nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒07‒16
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Interactive Information Design By Tomala, Tristan; Koessler, Frederic; Laclau, Marie
  2. Communication Games with Optional Verification By Simon Schopohl
  3. The Scope of Sequential Screening with Ex-Post Participation Constraints By Bergemann, Dirk; Castro, Francisco; Weintraub, Gabriel
  4. Aggregate Information and Organizational Structures By Celik, Gorkem; Shin, Dongsoo; Strausz, Roland
  5. Dynamic Expert Incentives: Complementarity and Substitutability in Information Acquisition By Tsz-Ning Wong; Lily Ling Yang
  6. Optimal Leniency and the Organization Design of Group Delinquency By Giovanni Immordino; Gülen Karakoç-Palminteri; Salvatore Piccolo; Paolo Roberti
  7. Dynamic optimal contract under parameter uncertainty with risk averse agent and principal By Kerem Ugurlu
  8. Selling Strategic Information in Digital Competitive Markets By David Bounie; Antoine Dubus; Patrick Waelbroeck
  9. Self-Regulation Under Asymmetric Cost Information By Saglam, Ismail
  10. Dynamic competition over social networks Dynamic competition over social networks By Antoine Mandel; Xavier Venel
  11. Dynkin games with heterogeneous beliefs By Marta Leniec; Kristoffer Glover; Erik Ekström
  12. Consumer Scores and Price Discrimination By Bonatti, Alessandro; Cisternas, Gonzalo
  13. Extensions of the Simpson voting rule to the committee selection setting By Daniela Bubboloni; Mostapha Diss; Michele Gori
  14. Confidence in Beliefs and Rational Decision Making By Hill, Brian
  15. Multistage Information Transmission with Voluntary Monetary Transfer By Hitoshi Sadakane
  16. Relevant Decision Problems and Value of Information By Lily Ling Yang
  17. A Note on Optimal Experimentation under Risk Aversion By Vladimir Novak; Tim Willems
  18. Psychophysical Foundations of the Cobb-Douglas Utility Function By Argenziano, Rossella; Gilboa, Itzhak
  19. Competitive pricing despite search costs if lower price signals quality By Sander Heinsalu
  20. Adverse Selection, Efficiency and the Structure of Information By Bar-Isaac, Heski; Jewitt, Ian; Leaver, Clare

  1. By: Tomala, Tristan; Koessler, Frederic; Laclau, Marie
    Abstract: We study the interaction between multiple information designers who try to influence the behavior of a set of agents. When the set of messages available to each designer is finite, such games always admit subgame perfect equilibria. When designers produce public information about independent pieces of information, every equilibrium of the direct game (in which the set of messages coincides with the set of states) is an equilibrium with larger (possibly infinite) message sets. The converse is true for a class of Markovian equilibria only. When designers produce information for their own corporation of agents, pure strategy equilibria exist and are characterized via an auxiliary normal form game. In an infinite-horizon multi-period extension of information design games, a feasible outcome which Pareto dominates a more informative equilibrium of the one-period game is supported by an equilibrium of the multi-period game.
    Keywords: Bayesian persuasion; information design; sharing rules; splitting games; statistical experiments.
    JEL: C72 D82
    Date: 2018–04–25
  2. By: Simon Schopohl (EDEEM - Université Paris 1 - EDEEM - European Doctorate in Economics Erasmus Mundus, Universität Bielefeld (GERMANY), CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UCL - Université Catholique de Louvain)
    Abstract: We consider a Sender-Receiver game in which the Sender can choose between sending a cheap-talk message, which is costless, but also not verified and a costly verified message. While the Sender knows the true state of the world, the Receiver does not have this information, but has to choose an action depending on the message he receives. The action then yields to some utility for Sender and Receiver. We only make a few assumptions about the utility functions of both players, so situations may arise where the Sender's preferences are such that she sends a message trying to convince the Receiver about a certain state of the world, which is not the true one. In a finite setting we state conditons for full revelation, i.e. when the Receiver always learns the truth. Furthermore we describe the player's behavior if only partial revelation is possible. For a continuous setting we show that additional conditions have to hold and that these do not hold for "smooth" preferences and utility, e.g. in the classic example of quadratic loss utilities.
