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on Microeconomics |
| By: | SCHOPOHL Simon, (CEREC, Université Saint-Louis and CORE, UCLouvain) |
| Abstract: | We analyse a Sender-Receiver game in which the Sender can choose between a costless cheap-talk message and a costly verifiable message. The Sender knows the true state of the world, while the Receiver only learns about the state through the message of the Sender. The utility of both players depends on an action the Receiver chooses. We keep the assumptions about the utility functions and about the messages to a minimum and state conditions for fully revealing equilibria. Under the assumption of "smooth" preferences and utility functions we show that a fully revealing equilibrium in which the Sender uses both her message types can only exist as long as the state space and action space are discrete. We illustrate this result for the classical example of quadratic loss utilities. In a continuous setting we show that there can only exist a fully revealing equilibrium in which the Sender uses different message types in different states if we allow for costless verification in some states of the world or if the utility function of at least one player is discontinuous. |
| Keywords: | cheap-talk, communication, costly disclosure, full revelation, Sender-Receiver game, verifiable information |
| JEL: | C72 D82 |
| Date: | 2018–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2018013&r=mic |
| By: | Angeli, Deivis |
| Abstract: | I analyze a dynamic coordination model under quasi-hyperbolic discounting. The main result is that present bias can induce a society to coordinate efficiently. When considering a transition from network A to B, higher present bias induces individuals to ask for higher relative quality of B, which is also what the central planner dictates, but for different reasons. A present biased agent overvalues relative quality because, when considering whether to initiate a transition, her momentary loss of network externalities is overvalued by myopic discounting. The planner’s motives are the negative externalities inflicted on agents 'stuck' in A during a transition. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:481&r=mic |
| By: | Salador Barera; Kareen Rozen |
| Abstract: | A decision maker may not perfectly maximize her preference over the feasible set. She may feel it is good enough to maximize her preference over a sufficiently large consideration set; or just require that her choice is sufficiently well-ranked (e.g., in the top quintile of options); or even endogenously determine a threshold for what is good enough, based on an initial sampling of the options. We introduce and investigate a class of theories, Order-k Rationality, encompassing heuristics such as these. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2018-12&r=mic |
| By: | Chi, Chang Koo (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | This paper studies a symmetric two-bidder all-pay auction where the bidders compete for a prize whose unknown common value is either high or low. The bidders’ private signals (or types) are discrete and affiliated through the value. Even with Affiliated signals, monotonicity of equilibria can fail in the sense that the bidder With a higher signal does not always win the auction. I show that when monotonicity fails, there exist multiple symmetric equilibria but the bidder’s type-dependent payoff is invariant across the equilibria. The paper provides a closed-form formula for the equilibrium payoffs and a condition for rent dissipation. |
| Keywords: | All-pay auctions; common values; correlated signals; non-monotone equilibria; rent dissipation rent dissipation |
| JEL: | D44 D72 |
| Date: | 2018–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2018_017&r=mic |
| By: | Elias Tsakas; Nikolas Tsakas |
| Abstract: | We study the effect of noise due to exogenous information distortions in the context of Bayesian persuasion. In particular, we ask whether more noise is always harmful for the information designer (viz., the sender). We show that in general this is not the case. That is, more noise is often beneficial for the sender. However, when we compare noisy channels with “similar basic structures”, more noise cannot be beneficial for the sender. We apply our theory to applications from the literatures on voting and cognitive biases. |
| Keywords: | Bayesian persuasion; data distortions; optimal signal; garbling |
| JEL: | C72 D72 D82 D83 K40 M31 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:11-2018&r=mic |
| By: | Manzano, Carolina (Rovira i Virgili University); Vives, Xavier (IESE Business School) |
| Abstract: | We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we .nd that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated. |
| Keywords: | demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions; |
| JEL: | D44 D82 E58 G14 |
| Date: | 2017–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-1162&r=mic |
| By: | Otto (O.H.) Swank (Erasmus University Rotterdam); Bauke (B.) Visser (Erasmus University Rotterdam) |
| Abstract: | We study committees that acquire information, deliberate and vote. A member cares about state-dependent decision payoffs and about his reputation for expertise. The state remains unobserved, even after the decision has been taken. In such inconclusive environments, in equilibrium, a member's internal (peer) reputation is based on deliberation patterns, while members' external (market) reputation is based on the observed group decision. Either form of reputation concerns create strategic complementarity among members' effort levels. Internal reputations create stronger incentives to become informed than external reputations, and their strength grows in committee size; external reputations create no incentives in large committees. If prior information favors a state, internal -- not external – reputations may hinder deliberation. In equilibrium, reputation concerns lead to additional information acquisition without affecting the expected reputations. Nevertheless, moderate rates of reputation concerns relax members' participation constraints, by counteracting the often predicted underprovision of information in committees. |
