nep-mic New Economics Papers
on Microeconomics
Issue of 2017‒12‒03
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Resisting Persuasion By Elias Tsakas; Nikolas Tsakas; Dimitrios Xefteris
  2. Belief-Free Rationalizability and Informational Robustness By Dirk Bergemann; Stephen Morris
  3. Sequential round-robin tournaments with multiple prizes By Laica, Christoph; Lauber, Arne; Sahm, Marco
  4. Strategic advance sales, demand uncertainty and overcommitment By Sebastien Mitraille; Henry Thille
  5. Coordination on Networks By Leister, Matthew; Zenou, Yves; Zhou, Junjie
  6. Ambiguity Aversion, Modern Bayesianism and Small Worlds By Phoebe Koundouri; Nikitas Pittis; Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou
  7. Costly Information Intermediation as a Natural Monopoly By Pinheiro, Roberto; Monte, Daniel
  8. Random Mechanism Design on Multidimensional Domains By Chatterji, Shurojit; Zeng, Huaxia
  9. Social Capital, Communication Channels and Opinion Formation By Christos Mavridis; Nikolas Tsakas
  10. Supply Function Equilibria and Nonprofit-Maximizing Objectives By Haraguchi, Junichi; Yasui, Yuta
  11. The Survival and Demise of the State: A Dynamic Theory of Secessions By Esteban, Joan; Flamand, Sabine; Morelli, Massimo; Rohner, Dominic
  12. INFORMATION IN TULLOCK CONTESTS By A. Aiche; Ezra Einy; Aner Sela; Ori Haimanko; Diego Moreno; B. Shitovitz
  13. Marketing Agencies and Collusive Bidding in Online Ad Auctions By Francesco Decarolis; Maris Goldmanis; Antonio Penta
  14. A Model of Focusing in Political Choice By Nunnari, Salvatore; Zapal, Jan
  15. Strategy-proof Rules on Partially Single-peaked Domains By Achuthankutty, Gopakumar; Roy, Souvik
  16. Agency, firm growth, and managerial turnover By Anderson, Ronald W.; Bustamante, Maria Cecilia; Guibaud, Stéphane; Zervos, Mihail
  17. Property Rights in Sequential Exchange By Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
  18. Partial Privatization under Multimarket Price Competition By Masuda, Taku; Sato, Susumu
  19. Optimal Voting Rules under Participation Constraints By Antonin Macé; Rafael Treibich
  20. Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing By Bruno Biais; Johan Hombert; Pierre-Olivier Weill

  1. By: Elias Tsakas; Nikolas Tsakas; Dimitrios Xefteris
    Abstract: Agents that are subject to persuasion attempts often employ strategies that allow them to effectively resist. In the context of Bayesian Persuasion (Kamenica and Gentzkow, 2011), we argue that if appropriate action-contingent payoff adjustments are available to the subject of persuasion, then payoff improvements are achieved. Remarkably, payoff-improving resistance strategies need not involve adding benefits to any action. We characterize the optimal resistance strategy when only costly payoff adjustments are allowed and we show that it induces a perfectly informative signal and a substantial increase in the agent’s welfare.
    Keywords: Bayesian persuasion; Resistance; Uncertainty; Public commitment
    JEL: D72 D82 D83 K40 M38
    Date: 2017–11
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: Given a game with uncertain payoffs, information design analyzes the extent to which the provision of information alone can influence the behavior of the players. Information design has a literal interpretation, under which there is a real information designer who can commit to the choice of the best information structure (from her perspective) for a set of participants in a game. We emphasize a metaphorical interpretation, under which the information design problem is used by the analyst to characterize play in the game under many different information structures. We provide an introduction into the basic issues and insights of a rapidly growing literature in information design. We show how the literal and metaphorical interpretations of information design unify a large body of existing work, including that on communication in games (Myerson (1991)), Bayesian persuasion (Kamenica and Gentzkow (2011)) and some of our own recent work on robust predictions in games of incomplete information.
