nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒07‒08
24 papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Simple Model of Competitive Testing By Ginzburg, Boris
  2. Rationalizable Implementation of Social Choice Correspondences By Ritesh Jain
  3. Partnerships with Asymmetric Information: The Benefit of Sharing Equally amongst Unequals By Nana Adrian, Marc Möller
  4. Robust Information Aggregation Through Voting By Midjord, Rune; Rodríguez Barraquer, Tomás; Valasek, Justin
  5. Competitive differential pricing By Chen, Yongmin; Li, Jianpei; Schwartz, Marius
  6. Mechanism design with farsighted agents By Korpela, Ville; Lombardi, Michele
  8. Bargaining and Conflict with Up-front Investments: How Power Asymmetries Matter By Zachary Schaller; Stergios Skaperdas
  9. The Winner-Take-All Dilemma By Kazuya Kikuchi; Yukio Koriyama
  10. Broken Detailed Balance and Non-Equilibrium Dynamics in Noisy Social Learning Models By Tushar Vaidya; Thiparat Chotibut; Georgios Piliouras
  11. Local search markets and external competition By Patrick Legros; Konrad O. Stahl
  12. Characterization of efficient networks in a generalized connections model with endogenous link strength By Olaizola Ortega, María Norma; Valenciano Llovera, Federico
  13. Price Discrimination and Salient Thinking By Nana Adrian
  14. Private Communication in Competing Mechanism Games By Attar, Andrea; Campioni, Eloisa; Piaser, Gwenaël
  15. Optimal Information Censorship By Ginzburg, Boris
  16. Beating Coase at Monopoly By Lluis Bru; Daniel Cardona; Jozef Sakovics
  17. The quasilinear quadratic utility model: an overview By Philippe Choné; Laurent Linnemer
  18. Cooperating in R&D and Advertising By Parisa Pourkarmi; Gamal Atallah
  19. On Trade and the Stability of (Armed) Peace By Michelle R. Garfinkel; Constantinos Syropoulos
  20. On the Evolution of Norms in Strategic Environments By Sebastiano Della Lena; Pietro Dindo
  21. Bundling in a Distribution Channel with Retail Competition By Joachim Heinzel
  22. Planar Beauty Contests By Mikhail Anufriev; John Duffy; Valentyn Panchenko
  23. Slacktivism By Ginzburg, Boris
  24. An Economic Model of the Meat Paradox By Hestermann, Nina; Le Yaouanq, Yves; Treich, Nicolas

  1. By: Ginzburg, Boris
    Abstract: A number of candidates are competing for a prize. Each candidate is privately informed about his type. The decision-maker who allocates the prize wants to give it to the candidate with the highest type. Each candidate can take a test that reveals his type at a cost. I show that if competition increases, candidates reveal more information when the cost is high, and less information when it is low. Nevertheless, the decision-maker always benefits from greater competition. If competition is large, mandatory disclosure is Pareto-dominated by voluntary disclosure. When the test is noisier, candidates are more likely to take it.
    Keywords: information disclosure, testing, competition
    JEL: D82 D83
    Date: 2019–01–03
  2. By: Ritesh Jain (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: A social choice correspondence (SCC) F is a mapping which associates with every state θ ∈ Θ a non empty subset of a set of outcomes. F is implementable in rationalizable strategies provided that there exists a mechanism such that for each state θ, the support of its set of rationalizable outcomes is equal to the socially desirable set F(θ). We find that r-monotonicity is a necessary condition for the rationalizable implementation of F. When there are at least three agents and F satisfies certain auxiliary conditions, r-monotonicity is also sufficient for rationalizable implementation. Finally, we show that a SCC which is never single valued is rationalizably implementable if and only if it satisfies r-monotonicity.
