nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒01‒18
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Evidence Games : Truth and Commitment By Hart, Sergiu; Kremer, Ilan; Perry, Motty
  2. Legal Advice and Evidence with Bayesian and non-Bayesian Adjudicators By Che, Yeon-Koo; Severinov, Sergei
  3. Crowd Learning without Herding : A Mechanism Design Approach By Glazer, Jacob; Kremer, Ilan; Perry, Motty
  4. Multiproduct Pricing Made Simple By Armstrong, Mark; Vickers, John
  5. Time Scarcity and the Market for News By Larbi Alaoui; Fabrizio Germano
  6. Bounded Rationality and Correlated Equilibria By Fabrizio Germano; Peio Zuazo-Garin
  7. Belief revision generalized: A joint characterization of Bayes' and Je¤rey's rules By Franz Dietrich; Christian List; Richard Bradley
  8. Multilateral Bargaining with Opt-Out Option By Maurya, Amit Kumar
  9. Feasible elimination procedures in social choice : an axiomatic characterization By Peleg B.; Peters H.J.M.
  10. Optimal Mirrleesian Taxation in Non-competitive Labor Markets By Costa, Carlos da; Maestri, Lucas
  11. A Characterization of Risk-Neutral and Ambiguity-Averse Behavior By Georgios Gerasimou
  12. Resource-monotonicity and Population-monotonicity in Cake-cutting By Balazs Sziklai; Erel Segal-Halevi
  13. Reason-based choice and context-dependence: An explanatory framework By Franz Dietrich; Christian List
  14. Rational Expectations and Farsighted Stability By Dutta, Bhaskar; Vohra, Rajiv
  15. A revealed preference theory of monotone choice and strategic complementarity By Koji Shirai
  16. Aggregation theory and the relevance of some issues to others By Franz Dietrich

  1. By: Hart, Sergiu (Department of Economics, Institute of Mathematics, and Federmann Center for the Study of Rationality, The Hebrew University of Jerusalem.); Kremer, Ilan (Department of Economics, Business School, and Federmann Center for the Study of Rationality, The Hebrew University of Jerusalem; Department of Economics, University of Warwick); Perry, Motty (Federmann Center for the Study of Rationality, The Hebrew University of Jerusalem; Department of Economics, University of Warwick.)
    Abstract: An evidence game is a strategic disclosure game in which an informed agent who has some pieces of verifiable evidence decides which ones to disclose to an uninformed principal who chooses a reward. The agent, regardless of his information, prefers the reward to be as high as possible. We compare the setup where the principal chooses the reward after the evidence is disclosed to the mechanism-design setup where he can commit in advance to a reward policy. The main result is that under natural conditions on the truth structure of the evidence, the two setups yield the same equilibrium outcome.
    Date: 2015
  2. By: Che, Yeon-Koo; Severinov, Sergei
    Abstract: We examine the effect of legal advice on the evidence that reaches the court and thernoutcome of adjudication, and highlight how the adjudicator should allocate thernburden of proof in light of these effects. rnDespite lawyers'rnexpertise in assessing the evidence, their advice is found to havernno effect on adjudication if the lawyers follow the strategies of disclosingrnall favorable evidence, irrespective of whether the adjudicator is Bayesian or rnnon-Bayesian. A lawyer's advice can influence the outcome to his client's favor,rneither if (s)he can credibly advise his client to suppress some favorable rnevidence or if legal advice is costly. The effect is socially undesirable in the rnformer case, but it is desirable in the latter case. rnWe also show that social welfare may be increased by regulating the inferencesrnthat adjudicators are allowed to make. Our results provide a general perspective rnfor understanding the role of private information and expert advice in disclosure.
    Keywords: Legal advice, disclosure of evidence, adjudication of disputes, regulating adjudicators' inferences
    Date: 2015–12–31
  3. By: Glazer, Jacob (Department of Economics, University of Warwick and Faculty of Management Tel Aviv University); Kremer, Ilan (Department of Economics, University of Warwick and Faculty of Management and Economics Department, The Hebrew University of Jerusalem); Perry, Motty (Department of Economics, University of Warwick)
    Abstract: Crowdfunding, Internet websites, and health care are only a few examples of markets in which agents make decisions not only on the basis of their own investigations and knowledge, but also on the basis of information from a "central planner" about other agents’ actions. While such reciprocal learning can be welfare-improving, it may reduce agents’ incentives to conduct their own investigations, and may lead to harmful cascades. We study the planner’s optimal policy regarding when to provide information and how much information to provide. We show that the optimum policy involves a delicate balance of hiding and revealing information.
    Keywords: Informationio Cascades ; Mechanism Design
    Date: 2015
  4. By: Armstrong, Mark; Vickers, John
    Abstract: We study pricing by multiproduct firms in the context of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.
