nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒10‒08
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Partially-honest Nash implementation : a full characterization By Michele Lombardi; Naoki Yoshihara
  2. The Optimal Design of Round-Robin Tournaments with Three Players By Krumer, Alex; Megidish, Reut; Sela, Aner
  3. A Note on the Multi-Agent Contracts in Continuous Time By Qi Luo; Romesh Saigal
  4. Freemium as Optimal Menu Pricing By Sato, Susumu
  5. Securing Basic Well-being for All By Reiko Gotoh; Naoki Yoshihara
  6. A characterization of single-peaked preferences via random social choice functions By Chatterji, Shurojit; Sen, Arunava; Zeng, Huaxia
  7. Word of Mouth Communication and Search By Campbell, Arthur; Leister, Matthew; Zenou, Yves
  8. Robust Bidding in First-Price Auctions: How to Bid without Knowing what Otheres are Doing By Bernhard Kasberger; Karl H. Schlag
  9. Emotions in Civil Litigation By Ben Chen; Jose A. Rodrigues Neto
  10. Finite Horizon Holdup and How to Cross the River By Simon Martin; Karl H. Schlag
  11. Signaling to Experts By Kurlat, Pablo; Scheuer, Florian
  12. The Relationship between R&D and Competition: Reconciling Theory and Evidence By Nikolay Chernyshev
  13. Optimal search from multiple distributions with infinite horizon By Jean-Michel Benkert; Igor Letina; Georg Nöldeke
  14. An intertemporal model of growing awareness By Marie-Louise Viero
  15. Directed Search: A Guided Tour By Guerrieri, Veronica; Julien, Benoit; Kircher, Philipp; Wright, Randall

  1. By: Michele Lombardi (Adam Smith Business School, University of Glasgow); Naoki Yoshihara (Department of Economics, University of Massachusetts Amherst)
    Abstract: A partially-honest individual is a person who follows the maxim, "Do not lie if you do not have to" to serve your material interest. By assuming that the mechanism designer knows that there is at least one partially-honest individual in a society of more than 3 individuals, a social choice rule (SCR) that can be Nash implemented is termed partially-honestly Nash implementable. The paper offers a complete characterization of the n-person SCRs that are partially-honestly Nash implementable. It establishes a condition which is both necessary and sufficient for the partially-honest Nash implementation. If all individuals are partially-honest, then all SCRs that satisfy the property of unanimity are partially-honestly Nash implementable. The partially-honest Nash implementation of SCRs is examined in a variety of environments.
    Keywords: Nash implementation, pure strategy Nash equilibrium, partial-honesty, Condition mu^*
    JEL: C72 D71
    Date: 2017
  2. By: Krumer, Alex; Megidish, Reut; Sela, Aner
    Abstract: We study the optimal design of round-robin tournaments with three symmetric players. We characterize the subgame perfect equilibrium in these tournaments with either one or two prizes. Our results show that the players who wish to maximize their expected payoffs or their probabilities of winning have different preferences about the order of games under tournaments with one or two prizes. We analyze the optimal allocations of players for a designer who wishes to maximize the players' expected total effort in the tournaments with one and two prizes, and by comparing between them, it is demonstrated that in order to maximize the players' expected total effort the designer should allocate only one prize.
    Keywords: Multi-stage contests, all-pay auctions, first-mover advantage, second-mover advantage, round-robin tournaments
    JEL: D00 L00 D20 D44 O31
    Date: 2017–09
  3. By: Qi Luo; Romesh Saigal
    Abstract: Dynamic contracts with multiple agents is a classical decentralized decision-making problem with asymmetric information. In this paper, we extend the single-agent dynamic incentive contract model in continuous-time to a multi-agent scheme in finite horizon and allow the terminal reward to be dependent on the history of actions and incentives. We first derive a set of sufficient conditions for the existence of optimal contracts in the most general setting and conditions under which they form a Nash equilibrium. Then we show that the principal's problem can be converted to solving Hamilton-Jacobi-Bellman (HJB) equation requiring a static Nash equilibrium. Finally, we provide a framework to solve this problem by solving partial differential equations (PDE) derived from backward stochastic differential equations (BSDE).
