nep-mic New Economics Papers
on Microeconomics
Issue of 2016‒07‒02
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Silent Treatment By de Clippel, Geoffroy; Eliaz, Kfir; Rozen, Kareen
  2. Tirole's Industrial Regulation and Organization Legacy in Economics By Fudenberg, Drew
  3. Sequential implementation without commitment By Takashi Hayashi; Michele Lombardi
  4. Social preference under twofold uncertainty By Mongin, Philippe; Pivato, Marcus
  5. A Theorem on Aggregating Classifications By Mongin, Philippe; Maniquet, Francois
  6. Extremists into Truth-tellers: Information Aggregation under Asymmetric Preferences By Jean-Philippe BONARDI; Olivier CADOT; Lionel COTTIER
  7. The Utilitarian Relevance of the Aggregation Theorem By Mongin, Philippe; Fleurbaey, Marc
  8. Incentives and the Structure of Communication By Rivera, Thomas J
  9. Motivating with Simple Contracts By Juan F. Escobar; Carlos Pulgar
  10. Dynamic Contracts with Random Monitoring By Andrei Barbos
  11. Choosing Roles under Supply Function Competition By F. Delbono; L. Lambertini
  12. Strategy-proof choice of acts: a preliminary study By SPRUMONT, Yves
  13. Quantity Competition under Resale Price Maintenance when Most Favored Customers are Strategic By Aviv, Yossi; Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
  14. Optimal Deterrence of Cooperation By Stéphane Gonzalez; Aymeric Lardon
  15. Choice - Based Cardinal Utility. A Tribute to Patrick Suppes By Mongin , Philippe; Baccelli , Jean

  1. By: de Clippel, Geoffroy; Eliaz, Kfir; Rozen, Kareen
    Abstract: Information overload is costly to organizations. Limited cognitive resources, multiple obligations, and short deadlines can lead a principal to overlook important ideas from subordinates. We propose a stylized model to highlight a remedy to this problem that should be relevant in many contexts. Since interactions in organizations are often repeated over time, there may be ways to incentivize agents to speak up only when they have something important to communicate; that is, to be discerning. One of the principal's jobs is then to steer the organization in this direction. In our model, a principal's attention is repeatedly sought by multiple agents, each eager for his ideas to be implemented. An idea's quality stochastically affects the principal's profit, and agents' abilities to generate good ideas may be private information. The principal is unable to review proposals before choosing one each period. She can provide incentives only through her selection rule among proposals, but cannot commit to this rule in advance. We show how she may discipline agents to exercise restraint, achieving her first-best in an intuitive belief-free equilibrium. Whether first best is achievable hinges on the worst possible agent, the organization's `weakest link.' Selecting ideas in our model is reminiscent of multi-armed bandit problems, with the new feature that an arm's availability is a strategic decision each round. Our analysis also shows that such problems admit simple, robust solutions.
    Keywords: belief-free equilibrium; limited attention; mechanism-design without commitment; multi-armed bandits; organizations
    Date: 2016–06
  2. By: Fudenberg, Drew
    Abstract: Jean Tirole was awarded the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his analysis of market power and regulation. This paper provides an overview of some of that work, and of his related contributions to game theory.
    Date: 2015
  3. By: Takashi Hayashi; Michele Lombardi
    Abstract: In a finite-horizon intertemporal setting, in which society needs to decide and enforce a socially optimal outcome in each period without being able to commit to future ones, the paper examines problems of implementing dynamic social choice processes. A dynamic social choice process is a social choice function (SCF) that maps every admissible state into a socially optimal outcome on the basis of past outcomes. A SCF is sequentially implementable if there exists a sequence of mechanisms (with observed actions and with simultaneous moves) such that for each possible state of the envi- ronment, each (pure strategy) subgame perfect (Nash-)equilibrium of games played sequentially by the same individuals in that state generates the outcome prescribed by the SCF for that state, at every history. The paper identifies necessary conditions for SCFs to be sequentially implemented, sequential decomposability sequential Maskin monotonicity, and shows that they are also suficient under auxiliary conditions when there are three or more individuals. It provides an account of welfare implications of the sequential implementability in the contexts of sequential trading and sequential voting.
    Date: 2016–05
  4. By: Mongin, Philippe; Pivato, Marcus
    Abstract: We investigate the conflict between the ex ante and ex post criteria of social welfare in a novel axiomatic framework of individual and social decisions, which distinguishes between a subjective and an objective source of uncertainty. This framework permits us to endow the individuals and society not only with ex ante and ex post preferences, as is classically done, but also with interim preferences of two kinds, and correspondingly, to introduce interim forms of the Pareto principle. After characterizing the ex ante and ex post criteria, we present a first solution to their conflict that amounts to extending the former as much possible in the direction of the latter. Then, we present a second solution, which goes in the opposite direction, and is our preferred one. This solution combines the ex post criterion with an objective interim Pareto principle, which avoids the pitfalls of the ex ante Pareto principle, and especially the problem of "spurious unanimity" discussed in the literature. Both solutions translate the assumed Pareto conditions into weighted additive utility representations, and both attribute common individual probability values only to the objective source of uncertainty.
