nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒10‒01
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Repeated Coordination with Private Learning By Pathikrit Basu; Kalyan Chatterjee; Tetsuya Hoshino; Omer Tamuz
  2. Second-Best Mechanisms for Land Assembly and Hold-Out Problems By Zachary Grossman; Jonathan Pincus; Perry Shapiro; Duygu Yengin
  3. Financial Equilibrium with differential Information: a Theorem of generic Existence By Lionel De Boisdeffre
  4. Opaque queues: Service systems with rationally inattentive customers By Caner Canyakmaz; Tamer Boyaci
  5. Time preference and information acquisition By Weijie Zhong
  6. Vertical Contracting with Endogenous Market Structure By Marco Pagnozzi; Salvatore Piccolo; Markus Reisinger
  7. Network formation with myopic and farsighted players By LUO Chenghong,; MAULEON Ana,; VANNETELBOSCH Vincent,
  8. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  9. Problems of Commitment in Arming and War: How Insecurity and Destruction Matter By Garfinkel, Michelle; Syropoulos, Constantinos
  10. Government Intervention, Innovation, and Entrepreneurship By Meng Wei Chen; Yu Chen; Zhen-Hua Wu; Ningru Zhao
  11. Selling Information By Weijie Zhong
  12. Nash equilibrium of partially asymmetric three-players zero-sum game with two strategic variables By Atsuhiro Satoh; Yasuhito Tanaka
  13. Financial Markets, the Real Economy, and Self-fulfilling Uncertainties By Jess Benhabib; Xuewen Liu; Pengfei Wang
  14. The structure of the environment and individual choice processes By Paulo Oliva; Philipp Zahn
  15. Decision Under Normative Uncertainty By Franz Dietrich; Brian Jabarian
  16. Games with Private Timing By Sofia Moroni

  1. By: Pathikrit Basu; Kalyan Chatterjee; Tetsuya Hoshino; Omer Tamuz
    Abstract: We study a repeated game with payoff externalities and observable actions where two players receive information over time about an underlying payoff-relevant state, and strategically coordinate their actions. Players learn about the true state from private signals, as well as the actions of others. They commonly learn the true state (Cripps et al., 2008), but do not coordinate in every equilibrium. We show that there exist stable equilibria in which players can overcome unfavorable signal realizations and eventually coordinate on the correct action, for any discount factor. For high discount factors, we show that in addition players can also achieve efficient payoffs.
    Date: 2018–08
  2. By: Zachary Grossman (Department of Economics, Florida State University); Jonathan Pincus (School of Economics, University of Adelaide); Perry Shapiro (Department of Economics, University of California Santa Barbara); Duygu Yengin (School of Economics, University of Adelaide)
    Abstract: Land can be inefficiently allocated when attempts to assemble separately-owned parcels are frustrated by holdouts. Eminent domain can be used neither to gauge efficiency nor to determine adequate compensation. We characterize the least-inefficient class of direct mechanisms that are incentive compatible, self-financing, and protect the property-rights of participants. The second-best mechanisms, which we call Strong Pareto (SP), utilize a second-price auction among interested buyers, with a reserve sufficient to compensate fully all potential sellers, who are paid according to fixed and exhaustive shares of the winning buyer's offer. These mechanisms are strategy-proof (dominant-strategy incentive compatible), individually rational and self-financing. They generate higher social welfare in each problem compared to any other type of mechanism satisfying these properties.
    Keywords: Land assembly, assembly problems, complementary goods, hold-out; eminent domain, property rights, mechanism design, desirable properties, impossibility theorem, second-best characterization, SP mechanism, just compensation, public-private partnerships, incentive compatibility, strategy-proofness, individual rationality, budget-balance, self-nance
    Date: 2018–09
  3. By: Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: We propose a proof of generic existence of equilibrium in a pure exchange economy, where agents are typically asymmetrically informed, exchange commodities, on spot markets, and securities of all kinds, on incomplete financial markets. The proof does not use Grasmanians, nor differential topology (except Sard's theorem), but good algebraic properties of assets' payoffs, whose spans, generically, never collapse. Then, we show that an economy, where the payoff span cannot fall, admits an equilibrium. As a corollary, we prove the full existence of financial equilibrium for numeraire assets, extending Geanakoplos-Polemarchakis (1986) to the asymmetric information setting. The paper, which still retains Radner's (1972) standard perfect foresight assumption, is also a milestone to prove, in a companion article, the existence of sequential equilibrium when the classical rational expectation assumptions, along Radner (1972, 1979), are dropped jointly, that is, when agents have private characteristics and beliefs and no model to forecast prices.
