nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒05‒28
twenty-one papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Bounded Rationality And Learning: A Framework and A Robustness Result By Bohren, Aislinn; Hauser, Daniel
  2. Intertemporal Price Discrimination with Multiple Products By Rochet, Jean-Charles; Thanassoulis, John
  3. Convincing early adopters: Price signals and Information transmission By Nicolás Figueroa; Carla Guadalupi
  4. Vertical Differentiation With Optimistic Misperceptions And Information Disparities By Alberto Cavaliere; Giovanni Crea
  5. Selling with Evidence By Koessler, Frédéric; Skreta, Vasiliki
  6. Investment, Rational Inattention, and Delegation By Lindbeck, Assar; Weibull, Jörgen
  7. Auctions with Signaling Concerns By Bos, Olivier; Truyts, Tom
  8. Strategyproof Choice of Acts: Beyond Dictatorship By Eric Bahel; Yves Sprumont
  9. Selling Through Referrals By Condorelli, Daniele; Galeotti, Andrea; Skreta, Vasiliki
  10. Cooperation in Social Dilemmas through Position Uncertainty By Andrea Gallice; Ignacio Monzon
  11. Can Everyone Benefit from Social Integration? By Josue Ortega
  12. Corporate Voting By Miller, Alan
  13. Product Choice and Price Discrimination in Markets with Search Costs By Fabra, Natalia; Montero, Juan Pablo
  14. Coalitional desirability and the equal division value By Sylvain Béal; Eric Rémila; Phillippe Solal
  15. Dynamic competition over social networks Dynamic competition over social networks By Antoine Mandel; Xavier Venel
  16. Moral hazard in welfare economics: on the advantage of Planner's advices to manage employees' actions. By Thibaut Mastrolia
  17. Revealed Price Preference: Theory and Stochastic Testing By Rahul Deb; Yuichi Kitamura; John K.-H. Quah; Jorg Stoye
  18. From Extreme to Mainstream: How Social Norms Unravel By Leonardo Bursztyn; Georgy Egorov; Stefano Fiorin
  19. Temporary and permanent technology lock-ins in the quality-differentiated Bertrand competition By Anton Bondarev; Frank C. Krysiak
  20. Procurement of Advanced Technology and Welfare-Reducing Vertical Integration By Lee, Sang-Ho; Matsumura, Toshihiro; Park, Chul-Hi
  21. Dampening General Equilibrium: From Micro to Macro By George-Marios Angeletos; Chen Lian

  1. By: Bohren, Aislinn; Hauser, Daniel
    Abstract: We explore model misspecification in an observational learning framework. Individuals learn from private and public signals and the actions of others. An agent's type specifies her model of the world. Misspecified types have incorrect beliefs about the signal distribution, how other agents draw inference and/or others' payoffs. We establish that the correctly specified model is robust in that agents with approximately correct models almost surely learn the true state asymptotically. We develop a simple criterion to identify the asymptotic learning outcomes that arise when misspecification is more severe. Depending on the nature of the misspecification, learning may be correct, incorrect or beliefs may not converge. Different types may asymptotically disagree, despite observing the same sequence of information. This framework captures behavioral biases such as confirmation bias, false consensus effect, partisan bias and correlation neglect, as well as models of inference such as level-k and cognitive hierarchy.
    Keywords: bounded rationality; model misspecification; Social learning
    JEL: D82 D83
    Date: 2017–05
  2. By: Rochet, Jean-Charles; Thanassoulis, John
    Abstract: We study the multiproduct monopoly profit maximisation problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly-ordered then optimality for the seller requires intertemporal price discrimination and it can be implemented by dynamic pricing on the cross-sell to the bundle. If consumers are perfectly negatively correlated, reducing the cross-sell price at a single point in time is optimal. For general valuations we show that if the cross-partial derivative of the profit function is negative then dynamic pricing on the cross-sell is more profitable than fixing prices. So we show that the celebrated Stokey (1979) no-discrimination-across-time result does not extend to multiple good sellers when consumers' valuations are drawn from the tilted uniform, the shifted uniform, the exponential, or the normal distribution. We extend our results to welfare, to complementarities in demand, and to the determination of optimal discount schedules.
