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on Microeconomics |
| By: | Emeric Henry (Département d'économie); Gianmarco Ottaviano (Università di Bologna) |
| Abstract: | An informer sequentially collects and disseminates information through costly research to persuade an evaluator to approve an activity. Payoffs and control rights are split between informer and evaluator depending on the organizational rules governing the approval process. The welfare benchmark corresponds to Wald’s classic solution for a statistician with payoff equal to the sum of informer and evaluator. Organizations with different commitment power of informer and evaluator are compared from a positive and normative perspective. Granting authority to the informer is socially optimal when information acquisition is sufficiently costly. The analysis is applied to the regulatory process for drug approval. |
| JEL: | D82 D83 I18 L51 L65 O31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1gr6n3t28b94tafji6op8tlqs1&r=all |
| By: | Matteo Escud\'e; Ludvig Sinander |
| Abstract: | We study a dynamic game in which information arrives gradually as long as a principal funds research, and an agent takes an action in each period. In equilibrium, the principal's patience is the key determinant of her information provision: the lower her discount rate, the more eagerly she funds. When she is sufficiently patient, her information provision and value function are well-approximated by the 'Bayesian persuasion' model. If the conflict of interest is purely belief-based and information is valuable, then she provides full information if she is patient. We also obtain a sharp characterisation of the principal's value function. Our proofs rely on a novel dynamic programming principle rooted in the theory of viscosity solutions of differential equations. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.09055&r=all |
| By: | Mark T. Le Quement (University of East Anglia); Amrish Patel (University of East Anglia) |
| Abstract: | We study psychological games of cheap talk communication involving players who have misaligned material interests and reciprocity preferences. We find that full and efficient information transmission is often impossible if reciprocity concerns are too high. Furthermore, higher material preference misalignment may facilitate the achievement of full information transmission. A key driver of our results is that truth-telling is not per se a kind action by the sender. We contrast discrete and continuous environments, alternative conceptions of reciprocity preferences and consider one-sided reciprocity models. |
| Keywords: | Cheap talk, Gift-Exchange, Incomplete Information, Psychological Game, Reciprocity. |
| JEL: | D81 D83 D91 |
| Date: | 2018–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2018_06&r=all |
| By: | Kentaro Tomoeda (Economics Discipline Group, University of Technology Sydney) |
| Abstract: | This paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency. To do so, we extend the standard implementation problem to include endogenous ex ante and ex post investments. In our problem, the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism. Our main theorem shows that a novel condition commitment-proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame-perfect equilibria. The availability of ex post investments is crucial in our model: there is no social choice rule that is efficient and implementable in subgame-perfect equilibria without ex post investments. We also show that our positive result continues to hold in the incomplete information setting. |
| Keywords: | investment efficiency; full implementation; mechanism design; ex ante investment |
| JEL: | D44 D82 C78 |
| Date: | 2018–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:54&r=all |
| By: | Kovrijnykh, Natalia (Arizona State University); Livshits, Igor (Federal Reserve Bank of Philadelphia); Zetlin-Jones, Ariel (Carnegie Mellon University) |
| Abstract: | This paper examines a novel mechanism of credit-history building as a way of aggregating information across multiple lenders. We build a dynamic model with multiple competing lenders, who have heterogeneous private information about a consumer's creditworthiness, and extend credit over multiple stages. Acquiring a loan at an early stage serves as a positive signal | it allows the borrower to convey to other lenders the existence of a positively informed lender (advancing that early loan) | thereby convincing other lenders to extend further credit in future stages. This signaling may be costly to the least risky borrowers for two reasons. First, taking on an early loan may involve cross-subsidization from the least risky borrowers to more risky borrowers. Second, the least risky borrowers may take inefficiently large loans relative to the symmetric-information benchmark. We demonstrate that, despite these two possible costs, the least risky borrowers often prefer these equilibria to those without information aggregation. Our analysis offers an interesting and novel insight into debt dilution. Contrary to the conventional wisdom, repayment of the early loan is more likely when a borrower subsequently takes on a larger rather than a smaller additional loan. This result hinges on a selection effect: larger subsequent loans are only given to the least risky borrowers. |
| Keywords: | Credit History; Information Aggregation; Debt Dilution |
| JEL: | D14 D82 D83 D86 G21 |
| Date: | 2019–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-17&r=all |
| By: | Battaglini, Marco |
