross substitutability condition and is still sufficient for the existence of a competitive equilibrium when the preferences of some agent are monotone.
    Keywords: Competitive equilibrium; gross substitutability; indivisibility
    JEL: D5 D51 D6 D61
    Date: 2015–10–16
  5. By: Sebastian Schweighofer-Kodritsch
    Abstract: This paper presents an analysis of general time preferences in the canonical Rubinstein (1982) model of bilateral alternating-offers bargaining. I derive a simple sufficient structure for optimal punishments and thereby fully characterize (i) the set of equilibrium outcomes for any given preference profile, and (ii) the set of preference profiles for which equilibrium is unique. When both players have a present bias— empirically, a property of most time preferences regarding consumption, and implied, e.g., by any hyperbolic or quasi-hyperbolic discounting—equilibrium is unique, stationary and efficient. When, instead, one player finds a near-future delay more costly than delay from the present—empirically common for time preferences over money—non stationary equilibria arise that explain inefficiently delayed agreement with gradually increasing offers.
    Keywords: alternating offer, time preference, impatience, discounting, dynamic inconsistency, delay, optimal punishment, simple penal codes, non-stationary equilibrium
    JEL: C78 D03 D74
    Date: 2015–08
  6. By: Beviá, Carmen (Universidad de Alicante, Universitat Autònoma de Barcelona and Barcelona GSE); Corchón, Luis C. (Universidad Carlos III de Madrid); Yasuda, Yosuke (Osaka University)
    Abstract: We provide a model of dynamic duopoly in which firms face financial constraints and disappear when they are unable to fulfill them. We show that, in some cases, Cournot outputs are no longer supported in equilibrium, because if these outputs were set, a firm may have incentives to ruin the other. In these cases, standard grim-trigger strategies in which collusion is sustained by infinite reversion to Cournot outputs cannot be used. We show that there is a stationary Markov equilibrium in mixed strategies where predation occurs with a positive probability. We also obtain a modified "folk theorem". We show that any bankruptcy-free outputs (outputs in which no firm can drive another firm to bankruptcy without becoming bankrupt itself) that attain individually rational profits (reflecting bankruptcy consideration) can be supported by a subgame perfect Nash equilibrium when firms are sufficiently long-sighted.
    Keywords: Financial Constraints, Bankruptcy, Firm Behavior, Dynamic Games
    JEL: D2 D4 L1 L2
    Date: 2015–10
  7. By: Josef Schroth
    Abstract: This paper studies an economy where agents can spend resources on consuming a private good and on funding a public good. There is asymmetric information regarding agents’ relative preference for private versus public good consumption. I show how private good consumption should be coordinated across agents within each period to ensure efficient contributions to fund the public good. If agents contributed similar amounts in the past, then coordination takes the form of positively correlated contributions in the current period. If an agent contributed more in the past, then coordination prescribes state-contingent socially wasteful private good consumption in the current period for that agent.
    Keywords: Financial stability, Financial system regulation and policies, Fiscal Policy
    JEL: E62 H21 H23 H77 D82 D86
    Date: 2015
  8. By: Salvatore Piccolo (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Piero Tedeschi (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Giovanni Ursino (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: There are two competing sellers of an experience good, one offers high quality, one low. The low-quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low-quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer-welfare.
    Keywords: Misleading Advertising, Deception, Bayesian Consumers, Asymmetric Information
    JEL: L13 L15 L4
    Date: 2015–05
  9. By: George J. Mailath; Andrew Postlewaite; Larry Samuelson
    Date: 2015–10–15
  10. By: Claudia Meroni (Department of Economics (University of Verona)); Carlos Pimienta (School of Economics, The University of New South Wales, Sydney, Australia)
    Abstract: In finite games, the graph of the Nash equilibrium correspondence is a semialgebraic set (i.e. it is defined by finitely many polynomial inequal- ities). This fact implies many game theoretical results about the structure of equilibria. We show that many of these results can be readily exported to Poisson games even if the expected utility functions are not polynomials. We do this proving that, in Poisson games, the graph of the Nash equilibrium correspondence is a globaly subanalytic set. Many of the properties of semialgebraic sets follow from a set of axioms that the collection of globaly subanalytic sets also satisfy. Hence, we easily show that every Poisson game has finitely many connected components and that at least one of them contains a stable set of equilibria. By the same reasoning, we also show how generic determinacy results in finite games can be extended to Poisson games.
    Keywords: Poisson games, voting, stable sets, o-minimal structures, globaly subanalytic sets.
    JEL: C70 C72
    Date: 2015–10
  11. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: Incentive reversal (IR) is when higher rewards induce some agents to reduce their effort (Winter, 2009). We show that IR can hold for all agents when: there is an improvement in production technology; and rewards are based on team output. Whilst IR requires at least one worker's marginal return to be decreasing in team productivity when agents invest simultaneously, this is not necessary with sequential investments. Rather, IR can occur with sequential investment when the marginal return of effort for all agents is increasing with improvements in technology.
    Keywords: Moral hazard in teams; Technology; Productivity; Incentive reversal
    Date: 2015–10
  12. By: Gerasimou, Georgios
    Abstract: Three reasons why decision makers may defer choice are *indecisiveness* between feasible options, *unattractiveness* of these options and *choice overload*. This paper provides a choice-theoretic explanation for each of these phenomena by means of three deferral-permissive models of decision making that are driven by preference incompleteness, undesirability and complexity constraints, respectively. These models feature *rational* choice deferral in the sense that whenever the individual does choose an option from a menu, this is a most preferred option in that menu, so that choices are always WARP-consistent. The models also allow for the use of observable data to recover the individual's preferences and, where applicable, the indecisiveness and undesirability components of these preferences.
    Keywords: Choice deferral; incomplete preferences; indecisiveness; unattractiveness; choice overload; revealed preference.
    JEL: D01 D03 D11
    Date: 2015–10
  13. By: Daron Acemoglu; Ali Makhdoumi; Azarakhsh Malekian; Asuman E. Ozdaglar
    Date: 2015–10–15
  14. By: Philipp Sadowski; Brendan Daley
    Date: 2015–10–15
  15. By: Daron Acemoglu; Alexander Wolitzky
    Date: 2015–10–15

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