nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒06‒10
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Fake Experts By Patrick Lahr; Justus Winkelmann
  2. Biased managers in a vertical structure By Nicola Meccheri
  3. Countering the Winner’s Curse: Optimal Auction Design in a Common Value Model By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  4. Dispersed Behavior and Perceptions in Assortative Societies By Mira Frick; Ryota Iijima; Yves Le Yaouanq
  5. Rejection prices and an auctioneer with non-monotonic utility By Zhonghao Shui
  6. Heuristics in Multi-Winner Approval Voting By Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
  7. Media See-saws: Winners and Losers in Platform Markets By Simon P. Anderson; Martin Peitz
  8. Financial literacy and precautionary insurance By Kubitza, Christian; Hofmann, Annette; Steinorth, Petra
  9. Primaries, Strategic Voters and Heterogenous Valences By Shino Takayama; Yuki Tamura; Terence Yeo
  10. Aiming for the Goal: Contribution Dynamics of Crowdfunding By Joyee Deb; Aniko Oery; Kevin R. Williams
  11. The dynamics of political myths and ideologies By Apolte, Thomas; Müller, Julia
  12. Optimal pricing by a risk-averse seller By Tomer Siedner
  13. Do positional preferences cause welfare gains? By Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez
  14. Contest Architecture with Public Disclosures By Toomas Hinnosaar
  15. Detectability, Duality, and Surplus Extraction By Giuseppe Lopomo; Luca Rigotti; Chris Shannon
  16. Notes on Refinements and Higher Order Beliefs By Atsushi Kajii; Stephen Morris
  17. Competition between offline and online retailers with heterogeneous customers By Stefano Colombo; Noriaki Matsushima

  1. By: Patrick Lahr; Justus Winkelmann
    Abstract: We consider a multi-sender cheap talk model, where the receiver faces uncertainty over whether senders have aligned or state-independent preferences. This uncertainty generates a trade-off between giving sufficient weight to the most informed aligned senders and minimizing the influence of the unaligned. We show that preference uncertainty diminishes the benefits from specialization, i.e., senders receiving signals with more dispersed accuracy. When preference uncertainty becomes large, it negates them entirely, causing qualified majority voting to become the optimal form of communication. Our results demonstrate how political polarization endangers the ability of society to reap the benefits of specialization in knowledge.
    Keywords: Cheap Talk, Information Aggregation, Voting
    JEL: D83 D71
    Date: 2019–05
  2. By: Nicola Meccheri (Department of Economics and Management, University of Pisa, Italy; Rimini Centre for Economic Analysis)
    Abstract: This paper analyses the choice of managers' types in a vertical structure with a common input supplier. Depending on the degree of product differentiation, the choice of either an overconfident or an underconfident manager can arise whatever the downstream competition mode. Moreover, when competition is in quantities, the well-known prisoner’s dilemma result of strategic delegation does not apply when owners optimally delegate to underconfident managers. Instead, under price competition, a prisoner’s dilemma applies but only when the strategic decision is optimally delegated to overconfident managers. Moreover, the standard result that firms choose to compete in quantities is preserved when the degree of product substitutability is high, but a novel outcome with multiple asymmetric equilibria arises when the degree of product differentiation is low.
    Keywords: biased managers, strategic delegation, vertical structure
    JEL: D43 D91 L13
    Date: 2019–05
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. If the object is optimally sold with probability one, then the optimal mechanism is simply a posted price, with the highest price such that every type of every bidder is willing to buy the object. A sufficient condition for the posted price to be optimal among all mechanisms is that there is at least one potential bidder who is omitted from the auction. If the object is optimally sold with probability less than one, then optimal mechanisms skew the allocation towards bidders with lower signals. This can be implemented via a modi?ed Vickrey auction, where there is a random reserve price for just the high bidder. The resulting allocation induces a “winner’s blessing,” whereby the expected value conditional on winning is higher than the unconditional expectation. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the ?rst-price, second-price or English auctions) deliver lower revenue because of the winner’s curse generated by the allocation rule. Our qualitative results extend to more general common value environments where the winner’s curse is large.