    Keywords: Ex ante social welfare; ex post social welfare; objective versus subjective uncertainty; Pareto principle; separability; Harsanyi social aggregation theorem; spurious unanimity.
    JEL: D70 D81
    Date: 2016–06–05
  5. By: Mongin, Philippe; Maniquet, Francois
    Abstract: Suppose that a group of individuals must classify objects into three or more categories, and does so by aggregating the individual classifications. We show that if the classifications, both individual and collective, are required to put at least one object in each category, then no aggregation rule can satisfy a unanimity and an independence condition without being dictatorial. This impossibility theorem extends a result that Kasher and Rubinstein (1997) proved for two categories and complements another that Dokow and Holzman (2010) obtained for three or more categories under the condition that classifications put at most one object in each category. The paper discusses an interpretation of its result both in terms of Kasher and Rubinstein's group identification problem and in terms of Dokow and Holzman's task assignment problem.
    Keywords: Aggregation of classifications; Group identification problem; Task assignment problem; Nonbinary evaluations
    JEL: C65 D71
    Date: 2015–10–26
  6. By: Jean-Philippe BONARDI (FERDI); Olivier CADOT (Faculté des hautes études commerciales - Université de Lausanne); Lionel COTTIER (FERDI)
    Abstract: We set up a model of costly information production between two lobbies, a firm and a consumer group, competing for influence over an imperfectly informed but benevolent government. The government is endowed with a parametric amount of information and chooses the best policy from a finite, countable feasible set given the information available (its own and that forwarded by lobbies). Lobbies have asymmetric preferences, the firm being a “high-stakes” player with relatively extreme preferences and the consumer group a “low-stakes” player with preferences more aligned with the government’s. We show that lobbies spend too much on information production in any Nash equilibrium despite a timing-game structure in which the lobbies are free to choose the order of play. We also show that in some parameter configurations, the firm insures against a consumer win by forwarding unbiased information to the government, in spite of its own extreme preferences and high stakes. The resulting informational rent enables the government to adopt moderate policies aligned with its own (i.e. societal) preferences, suggesting a new way in which lobby competition can produce good policies even when the government is imperfectly informed.
    Keywords: Game theory, lobbying model, imperfect information, timing game
    JEL: H4 K0 P1 D72 F13
    Date: 2016–03
  7. By: Mongin, Philippe; Fleurbaey, Marc
    Abstract: Harsanyi invested his Aggregation Theorem and Impartial Observer Theorem with utilitarian sense, but Sen described them as "representation theorems" with little ethical import. This critical view has never been subjected to full analytical scrutinity. The formal argument we provide here supports the utilitarian relevance of the Aggregation Theorem. Following a hint made by Sen himself, we posit an exogeneous utilitarian ordering that evaluates riskless options by the sum of individual utilities and we show that any social observer who obeys the conditions of the Aggregation Theorem evaluates social states in terms of a weighted variant of this utilitarian sum.
    Keywords: Utilitarianism; Aggregation Theorem; Impartial Observer Theorem; Cardinal utility; VNM utility; Harsanyi; Sen
    JEL: D63 D71 D81
    Date: 2015–09–03
  8. By: Rivera, Thomas J
    Abstract: This paper analyzes the incentives that arise within an organization when communication is restricted to a particular network structure (e.g., a hierarchy). We show that restricting communication between the principal and agents may create incentives for the agents to misbehave when transmitting information and tasks throughout the organization. To remedy this issue, we provide necessary and sufficient conditions on the topology of the network of communication such that restricting communication to a particular network does not restrict the set of outcomes that the principal could otherwise achieve. We show that for any underlying incentives and any outcome available when communication is unrestricted, there exists a communication scheme restricted to a particular network that implements this outcome (i.e., does not induce agents to misbehave in the communication phase) if and only if that network satisfies our conditions.
    Keywords: Communication; Incentives; Principal Agent; Information Transmission; Communication Networks; Organizational Behaviour; Correlated Equilibrium; Communication Equilibrium; Secure Communication
    JEL: C72 D83
    Date: 2015–10–01
  9. By: Juan F. Escobar; Carlos Pulgar
    Abstract: In practice, incentive schemes are rarely tailored to the specific characteristics of contracting parties. However, according to economic theory, optimal contracts should be highly dependent on individual conditions. We reconcile these observations in the context of a principal-agent model with both moral hazard and adverse selection. Motivating an agent could be increasingly costly to the principal because a more productive agent could also be more able to manipulate the terms of the contract. As a result, the principal may optimally pool some types by offering a contract with constant transfer and bonus. We also explore parameterizations where the optimal contract is fully separating but simple contracts attain a significant portion of the optimal welfare. JEL classiffication: D86, L51, L22. Key words: Keywords: Moral hazard, adverse selection, regulation, simple contracts.
