nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒09‒30
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Migration between platforms By Biglaiser, Gary; Crémer, Jacques; Veiga, André
  2. Characterization, Existence, and Pareto Optimality in Markets with Asymmetric Information and Endogenous and Asymmetric Disclosures: Basic Analytics of Revisiting Rothschild-Stiglitz By Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko
  3. Overconfidence and Prejudice By Paul Heidhues; Botond K\H{o}szegi; Philipp Strack
  4. When Prohibiting Platform Parity Agreements Harms Consumers By Michele Bisceglia; Jorge Padilla; Salvatore Piccolo
  5. Savage's theorem with atoms By Ha-Huy, Thai
  6. Attention and Framing By Mihir Bhattacharya; Saptarshi Mukherjee; Ruhi Sonal
  7. Data Intermediaries and Selling Mechanisms for Customized Consumer Information * By David Bounie; Antoine Dubus; Patrick Waelbroeck
  8. Necessary and sufficient conditions for stochastic dominance By Kaas, R; Goovaerts, M
  9. Expertise in the Relationship between Biobanks and Research Units By Carole HARITCHABALET; Catherine BOBTCHEFF
  10. Is the Preference of the Majority Representative? By Mihir Bhattacharya; Nicolas Gravel
  11. Evidence Reading Mechanisms By Frédéric Koessler; Eduardo Perez
  12. What is the value of being a superhost? By Aleksander Berentsen; Christopher Waller; Mariana Rojas Breu
  13. Commitment and Competition By Thomas Cooley; Ramon Marimon; Vincenzo Quadrini
  14. Almost Mutually Best in Matching Markets: Rank-Fairness and Size of the Core By Christopher Kah; Flip Klijn; Markus Walzl
  15. Corruption and Adverse Selection By Leonidas Koutsougeras; Manuel Santos; Fei Xu
  16. The Economics of Social Data By Dirk Bergemann; Alessandro Bonatti; Tan Gan

  1. By: Biglaiser, Gary; Crémer, Jacques; Veiga, André
    Abstract: We study incumbency advantage in platform industries, where the utility of participating in a platform is increasing in the mass of users participating in that platform. Individuals receive stochastic opportunities to migrate from an incumbent to a new (entrant) platform, which they can accept or wait until the next opportunity arises. Individuals have an incentive to delay migration until enough other users have migrated, which provides a micro-foundation for incumbency advantage. When users obtain more frequent migration opportunities, the cost of delaying migration is reduced, so incumbency advantage increases. Migration technologies that allow for large groups of individuals to migrate in a short period of time (i.e., coordination) are also associated with higher incumbency advantage. There always exists some capacity constraint by the entrant which increases the cost of delaying migration and thereby reduces incumbency advantage. Multi-homing reduces incumbency advantage but does not eliminate it. When individuals have heterogeneous preferences for the two platforms, there can be welfare losses due to excessive segregation of individuals across the platforms.
    Date: 2019–09–18
  2. By: Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko
    Abstract: We study the Rothschild-Stiglitz model of insurance markets, introducing endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under unusually mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome is particularly simple, consisting of a pooling contract which maximizes the well-being of the low risk individual (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk individual to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Asymmetric equilibrium information flows with endogenous consumer disclosure are critical in supporting the equilibrium.
    JEL: D43 D82 D86
    Date: 2019–09
  3. By: Paul Heidhues; Botond K\H{o}szegi; Philipp Strack
    Abstract: We explore conclusions a person draws from observing society when he allows for the possibility that individuals' outcomes are affected by group-level discrimination. Injecting a single non-classical assumption, that the agent is overconfident about himself, we explain key observed patterns in social beliefs, and make a number of additional predictions. First, the agent believes in discrimination against any group he is in more than an outsider does, capturing widely observed self-centered views of discrimination. Second, the more group memberships the agent shares with an individual, the more positively he evaluates the individual. This explains one of the most basic facts about social judgments, in-group bias, as well as "legitimizing myths" that justify an arbitrary social hierarchy through the perceived superiority of the privileged group. Third, biases are sensitive to how the agent divides society into groups when evaluating outcomes. This provides a reason why some ethnically charged questions should not be asked, as well as a potential channel for why nation-building policies might be effective. Fourth, giving the agent more accurate information about himself increases all his biases. Fifth, the agent is prone to substitute biases, implying that the introduction of a new outsider group to focus on creates biases against the new group but lowers biases vis a vis other groups. Sixth, there is a tendency for the agent to agree more with those in the same groups. As a microfoundation for our model, we provide an explanation for why an overconfident agent might allow for potential discrimination in evaluating outcomes, even when he initially did not conceive of this possibility.
