nep-mic New Economics Papers
on Microeconomics
Issue of 2018‒12‒03
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Choice deferral, indecisiveness and preference for flexibility By Pejsachowicz, Leonardo; Toussaert, Séverine
  2. Cost-benefi t analysis in reasoning By Larbi Alaoui; Antonio Penta
  3. The economics of justice as fairness By Abatemarco, Antonio; Stroffolini, Francesca
  4. Monopsony and Two-part Tariffs By Roger D. Blair; Christina DePasquale
  5. Should Straw Polls be Banned? By Ali, S. Nageeb; Bohren, Aislinn
  6. Auctions vs. Negotiations: Optimal Selling Mechanism with Endogenous Bidder Values By Mengxi Zhang
  7. Contractual externalities and systemic risk By Ozdenoren, Emre; Yuan, Kathy
  8. Equivalence of Canonical Matching Models By John Kennes; Daniel le Maire; Sebastian Roelsgaard
  9. Steady States in Search-and-Matching Models By Stephan Lauermann; Georg Nöldeke; Thomas Tröger
  10. The Effect of Horizontal Mergers, When Firms compete in Prices and Investments By Massimo Motta; Emanuele Tarantino
  11. Need to Know? On Information Systems in Firms By Suzanne Bijkerk; Josse (J.) Delfgaauw; Vladimir (V.A.) Karamychev; Otto (O.H.) Swank
  12. A normalized value for information purchases By Cabrales, Antonio; Gossner, Olivier; Serrano, Roberto
  13. Patent Pools, Vertical Integration, and Downstream Competition By Markus Reisinger; Emanuele Tarantino

  1. By: Pejsachowicz, Leonardo; Toussaert, Séverine
    Abstract: In a standard model of menu choice, we examine the behavior of an agent who applies the following Cautious Deferral rule: “Whenever in doubt, don't commit; just leave options open.” Our primitive is a complete preference relation ≽ that represents the agent's choice behavior. The agent's indecisiveness is captured by means of a possibly incomplete (but otherwise rational) preference relation ≽ˆ. We ask when ≽ can be viewed as a Cautious Deferral completion of some incomplete ≽ˆ. Under the independence and continuity assumptions commonly used in the menu choice literature, we find that even the smallest amount of indecisiveness is enough to force ≽, through the above deferral rule, to exhibit preference for flexibility on its entire domain. Thus we highlight a fundamental tension between non-monotonic preferences, such as preferences for self-control, and tendency to defer choice due to indecisiveness.
    Keywords: Incomplete preferences Preference for flexibility Choice deferral
    JEL: J1
    Date: 2017–07
  2. By: Larbi Alaoui; Antonio Penta
    Abstract: When an individual thinks about a problem, his decision to reason further may involve a tradeo between cognitive costs and a notion of value. But it is not obvious that this is always the case, and the value of reasoning is not well-de ned. This pa- per analyzes the primitive properties of the reasoning process that must hold for the decision to stop thinking to be represented by a cost-bene t analysis. We nd that the properties that characterize the cost-bene t representation are weak and intuitive, suggesting that such a representation is justi ed for a large class of problems. We then provide additional properties that give more structure to the value of reasoning func- tion, including `value of information' and `maximum gain' representations. We show how our model applies to a variety of settings, including contexts involving sequential heuristics in choice, response time, reasoning in games and research. Our model can also be used to understand economically relevant patterns of behavior for which the cost-bene t approach does not seem to hold. These include choking under pressure and (over)thinking aversion.
    Keywords: cognition and incentives, choice theory, reasoning, fact-free learning, sequential heuristics
    JEL: D01 D03 D80 D83
    Date: 2018–10
  3. By: Abatemarco, Antonio; Stroffolini, Francesca
    Abstract: In this paper, the authors challenge the common interpretation of Rawls' Theory of Justice as Fairness by showing that this theory, as outlined in the restatement (Rawls, Justice as Fairness: a Restatement, 2001), goes well beyond the definition of a distributive value judgment, in such a way as to embrace efficiency issues as well. A simple model is discussed to support our interpretation of the difference principle, by which inequalities are shown to be permitted as far as they stimulate a greater effort in education in the population, and so economic growth. To their knowledge, this is the only possibility for the inequality to be "bought" by both the most-, and above all, the least-advantaged individual as suggested by the difference principle. Finally, by recalling the old tradition of "universal ex-post efficiency", the authors show that a unique optimal social contract does not exist behind the veil of ignorance; more precisely, the sole set of potentially Rawls-optimal social contracts can be identified a priori, and partial justice orderings derived accordingly.
