nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒05‒08
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Image Versus Information: Changing Societal Norms and Optimal Privacy By S. Nageeb Ali; Roland Bénabou
  2. Delay and deadlines: freeriding and information revelation in partnerships By Arthur Campbell; Florian Ederer; Johannes Spinnewijn
  3. An Efficient Mechanism for Competitive Markets with Adverse Selection By Dosis, Anastasios
  4. On the Pareto Efficiency of a Socially Optimal Mechanism for Monopoly Regulation By Saglam, Ismail
  5. Expected Multi-Utility Representations by "Simplex" with Applications By Dino Borie
  6. Motivational Ratings By Johannes Horner; Nicolas Lambert
  7. Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets By Kazunori Miwa
  8. Collusion under Imperfect Monitoring with Asymmetric Firms By Luke, Garrod; Matthew, Olczak
  9. (In)visible Hands in Matching Markets. By Alcalde, José
  10. Brownian Signals: Information Quality, Quantity and Timing in Repeated Games By Osório, António (António Miguel)
  11. Weakening Description Invariance to Deal with Framing Effects: An Axiomatic Approach By Dino Borie; Dorian Jullien
  12. Strategic delegation effects on Cournot and Stackelberg competition By Michelacakis, Nickolas
  13. Inefficient Lock-in with Sophisticated and Myopic Players By Aidas Masiliunas

  1. By: S. Nageeb Ali; Roland Bénabou
    Abstract: We analyze the costs and benefits of using social image to foster virtuous behavior. A Principal seeks to motivate reputation-conscious agents to supply a public good. Each agent chooses how much to contribute based on his own mix of public-spiritedness, private signal about the value of the public good, and reputational concern for appearing prosocial. By making individual behavior more visible to the community the Principal can amplify reputational payoffs, thereby reducing free-riding at low cost. Because societal preferences constantly evolve, however, she knows only imperfectly both the social value of the public good (which matters for choosing her own investment, matching rate or legal policy) and the importance attached by agents to social esteem and sanctions. Increasing publicity makes it harder for the Principal to learn from what agents do (the “descriptive norm”) what they really value (the “prescriptive norm”), thus presenting her with a tradeoff between incentives and information aggregation. We derive the optimal degree of privacy/publicity and matching rate, then analyze how they depend on the economy’s stochastic and informational structure. We show in particular that in a fast-changing society (greater variability in the fundamental or the image-motivated component of average preferences), privacy should generally be greater than in a more static one.
    JEL: D62 D64 D82 H41 K42 Z13
    Date: 2016–04
  2. By: Arthur Campbell; Florian Ederer; Johannes Spinnewijn
    Abstract: We study two sources of delay in teams: freeriding and lack of communication. Partners contribute to the value of a common project, but have private information about the success of their own efforts. When the deadline is far away, unsuccessful partners freeride on each others' efforts. When the deadline draws close, successful partners stop revealing their success to maintain their partners' motivation. We derive comparative statics results for common team performance measures and find that the optimal deadline maximizes productive efforts while avoiding unnecessary delays. Welfare is higher when information is only privately observable rather than revealed to the partnership.
    JEL: D82 D83 M54 O30
    Date: 2014–05
  3. By: Dosis, Anastasios (Essec Business School, Economics Department)
    Abstract: I construct an efficient mechanism for competitive markets with adverse selection. In the mechanism, each company offers two menus of contracts: a public menu and a private menu. The union of all the public menus needs to be offered by every active company in the market. On the contrary, a private menu concerns only the company that offers it. I show that this simple mechanism reduces the set of profitable deviations to the extent that a pure-strategy equilibrium exists in every market with adverse selection. Furthermore, I characterise general, well-studied environments in which the set of equilibrium allocations coincides with the set of efficient allocations.
