nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒09‒02
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. "When Olson Meets Dahl": From Inefficient Groups Formation to Inefficient Policy-Making By Martimort, David
  2. Farsighted manipulation and exploitation in networks By Bayer, Péter; Herings, P. Jean-Jacques; Peeters, Ronald
  3. Winning Coalitions in Plurality Voting Democracies By Rene van den Brink; Dinko Dimitrov; Agnieszka Rusinowska
  4. Revealed Preferences for Matching with Contracts By Daniel Lehmann
  5. How (Not) to Foster Innovations in Public Infrastructure Projects By Hoppe, Eva I.; Schmitz, Patrick W.
  6. Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts By Anderson, Simon P; Baik, Alicia; Larson, Nathan
  7. The Effect of Handicaps on Turnout for Large Electorates: An Application to Assessment Voting By Gersbach, Hans; Mamageishvili, Akaki; Tejada, Oriol
  8. Deadlock on the Board By Jason Roderick Donaldson; Nadya Malenko; Giorgia Piacentino
  9. Multiple Applications, Competing Mechanisms, and Market Power By Albrecht, James; Cai, Xiaoming; Gautier, Pieter A.; Vroman, Susan
  10. Politsplaining: Populism Breeds Populism By Gersbach, Hans; Köhler-Schindler, Laurin
  11. A tale of two Rawlsian criteria By Ha-Huy, Thai
  12. The Impact of Product Qualities on Downstream Bundling in a Distribution Channel By Angelika Endres; Joachim Heinzel
  13. Revenue Sharing in the Internet: A Moral Hazard Approach and a Net-neutrality Perspective By Fehmina Malik; Manjesh K. ~Hanawal; Yezekael Hayel; Jayakrishnan Nair
  14. Blackwell dominance in large samples By Xiaosheng Mu; Luciano Pomatto; Philipp Strack; Omer Tamuz
  15. Expected utility operators and coinsurance problem By Irina Georgescu
  16. Deterrence and the Adjustment of Sentences During Imprisonment By A. Mitchell Polinsky; Steven Shavell
  17. Obvious Manipulations in Cake-Cutting By Josue Ortega

  1. By: Martimort, David
    Abstract: Two conflicting interest groups buy favors from a policy-maker. Influence is modeled as a common agency game with lobbyists proposing monetary contributions contingent on decisions. When the preferences of the group members are common knowledge, groups form efficiently and lobbying competition perfectly aggregates preferences. When those preferences are instead private information, free riding in collective action arises within groups. Free riding implies that the influence of a group is weakened and that lobbying competition imperfectly aggregates preferences. By softening lobbying competition, private information might also increase groups' payoffs and hurt the policy-maker. Importantly, the magnitudes of informational frictions within each group are jointly determined at equilibrium. We draw from these findings a number of implications for the organization of interest groups.
    Date: 2019–07
  2. By: Bayer, Péter (university of grenoble alpes); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Peeters, Ronald (university of otago, dunedin)
    Abstract: Economic agents with an increased sophistication sometimes use their advantage to exploit their more naive counterparts. In public goods games played on networks, such an agent will attempt to manipulate as many of his neighbors as possible to produce the public good. We study the exploitation of a myopic population by a single farsighted player in such games. We show the existence and payoff-uniqueness of optimal farsighted strategies in every network structure. In the long run, the farsighted player’s effects are only felt locally. A simple dependence-withdrawal strategy reaches the optimal outcome for every network if the starting state is unfavorable, and reaches it for every starting state if the farsighted player is linked to all opponents. We characterize the lower and upper bounds of long-run payoffs the farsighted player can attain in a given network and make comparative statics with respect to adding a new link. The farsighted player always benefits from linking to more opponents (sociability) and is always harmed by his neighbors linking to each other (jealousy).
    Keywords: networks, public goods, myopic and farsighted players
    JEL: C73 D85 H41
    Date: 2019–08–29
  3. By: Rene van den Brink (Vrije Universiteit Amsterdam); Dinko Dimitrov (Saarland University); Agnieszka Rusinowska (Paris School of Economics)
    Abstract: We study the issue of assigning weights to players that identify winning coalitions in plurality voting democracies. For this, we consider plurality games which are simple games in partition function form such that in every partition there is at least one winning coalition. Such a game is said to be precisely supportive if it is possible to assign weights to players in such a way that a coalition being winning in a partition implies that the combined weight of its members is maximal over all coalitions in the partition. A plurality game is decisive if in every partition there is exactly one winning coalition. We show that decisive plurality games with at most four players, majority games with an arbitrary number of players, and almost symmetric decisive plurality games with an arbitrary number of players are precisely supportive. Complete characterizations of a partition's winning coalitions are provided as well.