| Abstract: | We propose a new model of legislative bargaining in which coalitions have different values, reflecting the fact that the policies they can pursue are constrained by the identity of the coalition members. In the model, a formateur picks a coalition and negotiates for the allocation of the surplus it is expected to generate. The formateur is free to change coalitions to seek better deals with other coalitions, but she may lose her status if bargaining breaks down, in which case a new formateur is chosen. We show that as the delay between offers goes to zero, the equilibrium allocation converges to a generalized version of a Nash Bargaining Solution in which --in contrast to the standard solution-- the coalition is endogenous and determined by the relative coalitional values. A form of the hold-up problem specific to these bargaining games may lead to significant inefficiencies in the selection of the equilibrium coalition. We use the equilibrium characterization of the distortions to study the role of the head of state in avoiding (or containing) distortions. We also show that the model helps rationalizing well known empirical facts that are in conflict with the predictions of standard non-cooperative models of bargaining: the absence of significant (or even positive) premia in ministerial allocations for formateurs and their parties; the occurrence of supermajorities; and delays in reaching agreements. |
| JEL: | D72 D78 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13581&r=all |
| By: | Vladimir Asriyan; Dana Foarta; Victoria Vanasco |
| Abstract: | This paper explores the incentives of product designers to complexify products, and the resulting implications for overall product quality. In our model, a consumer can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. While the product’s quality determines the direct benefits of the product to the consumer, the product’s complexity affects the information a Bayesian consumer can extract about the product’s quality. Examples include policymakers who propose policies for approval by voters, or banks that design financial products that they later offer to retail investors. We find that complexity is not necessarily a feature of low quality products. For example, while an increase in alignment between the consumer and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings can help rationalize the observed trends in quality and complexity of regulatory policies and financial products. |
| Keywords: | product design; information frictions; information transmission; signaling; complexity; regulation; financial products. |
| JEL: | D82 D83 G18 P16 D78 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1643&r=all |
| By: | Bednay, Dezsö; Moskalenko, Anna; Tasnádi, Attila |
| Abstract: | The Gibbard–Satterthwaite (1973/75) theorem roughly states that we have to accept dictatorship or manipulability in case of at least three alternatives. A large strand of the literature estimates the degree of manipulability of social choice functions (e.g. Aleskerov and Kurbanov, 1999, Favardin et al., 2002, and Aleskerov et al., 2012), most of them employing the Nitzan-Kelly index of manipulability. We take a different approach and introduce a non-dictatorship index based on our recent work (Bednay et al., 2017), where we have analysed social choice functions based on their distances to the dictatorial rules. By employing computer simulations, we investigate the relationship between the manipulability and nondictatorship indices of some prominent social choice functions, putting them into a common framework. Keywords: Voting rules, dictatorship, manipulability, manipulability index, dictatorship index. JEL Classification Number: D71. |
| Keywords: | Elecció social, 33 - Economia, |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/351579&r=all |
| By: | Sebastiano Della Lena (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | People are exposed to a constant flow of information about economic, social and political phenomena; nevertheless, misinformation is ubiquitous in the society. This paper studies the spread of misinformation in a social environment where agents receive new information each period and update their opinions taking into account both their experience and neighborhood's ones. I consider two types of misinformation: permanent and temporary. Permanent misinformation is modeled with the presence of stubborn agents in the network and produces long-run effects on the agents learning process. The distortion induced by stubborn agents in social learning depends on the “updating centrality”, a novel centrality measure that identifies the key agents of a social learning process, and generalizes the Katz-Bonacich measure. Conversely, temporary misinformation, represented by shocks of rumors or fake news, has only short-run effects on the opinion dynamics. Results rely on spectral graph theory and show that the consensus among agents is not always a sign of successful learning. In particular, the consensus time is increasing with respect to the “bottleneckedness” of the underlying network, while the learning time is decreasing with respect to agents' reliance on their private signals. |
| Keywords: | Opinion Dynamics in Networks, Non-Bayesian Social Learning, Stubborn Agents, Speed of Convergence |
| JEL: | D83 D85 D72 Z10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2019:09&r=all |
| By: | Moshe Babaioff; Kira Goldner; Yannai A. Gonczarowski |
