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on Microeconomics |
| By: | Péter Eső; Balázs Szentes |
| Abstract: | This paper generalizes a conceptual insight in dynamic contracting with quasilinear payoffs: the principal does not need to pay any information rents for extracting the agent's “new” private information obtained after signing the contract. This is shown in a general model in which the agent's type stochastically evolves over time, and her payoff (which is linear in transfers) depends on the entire history of private and any contractible information, contractible decisions, and her hidden actions. The contract is offered by the principal in the presence of initial informational asymmetry. The model can be transformed into an equivalent one where the agent's subsequent information is independent in each period (type orthogonalization). We show that for any fixed decision–action rule implemented by a mechanism, the agent's rents (as well as the principal's maximal revenue) are the same as if the principal could observe and contract on the agent's orthogonalized types after the initial period. We also show that any monotonic decision–action rule can be implemented in a Markovian environment satisfying certain regularity conditions, and we provide a simple “recipe” for solving such dynamic contracting problems. |
| JEL: | D82 D83 D86 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:69403&r=mic |
| By: | Simon Schopohl (EDEEM - Université Paris 1, Universität Bielefeld and Université Catholique de Louvain) |
| Abstract: | We consider a Sender-Receiver game in which the Sender can choose between sending a cheap-talk message, which is costless, but also not verified and a costly verified message. While the Sender knows the true state of the world, the Receiver does not have this information, but has to choose an action depending on the message he receives. The action then yields to some utility for Sender and Receiver. We only make a few assumptions about the utility functions of both players, so situations may arise where the Sender's preferences are such that she sends a message trying to convince the Receiver about a certain state of the world, which is not the true one. In a finite setting we state conditons for full revelation, i.e. when the Receiver always learns the truth. Furthermore we describe the player's behavior if only partial revelation is possible. For a continuous setting we show that additional conditions have to hold and that these do not hold for “smooth” preferences and utility, e.g. in the classic example of quadratic loss utilities |
| Keywords: | cheap-talk; communication; costly disclosure; full revelation; increasing differences; Sender-Receiver game; verifiable information |
| JEL: | C72 D82 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17011&r=mic |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | Fixing a game with uncertain payoffs, information design identifies the information structure and equilibrium that maximizes the payoff of an information designer. We show how this perspective unifies existing work, including that on communication in games (Myerson (1991)), Bayesian persuasion (Kamenica and Gentzkow (2011)) and some of our own recent work. Information design has a literal interpretation, under which there is a real information designer who can commit to the choice of the best information structure (from her perspective) for a set of participants in a game. We emphasize a metaphorical interpretation, under which the information design problem is used by the analyst to characterize play in the game under many different information structures. |
| Keywords: | Information design, Bayesian persuasion, correlated equilibrium, incomplete information, robust predictions, information structure |
| JEL: | C72 D82 D83 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2075&r=mic |
| By: | Rahul Deb; Mallesh Pai; Maher Said |
| Abstract: | Motivated by the question of how one should evaluate professional election forecasters, we study a novel dynamic mechanism design problem without transfers. A principal who wishes to hire only high quality forecasters is faced with an agent of unknown quality. The agent privately observes signals about a publicly observable future event, and may strategically misrepresent information to inflate the principal's perception of his quality. We show that the optimal deterministic mechanism is simple and easy to implement in practice: it evaluates a single, optimally timed prediction. We study the generality of this result and its robustness to randomization and noncommitment. |
| Keywords: | dynamic mechanism design, mechanism design without transfers, forecasting, learning, election predictions. |
| JEL: | D82 D83 D86 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-578&r=mic |
| By: | Filippo Pavesi (Department of Economics, University of Verona); Massimo Scotti (Economics Discipline Group, University of Technology, Sydney) |