    Keywords: plurality game, plurality voting, precise support, simple game in partition function form, winning coalition
    JEL: C71 D62 D72
    Date: 2019–08–26
  4. By: Daniel Lehmann
    Abstract: Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be aggregated into a single choice function expressing a collective preference. In this framework, a two-sided matching problem may be described as an agreement problem between two parties: the two parties must find a stable agreement, i.e., a set of contracts from which no party will want to take away any contract and to which the two parties cannot agree to add any contract. On such stable agreements each party's preference relation is a partial order and the two parties have inverse preferences. An algorithm is presented that generalizes algorithms previously proposed in less general situations. This algorithm provides a stable agreement that is preferred to all stable agreements by one of the parties and therefore less preferred than all stable agreements by the other party. The number of steps of the algorithm is linear in the size of the set of contracts, i.e., polynomial in the size of the problem. The algorithm provides a proof that stable agreements form a lattice under the two inverse preference relations. Under additional assumptions on the role of money in preferences, agreement problems can describe general two-sided markets in which goods are exchanged for money. Stable agreements provide a solution concept, including prices, that is more general than competitive equilibria. They satisfy an almost one price law for identical items. The assignment game can be described in this framework and core elements of an assignment game are the stable agreements.
    Date: 2019–08
  5. By: Hoppe, Eva I.; Schmitz, Patrick W.
    Abstract: The government wants an infrastructure-based public service to be provided. First, the infrastructure has to be built; subsequently, it has to be operated. Should the government bundle the building and operating tasks in a public-private partnership? Or should it choose traditional procurement, i.e. delegate the tasks to different firms? Each task entails unobservable investments to come up with innovations. It turns out that depending on the nature of the innovations, bundling may either stimulate or discourage investments. Moreover, we find that if renegotiation cannot be prevented, public-private partnerships may lead the government to deliberately opt for technologically inferior projects.
    Keywords: Contract theory; procurement; public-private partnerships; moral hazard; renegotiation
    JEL: D86 H11 H54 H57 L33
    Date: 2019
  6. By: Anderson, Simon P; Baik, Alicia; Larson, Nathan
    Abstract: We study list price competition when firms can individually target discounts (at a cost) to consumers afterwards, and we address recent regulation (such as the GDPR in Europe) that has empowered consumers to protect their privacy by allowing them to choose whether to opt in to data-gathering and targeting. In equilibrium, consumers who can be targeted receive poaching and retention discount offers from their top two firms. These offers are in mixed strategies, but final profits on such a consumer are simple and Bertrand-like. More contestable consumers receive more ads and are more likely to buy the wrong product. Poaching exceeds retention when targeting is expensive, but this reverses when targeting is cheap. Absent opt-in choice, firm list pricing resembles monopoly, as marginal consumers are lost to the lowest feasible poaching offer, not to another firm's list price. Opt-in choice reintroduces the standard margin too on those who opt out. The winners and losers when targeting is unrestricted (rather than banned) depend on the curvature of demand. For the empirically plausible case (convex but log-concave), targeting pushes up list prices, reduces profits and total welfare, and (if demand is convex enough) hurts consumers on average. Outside of this case, more convex (concave) demand tends to make targeting more advantageous to firms (consumers). We then use our model to study the welfare effects of a policy that forbids targeted advertising to consumers who have not opted in. Consumers opt in or out depending on whether expected discounts outweigh the cost of foregone privacy. For empirically relevant demand structures, allowing opt-in makes all consumers better-off.
