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on Microeconomics |
| By: | Martimort, David; Semenov, Aggey; Stole, Lars |
| Abstract: | We characterize the complete set of equilibrium allocations to an intrinsic common agency screening game as the set of solutions to self-generating optimization programs. We provide a complete characterization of equilibrium outcomes for regular environments by relying on techniques developed elsewhere for aggregate games and for the mechanism design delegation literature. The set of equilibria include those with non-differentiable payoffs and discontinuous choices, as well as equilibria that are smooth and continuous in types. We identify one equilibrium, the maximal equilibrium, which is the unique solution to a self-generating optimization program with the largest (or “maximal”) domain, and the only equilibrium that is supported with bi-conjugate (i.e., least-concave) tariffs. The maximal equilibrium exhibits a n-fold distortion caused by each of the n principal’s non-cooperative behavior in over- harvesting the agent’s information rent. Furthermore, in any equilibrium, over any interval of types in which there is full separation, the agent’s equilibrium action corresponds to the allocation in the maximal equilibrium. Under mild conditions, the maximal equilibrium maximizes the agent’s information rent within the class of equilibrium allocations. When the principals’ most-preferred equilibrium allocation differs from the maximal equilibrium, we demonstrate that the agent’s choice function exhibits an interval of bunching over the worst agent types, and elsewhere corresponds with the maximal allocation. The optimal region of bunching trades off the principals’ desire to constrain inefficient n-fold marginalizations of the agent’s rent against the inefficiency of pooling agent types. |
| Keywords: | Intrinsic common agency, aggregate games, mechanism design for delegated decision-making, duality, equilibrium selection. |
| JEL: | D82 D86 |
| Date: | 2017–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80870&r=mic |
| By: | James Costain (Banco de España) |
| Abstract: | This paper models a near-rational agent who chooses from a set of feasible alternatives, subject to a cost function for precise decision-making. Unlike previous papers in the «control costs» tradition, here the cost of decisions is explicitly interpreted in terms of time. That is, by choosing more slowly, the decision-maker can achieve greater accuracy. Moreover, the timing of the choice is itself also treated as a costly decision. A trade off between the precision and the speed of choice becomes especially interesting in a strategic situation, where each decision maker must react to the choices of others. Here, the model of costly choice is applied to a sequential bargaining game. The game closely resembles that of Perry and Reny (1993), in which making an offer, or reacting to an offer, requires a positive amount of time. But whereas Perry and Reny treat the decision time as an exogenous fixed cost, here we allow the decision-maker to vary precision by choosing more or less quickly, thus endogenizing the order and timing of offers and responses in the game. Numerical simulations of bargaining equilibria closely resemble those of the Binmore, Rubinstein, and Wolinsky (1983) framework, except that the time to reach agreement is nonzero and offers are sometimes rejected. In contrast to the model of Perry and Reny, our numerical results indicate that equilibrium is unique when the space of possible offers is sufficiently finely spaced. |
| Keywords: | C72, C78, D81 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1729&r=mic |
| By: | Garrett, Daniel F. |
| Abstract: | We study the optimal mechanism in a dynamic sales relationship where the buyerís arrival date is uncertain, and where his value changes stochastically over time. The buyerís arrival date is the Örst date at which contracting is feasible and is his private information. To induce immediate participation, the buyer is granted positive expected rents even if his value at arrival is the lowest possible. The buyer is punished for arriving late; i.e., he expects to earn less of the surplus. Optimal allocations for a late arriver are also further distorted below Örst-best levels. Conditions are provided under which allocations converge to the e¢ cient ones long enough after contracting, and this convergence occurs irrespective of the time the contract is initially agreed (put di§erently, the so-called "principle of vanishing distortions" introduced by Battaglini (2005) continues to apply irrespective of the buyerís arrival date). |
| Keywords: | dynamic mechanism design;dynamic arrivals;stochastic process |
| JEL: | D82 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31911&r=mic |
| By: | Chi, Chang Koo; Murto, Pauli; Valimaki, Juuso |
| Abstract: | This paper analyzes all-pay auctions where the bidders have affiliated values for the object for sale and where the signals take binary values. Since signals are correlated, high signals indicate a high degree of competition in the auction and since even losing bidders must pay their bid, non-monotonic equilibria arise. We show that the game has a unique symmetric equilibrium, and that whenever the equilibrium is non-monotonic the contestants earn no rents. All-pay auctions result in low expected rents to the bidders, but also induce inefficient allocations in models with affiliated private values. With two bidders, the effect on rent extraction dominates, and all-pay auction outperforms standard auctions in terms of expected revenue. With many bidders, this revenue ranking is reversed for some parameter values and the inefficient allocations persist even in large auctions. |
| Keywords: | All-Pay Auctions, Affiliated Signals, Common Values |
| JEL: | D44 D82 |
| Date: | 2017–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80799&r=mic |
| By: | Chi, Chang Koo; Choi, Kyoung Jin |
| Abstract: | Recent studies conclude that small firms have higher but more variable growth rates than large firms. To explore how this empirical regularity affects moral hazard and investment, we develop an agency model with a firm size process having two features: the drift is controlled by the agent's effort and the principal's investment decision, and the volatility is proportional to the square root of size. The firm improves on production efficiency as it grows, and wages are back-loaded when size is small but front-loaded when it is large. Furthermore, there is underinvestment in a small firm but overinvestment in a large firm. |