    Keywords: Information design, Bayesian persuasion, correlated equilibrium, incomplete information, robust predictions, information structure
    JEL: C72 D82 D83
    Date: 2017–03
  3. By: Laica, Christoph; Lauber, Arne; Sahm, Marco
    Abstract: We examine the fairness and intensity of sequential round-robin tournaments with multiple prizes. With three symmetric players and two prizes, the tournament is completely fair if and only if the second prize is valued half of the first prize, regardless of whether matches are organized as Tullock contests or as allpay auctions. For second prizes different from half of the first prize, three-player tournaments with matches organized as Tullock contests are usually fairer than tournaments with matches organized as all-pay auctions. However, unless the second prize is very small, they are less intense in the sense that players exert less ex-ante expected aggregate effort per unit of prize money. Moreover, we specify how the relative size of the second prize influences the extent and the direction of discrimination as well as the intensity of three-player tournaments. Finally, we show that there is no prize structure for which sequential round-robin tournaments with four symmetric players are completely fair in general.
    Keywords: Round-Robin Tournament,Multiple Prizes,Fairness,Intensity,Tullock Contest,All-Pay Auction
    JEL: C72 D72
    Date: 2017
  4. By: Sebastien Mitraille (Toulouse Business School); Henry Thille (Department of Economics and Finance, University of Guelph, Guelph ON Canada)
    Abstract: We study a game in which producers can sell in two periods: one before a random demand is fully revealed and one after. This type of game corresponds to models of strategic forward trading or of advance sales to intermediaries or consumers. Demand variations and committed advance sales results in the possibility that the net residual demand in the final stage may be so low that it is not profitable for producers make additional sales, or indeed, may even drive the final period price to zero, introducing some convexity into producers’ payoffs. If this possibility of ex post overcommitment occurs on the equilibrium path, it reduces the level of advance sales chosen by producers, muting the pro-competitive effects found under deterministic demand. We establish a condition that determines whether or not demand uncertainty is “minor”, in the sense that the equilibrium depends only on the expected value of the demand shock. In addition, we demonstrate that when the support of demand shocks is narrow enough compared to the marginal cost of production, there exists a unique symmetric subgame-perfect equilibrium in pure strategies. When the support of demand shocks is wider, we establish a regularity condition on the distribution of demand shocks and the model parameters that ensures the existence of a unique equilibrium in pure strategies. We illustrate through examples that commonly used uni-modal distributions satisfy this condition, while bi-model distributions may not.
    Keywords: Oligopoly, advance sales, uncertainty, overcommitment
    JEL: C72 D43 L13
    Date: 2017
  5. By: Leister, Matthew; Zenou, Yves; Zhou, Junjie
    Abstract: We study a coordination game among agents on a network, choosing whether or not to take an action that yields value increasing in the actions of neighbors. In a standard global game setting, players receive noisy information of the technology's common state-dependent value. We show the existence and uniqueness of a pure equilibrium in the noiseless limit. This equilibrium partitions players into coordination sets, within members take a common cutoff strategy and are path connected. We derive an algorithm for calculating limiting cutoffs, and provide necessary and sufficient conditions for agents to inhabit the same coordination set. The strategic effects of perturbations to players' underlining values are shown to spread throughout but be contained within the perturbed players' coordination sets.
    Keywords: coordination; global games; network partition; welfare.
    JEL: C72 D85 Z13
    Date: 2017–10
  6. By: Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Nikolaos Englezos; Andreas Papandreou
    Date: 2017–11
  7. By: Pinheiro, Roberto (Federal Reserve Bank of Cleveland); Monte, Daniel (São Paulo School of Economics, FGV)
    Abstract: In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different competitive environments. In equilibrium, both pricing and competitive schemes affect the direct and indirect costs of information transmission, represented by directed fees paid by consumers and the expected loss due to imperfect information, respectively.
    Keywords: Information; pricing; monopoly;
    JEL: D83 D85
    Date: 2017–11–16
  8. By: Chatterji, Shurojit (School of Economics, Singapore Management University); Zeng, Huaxia (Lingnan College, Sun Yat-Sen University)
    Abstract: We study random mechanism design in an environment where the set of alternatives has a Cartesian product structure. We first show that all generalized random dictatorships are strategy-proof on a minimally rich domain if and only if the domain is a top-separable domain. We next generalize the notion of connectedness (Monjardet, 2009) to establish a particular class of top-separable domains: connected domains, and show that in the class of minimally rich and connected domains, the multidimensional single-peakedness restriction is necessary and sufficient for the design of a flexible random social choice function that is unanimous and strategy-proof. Such a fl exible function is distinct from generalized random dictatorships in that it allows for a systematic notion of compromise. Our characterization remains valid (under an additional hypothesis) for a problem of voting with constraints where not all alternatives are feasible (Barbera et al., 1997).
