nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒07‒30
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Skewed Information Transmission By Francesc Dilmé
  2. Majoritarian aggregation and Nash implementation of experts' opinions By Pablo Amorós
  3. On Time-Consistent Collective Choice with Heterogeneous Quasi- Hyperbolic Discounting By Jean-Pierre Drugeon; Bertrand Wigniolle
  4. The Dimensions of Consensus By Benny Moldovanu; Alex Gershkov; Xianwen Shi
  5. Optimal Cross-Licensing Arrangements: Collusion versus Entry Deterrence By Choi, Jay Pil; Gerlach, Heiko
  6. The Preference for Monotone Decision Problems By Bernard Sinclair-Desgagné
  7. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  8. The Multiplier Effect in Two-Sided Markets with Bilateral Investments By Benny Moldovanu; Deniz Dizdar; Nora Szech
  9. Confirmation bias and signaling in Downsian elections By Antony Millner; Hélène Ollivier; Leo Simon
  10. Mixed Bundling in Retail DVD Sales: Facts and Theories By Cabral, Luís M B; Natividad, Gabriel
  11. A Theory of Auctions with Endogenous Valuations By Benny Moldovanu; Alex Gershkov; Philipp Strack
  12. Optimal Law Enforcement with Sophisticated and Naive Offenders By Berno Buechel; Eberhard Feess; Gerd Muehlheusser
  13. Strategic Declaration of Standard Essential Patents By AOKI Reiko; ARAI Yasuhiro
  14. Insurance Law and Incomplete Contracts By Jean-Marc Bourgeon; Pierre Picard
  15. Extensions of the Simpson voting rule to the committee selection setting By Daniela Bubboloni; Mostapha Diss; Michele Gori
  16. The Evolution of Self-Control in the Brain By David Jiménez-Gómez

  1. By: Francesc Dilmé
    Abstract: This paper analyzes strategic information transition between skewed agents. More concretely, we study the Crawford and Sobel (1982) setting in the case where agents are not biased, but they differ on the relative importance they put on avoiding "upward" or "downward" mistakes. We show that, even though the agents could fully communicate when the state of the world was perfectly observed by the sender, the information transmission is significantly imprecise in any equilibrium when there is a small noise in the observation. Hence, contrary to what was previous thought, a low objective misalignment is not sufficient for precise equilibrium communication.
    Keywords: Strategic Communication, Skewed Preferences
    JEL: C72 D82 D83
    Date: 2018–07
  2. By: Pablo Amorós (Department of Economics, University of Málaga)
    Abstract: A group of experts must choose the winner of a competition. The honest opinions of the experts must be aggregated to determine the deserving winner. The aggregation rule is majoritarian if it respects the honest opinion of the majority of experts. An expert might not want to reveal her honest opinion if, by doing so, a contestant that she likes more is chosen. Then, we have to design a mechanism that implements the aggregation rule. We show that, in general, no majoritarian aggregation rule is Nash implementable, even if no expert has friends or enemies among the contestants.
    Keywords: mechanism design; Nash equilibrium; aggregation of experts' opinions; jury
    JEL: C72 D71 D78
    Date: 2018–07
  3. By: Jean-Pierre Drugeon (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Bertrand Wigniolle (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A general setup is considered where agents are characterised by quasi-hyperbolic discounting and by heterogeneous bias for the present and heterogenous discounting parameters. Consumptions are moreover subject to a standard feasibility constraint. A collective utility function is defined as a function of the intertemporal utilities of the selves of the different agents, the elementary unit being thus the self of a given period for a given agent. The analysis is further specialized to time-independent collective utility functions. Such a framework generating a tension between Pareto-optimality and time-consistency for the optimal allocations, two approaches are suggested in order to tackle this issue. The first one imposes restrictions on the collective utility function that ensure the timeconsistency of the optimal decisions. The second one builds from an a priori time-inconsistent collective utility function. The benevolent planner is then to be considered as a sequence of successive incarnations, any of these incarnations being endowed with its own objective. The associated optimal policy is the equilibrium of a game between the successive incarnations of the planner when the players follow Markovian strategies. The results obtained for both solution concepts are compared through an example that also shows how they can be recovered through a competitive equilibrium.
    Keywords: Heterogeneities,hyperbolic discounting,collective choice
    Date: 2017–12
  4. By: Benny Moldovanu; Alex Gershkov; Xianwen Shi
    Abstract: We study a multi-dimensional collective decision under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes - the issues that are voted upon - lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If, in addition, the marginals are identical, then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with symmetric marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency.