    Keywords: verifiable information,cheap-talk,communication,costly disclosure,full revelation,increasing differences,Sender-Receiver game
    Date: 2017–01
  3. By: Bergemann, Dirk; Castro, Francisco; Weintraub, Gabriel
    Abstract: We study the classic sequential screening problem in the presence of buyers' ex-post participation constraints. A leading example is the online display advertising market, in which publishers frequently do not use up-front fees and instead use transaction-contingent fees. We establish conditions under which the optimal selling mechanism is static and buyers are not screened with respect to their interim type, or sequential and the buyers are screened with respect to their interim type. In particular, we provide an intuitive necessary and sufficient condition under which the static contract is optimal for general distributions of ex-post values. Further, we completely characterize the optimal sequential contract with binary interim types and continuum of ex-post values when this condition fails. Importantly, the latter contract randomizes the allocation of the low type buyer while giving a deterministic allocation to the high type. We also provide partial results for the case of multiple interim types.
    Keywords: ex-post participation constraints; sequential contract.; Sequential Screening; static contract
    JEL: C72 D82 D83
    Date: 2018–06
  4. By: Celik, Gorkem (ESSEC Business School); Shin, Dongsoo (Santa Clara University); Strausz, Roland (Humboldt Universität zu Berlin)
    Abstract: We study an organization with a top management (principal) and multiple subunits (agents) with private information that determine the organization\'s aggregate efficiency. Under centralization, eliciting the agents\' private information may induce the principal to manipulate aggregate information, which obstructs an effective use of information for the organization. Under delegation, the principal concedes more information rent, but is able to use the agents\' information more effectively. The trade-off between the organizational structures depends on the likelihood that the agents are efficient. Centralization is optimal when such likelihood is low. Delegation, by contrast, is optimal when it is high.
    Keywords: agency; aggregate information; organization design;
    JEL: D82 D86
    Date: 2018–06–27
  5. By: Tsz-Ning Wong; Lily Ling Yang
    Abstract: We consider a model of dynamic expertise, in which two experts with the same bias exert efforts over time to discover the state of the world and are able to send verifiable messages about the discovery to a decision maker. We propose a definition of strategic complementarity and substitutability in this setting and find that the experts' information acquisition decisions are always substitutes when the experts are homogeneous, but sometimes complements when the experts are heterogeneous.
    Keywords: Information Acquisition; Persuasion; Voluntary Disclosure; Free-riding
    JEL: D82 D83
    Date: 2018–06
  6. By: Giovanni Immordino (Università di Napoli Federico II and CSEF); Gülen Karakoç-Palminteri (Università di Milano Bicocca); Salvatore Piccolo (Università di Bergamo and CSEF); Paolo Roberti (Università di Bergamo)
    Abstract: We study a simple law enforcement model in which the organizational structure of criminal organizations is endogenous and determined jointly with the amnesty granted to criminals who ip and blow the whistle (leniency program). We allow criminals to choose between a horizontal (partnership) and a vertical structure and study how this choice affects the optimal leniency chosen by a benevolent Legislator whose objective is to minimize crime. We show that when soldiers in vertical organizations have valuable information about the boss, the policy mainly targets vertical hierarchies, leaving horizontal structures proliferate in number. By contrast, when soldiers are poorly informed about their heads, the Legislator implements a policy that completely eradicates partnerships. When the two types of organization coexist, partnerships emerge only for intermediate levels of trust between criminals, while organizations take a vertical structure for low or high levels of trust among felons.