    Keywords: Sequential equilibrium,Temporary equilibrium,Perfect foresight,Existence,Rational expectations,Financial markets,Asymmetric information,Arbitrage
    Date: 2018–09–11
  4. By: Caner Canyakmaz (ESMT Berlin); Tamer Boyaci (ESMT Berlin)
    Abstract: Classical models of service systems with rational and strategic customers assume queues to be either fully visible or invisible. In practice, however, most queues are only “partially visible” or “opaque”, in the sense that customers are not able to discern precise queue length upon arrival. This is because assessing queue length and associated delays require time, attention, and cognitive capacity which are all limited. Service firms may influence this information acquisition process through their choices of physical infrastructure and technology. In this paper, we study rational queueing behavior when customers have limited time and attention. Following the theory of rational inattention, customers optimally select the type and amount of information to acquire and ignore any information that is not worth obtaining, trading off the benefits of information against its costs before deciding to join. We establish the existence and uniqueness of a customer equilibrium and delineate the impact of information costs. We show that although limited attention is advantageous for a firm in a congested system that customers value highly, it can be detrimental for less popular services that customers deem unrewarding. These insights remain valid when the firm optimally selects the price. We also discuss social welfare implications and provide prescriptive insights regarding information provision. Our framework naturally bridges visible and invisible queues, and can be extended to analyze richer customer behavior and complex queue structures, rendering it a valuable tool for service design.
    Keywords: Service operations, rational inattention, strategic customers, rational queueing, information costs, system throughput, social welfare Power of the Collectivity to Act, Penrose-Banzhaf index, EU Council, UN Security Council
    Date: 2018–09–24
  5. By: Weijie Zhong
    Abstract: In this paper, we study how temporal discounting determines sequential decision making. We analyze decision time distribution induced by all sequential information acquisition strategies that 1) implements a target information structure, 2) satisfies a constraint on flow informativeness of signal. The main result is that decisive Poisson signal creates the most dispersed decision time distribution (in mean-preserving spread order), and the pure accumulation of information creates the least dispersed. This implies that for a decision maker with convex discount function, decisive Poisson signal is the optimal learning strategy.
    Date: 2018–09
  6. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Markus Reisinger (Frankfurt School of Finance & Management)
    Abstract: A manufacturer chooses the optimal retail market structure and bilaterally and secretly contracts with each (homogeneous) retailer. In a classic framework without asymmetric information, the manufacturer sells through a single exclusive retailer in order to eliminate the opportunism problem. When retailers are privately informed about their (common) marginal cost, however, the number of competing retailers also affects their information rents and the manufacturer may prefer an oligopolistic market structure. We characterize how the manufacturer’s production technology, the elasticity of final demand, and the size of the market affect the optimal number of retailers. Our results arise both with price and quantity competition, and also when retailers’ costs are imperfectly correlated.
    Keywords: asymmetric information, distribution network, opportunism, retail market structure, vertical contracting.
    JEL: D43 L11 L42 L81
    Date: 2018–09–21
  7. By: LUO Chenghong, (CORE, Université catholique de Louvain); MAULEON Ana, (Université Saint-Louis Bruxelles and CORE); VANNETELBOSCH Vincent, (CORE, Université catholique de Louvain)
    Abstract: We study the formation of networks where myopic and farsighted individuals decide with whom they want to form a link, according to a distance-based utility function that weighs the costs and benefits of each connection. We propose the notion of myopic-farsighted stable set to determine the networks that emerge when some individuals are myopic while others are farsighted. A myopic-farsighted stable set is the set of networks satisfying internal and external stability with respect to the notion of myopic-farsighted improving path. In the case of a homogeneous population (either all myopic or all farsighted), a conflict between stability and efficiency is likely to arise. But, once the population becomes mixed, the conflict vanishes if there are enough farsighted individuals. In addition, we characterize the myopic-farsighted stable set for any utility function when all individuals are myopic.
    Keywords: networks, stable sets, myopic and farsighted players, distance-based utility
    JEL: A14 C70 D20
    Date: 2018–09–05
  8. By: Paul Belleflamme (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Martin Peitz (Department of Economics and MaCCI, University of Mannheim)
    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: 2018–06
  9. By: Garfinkel, Michelle (University of California-Irvine); Syropoulos, Constantinos (Drexel University)
    Abstract: This paper analyzes a guns-versus-butter model in which two agents compete for control over an insecure portion of their combined output. They can resolve this dispute either peacefully through settlement or by military force through open conflict (war). Both types of conflict resolution depend on the agents' arming choices, but only war is destructive. We find that, insofar as entering into binding contracts on arms is not possible and agents must arm even under settlement to secure a bigger share of the contested output, the absence of long-term commitments need not be essential in understanding the outbreak of destructive war. Instead, the ability to make short-term commitments could induce war. More generally, our analysis highlights how the pattern of war's destructive effects, the degree of output insecurity and the initial distribution of resources matter for arming decisions and the choice between peace and war. We also explore the implications of transfers for peace.
