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on Microeconomics |
| By: | Gene M. Grossman; Elhanan Helpman |
| Abstract: | Misinformation pervades political competition. We introduce opportunities for political candidates and their media supporters to spread fake news about the policy environment and perhaps about parties' positions into a familiar model of electoral competition. In the baseline model with full information, the parties' positions converge to those that maximize aggregate welfare. When parties can broadcast fake news to audiences that disproportionately include their partisans, policy divergence and suboptimal outcomes can result. We study a sequence of models that impose progressively tighter constraints on false reporting and characterize situations that lead to divergence and a polarized electorate. |
| JEL: | D72 D78 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26409&r=all |
| By: | Lin Hu; Anqi Li; Ilya Segal |
| Abstract: | We study how news personalization affects policy polarization. In a two-candidate electoral competition model, an attention-maximizing infomediary aggregates information about candidate valence into news, whereas voters decide whether to consume news, trading off the expected utility gain from improved expressive voting against the attention cost. Broadcast news attracts a broad audience by offering a symmetric signal. Personalized news serves extreme voters with skewed signals featuring own-party bias and occasional big surprise. Rational news aggregation yields policy polarization even if candidates are office-motivated. Personalization makes extreme voters the disciplining entity for equilibrium polarization and increases polarization through occasional big surprise. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.11405&r=all |
| By: | Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Massimo Motta (ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics) |
| Abstract: | We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home. |
| Keywords: | Inefficient foreclosure, Tying, Scale economies, Network Externalities |
| JEL: | K21 L41 |
| Date: | 2019–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:548&r=all |
| By: | René van den Brink (Department of Econometrics and Tinbergen Institute, VU University Amsterdam); Dinko Dimitrov (Chair of Economic Theory - Saarland University); Agnieszka Rusinowska (Centre d'Economie de la Sorbonne, PSE-CNRS, Université Paris 1) |
| 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 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: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:19018&r=all |
| By: | Ilan Nehama |
| Abstract: | This work deals with the implementation of social choice rules using dominant strategies for unrestricted preferences. The seminal Gibbard-Satterthwaite theorem shows that only few unappealing social choice rules can be implemented unless we assume some restrictions on the preferences or allow monetary transfers. When monetary transfers are allowed and quasi-linear utilities w.r.t. money are assumed, Vickrey-Clarke-Groves (VCG) mechanisms were shown to implement any affine-maximizer, and by the work of Roberts, only affine-maximizers can be implemented whenever the type sets of the agents are rich enough. In this work, we generalize these results and define a new class of preferences: Preferences which are positive-represented by a quasi-linear utility. That is, agents whose preference on a subspace of the outcomes can be modeled using a quasi-linear utility. We show that the characterization of VCG mechanisms as the incentive-compatible mechanisms extends naturally to this domain. Our result follows from a simple reduction to the characterization of VCG mechanisms. Hence, we see our result more as a fuller more correct version of the VCG characterization. This work also highlights a common misconception in the community attributing the VCG result to the usage of transferable utility. Our result shows that the incentive-compatibility of the VCG mechanisms does not rely on money being a common denominator, but rather on the ability of the designer to fine the agents on a continuous (maybe agent-specific) scale. We think these two insights, considering the utility as a representation and not as the preference itself (which is common in the economic community) and considering utilities which represent the preference only for the relevant domain, would turn out to fruitful in other domains as well. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.12131&r=all |
| By: | Eray Turkel; Yunus C. Aybas |
| Abstract: | Persuasion is an exceedingly difficult task. A leading cause of this difficulty is the misalignment of preferences, which is studied extensively by the literature on persuasion games. However, the difficulty of communication also has a first order effect on outcomes and welfare of agents. Motivated by this observation, we study a model of Bayesian persuasion in which the communication between the sender and the receiver is constrained. We limit the cardinality of the signal space to be less than the cardinality of the action space and the state space. This limits the sender's ability of making arbitrarily many action recommendations. We prove the existence of a solution to the sender's utility maximization problem and characterize its properties. In solving this problem, we develop a novel approach for solving Bayesian persuasion problems, which can be applied to a wide range of settings. We characterize the sender's willingness to pay for an additional signal as a function of the prior belief, which we interpret as the value of precise communication. We show that increased precision might not be always welfare improving by showing that the receiver might prefer coarse communication. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.13547&r=all |
| By: | Swagata Bhattacharjee (Ashoka University) |
