
on Microeconomics 
By:  Fahad Khalil; Jacques Lawarree; Alexander Rodivilov 
Abstract:  Before embarking on a project, a principal must often rely on an agent to learn about its profitability. We model this learning as a twoarmed bandit problem and highlight the interaction between learning (experimentation) and production. We derive the optimal contract for both experimentation and production when the agent has private information about his efficiency in experimentation. This private information in the experimentation stage generates asymmetric information in the production stage even though there was no disagreement about the profitability of the project at the outset. The degree of asymmetric information is endogenously determined by the length of the experimentation stage. An optimal contract uses the length of experimentation, the production scale, and the timing of payments to screen the agents. Due to the presence of an optimal production decision after experimentation, we find overexperimentation to be optimal. The asymmetric information generated during experimentation makes overproduction optimal. An efficient type is rewarded early since he is more likely to succeed in experimenting, while an inefficient type is rewarded at the very end of the experimentation stage. This result is robust to the introduction of ex post moral hazard. 
Keywords:  information gathering, optimal contracts, strategic experimentation 
JEL:  D82 D83 D86 
Date:  2018 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_7310&r=mic 
By:  Armstrong, Mark; Vickers, John 
Abstract:  We study mixedstrategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchasesome being captive to a particular firm, some consider two particular firms, and so on. In the case of "nested reach" we find equilibria, unlike those in more standard models, in which firms are ranked in terms of the prices they might charge. We characterize equilibria in the threefirm case, and contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer interaction with firms matter for competitive outcomes. 
Keywords:  Oligopoly, Bertrand competition, BertrandEdgeworth competition, Consideration sets, Mixed strategies 
JEL:  C72 D43 D83 L1 L15 
Date:  2018–12–03 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:90362&r=mic 
By:  Marco LiCalzi (Dept. of Management, Università Ca' Foscari Venice); Roland Muhlenbernd (Dept. of Management, Università Ca' Foscari Venice) 
Abstract:  We study a model where agents face a continuum of twoplayer games and categorize them into a finite number of situations to make sense of their complex environment. Each agent can cooperate or defect, conditional on the perceived category. Agents may not share the same categorization. The games are fully ordered by one parameter, interpreted as the temptation to break joint cooperation by defecting. We prove that in equilibrium agents must share the same categorization. Most equilibria achieve less cooperation than it would be possible if agents could fully discriminate games. All the equilibira are evolutionary stable, but the only stochastically stable profile leads to defection everywhere, destroying all opportunities for cooperation. We then study agents' social learning when they imitate successful players over similar games, but lack any information about the categorization of other players. We show how imitation leads to a shared categorization that achieves higher cooperation than under full discrimination. 
Keywords:  categorization, cooperation, evolutionary stability, learning by imitation, prisoners' dilemma, stag hunt 
JEL:  C72 D91 C73 D83 
Date:  2018–11 
URL:  http://d.repec.org/n?u=RePEc:vnm:wpdman:162&r=mic 
By:  Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Tomasz Strzalecki (Harvard University) 
Abstract:  We provide an axiomatic analysis of dynamic random utility, characterizing the stochastic choice behavior of agents who solve dynamic decision problems by maximizing some stochastic process (U_t) of utilities. We show ?rst that even when (U_t) is arbitrary, dynamic random utility imposes new testable restrictions on how behavior across periods is related, over and above periodbyperiod analogs of the static random utility axioms: An important feature of dynamic random utility is that behavior may appear history dependent, because past choices reveal information about agents’ past utilities and (U_t) may be serially correlated; however, our key new axioms highlight that the model entails speci?c limits on the form of history dependence that can arise. Second, we show that when agents’ choices today influence their menu tomorrow (e.g., in consumptionsavings or stopping problems), imposing natural Bayesian rationality axioms restricts the form of randomness that (U_t) can display. By contrast, a speci?cation of utility shocks that is widely used in empirical work violates these restrictions, leading to behavior that may display a negative option value and can produce biased parameter estimates. Finally, dynamic stochastic choice data allows us to characterize important special cases of random utility—in particular, learning and taste persistence—that on static domains are indistinguishable from the general model. 
Keywords:  Dynamic stochastic choice, Random utility, History dependence, Serially correlated utilities, Consumption persistence, Learning 
JEL:  D81 D83 D90 
Date:  2017–06 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2092r&r=mic 
By:  Kiho Yoon (Department of Economics, Korea University, Seoul, Republic of Korea) 
Abstract:  We characterize the optimal robust mechanisms for the allocation of private objects, where robust mechanisms are those mechanisms that satisfy dominant strategy incentive compatibility, expost individual rationality, and expost no budget deficit, and optimal robust mechanisms are the ones that maximize the expected sum of players' payoffs among all robust mechanisms. With a certain assumption on the payoff of the lowest possible type, we provide a complete description of optimal robust mechanisms with any number of players and objects. 