    Keywords: Criminal Organizations, Leniency, Organizational Structure, Partnerships, Vertical Hierarchies
    JEL: K14 K42 D73 D78
    Date: 2018–06–27
  7. By: Kerem Ugurlu
    Abstract: We consider a continuous time Principal-Agent model on a finite time horizon, where we look for the existence of an optimal contract both parties agreed on. Contrary to the main stream, where the principal is modelled as risk-neutral, we assume that both the principal and the agent have exponential utility, and are risk averse with same risk awareness level. Moreover, the agent's quality is unknown and modelled as a filtering term in the problem, which is revealed as time passes by. The principal can not observe the agent's real action, but can only recommend action levels to the agent. Hence, we have a \textit{moral hazard} problem. In this setting, we give an explicit solution to the optimal contract problem.
    Date: 2018–06
  8. By: David Bounie; Antoine Dubus; Patrick Waelbroeck
    Abstract: This paper investigates the strategies of a data broker in selling information to one or to two competing firms that can price-discriminate consumers. The data broker can strategically choose any segment of the consumer demand (information structure) to sell to firms that implement third-degree price-discrimination. We show that the equilibrium profits of the data broker are maximized when (1) information identifies the consumers with the highest willingness to pay; (2) consumers with a low willingness to pay remain unidentified; (3) the data broker sells two symmetrical information structures. The data broker therefore strategically sells partial information on consumers in order to soften competition between firms. Extending the baseline model, we prove that these results hold under first-degree price-discrimination.
    Keywords: data broker, information structure, price-discrimination
    JEL: D40 D80 L50 D43
    Date: 2018
  9. By: Saglam, Ismail
    Abstract: In this paper, we study how a monopolistic firm with unknown costs may behave under the threat of regulation. To this aim, we integrate the self-regulation model of Glazer and McMillan (1992) with the optimal regulatory mechanism devised by Baron and Myerson (1982) for the case of asymmetric information. Simulating the equilibrium outcome of our integrated model for a wide range of parameter values, we show that the firm threatened with regulation always constrains its price; moreover, it does so more stringently if it is less efficient. If the marginal cost of the firm is sufficiently close to the highest possible value according to the beliefs of the legislators and the regulator, the price the firm charges under the threat of regulation can be even lower than the price it has to charge when it is regulated. Our simulations also reveal how the welfares of consumers and the threatened firm may be affected in the short-run and long-run by possible variations in several attributes of our model, involving the marginal cost of production, the number of legislators, each legislator's cost of proposing a regulatory bill, the size of the market, and the weight of the firm's welfare in the social welfare function.
    Keywords: Monopoly; regulation; self-regulation; asymmetric information.
    JEL: D42 D82 L51
    Date: 2018–06–03
  10. By: Antoine Mandel (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Xavier Venel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We provide an analytical approach to the problem of influence maximization in a social network when two players compete by means of dynamic targeting strategies. We formulate the problem as a two-player zero-sum stochastic game. We prove the existence of the uniform value: if the players are sufficiently patient, both players can guarantee the same mean-average opinion without knowing the exact discount factor. Further, we put forward some elements for the characterization of equilibrium strategies. In general, players must implement a trade-off between a forward-looking perspective, according to which they shall aim at maximizing the future spread of their opinion in the network, and a backward-looking perspective, according to which they shall aim at counteracting their opponent's previous actions. When the influence potential of players is small, an equilibrium strategy is to systematically target the agent with the largest eigenvector centrality.
    Abstract: Nous proposons une approche analytique au problème de maximisation de l'influence dans un réseau social entre deux joueurs utilisant des stratégies dynamiques. Le problème est formulé comme un jeu stochastique à somme nulle. Nous prouvons l'existence de la valeur uniforme et donnons une caractérisation partielle des stratégies d'équilibre. Nous montrons notamment que lorsque l'influence exercée par les agents est faible, ces derniers doivent systématiquement cibler l'agent avec la centralité "vecteur propre" la plus élevée.