    Keywords: Multiproduct pricing, homothetic preferences, Cournot oligopoly, monopoly regulation, Ramsey pricing, cost passthrough, multidimensional screening
    JEL: D42 D43 D82 L12 L13 L51
    Date: 2016–01–08
  5. By: Larbi Alaoui (Universitat Pompeu Fabra and Barcelona Graduate School of Economics); Fabrizio Germano (Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
    Abstract: We develop a theory of news coverage in environments of information abundance that include both new and traditional news media, from online and print newspapers to radio and television. News consumers are time-constrained and browse through news items that are available across competing outlets, choosing which outlets to access and which stories to read or skip. Media firms are aware of consumers’ preferences and constraints, and decide on rankings of news items that maximize their profits. We find that the news consumed in equilibrium is highly sensitive to the details of the environment. We show that even when readers and outlets are rational and unbiased, readers may consume more than they would like to, and the news items they consume may be significantly different from the ones they prefer. Important news items may be crowded out. Next, we derive implications on diverse aspects of current media, including a rationale for tabloid news, a rationale for why readers prefer like-minded news, and how advertising can contribute to crowding out news. We also analyze methods for restoring reader-efficient standards and discuss the political economy implications of the theory.
    Keywords: news markets, time constrained consumers, digital media, news coverage, public media.
    JEL: D80 H44 L82 L86
    Date: 2015–12–27
  6. By: Fabrizio Germano (Universitat Pompeu Fabra and Barcelona Graduate School of Economics); Peio Zuazo-Garin (Universitat Rovira i Virgili, Department d’Economia, CREIP and BRiDGE)
    Abstract: We study an interactive framework that explicitly allows for nonrational behavior. We do not place any restrictions on how players’ behavior deviates from rationality. Instead we assume that there exists a probability p such that all players play rationally with at least probability p, and all players believe, with at least probability p, that their opponents play rationally. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary probability p. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to derive a measure p that bounds from below the probability with which any given player chooses actions consistent with payoff maximization and common knowledge of payoff maximization.
    Keywords: strategic interaction, correlated equilibrium, robustness to bounded rationality, approximate knowledge, incomplete information, measure of rationality, experiments
    JEL: C72 D82 D83
    Date: 2015–11–02
  7. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics); Richard Bradley (LSE - London School of Economics)
    Abstract: We present a general framework for representing belief-revision rules and use it to characterize Bayes' rule as a classical example and Jeffrey's rule as a non-classical one. In Je¤rey's rule, the input to a belief revision is not simply the information that some event has occurred, as in Bayes' rule, but a new assignment of probabilities to some events. Despite their differences, Bayes' and Je¤rey's rules can be characterized in terms of the same axioms: responsiveness, which requires that revised beliefs incorporate what has been learnt, and conservativeness, which requires that beliefs on which the learnt input is 'silent' do not change. To illustrate the use of non-Bayesian belief revision in economic theory, we sketch a simple decision-theoretic application.
    Keywords: Belief revision,subjective probability,Bayes's rule,Je¤rey's rule,axio-matic foundations,fine-grained versus coarse-grained beliefs,unawareness
    Date: 2016
  8. By: Maurya, Amit Kumar
    Abstract: We study a model of multilateral bargaining in which a buyer attempts to assemble objects owned by multiple sellers. Players can (non-cooperatively) opt out of the bargaining whenever they want. The presence of this option results in an equilibrium in which the buyer implements the project immediately and grabs the entire surplus. It also mitigates the inefficiency associated with nontransparent bargaining protocol. These results are in stark contrast to those obtained in Roy Chowdhury and Sengupta (2012).
    Keywords: Multilateral bargaining, Opt Out, Outside options, Efficiency, Non-transparency
    JEL: C72 C78 D23
    Date: 2015–12–23
  9. By: Peleg B.; Peters H.J.M. (GSBE)
    Abstract: Feasible elimination procedures Peleg, 1978 play a central role in constructing social choice functions which have the following property in the associated game form, for any preference profile there exists a strong Nash equilibrium resulting in the sincere outcome. In this paper we provide an axiomatic characterization of the social choice correspondence resulting from applying feasible elimination procedures. The axioms are anonymity, Maskin monotonicity, and independent blocking.
    Keywords: Game Theory and Bargaining Theory: General; Social Choice; Clubs; Committees; Associations;
    JEL: C70 D71
    Date: 2016
  10. By: Costa, Carlos da; Maestri, Lucas
    Abstract: We study optimal labor income taxation in non-competitive labor markets. Firms offer screening contracts to workers who have private information about their productivity. A planner endowed with a Paretian social welfare function tries to induce allocations that maximize its objective. We provide necessary and sufficient conditions for implementation of constrained efficient allocations using tax schedules. All allocations that are implementable by a tax schedule display negative marginal tax rates for almost all workers. Not all allocations that are implementable in a competitive setting are implementable in this noncompetitive environment.
    Date: 2015–12
  11. By: Georgios Gerasimou (University of St Andrews)
    Abstract: This paper studies a decision maker who chooses monetary bets/investment portfolios under pure uncertainty. Necessary and sufficient conditions on his preferences over these objects are provided for his choice behavior to be guided by the *maxmin expected value* rule, and therefore to exhibit both "risk neutrality" and ambiguity aversion. This result is obtained as an extension of a simple re-characterization of de Finetti's theorem on maximization of subjective expected value.