    Keywords: justice,Rawls,inequality,social contract
    JEL: D63 D31 J31
    Date: 2018
  4. By: Roger D. Blair; Christina DePasquale
    Abstract: In his classic article, Walter Oi (1971) analyzed two-part tariffs by a monopolist. We adapt his analysis to the case of monopsony. We show that the resulting offer is that the seller pays its producer surplus as an access fee in exchange for the buyers promise to buy everything that the seller wants to sell when price equals marginal cost. In addition, we show that this is equivalent to the surplus that the buyer captures with first-degree price discrimination as well as an all-or-nothing offer. We also extend this analysis to the case of uncertainty for a risk-averse monopsonist.
    Date: 2018–10
  5. By: Ali, S. Nageeb; Bohren, Aislinn
    Abstract: A Principal appoints a committee of partially informed experts to choose a policy. The experts' preferences are aligned with each other but conflict with hers. We study whether she gains from banning committee members from communicating or "deliberating'' before voting. Our main result is that if the committee plays its preferred equilibrium and the Principal must use a threshold voting rule, then she does not gain from banning deliberation. We show using examples how she can gain if she can choose the equilibrium played by the committee, or use a non-anonymous or non-monotone social choice rule.
    Keywords: Collusion; Committees; Deliberation; information aggregation
    JEL: D7 D8
    Date: 2018–09
  6. By: Mengxi Zhang
    Abstract: This paper studies the design of the revenue maximizing selling mechanism in a scenario where bidders can make costly investments upfront to enhance their valuations. Unlike the case where bidders’ values are exogenously fixed, here it may be profitable for the seller to discriminate among ex ante symmetric bidders. I first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. I further find that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In general, any threshold mechanism can be implemented by a dynamic selling scheme which alternately utilizes auctions and negotiations.
    Keywords: Mechanism Design; R&D Investment; Endogenous Bidder Values; Favoritism
    JEL: D44 D82
    Date: 2018–11
  7. By: Ozdenoren, Emre; Yuan, Kathy
    Abstract: We study effort and risk-taking behaviour in an economy with a continuum of principal-agent pairs where each agent exerts costly hidden effort. Principals write contracts based on both absolute and relative performance evaluations (APE and RPE) to make individually optimal risk-return trade-o↵s but do not take into account their impact on endogenously determined aggregate variables. This results in contractual externalities when these aggregate variables are used as benchmarks in contracts. Contractual externalities have welfare changing e↵ects when principals put too much weight on APE or RPE due to information frictions. Relative to the second best, if the expected productivity is high, risk-averse principals over-incentivise their own agents, triggering a rat race in e↵ort exertion, resulting in over-investment in e↵ort and excessive exposure to industry risks. The opposite occurs when the expected productivity is low, inducing pro-cyclical investment and risk-taking behaviours
    Keywords: Contractual externalities; relative and absolute performance contracts; procyclical effort exertion and risk taking; many principal-agent pairs
    JEL: D86 G30
    Date: 2017–10–01
  8. By: John Kennes (Department of Economics and Business Economics, Aarhus University, Denmark); Daniel le Maire (University of Copenhagen); Sebastian Roelsgaard (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This paper offers expected revenue and pricing equivalence results for canonical models of pricing and matching. The equivalence of these models is centered on the assumption that there are large numbers of buyers and sellers and the assignment of buyers within a submarket of sellers is random. Therefore, the distribution of buyers to sellers is approximated by the Poisson distribution. The list of canonical matching models includes the models developed by Burdett and Judd (1983), Shimer (2005), and McAfee (1993). In the Burdett and Judd (1983) model, buyers post prices and the equilibrium features price dispersion because identical buyers play mixed strategies. In the Shimer (2005) model, sellers post a vector of prices corresponding to different buyer types. In equilibrium, all identical buyers pay the same price. In the McAfee (1993) model, equilibrium pricing is determined by simple second price auctions. McAfee’s model also features price dispersion, because the number of bidders at each auction is stocastic.