    Keywords: Multidimensional Mechanism Design; Second Degree Price Discrimination; Bundling; Time Discounting; Cross-sell.
    JEL: D42 L11
    Date: 2017–05
  3. By: Nicolás Figueroa; Carla Guadalupi
    Abstract: We study the optimal pricing strategy for a new product when consumers learn from both prices and early adopters’ purchase decisions. In our model, a long-lived monopolist faces a representative consumer each period. The monopolist is privately informed about his type, the probability of producing good-quality products. First-period consumers are early adopters, who learn quality before purchasing the product. Second-period consumers learn about product quality only after observing the public history, namely past price and early adopters’ purchase decisions. In this context, prices play a dual role, acting as signals of the firm’s type but also facilitating or impeding information transmission between early adopters and second-period consumers. Our main result is that separation might occur through either high or low prices (with respect to the full-information monopoly price), depending on the elasticity of demand. When demand for good-quality products is less elastic, high prices are less costly for high-type firms due to both a static (through demand) and dynamic (through information transmission) effects. On the one hand, high-type firms are marginally less affected by high prices, since they lose fewer consumers. On the other hand, early sales at higher prices carry good news about quality to second-period consumers, since such sales are more likely to come from a good than from a bad-quality product. The opposite happens occurs when demand for good-quality products is more elastic. We provide two market examples for each case and show that in the case of disruptive (incremental) innovations high (low) prices can be used as signals of quality. We finally discuss consumer welfare under the two resulting alternative equilibria, and show that the observability of early adopters’ purchase decisions improves consumer welfare when separation occurs through high prices.
    JEL: K10 K30 K40
    Date: 2017
  4. By: Alberto Cavaliere (Department of Economics and Management, University of Pavia); Giovanni Crea (Department of Economics and Management, University of Pavia)
    Abstract: We consider vertical differentiation with quality uncertainty and information disparities, in a duopoly where products have credence attributes and a minimum quality standard exists. Optimistic misperceptions further relax price competition but uninformed consumers may be cheated in equilibrium due to minimum product differentiation when informed consumers buy low quality goods. Optimistic misperceptions turn out to be an incentive for product differentiation when informed consumers buy high quality goods, even if the real quality differentiual is always lower than expected by uninformed consumers. Increasing the share of informed consumers may counterbalance the effect of optimism on equilibrium prices but in the meantime reduce the incentives for product differentiation.
    Keywords: asymmetric information, brand premium, quality uncertainty
    JEL: L15 L13 D82
    Date: 2017–05
  5. By: Koessler, Frédéric; Skreta, Vasiliki
    Abstract: We study how to optimally sell a good in a bilateral asymmetric information monopoly setting with interdependent values when the informed seller can voluntarily and costlessly provide evidence about the good's characteristics. Equilibrium allocations are feasible and immune to deviations to any mechanism. We show that there is an ex-ante profit-maximizing selling procedure that is an equilibrium of the mechanism-proposal game. In contrast to posted price settings, information unravelling of product characteristics may fail even when all buyer types agree on the ranking of product quality.
    Keywords: Informed principal; consumer heterogeneity; interdependent valuations; product information disclosure; mechanism design; certification
    JEL: C72 D82
    Date: 2017–05
  6. By: Lindbeck, Assar (Research Institute of Industrial Economics (IFN)); Weibull, Jörgen (Department of Economics)
    Abstract: We analyze investment decisions when information is costly, with and without delegation to an agent. We use a rational-inattention model and compare it with a canonical signal-extraction model. We identify three "investment conditions". In "sour" conditions, no information is acquired and no investment made. In "sweet" conditions, investment is made "blindly", i.e. without acquiring costly information. In intermediate, "normal" conditions, the decision-maker acquires information and conditions the investment decision upon the information obtained. We investigate if the investor can benefit from employing an agent when the agent's effort and information is private. Not even in the case of a risk neutral agent will the principal perfectly align the agent's incentives with her own at the moment of investment (had the principal known the agent's private information). Optimal contracts for risk neutral agents not only reward good investments but also punishes bad investments. Such contracts include three components: a fixed salary, stocks and options.
