nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒05‒21
24 papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Hidden Profiles and Persuasion Cascades in Group Decision-Making By Saori CHIBA
  2. Political disagreement and information in elections By Alonso, Ricardo; Câmara, Odilon
  3. Neutralized Competition By Seungjin Han
  4. The flip side of power By Friedel Bolle; Philipp E. Otto
  5. Simultaneous and Sequential Voting under General Decision Rules By Friedel Bolle
  6. A foundation for probabilistic beliefs with or without atoms By Mackenzie, Andrew
  7. Stability of Equilibrium Outcomes under Deferred Acceptance: Acyclicity and Dropping Strategies By Tello Benjamín
  8. Fake News in Social Networks By Christoph Aymanns; Jakob Foerster; Co-Pierre Georg
  9. A revelation principle for obviously strategy-proof implementation By Mackenzie, Andrew
  10. Trading Networks and Equilibrium Intermediation By Kotowski, Maciej H.; Leister, C. Matthew
  11. Additive valuations of streams of payoffs that obey the time-value of money principle: characterization and robust optimization By Abraham Neyman
  12. Self-implementation of social choice correspondences in strong equilibrium By Bezalel Peleg; Hans Peters
  13. Confronting an Enemy with Unknown Preferences: Deterrer or Provocateur? By Jelnov, Artyom; Tauman, Yair; Zeckhauser, Richard J.
  14. Vertical integration in the e-commerce sector By Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
  15. SOCIAL FINANCE By Karan Bhanot
  16. Group Size, Collective Action and Complementarities in Efforts By Cheikbossian, Guillaume; Fayat, Romain
  17. Motivations, monitoring technologies, and pay for performance By Cordella, Antonio; Cordella, Tito
  18. Optimal make-take fees for market making regulation By Omar El Euch; Thibaut Mastrolia; Mathieu Rosenbaum; Nizar Touzi
  19. Club good mechanisms: from free-riders to citizen-shareholders, from impossibility to characterization By Mackenzie, Andrew; Trudeau, Christian
  20. An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly By Volker Nocke; Nicolas Schutz
  21. Robust design in monotonic matching markets: a case for firm-proposing deferred-acceptance By EHLERS, Lars; MASSO, Jordi
  22. Standard Risk Aversion and Efficient Risk Sharing By Suen, Richard M. H.
  23. Myopia and Anchoring By George-Marios Angeletos; Zhen Huo
  24. On the extension of a preorder under translation invariance By Mabrouk, Mohamed

  1. By: Saori CHIBA
    Abstract: We provide a model to explain hidden profiles, a series of persuasion cascades where players choose not to share their private information with the others and the group therefore fails. In our model, rational players will jointly select a decision. Attributes decide which decision is optimal, but each player privately and imperfectly knows these attributes. Hence, before decision-making, the players meet and sequentially talk. A player benevolently talks based on his limited information. But under communication constraints, the benevolent talk may cause the next player to infer that a suboptimal decision is most likely to be optimal. The next player repeats the previous talk because he is afraid that his private information may misguide the group. In this way, the players persuade one another by withholding private information.
    Keywords: disasters;Group Decision-Making. Hidden Profiles. Persuasion Cascades.
    JEL: D79 D82 D83
  2. By: Alonso, Ricardo; Câmara, Odilon
    Abstract: We study the role of re-election concerns in incumbent parties' incentives to shape the information that reaches voters. In a probabilistic voting model, candidates representing two groups of voters compete for office. In equilibrium, the candidate representing the majority wins with a probability that increases in the degree of political disagreement — the difference in expected payoffs from the candidates' policies. Prior to the election, the office-motivated incumbent party (IP) can influence the degree of disagreement through policy experimentation — a public signal about a payoff-relevant state. We show that if the IP supports the majority candidate, then it strategically designs this experiment to increase disagreement and, hence, the candidate's victory probability. We define conditions such that the IP chooses an upper-censoring experiment and the experiment's informativeness decreases with the majority candidate's competence. The IP uses the experiment to increase disagreement even when political disagreement is due solely to belief disagreement.
