nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒04‒09
24 papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The value of public information in common-value Tullock contests By Benyamin Shitovitz; Diego Moreno
  2. Ex-post core, fine core and rational expectations equilibrium allocations By Anuj Bhowmik; Jiling Cao
  3. Tournaments By Dmitry Ryvkin; Mikhail Drugov
  4. Perfection of the Jury Rule by Rule-Reforming Voters By Krishna K Ladha
  5. Contracting for information: on the effects of the principal's outside option By Franck Bien; Thomas Lanzi
  6. Simultaneous and sequential voting under general decision rules By Bolle, Friedel
  7. Ex-Post Optimal Knapsack Procurement By Jarman, Felix; Meisner, Vincent
  8. Stability in Matching with Couples having Non-Responsive Preferences By Khare, Shashwat; Roy, Souvik
  9. Mindreading and Endogenous Beliefs in Games By Lauren Larrouy; Guilhem Lecouteux
  10. On the Values for Bayesian Cooperative Games with Sidepayments By Andrés Salamanca Lugo
  11. Exogenous endowment - Endogenous reference point By Amnon Maltz
  12. How does the probability of wrongful conviction affect the standard of proof? By Marie Obidzinski; Yves Oytana
  13. Unlikely Democrats: Economic Elite Uncertainty Under Dictatorship and Support for Democratization By Gay, Victor; Albertus, Michael
  14. Repeated bargaining By Shiran Rachmilevitch
  15. Should the Government Provide Public Goods if it Cannot Commit? By Francisco Silva
  16. What’s in a Name? Reputation and Monitoring in the Audit Market By Somdutta Basu; Suraj Shekhar
  17. How to choose a delegation for a peace conference? By Can, Burak; Csóka, Péter; Ergin, Emre
  18. Procurement Auctions with Uncertainty in Corruption By Shinya Horie
  19. The Provision of Collective Goods Through a Social Division of Labour By Robert P. Gilles; Maria Laura Pesce; Dimitrios Diamantaras
  20. On the Coalitional Stability of Monopoly Power in Differentiated Bertrand and Cournot Oligopolies By Aymeric Lardon
  21. Homing choice and platform pricing strategy By Shekhar, Shiva
  22. Subpoena Power and Information Transmission By Arnaud Dellis; Mandar Oak
  23. Comparing Welfare and Profit in Quantity and Price Competition within Stackelberg Mixed Duopolies By Hirose, Kosuke; Matsumura, Toshihiro
  24. Very Simple Markov-Perfect Industry Dynamics : Theory By Abbring, Jaap; Campbell, J.R.; Tilly, J.; Yang, N.

  1. By: Benyamin Shitovitz (University of Haifa, Department of Economics); Diego Moreno (Departamento de Economía, Universidad Carlos III de Madrid)
    Abstract: Consider a symmetric common-value Tullock contest with incomplete information in which the players’ cost of effort is the product of a random variable and a deterministic real function of effort, d. We show that the Arrow–Pratt curvature of d, Rd , determines the effect on equilibrium efforts and payoffs of the increased flexibility/ reduced commitment that more information introduces into the contest: If Rd is increasing, then effort decreases (increases) with the level of information when the cost of effort (value) is independent of the state of nature. Moreover, if Rd is increasing (decreasing), then the value of public information is nonnegative (nonpositive).
    Keywords: Tullock contests · Common values · Value of public information
    JEL: C72 D44 D82
  2. By: Anuj Bhowmik; Jiling Cao
    Abstract: This paper investigates the ex-post core and its relationships to the fine core and the set of rational expectations equilibrium allocations in an oligopolistic economy with asymmetric information, in which the set of agents consists of some large agents and a continuum of small agents and the space of states of nature is a general probability space. We show that under appropriate assumptions, the ex-post core is not empty and contains the set of rational expectations equilibrium allocations. We provide an example of a pure exchange continuum economy with asymmetric information and infinitely many states of nature, in which the ex-post core does not coincide with the set of rational expectations equilibrium allocations. We also show that when our economic model contains either no large agents or at least two large agents with the same characteristics, the fine core is contained in the ex-post core.
