nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒04‒01
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Note on Dynamic Consistency in Ambiguous Persuasion By Pahlke, Marieke
  2. Assessment Voting in Large Electorates By Hans Gersbach; Akaki Mamageishvili; Oriol Tejada
  3. Negotiating with frictions By Volker Britz
  4. Updating Awareness and Information Aggregation By Galanis, S.; Kotronis, S.
  5. Guarding the guardians By Guimaraes, Bernardo; Sheedy, Kevin D.
  6. Heterogeneous risk/loss aversion in complete information all-pay auctions By Chen, Zhuoqiong (Charlie); Ong, David; Segev, Ella
  7. Dynamic Consistency, Valuable Information and Subjective Beliefs By Galanis, S.
  8. Salience and skewness preferences By Dertwinkel-Kalt, Markus; Köster, Mats
  9. A model of social welfare improving transfers By Brice Magdalou
  10. Incentive Pay for Policy-makers? By Volker Britz; Afsoon Ebrahimi; Hans Gersbach
  11. Incentives, pro-social preferences and discrimination By Raphaël Soubeyran
  12. Cultural Transmission with Incomplete Information: Parental Perceived Efficacy and Group Misrepresentation. By Sebastiano Della Lena; Fabrizio Panebianco
  13. The blockchain, plums, and lemons: Information asymmetries & transparency in decentralized markets By Notheisen, Benedikt; Weinhardt, Christof

  1. By: Pahlke, Marieke (Center for Mathematical Economics, Bielefeld University)
    Abstract: Beauchêne, Li, and Li (2019) show that ambiguous persuasion leads to new interim equilibria with higher ex ante value for the Sender compared to the standard Bayesian persuasion. However, in their equilibrium the strategy of the Receiver is in general not ex ante optimal. This note, de fines rectangular beliefs over the full state space in the same setting as Beauchêne et al. (2019) and shows that given rectangular be- liefs the Receiver behaves dynamically consistent. Hence, the interim equilibrium of Beauchêne et al. (2019) is an ante equilibrium, as well.
    Keywords: Bayesian Persuasion, Ambiguity Aversion, Dynamic Consistency
    Date: 2019–03–25
  2. By: Hans Gersbach (ETH Zurich, Switzerland); Akaki Mamageishvili (ETH Zurich, Switzerland); Oriol Tejada (ETH Zurich, Switzerland)
    Abstract: We analyze Assessment Voting, a new two-round voting procedure that can be applied to binary decisions in democratic societies. In the first round, a randomly-selected number of citizens cast their vote on one of the two alternatives at hand, thereby irrevocably exercising their right to vote. In the second round, after the results of the first round have been published, the remaining citizens decide whether to vote for one alternative or to abstain. The votes from both rounds are aggregated, and the final outcome is obtained by applying the majority rule, with ties being broken by fair randomization. Within a costly voting framework, we show that large electorates will choose the preferred alternative of the majority with high probability, and that average costs will be low. This result is in contrast with the literature on one-round voting, which predicts either higher voting costs (when voting is compulsory) or decisions that often do not represent the preferences of the majority (when voting is voluntary).
    Keywords: voting; referenda; rational behavior
    JEL: C72 D70 D72
    Date: 2017–12
  3. By: Volker Britz (ETH Zurich, Switzerland)
    Abstract: We consider bilateral non–cooperative bargaining on the division of a surplus. Compared to the canonical bargaining game in the tradition of Rubinstein, we introduce additional sources of friction into the bargaining process: Implementation of an agreement and consumption of the surplus can only begin at discrete points in time, such as the first day of a month, quarter, or year. Bargaining rounds are of non–trivial length, so that counter–offers may be made without triggering costly delay. Communication between players is noisy: When players make offers, they are uncertain about the time it takes for the offer to arrive. We analyze delays and payoffs in the unique stationary equilibrium of the game. Frictions tend to make the bargaining process less efficient, but lead to a fairer surplus allocation. We establish conditions under which the equilibrium outcome converges to that in a canonical bargaining model as frictions become small.
    Keywords: Bargaining, Discount Factor, Timing, Subgame–Perfect Equilibrium, Equilibrium Delay.