    Keywords: : Implementation, Social choice correspondences, Monotonicity, Rationalizability
    JEL: C79 D82
    Date: 2019–06
  3. By: Nana Adrian, Marc Möller
    Abstract: This paper provides a rationale for equal sharing in heterogeneous partnerships. We introduce project choice and information sharing to a standard team production setting. A team with two agents can choose whether they want to work on a status quo project or on an alternative project. If the (expected) quality of the projects is given and common knowledge, it is optimal for team surplus to give a higher share to the more productive agent in order to optimally motivate. If agents have private information, we have to give the higher share of profits to the less productive agent if we want agents to share this information, which would allow for better adaptation. Equal revenuesharing strikes a balance between the two objectives of adaptation and motivation and can be efficient even in the presence of considerable productivity differences across partners
    Keywords: Team adaptation, effort motivation, information disclosure
    JEL: D2 D8 L2
    Date: 2019–05
  4. By: Midjord, Rune; Rodríguez Barraquer, Tomás; Valasek, Justin (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Numerous theoretical studies have shown that information aggregation through voting is fragile. We consider a model of information aggregation with vote-contingent payoffs and generically characterize voting behavior in large committees. We use this characterization to identify the set of vote-contingent payoffs that lead to a unique outcome that robustly aggregates information. Generally, it is not sufficient to simply reward agents for matching their vote to the true state of the world. Instead, robust and unique information aggregation can be achieved with vote-contingent payoffs whose size varies depending on which option the committee chooses, and whether the committee decision is correct
    Keywords: Information aggregation; Voting; Vote-contingent payoffs.
    JEL: D71 D72
    Date: 2019–06–10
  5. By: Chen, Yongmin; Li, Jianpei; Schwartz, Marius
    Abstract: This paper analyzes welfare under differential versus uniform pricing across oligopoly markets that differ in costs of service. We establish necessary and sufficient conditions on demand properties---cross/own elasticities and curvature---for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always---including why profit can fall, unlike for monopoly---and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with `simple' demands such as linear.
    Keywords: differential pricing, price discrimination, demand curvature, cross-price elasticity, pass-through, oligopoly
    JEL: D4 D43 L1 L11 L13 L4
    Date: 2019–05–11
  6. By: Korpela, Ville; Lombardi, Michele
    Abstract: Agents are farsighted when they consider the ultimate results to which their own actions may lead to. We re-examine the classical questions of implementation theory under complete information in a setting with transfers where farsighted coalitions are regarded as fundamental behavioral units and the equilibrium outcomes of their interactions are predicted via the stability notion of the largest consistent set. The designer's exercise consists of designing a rights structure, which formalizes the idea of power distribution in society. His or her challenge lies in designing a rights structure in which the equilibrium behavior of agents always coincides with the recommendation given by a social choice function. We show that (Maskin) monotonicity fully identifies the class of social choice functions that are implementable by a rights structure. We also discuss how this result changes when social choice correspondences are considered.
    Keywords: Farsightedness; implementation; transfers; rights structures; coaltions; largest consistent set; monotonicity
    JEL: C71 D71 D82
    Date: 2019–06–10
  7. By: Dmitriy Veselov (National Research University Higher School of Economics)
    Abstract: When property rights are poorly secured, crony relations i.e. the tight connection between the owners of major firms and the government are the primary informal mechanism securing the property. However, this institutional framework creates high entry barriers on markets. We propose a theory that explains why in a democracy the majority of voters may prefer this type of institutions. This paper develops a simple voting model with heterogeneous agents, which differ in their skills and wealth endowment. We show that if the policy space is two-dimensional, the wealthy elite and low-skilled workers may form a majority coalition, supporting the regime with high-entry barriers. In this case, the wealthy elite agrees on a higher level of redistribution, preferred by the least skilled agents. We compare the possibility of this outcome for different voting rules, and prove that the electoral support of crony capitalism is more likely for countries with a low level of human capital and high income and skill inequality. The model is also able to explain different effects of democratization process on the institutional structure of the society.
    Keywords: barriers to entry, electoral rules, income inequality, skills inequality, crony capitalism
    JEL: D30 D71 D72 O10 P16
    Date: 2019
  8. By: Zachary Schaller (Department of Economics, University of California-Irvine); Stergios Skaperdas (Department of Economics, University of California-Irvine)
    Abstract: We examine settings—such as litigation, labor relations, or arming and war -- in which players first make non-contractible up-front investments to improve their bargaining position and gain advantage for possible future conflict. Bargaining is efficient ex post, but we show that a player may prefer Conflict ex ante if there are sufficient asymmetries in strength. There are two sources of this finding. First, up-front investments are more dissimilar between players under Con- flict, and they are lower than under Bargaining when one player is much stronger than the other. Second, the probability of the stronger player winning in Conflict is higher than the share received under Nash bargaining. We thus provide a rationale for conflict to occur under complete information that does not depend on long-term commitment problems. Greater balance in institutional support for different sides is more likely to maintain peace and settlements.