| Keywords: | Time-Varying Firm Size, Size-Dependence Regularity, Firm Size Effect, Dynamic Moral Hazard, Investment |
| JEL: | D82 D86 D92 |
| Date: | 2016–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80867&r=mic |
| By: | Christoph Aymanns; Jakob Foerster; Co-Pierre Georg |
| Abstract: | We model the spread of news as a social learning game on a network. Agents can either endorse or oppose a claim made in a piece of news, which itself may be either true or false. Agents base their decision on a private signal and their neighbors' past actions. Given these inputs, agents follow strategies derived via multi-agent deep reinforcement learning and receive utility from acting in accordance with the veracity of claims. Our framework yields strategies with agent utility close to a theoretical, Bayes optimal benchmark, while remaining flexible to model re-specification. Optimized strategies allow agents to correctly identify most false claims, when all agents receive unbiased private signals. However, an adversary's attempt to spread fake news by targeting a subset of agents with a biased private signal can be successful. Even more so when the adversary has information about agents' network position or private signal. When agents are aware of the presence of an adversary they re-optimize their strategies in the training stage and the adversary's attack is less effective. Hence, exposing agents to the possibility of fake news can be an effective way to curtail the spread of fake news in social networks. Our results also highlight that information about the users' private beliefs and their social network structure can be extremely valuable to adversaries and should be well protected. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1708.06233&r=mic |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou |
| Abstract: | The concept of ambiguity with respect to decision making about climate change has recently attracted a lot of research interest. The standard approach for introducing ambiguity into this framework is to assume that the decision maker (DM) exhibits ambiguity aversion, with the latter being represented by axioms on DMs preferences different than Savageâ��s (sure-thing principle). As a result, DM is deprived of the property of probabilistic sophistication, since she is faced with either multiple prior probability functions, or a single but incoherent one (capacity). This paper approaches the issue of ambiguity with respect to climate change from a different perspective. In particular, we assume that ambiguity does exists but it does not affect the formation of DMs prior probability function. Instead, it a�¤ects the formation of her posterior probability function. Specifically, we assume that there are n experts, who supply DM with probabilistic input. Hence, although DM has a well defined prior (formed before any expert information on objective probabilities has arrived), she cannot decide which piece of information should conditionalize upon (defer to). We refer to this type of ambiguity as "deferential ambiguity" and show that it affects both DM and the experts. We also introduce a second type of ambiguity, which is solely born by the experts. This type of ambiguity stems from the experts potential inability to discern DMs preferences. This ambiguity is referred to as "preferential ambiguity" in the paper. The main objective of the paper is to analyze the possible interactions between the two types of ambiguity mentioned above and to assess their impact on the probabilistic properties (in particular, tail risks) of environmental-policy variables. |
| Keywords: | decision making on climate change, ambiguity, deep uncertainty, Savage�s sure-thing principle, deferential ambiguity, preferential ambiguity, tail risks of environmental-policy variables. |
| JEL: | D8 D80 D81 D83 D |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1703&r=mic |
| By: | Geoffrey Heal |
| Abstract: | I extend the classical general equilibrium treatment of uncertainty about exogenous states of nature to uncertainty about prices. Traders do not know the prices at which markets will clear but have expectations over possible prices. They trade price-contingent securities (derivatives) to insure against the risks arising from this uncertainty. I establish four results. One is set of conditions that are necessary and sufficient for the existence of equilibrium (called an equilibrium with price insurance) in this framework. A second is that equilibria with price insurance are Pareto efficient. I give conditions under which agents are fully insured at an equilibrium. Finally I show that agents' price expectations matter in the sense that they affect the equilibrium allocation of resources, and that the existence of price-contingent securities alters the equilibrium of the underlying real economy. |
| JEL: | D5 D53 G13 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23723&r=mic |
| By: | Jonathan B. Berk; Jules H. van Binsbergen |
| Abstract: | We model a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome. We use this model to evaluate the standards and disclosure requirements that exist in these markets. We show that reducing the number of charlatans through regulation decreases consumer surplus. Although both standards and disclosure drive charlatans out of the market, consumers are worse off because of the resulting reduction in competition amongst producers. Producers, on the other hand, strictly benefit from the regulation, implying that the regulation we observe in these markets likely derives from producer interests. Using these insights, we study the factors that drive the cross-sectional variation in charlatans across professions. Professions with weak trade groups, skills in larger supply, shorter training periods and less informative signals regarding the professional's skill, are more likely to feature charlatans. |
| JEL: | D11 D18 G18 K2 K22 K23 L51 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23696&r=mic |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1702&r=mic |