nep-mic New Economics Papers
on Microeconomics
Issue of 2019‒12‒16
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Screening by Mode of Trade By Juan Beccuti; Marc Moeller
  2. Heuristic Strategies in Uncertain Approval Voting Environments By Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
  3. The Choice of When to Buy and When To Sell By Amihai Glazer; Refael Hassin; Irit Nowik
  4. Central Counterparty Auctions and Loss Allocation By Robert Oleschak
  5. Maximin equilibrium By Mehmet Ismail
  6. Anti-conformism in the Threshold Model of Collective Behavior By Michel Grabisch; Fen Li
  7. The Two Margin Problem in Insurance Markets By Geruso, Michael; Layton, Timothy J.; McCormack, Grace; Shepard, Mark
  8. The Specialness of Zero By Joshua S. Gans
  9. Index Numbers and Revealed Preference Rankings By Hjertstrand, Per; Swofford, James L.; Whitney, Gerald A.
  10. Mergers and Innovation Portfolios By José Luis Moraga-González; Evgenia Motchenkova; Saish Nevrekar
  11. Consumer Use of Multiple Payment Methods By Shy, Oz
  12. A general model of synchronous updating with binary opinions By Alexis Poindron
  13. Organizational Structure and Technological Investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara

  1. By: Juan Beccuti; Marc Moeller
    Abstract: This paper proposes a mechanism design approach, capable of endogenizing a monopolist’s choice between selling and renting in a non-anonymous durable goods setting with short-term commitment. Allowing for mechanisms that determine the good’s allocation not only at the beginning but also at the end of a given period, we show that the profit-maximizing mechanism features screening by mode of trade. By selling to high types while renting to low types, the monopolist overcomes the obstacles encountered by intertemporal price discrimination and induces immediate separation of types for arbitrary low priors.
    Keywords: Durable goods; Dynamic mechanism design; Coase problem; Ratchet effect; Screening
    JEL: D82 D86 D42
    Date: 2019–11
  2. By: Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
    Abstract: In many collective decision making situations, agents vote to choose an alternative that best represents the preferences of the group. Agents may manipulate the vote to achieve a better outcome by voting in a way that does not reflect their true preferences. In real world voting scenarios, people often do not have complete information about other voter preferences and it can be computationally complex to identify a strategy that will maximize their expected utility. In such situations, it is often assumed that voters will vote truthfully rather than expending the effort to strategize. However, being truthful is just one possible heuristic that may be used. In this paper, we examine the effectiveness of heuristics in single winner and multi-winner approval voting scenarios with missing votes. In particular, we look at heuristics where a voter ignores information about other voting profiles and makes their decisions based solely on how much they like each candidate. In a behavioral experiment, we show that people vote truthfully in some situations and prioritize high utility candidates in others. We examine when these behaviors maximize expected utility and show how the structure of the voting environment affects both how well each heuristic performs and how humans employ these heuristics.
    Date: 2019–11
  3. By: Amihai Glazer; Refael Hassin; Irit Nowik
    Abstract: A consumer who wants to consume a good at a particular period may nevertheless attempt to buy it earlier if he is concerned that the good will otherwise be sold. We analyze the behavior of consumers in equilibrium and the price a profit-maximizing firm would charge. We show that a firm profits by not selling early. If, however, the firm is obligated to also offer the good early, then the firm may maximize profits by setting a price which induces consumers to all arrive early, or all arrive late, depending on the good's value to the customer.
    Date: 2019–12
  4. By: Robert Oleschak
    Abstract: In this paper, I analyse first-price single-item auctions in case of a default of a clearing agent in a central counterparty (CCP). The bidding surviving clearing agents attach a private value to the item to be sold and share eventual losses with the CCP. The CCP as auctioneer can choose the time of auction and the loss allocation mechanism in order to minimize her own losses. I show that incentives (e.g. juniorising default fund contributions) are irrelevant for the outcome of the auction but that the composition of bidders matters. Auctions with a subset of bidders have distributional effects, i.e. the invited bidders are better off than those who are not invited to the auction. Conversely, inviting additional bidders (i.e., clients) could lead to an inefficient auction, yet their participation leaves the CCP as well as all the losing bidders better off. Recovery measures increase the safety and soundness of CCPs but can adversely affect incentives of a CCP in an auction. I show that in cases of extreme losses a CCP would rather prefer to wait than to swiftly conduct an auction, thereby inflicting costs on the financial system. Finally, I show that tear-ups are not only more costly than other recovery measures but that they fail to coordinate the actions of bidders, leading to an inferior equilibrium for all.
    Keywords: Central Counterparty, Default Management, Auctions, Recovery
    JEL: C72 D44 D53 D82 G23 G28
    Date: 2019
  5. By: Mehmet Ismail
    Abstract: We introduce a new theory of games which extends von Neumann's theory of zero-sum games to nonzero-sum games by incorporating common knowledge of individual and collective rationality of the players. Maximin equilibrium, extending Nash's value approach, is based on the evaluation of the strategic uncertainty of the whole game. We show that maximin equilibrium is invariant under strictly increasing transformations of the payoffs. Notably, every finite game possesses a maximin equilibrium in pure strategies. Considering the games in von Neumann-Morgenstern mixed extension, we demonstrate that the maximin equilibrium value is precisely the maximin (minimax) value and it coincides with the maximin strategies in two-player zero-sum games. We also show that for every Nash equilibrium that is not a maximin equilibrium there exists a maximin equilibrium that Pareto dominates it. In addition, a maximin equilibrium is never Pareto dominated by a Nash equilibrium. Finally, we discuss maximin equilibrium predictions in several games including the traveler's dilemma.
