|
on Microeconomics |
| By: | Stefan Terstiege; Cédric Wasser |
| Abstract: | We study buyer-optimal information structures under monopoly pricing. The information structure determines how well the buyer learns his valuation and affects, via the induced distribution of posterior valuations, the price charged by the seller. Motivated by the regulation of product information, we assume that the seller can disclose more if the learning is imperfect. Robust information structures prevent such disclosure, which is a constraint in the design problem. Our main result identifies a two-parameter class of information structures that implements every implementable buyer payoff. An upper bound on the buyer payoff where the social surplus is maximized and the seller obtains just her perfect-information payoff is attainable with some, but not all priors. When this bound is not attainable, optimal information structures can result in an inefficient allocation. |
| Keywords: | information design, monopoly, regulation |
| JEL: | D42 D82 D83 L51 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_034&r=all |
| By: | Mehmet Ekmekci; Stephan Lauermann |
| Abstract: | We study the aggregation of dispersed information in elections in which turnout may depend on the state. State-dependent turnout may arise from the actions of a biased and informed "election organizer." Voters are symmetric ex ante and prefer policy a in state α and policy b in state β, but the organizer prefers policy a regardless of the state. Each recruited voter observes a private signal about the unknown state but does not learn the turnout. First, we characterize how the outcomes of large elections depend on the turnout pattern across states. In contrast to existing results for large elections, there are equilibria in which information aggregation fails whenever there is an asymmetry in turnout; information aggregation is only guaranteed in all equilibria if turnout is state independent. Second, when the turnout is the result of costly voter recruitment by a biased organizer, the organizer can ensure that its favorite policy a is implemented with high probability independent of the state as the voter recruitment cost vanishes. Moreover, information aggregation will fail in all equilibria. The critical observation is that a vote is more likely to be pivotal for the decision if turnout is smaller, leading to a systematic bias of the decision toward the low-turnout state. |
| Keywords: | Voting, Information Aggregation |
| JEL: | C70 D80 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_066&r=all |
| By: | Xin Zhao (Economics Discipline Group, University of Technology Sydney) |
| Abstract: | This paper studies mechanism design by a seller privately informed of the quality of an indivisible object. The privacy of the seller’s information matters for mechanism design: selecting a mechanism that maximizes the seller’s profit when her information is public is not incentive compatible for the seller when her information is private, as a lower-quality seller has an incentive to mimic a higher-quality seller. I show that reserve prices are the least costly device to separate higher-quality sellers from lower-quality ones. In equilibria that maximize the expected profit of every type of the seller among all separating equilibria, the lowest-quality seller adopts her public-information optimal mechanism, and each higher-quality seller adopts a mechanism that differs from her public-information optimal mechanism only in that the reserve prices are higher. |
| Keywords: | Mechanism design; informed principal; reserve price; signaling |
| JEL: | D44 D82 |
| Date: | 2018–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:53&r=all |
| By: | Xin Zhao (Economics Discipline Group, University of Technology Sydney) |
| Abstract: | This paper studies how the composition and voting rule of a decision-making committee affect the incentives for its members to acquire information. Fixing the voting rule, a more polarized committee acquires more information. If a committee designer can choose the committee members and voting rule to maximize her payoff from the collective decision, she forms a heterogeneous committee adopting a unanimous rule, in which one member moderately biased toward one decision serves as the decisive voter, and all others are extremely opposed to the decisive voter and serve as information providers. The preference of the decisive voter is not perfectly aligned with that of the designer. |
| Keywords: | Committee design; information acquisition; heterogeneity; voting |
| JEL: | C79 D71 |
| Date: | 2018–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:52&r=all |
| By: | Stephan Lauermann; Asher Wolinsky |
| Abstract: | This paper analyzes a common-value, first-price auction with state-dependent participation. The number of bidders, which is unobservable to them, depends on the true value. For exogenously given participation patterns that involve many bidders in each state, the bidding equilibrium may be of a "pooling" type---with high probability, the winning bid is the same across states and is below the ex-ante expected value---or of a "partially separating" type---with no significant atoms in the winning bid distribution and an expected winning bid increasing in the true value. Which of these forms will arise is determined by the likelihood ratio at the top of the signal distribution and the participation across states. When the state-dependent participation is endogenized as the strategic solicitation by an informed seller who bears a small cost for each solicited bidder, an equilibrium of the separating type always exists and is unique of this type; for certain signal distributions there also exist equilibria of the pooling type. |
| Keywords: | Search, Auctions, Adverse Selection |
| JEL: | C78 D83 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_063&r=all |
| By: | Florian Hoffmann; Roman Inderst; Sergey Turlo |
| Abstract: | Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too little returns or cancellations, as they do not internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers learn longer by imposing a commonly observed statutory minimum cancellation or refund period is socially efficient only when firms appropriate much of the market surplus, while it backfires otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the unregulated outcome firms grant particularly generous rights when competition is neither too low nor too high. The overarching theme of our analysis is that both the individual benefits and the welfare consequences of (consumer) experimentation depend crucially on the consumer's reservation value, which is endogenous in a market environment. |
