
on Microeconomics 
By:  Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University) 
Abstract:  We characterize revenue maximizing auctions when the bidders are intermediaries who wish to resell the good. The bidders have differential information about their common resale opportunities: each bidder privately observes an independent draw of a resale opportunity, and the highest signal is a sufficient statistic for the value of winning the good. If the good must be sold, then the optimal mechanism is simply a posted price at which all bidders are willing to purchase the good, and all bidders are equally likely to be allocated the good, irrespective of their signals. If the seller can keep the good, then under the optimal mechanism, all bidders make the same expected payment and have the same expected probability of receiving the good, independent of the signal. Conditional on the good being sold, the allocation discriminates in favor of bidders with lower signals. In some cases, the optimal mechanism again reduces to a posted price. The model provides a foundation for posted prices in multiagent screening problems. 
Keywords:  Optimal auction, Intermediaries, Posted price, Guaranteed demand auction, Common values, Revenue maximization, Revenue equivalence, Firstprice auction, Secondprice auction, Resale, Maximum value game, Descending auction, Local incentive constraints, Global incentive constraints 
JEL:  C72 D44 D82 D83 
Date:  2016–12 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2064r&r=mic 
By:  David S. Ahn (University of California, Berkeley); Ryota Iijima (Cowles Foundation, Yale University); Todd Sarver (Duke University) 
Abstract:  We introduce and characterize a recursive model of dynamic choice that accommodates naiveté about present bias. The model incorporates costly selfcontrol in the sense of Gul and Pesendorfer (2001) to overcome the technical hurdles of the Strotz representation. The important novel condition is an axiom for naiveté. We first introduce appropriate definitions of absolute and comparative naiveté for a simple twoperiod model, and explore their implications for the costly selfcontrol model. We then extend this definition for infinitehorizon environments, and discuss some of the subtleties involved with the extension. Incorporating the definition of absolute naiveté as an axiom, we characterize a recursive representation of naive quasihyperbolic discounting with selfcontrol for an individual who is jointly overoptimistic about her presentbias factor and her ability to resist instant gratification. We study the implications of our proposed comparison of naiveté for the parameters of the recursive representation. Finally, we discuss the obstacles that preclude more general notions of naiveté, and illuminate the impossibility of a definition that simultaneously incorporates both random choice and costly selfcontrol. devices. 
Keywords:  Naive, Sophisticated, Selfcontrol, Quasihyperbolic discounting 
JEL:  D11 D91 
Date:  2017–08 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2099&r=mic 
By:  Anderson, Simon P; Peitz, Martin 
Abstract:  We customize the aggregative game approach to oligopoly to study media platforms which may differ by popularity. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are adfinanced and ads are a nuisance to consumers we establish seesaws between consumers and advertisers. Entry increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus tends to increase. By contrast, when platforms use twosided pricing or consumers like advertising, advertiser and consumer interests are often aligned. 
Keywords:  advertising; Aggregative games; Entry; Media economics; mergers 
JEL:  D43 L13 
Date:  2017–08 
URL:  http://d.repec.org/n?u=RePEc:cpr:ceprdp:12214&r=mic 
By:  McCarthy, David; Mikkola, Kalle; Thomas, Teruji 
Abstract:  We generalize Harsanyi's social aggregation theorem. We allow the population to be infinite, and merely assume that individual and social preferences are given by strongly independent preorders on a convex set of arbitrary dimension. Thus we assume neither completeness nor any form of continuity. Under Pareto indifference, the conclusion of Harsanyi's theorem nevertheless holds almost entirely unchanged when utility values are taken to be vectors in a product of lexicographic function spaces. The addition of weak or strong Pareto has essentially the same implications in the general case as it does in Harsanyi's original setting. 