    Keywords: Disagreement; Bayesian persuasion; Strategic experimentation; Voting
    JEL: D72 D83
    Date: 2016–11–02
  3. By: Seungjin Han
    Abstract: This paper proposes a tractable competing mechanism game where each seller simultaneously posts a trading contract that specifies a menu of dominant strategy incentive compatible (DIC) direct mechanisms conditional on an array of messages sent by buyers, and each seller subsequently chooses a DIC direct mechanism from his menu. The complete set of a seller's profits that are supportable in a (symmetric) equilibrium is the interval between the minmax value of his profit with respect to DIC direct mechanisms and his profit in the joint profit maximization. The set of a seller's equilibrium profits is robust to the possibility of a seller's deviation to any arbitrary mechanism in the standard environment with linear utilities and independent private type. Further, with no limited liability or with no capacity constraints, the set of a seller's equilibrium profits coincides with the set of his feasible (i.e., individually rational and incentive compatible) profits. Given a number of buyers, the number of sellers can be endogenized and is equal to the largest number at which a seller's profit in the joint profit maximization is non-negative: As the number of buyers increases, competition is neutralized because only the monopoly terms of trade prevails in the market, whereas the range of a seller's equilibrium profits shrinks to his reservation profit.
    Keywords: competing mechanisms, dominant strategy incentive compatible direct mechanisms, robust equilibrium allocations, market information
    JEL: C72 D82
    Date: 2018–05
  4. By: Friedel Bolle (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)); Philipp E. Otto (European University Viadrina, Frankfurt (Oder))
    Abstract: Based on power indices as well as intuition, the chairman of a committee whose vote decides in the case of a draw has more power than ordinary voters. Even more powerful are members with veto right, who can block a majority vote. We pose the question whether giving one of the players in a majority voting game more power is beneficial for the powerful individual and/or the community. We find that, in our environment, the introduction of a powerful player is efficiency-improving, but that powerful players earn less than their ordinary co-players. Our environment is a Binary Threshold Public Good game which can also be interpreted as a general non- cooperative voting game. We supplement our investigation by successfully explaining behavior as a finite mixture of mostly equilibrium strategies.
    Keywords: veto power; tie-breaking power; binary threshold public goods; experiment
    JEL: D71 D72 H41
    Date: 2017–03
  5. By: Friedel Bolle (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: In an economic theory of voting, voters have positive or negative costs of voting in favor of a proposal and positive or negative benefits from an accepted proposal. When votes have equal weight then simultaneous voting mostly has a unique pure strategy Nash equilibrium which is independent of benefits. Voting with respect to (arbitrarily small) costs alone, however, often results in voting against the “true majority” (Groseclose and Milyo, 2010). If voting is sequential as in the roll call votes of the US Senate then, in the unique subgame perfect equilibrium, the ”true majority” prevails (Groseclose and Milyo, 2013). It is shown that the result for sequential voting holds also with different weights of voters (shareholders), with multiple necessary majorities (EU decision making), or even more general rules. Simultaneous voting in the general model has more differentiated results.
    Keywords: Voting, free riding, binary decisions, unique pure strategy equilibria
    JEL: H41 D71
    Date: 2018–05
  6. By: Mackenzie, Andrew (General Economics 1 (Micro))
    Abstract: We provide sufficient conditions for a qualitative probability (Bernstein, 1917; de Finetti, 1937; Koopman, 1940; Savage, 1954) that satisfies monotone continuity (Villegas, 1964; Arrow, 1970) to have a unique countably additive measure representation, generalizing Villegas (1964) to allow atoms. Unlike previous contributions, we do so without a cancellation or solvability axiom. First, we establish that when atoms contain singleton cores, unlikely cores—the requirement that the union of all cores is not more likely than its complement—is sufficient (Theorem 3). Second, we establish that strict third-order atom-swarming—the requirement that for each atom A, the less likely non-null events are (in an ordinal sense) more than three times as likely as A—is also sufficient (Theorem 5). This latter result applies to intertemporal preferences over streams of indivisible objects.
    Keywords: economics, mathematical economics, microeconomics
    JEL: D83 D81
    Date: 2018–05–08
  7. By: Tello Benjamín
    Abstract: We consider the problem of matching a set of medical students to a set of medical residency positions (hospitals) under the assumption that hospitals' preferences over groups of students are responsive. In this context, we study the preference revelation game induced by the student proposing deferred acceptance mechanism. We show that the acyclicity of the hospitals' preference profile (Romero-Medina and Triossi, 2013a) is a necessary and sufficient condition to ensure that the outcome of every Nash equilibrium in which each hospital plays a dropping strategy is stable.