    Keywords: Generalized random dictatorships; Top-separable domains; Connected domains; Multidimensional single-peaked domains; Constrained voting.
    JEL: D71
    Date: 2017–10–24
  9. By: Christos Mavridis; Nikolas Tsakas
    Abstract: We study how different forms of social capital lead to different distributions of multidimensional opinions by affecting the channels through which individuals communicate. We develop a model to compare and contrast the evolution of opinions between societies whose members communicate through bonding associations and societies where communication is through bridging associations. Both processes converge towards opinion distributions where there are groups within which there is consensus in all issues. Bridging processes converge to distributions that have, on average, fewer opinion groups and lower fractionalisation. We provide additional results that highlight the distinct characteristics of the two processes.
    Keywords: Social Capital; Opinion Formation; Bounded Confidence; Bonding versus Bridging Associations
    JEL: D71 D83 P16 Z1
    Date: 2017–11
  10. By: Haraguchi, Junichi; Yasui, Yuta
    Abstract: We examine the supply function equilibrium (SFE), which is often used in the analysis of multi-unit auctions such as wholesale electricity markets, among (partially) public firms. In a general model, we characterize the SFE of such firms and examine the properties of symmetric SFE. We show, analyzing an asymmetric SFE in a duopoly model with linear demand and quadratic cost functions, that, when a partially public firm weighs more on the social welfare, the supply functions of not only the partially public firm but also a profit maximizing firm are flatter at the equilibrium. We also confirm that in a linear-quadratic model, the SFE converges to the (inverse) marginal cost function when the firms' social concerns increase symmetrically in the industry.
    Keywords: supply function equilibrium, electricity markets, partial privatization, corporate social responsibility, mixed oligopoly
    JEL: H42 L13 L33
    Date: 2017–11–03
  11. By: Esteban, Joan; Flamand, Sabine; Morelli, Massimo; Rohner, Dominic
    Abstract: This paper describes the repeated interaction between groups in a country as a repeated Stackelberg bargaining game, where conflict and secessions can happen on the equilibrium path due to commitment problems. If a group out of power is sufficiently small and their contribution to total surplus is not too large, then the group in power can always maintain peace with an agreeable surplus sharing offer every period. When there is a mismatch between relative size and relative surplus contribution of the minority group, conflict can occur. While in the static model secession can occur only as peaceful outcome, in the infinite horizon game with high discount factor conflict followed by secession can occur. We discuss our full characterization of equilibrium outcomes in light of the available empirical evidence.
    Keywords: conflict; Dynamic Game; Secession; Separatism
    JEL: C73 D74 H77
    Date: 2017–10
  12. By: A. Aiche (Department of Economics, University of Haifa.); Ezra Einy (BGU); Aner Sela (BGU); Ori Haimanko (BGU); Diego Moreno (Departamento de Economia, Universidad Carlos III de Madrid); B. Shitovitz (BGU)
    JEL: C72 D44 D82
    Date: 2017
  13. By: Francesco Decarolis; Maris Goldmanis; Antonio Penta
    Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.
    JEL: C72 D44 L81 M37
    Date: 2017–10
  14. By: Nunnari, Salvatore; Zapal, Jan
    Abstract: This paper develops a theoretical model of voters' and politicians' behavior based on the notion that voters focus disproportionately on, and hence overweight, certain attributes of policies. We assume that policies have two attributes-benefits and costs-and that voters focus more on the attribute in which their options differ more. First, we consider exogenous policies and show that voters' focusing polarizes the electorate. Second, we consider the endogenous supply of policies by office-motivated politicians who take voters' distorted focus into account. We show that focusing leads to inefficient policies, which cater excessively to a subset of voters: social groups that are larger, have more distorted focus, and are more sensitive to changes in a single attribute are more influential. Finally, we show that augmenting the classical models of voting and electoral competition with focusing can contribute to explain puzzling stylized facts as the inverse correlation between income inequality and redistribution or the backlash effect of extreme policies.