    Date: 2019–09
  4. By: Michele Bisceglia (Toulouse School of Economics and Università di Bergamo); Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)
    Abstract: We consider a three-level supply chain where a monopolistic seller distributes its product both directly through its own distribution channel and indirectly through platforms accessed by intermediaries competing for final consumers. In this setting, we examine the welfare effects of platform parity agreements, namely contractual provisions according to which the seller cannot charge different prices for the same product distributed through different platforms. We find that these agreements mitigate the marginalization problem both in a wholesale and an agency model. However, only in the former model platform parity unambiguously increases consumer surplus; in the latter, it also increases the commissions paid by the monopolist to the platforms, whereby exacerbating the marginalization problem. On the net, platform parity benefits consumers in the agency model when competition between direct and indirect distribution is sufficiently intense. Interestingly, in both models consumers' preferences are always aligned with the platforms' but not with the seller's.
    Keywords: Agency Model, Distribution Channels, Platform Parity Agreements, Wholesale Model.
    JEL: L42 L50 L81
    Date: 2019–09–16
  5. By: Ha-Huy, Thai
    Abstract: The famous theorem of Savage is based on the richness of the states space, by assuming a continuum nature for this set. In order to fill the gap, this article considers Savage's theorem with discrete state space. The article points out the importance the existence of pair event in the existence of utility function and the subjective probability. Under the discrete states space, this can be ensured by the intuitive atom swarming condition. Applications for the establishment of an inter-temporal evaluation a la Koopman, and for the configuration under unlikely atoms of Mackenzie Mackenzie2018 are provided.
    Keywords: Savage theorem, Koopman representation, expected utility function, atom swarming.
    JEL: C00 D10 D90
    Date: 2019–06–16
  6. By: Mihir Bhattacharya (Department of Economics, Ashoka University); Saptarshi Mukherjee (Department of Humanities and Social Sciences, IIT Delhi); Ruhi Sonal (Department of Humanities and Social Sciences, IIT Delhi)
    Abstract: We consider individual decision-making where every alternative appears with a frame (a la Salant and Rubinstein (2008)). The decision maker is subject to inattention due to framing effects that leads to random choice. We characterize a frame-based stochastic choice rule according to which the choice probability of an alternative (say, x) is the probability with which attention is drawn by its frame and not by the frames which are associated with the alternatives that beat x according to a complete binary relation.
    Keywords: attention, framing, stochastic choice
    Date: 2019–09
  7. By: David Bounie (Télécom ParisTech); Antoine Dubus (Télécom ParisTech); Patrick Waelbroeck (Télécoms Paris Tech - Télécom ParisTech)
    Abstract: We investigate the strategies of a data intermediary selling customized consumer information to firms for price discrimination purpose. We analyze how the mechanism through which the data intermediary sells information influences how much consumer data he will collect and sell to firms, and how it impacts consumer surplus. We consider three selling mechanisms tailored to sell customized consumer information: take it or leave it offers, sequential bargaining, and simultaneous offers. We show that the more data the intermediary collects, the lower consumer surplus. Consumer data collection is minimized, and consumer surplus maximized under the take it or leave it mechanism, which is the least profitable mechanism for the intermediary. We argue that selling mechanisms can be used as a regulatory tool by data protection agencies and competition authorities to limit consumer information collection and increase consumer surplus.