    Keywords: matching;stability;acyclicity;dropping strategies;Nash equilibria
    JEL: C78
    Date: 2018–04
  8. 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 identifymostfalseclaims, whenallagentsreceiveunbiasedprivatesignals. However, anadversary’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.
    Keywords: social learning, networks, multi-agent deep reinforcement learning
    Date: 2017–08
  9. By: Mackenzie, Andrew (General Economics 1 (Micro))
    Abstract: We prove that if a stochastic (social choice) rule has an obviously strategy-proof (OSP) implementation (Li, 2016), then it has such an implementation through a randomized round table mechanism, where the administrator randomly selects a game form in which the agents take turns making public announcements about their private information. When restricted to deterministic rules, our result improves upon other recent revelation principles by relaxing all recall requirements and by allowing all game trees compatible with normal forms (Alós-Ferrer and Ritzberger, 2016); we also establish robustness to player randomization using novel solution concepts involving mixed strategies and behavioral strategies. We use our result to provide a justification for ordinal mechanisms in the spirit of Carroll (2017), and we provide a simple characterization of the deterministic rules with OSP-implementations using deterministic round table mechanisms and ordinary strategy-proofness.
    Keywords: economics, mathematical economics, microeconomics
    JEL: D82 D71
    Date: 2018–05–08
  10. By: Kotowski, Maciej H. (Harvard University); Leister, C. Matthew (Monash University)
    Abstract: We study an economy where intermediaries facilitate exchange between a supplier and consumers. The set of feasible transactions is characterized by a network. Free entry helps form the network. There is under-entry of intermediaries in equilibrium due to complementarities among agents in distant parts of the economy. When intermediaries are speculators, equilibrium networks exhibit an asymmetric structure that amplifies certain traders’ importance. An extension of the model allows for disintermediation. Generally, free-entry and competition may fail to purge redundant intermediaries from the market. However, avoidance of a reseller’s curse deters superfluous speculators.
    JEL: D44 D85 L14
    Date: 2018–01
  11. By: Abraham Neyman
    Abstract: This paper characterizes the preferences over bounded infinite utility streams that satisfy the time-value of money principle and an additivity property, and preferences that in addition are impatient. Based on this characterization, the paper introduces a concept of optimization that is robust to a small imprecision in the specification of the preference, and proves that the set of feasible streams of payoffs of a finite Markov decision process admits such a robust optimization.
    Date: 2018–04
  12. By: Bezalel Peleg; Hans Peters
    Abstract: A social choice correspondence is self-implementable in strong equilibrium if it is implementable in strong equilibrium by a social choice function selecting from the correspondence itself as a game form. We characterize all social choice correspondences implementable this way by an anonymous social choice function satisfying no veto power, given that the number of agents is large relative to the number of alternatives. It turns out that these are exactly the social choice correspondences resulting from feasible elimination procedures as introduced in Peleg (1978).
    Date: 2018–04
  13. By: Jelnov, Artyom (Ariel University); Tauman, Yair (Stony Brook University); Zeckhauser, Richard J. (Harvard University)
    Abstract: Nation 1 is seeking to join the nuclear club. Nation 2, its enemy, would like to prevent this, and has the potential to destroy 1’s bomb-making facilities. It is uncertain whether 1 has a bomb. So are its intentions. 1 could be seeking to deter an attack. Alternatively, if no bomb is present, 1 might wish to provoke one as a means to secure support at home and abroad. Lacking a bomb, 1 can avoid an attack by allowing inspections. If it refuses inspections, 2 must rely on its imperfect intelligence system to determine whether to attack. This game has a unique sequential equilibrium, possibly separating, possibly pooling. At that equilibrium there is a positive probability that: No bomb is built; 2’s intelligence system accurately detects no bomb; 1 refuses inspections; nevertheless 2 attacks. Present and past experiences from Iraq, Iran, Syria and North Korea illustrate the analysis.
