nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒01‒06
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Matching Platforms By Masaki Aoyagi; Seung Han Yoo
  2. Quality Selection in Two-Sided Markets: A Constrained Price Discrimination Approach By Ramesh Johari; Bar Light; Gabriel Weintraub
  3. The Winner-Take-All Dilemma By Kazuya Kikuchi; Yukio Koriyama
  4. One Dollar Each Eliminates Envy By Johannes Brustle; Jack Dippel; Vishnu V. Narayan; Mashbat Suzuki; Adrian Vetta
  5. Promotions and Training: Do Competitive Firms Set the Bar too High? By Luca Picariello
  6. Intuitive Beliefs By Jawwad Noor
  7. Swings, News, and Elections By Saptarshi Ghosh; Nidhi Jain; Cesar Martinelli; Jaideep Roy
  8. Quick or Cheap? Breaking Points in Dynamic Markets By Panayotis Mertikopoulos; Heinrich H. Nax; Bary S. R. Pradelski
  9. Stochastic discount factors and the optimal timing of irreversible investments By Armerin, Fredrik
  10. More (or Less) Economic Limits of the Blockchain By Joshua S. Gans; Neil Gandal

  1. By: Masaki Aoyagi (Osaka University); Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: A platform matches agents from two sides of a market to create a trading opportunity between them. The agents subscribe to the platform by paying subscription fees which are contingent on their reported private types, and then engage in strategic interactions with their matched partner(s). A matching mechanism of the platform specifies the subscription fees as well as the matching rule which determines the probability that each type of agent on one side is matched with each type on the other side. We characterize optimal matching mechanisms which induce truthful reporting from the agents and maximize the subscription revenue. We show that the optimal mechanisms for a one-to-one trading platform match do not necessarily entail assortative matching, and may employ an alternative matching rule that maximizes the extraction of informational rents of the higher type. We then study an auction platform that matches each seller to two agents, and show that the optimal mechanism entails the combination of negative and positive assortative matching.
    Keywords: assortative, random, auction, subscription, revenue maximization, complementarity
    JEL: D42 D47 D62 D82 L12
    Date: 2019
  2. By: Ramesh Johari; Bar Light; Gabriel Weintraub
    Abstract: Online platforms collect rich information about participants, and then share this information back with participants to improve market outcomes. In this paper we study the following information disclosure problem of a two-sided market: how much of its available information about sellers' quality should the platform share with buyers to maximize its revenue? One key innovation in our analysis is to reduce the study of optimal information disclosure policies to a {\em constrained price discrimination} problem. The information shared by the platform induces a "menu" of equilibrium prices and sellers' expected qualities. Optimization over feasible menus yields a price discrimination problem. The problem is constrained because feasible menus are only those that can arise in the equilibrium of the two sided-market for some information disclosure policy. We analyze this constrained price discrimination problem, and apply our insights to two distinct two-sided market models: one in which the platform chooses prices and sellers choose quantities (similar to ride-sharing), and one in which sellers choose prices (similar to e-commerce). We provide conditions under which a simple information structure of banning a certain portion of sellers from the platform, and not sharing any information about the remaining participating sellers maximizes the platform's revenue.
    Date: 2019–12
  3. 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
  4. By: Johannes Brustle; Jack Dippel; Vishnu V. Narayan; Mashbat Suzuki; Adrian Vetta
    Abstract: We study the fair division of a collection of $m$ indivisible goods amongst a set of $n$ agents. Whilst envy-free allocations typically do not exist in the indivisible goods setting, envy-freeness can be achieved if some amount of a divisible good (money) is introduced. Specifically, Halpern and Shah (SAGT 2019, pp.374-389) showed that, given additive valuation functions where the marginal value of each item is at most one dollar for each agent, there always exists an envy-free allocation requiring a subsidy of at most $(n-1)\cdot m$ dollars. The authors also conjectured that a subsidy of $n-1$ dollars is sufficient for additive valuations. We prove this conjecture. In fact, a subsidy of at most one dollar per agent is sufficient to guarantee the existence of an envy-free allocation. Further, we prove that for general monotonic valuation functions an envy-free allocation always exists with a subsidy of at most $2(n-1)$ dollars per agent. In particular, the total subsidy required for monotonic valuations is independent of the number of items.