    Keywords: Power asymmetries; War; Litigation; Contests
    JEL: C70 D74 J53 K41
    Date: 2019–06
  9. By: Kazuya Kikuchi; Yukio Koriyama
    Abstract: This paper considers collective decision-making when individuals are partitioned into groups (e.g., states or parties) endowed with voting weights. We study a game in which each group chooses an internal rule that specifies the allocation of its weight to the alternatives as a function of its members’ preferences. We show that under quite general conditions, the game is a Prisoner’s Dilemma: while the winner-take-all rule is a dominant strategy, the equilibrium is Pareto dominated. We also show asymptotic Pareto dominance of the proportional rule. Our numerical computation for the US Electoral College verifies the sensibility of the asymptotic results.
    Date: 2019–06
  10. By: Tushar Vaidya; Thiparat Chotibut; Georgios Piliouras
    Abstract: We propose new Degroot-type social learning models with feedback in a continuous time, to investigate the effect of a noisy information source on consensus formation in a social network. Unlike the standard Degroot framework, noisy information models destroy consensus formation. On the other hand, the noisy opinion dynamics converge to the equilibrium distribution that encapsulates correlations among agents' opinions. Interestingly, such an equilibrium distribution is also a non-equilibrium steady state (NESS) with a non-zero probabilistic current loop. Thus, noisy information source leads to a NESS at long times that encodes persistent correlated opinion dynamics of learning agents.
    Date: 2019–06
  11. By: Patrick Legros; Konrad O. Stahl
    Abstract: Increased competition tends to benefit all buyers with increasing product variety and decreasing prices. However, if local and external market channels compete for the same class of products, increased competition from the external market crowds out local variety. Under local monopoly, local buyer surplus co-moves with external buyer surplus. Under local free entry oligopoly, buyer surplus is U-shaped. If buyer surplus in the external market is low, local surplus is better provided by local oligopoly, but moves against external surplus; if it is high, local and external surplus co-move, and local surplus is better provided by local monopoly.
    Keywords: global competition, monopoly, oligopoly, search
    JEL: D83 L12 L13 L81
    Date: 2019
  12. By: Olaizola Ortega, María Norma; Valenciano Llovera, Federico
    Abstract: We consider a natural generalization of Jackson and Wolinsky s (1996) connections model where the quality or strength of a link depends on the amount invested in it and is determined by a non-decreasing function of that amount. The information that the nodes receive through the network is the revenue from investments in links. We prove that in this most general version of the connections model, the only possibly nonempty efficient networks, in the sense of maximizing the aggregate proffit, are still the all-encompassing star and the complete network, with the sole and rare exception of a highly particular case where there is a draw between the all-encompassing star, the complete network and a whole range of a particular type of nested split graph structures intermediate between them.
    Keywords: network, formation, connecions, model, nested, split, graph, efficiency
    JEL: A14 C7 D85
    Date: 2019–05–09
  13. By: Nana Adrian
    Abstract: This paper generalizes the price discrimination framework of Mussa and Rosen (1978) by considering salience-driven consumer preferences in the sense of Bordalo et al. (2013b). Consumers with salience-driven preferences give a higher weight to attributes that vary more. This reduces the monopolist's propensity to treat different types of consumers differently. The paper's main result characterizes the conditions under which the monopolist induces consumers to focus on price rather than on quality.
    Keywords: Salience, price discrimination, monopolist
    JEL: D11 D42 D91 L11
    Date: 2019–06
  14. By: Attar, Andrea; Campioni, Eloisa; Piaser, Gwenaël
    Abstract: We study games in which principals simultaneously post mechanisms in the presence of several agents. We evaluate the role of principals’ communication in these settings. As in Myerson (1982), each principal may generate incomplete information among agents by sending them private signals. We show that this channel of communication, which has not been considered in standard approaches to competing mechanisms, has relevant strategic effects. Specifically, we construct an example of a complete information game in which (multiple) equilibria are sustained as in Yamashita (2010) and none of them survives in games in which all principals can send private signals to agents. The corresponding sets of equilibrium allocations are therefore disjoint. The role of private communication we document may hence call for extending the construction of Epstein and Peters (1999) to incorporate this additional element.