    Keywords: Efficiency; Adverse Selection; Competition Mechanism; Design; Existence;
    JEL: D02 D82 D86
    Date: 2016–02–22
  4. By: Saglam, Ismail
    Abstract: Baron and Myerson (BM) (1982)propose an incentive-compatible, individually rational and ex-ante socially optimal direct-revelation mechanism to regulate a monopolistic firm with unknown costs. We show that their mechanism is not ex-post Pareto dominated by any other feasible direct-revelation mechanism. However, there also exist an uncountable number of feasible direct-revelation mechanisms that are not ex-post Pareto dominated by the BM mechanism. To investigate whether the BM mechanism remains in the set of ex-post undominated mechanisms when the Pareto axiom is slightly weakened, we introduce the epsilon-Pareto dominance. This concept requires the relevant dominance relationships to hold in the support of the regulator's beliefs everywhere but at a set of points of measure epsilon, which can be arbitrarily small. We show that a modification of the BM mechanism which always equates the price to the marginal cost can epsilon-Pareto dominate the BM mechanism at uncountably many regulatory environments, while it is never epsilon-Pareto dominated by the BM mechanism at any regulatory environment.
    Keywords: Monopoly; Regulation; Asymmetric Information; Pareto Efficiency
    JEL: D82 L51
    Date: 2016–05–04
  5. By: Dino Borie (GREDEG CNRS; University of Nice Sophia Antipolis)
    Abstract: We give sufficient conditions to characterize the class of (possibly incomplete) preference relations over lotteries which can be represented by a Bauer simplex of (continuous) expected utility functions that preserve both indifferences and strict preferences. Our result is applied to a model of stochastic choice with the measurement of random expected utility functions and to a model of subjective expected utility with subjective states of the world.
    Keywords: Incomplete preferences, expected utility, random utility, random choice, subjective expected utility, states of the world
    JEL: D80
    Date: 2016–05
  6. By: Johannes Horner (Cowles Foundation, Yale University); Nicolas Lambert (Stanford Graduate School of Business - Knight Management Center)
    Abstract: Rating systems not only provide information to users but also motivate the rated agent. This paper solves for the optimal (effort-maximizing) rating system within the standard career concerns framework. It is a mixture two-state rating system. That is, it is the sum of two Markov processes, with one that reflects the belief of the rater and the other the preferences of the rated agent. The rating, however, is not a Markov process. Our analysis shows how the rating combines information of different types and vintages. In particular, an increase in effort may affect some (but not all) future ratings adversely.
    Keywords: Career Concerns, Mechanism Design, Ratings
    JEL: C72 C73
    Date: 2016–04
  7. By: Kazunori Miwa (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: This paper investigates the interaction between firms' information acquisition decisions and disclosure of internally acquired information in a Cournot duopoly market. The results are as follows. Given that the precision of firms' private information is constant, mandatory disclosure of information about the industry-wide demand uncertainty can enhance social welfare. However, when the precision of firms' private information is endogenously determined, mandatory disclosure is not always desirable. This is because when disclosure is mandated, firms acquire less precise information compared to the case where acquired information is not disclosed, and hence their internal information environments are deteriorated. This can lead to "unintended consequences," such that disclosure regulation strictly decreases social welfare on the whole.
    Keywords: Information acquisition, Disclosure, Duopoly, Social welfare
    JEL: L13 M41 M48
    Date: 2016–03
  8. By: Luke, Garrod; Matthew, Olczak
    Abstract: We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms must monitor the agreement through their privately observed sales and prices. In this private monitoring setting, we show that all firms can infer when at least one firm’s sales are below some firm-specific “trigger level”. This public information ensures that firms can detect deviations perfectly if fluctuations in market demand are sufficiently small. Otherwise, there can be collusion under imperfect public monitoring where punishment phases occur on the equilibrium path. We find that symmetry faciliates collusion. Yet, we also show that if the fluctuations in market demand are sufficiently large, then the collusive prices of symmetric capacity distributions are actually lower than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.