    Keywords: Optimal auction, Common values, Maximum game, Posted price, Reserve price, Revenue equivalence
    JEL: C72 D44 D82 D83
    Date: 2018–11
  4. By: Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Yves Le Yaouanq (Harvard University)
    Abstract: We propose a multiple-prior model of preferences under ambiguity that provides a uni?ed lens through which to understand di?erent formalizations of ambiguity aversion, as well as context-dependent negative and positive ambiguity attitudes documented in experiments. This model, Boolean expected utility (BEU), represents the belief the decision-maker uses to evaluate any uncertain prospect as the outcome of a game between two conflicting forces, Pessimism and Optimism. We prove, ?rst, that BEU provides a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci, 2004). Second, BEU accommodates rich patterns of ambiguity attitudes, which we characterize in terms of the relative power allocated to each force in the game.
    Keywords: Multiple priors, Ambiguity aversion
    JEL: D81
    Date: 2019–06
  5. By: Zhonghao Shui (Graduate School of Economics, Kyoto University)
    Abstract: This paper considers an auctioneer who has a non-monotonic utility function with a unique maximizer. The auctioneer is able to reject all bids over some amount by using rejection prices. We show that the optimal rejection price for such an auctioneer is lower than and equal to that maximizer in first-price and second-price sealed-bid auctions, respectively. Further, in each auction we characterize a necessary and sufficient condition that by using the optimal rejection price not only the auctioneer but also bidders can be better off, compared to a standard auction. Finally, we find that the auctioneer strictly prefers a first-price sealed-bid auction if he is risk-averse when his revenue is lower than the maximizer or if the distribution of revenues which are lower than the maximizer in a standard first-price sealed-bid auction is first-order stochastic dominant over the one in a standard second-price sealed-bid auction.
    Keywords: Auction, Rejection prices, Non-monotonic utility
    JEL: D44 D82
    Date: 2019–04
  6. By: Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
    Abstract: In many real world situations, collective decisions are made using voting. Moreover, scenarios such as committee or board elections require voting rules that return multiple winners. In multi-winner approval voting (AV), an agent may vote for as many candidates as they wish. Winners are chosen by tallying up the votes and choosing the top-$k$ candidates receiving the most votes. An agent may manipulate the vote to achieve a better outcome by voting in a way that does not reflect their true preferences. In complex and uncertain situations, agents may use heuristics to strategize, instead of incurring the additional effort required to compute the manipulation which most favors them.In this paper, we examine voting behavior in multi-winner approval voting scenarios with complete information. We show that people generally manipulate their vote to obtain a better outcome, but often do not identify the optimal manipulation. Instead, voters tend to prioritize the candidates with the highest utilities. Using simulations, we demonstrate the effectiveness of these heuristics in situations where agents only have access to partial information.
    Date: 2019–05
  7. By: Simon P. Anderson; Martin Peitz
    Abstract: We customize the aggregative game approach to oligopoly to study media platforms which may differ by popularity. Advertiser, platform, and consumer surplus are tied together by a simple summary statistic. When media are ad-financed and ads are a nuisance to consumers we establish see-saws between consumers and advertisers. Entry increases consumer surplus, but decreases advertiser surplus if industry platform profits decrease with entry. Merger decreases consumer surplus, but advertiser surplus tends to increase. By contrast, when platforms use two-sided pricing or consumers like advertising, advertiser and consumer interests are often aligned.
    Keywords: media economics, mergers, entry, advertising, aggregative games
    JEL: D43 L13
    Date: 2019–05
  8. By: Kubitza, Christian; Hofmann, Annette; Steinorth, Petra
    Abstract: This paper studies insurance demand for individuals with limited financial literacy. We propose uncertainty about insurance payouts, resulting from contract complexity, as a novel channel that affects decision-making of financially illiterate individuals. Then, a trade-off between second-order (risk aversion) and third-order (prudence) risk preferences drives insurance demand. Sufficiently prudent individuals raise insurance demand upon an increase in contract complexity, while the effect is reversed for less prudent individuals. We characterize competitive market equilibria that feature complex contracts since firms face costs to reduce complexity. Based on the equilibrium analysis, we propose a monetary measure for the welfare cost of financial illiteracy and show that it is mainly driven by individuals' risk aversion. Finally, we discuss implications for regulation and consumer protection.
    Keywords: financial literacy,insurance demand,prudence,precautionary insurance
    JEL: D11 D81 D91 G22
    Date: 2019
  9. By: Shino Takayama (School of Economics, The University of Queensland); Yuki Tamura (Department of Economics, University of Rochester); Terence Yeo (School of Economics, The University of Queensland)
    Abstract: We propose a two-party model of policy promises and valence for office-seeking candidates under a two-stage electoral process with strategic voters. There are two equilibrium regimes depending on whether a good quality candidate of one party can win elections at both stages with certainty. We then provide the conditions for the existence of each equilibrium regime. We further analyze the case where only one party holds a primary, and conduct comparative statics analyses including how the change of public opinion affects equilibrium outcomes. Using a modified model including the decision of each candidate on entering the primary, we also show that if a low quality candidate places less importance on policy outcomes, and the good quality candidate in the opponent party has sufficiently low valence relative to the good quality candidate in her own party, she does not enter. This is because her entry will potentially damage the probability of her party winning the general election.
