nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒05‒14
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Come Together: Firm Boundaries and Delegation By Laura Alfaro; Nick Bloom; Paola Conconi; Harald Fadinger; Patrick Legros; Andrew F. Newman; Raffaella Sadun; John Van Reenen
  2. Discovery and Equilibrium in Games with Unawareness By Schipper, Burkhard C
  3. The Political Economy of Ideas By Mukand, Sharun W.; Rodrik, Dani
  4. On Esteem-based Incentives By Ali Mazyaki; Joel (J.J.) van der Weele
  5. It's not always best to be first By Sela, Aner
  6. Cournot tatonnement and Nash equilibrium in binary status games By Kukushkin, Nikolai S.; von Mouche, Pierre H.M.
  7. Consumers' Privacy Choices in the Era of Big Data By Dengler, Sebastian; Prüfer, Jens
  8. Optimal financial contracts with unobservable investments By Tirelli, Mario
  9. Governance and efficiency with and without Government By Francesco Angelini; Guido Candela; Massimiliano Castellani
  10. Mechanisms in a Digitalized World By Gabrielle Demange
  11. Moral Hazard with Non-Additive Uncertainty: When are Actions Implementable? By Urmee Khan; Martin Dumav
  12. Moral Hazard, Uncertain Technologies, and Linear Contracts By Urmee Khan; Martin Dumav

  1. By: Laura Alfaro (HBS and NBER); Nick Bloom (Stanford, CEP, NBER and CEPR); Paola Conconi (UniversiteÌ Libre de Bruxelles (ECARES), CEPR and CESifo); Harald Fadinger (Mannheim and CEPR); Patrick Legros (UniversiteÌ Libre de Bruxelles (ECARES), Northeastern and CEPR); Andrew F. Newman (Boston University and CEPR); Raffaella Sadun (HBS, CEP, NBER and CEPR); John Van Reenen (MIT, CEP, NBER and CEPR)
    Abstract: Little is known theoretically, and even less empirically, about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model in which firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers. We test the predictions of the model using a novel dataset that com- bines measures of vertical integration and delegation for a large set of firms from many countries and industries. In line with the model’s predictions, we find that integration and delegation co-vary positively, and that producers are more likely to integrate sup- pliers in input sectors with greater productivity variation. Further, producers are more likely to integrate suppliers of more important inputs and to delegate decisions to them.
    Keywords: Vertical integration, decentralization, real options, supply assurance
    Date: 2018–05
  2. By: Schipper, Burkhard C
    Abstract: Equilibrium notions for games with unawareness in the literature cannot be interpreted as steady-states of a learning process because players may discover novel actions during play. In this sense, many games with unawareness are ``self-destroying'' as a player's representation of the game may change after playing it once. We define discovery processes where at each state there is an extensive-form game with unawareness that together with the players' play determines the transition to possibly another extensive-form game with unawareness in which players are now aware of actions that they have discovered. A discovery process is rationalizable if players play extensive-form rationalizable strategies in each game with unawareness. We show that for any game with unawareness there is a rationalizable discovery process that leads to a self-confirming game that possesses a self-confirming equilibrium in extensive-form rationalizable strategies. This notion of equilibrium can be interpreted as steady-state of both a discovery and learning process.
    Keywords: Self-confirming equilibrium, conjectural equilibrium, extensive-form rationalizability, unawareness, extensive-form games, equilibrium, learning, discovery
    JEL: C72 D83
    Date: 2018–04
  3. By: Mukand, Sharun W. (University of Warwick); Rodrik, Dani (Harvard University)
    Abstract: We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (interests only) approach to political economy. We distinguish between two kinds of ideational politics – the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy ‘memes’ (narratives, cues, framing) that shift beliefs about how the world works or a person’s belief of who he is (i.e. identity). Our framework identifies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also ‘bite’ the interests that helped propagate them in the first instance.
    Keywords: JEL Classification:
    Date: 2018
  4. By: Ali Mazyaki (Allameh Tabataba’i University); Joel (J.J.) van der Weele (Universiteit van Amsterdam; Tinbergen Institute, The Netherlands)
    Abstract: Incentives based on esteem, honor and shame are increasingly popular and easy to use due to modern surveillance techniques. However, the use of shaming is controversial: critics argue that delegating punishment to a crowd can lead to mob justice and a loss of control over the size of the sanction. We use the signaling model of social behavior by Bénabou and Tirole (2011) to explore the effect of esteem-based incentives and their interaction with traditional monetary incentives. We show that esteem-based incentives can indeed lead to a loss of control by generating multiple equilibria, some of which feature high levels of stigma. Monetary and esteem incentives are interdependent. Moreover, if both types of incentives are costly to implement, the optimal incentive mix includes both instruments. In equilibrium, esteem-based incentives will be used relatively more for rare behaviors and in societies that have more heterogenous values.