    Date: 2018–01
  14. By: Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
    Abstract: This paper studies vertical integration of a retailer and an operator in the e-commerce sector. It shows first that the comparison between independent oligopoly and integrated monopoly involves a tradeoff between competition and double marginalization which will have the opposite effect. With linear demand we need at least 3 firms (upstream and downstream) for the independent oligopoly to yield larger surplus. With constant elasticity demand, on the other hand, this is always true. Second it considers a setting where the number of firms is endogenous and determined such that gross profits cover fixed costs. While the integration of a single retailer-delivery operator pair may initially be welfare improving, the resulting market structure may not be sustainable. Furthermore, there exist a range of fixed costs for which the integrated monopoly emerges (following a single integration) and is welfare inferior to the initial independent equilibrium even when the reduction in the number of fixed costs is taken into account. Within this setting it also shows that multiple integration is typically welfare superior (for a given total number of firms) to the integration of a single retailer-delivery operator. Third and last, it considers an extension wherein customers differ according to their location, urban or rural, involving di¤erent delivery costs. It shows that urban integration is more likely to have an adverse effect on welfare than full integration.
    Keywords: vertical integration; parcel delivery; e-commerce
    JEL: L42 L81 L87
    Date: 2018–05
  15. By: Karan Bhanot (UTSA)
    Abstract: This paper characterizes the optimal contract for the financing of social programs. “Social- Finance” is unique insofar that it considers the constraints of many participating agents (government, non-profits, the implementation agency and private investors), that program outcomes are apparent only over long periods in time, and that effort and expertise of the implementing agencies is private information. We illustrate the financing of programs for the remediation juvenile crime and homelessness using publicly available data.
    Keywords: government, non-profits, the implementation agency and private investors
    JEL: G10
    Date: 2016–09–20
  16. By: Cheikbossian, Guillaume; Fayat, Romain
    Abstract: We revisit the group size paradox in a model where two groups of different sizes compete for a prize exhibiting a varying degree of rivalry and where group effort is given by a CES function of individual e¤orts. We show that the larger group can be more successful than the smaller group if the degree of complementarity is sufficiently high relative to the degree of rivalry of the prize.
    Keywords: group size paradox; group contest; complementarity; (impure) public good
    JEL: D72 D74
    Date: 2018–05
  17. By: Cordella, Antonio; Cordella, Tito
    Abstract: Monitoring technologies and pay for performance (PFP) contracts are becoming popular solutions to improve public services delivery. Their track record is however mixed. To show why this may be the case, this paper develops a principal agent model where agents’ motivations vary and so the effectiveness of monitoring technologies. In such a set-up, it shows that: (i) monitoring technologies should be introduced only if agents’ motivations are poor; (ii) optimal PFP contracts are non-linear/non-monotonic in agents’ motivations and monitoring effectiveness; (iii) investments aimed at improving agents’ motivations and monitoring quality are substitutes when agents are motivated, complements otherwise; (iv) if the agents’ “type” is private information, the more and less motivated agents could be separated through a menu of PFP/non-PFP contracts, designed in a way that only the less motivated ones choose the PFP.
    Keywords: Pay for performance; Public sector management; Information and communication technologies; Asymmetric information; Motivations; Optimal contracts
    JEL: D82 J33 J45 M52
    Date: 2017–01–01
  18. By: Omar El Euch; Thibaut Mastrolia; Mathieu Rosenbaum; Nizar Touzi
    Abstract: We consider an exchange who wishes to set suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we are able to describe in quasi-explicit form the optimal contract to propose to a market maker. This contract depends essentially on the market maker inventory trajectory and on the volatility of the asset. We also provide the optimal quotes that should be displayed by the market maker. The simplicity of our formulas allows us to analyze in details the effects of optimal contracting with an exchange, compared to a situation without contract. We show in particular that it leads to higher quality liquidity and lower trading costs for investors.