    Keywords: Directed search, price dispersion, competing auctions, Poisson distribution
    JEL: D83 J64
    Date: 2018–11–19
  9. By: Stephan Lauermann; Georg Nöldeke; Thomas Tröger
    Abstract: Most of the literature that studies frictional search-and-matching models with heterogeneous agents and random search investigates steady states. Steady state requires that the flows of agents into and out of the population of unmatched agents balance. Here, we investigate the structure of this steady-state condition. We build on the ``fundamental matching lemma'' for quadratic search technologies in Shimer and Smith (2000) and establish the existence, uniqueness, and comparative-static properties of the solution to the steady-state condition for any search technology that satisfies minimal regularity conditions.
    Keywords: Search, Matching, Steady States
    JEL: C78 D83
    Date: 2018–11
  10. By: Massimo Motta; Emanuele Tarantino
    Abstract: We study the effects of mergers when firms offer differentiated products and compete in prices and investments. Since it is in principle ambiguous, we use aggregative game theory to sign the net effect of the merger: We find that only if it entailed sufficient efficiency gains, could the merger raise total investments and consumer surplus. We also prove there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments. Finally, we show that, from the consumer welfare point of view, a R&D cooperative agreement is superior to any consumer-welfare reducing merger.
    Keywords: horizontal mergers, innovation, investments, research joint ventures, competition
    JEL: K22 D43 L13 L41
    Date: 2018–11
  11. By: Suzanne Bijkerk (Erasmus School of Economics); Josse (J.) Delfgaauw (Erasmus School of Economics); Vladimir (V.A.) Karamychev (Erasmus School of Economics); Otto (O.H.) Swank (Erasmus School of Economics)
    Abstract: In the context of firm decision-making, several motives for acquiring and conveying information exist. Information serves to make better decisions, to persuade, and to impress. In this paper, we study how these motives shape incentives to acquire and communicate information. We employ a cheap-talk model with information acquisition and communication by a firm's executive. The executive wants to accurately inform an internal decision-maker regarding the value of an opportunity, but has an incentive to overstate this value to persuade or impress external parties. We show that information acquisition and communication interact. The executive's impression and persuasion motives yield limited distortions in communication, if any. Instead, they reduce information acquisition. Furthermore, we find that for firms, transparent communication is a necessary evil. Transparency allows for influential communication to external parties, but constrains internal communication. Theoretically, we contribute by showing that the forward induction refinement excludes babbling as an equilibrium outcome if non-babbling equilibria exist.
    Keywords: Information system; Information acquisition; Cheap-talk; Transparency; Firm behavior
    JEL: D21 D83
    Date: 2018–11–20
  12. By: Cabrales, Antonio; Gossner, Olivier; Serrano, Roberto
    Abstract: Consider agents who are heterogeneous in their preferences and wealth levels. These agents may acquire information prior to choosing an investment that has a property of no-arbitrage, and each piece of information bears a corresponding cost. We associate a numeric index to each information purchase (information-cost pair). This index describes the normalized value of the information purchase: it is the risk-aversion level of the unique CARA agent who is indifferent between accepting and rejecting the purchase, and it is characterized by a \duality" principle that states that agents with a stronger preference for information should engage more often in information purchases. No agent more risk-averse than the index finds it profitable to acquire the information, whereas all agents less risk-averse than the index do. Given an empirically measured range of degrees of risk aversion in a competitive economy with no-arbitrage investments, our model therefore comes close to describ-ing an inverse demand for information, by predicting what pieces of information are acquired by agents and which ones are not. Among several desirable properties, the normalized-value formula induces a complete ranking of information structures that extends Blackwell's classic ordering.
    Keywords: informativeness; information purchases; free energy; Kullback-Leibler divergence; relative entropy; decision under uncertainty; no-arbitrage investment; Blackwell ordering
    JEL: L81
    Date: 2017–05–19
  13. By: Markus Reisinger; Emanuele Tarantino
    Abstract: Patent pools are commonly used to license technologies to manufacturers. Whereas previous studies focused on manufacturers active in independent markets, we analyze pools licensing to competing manufacturers, allowing for multiple licensors and non-linear tariffs. We find that the impact of pools on welfare depends on the industry structure: Whereas they are procompetitive when no manufacturer is integrated with a licensor, the presence of vertically integrated manufacturers triggers a novel trade-off between horizontal and vertical price coordination. Specifically, pools are anticompetitive if the share of integrated firms is large, procompetitive otherwise. We then formulate information-free policies to screen anticompetitive pools.
    Keywords: patent pools and horizontal pricing agreements, complementary patents, vertical integration and restraints, antitrust policy
    JEL: K11 L41 L42 O34
    Date: 2018–11

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