    Date: 2019–09–15
  8. By: Kaas, R; Goovaerts, M
    Abstract: The mathematical concept of stochastic dominance was introduced to describe preference of one random gain over another. We show that for bounded gains apart from the mathematical definition there is a more natural interpretation: one gain dominates another if the expected values of a class of non-decreasing functions are larger. This class of functions includes all natural utility functions. Some special choices give the necessary conditions for stochastic dominance derived by W.H. Jean (1980, 1984). We also provide some easy to check sufficient conditions for stochastic dominance. It is argued that if the difference of the densities of two gains has n-1 sign changes and certain moment relations are satisfied, one dominates the other stochastically for order n .
    Keywords: Research Methods/ Statistical Methods
    Date: 2019–09–26
  9. By: Carole HARITCHABALET; Catherine BOBTCHEFF
    Abstract: We propose to model the relationship between a biobank and a research unit and we place the expertise of the biobank at the center of the relationship between the actors. We believe that the role of the biobank is fundamental in the process of project selection (and therefore in the decision to allocate biological samples), but also to improve the chances of success of the project. Our central hypothesis links the biobank's level of expertise to its ability to evaluate the project and to contribute to the success of the innovation. We show that a simple pricing rule allows socially optimal sample production: the sample tariff must be strictly lower than the marginal cost of production. This tariff depends only on the biobank's marginal cost of production. Price discrimination according to the public or private nature of the research unit is therefore irrelevant. A high level of expertise offers a greater margin of negotiation and is always valued by research units. Only a biobank that is sufficiently experienced and exerts effort can achieve a strictly positive minimum protability. Above a certain level of expertise, a costly strategy to increase expertise may not be relevant: a biobank cannot reap the benefits of its investment.
    Keywords: Innovation, Licences, Expertise, Moral hazard
    JEL: D23 L14 O13
    Date: 2019–08
  10. By: Mihir Bhattacharya (Department of Economics, Ashoka University); Nicolas Gravel (Centre de Sciences Humaines, Delhi & Aix-Marseille School of Economics)
    Abstract: Given a profile of preferences on a set of alternatives, a majoritarian relation is a complete binary relation that agrees with the strict preference of a strict majority of these preferences whenever such strict strict majority is observed. We show that a majoritarian relation is, among all conceivable binary relations, the most representative of the profile of preferences from which it emanates. We define †the most representative†to mean †the closest in the aggregate†. This requires a definition of what it means for a pair of preferences to be closer to each other than another. We assume that this definition takes the form of a distance function defined over the set of all conceivable preferences. We identify a necessary and sufficient condition for such a distance to be minimized by a majoritarian relation. This condition requires the distance to be additive with respect to a plausible notion of compromise between preferences. The well-known Kemeny distance between preference does satisfy this property. We also provide a characterization of the class of distances satisfying this property as numerical representations of a primitive qualitative proximity relation between preferences.
    Keywords: preferences, majority, dissimilarity, distance, aggregation
    Date: 2019–09
  11. By: Frédéric Koessler (Ecole d'Économie de Paris - Paris School of Economics (PSE)); Eduardo Perez (Département d'économie)
    Abstract: In an environment with privately informed agents who can produce evidence, we study implementation of a social choice function by reading mechanisms: mechanisms that simply apply the social choice function to a consistent interpretation of the evidence. We provide sufficient conditions on the social choice function and the evidence structure for ex post implementability by such mechanisms. If the first-best policy of a mechanism designer satisfies this condition, then its implementation by a reading mechanism does not require commitment. We show that with rich evidence structures, (1) a function that is implementable with transfers is also implementable with evidence but no transfer, (2) under private value, the efficient allocation is implementable with budget balanced and individually rational transfers, and (3) in single-object auction and bilateral trade environments with interdependent values, the efficient allocation is implementable with budget balanced and individually rational transfers.
