nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒08‒27
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. On Competing Mechanisms under Exclusive Competition By Andrea Attar; Eloisa Campioni; Gwenaël Piaser
  2. On the Foundations of Ex Post Incentive Compatible Mechanisms By Yamashita, Takuro; Zhu, Shuguang
  3. Consumer Exploitation and Notice Periods By Murooka, Takeshi; Schwarz, Marco
  4. Asymmetric information allocation to avoid coordination failure By Moriya, Fumitoshi; Yamashita, Takuro
  5. Persuasion with Limited Communication Capacity By Le Treust, Maël; Tomala, Tristan
  6. On the Efficiency of Social Learning By Rosenberg, Dinah; Vieille, Nicolas
  7. Revenue guarantees in auctions with a (correlated) common prior and additional information By Yamashita, Takuro
  8. Narratives, Imperatives and Moral Reasoning By Roland Bènabou; Armin Falk; Jean Tirole
  9. Wage-Rise Contract and Labour-Managed Cournot Oligopoly with Complementary Goods By Ohnishi, Kazuhiro
  10. Advance Selling, Competition, and Brand Substitutability By Oksana Loginova
  11. Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice By David Bardey; Denis Gromb; David Martimort; Jérôme Pouyet
  12. Delegating relational contracts to corruptible intermediarie By Marta Troya-Martinez; Liam Wren-Lewis
  13. Revenue-capped efficient auctions By Muto, Nozomu; Shirata, Yasuhiro; Yamashita, Takuro
  14. Divergent Interpretation and Divergent Prediction in Communication By Miura, Shintaro; Yamashita, Takuro
  15. Stochastic Expected Utility for Binary Choice: New Representations By Matthew Ryan
  16. Second-Order Induction and Agreement By Argenziano, Rossella; Gilboa, Itzhak
  17. Optimal Public Information Disclosure by Mechanism Designer By Yamashita, Takuro
  18. Learning What is Similar: Precedents and Equilibrium Selection By Argenziano, Rossella; Gilboa, Itzhak
  19. Order on Types based on Monotone Comparative Statics By Kunimoto, Takashi; Yamashita, Takuro
  20. A characterization of "Phelpsian" statistical discrimination By Christopher P. Chambers; Federico Echenique

  1. By: Andrea Attar (DEF & CEIS, Università di Roma Tor Vergata and Toulouse School of Economics (CNRS)); Eloisa Campioni (DEF & CEIS, Università di Roma Tor Vergata); Gwenaël Piaser (IPAG Business School)
    Abstract: We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct examples showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.
    Keywords: Competing Mechanisms, Exclusive Competition, Incomplete Information
    JEL: D82
    Date: 2018–08–09
  2. By: Yamashita, Takuro; Zhu, Shuguang
    Abstract: In private-value auction environments, Chung and Ely (2007) establish maxmin and Bayesian foundations for dominant-strategy mechanisms. We first show that similar foundation results for ex post mechanisms hold true even with interdependent values if the interdependence is only cardinal. This includes, for example, the one-dimensional environments of Dasgupta and Maskin (2000) and Bergemann and Morris (2009b). Conversely, if the environment exhibits ordinal interdependence, which is typically the case with multi-dimensional environments(e.g., a player's private information comprises a noisy signalof the common value of the auctioned good and an idiosyncraticprivate-value parameter), then in general, ex post mechanisms do not have foundation. That is, there exists a non-ex-post mechanism that achieves strictly higher expected revenue than the optimal ex post mechanism, regardless of the agents' high-order beliefs.
    Date: 2018–07
  3. By: Murooka, Takeshi (Osaka University); Schwarz, Marco (University of Innsbruck)
    Abstract: Firms often set long notice periods when consumers cancel a contract, and sometimes do so even when the costs of changing or canceling the contract are small. We investigate a model in which a firm offers a contract to consumers who may procrastinate canceling it due to naive present-bias. We show that the firm may set a long notice period to exploit naive consumers.