| Keywords: | committee decision making; reputation concerns; information acquisition; peers; markets |
| JEL: | D71 D83 |
| Date: | 2018–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180068&r=mic |
| By: | Gabuthy, Yannick (University of Lorraine, University of Strasbourg, CNRS, BETA, Nancy, France); Muthoo, Abhinay (Department of Economics, University of Warwick) |
| Abstract: | This paper analyses arbitration as a surrogate for complete contracts. We embed this idea in a simple model of a long-term relationship between a firm and its workforce, in which they can make productive-enhancing, relationship-specific investments, and then negotiate over the division of the resultant surplus. It is shown that the mere presence of the arbitrator (in the background of negotiations) may enhance investment incentives ex-ante by minimising each party's ability to engage in hold-up behaviours ex-post. Furthermore, we highlight notably that the partners should optimally commit to call an arbitrator ensuring a compromise by awarding a reasonable share of the surplus to the worker. Indeed, this type of arbitrator would harmonise the parties' bargaining powers and then weight their investment incentives optimally. |
| JEL: | D74 J52 K41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1173&r=mic |
| By: | Andersson, Tommy (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University) |
| Abstract: | We consider an allocation problem with a finite number of objects, and agents that demand at most one of the objects. The study provides a characterization of a class of strategy-proof price mechanisms. A mechanism belongs to the class if and only if the price space is restricted in a special way and, given that restriction, the outcome prices are minimal. The domain of the mechanisms is the set of general preference profiles (R_1,R_2,…,R_n), i.e., where R_a is agent a's rational, monotonic and continuous preference ordering over objects and prices. |
| Keywords: | Characterization; House-allocation; Strategy-proofness; Multiobject auction |
| JEL: | D44 D63 D78 D82 |
| Date: | 2018–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2018_021&r=mic |
| By: | DEHEZ Pierre, (Université catholique de Louvain, CORE, Belgium); GINSBURGH Victor, (Université libre de Bruxelles and CORE) |
| Abstract: | Approval voting allows voters to list any number of candidates. Their scores are obtained by summing the votes cast in their favor. Fractional voting instead follows the One-person-one-vote principle by endowing voters with a single vote that they may freely distribute among candidates. In this paper, we show that fairness requires the distribution of votes to be uniform. Uniform fractional voting corresponds to Shapley ranking that was introduced to rank wines as the Shapley value of a cooperative game with transferable utility. Here we analyze the properties of these "ranking games" and provide an axiomatic foundation to Shapley ranking. We also analyze Shapley ranking as a social welfare function and compare it to approval ranking. |
| Keywords: | approval voting, Shapley value |
| JEL: | D71 C71 |
| Date: | 2018–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2018012&r=mic |
| By: | Joao Ramos (University of Southern California); Tomasz Sadzik (UCLA) |
| Abstract: | In this paper we analyze a continuous-time model of partnership with persistence. In the model, agents exert private efforts affecting persistent internal capital, which drives the profitability of the partnership. We characterize the optimal equilibrium with a novel Hamilton-Jacobi-Bellmann equation. It describes the maximal incentives for the partners, as a function of continuation values net of the internal capital. We show that imperfect monitoring of the internal capital discontinuously helps the agents. Even a partnership with high level of internal capital may unravel as a consequence of a short spell of bad outcomes. Good profit outcomes increase effort when partnership is doing badly, but decrease effort when partnership is doing well. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1264&r=mic |
| By: | Bobkova, Nina |
| Abstract: | I solve a first-price auction for two bidders with asymmetric budget distributions and known valuations for one object. I show that in any equilibrium, the expected utilities and bid distributions of both bidders are unique. If budgets are sufficiently low, the bidders will bid their entire budget in any equilibrium. For sufficiently high budgets, mass points in the equilibrium strategies arise. A less restrictive budget distribution could make both bidders strictly worse off. If the budget distribution of a bidder is dominated by the budget distribution of his opponent in the reverse-hazard rate order, the weaker bidder will bid more aggressively than his stronger opponent. In contrast to existing results for symmetric budget distributions, with asymmetric budget distributions, a second-price auction can yield a strictly higher revenue than a first-price auction. Under an additional assumption, I derive the unique equilibrium utilities and bid distributions of both bidders in an all-pay auction. |
| Keywords: | Budget Constraints; First Price Auctions; Asymmetric Bidders |
| JEL: | C72 D44 D82 |
| Date: | 2017–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88628&r=mic |
| By: | Matthias Dahm (University of Nottingham, School of Economics); Paula González (Universidad Pablo de Olavide); Nicolás Porteiro (Universidad Pablo de Olavide) |