    JEL: C72 C78
    Date: 2019–01
  4. By: Galanis, S.; Kotronis, S.
    Abstract: The ability of markets to aggregate information through prices is examined in a dynamic environment with unawareness. We find that if all traders are able to minimally update their awareness when they observe a price that is counterfactual to their private information, they will eventually reach an agreement, thus generalising the result of Geanakoplos and Polemarchakis [1982]. Moreover, if the traded security is separable, then agreement is on the correct price and there is information aggregation, thus gen- eralizing the result of Ostrovsky [2012] for non-strategic traders. We find that a trader increases her awareness if and only if she is able to become aware of something that other traders are already aware of and, under a mild condition, never becomes aware of anything more. In other words, agreement is more the result of understanding each other, rather than being unboundedly sophisticated.
    Keywords: Agreement; InformationAggregation; Unawareness; FinancialMarkets; InformationMarkets; PredictionMarkets
    Date: 2019–02–11
  5. By: Guimaraes, Bernardo; Sheedy, Kevin D.
    Abstract: Good government requires some restraints on the powerful, but how can those be impose if there is no-one above them? This paper studies the equilibrium allocation of power and resources established by self-interested incumbents under the threat of rebellions from inside and outside the group in power. Commitment to uphold individuals' rights can only be achieved if power is not as concentrated as incumbents would like it to be, ex post. Power sharing endogenously enables incumbents to commit to otherwise time-inconsistent laws by ensuring more people receive rents under the status quo, and thus want to defend it.
    Keywords: power sharing; property rights; time inconsistency
    JEL: D74 H11 P48
    Date: 2017–11–01
  6. By: Chen, Zhuoqiong (Charlie); Ong, David; Segev, Ella
    Abstract: We extend previous theoretical work on n-player complete information all-pay auctions to incorporate heterogeneous risk- and loss-averse utility functions. We provide sufficient and necessary conditions for the existence of equilibria with a given set of active players with any strictly increasing utility functions and characterize the players’ equilibrium mixed strategies. Assuming that players can be ordered by their risk aversion (player a is more risk-averse than player b, if whenever player b prefers a certain payment over a given lottery, so does player a), we find that in equilibrium, the more risk-averse players either bid higher than the less risk-averse players and win with higher ex-ante probability – or they drop out. Furthermore, while each player’s expected bid decreases with the other players’ risk aversion, her expected bid increases with her own risk aversion. Thus, increasing a player’s risk aversion creates two opposing effects on total expected bid. A sufficient condition for the total expected bid to decrease with a player’s risk aversion is that this player is relatively more risk-averse compared to the rest of the players. Our findings have important implications for the literature on gender differences in competitiveness and for gender diversity in firms that use personnel contests for promotions.
    Keywords: All-pay auction; Risk aversion; Loss aversion
    JEL: D44 D72 D81
    Date: 2017–06–01
  7. By: Galanis, S.
    Abstract: Ambiguity sensitive preferences must fail either Consequentialism or Dynamic Consistency (DC), two properties that are compatible with subjective expected utility and Bayesian updating, while forming the basis of backward induction and dynamic programming. We examine the connection between these properties in a general environment of convex preferences over monetary acts and find that, far from being incompatible, they are connected in an economically meaningful way. In single-agent decision problems, positive value of information characterises one direction of DC. We propose a weakening of DC and show that one direction is equivalent to weakly valuable information, whereas the other characterises the Bayesian updating of the subjective beliefs which are revealed by trading behavior. In financial markets, we characterize no speculative trade, without requiring any form of Consequentialism, and show that there is weakly negative value of public information in risk-sharing environments with no aggregate uncertainty.
    Keywords: Updating; Ambiguity; Dynamic Consistency; Bayesian; Consequentialism; Value of Information; No Trade; Speculative Trade
    Date: 2019–01–10
  8. By: Dertwinkel-Kalt, Markus; Köster, Mats
    Abstract: Whether people seek or avoid risks on gambling, insurance, asset, or labor markets crucially depends on the skewness of the underlying probability distribution. In fact, people typically seek positively skewed risks and avoid negatively skewed risks. We show that salience theory of choice under risk can explain this preference for positive skewness, because unlikely, but outstanding payoffs attract attention. In contrast to alternative models, however, salience theory predicts that choices under risk not only depend on the absolute skewness of the available options, but also on how skewed these options appear to be relative to each other. We exploit this fact to derive novel, experimentally testable predictions that are unique to the salience model and that we find support for in two laboratory experiments. We thereby argue that skewness preferences - typically attributed to cumulative prospect theory - are more naturally accommodated by salience theory.