Keywords:  robust mechanism design, dominant strategy, budget balance, expost individual rationality 
JEL:  C72 D82 
Date:  2018 
URL:  http://d.repec.org/n?u=RePEc:iek:wpaper:1803&r=mic 
By:  Vahab Mirrokni; Renato Paes Leme; Pingzhong Tang; Song Zuo 
Abstract:  We are interested in the setting where a seller sells sequentially arriving items, one per period, via a dynamic auction. At the beginning of each period, each buyer draws a private valuation for the item to be sold in that period and this valuation is independent across buyers and periods. The auction can be dynamic in the sense that the auction at period $t$ can be conditional on the bids in that period and all previous periods, subject to certain appropriately defined incentive compatible and individually rational conditions. Perhaps not surprisingly, the revenue optimal dynamic auctions are computationally hard to find and existing literatures that aim to approximate the optimal auctions are all based on solving complex dynamic programs. It remains largely open on the structural interpretability of the optimal dynamic auctions. In this paper, we show that any optimal dynamic auction is a virtual welfare maximizer subject to some monotone allocation constraints. In particular, the explicit definition of the virtual value function above arises naturally from the primaldual analysis by relaxing the monotone constraints. We further develop an ironing technique that gets rid of the monotone allocation constraints. Quite different from Myerson's ironing approach, our technique is more technically involved due to the interdependence of the virtual value functions across buyers. We nevertheless show that ironing can be done approximately and efficiently, which in turn leads to a Fully Polynomial Time Approximation Scheme of the optimal dynamic auction. 
Date:  2018–12 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1812.02993&r=mic 
By:  Joyee Deb (Cowles Foundation, Yale University); Aniko Oery (Cowles Foundation, Yale University); Kevin R. Williams (Cowles Foundation, Yale University) 
Abstract:  We study rewardbased crowdfunding campaigns, a new class of dynamic contribution games where consumption is exclusive. Two types of backers participate: buyers want to consume the product while donors just want the campaign to succeed. The key tension is one of coordination between buyers, instead of freeriding. Donors can alleviate this coordination risk. We analyze a dynamic model of crowdfunding and demonstrate that its predictions are consistent with highfrequency data collected from Kickstarter. We compare the Kickstarter mechanism to alternative platform designs and evaluate the value of dynamically arriving information. We extend the model to incorporate social learning about quality. 
Keywords:  Crowdfunding, Contribution Games, Dynamic Models, Kickstarter 
JEL:  C73 L26 M13 
Date:  2018–12 
URL:  http://d.repec.org/n?u=RePEc:cwl:cwldpp:2149&r=mic 
By:  Tilman Borgers; Jiangtao Li 
Abstract:  We define and investigate a property of mechanisms that we call "strategic simplicity," and that is meant to capture the idea that, in strategically simple mechanisms, strategic choices require limited strategic sophistication. We define a mechanism to be strategically simple if choices can be based on firstorder beliefs about the other agents' preferences and firstorder certainty about the other agents' rationality alone, and there is no need for agents to form higherorder beliefs, because such beliefs are irrelevant to the optimal strategies. All dominant strategy mechanisms are strategically simple. But many more mechanisms are strategically simple. In particular, strategically simple mechanisms may be more flexible than dominant strategy mechanisms in the bilateral trade problem and the voting problem. 
Date:  2018–12 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1812.00849&r=mic 
By:  Monte, Daniel (São Paulo School of Economics, FGV); Pinheiro, Roberto (Federal Reserve Bank of Cleveland) 
Abstract:  Many markets rely on information intermediation to sustain cooperation between large communities.We identify a key tradeoff in costly information intermediation: intermediaries can create trust by incentivizing information exchange, but with too much information acquisition, intermediation becomes expensive, with a resulting high equilibrium default rate and a low fraction of agents buying this information. The particular pricing scheme and the competitive environment affect the direct and indirect costs of information transmission, represented by fees paid by consumers and the expected loss due to imperfect information, respectively. Moreover, we show that information trade has characteristics similar to a natural monopoly, where competition may be detrimental to efficiency either because of the duplication of direct costs or the slowing down of information spillovers. Finally, a socialwelfaremaximizing policymaker optimally chooses a low information sampling frequency in order to maximize the number of partially informed agents. In other words, maximizing information spillovers, even at the cost of slow information accumulation, enhances welfare. 