    Keywords: ontested property rights; settlement mechanisms; destructive conflict; negotiation; armed peace
    JEL: D30 D74 F51
    Date: 2018–08–14
  10. By: Meng Wei Chen (Indiana University at Bloomington, USA); Yu Chen (University of Graz, Austria); Zhen-Hua Wu (Nanjing University, China); Ningru Zhao (Nanjing Audit University, China)
    Abstract: We study how government intervention affects innovation and entrepreneurship, using a model in which two agents (e.g., one entrepreneur and one venture capitalist) engage in teamwork to launch a new business in which a moral hazard problem may persist for both parties. One feature of our model is that the government's financial support (grant) may have (positive) externalities on the teamwork of both parties, but is also constrained by budget costs. We compare two major forms of government intervention: indirect intervention and direct intervention. In the former, government intervention always raises the efforts of both parties and promotes social surplus (welfare). In the latter, government intervention may not always raise the efforts of both parties or promote social surplus relative to the case without government intervention. It may, however, deliver even higher social surplus than indirect financing when the government's share in the enterprise is dominant and its marginal contribution to the project is sufficiently high.
    Keywords: Government intervention; Double moral hazard; Direct financing; Indirect financing; Innovation, entrepreneurship
    JEL: G24 G32 G34 D80 D86
    Date: 2018–09
  11. By: Weijie Zhong
    Abstract: In this paper we study the optimal mechanism in selling information to decision makers with private prior knowledge about payoff relevant state. When the underlying decision problem has a continuum of actions, optimal mechanism has a continuum of experiments. Buyers with more extreme private beliefs purchase less amount of information at lower prices. When distribution of decision maker`s type becomes more dispersed, more buyers will be included in the market and all buyer type will be sold a more informative experiment.
    Date: 2018–09
  12. By: Atsuhiro Satoh; Yasuhito Tanaka
    Abstract: We consider a partially asymmetric three-players zero-sum game with two strategic variables. Two players (A and B) have the same payoff functions, and Player C does not. Two strategic variables are $t_i$'s and $s_i$'s for $i=A, B, C$. Mainly we will show the following results. 1. The equilibrium when all players choose $t_i$'s is equivalent to the equilibrium when Players A and B choose $t_i$'s and Player C chooses $s_C$ as their strategic variables. 2. The equilibrium when all players choose $s_i$'s is equivalent to the equilibrium when Players A and B choose $s_i$'s and Player C chooses $t_C$ as their strategic variables. The equilibrium when all players choose $t_i$'s and the equilibrium when all players choose $s_i$'s are not equivalent although they are equivalent in a symmetric game in which all players have the same payoff functions.
    Date: 2018–09
  13. By: Jess Benhabib; Xuewen Liu; Pengfei Wang
    Abstract: Uncertainty in both financial markets and the real economy rises sharply during recessions. We develop a model of informational interdependence between financial markets and the real economy, linking uncertainty to information production and aggregate economic activities. We argue that there exists mutual learning between financial markets and the real economy. Their joint information productions determine both the allocative efficiency in the real sector and the market efficiency in the financial sector. The mutual learning creates a strategic complementarity between information production in the financial sector and that in the real sector. A self-fulfilling surge in financial uncertainty and real uncertainty can naturally arise when both sectors produce little information in anticipation of the other producing little information. At the same time, aggregate output falls as the real allocative efficiency deteriorates. In the extension to an OLG dynamic setting, our model characterizes self-fulfilling uncertainty traps with two steady-state equilibria and a two-stage economic crisis in transitional dynamics.
    JEL: E2 E44 G01 G20
    Date: 2018–09
  14. By: Paulo Oliva; Philipp Zahn
    Abstract: Beginning with Herbert Simon [10], the literature on bounded rationality has investigated in great detail how internal limitations affect an agent's choice process. The structure of the choice environment, deemed as important as internal limitations by Simon [11], has been mostly ignored. We introduce a model of the environment and its interaction with an agent's choice process. Focusing on online environments where an agent can use filter and sort functionality to support his decision-making, we show, a choice process relying on the environment can be rationalized. Moreover, for sufficiently many alternatives, filtering and sorting are quick ways to choose rationally.
    Date: 2018–09
  15. By: Franz Dietrich (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); Brian Jabarian (PSE - Paris School of Economics, Université Paris 1 Panthéon Sorbonne)
    Date: 2018–09
  16. By: Sofia Moroni
    Abstract: We study a class of games in which the timing of players' moves is privateinformation, but players have the option to disclose their moves byexerting a small cost. When the underlying game is a coordination game,we characterize the set of distributions of moving times such that the gamehas the following unique prediction: Players choose the best coordinationequilibrium and do not disclose their action. This implies that the possibilityof disclosure selects an equilibrium in which the best action pro le istaken but nothing is disclosed. In games of opposing interests, we providesufficient conditions for the fi rst-arriving player to disclose her action. Inextensions we allow for, among others, partial control over timing.
    Date: 2018–01

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