nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒06‒09
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Optimal public information dissemination: Introducing multiplier effects into a generalized beauty contest By Hüning, Hendrik; Meub, Lukas
  2. The Enforcement of Mandatory Disclosure Rules By Matthias Dahm; Paula Gonzalez; Nicolas Porteiro
  3. Contracting theory with competitive interacting agents By Romuald Elie; Dylan Possama\"i
  4. Search Frictions, Competing Mechanisms and Optimal Market Segmentation By Cai, Xiaoming; Gautier, Pieter A.; Wolthoff, Ronald P.
  5. Non-Revelation Mechanisms for Many-to-Many Matching: Equilibria versus Stability By Bettina Klaus; Flip Klijn
  6. Mechanism Design with Two Types of Information By Seung Han Yoo
  7. Efficient Coalition-Proof Full Implementation By Mikhail Safronov
  8. Envious Preferences in Two-sided Matching By Ahamad, Mazbahul
  9. Behavioral Polymorphism in Bayesian Games By Raul V. Fabella
  10. Procedurally Fair Implementation: The Cost of Insisting on Symmetry By Korpela Ville
  11. Planning for the Long Run: Programming with Patient, Pareto Responsive Preferences By Urmee Khan; Maxwell B Stinchcombe
  12. Durability, Deadline, and Election Effects in Bargaining By Alp Simsek; Muhamet Yildiz
  13. Delay Cost, Knowledge Hierarchy, and Wages By Cheng Chen; Wing Suen
  14. Mechanism Design in Hidden Action and Hidden Information: Richness and Pure Groves By Hitoshi Matsushima; Shunya Noda
  15. Religious Seduction in Autocracy: A Theory Inspired by History By Auriol, Emmanuelle; Platteau, Jean-Philippe
  16. Determining influential models By Michel Grabisch; Agnieszka Rusinowska

  1. By: Hüning, Hendrik; Meub, Lukas
    Abstract: We develop a two-period generalized beauty contest to study the optimal level of publicity when disclosed information is subject to multiplier effects. We build upon the static case, where all agents receive a private signal about an unknown fundamental state and only a fraction of all agents receive an additional public signal. However, in our model, agents no longer act simultaneously; rather, agents informed by both signals act in the first period, while those uninformed act in the second period and learn about the public signal through a multiplier signal. We show that in the unique equilibrium of our sequential game, informed agents overreact more strongly to public signals. The optimal dissemination of public information is thus considerably lower than the static case suggests. Multiplier effects might decrease overall welfare if coordination incentives are sufficiently strong. Our results hold relevance for the optimal information policy design of public authorities.
    Keywords: generalized beauty contest,monetary policy,optimal communication,strategic complementarities
    JEL: D82 D83 E5
    Date: 2016
  2. By: Matthias Dahm (School of Economics, University of Nottingham); Paula Gonzalez (Universidad Pablo de Olavide, Department of Economics); Nicolas Porteiro (Universidad Pablo de Olavide, Department of Economics)
    Abstract: This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm holds back information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that (i) the probability of detection and the fine might be complements; (ii) the optimal monitoring policy does not necessarily eliminate selective reporting entirely; (iii) even when there is some selective reporting in equilibrium and more stringent monitoring is costless, increasing the probability of detection might not be beneficial; and (iv) when society values selectively reported information, the optimal fine might not be the largest possible fine.
    Keywords: strategic information transmission, distrust effect, confidence effect, monitoring, penalty, fine, sanction, detection probability
    Date: 2016–04
  3. By: Romuald Elie; Dylan Possama\"i
    Abstract: In a framework close to the one developed by Holmstr\"om and Milgrom [44], we study the optimal contracting scheme between a Principal and several Agents. Each hired Agent is in charge of one project, and can make efforts towards managing his own project, as well as impact (positively or negatively) the projects of the other Agents. Considering economic Agents in competition with relative performance concerns, we derive the optimal contracts in both first best and moral hazard settings. The enhanced resolution methodology relies heavily on the connection between Nash equilibria and multidimensional quadratic BSDEs. The optimal contracts are linear and each agent is paid a fixed proportion of the terminal value of all the projects of the firm. Besides, each Agent receives his reservation utility, and those with high competitive appetence are assigned less volatile projects, and shall even receive help from the other Agents. From the principal point of view, it is in the firm interest in our model to strongly diversify the competitive appetence of the Agents.