    Keywords: Competing Mechanisms; Private Communication
    Date: 2019–06
  15. By: Ginzburg, Boris
    Abstract: This paper analyses Bayesian persuasion of a privately informed receiver in a linear framework. The sender is restricted to censorship, that is, to strategies in which each state is either perfectly revealed or hidden. I develop a new approach to finding optimal censorship strategies based on direct optimisation. I also show how this approach can be used to restrict the set of optimal censorship schemes, and to analyse optimal censorship under certain classes of distributions of the receiver's type.
    Keywords: Bayesian persuasion; censorship
    JEL: D82 D83
    Date: 2019–05–09
  16. By: Lluis Bru; Daniel Cardona; Jozef Sakovics
    Abstract: We study how a buyer unable to price discriminate should satisfy his demand in the presence of diseconomies of scale in production. Defying the Coase Conjecture, we show that auctioning contracts for lots (block sourcing) followed by setting a price to realize (part of) the residual gains from trade a ways leads to higher buyer surplus than simply setting a price.
    Keywords: block sourcing, lot auction, monopoly, procurement, residual market, split awards
    JEL: D42 D44 L12
    Date: 2019–06
  17. By: Philippe Choné; Laurent Linnemer
    Abstract: The quasi-linear quadratic utility model is widely used in economics. The knowledge of its exact origin is less widespread. A first contribution of the paper is to explain the genesis of this model. Next, we review the main properties of the general model, mainly following the previous literature. Finally, it is shown that all the tractable versions of the model used in practice are (almost) identical and have a mean variance structure. We provide ready-to-use formulae for this symmetric model.
    JEL: L13
    Date: 2019
  18. By: Parisa Pourkarmi (Department of Economics, Carleton University, Ottawa, ON); Gamal Atallah (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: This paper studies the impact of cooperative R&D and advertising on innovation and welfare in a duopolistic industry. The model incorporates two symmetric firms producing differentiated products. Firms invest in R&D and advertising in the presence of R&D spillovers and advertising spillovers. Advertising spillovers may be positive or negative. Four cooperative structures are studied: no cooperation, R&D cooperation, advertising cooperation, R&D and advertising cooperation. R&D spillovers and advertising spillovers always increase innovation and welfare if products are highly differentiated and/or spillovers are sufficiently high. The ranking of cooperation settings in terms of R&D, profits and welfare depends on product differentiation, R&D spillovers and advertising externalities. Firms always prefer cooperation on both dimensions, which is socially beneficial only when advertising and R&D spillovers are sufficiently high.
    Keywords: R&D, Advertising, Cooperation, Spillovers, Product differentiation, Innovation, Marketing.
    JEL: D43 L13 O32
    Date: 2019
  19. By: Michelle R. Garfinkel (Department of Economics, University of California-Irvine); Constantinos Syropoulos (Department of Economics and International Business, Drexel University)
    Abstract: We consider an environment in which two sovereign states with overlapping ownership claims on a resource/asset first arm and then choose whether to resolve their dispute violently through war or peacefully through settlement. Both approaches depend on the states' military capacities, but have very different outcomes. War precludes trade between the two states and can be destructive; however, once a winner is declared, arming is unnecessary in future periods. By contrast, a peaceful resolution under the threat of war today avoids destruction and supports mutually advantageous trade; yet, settlements must be renegotiated and the states must arm in future periods to resolve their ongoing dispute. Paying special attention to the importance of trade on arming incentives and payoffs in this context, we explore the conditions under which "armed peace" arises as the perfectly coalition-proof equilibrium over time. Our analysis reveals that, depending on the destructiveness of war, time preferences, and the distribution of initial resource endowments, greater gains from trade (jointly determined by trade costs and the substitutability of traded commodities) can reduce arming and pacify international tensions. Even when the gains from trade are relatively small, peace might be sustainable, but only for more uneven distributions of initial resources.
    Keywords: Interstate disputes; Conflict and settlement; Security policies; Gains from trade
    JEL: C72 C78 D30 D70 D74 F10 F51
    Date: 2019–06
  20. By: Sebastiano Della Lena (Department of Economics, University Of Venice Cà Foscari); Pietro Dindo (Department of Economics, University Of Venice Cà Foscari)
    Abstract: In a heterogeneous population divided into two cultural groups, we investigate the intergenerational dynamics of norms, modeled as preferences over actions, as depending on strategic environments. We find that environments with strategic complementarity or substitutability lead to different long-run norms and horizontal socializations. When players face many games within the same class, under complementarity agents converge to the same norm and socialization is high, under substitutability norms may diverge or become neutral and socialization is low. However, for specific games, partial convergence can arise under complementarity, providing an explanation to cultural heterogeneity, and partial divergence can arise under substitutability.