    Keywords: competitive price discrimination; discounting; GDPR; opt-in; privacy; targeted advertising
    JEL: D43 L12 L13 M37
    Date: 2019–06
  7. By: Gersbach, Hans; Mamageishvili, Akaki; Tejada, Oriol
    Abstract: We analyze the effect of handicaps on turnout. A handicap is a difference in the vote tally between alternatives that strategic voters take as predetermined when they decide whether to turn out for voting. Handicaps are implicit in many existing democratic procedures. Within a costly voting framework with private values, we show that turnout incentives diminish considerably across the board if handicaps are large, while low handicaps yield more mixed predictions. The results extend beyond the baseline model - e.g. by including uncertainty and behavioral motivations - and can be applied to the optimal design of Assessment Voting. This is a new voting procedure where (i) some randomly-selected citizens vote for one of two alternatives, and the results are published; (ii) the remaining citizens vote or abstain, and (iii) the final outcome is obtained by applying the majority rule to all votes combined. If the size of the first voting group is appropriate, large electorates will choose the majority's preferred alternative with high probability and average participation costs will be moderate or low.
    Keywords: Turnout - Referenda - Elections - Pivotal voting - Private value
    JEL: C72 D70 D72
    Date: 2019–08
  8. By: Jason Roderick Donaldson; Nadya Malenko; Giorgia Piacentino
    Abstract: We develop a dynamic model of board decision-making. We show that a board could retain a policy all directors agree is worse than an available alternative. Thus, directors may retain a CEO they agree is bad—a deadlocked board leads to an entrenched CEO. We explore how to compose boards and appoint directors to mitigate deadlock. We find that board diversity and long director tenure can exacerbate deadlock. Moreover, we rationalize why CEOs and incumbent directors have power to appoint new directors: to avoid deadlock. Our model speaks to short-termism, staggered boards, and proxy access.
    JEL: G3
    Date: 2019–08
  9. By: Albrecht, James; Cai, Xiaoming; Gautier, Pieter A.; Vroman, Susan
    Abstract: We consider a labor market with search frictions in which workers make multiple applications and firms can post and commit to general mechanisms that may be conditioned both on the number of applications received and on the number of offers received by its candidate. When the contract space includes application fees, there exists a continuum of equilibria of which only one is socially efficient. In the inefficient equilibria, firms have market power that arises from the fact that the value of a worker's application portfolio depends on what other firms offer, which allows individual firms to free ride and offer workers less than their marginal contribution. Finally, by allowing for general mechanisms, we are able to examine the sources of inefficiency in the multiple applications literature.
    Keywords: competing mechanisms; directed search; efficiency; market power; multiple applications
    JEL: C78 D44 D83
    Date: 2019–08
  10. By: Gersbach, Hans; Köhler-Schindler, Laurin
    Abstract: We suggest a particular notion of populism. A populist is a politician who engages in so-called "politsplaining": He explains complex developments and assigns weights to potential causes and potential remedies as it best suits his objectives. We present a simple model of politsplaining in which two candidates compete for office. The income of citizens is affected by two shocks (say automation and globalization), but citizens only observe the joint shock impact and cannot identify which shocks occur. By using politsplaining, a candidate turns into a populist and he can reallocate beliefs about the causes of income shocks in the society. This results in two types of consequences. First, a populist may be able to form a majority for measures that are not only inefficient, but are applied in areas in which the underlying cause is not present. Second, a populist forces the other candidate to become populist, but the two populists are not offsetting each other.
    Keywords: Politsplaining - Populism - Elections
    JEL: D72 D78 D83 H11
    Date: 2019–08
  11. By: Ha-Huy, Thai
    Abstract: This work considers optimisation problems under Rawls and maximin with multiple discount factors criteria. It proves that though these criteria are different, they have the same optimal value and solution.
    Keywords: Maximin principle, Ralws criterion, Ramsey criterion
    JEL: C61 D11 D90
    Date: 2019–08–19
  12. By: Angelika Endres (Paderborn University); Joachim Heinzel (Paderborn University)
    Abstract: We study the impact of exogenous product qualities on a downstream firm’s decision to bundle and the welfare effects of downstream bundling. We consider a distribution channel with two downstream firms and two price-setting monopolistic upstream producers. One upstream firm sells its good 1 exclusively to one downstream firm and the other upstream firm sells its good 2 to both downstream firms. The downstream firms compete in prices and the two-product downstream firm has the option to bundle its goods. We find that downstream bundling aggravates the problem of double marginalization in the channel, but reduces the intensity of downstream competition. Finally, bundling is profitable for the two-product downstream firm only when the quality of good 2 exceeds the quality of good 1. However, bundling is always profitable when the production process is controlled by the downstream industry. The impact on total welfare is ambiguous and depends on the distribution of market power in the channel and the quality levels of the goods.