    Keywords: Stochastic games,Social network,Dynamic games,Targeting,Jeux stochastiques,Jeux dynamiques,Réseaux sociaux
    Date: 2017–04
  11. By: Marta Leniec (Uppsala University); Kristoffer Glover (Finance Discipline Group, University of Technology Sydney); Erik Ekström (Uppsala University)
    Abstract: We study zero-sum optimal stopping games (Dynkin games) between two players who disagree about the underlying model. In a Markovian setting, a verification result is established showing that if a pair of functions can be found that satisfies some natural conditions then a Nash equilibrium of stopping times is obtained, with the given functions as the corresponding value functions. In general, however, there is no uniqueness of Nash equilibria, and different equilibria give rise to different value functions. As an example, we provide a thorough study of the game version of the American call option under heterogeneous beliefs. Finally, we also study equilibria in randomized stopping times.
    Keywords: Dynkin game; heterogeneous belief; multiple Nash equilibria; optimal stopping theory
    Date: 2017–01–01
  12. By: Bonatti, Alessandro; Cisternas, Gonzalo
    Abstract: A long-lived consumer interacts with a sequence of firms in a stationary Gaussian setting. Each firm relies on the consumer's current score--an aggregate measure of past quantity signals discounted exponentially--to learn about her preferences and to set prices. In the unique stationary linear Markov equilibrium, the consumer reduces her demand to drive average prices below the no-information benchmark. The firms' learning is maximized by persistent scores, i.e., scores that overweigh past information relative to Bayes' rule when observing disaggregated data. Hidden scores--those only observed by firms--reduce demand sensitivity, increase expected prices, and reduce expected quantities.
    Keywords: Consumer Scores; information design; Persistence; price discrimination; Ratchet Effect; signaling; transparency
    JEL: C73 D82 D83
    Date: 2018–06
  13. By: Daniela Bubboloni (Dipartimento di Matematica e Informatica “Ulisse Dini” Università degli Studi di Firenze, viale Morgagni, 67/a, 50134, Firenze, Italy); Mostapha Diss (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France); Michele Gori (Dipartimento di Scienze per l’Economia e l’Impresa, Università degli Studi di Firenze, via delle Pandette 9, 50127, Firenze, Italy)
    Abstract: Committee selection rules are procedures selecting sets of candidates of a given size on the basis of the preferences of the voters. There are in the literature two natural extensions of the well-known single-winner Simpson voting rule to the multiwinner setting. The first method gives a ranking of candidates according to their minimum number of wins against the other candidates. Then, if a fixed number k of candidates are to be elected, the k best ranked candidates are chosen as the overall winners. The second method gives a ranking of committees according to the minimum number of wins of committee members against committee nonmembers. Accordingly, the committee of size k with the highest score is chosen as the winner. We propose an in-depth analysis of those committee selection rules, assessing and comparing them with respect to several desirable properties among which unanimity, fixed majority, non-imposition, stability, local stability, Condorcet consistency, some kinds of monotonicity, resolvability and consensus committee. We also investigate the probability that the two methods are resolute and suffer the reversal bias, the Condorcet loser paradox and the leaving member paradox. We compare the results obtained with the ones related to further well-known committee selection rules. The probability assumption on which our results are based is the widely used Impartial Anonymous Culture.
    Keywords: Multiwinner Elections, Committee Selection Rule, Simpson Voting Rule, Paradoxes, Probability
    JEL: D71 D72
    Date: 2018
  14. By: Hill, Brian
    Abstract: The standard, Bayesian account of rational belief and decision is often argued to be unable to cope properly with severe uncertainty, of the sort ubiquitous in some areas of policy making. This paper tackles the question of what should replace it as a guide for rational decision making. It defends a recent proposal, which reserves a role for the decision maker’s confidence in beliefs. Beyond being able to cope with severe uncertainty, the account has strong normative credentials on the main fronts typically evoked as relevant for rational belief and decision. It fares particularly well, we argue, in comparison to other prominent non-Bayesian models in the literature.