    Date: 2016–05
  4. By: Cai, Xiaoming (Tongji University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Wolthoff, Ronald P. (University of Toronto)
    Abstract: In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call "joint concavity." Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.
    Keywords: search frictions, matching function, meeting technology, heterogeneity, competing mechanisms
    JEL: C78 D44 D83
    Date: 2016–05
  5. By: Bettina Klaus; Flip Klijn
    Abstract: We study many-to-many matching markets in which agents from a set A are matched to agents from a disjoint set B through a two-stage non-revelation mechanism. In the first stage, A-agents, who are endowed with a quota that describes the maximal number of agents they can be matched to, simultaneously make proposals to the B-agents. In the second stage,B-agents sequentially, and respecting the quota, choose and match to available A-proposers. We study the subgame perfect Nash equilibria of the induced game. We prove that stable matchings are equilibrium outcomes if all A-agents' preferences are substitutable. We also show that the implementation of the set of stable matchings is closely related to the quotas of the A-agents. In particular, implementation holds when A-agents' preferences are substitutable and their quotas are non-binding.
    Keywords: matching; mechanisms; stability; substitutability
    JEL: C78 D78
    Date: 2016–04
  6. By: Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: In many real world situations, a principal faces an agent who has two different types of information: one associated with contractible actions and the other not. We first establish an impossibility result such that the principal cannot implement a nonlinear mechanism given the information constraint. The main result shows that the principal can still obtain the second-best payoff with a direct mechanism by characterizing incentives of a supervisor. The nature of incompleteness suggests a foundation of incomplete contract, the agent’s information structure, and thus demands a different solution, an informational hierarchical structure with the supervisor. This result has new implications for the theory of the firm to explain the origin of a firm’s decentralized system, as opposed to what the standard mechanism theory offers.
    Keywords: Two types of information, Incomplete contract, Information structure
    JEL: C72
    Date: 2016
  7. By: Mikhail Safronov
    Abstract: D'Apresmont Gerard-Varet (AGV) mechanism implements efficient social choice in a budget-balanced manner, however it is susceptible to a joint misreport by a coalition of agents, and it may have inefficient equilibria. This paper extends AGV mechanism by putting more structure on its monetary transfers; in the resulting direct mechanism each agent is paid the Shapley value generated from the expected externalities his report imposes on others. This makes each group of agents to be paid in total the expected externality their report imposes on others, and makes it Bayesian incentive compatible to report truthfully. Moreover, any agent can guarantee to receive his ex ante efficient payoff by reporting truthfully, making all equilibria efficient. It is generically impossible to make truthful report a dominant strategy for all coalitions.
    Date: 2016–03–18
  8. By: Ahamad, Mazbahul
    Abstract: We develop a model of two-sided matching problem with individual-sided envious preferences that originate from an emulative envy effect in which a more desirable state that is preferred is owned by the other individual. We assume envious preferences influence an individual’s decision to enter into a two-sided network instead of being unassigned. In this paper, we show that an individual-sided envious preference leads to a stable matching under a two-sided market framework. Applying the mechanism of the model to behavioral contract theory, we show that individual-proposing envious acceptance leads to stable farmer-buyer contract matching considering buyer’s time invariant preference. We further argue that individual’s envious preference also contributes to herd-type acceptance that dominates individual’s logical preferences in participation decision under a less risky environment.