    Keywords: notice periods; procrastination; present bias; time inconsistency; consumer naivete;
    JEL: D04 D18 D21 D40 D90 L51
    Date: 2018–08–02
  4. By: Moriya, Fumitoshi; Yamashita, Takuro
    Abstract: In the context of team production, this paper studies the optimal (deterministic and stochastic) information allocation that implements desired effort levels as the unique Bayesian equilibrium. We show that, under certain conditions, it is optimal to asymmetrically inform agents even though they may be ex ante symmetric. The main intuition is that informing the agents asymmetrically can be effective in avoiding "bad" equilibria, that is, equilibria with coordination failure.
    Keywords: Moral hazard; Unique implementation; Asymmetric information allocation
    JEL: D21 D23 D86
    Date: 2018–07
  5. By: Le Treust, Maël; Tomala, Tristan
    Abstract: We consider a Bayesian persuasion problem where the persuader and the decision maker communicate through an imperfect channel which has a fixed and limited number of messages and is subject to exogenous noise. Imperfect communication entails a loss of payoff for the persuader. We establish an upper bound on the payoffs the persuader can secure by communicating through the channel. We also show that the bound is tight: if the persuasion problem consists of a large number of independent copies of the same base problem, then the persuader can achieve this bound arbitrarily closely by using strategies which tie all the problems together. We characterize this optimal payoff as a function of the information-theoretic capacity of the communication channel.
    Keywords: Bayesian persuasion problem; imperfect communication channel
    JEL: C72 D82 D83
    Date: 2017–12–15
  6. By: Rosenberg, Dinah; Vieille, Nicolas
    Abstract: We revisit well-known models of learning in which a sequence of agents make a binary decision on the basis of a private signal and additional information. We introduce efficiency measures, aimed at capturing the speed of learning in such contexts. Whatever the distribution of private signals, we show that the learning efficiency is the same, whether each agent observes the entire sequence of earlier decisions, or only the previous decision. We provide a simple necessary and sufficient condition on the signal distributions under which learning is efficient. This condition fails to hold in many prominent cases of interest. Extensions are discussed.
    Keywords: Social Learning;
    JEL: D83
    Date: 2017–11–09
  7. By: Yamashita, Takuro
    Abstract: This paper considers auction environments with a (possibly correlated) common prior over bidders' values, where each bidder may have additional information (e.g., through information acquisition). Under certain conditions, we characterize the optimal mechanisms in terms of the expected revenue that is guaranteed given whatever additional information is available to the bidders. Even if the values are correlated,we do not necessarily have full-surplus extraction, and moreover, the optimal mechanism resembles those in the independently distributed cases. Specifically, we show that (i) a second-price auction is optimal among all the efficient mechanisms, and (ii) it is rate-optimal among all the mechanisms.
    Keywords: Mechanism design; Auction; Correlated private information;Information acquisition; Revenue guarantee
    Date: 2018–07
  8. By: Roland Bènabou (Princeton University); Armin Falk (University of Bonn); Jean Tirole (Toulouse School of Economics)
    Abstract: By downplaying externalities, magnifying the cost of moral behavior, or suggesting not being pivotal, exculpatory narratives can allow individuals to maintain a positive image when in fact acting in a morally questionable way. Conversely, responsibilizing narratives can help sustain better social norms. We investigate when narratives emerge from a principal or the actor himself, how they are interpreted and transmitted by others, and when they spread virally. We then turn to how narratives compete with imperatives (general moral rules or precepts) as alternative modes of communication to persuade agents to behave in desirable ways.