Keywords:  Harsanyi's utilitarian theorem; discontinuous preferences; incomplete preferences; infinite populations 
JEL:  D60 D63 D81 
Date:  2017–08–16 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:80820&r=mic 
By:  Sokolovskyi, Dmytro 
Abstract:  The paper justifies the selection of formal conditions under which the rationalminded actors will tend to observe the implicit contract between them. Selfenforcing agreements are characterized by inappropriateness of arbitration support, primarily due to too high transaction costs of such support. It is an underdeveloped area of research of selfenforcing agreements does not operate categories of reputation directly. The question is: can there be such conditions for the relationship of agents, in which compliance with the agreement will be beneficial to both of them without them having a priori information? As the main method for research the problem selected the game theory. Is constructed the game model of subjects’ relationships and found the value of the payment functions for which there is Nash equilibrium in pure strategies “to comply with agreement“. It is shown, that above game simulate the relationship of agents, which can lead to a freerider problem in the theory of collective goods. That is the solution of this game is also a solution to the freerider problem, that demonstrate the dual tasks of selfenforcing agreements and the freerider problem in the allocation of collective goods. The novelty of the study results is to obtain an analytical expression for the automatic compliance with the agreement conditions by rationally acting cognitively perfect agents and formal proof of their adequacy. The ability to analyze the behavior of economic agents in matters of freeriding by simple formal tools of the game theory makes presented results useful from a practical point of view. 
Keywords:  contract theory; selfforced agreement; behavior of economic agents; game model; pure strategies; Nash equilibrium; freerider problem 
JEL:  C72 D01 D86 
Date:  2017–08–16 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:80818&r=mic 
By:  Berens, Stefan (Center for Mathematical Economics, Bielefeld University); Chochua, Lasha (Center for Mathematical Economics, Bielefeld University) 
Abstract:  This paper extends Harsanyi’s Impartial Observer Theorem by introducing Knightian Uncertainty in the form of individual belief systems. It features an axiomatic framework of societal decisionmaking in the presence of individual uncertainty. The model allows the analysis of scenarios where individuals agree on the ranking but not on the likelihood of social outcomes. The preferences of the impartial observer are represented by a weighted sum of utilities  each representing individual preferences with different belief systems. In order to incorporate common criticism of the framework of Harsanyi (1953), our approach is based on the generalized version by Grant et al. (2010). The belief systems are introduced as secondorder beliefs following Seo (2009). 
Keywords:  Impartial Observer, Uncertainty, Utilitarianism 
Date:  2017–08–10 
URL:  http://d.repec.org/n?u=RePEc:bie:wpaper:576&r=mic 
By:  Jonathan W. Leland; Mark Schneider 
Abstract:  A model of decision making is introduced that provides a unified approach for predicting choices under risk and over time. The model predicts systematic departures from expected utility and discounted utility using the same mathematical structure and the same psychological intuition and shows that a dozen diverse choice anomalies can be given a common underlying explanation. The model weights attribute differences both by their importance (consistent with expected utility and discounted utility) and by their salience or similarity (consistent with procedural models based on heuristics), and so provides a bridge between rational and heuristic representations of decision making. 
Keywords:  Framing Effects, Risk, Time, Ambiguity 
JEL:  D81 D91 
Date:  2017 
URL:  http://d.repec.org/n?u=RePEc:chu:wpaper:1716&r=mic 
By:  McCarthy, David; Mikkola, Kalle; Thomas, Teruji 
Abstract:  We show that without assuming completeness or continuity, a strongly independent preorder on a possibly infinite dimensional convex set can always be given a vectorvalued representation that naturally generalizes the standard expected utility representation. More precisely, it can be represented by a mixturepreserving function to a product of lexicographic function spaces. 
Keywords:  Expected utility; discontinuous preferences; incomplete preferences; lexicographic representations 
JEL:  D81 
Date:  2017–08–15 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:80806&r=mic 
By:  Anton Bondarev; Frank C. Krysiak (University of Basel) 
Abstract:  We consider an abstract setting of the di fferential r&d game, where participating firms are allowed for strategic behavior. We assume the information asymmetry across those fi rms and the government, which seeks to support newer technologies in a socially optimal manner. We develop a general theory of robust subsidies under such onesided uncertainty and establish results on relative optimality, duration and size of di fferent policy tools available to the government. It turns out that there might exist multiple sets of secondbest robust policies, but there always exist a naturally induced ordering across such sets, implying the optimal choice of a policy exists for the government under different uncertainty levels. 