    Keywords: Behavioral contract design, Envious acceptance algorithm, Emulative envy effect, Envious preference, Herd-type acceptance, Market design, Network effect, Agribusiness, Agricultural and Food Policy, Industrial Organization, Institutional and Behavioral Economics, D47, D81, D86, L14,
    Date: 2016–05–23
  9. By: Raul V. Fabella (School of Economics, University of the Philippines Diliman; National Academy of Science and Technology)
    Abstract: J. Harsanyi introduced structural polymorphism in game theory, that is, there are many possible agent types such as “low productivity” or high productivity” with corresponding probability but all operating under one behavioral type, strict rationality. In this paper, we introduce behavioral polymorphism into Bayesian games. The multiplicity of behavioral types have become increasingly recognized and studied. Agents ascribe to each other a probability distribution across the possible types. They then choose the appropriate type as response to the possible type of the others which type determines the choice of strategy. We show in a dimorphic game model with the two types being strict rationality (SR) and utilitarian altruist (UA) that there always is a high enough assignment such that cooperation is the dominant strategy for both players in initially social dilemma games. Thus, the strategy set is endogenous in games with behavioral polymorphism. We argue that the assignment is based on some heuristics such as the counter-parties’ membership in some groups.
    Keywords: behavioral polymorphism; Bayesian games; cooperation; dominant strategy
    JEL: C70 C72
    Date: 2016–05
  10. By: Korpela Ville (Department of Economics, University of Turku)
    Abstract: We derive a necessary and a sufficient condition for Nash implementation with a procedurally fair mechanism. Our result has a nice analogue with the path-braking result of Maskin [Nash equilibrium and welfare optimality, Rev. Econ. Stud. 66 (1999) 23-38.], and therefore, it allows us to give a simple characterization of those choice rules that are implementable, but not in a procedurally fair way. This reveals the constraints that insisting on procedural fairness impose on the collective.
    Keywords: Characterization; Implementation; Nash equilibrium; Other regarding preferences; Procedural fairness
    JEL: C72 D64 D70 D71
  11. By: Urmee Khan (Department of Economics, University of California Riverside); Maxwell B Stinchcombe (UT, Austin)
    Abstract: Ethical social welfare functions treat generations equally and respect Pareto improvements to non-null sets of generations. There are ‘perfect’ optima for such preferences: generations facing the same circumstances choose the same actions; and all circumstances are treated as possible. If each stationary policy determines a unique long-run distribution that is independent of the starting point, then there is a recursive formulation of policies that are simultaneously optimal for all of the preferences studied here. When the ergodic distribution can depend on early events (hysteresis), the curvature of the social welfare function determines the risks that society is willing to undertake and leads to a variant of the precautionary principle.
    Keywords: Intergenerational equity and Pareto responsiveness; long-run optimality in Markovian decision problems
    Date: 2016–05
  12. By: Alp Simsek; Muhamet Yildiz
    Abstract: We propose a tractable model of bargaining with optimism. The distinguishing feature of our model is that the bargaining power is durable and changes only due to important events such as elections. Players know their current bargaining powers, but they can be optimistic that events will shift the bargaining power in their favor. We define congruence (in political negotiations, political capital) as the extent to which a party's current bargaining power translates into its expected payoff from bargaining. We show that durability increases congruence and plays a central role in understanding bargaining delays, as well as the finer bargaining details in political negotiations. Optimistic players delay the agreement if durability is expected to increase in the future. The applications of this durability effect include deadline and election effects, by which upcoming deadlines or elections lead to ex-ante gridlock. In political negotiations, political capital is highest in the immediate aftermath of the election, but it decreases as the next election approaches.
    JEL: C73 C78 D74 D78
    Date: 2016–05
  13. By: Cheng Chen (University of Hong Kong); Wing Suen (University of Hong Kong)
    Abstract: We provide a new approach to study optimal design of knowl- edge hierarchies under general assumptions. When problem-solving be- comes more urgent, employees at each level solve more complex problems and earn more. The organization structure becomes flatter, with fewer lay- ers but a larger span of control at each layer. Moreover, knowledge ac- quisition is disproportionately concentrated among lower level employees, which results in shrinking intra-firm wage differentials across layers. We find that labor productivity of the firm increases after delay becomes more costly, despite the direct output loss due to greater delay. Using Colom- bia plant-level data, we find that exporting firms—which face higher delay cost—have fewer layers, larger span of control, and pay higher wages at all levels.
