nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒08‒20
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Selling to Intermediaries: Optimal Auction Design in a Common Value Model By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Behavioral Characterizations of Naiveté for Time-Inconsistent Preferences By David S. Ahn; Ryota Iijima; Todd Sarver
  3. Media See-saws: Winners and Losers in Platform Markets By Anderson, Simon P; Peitz, Martin
  4. Aggregation for general populations without continuity or completeness By McCarthy, David; Mikkola, Kalle; Thomas, Teruji
  5. Gaming modeling of self-enforcing agreements and free-rider problem By Sokolovskyi, Dmytro
  6. The impartial observer under uncertainty By Berens, Stefan; Chochua, Lasha
  7. Risk Preference, Time Preference, and Salience Perception By Jonathan W. Leland; Mark Schneider
  8. Representation of strongly independent preorders by vector-valued functions By McCarthy, David; Mikkola, Kalle; Thomas, Teruji
  9. Robust policy schemes for R&D games with asymmetric information By Anton Bondarev; Frank C. Krysiak
  10. On the Dynamics of Community Development By Levon Barseghyan; Stephen Coate
  11. A rationale for unanimity in committees By Breitmoser, Yves; Valasek, Justin
  12. Generalizations of Szpilrajn's Theorem in economic and game theories By Athanasios Andrikopoulos
  13. Embedding Cooperation in General-equilibrium Models By John E. Roemer

  1. 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 multi-agent screening problems.
    Keywords: Optimal auction, Intermediaries, Posted price, Guaranteed demand auction, Common values, Revenue maximization, Revenue equivalence, First-price auction, Second-price auction, Resale, Maximum value game, Descending auction, Local incentive constraints, Global incentive constraints
    JEL: C72 D44 D82 D83
    Date: 2016–12
  2. 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 self-control 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 two-period model, and explore their implications for the costly self-control model. We then extend this definition for infinite-horizon 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 quasi-hyperbolic discounting with self-control for an individual who is jointly overoptimistic about her present-bias 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 self-control. devices.
    Keywords: Naive, Sophisticated, Self-control, Quasi-hyperbolic discounting
    JEL: D11 D91
    Date: 2017–08
  3. 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 ad-financed and ads are a nuisance to consumers we establish see-saws 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 two-sided 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
  4. 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
  5. By: Sokolovskyi, Dmytro
    Abstract: The paper justifies the selection of formal conditions under which the rational-minded actors will tend to observe the implicit contract between them. Self-enforcing 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 self-enforcing 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 free-rider problem in the theory of collective goods. That is the solution of this game is also a solution to the free-rider problem, that demonstrate the dual tasks of self-enforcing agreements and the free-rider 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 free-riding by simple formal tools of the game theory makes presented results useful from a practical point of view.
    Keywords: contract theory; self-forced agreement; behavior of economic agents; game model; pure strategies; Nash equilibrium; free-rider problem
    JEL: C72 D01 D86
    Date: 2017–08–16
  6. 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 decision-making 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 second-order beliefs following Seo (2009).
    Keywords: Impartial Observer, Uncertainty, Utilitarianism
    Date: 2017–08–10
  7. 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
  8. 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 vector-valued representation that naturally generalizes the standard expected utility representation. More precisely, it can be represented by a mixture-preserving function to a product of lexicographic function spaces.
    Keywords: Expected utility; discontinuous preferences; incomplete preferences; lexicographic representations
    JEL: D81
    Date: 2017–08–15
  9. 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 one-sided 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 second-best 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 lock-in, technological change, strategic interaction, uncertainty, robust policy sets, uncertainty thresholds, robust welfare improving policy
    JEL: C61 O31 O38
    Date: 2017
  10. 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
  11. 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 free-rider problem. Unanimity mitigates free-riding 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
  12. 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 Well-ordering 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 Dushnik-Miller 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
  13. 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 non-cooperative. 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 ‘Walras-Kant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and non-traditional 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, Worker-owned firms, Externalities, Public goods
    JEL: D50 D60 D62 D70 D91 E19 H21 H23 H41
    Date: 2017–08

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