| Abstract: | Outsourcing of research is commonly observed in knowledge-intensive industries e.g. biotech. We model innovation as an ambiguous stochastic process, and assume that the commercial firms are more ambiguity averse than the research labs. We characterize the optimal sequence of short-term contracts governing innovation, and show how it facilitates ambiguity sharing. The firm's ambiguity aversion mitigates the dynamic moral hazard problem, resulting in monotonically decreasing investment and prevents equilibrium delay. However, compared to an ambiguity-neutral policymaker's benchmark, the research alliance stops experimenting earlier, and may liquidate the project even after being patented; even redesigning patent laws cannot solve both of the problems. |
| Keywords: | Ambiguity, Dynamic Contract, Patent law, Innovation, R&D |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:15&r=all |
| By: | Albin Erlanson; Andreas Kleiner |
| Abstract: | We study how a principal should optimally choose between implementing a new policy and maintaining the status quo when information relevant for the decision is privately held by agents. Agents are strategic in revealing their information and we exclude monetary transfers, but the principal can verify an agent's information at a cost. We characterize the mechanism that maximizes the expected utility of the principal. This mechanism can be implemented as a cardinal voting rule, in which agents can either cast a baseline vote, indicating only whether they are in favor of the new policy, or they make specific claims about their type. The principal gives more weight to specific claims and verifies a claim whenever it is decisive. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.13979&r=all |
| By: | Simon Martin; Sandro Shelegia |
| Abstract: | This paper presents a quality signaling model with consumer reviews. Reviews reflect true quality as well as consumers’ expectations of quality, improving with the former and worsening with the latter. Expectation-based reviews give rise to a novel separating equilibrium with several interesting properties: (i) low quality types are deterred from charging high prices by disappointed consumers who may write bad reviews; (ii) high quality types are deterred from imitating low types and thus generating good reviews by low equilibrium prices set by the low types; (iii) prices charged by lowest quality types can be below marginal cost. The equilibrium price schedule is inversely related to the number of consumers who rely on product reviews. Hence higher reliance on reviews reduces prices. In contrast, more informative reviews may lead to lower as well as higher prices depending on how reviews are generated. These results extend to the duopoly model, where we show that prices are lower (higher) than under monopoly for prices above (below) marginal cost. |
| Keywords: | quality signaling, consumer reviews, reputation |
| JEL: | C73 D82 D83 L14 L15 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1123&r=all |
| By: | Ngo Van Long |
| Abstract: | The purpose of this paper is to model the influence of Kantian moral scruples in a dynamic environment. Our objectives are two-fold. Firstly, we investigate how a Nash equilibrium among agents who have moral scruples may ensure that the exploitation of a common property renewable resource is Pareto efficient at every point of time. Secondly, we outline a prototype model that shows, in an overlapping generation framework, how a community’s sense of morality may evolve over time and identifies conditions under which the community may reach a steady state level of morality in which everyone is perfectly Kantian. |
| Keywords: | tragedy of the commons, dynamic games, Nash equilibrium, self-image, categorical imperative |
| JEL: | C71 D62 D71 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7880&r=all |
| By: | Simon Martin; Sandro Shelegia |
| Abstract: | This paper presents a quality signaling model with consumer reviews. Reviews refl ect true quality as well as consumers' expectations of quality, improving with the former and worsening with the latter. Expectation-based reviews give rise to a novel separating equilibrium with several interesting properties: (i) low quality types are deterred from charging high prices by disappointed consumers who may write bad reviews; (ii) high quality types are deterred from imitating low types and thus generating good reviews by low equilibrium prices set by the low types; (iii) prices charged by lowest quality types can be below marginal cost. The equilibrium price schedule is inversely related to the number of consumers who rely on product reviews. Hence higher reliance on reviews reduces prices. In contrast, more informative reviews may lead to lower as well as higher prices depending on how reviews are generated. These results extend to the duopoly model, where we show that prices are lower (higher) than under monopoly for prices above (below) marginal cost. |
| Keywords: | Quality signaling, consumer reviews, reputation |
| JEL: | C73 D82 D83 L14 L15 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1674&r=all |
| By: | R. Pablo Arribillaga; Jordi Massó; Alejandro Neme |
| Abstract: | We characterize the set of all obviously strategy-proof and onto social choice functions on the domain of single-peaked preferences. Since obvious strategy- proofness implies strategy-proofness, and the set of strategy-proof and onto social choice functions on this domain coincides with the class of generalized median voter schemes, we focus on this class. We identify a condition on generalized median voter schemes for which the following characterization holds. A generalized median voter scheme is obviously strategy-proof if and only if it satisfies the increasing intersection property. Our proof is constructive; for each generalized median voter scheme that satisies the increasing intersection property we deine an extensive game form that implements it in obviously dominant strategies. |
| Keywords: | Obvious Strategy-proofness, Generalized Median Voters, Single-peakedness. |
| JEL: | D71 |
| Date: | 2019–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:967.19&r=all |
| By: | Francesco Cerigioni |