    Keywords: capacity constraints, mergers, collusion, imperfect monitoring
    JEL: D43 D82 K21 L12 L41
    Date: 2016–03–17
  9. By: Alcalde, José (IUDESP, University of Alicante)
    Abstract: This paper explores sequential mechanisms for (many-to-one) two-sided matching problems. In these mechanisms, agents belonging to a side of the market determine an eligibility restriction; and the agents on the other side select their preferred mates, constrained by the above eligibility. We find out some asymmetries, as well as some coincidences, related to the mechanisms in which the first decision is made by the individuals or the institutions. In particular, for the two classes of mechanisms, it is likely that the outcome is stable. This can be interpreted as if the sequentiality in which agents decide takes the place of the coordination among the whole society. As a main difference, it is found that an extra coordination between individuals is exercised when they impose the eligibility restriction. A consequence of such an ‘over-coordination’ is that the likely outcome coincides with the individuals optimal stable matching. The dual result yielding the institutions’ optimal stable allocation does not hold when these agents are the ones to impose eligibility.
    Keywords: Sequentiality; (Pairwise) Stability; Matching Markets
    JEL: C78 D61 D61 D78
    Date: 2016–04–12
  10. By: Osório, António (António Miguel)
    Abstract: This paper examines different Brownian information structures for varying time intervals. We focus on the non-limit case and on the trade-offs between information quantity and quality to efficiently establish incentives. These two dimensions of information tend to complement each other when signals quality is sufficiently high. Otherwise, information quantity tends to replace information quality. Any conclusion depends crucially on the rate at which information quality improves or decays with respect to the discounting incentives. JEL: C73, D82, D86. KEYWORDS: Repeated Games, Frequent Monitoring, Information Quantity, Information Quality.
    Keywords: Jocs, Teoria de, Teoria de la informació (Economia), Contractes -- Aspectes econòmics, 33 - Economia,
    Date: 2015
  11. By: Dino Borie (University of Nice Sophia Antipolis; GREDEG CNRS); Dorian Jullien (University of Nice Sophia Antipolis; GREDEG CNRS)
    Abstract: The goal of this paper is to provide an axiomatic framework that can account for framing effects violating the so-called axiom of description invariance. Most existing discussions of the latter in economics are made with respect to Kahneman and Tversky's 1980s work. However, other psychologists have, over the last twenty-five years or so, progressively refined the conditions under which framing effects violating description invariance hold. Our axiomatic framework is motivated by these developments. We argue that description invariance is an implicit axiom of the standard model primarily on the formal structure of its object of choice and only derivatively on the formal structure of preferences. The conditions under which it is violated in psychologists' experiments are a useful guide to make it formally explicit. Furthermore, they also provide normative justifications for weakening it. We propose a way to do so in a mathematically tractable fashion that can account for all the variations in framing effects for which prospect theory cannot (at least straightforwardly) account for.
    Keywords: Framing effects, description invariance, axiomatic framework
    Date: 2016–05
  12. By: Michelacakis, Nickolas
    Abstract: This paper compares the outcomes of two three-stage games of two firms competing for quantity with managerial delegation. In fact, we prove that simultaneous choice of managers by the proprietors of the firms followed by Stackelberg-type competition is equivalent to sequential choice of managers followed by Cournot-type competition. We prove equivalence in a general setting, namely, when the duopolistic model is characterised by a non-linear inverse demand function.
    Keywords: Strategic delegation; Cournot competition; Stackelberg competition
    JEL: D43 L13 L21
    Date: 2016–05–01
  13. By: Aidas Masiliunas (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: Path-dependence in coordination games may lead to lock-in on inefficient outcomes, such as adoption of inferior technologies (Arthur, 1989) or inefficient economic institutions (North, 1990). We aim to find conditions under which lock-in is overcome by developing a solution concept that makes ex-ante predictions about the adaptation process following lock-in. We assume that some players are myopic, forming beliefs according to fictitious play, while others are sophisticated, anticipating the learning process of the myopic players. We propose a solution concept based on a Nash equilibrium of the strategies chosen by sophisticated players. Our model predicts that no players would switch from the efficient to the inefficient action, but deviations in the other direction are possible. Three types of equilibria may exist: in the first type lock-in is sustained, while in the other two types lock-in is overcome. We determine the existence conditions for each of these equilibria and show that the equilibria in which lock-in is overcome are more likely and the transition is faster when sophisticated players have a longer planning horizon, or when the history of inefficient coordination is shorter.
    Keywords: Game theory, Learning, Lock-in, Farsightedness, Coordination
    JEL: C73 D83
    Date: 2016–04–19

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