| Abstract: | This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm conceals information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Overall, stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that there are situations in which the relationship between the two monitoring instruments might be complementary. We also show that the welfare effects of mandatory disclosure depend on how it is enforced and that imperfect enforcement (in which some information remains concealed) might be optimal. In particular, the optimal fine might be smaller than the largest possible fine, even though the latter requires lower resource costs for inspections. |
| Keywords: | strategic information transmission, scepticism, confidence effect, monitoring, penalty, fine, sanction, detection probability |
| JEL: | D82 L15 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:18.09&r=mic |
| By: | Chichilnisky, Graciela (Dept. of Economics, International Affairs Building, Columbia University); Hammond, Peter J. (Dept. of Economics, and CAGE (Competitive Advantage in the Global Economy), University of Warwick); Stern, Nicholas (Dept. of Economics, and Grantham Research Institute on Climate Change and the Environment, LSE) |
| Abstract: | Ramsey famously pronounced that discounting “future enjoyments” would be ethically indefensible. Suppes enunciated an equity criterion implying that all individuals’ welfare should be treated equally. By contrast, Arrow (1999a, b) accepted, perhaps rather reluctantly, the logical force of Koopmans’ argument that no satisfactory preference ordering on a sufficiently unrestricted domain of infinite utility streams satisfies equal treatment. In this paper, we first derive an equitable utilitarian objective based on a version of the Vickrey–Harsanyi original position, extended to allow a variable and uncertain population with no finite bound. Following the work of Chichilnisky and others on sustainability, slightly weakening the conditions of Koopmans and co-authors allows intergenerational equity to be satisfied. In fact, assuming that the expected total number of individuals who ever live is finite, and that each individual’s utility is bounded both above and below, there is a coherent equitable objective based on expected total utility. Moreover, it implies the “extinction discounting rule” advocated by, inter alia, the Stern Review on climate change. |
| JEL: | D63 D70 D90 Q54 Q56 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1174&r=mic |
| By: | Jan Werner (University of Minnesota) |
| Abstract: | This paper develops a general theory of speculative bubbles and speculative trade in dynamic asset markets with short sales restrictions when agents have heterogeneous beliefs and are risk neutral. Speculative bubble arises when the price of an asset exceeds every trader's valuation measured by her willingness to pay if obliged to hold the asset forever. Speculative bubble indicates speculative trade - whoever holds the asset intends to sell it at a later date. We identify a sufficient condition on agents' heterogeneous beliefs for speculative bubbles in equilibrium. Our main focus is on heterogeneous beliefs arising from updating different prior beliefs in Bayesian model of learning. The sufficient condition for beliefs in Bayesian model is that no single prior dominates other agents' priors in the sense of monotone likelihood ratio order. We study asymptotic properties of speculative bubbles in light of merging of conditional beliefs and consistency of priors. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1216&r=mic |
| By: | Bloch, Francis (Université Paris 1 and Paris School of Economics); Dutta, Bhaskar (University of Warwick and Ashoka University); Manea, Mihai (Stanford University) |
| Abstract: | We analyze the formation of partnerships in social networks. Players need favors at random times and ask their neighbors in the network to form exclusive long-term partnerships that guarantee reciprocal favor exchange. Refusing to provide a favor results in the automatic removal of the under lyinglink. When favors are costly, players agree to provide the first favor in a partnership only if they otherwise face the risk of eventual solitude. In equilibrium,the players essential for realizing every maximum matching can avoid this risk and enjoy higher payoffs than in essential players. Although the search for partners is decentralized and reflects local incentives, the strength of essential players drives efficient partnership formation in everynetwork. When favors are costless, players enter partnerships at any opportunity and every maximal matching can emerge in equilibrium.In this case,efficiency is limited to special linking patterns : complete and complete bipartite networks, locally balanced biprtit enetworks with positive surplus, and factor-critical networks. JEL classification numbers: D85 ; C78 |
| Keywords: | networks ; partnerships ; matchings ; efficiency ; decentralizedmarkets ; favor exchange ; completely elementary networks ; locally balanced networks |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:41&r=mic |
| By: | Peiseler, Florian; Rasch, Alexander; Shekhar, Shiva |
| Abstract: | We analyze firms' ability to sustain collusion in a setting in which horizontally differentiated firms can price-discriminate based on private information regarding consumers' preferences. In particular, firms receive private signals which can be noisy (e.g., big data predictions). We find that there is a non-monotone relationship between signal quality and sustainability of collusion. Starting from a low level, an increase in signal precision first facilitates collusion. However, there is a turning point from which on any further increase renders collusion less sustainable. Our analysis provides important insights for competition policy. In particular, a ban on price discrimination can help to prevent collusive behavior as long as signals are sufficiently noisy. |
| Keywords: | Big Data,Collusion,Loyalty,Private Information,Third-Degree Price Discrimination |
| JEL: | L13 D43 L41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:295&r=mic |