    Date: 2017–03
  3. By: Dmitry Ryvkin (Florida State University); Mikhail Drugov (New Economic School and CEPR)
    Abstract: We derive robust comparative statics for general rank-order tournaments with additive and multiplicative noise. For unimodal distributions of noise, we show that individual equilibrium effort is unimodal in the number of players when it is deterministic. For a stochastic number of players, the unimodality is preserved for changes in the number of players in the sense of first-order stochastic dominance under an additional log-supermodularity restriction. Aggregate equilibrium effort can be increasing, decreasing or nonmonotone in the number of players. Equilibrium effort decreases as noise becomes more dispersed, in the sense of dispersive order or appropriately defined entropy.
    Keywords: tournament, comparative statics, stochastic number of players, unimodality, log-supermodularity, entropy
    JEL: C72 D72 D82
    Date: 2017–03
  4. By: Krishna K Ladha (Indian Institute of Management Kozhikode)
    Abstract: With no authority to change the constitution, a jury does the next best thing: it adopts the optimal rule given the constitution. At equilibrium, some jurors, called the rule reformers, vote independent of their information producing the second-best rule. The remaining jurors vote on the basis of their information enabling aggregation of the dispersed information. Arising from this asymmetric voting in a simultaneous jury game is an equivalence class of asymmetric strong Nash equilibria in pure strategies at which the information aggregation is at its best. Thus, the strategic act of rule reforming enables individual rationality to yield collective rationality. The coordination problem, as to which juror would play which role, can be solved by letting the jurors make a non-binding pre-play agreement specifying each juror’s role; the agreement is self enforcing. The results hold for any voting rule, and any costs of erroneous conviction and acquittal.
  5. By: Franck Bien (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Thomas Lanzi (Department of Strategy, Entrepreneurship and Economics - SKEMA Business School)
    Abstract: We study optimal contracting in a communication setting in which an uninformed principal has the opportunity to undertake an outside option if an informed agent refuses the contract. The contract specifies a decision rule and a transfer for each unit of information revealed by the agent. Due to the existence of the outside option, the informational rent isnonmonotonic, and we characterize the properties of the optimal contract. We show that the outside option becomes a credible threat for the agent because it allows the principal to punish him severely with negative transfers. Moreover, we compare our optimal contract to the one under perfect commitment without an outside option developed by Krishna and Morgan [2008]. We find that regardless of the divergence of preferences between the principal andthe agent, the contract with an outside option is always better for the principal. Moreover, we show that the threat of using an outside option increases information extraction.
    Keywords: Transfers,Outside option,Communication,Mechanism Design
    Date: 2017–03–17
  6. By: Bolle, Friedel
    Abstract: In an economic theory of voting, voters have positive or negative costs of voting in favor of a proposal and positive or negative benefits from an accepted proposal. When votes have equal weight then simultaneous voting mostly has a unique pure strategy Nash equilibrium which is independent of benefits. Voting with respect to (arbitrarily small) costs alone, however, often results in voting against the "true majority". If voting is sequential as in the roll call votes of the US Senate then, in the unique subgame perfect equilibrium, the "true majority" prevails (Groseclose and Milyo, 2010, 2013). In this paper, it is shown that the result for sequential voting holds also with different weights of voters (shareholders) or with multiple necessary majorities (EU decision making). Simultaneous voting in the general model can be plagued by non-existent or non-unique pure strategy equilibria under most preference constellations.
    Keywords: voting,free riding,binary decisions,unique equilibria
    JEL: H41 D71
    Date: 2017
  7. By: Jarman, Felix (German Ministry of Finance); Meisner, Vincent (TU Berlin)
    Abstract: We consider a budget-constrained mechanism designer who selects an optimal set of projects to maximize her utility. Projects may differ in their value for the designer, and their cost is private information. In this allocation problem, the quantity of procured projects is endogenously determined by the mechanism. The designer faces ex-post constraints: The participation and budget constraints must hold for each possible outcome, while the mechanism must be strategyproof. We identify settings in which the class of optimal mechanisms has a deferred acceptance auction representation which allows an implementation with a descending-clock auction. Only in the case of symmetric projects do price clocks descend synchronously such that the cheapest projects are implemented. The case in which values or costs are asymmetrically distributed features a novel tradeoff between quantity and quality. The reason is that guaranteeing allocation to the most favorable projects under strategyproofness comes at the cost of a diminished expected number of conducted projects.
