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on Microeconomics |
| By: | Halaburda, Hanna; Jullien, Bruno; Yehezkel, Yaron |
| Abstract: | We consider dynamic competition among platforms in a market with network exter- nalities. A platform that dominated the market in the previous period becomes \focal" in the current period, in that agents play the equilibrium in which they adopt the focal platform whenever such equilibrium exists. Yet when faced with higher-quality competition, can a low-quality platform remain focal? In the finite-horizon case, the unique equilibrium is efficient for \patient" platforms; with an infinite time horizon, however, there are multiple equilibria where either the lowor high-quality platform dominates. If qualities are stochastic, the platform with a better average quality wins with a higher probability, even when its realized quality is lower, and this probability increases as platforms become more patient. Hence social welfare may decline as platforms become more forward looking. |
| Keywords: | network externalities, dynamic competition, coordination |
| JEL: | L1 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:30384&r=mic |
| By: | Bag, Kanti Parimal (National University of Singapore, Faculty of Arts and Social Sciences, Department of Economics); Pepito, Nona (Essec business school) |
| Abstract: | In a two-period continuous effort investment game as in Mohnen, et al. (2008), we demonstrate that peer transparency can be strictly harmful. This contrasts with Mohnen et al.'s result that transparency, through the observability of interim efforts, induces more effort and is thus beneficial if team members are inequity-averse. If, instead, preferences are standard utilitarian, the marginal benefit is decreasing and marginal cost is increasing in a player's own effort, then players' collective and individual efforts are strictly less with transparency than under non-transparency. |
| Keywords: | free-riding; transparency; team; perfect substitution |
| JEL: | D02 |
| Date: | 2016–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16003&r=mic |
| By: | Ouyang, Yaofu |
| Abstract: | We analyze a credence goods market with risk averse consumers when the assumptions of both liability and verifiability hold. In the basic model, we show that the consumer's risk-aversion would induce expert's overtreatment behavior and thus cause social inefficiency. But the probability of overtreating deceases with the degree of consumer's risk-aversion or the coefficient of absolute risk aversion(CRRA). Furthermore, we extend the basic model with insurance option. We assume there exists a perfectly competitive insurance market where the consumer could purchase insurance. Two sets of equilibria indexed by expert's pricing strategy could be specified. The equilibrium outcome shows that social efficiency could always be achieved and the expert could obtain all the social surplus in the equilibrium. |
| Keywords: | Credence Goods, Risk Averse, Insurance |
| JEL: | D81 D82 I11 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:70392&r=mic |
| By: | Eliaz, Kfir; Spiegler, Ran |
| Abstract: | A platform that operates a social network allows firms to post display ads to network members. Each member is interested in exactly one type of product. The network structure is correlated with the profile of member's privately known preferences over product types. The platform's policy consists of a display rule (which specifies the stationary probability with which each product is shown to each network member, as a function of the network structure) and an advertising fee (which the platform charges from firms as a function of their reported type). We provide conditions for the existence of an incentive-compatible policy that maximizes and fully extracts firms' surplus. This objective is easier to attain when the network is more informative of members' preferences, consumers are more attentive to advertising and their frequency of repeated purchases is higher, and advertisers are less informed of the network structure. We provide a more detailed characterization when the network is generated according to the "stochastic block model", thus linking our model to the "community detection" problem in Network Science. |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11223&r=mic |
| By: | Eric Stephens (Department of Economics, Carleton University); James R. Thompson (School of Accounting and Finance, University of Waterloo) |
| Abstract: | We provide a tractable model of counterparty risk in an intermediated risk transfer market, and analyze the consequences of this risk being private information. We show that unknown type information can be revealed when large trades are observable; however, the allocation is shown to be constrained inefficient. The inefficiency is highlighted by considering the imposition of a transaction tax, which can improve welfare by encouraging more information revelation and increasing risk transfer. The results suggest that increased transparency and/or central counterparty arrangements in over-the-counter derivative markets may promote transparency of counterparty risk. |