    Date: 2018–05
  19. By: Mackenzie, Andrew (General Economics 1 (Micro)); Trudeau, Christian (univ windsor, university of windsor)
    Abstract: Consider a community that shares a technology for producing a club good (Buchanan, 1965): any group of agents can “win” for an associated monetary cost. Who should win, and how should production be funded? To address this question, we seek rules (that is, direct mechanisms) where each agent participates voluntarily and is incentivized to report his valuation honestly, and where these reports are used to select winners efficiently without running a deficit. We find that whether or not there are such rules depends on the production technology. If costs are even “somewhat concave,” then there are no such rules: the free-rider problem (Wicksell, 1896; Samuelson, 1954; Green and Laffont, 1979) persists even when agents who do not contribute can be excluded. If costs are symmetric and convex, however, then there are such rules that moreover satisfy no-envy-in-trades (Kolm, 1971; Schmeidler and Vind, 1972). We characterize this class, whose Pareto-worst member is the familiar minimum-price Walrasian rule (Vickrey, 1961; Clarke, 1971; Groves, 1973; Demange, 1982; Leonard, 1983); the other rules do better by treating the agents as equal shareholders in the technology and offering social dividends (Lange, 1936).
    Keywords: Economics, Mathematical economics, Microeconomics
    JEL: D82 D61 H41 D44
    Date: 2018–05–08
  20. By: Volker Nocke; Nicolas Schutz
    Abstract: Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.
    JEL: D43 L13 L40
    Date: 2018–05
  21. By: EHLERS, Lars; MASSO, Jordi
    Abstract: We study two-sided matching markets among workers and firms. Workers seek one position at a firm but firms may employ several workers. In many applications those markets are monotonic: leaving positions unfilled is costly as for instance, for hospitals this means not being able to provide full service to its patients. A huge literature has advocated the use of stable mechanisms for clearinghouses. The interests among workers and firms are polarized among stable mechanisms, most famously the firm-proposing DA and the worker-proposing DA. We show that for the firm-proposing DA ex-ante incentive compatibility and ex-post incentive compatibility are equivalent whereas this is not necessarily true for the worker-proposing DA. The firm-proposing DA turns out to be more robust than the worker-proposing DA under incomplete information when incentives of both sides of the market are important.
    Keywords: Many-to-one matching market; stability; incomplete information; monotonic responsive extensions; robust mechanism design
    Date: 2018
  22. By: Suen, Richard M. H.
    Abstract: This paper analyzes the risk attitude and investment behavior of a group of heterogeneous consumers who face an undesirable background risk. It is shown that standard risk aversion at the individual level does not imply standard risk aversion at the group level under efficient risk sharing. This points to a potential divergence between individual and collective investment choices in the presence of background risk. We show that if the members' absolute risk tolerance is increasing and satisfies a strong form of concavity, then the group has standard risk aversion.
    Keywords: Standard risk aversion; Efficient risk sharing; Background risk; Portfolio choice.
    JEL: D70 D81 G11
    Date: 2018–03–29
  23. By: George-Marios Angeletos; Zhen Huo
    Abstract: We consider a stationary setting featuring forward-looking behavior, higher-order uncertainty, and learning. We obtain an observational equivalence result that recasts the aggregate dynamics of this setting as that of a representative-agent model featuring two distortions: myopia in the sense of extra discounting of the future; and anchoring of the current outcome to the past outcome, as in models featuring habit persistence, adjustment costs, or momentum. This builds a bridge to both the DSGE literature and an emerging literature on bounded rationality. We further show that the as-if distortions are larger when the general-equilibrium interaction is stronger; this property reflects the role of higher-order uncertainty and helps reduce the gap between macroeconomic and microeconomic estimates of adjustment frictions. We illustrate the quantitative potential of our theory in the context of inflation by showing how it can help rationalize existing estimates of the Hybrid NKPC while also matching survey evidence on expectations. We discuss additional applications to consumption, investment, and asset prices.
    JEL: D83 D84 E10 E32 G12
    Date: 2018–04
  24. By: Mabrouk, Mohamed
    Abstract: This paper proves the existence, for a translation-invariant preorder on a divisible commutative group, of a complete preorder extending the preorder in question and satisfying translation invariance. We also prove that the extension may inherit a property of continuity. As an application, we prove the existence of a complete translation-invariant strict preorder on ℝ which transgresses scalar invariance and also the existence of a complete translation-invariant preorder satisfying the social choice axioms strong Pareto and fixed--step-anonymity on a set X^{ℕ₀}, where X is a divisible commutative group. Moreover, the two extension results are used to make scalar invariance appear as a consequence of translation invariance under a continuity requirement.
    Keywords: Order extension, Translation invariance
    JEL: C60 C65 D7 D71 D9
    Date: 2018–04–19

This nep-mic issue is ©2018 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.