    Keywords: multi-dimensional voting , welfare , bundling
    JEL: D82 D71
    Date: 2018–07
  5. By: Choi, Jay Pil (Michigan State University, Department of Economics); Gerlach, Heiko (University of Queensland)
    Abstract: This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.
    Keywords: cross-licensing arrangements; patent litigation; collusion; entry deterrence
    JEL: D43 L13 O30
    Date: 2018–07–10
  6. By: Bernard Sinclair-Desgagné
    Abstract: This paper spells out conditions under which a rational decisionmaker will commit ex ante to certain choice restrictions, in order to get extra information about an uncertain state of nature. We show that the envisioned limitations will then bring the decision-maker to solve a monotone decision problem. This provides a first rationale for the observed recurrence of this type of problem in economic life. From another angle, the analysis also explains why individuals and organizations resort to automatic responses and routines in some circumstances, and how this contributes to shape their environment.
    Keywords: Monotone decision problems; Rational inattention; Design attributes; Routines
    JEL: D01 D02 D89
    Date: 2018
  7. By: Paul Belleflamme; Martin Peitz
    Abstract: On many two-sided platforms, users on one side not only care about user participation and usage levels on the other side, but they also care about participation and usage of fellow users on the same side. Most prominent is the degree of seller competition on a platform catering to buyers and sellers. In this paper, we address how seller competition affects platform pricing, product variety, and the number of platforms that carry trade.
    Keywords: Network effects, two-sided markets, platform competition, intermediation, pricing, imperfect competition
    JEL: D43 L13 L86
    Date: 2018–07
  8. By: Benny Moldovanu; Deniz Dizdar; Nora Szech
    Abstract: Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling private, complementary types, investments generate direct benefits for partners. We explore quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their own rank and about the types and investments of potential partners. We characterize how the multiplier effect hinges on market size, and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition.
    Keywords: two-sided matching, signaling, investment, multiplier effect
    JEL: C78 D44 D82
    Date: 2018–07
  9. By: Antony Millner (LSE - London School of Economics and Political Science); Hélène Ollivier (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Leo Simon (University of California [Berkeley])
    Abstract: How do voters' behavioural biases affect political outcomes? We study this question in a model of Downsian electoral competition in which office-motivated candidates have private information about the benefits of policies, and voters may infer candidates' information from their electoral platforms. If voters are Bayesian, candidates have strategic incentives to `anti-pander' { they choose platforms that are more extreme than is justified by their private beliefs. However, anti-pandering incentives are ameliorated if voters'inferences are subject to confirmation bias. Voter confirmation bias can thus counteract distortions due to the strategic interaction between candidates, potentially leading to welfare improvements. Indeed, we show that all observers, whether biased or Bayesian, would like the representative voter in our model to exhibit more confirmation bias than they do themselves.
    Keywords: JEL Codes: D72,signaling,electoral competition,pandering,D91 Keywords: Confirmation bias
    Date: 2017–11–09
  10. By: Cabral, Luís M B; Natividad, Gabriel
    Abstract: Many DVD titles are sold in retail stores in bundles, typically a bundle of two different titles with common characteristics: same lead actor/actress, same director, same genre, etc. This suggests that consumer valuations are positively correlated across the bundle components, which in turn runs counter to the received wisdom that bundling is most profitable when valuations are negatively correlated. In this paper, we propose a solution to this puzzle, one that is based on the observation that DVDs are sequentially released durable goods. At the time the second title is released, it is likely that high-valuation buyers will have bought the first one. For this reason, even though ex-ante valuations are positively correlated, ex-post -- that is, at the time the second title is released -- valuations are negatively correlated. We provide sufficient conditions such that mixed bundling increases revenues and the revenue increase is greater the more positively correlated valuations are. We also provide empirical confirmation of this prediction as well as an independent estimate from a calibrated analytical model.
    Keywords: mixed bundling; price discrimination; durable goods
    JEL: L10
    Date: 2018–07
  11. By: Benny Moldovanu; Alex Gershkov; Philipp Strack
    Abstract: We study the revenue maximizing allocation of m units among n symmetric agents that have unit demand and convex preferences over the probability of receiving an object. Such preferences are naturally induced by a game where the agents take costly actions that affect their values before participating in the mechanism. Both the uniform m + 1 price auction and the discriminatory pay-your-bid auction with reserve prices constitute symmetric revenue maximizing mechanisms. Contrasting the case with linear preferences, the optimal reserve price reacts to both demand and supply, i.e., it depends both on the number of objects m and on number of agents n. The main tool in our analysis is an integral inequality involving majorization, super-modularity and convexity due to Fan and Lorentz (1954).