| Keywords: | Risk Transfer Markets, Asymmetric Information, Counterparty Risk, Regulation |
| Date: | 2016–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:16-04&r=mic |
| By: | Agastya, Murali (University of Sydney, 1School of Economics); Bag, Parimal Kanti (National University of Singapore, Faculty of Arts and Social Sciences, Department of Economics); Pepito, Nona (Essec Business School) |
| Abstract: | In a two-task team project with observable task outcomes, optimal incentives prioritize tasks differently depending on task externalities. When the tasks are independent, Principal follows a decreasing order by placing more essential task first. A task is more essential if its failure compromises the overall project's chance of success from a task-specific cutoff level by a greater percentage. This definition has no systematic relations to the variance of task outcomes. In particular, a more risky task can be less essential or more essential. Under externalities, essentiality and impact jointly determine the optimal ordering. A task with much higher impact can be performed early even if it is less essential. Optimal task ordering thus raises subtle new issues and forms an integral part in team incentives. Our analysis provides some contrast with recent team incentives results. |
| Keywords: | externalities in teams; sequencing; essential tasks; joint projects; team incentives |
| JEL: | D20 D80 |
| Date: | 2016–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16001&r=mic |
| By: | Kauffeldt, T. Florian |
| Abstract: | This paper investigates whether the strategic behavior of expected utility players differs from that of non-expected utility players in the context of incomplete information games where players can choose mixed strategies. Two conditions are identified where uncertainty-averse non-expected utility players behave differently from expected utility players. These conditions concern the use of mixed strategies and the response to it. It is shown that, if and only if these conditions fail, nonexpected utility players behave as if they were expected utility players. The paper provides conditions, in terms of the payoff structure of a game, which are necessary and sufficient for behavioral differences between expected and non-expected utility players. In this context, games are analyzed that are especially relevant for the design of experiments. |
| Keywords: | Non-expected utility; Incomplete information games;Uncertainty aversion; Mixed strategies; Strategic behavior |
| Date: | 2016–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0614&r=mic |
| By: | Nicolas Gravel (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Thierry Marchant (Ghent University, Department of Data analysis); Arunava Sen (Indian Statistical Institute) |
| Abstract: | We provide an axiomatic characterization of a family of criteria for ranking completely uncertain and/or ambiguous decisions. A completely uncertain decision is described by the set of all its consequences (assumed to be finite). An ambiguous decision is described as a finite set of possible probability distributions over a finite set of prices. Every criterion in the family compares sets on the basis of their conditional expected utility, for some probability function taking strictly positive values and some utility function both having the universe of alternatives as their domain. |
| Keywords: | Ignorance, Ambiguity, Conditional Probabilities, Expected Utility, Ranking Sets, axioms |
| JEL: | D80 D81 |
| Date: | 2016–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1614&r=mic |
| By: | Kazuhiko Hashimoto; Kohei Shiozawa |
| Abstract: | We study strategy-proof probabilistic mechanisms in a binary public decision model when monetary transfers are allowed. We consider not only the pivotal mechanism, the majority voting mechanism, the random serial dictatorship mechanism, and the unanimity mechanism, but also the random chair pivotal mechanism (Faltings 2005), which is a probabilistic variant of the pivotal mechanism. We first show that the random chair pivotal mechanism, the majority voting mechanism, the random serial dictatorship mechanism, and the unanimity mechanism are second-best efficient. Next, we calculate the expected welfare of the mechanisms by the Monte Carlo method, where each agent's valuation is independently, identically, and uniformly (or normally) distributed. These calculations exhibit that the random chair pivotal mechanism is more efficient than the other mechanisms. We also show that in large economies, the random chair pivotal mechanism is efficient, while the other mechanisms might be highly inefficient. Finally, we characterize the random chair pivotal mechanism with strategy-proofness, budget-balance, equal treatment of equals, and decision-robustness. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0964&r=mic |
| By: | Audrey Hu (University of Amsterdam, the Netherlands); Liang Zou (University of Amsterdam) |