| Abstract: | Evidence from the cognitive sciences suggests that some choices are conscious and reflect individual volition while others tend to be automatic, being driven by analogies with past experiences. Under these circumstances, standard economic modeling might not always be applicable because not all choices are the result of individual tastes. We propose a behavioral model that can be used in standard economic analysis that formalizes the way in which conscious and automatic choices arise by presenting a decision maker comprised of two selves. One self compares past decision problems with the one the decision maker faces and, when the problems are similar enough, it replicates past behavior (Automatic choices). Otherwise, a second self is activated and preferences are maximized (Conscious choices). We then present a novel method capable of identifying a set of conscious choices from observed behavior and discuss its usefulness as a framework for studying asymmetric pricing and empirical puzzles in different settings. |
| Keywords: | Dual processes, similarity, revealed preferences, fluency, automatic choice |
| JEL: | D01 D03 D60 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1673&r=all |
| By: | Daniel Danau; Annalisa Vinella |
| Abstract: | We consider a public-private partnership in an infrastructure project, which requires specialised expertise during the construction stage for the infrastructure to operationalise. This entails that, after an investment is made to begin building the infrastructure, its construction is completed at a cost, which increases with the investment at an increasing rate, and is higher if the government replaces the firm beforehand. The likelihood of a lower operating cost increases as well with the initial investment. Once the infrastructure is in place, the firm manages it, taking advantage of the (usual) synergy between construction and operation. Given the characteristics of the project, the firm has an incentive to either under-invest or over-invest in early construction, seeking a renegotiation thereafter. We show that, in a renegotiation-proof contract, the marginal cost of the investment facing the government is either above or below the marginal “technological” cost of the investment, at optimum. Accordingly, the resulting investment - although enhanced - is either below or above the efficient level. The contractual payoff of the firm is above its renegotiation payoff in the former case, below in the latter. We further show that when the firm holds private information on the operating conditions, the government may welcome a contractual renegotiation either as a way of containing (avoiding) the distortions due to the informational gap, or as a tool to pass the cost of construction completion onto the firm, or both. |
| Keywords: | public-private partnerships, asset specificity, hold-up, over/under-investment, renegotiation |
| JEL: | D82 H57 H81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7885&r=all |
| By: | Francis Bloch (Universit´e Paris 1 and Paris School of Economics); Bhaskar Dutta (University of Warwick and Ashoka University); Marcin Dziubi´nski (Institute of Informatics, University of Warsaw) |
| Abstract: | We propose and study a strategic model of hiding in a network, where the network designer chooses the links and his position in the network facing the seeker who inspects and disrupts the network. We characterize optimal networks for the hider, as well as equilibrium hiding and seeking strategies on these networks. We show that optimal networks are either equivalent to cycles or variants of a core-periphery networks where every node in the periphery is connected to a single node in the core. |
| Keywords: | Networks, Hide and Seek |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:21&r=all |
| By: | Shaofei Jiang |
| Abstract: | This paper studies disclosure games with general disclosure rules. A sender observes a piece of evidence about an unknown state and tries to influence the posterior belief of a receiver by disclosing evidence with possible omission. We characterize the unique equilibrium value function of the sender given any disclosure rule. Applying this characterization, we study left-censored disclosure, where evidence is a sequence of signals, and the sender can truncate evidence from the left. In equilibrium, seemingly sub-optimal messages are disclosed, and the sender's disclosure contains the longest truncation that yields the maximal difference between the number of favorable and unfavorable signals. These findings are results of coordination among senders with different evidence endowment. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.13633&r=all |
| By: | Saltuk Özerturk (Southern Methodist University); Huseyin Yildirim (Duke University) |
| Abstract: | We examine a dynamic model of teamwork in which the public attributes credit for success based on its perception of individual efforts. The collaborative behavior varies starkly depending on the shape of marginal effort cost, or project's "difficulty." In the unique (interior) equilibrium, higher ability collaborators work less and thus receive lower credit and payoff for "easy" projects, while the reverse holds for "difficult" projects. Despite free-riding, the team equilibrium may involve over-investment. Social efficiency requires over-rewarding collaborative work and under-rewarding solo work. The incentives to team up and the impact of effort monitoring on credit attribution are also investigated. |
| Keywords: | Teamwork, Collaboration, Credit, Project Difficulty. |
| JEL: | D81 D86 H41 L23 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:1907&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:18&r=all |
| By: | Benjamin M. Hébert; Michael Woodford |
| Abstract: | Decisions take time, and the time taken to reach a decision is likely to be informative about the cost of more precise judgments. We formalize this insight in the context of a dynamic rational inattention (RI) model. Under standard conditions on the flow cost of information in our discrete-time model, we obtain a tractable model in the continuous-time limit. We next provide conditions under which the resulting belief dynamics resemble either diffusion processes or processes with large jumps. We then demonstrate that the state-contingent choice probabilities predicted by our model are identical to those predicted by a static RI model, providing a micro-foundation for such models. In the diffusion case, our model provides a normative foundation for a variant of the DDM models studied in mathematical psychology. |