    Keywords: Mechanism Design; Knapsack; Budget; Procurement; Auction; Deferred Acceptance Auctions;
    JEL: D02 D44 D45 D82 H57
    Date: 2017–03–29
  8. By: Khare, Shashwat (Quantitative Economics); Roy, Souvik (QE / Mathematical economics and game the)
    Abstract: The paper studies matching markets where institutions are matched with possibly more than one individual. The matching market contains some couples who view the pair of jobs as complements. We specify that the couples have a "weak'' preference to be matched together. We first assume that the institutions have common preference over all the individuals. We then characterize under which weak preferences of couples a stable matching exists. We then impose further conditions on the common preference of institutions over the individuals and prove existence of stable matching for unrestricted couple preferences. Finally, we establish a result on stability by relaxing the condition on common preference of institutions over individuals and assuming different preferences for different institutions.
    Keywords: two-sided matching, stability, weak responsiveness
    JEL: C78 D47
    Date: 2017
  9. By: Lauren Larrouy (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS - Centre National de la Recherche Scientifique); Guilhem Lecouteux (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We argue that a Bayesian explanation of strategic choices in games requires introducing a psychological theory of belief formation. We highlight that beliefs in epistemic game theory are derived from the actual choice of the players, and cannot therefore explain why Bayesian rational players should play the strategy they actually chose. We introduce the players’ capacity of mindreading in a game theoretical framework with the simulation theory, and characterise the beliefs that Bayes rational players could endogenously form in games. We show in particular that those beliefs need not be ratifiable, and therefore that rational players can form action-dependent beliefs.
    Keywords: action-dependent beliefs, simulation, prior beliefs, mindreading, choice under uncertainty
    Date: 2017–02–16
  10. By: Andrés Salamanca Lugo (TSE - Toulouse School of Economics - Toulouse School of Economics)
    Abstract: In this paper we study several value like solution concepts for cooperative games with incomplete information and sidepayments. In our model, sidepayments are required to be incentive compatible, thus utility is not fully transferable (as it would be in the complete information case). Restricting attention to games with orthogonal coalitions, which do not involve strategic externalities, we show that Myerson's (1984a) extension of the Shapley NTU value and Salamanca's (2016) extension of the Harsanyi NTU value coincide. Allowing for arbitrary informational and strategic externalities, we show that the ex-ante evaluation of Myerson's (1984a) value equals Kalai and Kalai's (2013) cooperative-competitive value in two-player games with verifiable types.
    Keywords: Cooperative games, incomplete information, sidepayments
    Date: 2017–02–15
  11. By: Amnon Maltz (Department of Economics, University of Haifa)
    Abstract: We develop a reference dependent model with an initial endowment and in a world where alternatives are grouped into categories. The model creates a link between the agent's exogenous endowment and her endogenous reference point. The actual refer- ence point is the best feasible alternative, according to the agent's preferences, which belongs to her endowment's category. This endogenous reference point induces a con- straint set from which the nal choice is made according to utility maximization. The model gives rise to category bias which generalizes the status quo bias by attracting the agent to her endowment's category but not necessarily to the endowment itself. We show that it accommodates recent experimental ndings regarding the presence and absence of status quo bias in the realm of uncertainty. We apply the model to a stylized nancial setup and show that it may lead to a risk premium even with risk neutral agents
    Keywords: Categories, Status Quo Bias, Reference Dependence, Risk Premium, Re- vealed Preference
    JEL: D03 D11
  12. By: Marie Obidzinski (CRED - Centre de Recherches en Economie et Droit - UP2 - Université Panthéon-Assas - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche); Yves Oytana (UBFC - Université Bourgogne Franche-Comté, CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté)
    Abstract: The paper inquires into the impact of mistakes of identity (ID errors) on the optimal standard of proof. A mistake of identity is defined as an error such that an individual is punished for someone else’s crime; and for the same crime, the criminal is falsely acquitted. Therefore, the decision to engage in a criminal activity generates a negative externality, as the expected number of ID errors increases. Thus, our objective is to understand how public law enforcement can deal with this type of error by means of the standard of proof. Our main results are twofold. First, we show that when ID errors occur, the under-deterrence issue is exacerbated. Second, we find that the optimal standard of proof may be higher or lower than without ID errors, depending on the crime rate at equilibrium and on the impact of the standard of proof on (i) the probability of an acquittal error for each crime committed, (ii) the probability of convicting an innocent person when an acquittal error arises, and (iii) the level of deterrence.