    Keywords: Investment; Rational inattention; Signal Extraction; Principal-agent; Information aquisition; Contract; Bonus; Penalty
    JEL: D01 D82 D86 G11 G23 G30
    Date: 2017–05–22
  7. By: Bos, Olivier; Truyts, Tom
    Abstract: We study a symmetric private value auction with signaling, in which the auction outcome is used by an outside observer to infer the bidders' types. We elicit conditions under which an essentially unique D1 equilibrium bidding function exists in four auction formats: first-price, second-price, all-pay and the English auction. We obtain a strict ranking in terms of expected revenues: the first-price and all-pay auctions dominate the English auction but are dominated by the second-price auction.
    Keywords: Costly signaling; D1 criterion; social status; art auctions; charity auctions.
    JEL: D44 D82
    Date: 2017
  8. By: Eric Bahel; Yves Sprumont
    Abstract: We model social choices as acts mapping states of nature to (public) out- comes. A social choice function (or SCF) assigns an act to every profile of subjective expected utility preferences over acts. A SCF is strategyproof if no agent ever has an incentive to misrepresent her beliefs about the states of na- ture 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 nature. We offer a complete characterization of all strategyproof and ex-post efficient SCFs. The chosen act must pick the most preferred outcome of some (possibly different) agent in every state of nature. The set of states in which an agent’s top outcome is selected may vary with the reported belief profile; it is the union of all the states assigned to her by a collection of bilaterally dictatorial and bilaterally consensual assignment rules.
    Keywords: Social choice under uncertainty, strategyproofness, subjective expected utility, dictatorship, consensuality, bilaterality
    Date: 2017
  9. By: Condorelli, Daniele; Galeotti, Andrea; Skreta, Vasiliki
    Abstract: We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling - the merchant mode - or refer buyers to the seller for a fee - the agency mode. When the seller can condition the minimum selling price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller's trading protocol does not depend on the business mode adopted by intermediaries, hybrid agency-merchant mode are adopted in equilibrium. Banning the agency mode can decrease welfare since the merchant mode is associated with additional allocative distortions due to asymmetric information compared to agency.
    Keywords: asymmetric information; intermediaries; referrals; resale
    JEL: C72 D44
    Date: 2017–05
  10. By: Andrea Gallice; Ignacio Monzon
    Abstract: Abstract We propose a simple mechanism that sustains full cooperation in one-shot social dilemmas among a finite number of self-interested agents. Players sequentially decide whether to contribute to a public good. They do not know their position in the sequence, but observe the actions of some predecessors. Position uncertainty provides an incentive to contribute in order to induce potential successors to also do so. Full contribution can then emerge in equilibrium. Our mechanism also leads to full cooperation in the prisoners' dilemma.
    Keywords: Social Dilemmas; Position Uncertainty; Public Goods; Voluntary Contributions; Fundraising
    JEL: C72 D82 H41
    Date: 2016
  11. By: Josue Ortega
    Abstract: There is no matching mechanism that satisfies integration monotonicity and stability. If we insist on integration monotonicity, not even Pareto optimality can be achieved: the only option is to remain segregated. A weaker monotonicity condition can be combined with Pareto optimality but not with path independence, which implies that the dynamics of social integration matter. If the outcome of integration is stable, integration is always approved by majority voting, but a non-vanishing fraction of agents always oppose segregation. The side who receives the proposals in the deferred acceptance algorithm suffers significant welfare losses, which nevertheless become negligible when societies grow large.
    Date: 2017–05
  12. By: Miller, Alan
    Abstract: I introduce a model of corporate voting. I characterize the shareholder majority rule as the unique corporate voting rule that satisfies four axioms: anonymity, neutrality, share monotonicity, and merger, a property that requires consistency in election outcomes following stock-for-stock mergers.
    Keywords: Corporate voting, axioms, shareholder majority rule, quotas rules, merger, one share-one vote
    JEL: D71 D72 K22
    Date: 2017–05–17
  13. By: Fabra, Natalia; Montero, Juan Pablo
    Abstract: In a seminal paper, Champsaur and Rochet (1989) showed that competing firms choose non-overlapping qualities so as to soften price competition at the cost of giving up profitable opportunities to price discriminate. In this paper we show that an arbitrarily small amount of search costs is enough to give rise to an equilibrium with overlapping qualities. In markets with search costs, competing firms face the monopolist's incentive to price discriminate, which induces them to offer the full quality range even if this forces them to compete head-to-head. Hence, even though search costs increase prices and reduce consumers surplus for given quality choices, search costs can also lead to lower prices and higher consumer surplus whenever they induce firms to offer broader and overlapping product lines. Our analysis also provides predictions regarding pricing by multi-product firms in markets with search costs under various retail market structures. Product choices and pricing by online bookstores motivate our findings.