    Keywords: moral behavior, prosocial behavior, narratives, imperatives, justifications, rules, Kantian reasoning, deontology, consequentialism, utilitarianism, norms, organizations
    JEL: D62 D64 D78 D83 D85 D91 H41 K42 L14 Z13
    Date: 2018–07
  9. By: Ohnishi, Kazuhiro
    Abstract: This paper considers a quantity-setting oligopoly model with complementary goods where labour-managed firms are allowed to offer wage-rise contracts as a strategic commitment. The following two stages are considered. In the first stage, each firm independently decides whether or not to adopt a wage-rise contract as a strategic commitment device. In the second stage, each firm independently chooses and sells its actual output. The paper analyses the equilibrium of the labour-managed oligopoly model.
    Keywords: Cournot competition; Labour-managed oligopoly; Wage-rise contract; Complementary goods
    JEL: C72 D21 L13
    Date: 2018–07–26
  10. By: Oksana Loginova (University of Missouri)
    Abstract: This paper studies the impact of competition on the benefits of advance selling. I construct a two-period price-setting game with two firms that produce different brands serving heterogeneous consumers. Some consumers prefer one brand, others prefer the other brand. Consumers derive common value from their preferred brand, but they differ in how strongly they dislike their less preferred brand. One of the firms can offer consumers the opportunity to pre-order its product in advance of the regular selling season. I calculate the benefits of advance selling when this firm faces competition from the other firm in the regular selling season and when it does not. Competition is shown to enhance the benefits of advance selling when in the advance selling season consumers are uncertain about which brand they will prefer. Comparative statics analysis with respect to brand substitutability reveal some interesting results.
    Keywords: advance selling, price competition, strategic consumers, valuation uncertainty, consumer heterogeneity, substitutability of brands
    JEL: C72 D42 D43 L12 L13 M31
    Date: 2016–10
  11. By: David Bardey (Toulouse School of Economics, Universidad de Los Andes); Denis Gromb (HEC Paris - Ecole des Hautes Etudes Commerciales); David Martimort (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); Jérôme Pouyet (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)
    Abstract: We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.
    Keywords: Asymmetric Information Keywords Mis-Selling, Asym- metric Information ,Mis-Selling, Expertise, Retailing, Competition, Regulation
    Date: 2016–11
  12. By: Marta Troya-Martinez (NES - New Economics School - New Economics School); Liam Wren-Lewis (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)
    Abstract: This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agent, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
    Keywords: corruption,Relational contracts,delegation
    Date: 2016–09
  13. By: Muto, Nozomu; Shirata, Yasuhiro; Yamashita, Takuro
    Abstract: We study an auction that maximizes the expected social surplus under an upperbound constraint on the seller's expected revenue, which we call a revenue cap. Such a constrained-efficient auction may arise, for example, when: (i) the auction designer is "pro-buyer", that is, he maximizes the weighted sum of the buyers' and seller's auction payoffs, where the weight for the buyers is greater than that for the seller; (ii) the auction designer maximizes the (unweighted) total surplus in a multi-unit auction in which the number of units the seller owns is private information; or (iii) multiple sellers compete to attract buyers before the auction. We characterize the mechanisms for constrained-efficient auctions and identify their important properties. First, the seller sets no reserve price and sells the good for sure. Second, with a nontrivial revenue cap, "bunching" is necessary. Finally, with a sufficiently severe revenue cap, the constrained-efficient auction has a bid cap, so that bunching occurs at least "at the top," that is, "no distortion at the top" fails.
    Date: 2018–07
  14. By: Miura, Shintaro; Yamashita, Takuro
    Abstract: We consider a cheap-talk game à la Crawford and Sobel (1982) with almost-common interest players. The sender's bias parameter is only approximately common knowledge. Compared to the standard case where the structure of the bias parameter is (exactly) common knowledge, communication between the players is subject to divergent interpretation of the sender's messages by the receiver, and divergent prediction of the receiver's reaction by the sender. We show that the complementary nature of these phenomena can result in significant welfare consequences even with a \small" (in a certain sense) departure from (exact) common knowledge.