| JEL: | D8 D83 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26415&r=all |
| By: | Schlatterer, Markus; Saur, Marc; Schmitt, Stefanie |
| JEL: | D43 D91 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203571&r=all |
| By: | Piotr Dworczak; Anton Kolotilin |
| Abstract: | We present a unified duality approach to Bayesian persuasion. The optimal dual variable, interpreted as a price function, is shown to be a supergradient of the concave closure of the objective function at the prior belief. Under regularity conditions, our general duality result implies known results for the case when the objective function depends only on the expected state. We apply our approach to characterize the optimal signal in the case when the state is two-dimensional. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.11392&r=all |
| By: | Yuta KITTAKA |
| Abstract: | This study constructs a consumer search model in which some consumers search for multiple products, whereas others search for a single product. A price difference arises because of a difference in the price elasticity for each group. We show that a positive demand shock to one of the products decreases the price of another product, whereas it increases its own price, and a negative correlation between the demands for each product strengthens these tendencies. Both prices decrease, however, following a positive demand shock when the demands for each product are positively correlated. We also show that multiproduct firms set a relatively high price for a more demanded product, as such a product's price tends to be more elastic with respect to search costs. A price difference between products increases as the demand gap between products increases or as economies of scale in search increase. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1024r&r=all |
| By: | Battal Dogan; Serhat Dogan; Kemal Yildiz |
| Abstract: | In several matching markets, in order to achieve diversity, agents' priorities are allowed to vary across an institution's available seats, and the institution is let to choose agents in a lexicographic fashion based on a predetermined ordering of the seats, called a (capacity-constrained) lexicographic choice rule. We provide a characterization of lexicographic choice rules and a characterization of deferred acceptance mechanisms that operate based on a lexicographic choice structure under variable capacity constraints. We discuss some implications for the Boston school choice system and show that our analysis can be helpful in applications to select among plausible choice rules. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.13237&r=all |
| By: | Weinschenk, Philipp |
| JEL: | D82 D91 M52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203546&r=all |
| By: | Ott, Marion |
| JEL: | D44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203616&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:19&r=all |
| By: | Julio Backhoff-Veraguas; Patrick Beissner; Ulrich Horst |
| Abstract: | We consider a general framework of optimal mechanism design under adverse selection and ambiguity about the type distribution of agents. We prove the existence of optimal mechanisms under minimal assumptions on the contract space and prove that centralized contracting implemented via mechanisms is equivalent to delegated contracting implemented via a contract menu under these assumptions. Our abstract existence results are applied to a series of applications that include models of optimal risk sharing and of optimal portfolio delegation. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.12516&r=all |
| By: | Pagnozzi, Marco; Piccolo, Salvatore; Reisinger, Markus |
| JEL: | D43 L11 L42 L81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203651&r=all |
| By: | George-Marios Angeletos; Karthik Sastry |
| Abstract: | We study the efficiency of competitive markets in the presence of a general form of rational inattention. The appropriate amendments of the Fundamental Welfare Theorems are shown to hold if rational inattention is modeled as an arbitrary cost for obtaining signals about the exogenous state of nature. If instead rational inattention is modeled as a cost for observing prices or other endogenous outcomes, inefficiency can arise because of a cognitive externality: people do not internalize how their choices affect the complexity of the price system and thereby others’ cost of tracking or decoding it. This externality is muted in an important special case, when cognitive costs are given by the mutual information of agents’ decisions with the joint of the price system and the entire state of nature. For more general costs, however, there is room for policies aimed at simplifying or otherwise regulating markets. |
| JEL: | D5 D6 D8 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26413&r=all |
| By: | Li, Anqi (Department of Economics, Washington University in St. Louis); Raiha, Davin (Kelley School of Business, Indiana University); Shotts, Ken (Stanford Graduate School of Business) |
| Abstract: | We develop a model of electoral accountability in the presence of mainstream and alternative media outlets. In addition to standard high and low competence types, the incumbent may be an aspiring autocrat, who controls the mainstream media and will cause substantial harm if not removed from office. Alternative media can help voters identify and remove aspiring autocrats and can enable voters to focus on honest mainstream media assessments of incumbents’ competence. But malicious alternative media that peddle false conspiracy theories about the incumbent and the mainstream media can induce voters to mistakenly remove nonautocratic incumbents, which in turn demotivates incumbent effort and undermines accountability. The alternative media is most beneficial when it is honest and known to be honest. It is most dangerous when it is sufficiently credible that voters pay attention to it, but sufficiently likely to be malicious that it undermines accountability. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3832&r=all |