| Abstract: | Decision makers often face uncertainty both about the ability and the integrity of their advisors. If an expert is sufficiently concerned about establishing a reputation for being skilled and unbiased, she may truthfully report her private information about the decision-relevant state. However, while in a truthtelling equilibrium the decision maker learns only about the ability of the expert, in an equilibrium with some misreporting the decision maker also learns about the expert’s bias. Although truthful behavior allows for more informed current decisions, it may lead to worst sorting. Therefore, if a decision maker places enough weight on future choices relative to present ones, lying may be welfare improving. Applications of the model include relationships between patients and doctors, managers and consultants, and politicians and policy advisors. |
| Keywords: | Experts; Reputation; Cheap Talk; Conflicts of Interest; Information Transmission; Welfare; Lies |
| JEL: | C72 D82 D83 |
| Date: | 2017–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:39&r=mic |
| By: | Schwardmann, Peter; Ispano, Alessandro |
| Abstract: | We study the disclosure decision and price-setting behavior of competing firms in the presence of cursed consumers, who fail to be sufficiently skeptical about a firm's quality upon observing non-disclosure of quality-relevant information. We show that neither competition nor the presence of sophisticated consumers necessarily offer protection to cursed consumers. Exploitation arises if markets are vertically differentiated, if there are many sophisticated consumers, and if it is more likely ex ante that product quality is high. Information campaigns that seek to educate consumers may encourage exploitation and decrease social welfare. Mandatory disclosure laws restore efficiency, but at the cost of redistributing rents from consumers to firms. Our simple model delivers a rich set of positive results, captures important markets, like those for food and consumer finance, and speaks to several recent policy initiatives aimed at consumer protection. |
| JEL: | D40 D03 D83 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145573&r=mic |
| By: | Moreno-Okuno, Alejandro T.; Mosiño, Alejandro |
| Abstract: | Games that appear to be independent, involving none of the same players, may be related by emotions of reciprocity between the members of the same groups. In the real world, individuals are members of groups and want to reward or punish those groups whose members have been kind or unkind to members of their own. In this paper we extend Dufwenberg and Kirchsteiger's model of sequential reciprocity (2004) to groups of individuals and define a new "sequential group reciprocity equilibrium" for which we prove its existence. We study the case of two games with two players in each game, where each player belongs to the same group as a player in the other game. We show that when the payoffs of one game are much higher than the payoffs of the other, the outcome of the game with higher payoffs determines the outcome of the other game. We also find that when the payoffs are very asymmetric, the outcome where the sum of the payoffs is maximized is a sequential group reciprocity equilibrium. |
| Keywords: | Fairness, Groups, Psychological Games, Game Theory |
| JEL: | A12 C60 D63 |
| Date: | 2017–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76820&r=mic |
| By: | Salvador Barbera (MOVE, Universitat Autònoma de Barcelona and Barcelona GSE); Matthew O. Jackson (Stanford University) |
| Abstract: | A revolt or protest succeeds only if sufficient people participate. We study how potential participants' ability to coordinate is affected by their information. We distinguish four phenomena that affect whether information either encourages or inhibits protests and revolutions: (i) Unraveling: When agents learn about each others' types, some are discouraged by meeting partisans of the status quo. This can unravel, as even confident agents realize that enough supporters will be discouraged to preclude a successful revolution. (ii) Homophily: Learning someone else's type under homophily is less informative since that individual is more likely to be similar to the learner. This can lead people to be less confident of a revolution, but can also stop potential unraveling. (iii) Extremism: Meeting other protestors, and seeing pilot demonstrations or outcomes in similar countries, reveal not only how much support for change exists, but also from which constituencies it emerges. This can undercut a revolution if factions differ sufficiently in their preferred changes. (iv) Counter Demonstrations: partisans for the status quo can hold counter-demonstrations to signal their strength. We also discuss why holding mass demonstrations before a revolution may provide better signals of peoples willingness to actively participate than other less costly forms of communication (e.g., via social media), and how governments use redistribution and propaganda to avoid a revolution. |
| Keywords: | Revolution, demonstration, protests, strikes, Arab Spring JEL Classification Codes: D74, D72, D71, D83, C72 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:243&r=mic |
| By: | Enriqueta Aragonès; Dimitros Xefteris |