| Abstract: | We consider the problem of welfare maximization in two-sided markets using simple mechanisms that are prior-independent. The seminal impossibility result of Myerson and Satterthwaite [1983] shows that even for bilateral trade, there is no feasible (IR, truthful and budget balanced) mechanism that has welfare as high as the optimal-yet-infeasible VCG mechanism, which attains maximal welfare but runs a deficit. On the other hand, the optimal feasible mechanism needs to be carefully tailored to the Bayesian prior, and is extremely complex, eluding a precise description. In this paper we present Bulow-Klemperer-style results to circumvent these hurdles in double-auction market settings. We suggest using the Buyer Trade Reduction (BTR) mechanism, a variant of McAfee's mechanism, that is feasible and simple (in particular, it is deterministic, prior-independent, and anonymous). First, in the setting where the buyers' and sellers' values are sampled i.i.d. from the same distribution, we show that for any such market of any size, BTR with one additional buyer whose value is sampled from the same distribution has expected welfare at least as high as the optimal in the original market. We then move to a more general setting where the buyers' values are sampled from one distribution, and the sellers' from another, focusing on the case where the buyers' distribution first-order stochastically dominates the sellers' distribution. We present bounds on the number of buyers that, when added, cause BTR in the augmented market to achieve welfare at least as high as the optimal in the original market. Our lower bounds extend to a large class of mechanisms. In addition, we present positive results about the usefulness of pricing at a sample for welfare maximization in two-sided markets under the above two settings, which to the best of our knowledge are the first sampling results in this context. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.06696&r=all |
| By: | Dietzenbacher, Bas (Tilburg University, Center For Economic Research) |
| Abstract: | This paper studies the procedural egalitarian solution on the class of egalitarian stable games. By deriving several axiomatic characterizations involving consistency and monotonicity, we show that the procedural egalitarian solution satisfies various desirable properties and unites many egalitarian concepts defined in the literature. Moreover, we illustrate the computational implications of these characterizations and relate the class of egalitarian stable games to other well-known classes. |
| Keywords: | egalitarianism; transferable utility games; procedural egalitarian solution; egalitarian stability |
| JEL: | C71 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:6caea8c0-1dcd-4038-88da-bbf034bd65b6&r=all |
| By: | Edouard Challe (Sciences Po); Edouard Chrétien |
| Abstract: | Speculators contemplating an attack (e.g., on a currency peg) must guess the beliefs of other speculators, which they can do by looking at the stock market. As shown in earlier work, this information-gathering process may be destabilising by creating multiple equilibria. This paper studies the role played by the microstructure of the asset market in the emergence of multiple equilibria driven by information aggregation. To do so, we study the outcome of a two-stage global game wherein an asset price determined at the trading stage of the game provides an endogenous public signal about the fundamental that affects traders’ decision to attack in the coordination stage of the game. In the trading stage, placing a full demand schedule (i.e., a continuum of limit orders) is costly, but traders may use riskier (and cheaper) market orders, i.e., order to sell or buy a fixed quantity of assets unconditional on the execution price. Price execution risk reduces traders aggressiveness and hence slows down information aggregation, which ultimately makes multiple equilibria in the coordination stage less likely. In this sense, microstructure frictions that lead to greater individual exposure (to price execution risk) may reduce aggregate uncertainty (by pinning down a unique equilibrium outcome). |
| Keywords: | Market microstructure; Information aggregation; Global game |
| JEL: | C72 D82 G14 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5hem762p8r8ujpo0bt0aihhnsl&r=all |
| By: | Baldwin, Elizabeth; Klemperer, Paul |
| Abstract: | An Equivalence Theorem between geometric structures and utility functions allows new methods for understanding preferences. Our classification of valuations into "Demand Types" incorporates existing definitions (substitutes, complements, "strong substitutes", etc.) and permits new ones. Our Unimodularity Theorem generalises previous results about when competitive equilibrium exists for any set of agents whose valuations are all of a "demand type". Contrary to popular belief, equilibrium is guaranteed for more classes of purely-complements, than of purely-substitutes, preferences. Our Intersection Count Theorem checks equilibrium existence for combinations of agents with specific valuations by counting the intersection points of geometric objects. Applications include matching and coalition-formation, and the "Product-Mix Auction" introduced by the Bank of England in response to the financial crisis. |
| Keywords: | Competitive Equilibrium; consumer theory; demand type; equilibrium existence; geometry; indivisible goods; Matching; product mix auction; product-mix auction; tropical geometry |
| JEL: | C62 D44 D50 D51 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13586&r=all |
| By: | Jullien, Bruno; Reisinger, Markus; Rey, Patrick |
| Abstract: | This paper examines the effects of personalized pricing on brand distribution. We explore whether a brand manufacturer prefers to sell through its own retail outlet only (mono distribution) or through an independent retailer as well (dual distribution). Personalized pricing allows for higher rent extraction but also leads to more fierce intra-brand competition than does uniform pricing. Due to the latter effect, a brand manufacturer may prefer mono distribution even if the retailer broadens the demand of the manufacturer’s product. By contrast, with uniform pricing, selling through both channels is always optimal. This result holds for wholesale contracts consisting of two-part tariffs as well as for linear wholesale tariffs. We also show that the manufacturer may obtain its largest profit in a hybrid pricing regime, in which only the retailer charges personalized prices. Keywords: personalized pricing, distribution channels, dual distribution, vertical contracting, downstream competition. |
| Keywords: | personalized pricing; distribution channels; dual distribution; vertical contracting; downstream competition. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:122848&r=all |