    Keywords: Mistakes of identity, standard of proof, deterrence
    Date: 2017–02–09
  13. By: Gay, Victor; Albertus, Michael
    Abstract: Influential recent scholarship assumes that authoritarian rulers act as perfect agents of economic elites, foreclosing the possibility that economic elites may at times prefer democracy absent a popular threat from below. Motivated by a puzzling set of democratic transitions, we relax this assumption and examine how elite uncertainty about dictatorship -- a novel and generalizable causal mechanism impacting democratization -- can induce elite support for democracy. We construct a noisy signaling model in which a potential autocrat attempts to convince economic elites that he will be a faithful partner should elites install him in power. The model generates clear predictions about how two major types of elite uncertainty -- uncertainty in a potential autocratic successor's policies produced by variance in the pool of would-be dictator types, and uncertainty in the truthfulness of policy promises made by potential autocratic successors -- impact the likelihood of elite-driven democratization. We demonstrate the model's plausibility in a series of cases of democratic transition.
    Keywords: Game theory, Comparative politics, Political economy, Democratization, Political elites, Economic elites, Formal methods, Dictatorships, Autocracies, Authoritarianism, Democratic transitions
    JEL: C72 D82 D83 N40 N46 P16
    Date: 2017–03
  14. By: Shiran Rachmilevitch (University of Haifa, Department of Economics)
    Abstract: Two symmetric players bargain over an in nite stream of pies. There is one exogenously given pie in every period, whose size is stochastic, and the pies are iid. Play can be in a tabula rasa mode or dispute mode. When it is in the former, Nature selects a proposer and a responder with equal probabilities, and a proposal is made by the proposer regarding the division of the present pie. If there is agreement then it is implemented and play moves on to the next period, where it is again in tabula rasa. If there is rejection then dispute starts, which means that the players start to bargain over the disputed pie according to Rubinstein's (1982) protocol. As long as the disputed pie is Rubinstein- bargained over, all the new pies that arrive are not available for consumption (they disappear right after they materialize). Once a dispute settles, the game shifts back to tabula rasa. I characterize the game's unique stationary subgame perfect equilibrium
    Keywords: Bargaining; Repeated games.
    JEL: D70 D74
  15. By: Francisco Silva
    Abstract: I compare two different systems of provision of discrete public goods: a centralized system, ruled by a benevolent dictator who has limited commitment power; and an anarchic system, based on voluntary contributions, where there is no ruler. If the public good is binary, then the public good provision problem is merely an informational one. In this environment, I show that any allocation which is implementable in a centralized system and is ex-post individually rational, is also implementable in anarchy. However, as the number of alternatives available increases, the classical free riding problem described in Samuelson (1954) emerges, and eventually the centralized system becomes the preferred one.
    JEL: D82 H41
    Date: 2016
  16. By: Somdutta Basu; Suraj Shekhar
    Abstract: We demonstrate a tension between monitoring and reputation incentives when moving from collective reputation environments to individual reputation environments by analyzing a new rule. After January 2017, the name of the engagement partner has to be disclosed in all audit reports issued in the USA. We study the resulting change in auditor incentives and show that while the consequent higher reputation incentives can improve audit quality, partners have a lower incentive to monitor other partners when names are disclosed. This may lead to a fall in audit quality when the rule is implemented. We present several solutions to this problem.