    Keywords: retail competition.; search; second degree price discrimination; vertical differentiation
    Date: 2017–05
  14. By: Sylvain Béal (Université de Bourgogne Franche-Comté, CRESE); Eric Rémila (Université de Saint-Etienne, Gate); Phillippe Solal (Université de Saint-Etienne, Gate)
    Abstract: We introduce three natural collective variants of the well-known axiom of Desirability (Maschler and Peleg, 1966), which require that if the (per capita) contributions of a rst coalition are at least as large as the (per capita) contributions of a second coalition, then the (average) payo in the rst coalition should be as large as the (average) payo in the second coalition. These axioms are called Coalitional desirability and Average coalitional desirability. The third variant, called Uniform coalitional desirability applies only to coalitions with the same size. We show that Coalitional desirability is very strong: no value satis es simultaneously this axiom and Eciency. To the contrary, the combination of either Average coalitional desirability or Uniform coalitional desirability with Eciency and Additivity characterizes the Equal Division value.
    Keywords: Desirability, Coalitional desirability, Average coalitional desirability, Uniform coalitional desirability, Equal Division value, Shapley value.
    Date: 2017–04
  15. By: Antoine Mandel (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Xavier Venel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We provide an analytical approach to the problem of influence maximization in a social network when two players compete by means of dynamic targeting strategies. We formulate the problem as a two-player zero-sum stochastic game. We prove the existence of the uniform value: if the players are sufficiently patient, both players can guarantee the same mean-average opinion without knowing the exact discount factor. Further, we put forward some elements for the characterization of equilibrium strategies. In general, players must implement a trade-off between a forward-looking perspective, according to which they shall aim at maximizing the future spread of their opinion in the network, and a backward-looking perspective, according to which they shall aim at counteracting their opponent's previous actions. When the influence potential of players is small, an equilibrium strategy is to systematically target the agent with the largest eigenvector centrality.
    Abstract: Nous proposons une approche analytique au problème de maximisation de l'influence dans un réseau social entre deux joueurs utilisant des stratégies dynamiques. Le problème est formulé comme un jeu stochastique à somme nulle. Nous prouvons l'existence de la valeur uniforme et donnons une caractérisation partielle des stratégies d'équilibre. Nous montrons notamment que lorsque l'influence exercée par les agents est faible, ces derniers doivent systématiquement cibler l'agent avec la centralité "vecteur propre" la plus élevée.
    Keywords: Stochastic games,Social network,Dynamic games,Targeting,Jeux stochastiques,Jeux dynamiques,Réseaux sociaux
    Date: 2017–04
  16. By: Thibaut Mastrolia (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we study moral hazard problems in contract theory by adding an exogenous Planner to manage the actions of Agents hired by a Principal. We provide conditions ensuring that Pareto optima exist for the Agents using the scalarization method associated with the multi-objective optimization problem and we solve the problem of the Principal by finding optimal remunerations given to the Agents. We illustrate our study with a linear-quadratic model by comparing the results obtained when we add a Planner in the Principal/multi-Agents problem with the results obtained in the classical second-best case. More particularly in this example, we give necessary and sufficient conditions ensuring that Pareto optima are Nash equilibria and we prove that the Principal takes the benefit of the action of the Planner in some cases.
    Keywords: multi-objective optimization problems,BSDE,Moral hazard,Nash equilibrium,Pareto efficiency
    Date: 2017–04–10
  17. By: Rahul Deb (University of Toronto); Yuichi Kitamura (Cowles Foundation, Yale University); John K.-H. Quah (Johns Hopkins University); Jorg Stoye (Bonn University)
    Abstract: We develop a model of demand where consumers trade-off the utility of consumption against the disutility of expenditure. This model is appropriate whenever a consumer’s demand over a strict subset of all available goods is being analyzed. Data sets consistent with this model are characterized by the absence of revealed preference cycles over prices. The model is readily generalized to the random utility setting, for which we develop nonparametric statistical tests. Our application on national household consumption data provides support for the model.