    Keywords: primary election, median voter, uncertainty, valence
    Date: 2019–05–24
  10. By: Joyee Deb; Aniko Oery; Kevin R. Williams
    Abstract: We study reward-based 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 free-riding. Donors can alleviate this coordination risk. We analyze a dynamic model of crowdfunding and demonstrate that its predictions are consistent with high-frequency 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.
    JEL: D21 D22 D7 D8
    Date: 2019–05
  11. By: Apolte, Thomas; Müller, Julia
    Abstract: Why do groups of even well-educated individuals sometimes persistently believe in political myths and ideologies? We follow cognition psychology in its finding that individuals sometimes stick with intuitive but false propositions. We also follow Kahneman, however, in maintaining that they challenge their intuition when the consequences for their individual wealth are sufficiently high. We embed these propositions into a model that determines the conditions of a myth equilibrium, in which almost all individuals stick with ex-post rationalization to justify their initial intuition, or a truth equilibrium in which all individuals pursue ex-ante reasoning that aims to get as close to the truth as possible. We show why myths are clustered around certain groups and why groups are more likely to stick with political myths than individuals, thus disproving Condorcet's jury theorem.
    Keywords: Cognition,Ideology,Rational Ignorance
    JEL: D72 D83 D91
    Date: 2019
  12. By: Tomer Siedner
    Abstract: We consider the basic setup of one seller, one buyer, and one good, where the seller is risk averse, and characterize the mechanism that maximizes the seller's expected utility. In contrast to the risk-neutral case, where a single deterministic price is optimal, we show that in the risk averse case the optimal mechanism consists of a continuum of lotteries.
    Date: 2019–05
  13. By: Douadia Bougherara (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); Sandrine Costa (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Gilles Grolleau (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, BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC)); Lisette Ibanez (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 examine conditions for which positional preferences for voluntary contribution to a public good can be welfare enhancing in a one-shot public good game, where individuals may also enjoy a return from their contribution ranking. We show that positional preferences are welfare-increasing only under certain conditions. We find that when agents' positional preferences are homogeneous, they overinvest in the public good compared to equilibrium with no positional preferences, resulting in a zero-sum positional race with a higher public good provision. When agents have heterogeneous positional preferences, the overall impact on social welfare is positive when endowments are homogeneous.
    Date: 2019
  14. By: Toomas Hinnosaar
    Abstract: I study optimal disclosure policies in sequential contests. A contest designer chooses at which periods to publicly disclose the efforts of previous contestants. I provide results for a wide range of possible objectives for the contest designer. While different objectives involve different trade-offs, I that show that under many circumstances the optimal contest is one of the three basic contest structures widely studied in the literature: simultaneous, first-mover, or sequential contest.
    Date: 2019–05
  15. By: Giuseppe Lopomo; Luca Rigotti; Chris Shannon
    Abstract: We study the problem of surplus extraction in the general environment of McAfee and Reny (1992), and provide two alternative proofs of their main theorem. The first is an analogue of the classic argument of Cr{\' e}mer and McLean (1985, 1988), using geometric features of the set of agents' beliefs to construct a menu of contracts extracting the desired surplus. This argument, which requires a finite state space, also leads to a counterexample showing that full extraction is not possible without further significant conditions on agents' beliefs or surplus, even if the designer offers an infinite menu of contracts. The second argument uses duality and applies for an infinite state space, thus yielding the general result of McAfee and Reny (1992). By providing a connection to duality, this argument suggests methods for studying surplus extraction in other models in which agents or the designer might have objectives other than risk-neutral value maximization.
    Date: 2019–05
  16. By: Atsushi Kajii (Institute of Economic Research, Kyoto University); Stephen Morris (Princeton University)
    Date: 2019–03
  17. By: Stefano Colombo; Noriaki Matsushima
    Abstract: We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume consumers are heterogeneous across two dimensions: (i) the costs of traveling to either of the offline retailers and (ii) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.
    Date: 2019–05

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