    Date: 2019–11
  6. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Fen Li (Department of Entomology - Michigan State University [East Lansing] - Michigan State University System)
    Abstract: We provide a detailed study of the threshold model, where both conformist and anti-conformist agents coexist. Our study bears essentially on the convergence of the opinion dynamics in the society of agents, i.e., finding absorbing classes, cycles, etc. Also, we are interested in the existence of cascade effects, as this may constitute a undesirable phenomenon in collective behavior. We divide our study into two parts. In the first one, we basically study the threshold model supposing a fixed complete network, where every one is connected to every one, like in the seminal work of Granovetter. We study the case of a uniform distribution of the threshold, of a Gaussian distribution, and finally give a result for arbitrary distributions, supposing there is one type of anti-conformist. In a second part, we suppose that the neighborhood of an agent is random, drawn at each time step from a distribution. We distinguish the case where the degree (number of links) of an agent is fixed, and where there is an arbitrary degree distribution. We show the existence of cascades and that for most societies, the opinion converges to a chaotic situation.
    Keywords: threshold model,anti-conformism,absorbing class,opinion dynamics
    Date: 2019
  7. By: Geruso, Michael (University of Texas at Austin); Layton, Timothy J. (Harvard University); McCormack, Grace (Harvard University); Shepard, Mark (Harvard Kennedy School)
    Abstract: Insurance markets often feature consumer sorting along both an extensive margin (whether to buy) and an intensive margin (which plan to buy). We present a new graphical theoretical framework that extends a workhorse model to incorporate both selection margins simultaneously. A key insight from our framework is that policies aimed at addressing one margin of selection often involve an economically meaningful tradeoff on the other margin in terms of prices, enrollment,and welfare. Using data from Massachusetts, we illustrate these tradeoffs in an empirical sufficient statistics approach that is tightly linked to the graphical framework we develop.
    Date: 2019–11
  8. By: Joshua S. Gans
    Abstract: A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.
    JEL: L11 L41
    Date: 2019–11
  9. By: Hjertstrand, Per (Research Institute of Industrial Economics (IFN)); Swofford, James L. (Department of Economics); Whitney, Gerald A. (Department of Economics)
    Abstract: For previously identified weakly separable blockings of goods and assets, we construct aggregates using four superlative index numbers, the Fisher, Sato-Vartia, Törnqvist and Walsh, two non-superlative indexes, the Laspeyres and Paasche and the atheoretical simple summation. We conduct several tests to examine how well each of these aggregates “fit” the data. These tests are how close the aggregates come to solving the revealed preference conditions for weak separability, how often each aggregate gets the direction of change correct and how well the aggregates mimic the preference ranking from revealed preference tests. We find that, as the number of goods and assets being aggregated increases, the problems with simple summation manifest.
    Keywords: Superlative index numbers; Aggregation; Preference orderings; Weak separability
    JEL: C43
    Date: 2019–11–28
  10. By: José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam); Saish Nevrekar (Universidad Carlos III de Madrid)
    Abstract: This paper studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The portfolio nature of the investment problem brings about novel insights on the external effects of firms’ investments. The investment of a firm in one project imposes a negative business-stealing externality on the rival firms because it lowers the probability they win the innovation contest for that project; however, the investment of a firm in one project also exerts a positive business-giving externality on the rival firms because it increases the likelihood they win the contest for the alternative project.
    Keywords: innovation portfolios, R&D contests, mergers
    JEL: O32 L13 L22 O31
    Date: 2019–12–08
  11. By: Shy, Oz (Federal Reserve Bank of Atlanta)
    Abstract: The paper investigates the degree to which buyers choose to diversify their use of payment methods for in-person purchases. Some buyers use only one payment instrument. Others combine the use of mostly cash, credit, debit cards, and a few paper checks and prepaid cards. To each survey respondent, I apply three concentration measures over the use of payment instruments. Results show that the degree of consumers' payment concentration exhibits almost no correlation with consumer demographics, payment volume, or aggregate value.
    Keywords: multiple payment methods; consumer payment choice; payment instruments; in-person purchases; concentration measures
    JEL: D9 E42
    Date: 2019–10–01
  12. By: Alexis Poindron (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Panthéon-Sorbonne)
    Abstract: We consider a society of agents making an iterated yes/no decision on some issue, where updating is done by mutual influence under a Markovian process. Agents update their opinions at the same time, independently of each other, in an entirely mechanical manner. They can have a favourable or an unfavourable perception of their neighbours. We study the qualitative patterns of this model, which captures several notions, including conformism, anti-conformism, communitarianism and leadership. We discuss under which conditions opinions are stable. Finally, we introduce a notion of entropy that we use to extract information on the society and to predict future opinions.
    Keywords: opinion dynamics,convergence,absorbing class,groups,entropy
    Date: 2019–10
  13. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms' decisions to adopt a vertical integrated or decentralized structure taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where R&D is conducted by upstream sectors. R&D investment determines the production costs of the downstream sector and has spillovers on the rivals' costs. In a general setup, we show that equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases and we study how final good market competition, spillover, and incentives in innovation interact to determine the optimal vertical structure.
    Date: 2019–11

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