    Date: 2017–10
  4. By: Sato, Susumu
    Abstract: In online contents markets, content providers collect revenues from both consumers and advertisers by segmenting consumers who are willing to avoid advertisements and who are not. To analyze such situations, I construct a model of menu pricing by advertising platforms in two-sided markets. I find that, under certain condition, although a monopolistic platform can choose any menu of price-advertisement pairs, the optimal menu consists of only two services: ad-supported basic service and ad-free premium service. In addition, if the willingness to pay of advertisers is sufficiently high, the basic service is offered for free. This menu pricing is well known as freemium. Furthermore, this binary structure remains to hold an equilibrium menu pricing even under duopoly.
    Keywords: Freemium, menu pricing, two-sided markets
    JEL: D42 D43 D85 L86 M21 M37
    Date: 2017–09–22
  5. By: Reiko Gotoh (Institute of Economic Research, Hitotsubashi University); Naoki Yoshihara (Department of Economics, University of Massachusetts Amherst)
    Abstract: The purpose of this paper is to examine the possibility of a social choice rule to implement a social policy for securing basic well-being for all. The paper introduces a new scheme of social choice, called a social relation function (SRF), which associates a reflexive and transitive binary relation over a set of social policies to each profile of individual well-being appraisals and each profile of group evaluations. As part of the domains of SRFs, the available class of group evaluations is constrained by three conditions. Furthermore, the non-negative response (NR) and the weak Pareto condition (WP) are introduced. NR demands giving priority to group evaluation, while treating the groups as formally equal relative to each other. WP requires treating impartially the well-being appraisals of all individuals. In conclusion, this paper shows that under some reasonable assumptions, there exists an SRF that satisfies NR and WP.
    Keywords: basic well-being; individual well-being appraisals; social rela- tion functions.
    JEL: D63
    Date: 2017
  6. By: Chatterji, Shurojit (School of Economics, Singapore Management University); Sen, Arunava (Indian Statistical Institute); Zeng, Huaxia (School of Economics, Singapore Management University)
    Abstract: This paper proves the following result: every path-connected domain of preferences that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a compromise property is single-peaked. Conversely, every single-peaked domain admits a random social choice function satisfying these properties. Single-peakedness is defined with respect to arbitrary trees. The paper provides a justification of the salience of single-peaked preferences and evidence in favor of the Gul conjecture (Barberà 2010).
    Keywords: Random social choice functions; strategy-proofness; compromise; single-peaked preferences.
    JEL: D71
    Date: 2016–05–01
  7. By: Campbell, Arthur; Leister, Matthew; Zenou, Yves
    Abstract: In many economic contexts, the most credible source of information about the quality of products is one's friends. In this paper, we develop a word-of-mouth model of search for an experience good where the quality is unknown. We find the characteristics of the social net-work that result in exclusively low quality, a mixture of qualities and exclusively high-quality products. When consumer search is costly, an exclusively high-quality equilibrium is not possible. Moreover, markets may become stuck in a low-quality equilibrium when equilibria with better quality are possible. Market inefficiencies are characterized by an under-investment in friends and a market's misallocation of low-quality firms.
    Keywords: giant component; inefficiencies; search; Social Networks
    JEL: D83 D85 L15
    Date: 2017–09
  8. By: Bernhard Kasberger; Karl H. Schlag
    Abstract: Bidding optimally in first-price auctions is complicated. In the classical equilibrium framework, optimal bidding relies on detailed beliefs about other bidders' value distributions and bidding functions. This article shows how to and a robust bidding rule that does well with minimal information and thus achieves good performance in many situations. Robust bidding means to minimize the maximal difference between the payoff and the payo that could be achieved if one knew the other bidders' value distributions and bidding functions. We derive robust bidding rules under di erent scenarios, including complete uncertainty. Our bid recommendations are evaluated with experimental data.
    JEL: C72 D44 D81
    Date: 2017–09
  9. By: Ben Chen; Jose A. Rodrigues Neto
    Abstract: In a civil-litigation game, monetary and emotional variables motivate a plaintiff and a defendant simultaneously to exert costly efforts; the emotional variables capture their relational emotions toward each other, and a non-monetary joy of winning. Based on the litigants’ efforts and exogenous relative advantages, a generally-formulated success function gives their probabilities of success. A cost-shifting rule shifts a proportion of the winner’s costs to the loser. In equilibrium, negative relational emotions (but not positive joy of winning) amplify the effects of cost shifting. Negative relational emotions increase the equilibrium relative effort and probability of success of the more advantageous litigant.