Keywords:  technology lockin, technological change, strategic interaction, uncertainty, robust policy sets, uncertainty thresholds, robust welfare improving policy 
JEL:  C61 O31 O38 
Date:  2017 
URL:  http://d.repec.org/n?u=RePEc:bsl:wpaper:2017/14&r=mic 
By:  Levon Barseghyan; Stephen Coate 
Abstract:  This paper presents a dynamic political economy model of community development. In each period, a community invests in a local public good. The community can grow, with new housing supplied by competitive developers. To finance investment, the community can tax residents and issue debt. In each period, fiscal decisions are made by current residents. The community's initial wealth (the value of its stock of public good less its debt) determines how it develops. High initial wealth leads to rapid development. Low initial wealth leads to gradual development that is fueled by community wealth accumulation. Wealth accumulation arises from the desire to attract more households to share the costs of the public good. The long run size of the community can be too large or too small and development may proceed too slowly. Nonetheless, some development occurs and, at all times, public good provision is efficient. 
JEL:  H41 H7 H72 H74 
Date:  2017–08 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:23674&r=mic 
By:  Breitmoser, Yves; Valasek, Justin 
Abstract:  Existing theoretical and experimental studies have established that unanimity is a poor decision rule for promoting information aggregation. Despite this, unanimity is frequently used in committees making decisions on behalf of society. This paper shows that when committee members are exposed to "idiosyncratic" payoffs that condition on their individual vote, unanimity can facilitate truthful communication and optimal information aggregation. Theoretically, we show that since agents" votes are not always pivotal, majority rule suffers from a freerider problem. Unanimity mitigates freeriding since responsibility for the committee's decision is equally distributed across all agents. We test our predictions in a controlled laboratory experiment. As predicted, if unanimity is required, subjects are more truthful, respond more to others' messages, and are ultimately more likely to make the optimal decision. Idiosyncratic payoffs such as a moral bias thus present a rationale for the widespread use of unanimous voting. 
Keywords:  committees,incomplete information,decision rules,cheap talk,information aggregation,laboratory experiment 
JEL:  D71 D72 C90 
Date:  2017 
URL:  http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2017308&r=mic 
By:  Athanasios Andrikopoulos 
Abstract:  Szpilrajn's Lemma entails that each partial order extends to a linear order. Dushnik and Miller use Szpilrajn's Lemma to show that each partial order has a relizer. Since then, many authors utilize Szpilrajn's Theorem and the Wellordering principle to prove more general existence type theorems on extending binary relations. Nevertheless, we are often interested not only in the existence of extensions of a binary relation $R$ satisfying certain axioms of orderability, but in something more: (A) The conditions of the sets of alternatives and the properties which $R$ satisfies to be inherited when one passes to any member of a subfamily of the family of extensions of $R$ and: (B) The size of a family of ordering extensions of $R$, whose intersection is $R$, to be the smallest one. The key to addressing these kinds of problems is the szpilrajn inherited method. In this paper, we define the notion of $\Lambda(m)$consistency, where $m$ can reach the first infinite ordinal $\omega$, and we give two general inherited type theorems on extending binary relations, a Szpilrajn type and a DushnikMiller type theorem, which generalize all the well known existence and inherited type extension theorems in the literature. \keywords{Consistent binary relations, Extension theorems, Intersection of binary relations. 
Date:  2017–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1708.04711&r=mic 
By:  John E. Roemer (Dept. of Political Science & Cowles Foundation, Yale University) 
Abstract:  Humans cooperate a great deal in economic activity, but our two major models of equilibrium – Walrasian competitive in markets and Nash in games – portray us as only noncooperative. In earlier work, I have proposed a model of cooperative decision making (Kantian optimization); here, I embed Kantian optimization in general equilibrium models and show that ‘WalrasKant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and nontraditional firm ownership, which typically plague models where agents are Nash optimizers. In four examples, introducing Kantian optimization in one market – often the labor market – suffices to internalize externalities, generating Pareto efficient equilibria in their presence. The scope for efficient decentralization via markets appears to be significantly broadened with cooperative behavior. 
Keywords:  Kantian optimization, Cooperation, General equilibrium, Market socialism, Global emissions control, Workerowned firms, Externalities, Public goods 
JEL:  D50 D60 D62 D70 D91 E19 H21 H23 H41 
Date:  2017–08 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2098&r=mic 