    Keywords: PCAOB, Audit, Disclosure, Collective Reputation, Engagement partner, Reputation, Monitoring
    JEL: L14 L51 M42
    Date: 2017–03
  17. By: Can, Burak (General Economics 1 (Micro)); Csóka, Péter (corvinus university of budapest); Ergin, Emre (General Economics 1 (Micro))
    Abstract: This paper analyzes how to choose a delegation, a committee to represent a society such as in a peace conference. We propose normative conditions and seek optimal, consistent, neutral and non-manipulable ways to choose a delegation. We show that a novel class of threshold rules are characterized by these criteria. The rules impose that a delegation is chosen when its combined support in the society first reaches a particular percentage of the public opinion - depending on the size of the delegation. Conversely, minority opinions that are not reflected in the delegation should always be below a threshold, which follows a geometric series.
    Keywords: aggregation rules, committee selection, conflict management, Kemeny Distance, strategy-proofness
    JEL: C70 D71
    Date: 2017–04–06
  18. By: Shinya Horie (Graduate School of Economics, Kobe University)
    Abstract: This paper considers a situation in which a corrupt government official does not commit to using the common corruption scheme called right of first refusal in a procurement auction. Under the right of first refusal, the contractors (or bidders) participate in a sequential auction, and there is no inefficiency in project allocation. However, in cases in which the scheme is not practiced, both contractors participate in a simultaneous auction, and the disadvantaged contractor bids more aggressively than the advantaged contractor. I found that such uncertainty regarding the practice of corruption schemes can lead to inefficiency, even when the corruption scheme itself is not practiced.
    Keywords: Procurement Auctions; Corruption, Right of first refusal
    JEL: C72 D44 L14
    Date: 2017–03
  19. By: Robert P. Gilles (Economics Group, Queen’s University Management School); Maria Laura Pesce (Università di Napoli Federico II); Dimitrios Diamantaras (Temple University)
    Abstract: This paper develops a general equilibrium framework of a continuum economy in which (non-Samuelsonian) collective goods are provided by specialised professionals as part of an endogenously emerging social division of labour. This model merges the notion of valuation equilibrium in an economy with collective goods with the model of a market economy with an endogenously emerging social division of labour. This allows for the implementation of Adam Smith’s principle of increasing returns to specialisation into the foundations for the economy’s ability to deliver collective goods. We introduce the appropriate generalised notion of valuation equilibrium in this setting and prove the first and second welfare theorems for this notion, enhancing the standard framework of an economy with (non-Samuelsonian) collective goods and multiple private goods. We conclude with an application of the theory we develop to the issue of green energy and pollution abatement, exploiting the flexibility and generality our framework offers.
    Keywords: Social division of labour; Consumer-producer; collective goods; Pareto optimality; Valuation equilibrium; Lindahl equilibrium.
    JEL: D41 D51
    Date: 2017–03–28
  20. By: Aymeric Lardon (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: In this article we revisit the classic comparison between Bertrand and Cournot competition in the presence of a cartel of firms that faces outsiders acting individually. This competition setting enables to deal with both non-cooperative and cooperative oligopoly games. We concentrate on industries consisting of symmetrically differentiated products where firms operate at a constant and identical marginal cost. First, while the standard Bertrand-Cournot rankings still hold for Nash equilibrium prices, we show that the results may be altered for Nash equilibrium quantities and profits.Second, we define cooperative Bertrand and Cournot oligopoly games with transferable utility on the basis of their non-cooperative foundation. We establish that the core of a cooperative Cournot oligopoly game is strictly included in the core of a cooperative Bertrand oligopoly game when the number of firms is lower or equal to 25. Otherwise the cores cannot be compared. Moreover, we focus on the aggregate-monotonic core, a subset of the core, that has the advantage to select point solutions satisfying both core selection and aggregate monotonicity properties. We succeed in comparing the aggregate-monotonic cores between Bertrand and Cournot competition regardless of the number of firms.