    Keywords: Salience Theory,Cumulative Prospect Theory,Skewness Preferences
    JEL: D81
    Date: 2019
  9. By: Brice Magdalou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: We establish an equivalence theorem between (i) dominance of one society by another, according to a finite sequence of social welfare improving transfers and (ii) dominance according to a class of social welfare functions, in the following framework: individual outcomes are multidimensional but finitely divisible in each dimension, a distribution simply counts the number of individuals having each possible outcome, and the considered set of transfers has the structure of a discrete cone. This framework encompasses most of the social welfare improving transfers investigated in the literature such as, for instance, Pigou-Dalton progressive transfers. As by-products, our model sheds new light on some surprising results in the literature on social deprivation, and provides new arguments on the key role of the expected utility model in decision-making under risk.
    Keywords: welfare-improving transfers,stochastic dominance.,inequality,social welfare
    Date: 2018
  10. By: Volker Britz (ETH Zurich, Switzerland); Afsoon Ebrahimi (ETH Zurich, Switzerland); Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We study how to efficiently motivate policy-makers to solve political multitask problems. Political multi-task problems typically have outcomes that are difficult to measure. Moreover, there are conflicts among citizens about optimal policies and the agents have the power to tax the citizens to invest in better outcomes of some tasks. We develop a political agency model with two tasks and only one measurable outcome. In such an environment, policy-makers choose socially inefficient public good levels and expropriate minorities. A judicious combination of constitutional limits on taxation and incentive pay for policy-makers is second-best. Incentive pay is conditional on the public good level.
    Keywords: incentive contracts, politicians, multi-task problems.
    JEL: D72 D82
    Date: 2018–12
  11. By: Raphaël Soubeyran (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: In this paper, I study how a principal can provide incentives, at minimal cost, to a group of agents who have pro-social preferences in order to induce successful coordination in the presence of network externalities. I show that agents' pro-social preferences - specifically a preference for the sum of the agents' payoffs and/or for the minimum payoff - lead to a decrease in the implementation cost for the principal, a decrease in the payoff of each agent and an increase in discrimination. The model can be applied in various contexts and it delivers policy implications for designing policies that support the adoption of new technologies, for motivating a group of workers or for inducing successful coordination of NGOs.
    Keywords: principal,agents,pro-social preferences,incentives,externality
    Date: 2019
  12. By: Sebastiano Della Lena; Fabrizio Panebianco (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: This paper introduces incomplete information in the standard model of cultural transmission (Bisin and Verdier, 2001). We allow parents to ignore own group size and the efficiency of their cultural transmission technology, while receiving a feedback from their children. Using the selfcon_rming equilibrium concept, parents may end up to sustain, and be confirmed about, wrong conjectures. We show that in equilibrium optimal socialization efforts display cultural complementarity with respect to own population share, while the standard substitution result holds with respect their own conjectured population shares. Considering the population dynamics, if conjectures about population shares are shaped by cultural leaders who want to maximize the presence of own traits in the next period, then conjectures are characterized by negative biases. Our main finding is that, depending on the magnitude of the bias, the dynamics can display stable or unstable polymorphic equilibria, or just a stable homomorphic equilibrium, potentially reverting standard predictions
    Keywords: Cultural Transmission; Incomplete Information; Selfcon rming Equilibrium; Group Under-Representation; Parental Perceived Ecacy; Cultural leaders.
    JEL: C72 D10 D80 J10 Z10
    Date: 2019–03
  13. By: Notheisen, Benedikt; Weinhardt, Christof
    Abstract: Despite a growing interest, researchers and practitioners still struggle to transfer the blockchain concept introduced by Bitcoin to market-oriented application scenarios. To shed light on the technology's usage in markets with asymmetric information, this study analyzes the effect of the blockchain's public transparency paradigm on behavioral patterns and market outcomes. In line with prior research, our findings indicate that the blockchain's shared record mitigates adverse selection effects and reduces moral hazard of good market participants (plums). In addition, we identify an incentive for bad market participants (lemons) to behave opportunistically in the presence of perfect quality information. More specifically, the disclosed information allows them to learn about quality differences between plums and lemons, deceive their counterparties, and move to a new equilibrium with increased utility. As a result, the market collapses despite a welfare gain and future generations are denied market access. In addition, plums and lemons are committed to inefficient equilibria following irrational behavior. In total, this study aims to provide initial guidance for blockchain adoption in the context of markets with information asymmetries and highlights risks that arise from competition, the exposure to irrational behavior, and the implementation of services on the infrastructure level.
    Keywords: Blockchain,Transparency,Market for Lemons,FinTech,Moral Hazard,Information Sharing,Credit Markets
    JEL: D53 D82 G21 L86
    Date: 2019

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