    Keywords: Maxmin expected value ambiguity aversion risk neutrality multiple priors de Finetti
    JEL: D01 D03 D11
    Date: 2015–12–01
  12. By: Balazs Sziklai (Momentum Game Theory Research Group, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Erel Segal-Halevi (Bar-Ilan University Israel)
    Abstract: We study the monotonicity properties of solutions in the classic problem of fair cake-cutting – dividing a single heterogeneous resource among agents with subjective utilities. Resource- and population-monotonicity relate to scenarios where the cake, or the number of participants who divide the cake, changes. It is required that the utility of all participants change in the same direction: either all of them are better-off (if there is more to share) or all are worse-off (if there is less to share). We formally introduce these concepts to the cake-cutting setting and present a meticulous axiomatic analysis. We show that classical cake-cutting protocols, like the Cut and Choose, Banach-Knaster, Dubins–Spanier and many other fail to be monotonic. We also show that, when the allotted pieces must be contiguous, proportionality and Pareto-optimality are incompatible with each of the monotonicity axioms. We provide a resource-monotonic protocol for two players and show the existence of rules that satisfy various combinations of contiguousness, proportionality, Pareto-optimality and the two monotonicity axioms.
    Keywords: resource-monotonicity, population-monotonicity, cake-cutting, leximin divisions, equitable divisions
    JEL: D63
    Date: 2015–10
  13. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics)
    Abstract: We introduce a "reason-based" framework for explaining and predicting individual choices. The key idea is 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 can capture two kinds of context-dependent choice: (i) the motivationally salient properties may vary across choice contexts, and (ii) they may include "context-related" properties, not just "intrinsic" properties of the options. Our framework allows us to explain boundedly rational and sophisticated choice behaviour. Since properties can be recombined in new ways, it also offers resources for predicting choices in unobserved contexts.
    Keywords: Rational choice,reasons,context-dependence,bounded and sophisticated rationality,prediction of choice
    Date: 2016
  14. By: Dutta, Bhaskar (Department of Economics University of Warwick); Vohra, Rajiv (Brown University)
    Abstract: In the study of farsighted coalitional behavior, a central role is played by the von Neumann-Morgenstern (1944) stable set and its modification that incorporates farsightedness. Such a modification was first proposed by Harsanyi (1974) and has recently been re-formulated by Ray and Vohra (2015). The farsighted stable set is based on a notion of indirect dominance in which an outcome can be dominated by a chain of coalitional ‘moves’ in which each coalition that is involved in the sequence eventually stands to gain. However, it does not require that each coalition make a maximal move, i.e., one that is not Pareto dominated (for the members of the coalition in question) by another. Nor does it restrict coalitions to hold common expectations regarding the continuation path from every state. Consequently, when there are multiple continuation paths the farsighted stable set can yield unreasonable predictions. We resolve this difficulty by requiring all coalitions to have common rational expectations about the transition from one outcome to another. This leads to two related concepts: the rational expectations farsighted stable set (REFS) and the strong rational expectations farsighted stable set (SREFS). We apply these concepts to simple games and to pillage games to illustrate the consequences of imposing rational expectations for farsighted stability.
    Keywords: stable sets ; farsightedness ; consistency ; maximality ; rational expectations ; simple games ; pillage games. Classification -JEL: C71 ; D72 ; D74
    Date: 2015
  15. By: Koji Shirai (School of Economics, Kwansei Gakuin University)
    Abstract: We develop revealed preference characterizations of (1) monotone choice in the context of individual decision making and (2) strategic complementarity in the context of simultaneous games. We first consider the case where the observer has access to panel data and then extend the analysis to the case where data sets are cross sectional and preferences heterogenous. Lastly, we apply our techniques to investigate the possibility of spousal influence in smoking decisions.
    Keywords: monotone comparative statics, single crossing di↵erences, interval dominance, supermodular games, lattices
    JEL: C6 C7 D7
    Date: 2015–12
  16. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: I propose a relevance-based independence axiom on how to aggregate individual yes/no judgments on given propositions into collective judgments: the collective judgment on a proposition depends only on people's judgments on propositions which are relevant to that proposition. This axiom contrasts with the classical independence axiom: the collective judgment on a proposition depends only on people's judgments on the same proposition. I generalize the premise-based rule and the sequential-priority rule to an arbitrary priority order of the propositions, instead of a dichotomous premise/conclusion order resp. a linear priority order. I prove four impossibility theorems on relevance-based aggregation. One theorem simultaneously generalizes Arrow's Theorem (in its general and indifference-free versions) and the well-known Arrow-like theorem in judgment aggregation.
    Keywords: judgment aggregation,generalized Arrow theorem,generalized premise-based and sequential-priority rules,priority graph,aggregation of non-binary evalua-tions
    Date: 2015

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