    Keywords: Bertrand, Cournot, Differentiated oligopoly, Cartel, Nash equilibrium, Core, Aggregate-monotonic core
    JEL: C71 D43
    Date: 2017–03
  21. By: Shekhar, Shiva
    Abstract: We compare a discriminatory pricing regime with a non-discriminatory regime in a competitive bottleneck model where content providers endogenously sort into single or multi-homers. We find that consumer prices rise when the share of single-homers increases in the non-discriminatory case, while they stay constant in the discriminatory pricing regime. A discriminatory pricing regime leads to higher platform profits than the non-discriminatory regime when the share of single-homers are relatively high. When the share of single-homers is relatively high (low), the discriminatory pricing regime leads to higher (lower) consumer surplus and social welfare when compared with the non-discriminatory regime.
    Keywords: price discrimination,two-sided markets,platforms,platform competition,network effects
    JEL: D43 L14 L82 L13
    Date: 2017
  22. By: Arnaud Dellis (Université du Québec à Montréal); Mandar Oak (School of Economics, University of Adelaide)
    Abstract: This paper studies the role of subpoena power in enabling a policymaker to make better informed decisions. In particular, we take into account the effect of subpoena power on the information voluntarily supplied by interest groups as well as the information obtained by the policymaker via the subpoena process. To this end, we develop a model of informational lobbying in which interest groups seek access to the policymaker in order to provide him verifiable evidence about the desirability of implementing reforms they care about. The policymaker is access-constrained, i.e., he lacks time/resources to verify the evidence provided by all interest groups. The policymaker may also be agenda-constrained, i.e., he may lack time/resources to reform all issues. We find that if a policymaker is agenda-constrained, then he is better off by having subpoena power. On the other hand, if a policymaker is not agenda-constrained, he is made worse off by having subpoena power. The key insight behind these findings is that subpoena power influences interest groupsÂ’ incentives to provide information voluntarily, and that this influence differs depending on whether or not the policymaker is agenda-constrained.
    Keywords: Lobbying; Information transmission; Subpoena; Agenda.
    JEL: D72 D78 D83
    Date: 2017–03
  23. By: Hirose, Kosuke; Matsumura, Toshihiro
    Abstract: We compare welfare and profits under price and quantity competition in mixed duopolies, wherein a state-owned public firm competes against a private firm. It has been shown that price competition yields larger profit for the private firm and greater welfare if the two firms move simultaneously, regardless of whether the private firm is domestic or foreign. We investigate welfare and profit rankings under Stackelberg competition. Under public leadership, the profit and welfare rankings have common features with the simultaneous-move game, regardless of the nationality of private firms. By contrast, under private leadership, the result depends on the nationality of the private firm. When the private firm is domestic, welfare is greater under quantity competition, while the result is reversed when the private firm is foreign. However, regardless of nationality, private firms earn more under price competition. Introducing the nonnegative profit constraint in the public firm improves welfare and increases the private firm's profit, and price competition yields a higher profit for private firms regardless of nationality and which firm is the leader. However, this constraint affects the welfare ranking. Under private leadership, quantity competition yields greater welfare regardless of the nationality of the private firm. These results indicate that profit ranking is fairly robust to the time structure in mixed Stackelberg duopolies, but welfare ranking is not.
    Keywords: public leadership; private leadership; mixed markets; Cournot-Bertrand comparison
    JEL: H42 H44 L13 L32
    Date: 2017–03–20
  24. By: Abbring, Jaap (Tilburg University, Center For Economic Research); Campbell, J.R.; Tilly, J.; Yang, N. (Tilburg University, Center For Economic Research)
    Abstract: This paper develops a simple model of firm entry, competition, and exit in oligopolistic markets. It features toughness of competition, sunk entry costs, and market-level demand and cost shocks, but assumes that firms' expected payoffs are identical when entry and survival decisions are made. We prove that this model has an essentially unique symmetric Markov-perfect equilibrium, and we provide an algorithm for its computation. Because this algorithm only requires finding the fixed points of a finite sequence of contraction mappings, it is guaranteed to converge quickly.
    Keywords: demand uncertainty; dynamic oligopoly; firm entry and exit; sunk costs; toughness of competition
    JEL: L13 C25 C73
    Date: 2017

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