    Keywords: Confidence; Decision Under Uncertainty; Belief; Rationality
    JEL: D81 H00
    Date: 2017–10–03
  15. By: Hitoshi Sadakane
    Abstract: I analyze a cheap talk model in which an informed sender and an uninformed receiver engage in finite-period communication before the receiver chooses a project. During the communication phase, the sender can gradually convey information through multistage cheap talk communication and the receiver can pay money to the sender voluntarily whenever she receives a message. My results show that under some conditions, (i) the receiver can extract more detailed information from the sender than that in the model of one-shot cheap talk communication and (ii) there exists an equilibrium whose outcome Pareto-dominates all the equilibrium outcomes in the model of one-shot cheap talk communication. Moreover, I find an upper bound of the receiver's equilibrium payoff and provide a sufficient condition for it to be approximated by the receiver's payoff under a certain equilibrium. This result shows that multistage information transmission with voluntary monetary transfer can be more beneficial for the receiver than a wide class of other communication protocols (e.g., mediation and arbitration).
    Date: 2017–06
  16. By: Lily Ling Yang
    Abstract: In this paper, we employ a novel approach to study the value of information in games. A decision problem is relevant to another if the optimal decision rule of the former, when applied to the latter, is better than making a decision without any information in the latter. In a game, if the problem originally faced by a player is relevant to the problem induced by a change of the situation, the player benefits more from her own information after the change. Using the notion of relevance, we study the value of information in various games, even when a closed form solution is not available.
    Keywords: Value of information, Quadratic game, Global game, Persuasion game
    JEL: D81 D83
    Date: 2018–06
  17. By: Vladimir Novak; Tim Willems
    Abstract: This paper solves the two-armed bandit problem when decision makers are risk averse. It shows, counterintuitively, that a more risk-averse decision maker might be more willing to take risky actions. The reason relates to the fact that pulling the risky arm in bandit models produces information on the environment – thereby reducing the risk that a decision maker will face in the future. This finding gives reason for caution when inferring risk preferences from observed actions: in a bandit setup, observing a greater appetite for risky actions can actually be indicative of more risk aversion, not less. Studies which do not take this into account may produce biased estimates.
    Keywords: experimentation; learning; risk aversion;
    JEL: D81 D83
    Date: 2018–06
  18. By: Argenziano, Rossella; Gilboa, Itzhak
    Abstract: Relying on a literal interpretation of Weber's law in psychophysics, we show that a simple condition of independence across good categories implies the Cobb-Douglas preferences.
    Keywords: Cobb-Douglas; Webers Law; Semi-Order
    JEL: D11
    Date: 2017–03–01
  19. By: Sander Heinsalu
    Abstract: I show that firms price almost competitively and consumers can infer product quality from prices in markets where firms differ in quality and production cost, and learning prices is costly. Bankruptcy risk or regulation links higher quality to lower cost. If high-quality firms have lower cost, then they can signal quality by cutting prices. Then the low-quality firms must cut prices to retain customers. This price-cutting race to the bottom ends in a separating equilibrium in which the low-quality firms charge their competitive price and the high-quality firms charge slightly less.
    Date: 2018–06
  20. By: Bar-Isaac, Heski; Jewitt, Ian; Leaver, Clare
    Abstract: This paper explores how the structure of asymmetric information impacts on economic outcomes in Akerlof's (1970) Lemons model applied to the labor market and extended to admit a matching component between worker and firm. For efficiency, only good matches should be retained. We characterize the nature of equilibrium and show that, for any Gaussian information structure, both adverse selection and efficiency depend on the realization of information only through the conditional expectation of match value given public information. We derive a parsimonious parameterization of all Gaussian information structures and establish comparative statics results. Using this framework, we address five natural questions. What is the effect of more public information? Which information structures impose adverse selection efficiently, and inefficiently? What is the effect of more private information? When is there positive selection into outside firms? When is the average wage of released workers higher than the average wage of retained workers?
    Keywords: Adverse Selection; asymmetric information; information design
    JEL: D82 J30
    Date: 2018–06

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