Keywords:  Costly Information trade; Market Structure; Natural Monopoly; 
JEL:  D83 D85 
Date:  2018–12–07 
URL:  http://d.repec.org/n?u=RePEc:fip:fedcwq:172101&r=mic 
By:  Gemmo, Irina; Kubitza, Christian; Rothschild, Casey G. 
Abstract:  We prove the existence of an equilibrium in competitive markets with adverse selection in the sense of Miyazaki (1977), Wilson (1977), and Spence (1978) when the distribution of unobservable risk types is continuous. Our proof leverages the finitetype proof in Spence (1978) and a limiting argument akin to Hellwig (2007)'s study of optimal taxation. 
Keywords:  asymmetric and private information,insurance market,adverse selection,equilibrium 
JEL:  D82 G22 D41 
Date:  2018 
URL:  http://d.repec.org/n?u=RePEc:zbw:icirwp:3218&r=mic 
By:  BAHARAD, Eyal; BENYASHAR, Ruth; NITZAN, Shmuel 
Abstract:  Under the unanimity rule, a single voter may alter a decision that is unanimously accepted by all other voters. Under the simple majority rule, the impact of such a voter diminishes. This paper examines the marginal effect of competence on the collective performance – the likelihood of reaching a correct decision. It is shown that under the unanimity rule (simple majority rule), adding an incompetent voter to the group is inferior (superior) to giving up an existing competent voter. The negative impact of an incompetent voter cannot (can) always be balanced by adding a competent one when the decision mechanism is the unanimity (simple majority) rule. Moreover, improving a single voter's competence may have a greater effect on the collective performance under the simple majority rule relative to the unanimity rule. 
Keywords:  Unanimity rule, simple majority rule, voters' competence, collective performance 
Date:  2018–11 
URL:  http://d.repec.org/n?u=RePEc:hit:hiasdp:hiase80&r=mic 
By:  Andersson, Lina (Department of Economics, School of Business, Economics and Law, Göteborg University) 
Abstract:  This paper uses the framework of stochastic games to propose a model of emotions in repeated interactions. An emotional player, who transitions between different states of mind as a response to observed actions taken by the other player, can be in either a friendly, a neutral, or a hostile state of mind. The state of mind determines the player's psychological payoff that together with a material payoff constitutes his utility. In the friendly (hostile) state of mind the player has a positive (negative) concern for the other player's material payoffs. Emotions can both facilitate and obstruct cooperation in the repeated prisoners' dilemma game. If finitely repeated, then a traditional player (who cares only for own material payoffs) can have an incentive to manipulate an emotional player into a friendly state of mind for future gains. If infinitely repeated, then two emotional players may require less patience to sustain cooperation. However, emotions can also obstruct cooperation if the players are either unwilling to punisheach other, or become revengeful when punished. 
Keywords:  Emotions; cooperation; repeated prisoners dilemma; stochastic games 
JEL:  C73 D01 D91 
Date:  2018–12 
URL:  http://d.repec.org/n?u=RePEc:hhs:gunwpe:0747&r=mic 
By:  Mark Whitmeyer 
Abstract:  We consider a two player dynamic game played over $T \leq \infty$ periods. In each period each player chooses any probability distribution with support on $[0, 1]$ with a given mean, where the mean is the realized value of the draw from the previous period. The player with the highest realization in the period achieves a payoff of $1$, and the other player, $0$; and each player seeks to maximize the discounted sum of his perperiod payoffs over the whole time horizon. We solve for the unique subgame perfect equilibrium of this game, and establish properties of the equilibrium strategies and payoffs in the limit. 
Date:  2018–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1811.11664&r=mic 
By:  Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea) 
Abstract:  This paper studies an environment in which a seller seeks to sell two different items to buyers. The seller designs a membership mechanism that assigns positive allocations to members only. Exploiting the restrictive set, the seller finds a revenuemaximizing incentive compatible mechanism. We first establish the optimal allocation rule for this membership mechanism given a regularity condition for a modified valuation distribution reflecting the set, which provides the existence of a member set and the optimal payment rule. The optimal allocation enables us to compare the membership with separate selling of the two items, suggesting conditions under which the membership dominates the separate selling: interplay between the number of bidders and the degree of the stochastic dominance of valuation distributions. 