| Abstract: | We study a Downsian model of electoral competition, allowing different voters to have different and private valuations of candidates?quality. Unlike models in which the voters?valuations of candidates? quality are common and common knowledge and which never admit pure strategy equilibria, in our setup we show existence of both converging and mildly diverging pure strategy equilibria. Perhaps more importantly, we uncover a non-monotonic (U-shaped) relationship between the extent of heterogeneity in voters?valuations and the maximum degree of equilibrium platform differentiation. In particular, we demonstrate that: a) a disagreement among voters on which candidate is better leads to a depoliticized vote, while an agreement on this issue leads to a politicized one; and b) as voters become more heterogeneous in how they evaluate candidates?quality, existence of pure strategy equilibria becomes more likely. |
| Keywords: | Downsian model, private information, advantaged candidate, platform differentiation |
| JEL: | D72 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:858&r=mic |
| By: | Oriol Carbonell-Nicolau (Rutgers University) |
| Abstract: | We obtain conditions on the primitives of a Bayesian game with infinitely many types and/or strategies that ensure the existence of a perfect Bayes-Nash equilibrium. The main existence results are illustrated in the context of all-pay auctions. |
| Keywords: | infinite game of incomplete information, perfect Bayes-Nash equilibrium, payoff security |
| JEL: | C72 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201703&r=mic |
| By: | Oriol Carbonell-Nicolau (Rutgers University) |
| Abstract: | The notion of communication equilibrium extends Aumann’s [3] correlated equilibrium concept for complete information games to the case of incomplete information. This paper shows that this solution concept has the following property: for the class of incomplete information games with compact metric type and action spaces and payoff functions jointly measurable and continuous in actions, limits of Bayes-Nash equilibria of finite approximations to an infinite game are communication equilibria (and in general not Bayes-Nash equilibria) of the limit game. Another extension of Aumann’s [3] solution concept to the case of incomplete information fails to satisfy this condition. |
| Keywords: | infinite games of incomplete information, Bayes-Nash equilibrium, communication equilibrium, correlated equilibrium, strategic approximation of an infinite game |
| JEL: | C72 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201702&r=mic |
| By: | Grégoire ROTA-GRAZIOSI (Ferdi) |
| Abstract: | Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling’s approach, we consider voluntary commitment, which constrains countries’ respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition. |
| Keywords: | Tax competition, tax coordination, commitment |
| JEL: | H30 C72 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:fdi:wpaper:3425&r=mic |
| By: | Francesco Cerigioni |
| Abstract: | Evidence from cognitive sciences shows that some choices are conscious and re ect individual prefer- ences while others tend to be intuitive, driven by analogies with past experiences. Under these circum- stances, usual economic modeling might not be valid because not all choices are the consequence of individual tastes. We here propose a behavioral model that can be used in standard economic analysis that formalizes how conscious and intuitive choices arise by presenting a decision maker composed by two systems. One system compares past decision problems with the one the decision maker faces, and it replicates past behavior when the problems are similar enough (Intuitive choices). Otherwise, a second system is activated and preferences are maximized (Conscious choices). We then present a novel method capable of nding conscious choices just from observed behavior and nally, we provide a choice theoretical foundation of the model and discuss its importance as a general framework to study behavioral inertia. |
| Keywords: | Dual Processes, Fast and Slow Thinking, Similarity, Revealed Preferences, Memory, Intuition |
| JEL: | D01 D03 D60 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1550&r=mic |
| By: | Stenzel, André; Wolf, Christoph |
| Abstract: | We consider dynamic price-setting by firms in the presence of rating systems and asymmetric information about product quality. The current price determines the set of purchasing consumers and thereby affects future ratings and continuation profits. We outline the effects of prices on consumers' beliefs about quality as well as their review upon purchase. We provide a characterization of the firm's pricing decision in the presence of naive consumers who infer quality based on the observed aggregate rating, which reflects past consumers' gross utility, and price. We show that the firm charges a mark-up compared to the myopically optimal price: It restricts purchase to those consumers with a high degree of horizontal taste for the product which boosts reviews and hence future ratings and profits. Moreover, we show that if the firm takes the price's effect on reviews into account, the rating will not perfectly reveal the product's quality. If consumers hold a correct belief in the current period, future consumers will overestimate the product's quality. |
| JEL: | L00 D21 D83 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145694&r=mic |