    Keywords: knowledge complementarity; delay and exporting; organization design; firm productivity; export-wage premium
    JEL: D21 D23 F12 L22 L23
  14. By: Hitoshi Matsushima (The University of Tokyo); Shunya Noda (Stanford University)
    Abstract: We investigate general collective decision problems related to hidden action and hidden information. We assume that each agent has a wide availability of action choices at an early stage, which provides significant externality effects on the other agent’s valuations in all directions. We characterize the class of all mechanisms that solve the hidden action problem, and demonstrate equivalence properties in the ex-post term. Importantly, we find that pure Groves mechanisms, defined as the simplest form of canonical Groves mechanisms, are the only efficient mechanisms that solve such hidden action problems. We argue that the resolution of the hidden action problem automatically resolves the hidden information problem.
    Date: 2016–05
  15. By: Auriol, Emmanuelle; Platteau, Jean-Philippe
    Abstract: The relationship between religion and politics is explored from a theoretical standpoint, assuming that religious clerics can be seduced by the ruler acting as an autocrat. The comparative effects of decentralized versus centralized religions on the optimal level of cooperation between the autocrat and the religious clerics, which itself impinges upon political stability, is analysed. The paper shows that the presence of a decentralized body of clerics makes autocratic regimes more unstable. It also shows that in time of stability, the level of reforms is larger with a centralized religion than with a decentralized one. When the autocrat in the decentralized case pushes more reforms than in the centralized one, he always does so at the cost of stability. Historical case studies are presented that serve to illustrate the main results.
    Keywords: Autocracy; centralized and decentralized religion; economic development; instrumentalization of religion; Islam; reforms
    JEL: D02 D72 N40 O57 P48 Z12
    Date: 2016–05
  16. By: Michel Grabisch (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); Agnieszka Rusinowska (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: We consider a model of opinion formation based on aggregation functions. Each player modifies his opinion by arbitrarily aggregating the current opinion of all players. A player is influential for another player if the opinion of the first one matters for the latter. A generalization of influential player to a coalition whose opinion matters for a player is called influential coalition. Influential players (coalitions) can be graphically represented by the graph (hypergraph) of influence, and the convergence analysis is based on properties of the hypergraphs of influence. In the paper, we focus on the practical issues of applicability of the model w.r.t. the standard opinion formation framework driven by the Markov chain theory. For the qualitative analysis of convergence, knowing the aggregation functions of the players is not required, but one only needs to know the influential coalitions for every player. We propose simple algorithms that permit to fully determine the influential coalitions. We distinguish three cases: the symmetric decomposable model, the anonymous model, and the general model.
    Abstract: Nous considérons un modèle de formation d'opinion basé sur les fonctions d'agrégation. Chaque agent modifie son opinion en agrégeant de manière arbitraire l'opinion des autres agents. Un agent est influent pour un autre agent si l'opinion du premier compte pour ce dernier. Une généralisation de la notion d'agent influent mène à la notion de coalition influente pour un agent. Les agents (coalitions) influents peuvent être représentés graphiquement par un graphe d'influence (hypergraphe d'influence), et l'analyse de la convergence du modèle est basée sur les propriétés des hypergraphes d'influence. Dans l'article, nous nous focalisons sur les aspects pratiques d'applicabilité du modèle par rapport au cadre standard de formation d'opinion régi par une chaîne de Markov. Il n'est pas nécessaire de connaître les fonctions d'agrégation pour l'analyse qualitative de la convergence, pour laquelle la connaissance des coalitions influentes suffit. Nous proposons des algorithmes simples qui permettent de déterminer complètement les coalitions influentes. Nous distinguons trois cas : le modèle décomposable symétrique, le modèle anonyme et le modèle général.
    Keywords: social network,opinion formation,aggregation function,influential coalition,algorithm,réseau social,formation d'opinion,fonction d'agrégation,coalition influente,algorithme
    Date: 2016–04

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