Keywords:  Mechanism design, Multidimensional screening, Auction 
Date:  2018 
URL:  http://d.repec.org/n?u=RePEc:iek:wpaper:1804&r=mic 
By:  Martin Peitz; Dongsoo Shin 
Abstract:  A project leader sources an input from a supporter and combines it with an input produced inhouse. The leader has private information about the projectâ€™s cost environment. We show that if the leader can commit to the inhouse input level, the input ratio is distorted upward when the inhouse input is not too costlyâ€”the inhouse input is produced in excess and, thus, partly wasted. By contrast, without the leaderâ€™s commitment to the inhouse input level, the input ratio is distorted downward when the inhouse input is suÂ¢ciently costlyâ€”the outsourced input is produced in excess and, thus, partly wasted 
Keywords:  labor income tax; labor supply elasticity; general equilibrium; crosscountry panel 
JEL:  E21 E24 J21 J22 
Date:  2018–12 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_060_2018&r=mic 
By:  Satoshi Fukuda 
Abstract:  This paper formalizes an informal idea that an agent's knowledge is characterized by a collection of sets such as a algebra within the framework of a state space model of knowledge. The formalization is based on the agent's logical and introspective abilities and on the underlying structure of the state space. The agent is logical and introspective about what she knows if and only if her knowledge is summarized by a collection of events with the property that, for any event, the collection has the maximal event included in the original event. When the underlying space is a measurable space, the collection becomes a algebra if and only if the agent is additionally introspective about what she does not know. The paper characterizes why the agent's knowledge takes (or does not take) such a set algebra as a algebra or a topology, depending on the agent's logical and introspective abilities and on the underlying environment. Journal of Economic Literature Classification Numbers: C70, D83 Keywords: Knowledge,Information, Set Algebra, algebra, Introspection 
Date:  2018 
URL:  http://d.repec.org/n?u=RePEc:igi:igierp:633&r=mic 
By:  Anthony Heyes (University of Ottawa and University of Sussex); Sandeep Kapur (Birkbeck, University of London) 
Abstract:  Postponing a decision may allow a better decision later. However, depending on what else comes up, there may never be a moment when it makes sense to come back to a postponed decision, leaving potential gains unrealized. We develop a model of an agent with limited decisionmaking capacity who faces a sequence of decisions that vary stochastically in their importance and improvability. In each period he can either act on the newlyarrived opportunity or return to one carried from earlier. The prospect of future congestion in decisions generates an incentive to make prompt decisions, to “keep a clear desk”. The strength of that imperative is: (1) increasing in the expected importance of future opportunities but decreasing in the dispersion of their importance; (2) decreasing in the expected improvability of future opportunities, but ambiguously influenced by the dispersion of that improvability. The analysis illuminates some decision practices that would otherwise be hard to rationalize. Multiple equilibria in some cases rationalize persistently different behaviour by two agents facing (almost) identical sequences of choices. The setting allows for a generalization of the concept of option value to congested decision environments and, by accounting for a plausible cost to postponement of action, offers a counterforce to the precautionary principle. 
Keywords:  Dynamic decisionmaking, limited attention, organizational bandwidth; committees, precautionary principle, option value. 
Date:  2018–10 
URL:  http://d.repec.org/n?u=RePEc:bbk:bbkefp:1813&r=mic 
By:  Stéphane Zuber (CES  Centre d'économie de la Sorbonne  UP1  Université PanthéonSorbonne  CNRS  Centre National de la Recherche Scientifique, CNRS  Centre National de la Recherche Scientifique, PSE  Paris School of Economics) 
Abstract:  Egalitarianism focuses on the wellbeing of the worstoff person. It has attracted a lot of attention in economic theory, for instance when dealing with the sustainable intertemporal allocation of resources. Economic theory has formalized egalitarianism through the Maximin and Leximin criteria, but it is not clear how they should be applied when population size may vary. In this paper, I present possible justifications of egalitarianism when considering populations with variable sizes. I then propose new versions of egalitarianism that encompass many views on how to tradeoff population size and wellbeing. I discuss some implications of egalitarianism for optimal population size. I first describe how population ethical views affects population growth. In a model with natural resources, I then show that utilitarianism always recommend a larger population for low levels of resources, but that this conclusion may not hold true for larger levels. 
Keywords:  Egalitarianism,Optimal population,Population ethics,Sustainable development,Renewable resources 
Date:  2018–11 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs01937766&r=mic 
By:  Balogh, Tamás László; Tasnádi, Attila 
Abstract:  Production to order and production in advance have been compared in many frameworks. In this paper we investigate a production in advance version of the capacityconstrained BertrandEdgeworth mixed duopoly game and determine the solution of the respective timing game. We show that a purestrategy (subgameperfect) Nashequilibrium exists for all possible orderings of moves. It is pointed out that unlike the productiontoorder case, the equilibrium of the timing game lies at simultaneous moves. An analysis of the public firm's impact on social surplus is also carried out. All the results are compared with those of the productionto order version of the respective game and with those of the mixed duopoly timing games. 
Keywords:  BertrandEdgeworth, mixed duopoly, timing games 
JEL:  D43 L13 
Date:  2018–11–30 
URL:  http://d.repec.org/n?u=RePEc:cvh:coecwp:2018/08&r=mic 