nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒04‒23
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Information Disclosure by a Seller in a Sequential First-Price Auction By Azacis, Helmuts
  2. Learning to Disagree in a Game of Experimentation By Bonatti, Alessandro; Hörner, Johannes
  3. Career Concerns with Exponential Learning By Bonatti, Alessandro; Hörner, Johannes
  4. Private Information and Insurance Rejections: A comment By Attar, Andrea; Mariotti, Thomas; Salanié, François
  5. Information Aversion By Andries, Marianne; Haddad, Valentin
  6. Hammond’s Equity Principle and the Measurement of Ordinal Inequalities By Nicolas Gravel; Brice Magdalou; Patrick Moyes
  7. Absolute Qualified Majoritarianism: How Does the Threshold Matter? By Ali Ihsan Ozkes; Remzi Sanver
  8. Probabilistic opinion pooling generalized. Part two: the premise-based approach By Franz Dietrich; Christian List
  9. Uniqueness of Nash Equilibrium in Continuous Weighted Potential Games By Francesco Caruso; Maria Carmela Ceparano; Jacqueline Morgan
  10. Probabilistic opinion pooling generalized. Part one: general agendas By Franz Dietrich; Christian List
  11. Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus By Charles J. Thomas
  12. Equilibrium in risk-sharing games By Michail Anthropelos; Constantinos Kardaras
  13. Characterizing the Borda ranking rule for a fixed population By Mihara, H. Reiju
  14. Local thinking and skewness preferences By Dertwinkel-Kalt, Markus; Köster, Mats
  15. Uncertain product risk, information acquisition, and product liability By Tim Friehe; Elisabeth Schulte

  1. By: Azacis, Helmuts (Cardiff Business School)
    Abstract: I study a sequential first-price auction where two items are sold to two bidders with private binary valuations. A seller, prior to the second auction, can publicly disclose some information about the outcome of the first auction. I characterize equilibrium strategies for various disclosure rules when the valuations of bidders are either perfectly positively or perfectly negatively correlated across items. I establish outcome equivalence between di erent disclosure rules. I find that it is optimal for the seller to disclose some information when the valuations are negatively correlated, whereas it is optimal not to disclose any information when the valuations are positively correlated. For most of the parameter values, the seller's revenue is higher if the losing bid is disclosed. When only the winner's identity is disclosed, the equilibrium is efficient whether the valuations are positively or negatively correlated.
    Keywords: Efficiency; Information disclosure; Seller's revenue; Sequential first-price auction
    JEL: D44 D47 D82
    Date: 2017–02
  2. By: Bonatti, Alessandro; Hörner, Johannes
    Abstract: We analyze strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” When actions are hidden, there exists a unique symmetric equilibrium that involves randomization over stopping times. With two players, this is the unique equilibrium. Randomization leads to dispersion in actions and to belief disagreement on the equilibrium path. The resulting lack of coordination has significant welfare consequences. In contrast, when actions are observable, the equilibrium is pure and welfare improves.
    Keywords: Experimentation, free-riding, mixed strategies, monitoring, delay.
    JEL: C73 D83 O33
    Date: 2017–03
  3. By: Bonatti, Alessandro; Hörner, Johannes
    Abstract: This paper analyzes the impact of market structure on career concerns. Effort increases the probability that a skilled agent achieves a one-time breakthrough. Wages are based on assessed ability and on expected output. For any wage, the agent works too little, too late. Under short-term contracts, effort and wages are single-peaked with seniority, due to the strategic substitutability of effort levels at different times. Both delay and underprovision of effort worsen if effort is observable. Commitment to wages by competing firms mitigates these inefficiencies. In that case, the optimal contract features piecewise constant wages and severance pay.
    Keywords: career concerns, experimentation, career paths, up-or-out, reputation.
    JEL: D82 D83 M52
    Date: 2017–03
  4. By: Attar, Andrea; Mariotti, Thomas; Salanié, François
    Abstract: We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013).
    Keywords: Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity.