    Date: 2019–12
  5. By: Luca Picariello (Università di Napoli Federico II and CSEF.)
    Abstract: Firms use promotions to match workers with jobs that fit their ability, but also to provide incentives to exert on-the-job training effort. As promotions make workers more attractive in the labor market, firms will balance productivity and retention costs. I show that if workers exert firm-specific training effort, profit-maximizing firms that cannot commit to promotion rules promote fewer workers than efficient. Differently, if firms can commit to promotion bars, for instance by means of structured managerial practices, they set the bar efficiently. If workers acquire portable training, this directly increases retention costs. Firms that cannot commit to promotion bars will set them inefficiently high. In this case, workers are discouraged from training when competition for talent is fierce. If firms can commit to promotion bars, they set them lower than without commitment providing strong incentives for workers to acquire portable training. However, in this scenario the promotion bar may be set too low compared with the efficient talent allocation.
    Keywords: Promotions, on-the-job training, poaching, career concerns.
    JEL: D86 M51 M52 M53
    Date: 2019–12–16
  6. By: Jawwad Noor (e Department of Economics, Boston University)
    Abstract: Beliefs are intuitive if they rely on associative memory, which can be described as a network of associations between events. A belief-theoretic characterization of the model is provided, its uniqueness properties are established, and the intersection with the Bayesian model is characterized. The formation of intuitive beliefs is modelled after machine learning, whereby the network is shaped by past experience via minimization of the difference from an objective probability distribution. The model is shown to accommodate correlation misperception, the conjunction fallacy, base-rate neglect/conservatism, etc.
    Keywords: Beliefs, Intuition, Associative memory, Boltzmann machine, Energy-Based Neural Networks, Non-Bayesian updating
    JEL: C45 D01 D90
    Date: 2019–12
  7. By: Saptarshi Ghosh (Indian Institute of Technology Bombay); Nidhi Jain (Shiv Nader University); Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Jaideep Roy (University of Bath)
    Abstract: Can public mood swings that make all voters undergo ideological shifts towards a policy, hurt the electoral performance of that policy? The answer has an interesting connection with the operations of an apolitical, viewership- maximizing dominant media. The media chooses news quality about funda- mental uncertainties. Ex-ante preferences and news quality affect the voters’ value for information and viewership, influencing ex-post policy preferences and votes. We find that public mood swings in a policy’s favor can hurt its electoral performance by affecting the news quality, crowding out the mass ideological gain that initiates the favorable swing.
    Keywords: Mood swings, Media coverage, Media viewership, Elections
    JEL: D02 D72 D82
    Date: 2019–12
  8. By: Panayotis Mertikopoulos (Université Grenoble Alpes); Heinrich H. Nax (Department of Humanities, Social and Political Sciences, Eidgenössische Technische Hochschule Zürich); Bary S. R. Pradelski (Université Grenoble Alpes)
    Abstract: We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players’ waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch’, i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting.
    Keywords: Dynamic matching, Online markets, Market design
    JEL: D47 C78 C60 D80
    Date: 2019–12
  9. By: Armerin, Fredrik (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: By using a general semimartingale framework, we show how the transformation of an optimal stopping problem under the objective probability measure into an optimal stopping problem under the risk-neutral probability measure looks like. We also note that the difference between equivalent and a locally equivalent are important when considering infinite time horizons (i.e., when considering perpetual options).
    Keywords: optimal stopping; stochastic discount factors; irreversible investments
    JEL: G11 G13
    Date: 2019–12–20
  10. By: Joshua S. Gans; Neil Gandal
    Abstract: This paper extends the blockchain sustainability framework of Budish (2018) to consider proof of stake (in addition to proof of work) consensus mechanisms and permissioned (where the number of nodes are fixed) networks. It is demonstrated that an economically sustainable network will involve the same cost regardless of whether it is proof of work or proof of stake although in the later the cost will take the form of illiquid financial resources. In addition, it is shown that regulating the number of nodes (as in a permissioned network) does not lead to additional cost savings that cannot otherwise be achieved via a setting of block rewards in a permissionless (i.e., free entry) network. This suggests that permissioned networks will not be able to economize on costs relative to permissionless networks.
    JEL: D00 E50 L10
    Date: 2019–12

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