    Keywords: Implementation; Mechanism Design; Evidence; Hard Information; Commitment
    JEL: C72 D82
    Date: 2019–10
  12. By: Aleksander Berentsen (University of Basel); Christopher Waller (Federal Reserve Bank of St. Louis); Mariana Rojas Breu (University of Paris Dauphine)
    Abstract: We construct a search model where sellers post prices and produce goods of unknown quality. A match between a buyer and a seller reveals the quality of the seller. We look at the pricing decisions of the sellers in this environment. We then introduce a rating system whereby buyers reveal the seller's type by giving them a `star' if they are a high quality seller. We show that new sellers charge a low price to attract buyers and if they receive a star they post a high price. Furthermore, high quality sellers sell with a higher probability than new sellers. We show that welfare is higher with a ratings system. Using data on Airbnb rentals to compare the pricing decisions of Superhosts (elite rentals) to non-Superhosts we show that Superhosts: 1) charge higher prices, 2) have more bookings and 3) higher revenue than non-Super hosts.
    Date: 2019
  13. By: Thomas Cooley (New York University); Ramon Marimon (European University Institute and UPF - Barcelona GSE); Vincenzo Quadrini (USC)
    Abstract: Two core principles of economics are that welfare can be enhanced with stronger commitment to individual arrangements (contracts) and with more competition. However, in the presence of search frictions, commitment may deter entry with consequent reduction in the reallocation of human resources. We study these tradeoffs when there are different degrees of commitment in a model with on-the-job search. Since the degree of commitment depends on the organizational structure of a firm, we contrast the equilibrium of an industry where firms are organized in the form of partnerships with the equilibrium where firms are public companies. We show that in the equilibrium with public companies there is more investment in high return but uncertain activities (risk-taking), higher productivity (value added per employee) and greater income dispersion (inequality). These predictions are consistent with the observed evolution of the financial sector where the switch from partnerships to public companies has been especially important in the decades that preceded the 21st Century financial crisis.
    Date: 2019
  14. By: Christopher Kah; Flip Klijn; Markus Walzl
    Abstract: This paper studies the one-to-one two-sided marriage model (Gale and Shapley, 1962). If agents' preferences exhibit mutually best, there is a unique stable matching that is trivially rank-fair (i.e., in each matched pair the agents assign one another the same rank). We study in how far this result is robust for matching markets that are "close" to mutually best. Without a restriction on preference profiles, we find that natural "distances" to mutually best neither bound the size of the core nor the rank-unfairness of stable matchings. However, for matching markets that satisfy horizontal heterogeneity, "local" distances to mutually best provide bounds for the size of the core and the rank- unfairness of stable matchings.
    Keywords: matching, mutually best, horizontal heterogeneity, stable matching, core, rank-fairness
    JEL: C78
    Date: 2019–09
  15. By: Leonidas Koutsougeras (The University of Manchester); Manuel Santos (University of Miami); Fei Xu (Département d'économie (ECON))
    Abstract: It is well known that in the presence of asymmetric information, adverse selection has detrimental effects on possible exchanges. We go a step further, and present a game-theoretic setup in which under such adverse selection effects there are uncertain benefits for bribing unknown players’ types (e.g., individuals, committees, or companies). A policy maker may then want to design indirect anti-corruption policies based on triggering failures for bribery attempts. In our stylized framework, we get a complete unraveling of bribes. This result can be extended to more complex environments under fairly mild conditions on players’ payoff functions.
    Keywords: Corruption; Bribe; Adverse Selection
    JEL: D73 D82 D86
    Date: 2019–09
  16. By: Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Tan Gan (Department of Economics, Yale University)
    Abstract: A data intermediary pays consumers for information about their preferences, and sells the information so-acquired to ï¬ rms that use it to tailor their product offers and prices. The social dimension of the individual data - whereby an individual’s data is predictive of the behavior of others - generates a data externality that reduces the intermediary’s cost of acquiring information. We derive the data intermediary’s optimal information policy, and show that it preserves privacy over the identity of the consumers, but provides precise information about market demand to the ï¬ rms.
    Keywords: Consumer privacy, Social data; Personal information, Data intermediaries, data flow, Data policy, Data rights
    JEL: D44 D82 D83
    Date: 2019–09

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