    Date: 2017–05
  18. By: Leonardo Bursztyn; Georgy Egorov; Stefano Fiorin
    Abstract: Social norms are typically thought to be persistent and long-lasting, sometimes surviving through growth, recessions, and regime changes. In some cases, however, they can quickly change. This paper examines the unraveling of social norms in communication when new information becomes available, e.g., aggregated through elections. We build a model of strategic communication between citizens who can hold one of two mutually exclusive opinions. In our model, agents communicate their opinions to each other, and senders care about receivers' approval. As a result, senders are more likely to express the more popular opinion, while receivers make less inference about senders who stated the popular view. We test these predictions using two experiments. In the main experiment, we identify the causal effect of Donald Trump's rise in political popularity on individuals' willingness to publicly express xenophobic views. Participants in the experiment are offered a bonus reward if they authorize researchers to make a donation to an anti-immigration organization on their behalf. Participants who expect their decision to be observed by the surveyor are significantly less likely to accept the offer than those expecting an anonymous choice. Increases in participants' perceptions of Trump's popularity (either through experimental variation or through the “natural experiment” of his victory) eliminate the wedge between private and public behavior. A second experiment uses dictator games to show that participants judge a person less negatively for publicly expressing (but not for privately holding) a political view they disagree with if that person's social environment is one where the majority of people holds that view.
    JEL: C90 D03 D72 D83 P16 Z10
    Date: 2017–05
  19. By: Anton Bondarev; Frank C. Krysiak (University of Basel)
    Abstract: We consider a setting where strategic behavior of r&d rms can lead to di erent types of a technology lock-in, permanent or temporary, in an eventually inferior technology. The simple setting with one incumbent and one potential entrant may lead to a wide variety of possible strategic regimes. We study conditions on relative market strength of the incumbent and the entrant which lead to di erent strategic actions and demonstrate, that such a strategic behavior is not always socially suboptimal, since it may lead to faster development of the existing technology due to persistent threat of the potential entrant. We further elaborate on the selection of support tools which may induce the development of new technology in the secondbest world and establish criteria for these tools to be social welfare improving ones.
    Keywords: technology lock-in, technological change, strategic interaction, r&d policy, multiple regimes
    JEL: C61 O31 O38
    Date: 2017
  20. By: Lee, Sang-Ho; Matsumura, Toshihiro; Park, Chul-Hi
    Abstract: This article presents a model in which two downstream firms compete in a differentiat-ed product market and choose whether to adopt new advanced inputs supplied by the monopolist, while standard inputs are competitively supplied. When the monopoly sup-plier is independent, from the welfare viewpoint, the incentive to adopt the new inputs is insufficient (can be excessive) given that the rival does not adopt (adopts). When the monopoly supplier and one downstream firm merge, such integration increases the un-integrated downstream firm’s incentive to adopt the new input supplied by the rival and thus helps the spread of new inputs in the industry. However, because of the collusive effect of increasing the prices of the final products, vertical integration can be harmful for welfare despite the reduction in the welfare loss due to double marginalization and the increase in product quality.
    Keywords: demand-enhancing inputs; commitment to procure; make-or-buy decision; CSR pro-curement
    JEL: D43 L13 L41
    Date: 2017–05–05
  21. By: George-Marios Angeletos; Chen Lian
    Abstract: We argue that standard modeling practice overstates the potency of general-equilibrium (GE) mechanisms. We formalize the notion that GE adjustment is weak, or that it takes time, by modifying an elementary Walrasian economy in two alternative manners. In one, we replace Rational-Expectations Equilibrium with cognitive processes that mimic, inter alia, Tâtonnement dynamics or Level-k Thinking. In the other, we maintain rational expectations but remove common knowledge of aggregate shocks. This permits us, not only to illustrate the broader plausibility of the sought after notion of GE attenuation, but also to elaborate on the sense in which our preferred approach—removing common knowledge—can be seen as a disciplined substitute to certain kinds of bounded rationality. We discuss possible applications, including how our results may help reduce the gap between the macroeconomic effects of interest and the micro or local elasticities that a growing empirical literature estimates in the cross section.
    JEL: B41 D50 D80 E03 E13 E60
    Date: 2017–05

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