| Keywords: | Consumer experimentation, cancellation rights, market equilibrium, externality, regulation, consumer protection |
| JEL: | D82 D86 L51 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_045&r=all |
| By: | Jay Pil Choi; Martin Peitz |
| Abstract: | This paper analyzes a mechanism through which a supplier of unknown quality can overcome its asymmetric information problem by selling via a reputable downstream firm. The supplier’s adverse-selection problem can be solved if the downstream firm has established a reputation for delivering high quality with the supplier. The supplier may enter the market by initially renting the downstream firm’s reputation. The downstream firm may optimally source its input externally, even though sourcing internally would be better in terms of productive efficiency. Since an entrant in the downstream market may lack reputation, it may suffer from a reputational barrier to entry arising from higher input costs–this constitutes a novel theory of downstream barriers to entry. |
| Keywords: | Adverse Selection, Certification Intermediary, Incumbency Advantage, Barriers to Entry, Outsourcing, Branding |
| JEL: | D4 L12 L4 L43 L51 L52 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_042&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_054&r=all |
| By: | Benny Moldovanu; Alex Gershkov; Xianwen Shi |
| Abstract: | We study a multi-dimensional collective decision under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes - the issues that are voted upon - lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If, in addition, the marginals are identical, then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with symmetric marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency. |
| Keywords: | multi-dimensional voting , welfare , bundling |
| JEL: | D82 D71 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_029&r=all |
| By: | Benny Moldovanu; Deniz Dizdar; Nora Szech |
| Abstract: | Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling private, complementary types, investments generate direct benefits for partners. We explore quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their own rank and about the types and investments of potential partners. We characterize how the multiplier effect hinges on market size, and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition. |
| Keywords: | two-sided matching, signaling, investment, multiplier effect |
| JEL: | C78 D44 D82 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_030&r=all |
| By: | Martin Peitz; Dongsoo Shin |
| Abstract: | A project leader sources an input from a supporter and combines it with an input produced in-house. The leader has private information about the project’s cost environment. We show that if the leader can commit to the in-house input level, the input ratio is distorted upward when the in-house input is not too costly—the in-house input is produced in excess and, thus, partly wasted. By contrast, without the leader’s commitment to the in-house input level, the input ratio is distorted downward when the in-house input is su¢ciently costly—the outsourced input is produced in excess and, thus, partly wasted |
| Keywords: | labor income tax; labor supply elasticity; general equilibrium; cross-country panel |
| JEL: | E21 E24 J21 J22 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_060&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_057&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_056&r=all |
| By: | Zhengqing Gui; Ernst-Ludwig von Thadden; Xiaojian Zhao |
| Abstract: | We characterize an optimal financial contract when the firm’s realized cash flow is unobservable to the investor and the firm’s collateral can only be liquidated partially by resorting to the services of a costly third party. An optimal contract may exhibit a piecewise structure and vary with the liquidation cost and the firm’s actual liquidity shortage. Partial liquidation and wholesale transfers of collateral can coexist in an optimal contract. In contrast to part of the literature, the incentive-compatibility constraint incorporates the firm’s limited liability, and may be slack at the optimum. Allowing the firm to overcome an ex-post liquidity shortage by borrowing surreptitiously from a third party may reduce the firm’s ex-ante expected utility. |
| Keywords: | Financial contracting, incentive-compatibility, limited liability, indivisible collateral, costly liquidation |
| JEL: | D86 G33 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_064&r=all |
| By: | Stephan Lauermann; Georg Noeldeke; Thomas Troeger |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_055&r=all |
| By: | Flesch, Janos (QE / Mathematical economics and game the); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Maes, Jasmine (General Economics 1 (Micro)); Predtetchinski, Arkadi (General Economics 1 (Micro)) |
| Abstract: | We study games with almost perfect information and an infinite time horizon. In such games, at each stage, the players simultaneously choose actions from finite action sets, knowing the actions chosen at all previous stages. The payoff of each player is a function of all actions chosen during the game. We define and examine the new condition of individual upper semicontinuity on the payoff functions, which is weaker than upper semicontinuity. We prove that a game with individual upper semicontinuous payoff functions admits a subgame perfect ϵ-equilibrium for every ϵ > 0, in eventually pure strategy profiles. |
| Keywords: | almost perfect information, subgame perfect ϵ-equilibrium, individual upper semicontinuity |
| JEL: | C62 C65 C72 C73 |
| Date: | 2019–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2019002&r=all |
| By: | Melguizo, Isabel |
| Abstract: | This paper analyze network formation, following the canonical model of Jackson and Wolinsky (JET, 1996) when individuals, that come in two types care about how their type is represented in their neighborhood. We focus on pairwise stable networks. We analyze equilibrium networks, as well as, efficient ones. Segregation measures on equilibrium networks are also analyzed. |