    JEL: D43 D82 D86
    Date: 2017–03
  5. By: Andries, Marianne; Haddad, Valentin
    Abstract: We propose a theory of inattention solely based on preferences, absent cognitive limitations or external costs of information. Under disappointment aversion, agents are intrinsically information averse. In a consumption-savings problem, we study how information averse agents cope with their fear of information, to make better decisions: they acquire information at infrequent intervals only, and inattention increases when volatility is high, consistent with the empirical evidence. Adding state-dependent alerts following sharp downturns improves welfare, despite the additional endogenous information costs. Our framework accommodates a broad range of applications, suggesting our approach can explain many observed features of decision under uncertainty.
    Date: 2017–03
  6. By: Nicolas Gravel (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Brice Magdalou (Lameta, Université de Montpellier); Patrick Moyes (GREThA, CNRS, Université de Bordeaux)
    Abstract: What would be the analogue of the Lorenz quasi-ordering when the variable of interest is of a purely ordinal nature? We argue that it is possible to derive such a criterion by substituting for the Pigou-Dalton transfer used in the standard inequality literature what we refer to as a Hammond progressive transfer. According to this criterion, one distribution of utilities is considered to be less unequal than another if it is judged better by both the lexicographic extensions of the maximin and the minimax, henceforth referred to as the leximin and the antileximax, respectively. If one imposes in addition that an increase in someone’s utility makes the society better off, then one is left with the leximin, while the requirement that society welfare increases as the result of a decrease of one person’s utility gives the antileximax criterion. Incidently, the paper provides an alternative and simple characterisation of the leximin principle widely used in the social choice and welfare literature.
    Keywords: ordinal inequality, Hammond equity axiom, leximin, antileximax
    JEL: D30 D63 I32
    Date: 2017–01
  7. By: Ali Ihsan Ozkes (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille 2 - Université Paul Cézanne - Aix-Marseille 3 - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Remzi Sanver (Université Paris IX - Paris Dauphine - Université Paris-Dauphine)
    Abstract: We study absolute qualified majority rules in a setting with more than two alternatives. We show that given two qualified majority rules, if transitivity is desired for the societal outcome and if the thresholds of one of these rules are at least as high as the other's for any pair of alternatives, then at each preference profile the rule with higher thresholds results in a coarser social ranking. Hence all absolute qualified majority rules can be expressed as specific coarsenings of the simple majority rule.
    Keywords: simple majority rule,qualified majority rules
    Date: 2016–11
  8. By: Franz Dietrich; Christian List
    Abstract: How can several individuals’ probability functions on a given σσ -algebra of events be aggregated into a collective probability function? Classic approaches to this problem usually require ‘event-wise independence’: the collective probability for each event should depend only on the individuals’ probabilities for that event. In practice, however, some events may be ‘basic’ and others ‘derivative’, so that it makes sense first to aggregate the probabilities for the former and then to let these constrain the probabilities for the latter. We formalize this idea by introducing a ‘premise-based’ approach to probabilistic opinion pooling, and show that, under a variety of assumptions, it leads to linear or neutral opinion pooling on the ‘premises’.
    JEL: J1
    Date: 2017–04–10
  9. By: Francesco Caruso (Università di Napoli Federico II); Maria Carmela Ceparano (Università di Napoli Federico II); Jacqueline Morgan (Università di Napoli Federico II and CSEF)
    Abstract: The literature results about existence of Nash equilibria in continuous potential games (Monderer and Shapley, 1996) exploits the property that any maximum point of the potential function is a Nash equilibrium of the game (the vice versa being not true) and those about uniqueness use strict concavity of the potential function. Therefore, the following question arises: can we find sufficient conditions on the data of the game which guarantee one and only one Nash equilibrium when existence of a maximum of the potential function is not ensured and the potential function in not strictly concave? The paper positively answers this question for two-player weighted potential games when the strategy sets are not bounded sets of not necessarily finite dimensional spaces. Significative examples infinite dimensional spaces are provided, together with an application in infinite dimensional ones.
    Keywords: Non-cooperative game; weighted potential game; uniqueness of Nash equilibrium; fixed point.