    Date: 2018–07
  15. By: Matthew Ryan (School of Economics, Auckland University of Technology)
    Abstract: We present new axiomatisations for various models of binary stochastic choice that may be characterised as "expected utility maximisation with noise". These include axiomatisations of strictly (Ryan 2018a) and simply (Tversky and Russo, 1969) scalable models, plus strict (Ryan, 2015) and strong (Debreu, 1958) Fechner models. Our axiomatisations complement the important contributions of Blavatskyy (2008) and Dagsvik (2008). Our representation theorems set all models on a common axiomatic foundation, progressively augmented by additional axioms necessary to characterise successively more restrictive models. In particular, we are able to decompose Blavatskyy's (2008) common consequence independence axiom into two parts: one that underwrites the linearity of utility and another than underwrites the Fechnerian structure of noise. This has signifcant advantages for testing the Fechnerian models, as we discuss.
    Date: 2018–07
  16. By: Argenziano, Rossella; Gilboa, Itzhak
    Abstract: Agents make predictions based on similar past cases. The notion of similarity is itself learnt from experience by "second-order induction": past cases inform agents also about the relative importance of various attributes in judging similarity. However, there may be multiple "optimal" similarity functions for explaining past data. Moreover, the computation of the optimal similarity function is NP-Hard. We offer conditions under which rational agents who have access to the same observations are likely to converge on the same predictions, and conditions under which they may entertain different probabilistic beliefs.
    Keywords: second-order induction;
    JEL: A10
    Date: 2017–07–01
  17. By: Yamashita, Takuro
    Abstract: We consider a mechanism design environment where a principal can partially control agents' information before they play a mechanism (e.g., a seller disclosing quality information). Assuming that the principal can ex ante commit to his disclosure policy, this is a Bayesian persuasion problem with an endogenous payoff function as a consequence of optimal mechanism design. Wefirst show that, if the principal's and agents' information are independent or affiliated, and if the implementable set of (non-monetary) allocation rules is invariant to disclosure policies, then it is optimal for the principal to disclose all the relevant information. In case of negative correlation or in case the set of implementable allocation rules varies with disclosure policies, then full disclosure is not necessarily optimal. We then characterize the optimal (non-full) disclosure policy under additional assumptions, which, viewed as a Bayesian persuasion problem, provides a solution to a novel class of environments.
    Date: 2018–07
  18. By: Argenziano, Rossella; Gilboa, Itzhak
    Abstract: We argue that a precedent is important not only because it changes the relative frequency of a certain event, making it positive rather than zero, but also because it changes the way that relative frequencies are weighed. Specifically, agents assess probabilities of future events based on past occurrences, where not all of these occurrences are deemed equally relevant. More similar cases are weighed more heavily than less similar ones. Importantly, the similarity function is also learnt from experience by "second-order induction". The model can explain why a single precedent affects beliefs above and beyond its effect on relative frequencies, as well as why it is easier to establish reputation at the outset than to re-establish it after having lost it. We also apply the model to equilibrium selection in a class of games dubbed "Statis- tical Games", suggesting the notion of Similarity-Nash equilibria, and illustrate the impact of precedents on the play of coordination games.
    Keywords: precedents; second-order induction; Similarity-Nash equilibria
    JEL: A10
    Date: 2018–03–01
  19. By: Kunimoto, Takashi; Yamashita, Takuro
    Keywords: common certainty of optimism; least equilibrium; greatest equilibrium;;interim correlated rationalizaibility; monotone comparative statics;supermodularity; universal type space
    JEL: C72 D78 D82
    Date: 2018–07
  20. By: Christopher P. Chambers; Federico Echenique
    Abstract: We establish that statistical discrimination is possible if and only if it is impossible to uniquely identify the signal structure observed by an employer from a realized empirical distribution of skills. The impossibility of statistical discrimination is shown to be equivalent to the existence of a fair, skill-dependent, remuneration for workers. Finally, we connect the statistical discrimination literature to Bayesian persuasion, establishing that if discrimination is absent, then the optimal signaling problem results in a linear payoff function (as well as a kind of converse).
    Date: 2018–08

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