    Keywords: revenue maximization, endogenous values , investments, majorization
    JEL: D44
    Date: 2018–07
  12. By: Berno Buechel; Eberhard Feess; Gerd Muehlheusser
    Abstract: Research in criminology has shown that the perceived risk of apprehension often differs substantially from the true level. To account for this insight, we extend the standard economic model of law enforcement (Becker, 1968) by considering two types of offenders, sophisticates and naïves. The former are always fully informed about the enforcement effort, the latter become informed only when the effort is revealed by the authority; otherwise, naïves rely on their perceptions. We characterize the optimal enforcement effort and the decision whether to hide or reveal it. The welfare-maximizing authority chooses either a relatively high effort which is then revealed, or it chooses a relatively low effort which remains hidden. The latter policy becomes more favorable, the larger the share of naïves in the population and the higher their level of perceived effort. We then analyze three empirically important extensions, thereby allowing for lower efficacy of the enforcement effort due to avoidance activities, endogenous fines, and heterogeneity with respect to naïves’ perceptions.
    Keywords: optimal law enforcement, deterrence, behavioral law & economics, naïveté, shrouding
    JEL: K42 D73
    Date: 2018
  13. By: AOKI Reiko; ARAI Yasuhiro
    Abstract: We examine how the ex-post assessment of standard essential patents (SEPs) affects the patent holder's strategic incentive to declare SEPs. While declaration guarantees inclusion in the standard, it requires commitment to license under fair, reasonable, and non-discriminatory (FRAND) terms. We consider two forms of essentiality assessment: (i) by an independent organization and (ii) by the courts during a patent dispute or a challenge initiated by a standard implementer. Assessment by an independent organization can eliminate declared patents with low essentiality. Assessment through a dispute can decrease the number of both declared and non-declared (i.e., non-FRAND-encumbered) patents and these different trade-offs affect the rights holder's strategic declaration incentive. We obtain the following results. First, there is less declaration when there is ex-post assessment of either type compared with no assessment. Second, there is less declaration with assessment by an independent organization than with assessment through disputes. We also show that a rights holder with high essentiality patents sets a higher declaration rate than one with low essentiality patents.
    Date: 2018–06
  14. By: Jean-Marc Bourgeon (ECO-PUB - Economie Publique - INRA - Institut National de la Recherche Agronomique - AgroParisTech, Département d'Économie de l'École Polytechnique - X - École polytechnique); Pierre Picard (X - École polytechnique)
    Abstract: Under moral hazard, most insurance contracts are incomplete, to the extent that they condition the coverage neither on the contingencies under which policyholders choose their behavior, nor on the circumstances of the loss. This incompleteness can be explained by underwriting and auditing costs borne by insurers, by policyholders cognitive costs, and by the limits of market regulation. It opens the door to controversies and disputes between insured and insurer. In this context, we analyze how insurance law can mitigate moral hazard, by allowing insurers to cut indemnities in some circumstances, while preventing them from excessive nitpicking. We also highlight conditions under which the burden of proof should be on the policyholders, provided that insurers are threatened by bad faith penalties.
    Keywords: incomplete contracts,moral hazard,insurance
    Date: 2018–07–04
  15. By: Daniela Bubboloni (Università degli Studi di Firenze [Firenze]); Mostapha Diss (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Michele Gori (Università degli Studi di Firenze [Firenze])
    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
    Date: 2018
  16. By: David Jiménez-Gómez (Dpto. Fundamentos del Análisis Económico)
    Abstract: Temptation and self-control evolved as single mechanism to make humans behave against their own self-interest. I analyze the evolution of self-control in a principal-agent framework, in which the agent has access to private information but his utility cannot depend on all rel-evant variables. The principal can obtain the first best asymptotically by biasing the utility of the agent (from which an endogenous conflict emerges) and simultaneously endowing the agent with a limited amount of self-control.Several empirical properties of self-control, observed in psychological experiments, are explained in terms of the model: 1) self-control grows over time as it is exercised; 2) self-control is lower when the level of glucose in the blood is low, but does not depend on a physical resource; 3) as the environment becomes more tempting, individuals exhibit less self-control. The model sheds light on the di¿erence between self-control and hyperbolic discounting and provides a framework for understanding the recent surge of chronic non-communicable diseases, suggesting that the current environment could be welfare-reducing.
    Keywords: neuroeconomics, evolution of preferences, self-control
    JEL: D60 D90 C72 D81
    Date: 2018–07

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