    Date: 2017–04–18
  10. By: Franz Dietrich; Christian List
    Abstract: How can several individuals’ probability assignments to some events be aggregated into a collective probability assignment? Classic results on this problem assume that the set of relevant events—the agenda—is a σ-algebra and is thus closed under disjunction (union) and conjunction (intersection). We drop this demanding assumption and explore probabilistic opinion pooling on general agendas. One might be interested in the probability of rain and that of an interest-rate increase, but not in the probability of rain or an interest-rate increase. We characterize linear pooling and neutral pooling for general agendas, with classic results as special cases for agendas that are σ-algebras. As an illustrative application, we also consider probabilistic preference aggregation. Finally, we unify our results with existing results on binary judgment aggregation and Arrovian preference aggregation. We show that the same kinds of axioms (independence and consensus preservation) have radically different implications for different aggregation problems: linearity for probability aggregation and dictatorship for binary judgment or preference aggregation.
    JEL: J1
    Date: 2017–04–07
  11. By: Charles J. Thomas (Economic Science Institute & Argyros School of Business and Economics Chapman University)
    Abstract: In a simple model I show consumer surplus can increase after competing sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with the conventional wisdom that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their product’s fit with the buyer’s preferences. Mergers benefit buyers by inducing stronger contest-level entry, echoing common claims from merging parties that their merger is beneficial because it creates a stronger competitor.
    Keywords: mergers, efficiencies, consumer surplus, antitrust
    JEL: D4 D44 L1 L4
    Date: 2017
  12. By: Michail Anthropelos; Constantinos Kardaras
    Abstract: The large majority of risk-sharing transactions involve few agents, each of whom can heavily influence the structure and the prices of securities. In this paper, we propose a game where agents’ strategic sets consist of all possible sharing securities and pricing kernels that are consistent with Arrow–Debreu sharing rules. First, it is shown that agents’ best response problems have unique solutions. The risk-sharing Nash equilibrium admits a finite-dimensional characterisation, and it is proved to exist for an arbitrary number of agents and to be unique in the two-agent game. In equilibrium, agents declare beliefs on future random outcomes different from their actual probability assessments, and the risk-sharing securities are endogenously bounded, implying (among other things) loss of efficiency. In addition, an analysis regarding extremely risk-tolerant agents indicates that they profit more from the Nash risk-sharing equilibrium than compared to the Arrow–Debreu one.
    JEL: C72 G12 L13
    Date: 2017–03–21
  13. By: Mihara, H. Reiju
    Abstract: A ranking rule (social welfare function) for a fixed population assigns a social preference to each profile of preferences. The rule satisfies "Positional Cancellation" if changes in the relative positions of two alternatives that cancel each other do not alter the social preference between the two. I show that the Borda rule is the only ranking rule that satisfies "Reversal" (a weakening of neutrality), "Positive Responsiveness," and "Pairwise Cancellation."
    Keywords: Borda rule; Borda count; scoring rules; positional rules; axiomatic characterization
    JEL: D70 D71
    Date: 2017–03
  14. By: Dertwinkel-Kalt, Markus; Köster, Mats
    Abstract: We show that continuous models of stimulus-driven attention can account for skewness-related puzzles in decision-making under risk. First,we delineate that these models provide awell-defined theory of choice under risk. We therefore prove that in continuous - in contrast to discrete - models of stimulus-driven attention each lottery has a unique certainty equivalent that is monotonic in probabilities (i.e., it monotonically increases if probability mass is shifted to more favorable outcomes). Second, we show that whether an agent seeks or avoids a specific risk depends on the skewness of the underlying probability distribution. Since unlikely, but outstanding payoffs attract attention, an agent exhibits a preference for right-skewed and an aversion toward left-skewed risks. While cumulative prospect theory can also account for such skewness preferences, it yields implausible predictions on their magnitude. We show that these extreme implications can be ruled out for continuous models of stimulus-driven attention.
    Keywords: stimulus-driven attention,salience theory,focusing,certainty equivalent,monotonicity,skewness preferences
    JEL: D81
    Date: 2017
  15. By: Tim Friehe (University of Marburg); Elisabeth Schulte (University of Marburg)
    Abstract: We describe how product liability interacts with regulatory product approval in influencing a firm’s incentives to acquire information about product risk, using a very parsimonious model. The firm may have insufficient information acquisition incentives when it is not fully liable for the harm caused by its product. The firm may also have excessive information acquisition incentives under both full and limited liability. We highlight efficiency inducing liability rules.
    Keywords: Innovation, Product Liability, Uncertainty
    JEL: K13 O31 D83
    Date: 2017

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