    JEL: D03 D72 D78
    Date: 2017–10
  15. By: Achuthankutty, Gopakumar; Roy, Souvik
    Abstract: We consider domains that exhibit single-peakedness only over a subset of alternatives. We call such domains partially single-peaked and provide a characterization of the unanimous and strategy-proof social choice functions on these domains. As an application of this result, we obtain a characterization of the unanimous and strategy-proof social choice functions on multi-peaked domains (Stiglitz (1974), Shepsle (1979), Epple and Romano (1996a)), single-peaked domains with respect to a partial order (Chatterji and Massó (2015)), multiple single-peaked domains (Reffgen (2015)) and single-peaked domains on graphs (Schummer and Vohra (2002)). As a by-product of our results, it follows that strategy-proofness implies tops-onlyness on these domains. Further, we show that strategy-proofness and group strategy-proofness are equivalent on these domains.
    Keywords: Partially single-peaked domain, strategy-proofness, group strategy-proofness, partly dictatorial min-max rules.
    JEL: D71 D82
    Date: 2017–10–27
  16. By: Anderson, Ronald W.; Bustamante, Maria Cecilia; Guibaud, Stéphane; Zervos, Mihail
    Abstract: We study the relation between firm growth and managerial incentive provision under moral hazard when a long-lived firm is operated by a sequence of managers. In our model, firms replace their managers not only upon poor performance to provide incentives, but also when outside managers are at a comparative advantage to lead the firm through a new growth phase. We show how the optimal contract can be implemented with a system of deferred compensation credit and bonuses, along with dismissal and severance policies. Firms with better investment prospects have higher managerial turnover and rely on more front-loaded compensation schemes. Growth-induced turnover can result in positive severance if the principal needs to incentivize the manager to truthfully report the arrival of a growth opportunity. Realized firm growth depends jointly on the exogenous arrival of growth opportunities and the severity of the moral hazard problem. We also find a new component of agency costs due to the spillover effect of the tenure of the incumbent manager onto the present value of future managers’ compensation.
    Keywords: Dynamic contracting; managerial turnover; growth; moral hazard
    JEL: D82 D86 D92 G30
    Date: 2017–09–25
  17. By: Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
    Abstract: We analyze the “sequential exchange” problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets-specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventio nal wisdom in economics, strong property rights-enforceable against subsequent buyers- may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of “formalization” institutions that the literature has narrowly seen as entry barriers.
    Keywords: Property rights, enforcement, contracts, Incomplete Information, impersonal exchange
    JEL: D23 D83 K11 K22
    Date: 2017–11
  18. By: Masuda, Taku; Sato, Susumu
    Abstract: We investigate the effect of multimarket contacts on the privatization policy in mixed duopoly with price competition. There are two markets, one of which is served solely by the state-owned public firm, and the other is served by both public and private firms. Two markets are linked by the production technology of the public firm. In the general model, we first show that privatization is never optimal in the absence of multimarket contacts, i.e., if there is only one monopoly market or one duopoly market. Then, using a linear-quadratic specification, we show that a positive degree of privatization can be optimal in the presence of multimarket contacts. This result has an implication for the privatization policy in universal service sectors.
    Keywords: Multimarket contacts, partial privatization, state-owned public enterprise
    JEL: H42 L33
    Date: 2017–10–30
  19. By: Antonin Macé (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Rafael Treibich (University of Southern Denmark)
    Abstract: We study the design of voting rules for international unions when countries’ participation is voluntary. While efficiency recommends weighting countries proportionally to their stakes, we show that accounting for participation constraints entails overweighting some countries, those for which the incentive to participate is the lowest. When decisions are not enforceable, cooperation requires the satisfaction of more stringent constraints, that may be mitigated by granting a veto power to some countries. The model has important implications for the problem of apportionment, the allocation of voting weights to countries of differing populations, where it provides a rationale for setting a minimum representation for small countries.
    Keywords: international unions, constitutional design, veto, participation constraints
    JEL: F53 D02 C61 C73
    Date: 2017–11
  20. By: Bruno Biais; Johan Hombert; Pierre-Olivier Weill
    Abstract: Incentive problems make assets imperfectly pledgeable. Introducing these problems in an otherwise canonical general equilibrium model yields a rich set of implications. Asset markets are endogenously segmented. There is a basis going always in the same direction, as the price of any risky asset is lower than that of the replicating portfolio of Arrow securities. Equilibrium expected returns are concave in consumption betas, in line with empirical findings. As the dispersion of consumption betas of the risky assets increases, incentive constraints are relaxed and the basis reduced. When hit by adverse shocks, relatively risk tolerant agents sell the safest assets they hold.
    JEL: D5 G12
    Date: 2017–11

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