| Abstract: | A common assumption in the analysis of symmetric auctions is that the bidders' value estimates exhibit positive informational externalities (PIE). This assumption implies upward drifting price sequences at sequential auctions, which is challenged by an empirical regularity, known as the "declining price anomaly," that observed price sequences at real sequential auctions tend to be downward-drifting. This paper extends the existing analysis to a generalized interdependent values environment, in which the bidders' values can exhibit both PIE and NIE (negative informational externalities). The case of NIE can arise naturally when competing bidders are also competitors in the same product market. If a bidder's type is related to his or his firm's ensuing competitive advantage, then an increase of a bidder's type increases his own but may decrease other bidders' expected values. We consider a general sequential auction mechanism that sells m identical objects through K (≤m) consecutive rounds, each round involving possibly a different number of objects for sale and a different payment rule. For risk neutral bidders having unit demand and independent types, we obtain two major results. First, the direct sequentially incentive compatible auction mechanisms, which implement the performance of essentially all standard auctions, are feasible under both PIE and NIE. Second, while the total expected revenue is invariant to sequencing and payment rules, the expected selling prices from different rounds of the auction are not the same. In a PIE environment the expected price sequence tends to be upward drifting, whereas in an NIE environment the expected price sequence is strongly downward drifting: the expected lowest price in round k exceeds the expected highest price in round k+1. The declining price "anomaly" could, therefore, be evidence of bidders' values featuring NIE or post-auction competition. |
| Keywords: | Sequential auction; generalized interdependent values; declining price anomaly; informational externalities; revenue equivalence |
| JEL: | D44 D82 |
| Date: | 2016–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20160016&r=mic |
| By: | Bernard Sinclair-Desgagné; Sandrine Spaeter |
| Abstract: | This paper seeks to characterize incentive compensation in a principal-agent moral hazard setting in which the principal is prudent, or downside risk averse, as many situations (such as that of a patient in hospital or a regulator dealing with food safety) suggest she should be. We show that optimal incentive pay should then be 'approximately concave' in performance, the approximation being closer the more downside risk averse the principal is compared to the agent. Limiting the agent's liability would improve the approximation, but taxing the principal would make it coarser. The notion of an approximately concave function we introduce here to describe the pay-performance relationship is relatively recent in mathematics; it is intuitive and translates into concrete empirical implications, notably for the composition of incentive pay. We also clarify which measure of prudence - among the various ones proposed in the literature - is relevant to investigate the tradeoff between downside risk sharing and incentives. |
| Keywords: | Pay-performance relationship; executive compensation; downside risk aversion; approximate concavity. |
| JEL: | D82 M12 M52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2016-22&r=mic |
| By: | Hiroki Kondo (Department of Economics, Sophia University); Amihai Glazer (Department of Economics, University of California-Irvine) |
| Abstract: | Consider the private provision of a public good, where consumption of the public good requires an individual to spend time. We show that gov- ernmental provision of the public good financed by a labor tax reduces the incentive to work, increases the time available to an individual to consume the public good, and so increases the marginal utility to the individual of the public good. That in turn means that, in contrast to standard mod- els, governmental provision need not fully crowd out private provision. Instead, increased governmental provision can lead to an increase in the sum of private and governmental provision. |
| Keywords: | Public goods; Crowding out |
| JEL: | H23 H42 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:151607&r=mic |
| By: | Philippe Choné (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Stéphane Gauthier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) |
| Abstract: | A government agency delegates to a provider (hospital, medical gatekeeper, school, social worker) the decision to supply a service or treatment to individual recipients. The agency does not perfectly know the distribution of individual treatment costs in the population. The single-crossing property is not satisfied when the uncertainty pertains to the dispersion of the distribution. We find that the provision of service should be distorted upwards when the first-best efficient number of recipients is sufficiently high. |
| Keywords: | treatment,provision of service,service |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01300824&r=mic |