    Keywords: channel conflicts; double marginalization; downstream bundling; leverage theory; quality differentiation
    JEL: D21 D61 L11 L15
    Date: 2019–08
  13. By: Fehmina Malik; Manjesh K. ~Hanawal; Yezekael Hayel; Jayakrishnan Nair
    Abstract: Revenue sharing contracts between Content Providers (CPs) and Internet Service Providers (ISPs) can act as leverage for enhancing the infrastructure of the Internet. ISPs can be incentivized to make investments in network infrastructure that improve Quality of Service (QoS) for users if attractive contracts are negotiated between them and CPs. The idea here is that part of the net profit gained by CPs are given to ISPs to invest in the network. The Moral Hazard economic framework is used to model such an interaction, in which a principal determines a contract, and an agent reacts by adapting her effort. In our setting, several competitive CPs interact through one common ISP. Two cases are studied: (i) the ISP differentiates between the CPs and makes a (potentially) different investment to improve the QoS of each CP, and (ii) the ISP does not differentiate between CPs and makes a common investment for both. The last scenario can be viewed as \emph{network neutral behavior} on the part of the ISP. We analyse the optimal contracts and show that the CP that can better monetize its demand always prefers the non-neutral regime. Interestingly, ISP revenue, as well as social utility, are also found to be higher under the non-neutral regime.
    Date: 2019–08
  14. By: Xiaosheng Mu; Luciano Pomatto; Philipp Strack; Omer Tamuz
    Abstract: We study repeated independent Blackwell experiments; standard examples include drawing multiple samples from a population, or performing a measurement in different locations. In the baseline setting of a binary state of nature, we compare experiments in terms of their informativeness in large samples. Addressing a question due to Blackwell (1951) we show that generically, an experiment is more informative than another in large samples if and only if it has higher Renyi divergences. As an application of our techniques we in addition provide a novel characterization of k-th order stochastic dominance as second-order stochastic dominance of large i.i.d. sums.
    Date: 2019–06
  15. By: Irina Georgescu
    Abstract: The expected utility operators introduced in a previous paper, offer a framework for a general risk aversion theory, in which risk is modelled by a fuzzy number $A$. In this paper we formulate a coinsurance problem in the possibilistic setting defined by an expected utility operator $T$. Some properties of the optimal saving $T$-coinsurance rate are proved and an approximate calculation formula of this is established with respect to the Arrow-Pratt index of the utility function of the policyholder, as well as the expected value and the variance of a fuzzy number $A$. Various formulas of the optimal $T$-coinsurance rate are deduced for a few expected utility operators in case of a triangular fuzzy number and of some HARA and CRRA-type utility functions.
    Date: 2019–08
  16. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: The prison time actually served by a convicted criminal depends to a significant degree on decisions made by the state during the course of imprisonment—on whether to grant parole or other forms of sentence reduction. In this article we study a model of the adjustment of sentences assuming that the state’s objective is the optimal deterrence of crime. In the model, the state can lower or raise the sentence based on deterrence-relevant information that it obtains about a criminal during imprisonment. Our focus on sentence adjustment as a means of promoting deterrence stands in contrast to the usual emphasis in sentence adjustment policy on reducing recidivism.
    JEL: K14 K42
    Date: 2019–07
  17. By: Josue Ortega
    Abstract: In cake-cutting, strategy-proofness is a very costly requirement in terms of fairness: for n=2 it implies a dictatorial allocation, whereas for n > 2 it requires that one agent receives no cake. We show that a weaker version of this property recently suggested by Troyan and Morril, called non-obvious manipulability, is compatible with the strong fairness property of proportionality, which guarantees that each agent receives 1/n of the cake. Both properties are satisfied by the leftmost leaves mechanism, an adaptation of the Dubins - Spanier moving knife procedure. Most other classical proportional mechanisms in literature are obviously manipulable, including the original moving knife mechanism. Non-obvious manipulability explains why leftmost leaves is manipulated less often in practice than other proportional mechanisms.
    Date: 2019–08

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