| Keywords: | Pairwise stability, segregation, welfare |
| JEL: | D62 D71 |
| Date: | 2019–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:91428&r=all |
| By: | David Spector (PSE - Paris-Jourdan Sciences Economiques - 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, 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: | Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01983037&r=all |
| By: | Harashima, Taiji |
| Abstract: | In this paper, I examine the mechanism of extremely high executive compensation based on the concept of ranking value and preference, and show that the origin of such extremely high compensation is economic rents. Ranking value and preference provide monopoly powers, profits, and rents to producers and generate “superstars” who are not only absolutely but, more importantly, are relatively superior to other executives. Furthermore, ranking value and preference enable a firm’s product to be differentiated and provide the firm monopoly rents (profits). Executives who contribute to differentiating the product can obtain economic rents and be compensated similar to superstars on professional sports teams. The monopoly rents owing to ranking values can be socially justified, but they may not be socially justifiable if they are solely distributed to executives. |
| Keywords: | Economic rent; Executive compensation; Monopoly profits; Product differentiation; Ranking preference; Ranking value; Superstar |
| JEL: | D11 D42 J30 M12 M52 |
| Date: | 2019–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:91326&r=all |
| By: | Julien Daubanes (University of Geneva); Jean-Charles Rochet (University of Geneva, Swiss Finance Institute, and University of Zurich) |
| Abstract: | Activist non-governmental organizations (NGOs) increasingly oppose firms’ practices. We suggest this might be related to the vulnerability of public regulation to corporate influence. We examine a potentially-harmful industrial project subject to regulatory approval. Under industry influence, the regulator may approve the project even though it is harmful. However, an NGO may oppose it. We characterize the circumstances under which NGO opposition occurs and under which it is socially beneficial. Our theory explains the role that NGOs have assumed in the last decades, and has implications for the social legitimacy of activism and the appropriate degree of transparency of industrial activities. |
| Keywords: | NGO activism, Public regulation, Industry influence, Private politics, Transparency |
| JEL: | D02 D74 D82 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2019.01&r=all |
| By: | Heijmans, Roweno J.R.K. (Tilburg University, Center For Economic Research); Gerlagh, Reyer (Tilburg University, Center For Economic Research) |
| Abstract: | The question in which we are interested is how a market inhabited by multiple agents, about whom we are differentially uncertain, and who trade goods the use of which imposes a negative effect on others, is to be ideally regulated. We show that a priori asymmetric uncertainty, when combined with a posteriori observed outcomes, is a rich source of information that can be used to reduce aggregate uncertainty. The observation implies that whereas asymmetric information usually entails a cost on welfare, it can help achieve greater efficiency in regulation. |
| Keywords: | asymmetric information; regulatory instruments; policy updating; asymmetric uncerntainty; decison making under uncertainty |
| JEL: | D82 D83 H23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:9a0a6f7a-f8d0-4495-8aed-41922922e399&r=all |
| By: | Bethmann, Nicola; Frieden, Matthias |
| Abstract: | In a game theoretical setting, this paper studies the entrepreneur's decision making by using a new financing opportunity referred to as crowdinvesting. In this model, the entrepreneur can collect money and advertise his innovative idea. However, crowdinvesting carries the risk of being copied by a potential competitor. Faced with this trade-off, the entrepreneur strategically diminishes his marketing activity under certain circumstances to remain the monopolist in the market. In the second part, we compare crowdinvesting with two alternative financing opportunities, banks and venture capital. We show that crowdinvesting, often mentioned as a financing instrument for drastic innovations, is generally not appropriate for these ideas because the danger of being copied is too high for the entrepreneur. |
| Keywords: | Crowdinvesting; equity crowdfunding; entrepreneurship; advertising; idea stealing |
| JEL: | D21 G32 L26 M13 O13 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-649&r=all |
| By: | Pedro Bordalo; Nicola Gennaioli; Spencer Yongwook Kwon; Andrei Shleifer |
| Abstract: | We introduce diagnostic expectations into a standard setting of price formation in which investors learn about the fundamental value of an asset and trade it. We study the interaction of diagnostic expectations with two well-known mechanisms: learning from prices and speculation (buying for resale). With diagnostic (but not with rational) expectations, these mechanisms lead to price paths exhibiting three phases: initial underreaction, followed by overshooting (the bubble), and finally a crash. With learning from prices, the model generates price extrapolation as a byproduct of fast moving beliefs about fundamentals, which lasts only as the bubble builds up. When investors speculate, even mild diagnostic distortions generate substantial bubbles. |
| JEL: | G12 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25399&r=all |
| By: | Alessandro De Chiaraa; Elisabetta Iossa |
| Abstract: | We study how funding agencies should set budget caps for competitive grants. We show that budget caps influence the researchers’ submission strategy and, in particular, whether they steer their project choice towards the agencies’ favorite projects, and the level of funds they request. The welfare impact of alternative approaches depends on the level of competition, the cost of public funds and the social value of project implementation. |
| Keywords: | Competitive Grants, Procurement of Innovation, Project Choice, Research Funding, Research Tournament |
| JEL: | D8 O25 O30 O31 O38 L2 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bcu:iefewp:iefewp108&r=all |