    Keywords: relative payoffs, non-monetary joy of winning, interdependent preferences, litigation, contest theory
    JEL: C72 C79 D91 K41
    Date: 2017–10
  10. By: Simon Martin; Karl H. Schlag
    Abstract: When should one pay the ferryman? When should one pay for delivery of a good if there are no institutions or these are too costly to enforce contracts? We suggest to break up the transaction into many small rounds of investment and payment. We show that the e?cient investment can be implemented in an e-subgame perfect equilibrium for any given e if there are su?ciently many rounds of investment. This shows that when the horizon is ?nite, the holdup problem that emerges from backwards induction is not robust. Equilibria with stable and robust strategies require more periods.
    JEL: D23 C72 L14
    Date: 2017–09
  11. By: Kurlat, Pablo; Scheuer, Florian
    Abstract: We study competitive equilibrium in a signaling economy with heterogeneously informed buyers. In terms of the classic Spence (1973) model of job market signaling, firms have access to direct but imperfect information about worker types, in addition to observing their education. Firms can be ranked according to the quality of their information, i.e. their expertise. In equilibrium, some high type workers forgo signaling and are hired by better informed firms, who make positive profits. Workers' education decisions and firms' use of their expertise are strategic complements, allowing for multiple equilibria. We characterize wage dispersion and the extent of signaling as a function of the distribution of expertise among firms. The market can create insufficient or excessive incentives for firms to acquire information, and we provide a formula to measure this inefficiency. Our model can also be applied to a variety of other signaling problems, including securitization, corporate financial structure, insurance markets, or dividend policy.
    Date: 2017–09
  12. By: Nikolay Chernyshev (University of St Andrews)
    Abstract: The hypothesis of a hump-shaped relationship between innovation and competition due to Aghion, Bloom, Blundell, Griffith, and Howitt (2005), has been tested for different data sets without garnering conclusive support. In this paper we argue that this lack of agreement is because of a difference in approaches to measuring innovation (either in terms of R&D outcomes or by R&D effort). We develop a unified tractable general-equilibrium framework, in which, while R&D outcomes are a hump-shaped function of competition, R&D effort can be observed to be either increasing, decreasing, or hump-shaped. This enables our paper, first, to reconcile the conclusions by Aghion et al. (2005) with more recent results and, second, to inform further attempts to identify the hump-shaped relationship in data.
    Keywords: Inverted-U (hump-shaped) relationship, research and development, vertical innovation, Cournot-competition
    JEL: L13 O31 O41
    Date: 2017–09–27
  13. By: Jean-Michel Benkert; Igor Letina; Georg Nöldeke
    Abstract: With infinite horizon, optimal rules for sequential search from a known distribution feature a constant reservation value that is independent of whether recall of past options is possible. We extend this result to the the case when there are multiple distributions to choose from: it is optimal to sample from the same distribution in every period and to continue searching until a constant reservation value is reached.
    Keywords: Optimal search, search intensity, infinite horizon, recall
    JEL: D83
    Date: 2017–09
  14. By: Marie-Louise Viero (Queen's University)
    Abstract: This paper presents an intertemporal model of growing awareness. It provides a framework for analyzing problems with long time horizons in the presence of growing awareness and awareness of unawareness. The framework generalizes both the standard event-tree framework and the framework from Karni and Viero (2017) of awareness of unawareness. Axioms and a representation are provided along with a recursive formulation of intertemporal utility. This allows for tractable and consistent analysis of intertemporal problems with unawareness.
    Keywords: Awareness, Unawareness, Intertemporal Utility, Recursive Utility, Reverse Bayesianism
    JEL: D8 D81 D83 D9
    Date: 2017–09
  15. By: Guerrieri, Veronica; Julien, Benoit; Kircher, Philipp; Wright, Randall
    Abstract: This essay surveys the literature on directed/competitive search, covering theory and applications in, e.g., labor, housing and monetary economics. These models share features with traditional search theory, yet differ in important ways. They share features with general equilibrium theory, but with explicit frictions. Equilibria are typically efficient, in part because markets price goods plus the time required to get them. The approach is tractable and arguably realistic. Results are presented for finite and large economies. Private information and sorting with heterogeneity are analyzed. Some evidence is discussed. While emphasizing issues and applications, we also provide several hard-to-find technical results.
    Keywords: competitive search; directed search; job search; survey; Wage setting
    JEL: J3 J64
    Date: 2017–09

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