    Date: 2016
  10. By: Andrei Barbos (Department of Economics, University of South Florida)
    Abstract: In environments where a principal contracts with many agents who each execute numerous independent tasks, it is often infeasible to evaluate an agent'?s performance on all tasks. Incentives under moral hazard are instead provided by monitoring only a subset of randomly selected tasks. We characterize optimal dynamic contracts implemented with this type of random monitoring technology. We consider a stochastic environment where the agent?'s cost of effort varies over time, and analyze situations where this cost is public or private information. In an optimal contract, the terms the agent is promised when monitoring reveals compliance are as good as when no monitoring is performed, and for some cost types are better. These latter types receive a monitoring reward. We also elicit the dynamics of contract parameters over time. As time passes and the agent becomes richer, the monitoring reward decreases as the threat of forgoing the promised stream of future compensation provides sufficient incentives for compliance.
    Keywords: Dynamic Contracts, Random Monitoring, Optimal Contracts, Moral Hazard
    JEL: D82 D86
    Date: 2016–06
  11. By: F. Delbono; L. Lambertini
    Abstract: We investigate an extended game with observable delay under duopolistic competition in affine supply functions. Firms use the intercepts of supply functions as their strategic variables. Best replies are downward (upward) sloping if the common slope of supply functions is sufficiently low (high). Accordingly, simultaneous (sequential) play is selected at the subgame perfect equilibrium when best replies are negatively (positively) sloped. There exists a unique value of the slope at which best replies are orthogonal and the choice between simultaneous and sequential play is immaterial.
    JEL: D43 L13
    Date: 2016–06
  12. By: SPRUMONT, Yves
    Abstract: We model social choices as acts mapping states of the world to (social) outcomes. A (social choice) rule assigns an act to every profile of subjective expected utility preferences over acts. A rule is strategy-proof if no agent ever has an incentive to misrepresent her beliefs about the world or her valuation of the outcomes; it is ex-post efficient if the act selected at any given preference profile picks a Pareto-efficient outcome in every state of the world. We show that every two-agent ex-post efficient and strategy-proof rule is a top selection: the chosen act picks the most preferred outcome of some (possibly different) agent in every state of the world. The states in which an agent’s top outcome is selected cannot vary with the reported valuations of the outcomes but may change with the reported beliefs. We give a complete characterization of the ex-post efficient and strategy-proof rules in the two-agent, two-state case, and we identify a rich class of such rules in the two-agent case.
    Keywords: Social choice under uncertainty; strategy-proofness; subjective expected utility
    JEL: D71
    Date: 2016
  13. By: Aviv, Yossi; Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
    Abstract: Legal studies usually treat a policy of a manufacturer or retailer as socially harmful if it reduces product output and increases the price. We consider a two-period model where the first-period price is fixed by resale price maintenance (RPM) and resellers endogenously decide to use another "collusion suspect," meet-the-competition clause with a most-favored-customer clause (MFC), to counteract strategic customer behavior. As a result of MFC, second-period (reduced) price increases, and resellers' inventories decrease. However, customer surplus may increase and aggregate welfare increases in the majority of market situations. MFC can not only decrease the losses in welfare and resellers' profits due to strategic customers but, under reseller competition, may even lead to higher levels of these values than with myopic customers, i.e., to gains from increased strategic behavior. MFC may create "MFC-traps" for resellers, where one of possible market outcomes yields a gain from increased strategic behavior while another results in a reseller profit less than the worst profit in any stable outcome without MFC. With growing competition, benefits or losses from MFC can be higher than losses from strategic customer behavior.
    Keywords: most favored customer, strategic customer behavior, quantity competition, limited-lifetime product
    JEL: D9 L13 L41 L42
    Date: 2016–06–11
  14. By: Stéphane Gonzalez (Univ Lyon, UJM Saint-Etienne, France; GATE L-SE CNRS UMR 5824); Aymeric Lardon (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: We introduce axiomatically a new solution concept for cooperative games with transferable utility inspired by the core. While core solution concepts have investigated the sustainability of cooperation among players, our solution concept, called contraction core, focuses on the deterrence of cooperation. The main interest of the contraction core is to provide a monetary measure of the robustness of cooperation into the grand coalition. We motivate this concept by providing optimal fine imposed by competition authorities for the dismantling of cartels in oligopolistic markets. We characterize the contraction core on the set of balanced cooperative games with transferable utility by four axioms: the two classic axioms of non-emptiness and individual rationality, a superadditivity principle and a new axiom of consistency.
    Keywords: TU-game, contraction core, optimal fine, Cournot oligopoly, axiomatization
    JEL: C71 D43
    Date: 2016–06
  15. By: Mongin , Philippe; Baccelli , Jean
    Abstract: We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes's contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and distinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes's doctrine with the major deviation from ordinalism that conceives of utility functions as representing preference differences, while being nonetheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism.
    Keywords: Ordinal utility; Cardinal utility; Preference differences; Representation theorems; Suppes; Ordinalism; Cardinalism
    JEL: B21 B31
    Date: 2016–01–04

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