    Keywords: Evolution of Norms, Cultural Transmission, Endogenous preferences, Cultural Heterogeneity
    JEL: C7 D9 I20 J15 Z1
    Date: 2019
  21. By: Joachim Heinzel (Paderborn University)
    Abstract: We analyze the incentives for retail bundling and the welfare effects of retail bundling in a decentralized distribution channel with two retailers and two monopolistic manufacturers. One manufacturer exclusively sells his good to one retailer, whereas the other manufacturer sells his good to both retailers. Thus, one retailer is a monopolist for one product but competes with the other retailer in the second product market. The two-product retailer has the option to bundle his goods or to sell them separately. We find that bundling aggravates the double marginalization problem for the bundling retailer. Nevertheless, when the retailers compete in prices, bundling can be more profitable than separate selling for the retailer as bundling softens the retail competition. The ultimate outcome depends on the manufacturers’ marginal costs. Given retail quantity competition, however, bundling is in no case the retailer’s best strategy. Furthermore, we show that profitable bundling reduces consumer and producer surplus in the equilibrium.
    Keywords: retail bundling, leverage theory, double marginalization
    JEL: L11 L13 L41 M31
    Date: 2019–06
  22. By: Mikhail Anufriev (University of Technology Sydney); John Duffy (Department of Economics, University of California-Irvine); Valentyn Panchenko (UNSW Business School, Sydney)
    Abstract: We introduce a planar beauty contest game where agents must simultaneously guess two, endogenously determined variables, a and b. The system of equations determining the actual values of a and b is a coupled system; while the realization of a depends on the average forecast for a, a, as in a standard beauty contest game, the realization of b depends on both a and on the average forecast for b, b. Our aim is to better understand the conditions under which agents learn the steady state of such systems and whether the eigenvalues of the system matter for the convergence or divergence of this learning process. We find that agents are able to learn the steady state of the system when the eigenvalues are both less than 1 in absolute value (the sink property) or when the steady state is saddlepath stable with the one root outside the unit circle being negative. By contrast, when the steady state exhibits the source property (two unstable roots) or is saddlepath stable with the one root outside the unit circle being positive, subjects are unable to learn the steady state of the system. We show that these results can be explained by either an adaptive learning model or a mixed cognitive levels model, while other approaches, e.g., naive or homogeneous level-k learning, do not consistently predict whether subjects converge to or diverge away from the steady state.
    Keywords: Beauty contest; Learning; Stability; Simultaneous equation systems, Level-k cognitive theory
    JEL: C30 C92 D83 D84
    Date: 2019–06
  23. By: Ginzburg, Boris
    Abstract: Many countries have introduced e-government petitioning systems, in which a petition that gathers enough signatures triggers some political outcome. This paper models citizens who choose whether to sign a petition. Citizens are imperfectly informed about the petition's chance of bringing change. The number of citizens approaches infinity, while the cost of signing is positive but low, falling within certain bounds. In the limit, participation is increasing in the required quota of signatures. Social welfare is decreasing in the quota. Information aggregation may fail if individual signals are sufficiently uninformative.
    Keywords: online petitions, collective action, voting, political participation
    JEL: D72 H41
    Date: 2019–05–09
  24. By: Hestermann, Nina (University of St Andrews); Le Yaouanq, Yves (LMU Munich); Treich, Nicolas (Toulouse School of Economics and INRA)
    Abstract: Many individuals have empathetic feelings towards animals but frequently consume meat. We investigate this \"meat paradox\" using insights from the literature on motivated reasoning in moral dilemmata. We develop a model where individuals form self-serving beliefs about the suffering of animals caused by meat consumption in order to alleviate the guilt associated with their dietary choices. The model makes several specific predictions: in particular, it predicts a positive relationship between individuals\' taste for meat and their propensity to engage in self-deception, a high price elasticity of demand for meat, and a causal effect of prices and aggregate consumption on individual beliefs.
    Keywords: motivated reasoning; moral dilemmata; self-deception; meat paradox; meat price-elasticity; animal welfare;
    JEL: D72 D81 D83 D84 Z13
    Date: 2019–07–03

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