    Keywords: prosocial behavior; signaling; incentives; esteem.
    JEL: D02 H41 K42
    Date: 2018–05–04
  5. By: Sela, Aner
    Abstract: We study a model with n agents, each of whom has both a linear reward function that increases in the agent's effort and an effort constraint. However, since the effort (output) of the players has a negative effect on society the designer imposes a punishment such that the agent with the highest effort who caused the greatest damage is punished. We analyze the equilibrium of this model with either symmetric or asymmetric agents. At all the equilibrium points, all the agents are active and all have positive expected payoffs. We characterize the properties of the agents' equilibrium strategies and compare them to the well-known equilibrium strategies of the all-pay auction in which the agent with the highest effort wins a prize.
    Keywords: Contests; winner's curse
    Date: 2018–04
  6. By: Kukushkin, Nikolai S.; von Mouche, Pierre H.M.
    Abstract: We study a rather simplified game model of competition for status. Each player chooses a scalar variable (say, the level of conspicuous consumption), and then those who chose the highest level obtain the "high" status, while everybody else remains with the "low" status. Each player strictly prefers the high status, but they also have intrinsic preferences over their choices. The set of all feasible choices may be continuous or discrete, whereas the strategy sets of different players can only differ in their upper and lower bounds. The resulting strategic game with discontinuous utilities does not satisfy the assumptions of any general theorem known as of today. Nonetheless, the existence of a (pure strategy) Nash equilibrium, as well as the "finite best response improvement property," are established.
    Keywords: status game; Cournot tatonnement; Nash equilibrium
    JEL: C72
    Date: 2018–01–28
  7. By: Dengler, Sebastian (Tilburg University, TILEC); Prüfer, Jens (Tilburg University, TILEC)
    Abstract: Recent progress in information technologies provides sellers with detailed knowledge about consumers' preferences, approaching perfect price discrimination in the limit. We construct a model where consumers with less strategic sophistication than the seller's pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers' privacy choices. Some consumers benefit but others suffer from their anonymization.
    Keywords: privacy; big data; perfect price discrimination; level-k thinking
    JEL: L11 D11 D83 D01 L86
    Date: 2018
  8. By: Tirelli, Mario
    Abstract: In this article we propose a security-design problem in which risk neutral entrepreneurs make unobservable investment decisions while employing the investment funds of risk-neutral outside investor/creditor(s). Contracts are restricted to satisfy limited liability and monotonicity of the payment schedule. The model we present extends the classical one proposed by Innes (1990, Journal of Economic Theory 52, 47-67) along three main directions: agents' decisions may be restricted by their initial capital and outside financial opportunities; their investment decisions may also consist in hiding funds in an asset placed outside their firms; initial firms' capital, which identifies entrepreneur types, may only be imperfectly observed by creditors (i.e. types are private information). We motivate our interest in this security-design problem referring to the 'opacity' that often characterizes the financial situation and decisions of small firms, a particularly large fraction of the non-financial sector in most developed countries.
    Keywords: Security design; asymmetric information; moral hazard; investment decisions; firm financial structure; debt contracts, collateral.
    JEL: D82 D86 G11 G32
    Date: 2018–02
  9. By: Francesco Angelini (Department of Statistics, University of Bologna, Italy); Guido Candela (Department of Economics, University of Bologna, Italy); Massimiliano Castellani (Department of Statistics, University of Bologna, Italy; Rimini Centre for Economic Analysis)
    Abstract: This paper explores the relationships between forms of governance and efficiency, in societies with and without State, with several specific agent behaviors. Using a theoretical framework where the private agents are, or are not, able to efficiently coordinate their actions, we study how forms of governance affect the level of welfare of each society.
    Keywords: Governance capacity, Public good, Public choice, Efficiency
    JEL: H11 H23 H41
    Date: 2018–04
  10. By: Gabrielle Demange
    Abstract: Due to computing and communication facilities, formal procedures, often referred to as ‘algorithms’, are now extensively used in public, economic and social areas. These procedures, currently at the forefront of criticisms, share some features with mechanisms as defined by economists, following Hurwicz. My aim is to investigate these relationships and to discuss some of the economic risks generated by the power of algorithms.
    Keywords: mechanisms, algorithms, algorithmic pricing and trading, social choice rule, data, Admission post-bac
    JEL: D44 D71 D82
    Date: 2018
  11. By: Urmee Khan (Department of Economics, University of California Riverside); Martin Dumav
    Date: 2018–04
  12. By: Urmee Khan (Department of Economics, University of California Riverside); Martin Dumav
    Date: 2018–04

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