nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒01‒27
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Long Information Design By Frédéric Koessler; Marie Laclau; Jérôme Renault; Tristan Tomala
  2. Partial Language Competence By Jeanne Hagenbach; Frédéric Koessler
  3. Delegating Learning By Juan Escobar; Qiaoxi Zhang
  4. Beyond Belief: Logic In Multiple Attitudes By Franz Dietrich; Antonios Staras; Robert Sugden
  5. Matching Platforms By Masaki Aoyagi; Seung Han Yoo
  6. Robust Bidding and Revenue in Descending Price Auctions By Sarah Auster; Christian Kellner
  7. Best-Response Dynamics in Directed Network Games By Péter Bayer; György Kozics; Nóra Gabriella Szőke
  8. The Rational Group By Franz Dietrich
  9. A characterization of Approval Voting without the approval balloting assumption By Federica Ceron; Stéphane Gonzalez
  10. The relation between degrees of belief and binary beliefs: A general impossibility theorem By Franz Dietrich; Christian List
  11. Governing Public-Private Partnerships: The Problem of Low-Cost Decisions By Mause, Karsten
  12. Personal preferences in networks By Orlova, Olena
  13. Making Friends Meet: Network Formation with Introductions By Jan-Peter Siedlarek
  14. Multi-product bargaining, bundling, and buyer power By Dertwinkel-Kalt, Markus; Wey, Christian
  15. Existence of Trembling hand perfect and sequential equilibrium in Stochastic Games By Sofia Moroni
  16. Managerial Overconfidence and Self-Reported Success By Nikolaj Kirkeby Niebuhr

  1. By: Frédéric Koessler (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Marie Laclau (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Jérôme Renault (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique); Tristan Tomala (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique, HEC Paris - Ecole des Hautes Etudes Commerciales)
    Abstract: We analyze strictly competitive information design games between two designers and an agent. Before the agent takes a decision, designers disclose public information at multiple stages about persistent state parameters. We consider environments with arbitrary constraints on feasible in- formation disclosure policies. Our main results characterize equilibrium payoffs and strategies for various timings of the game: simultaneous or alternating disclosures, with or without deadline. With- out constraints on policies, information is disclosed in a single stage, but there may be no bound on the number stages used to disclose information when policies are constrained. As an application, we study competition in product demonstration and show that more information is revealed when there is a deadline. The format that provides the buyer with the most information is the sequential game with deadline in which the ex-ante strongest seller is the last mover.
    Keywords: Bayesian persuasion,concavification,convexification,information design,Mertens Zamir solution,product demonstration,splitting games,statistical experiments,stochastic games
    Date: 2019–12
  2. By: Jeanne Hagenbach (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Frédéric Koessler (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper proposes an equilibrium concept, Language-Based Expectation Equilibrium , which accounts for partial language understanding in sender-receiver cheap talk games. Each player is endowed with a privately known language competence which represents all the messages that he understands. For the messages he does not understand, he has correct but only coarse expectations about the equilibrium strategies of the other player. In general, a language-based expectation equilibrium outcome differs from Nash and communication equilibrium outcomes, but is always a Bayesian solution. Partial language competence of the sender rationalizes information transmission and lies in pure persuasion problems, and facilitates information transmission from a moderately biased sender.
    Keywords: Analogy-based expectations,Bayesian solution,bounded rationality,cheap talk,language,pure persuasion,strategic information transmission
    Date: 2019–01
  3. By: Juan Escobar; Qiaoxi Zhang
    Abstract: Learning is crucial to organizational decision making but often needs be delegated. We examine a dynamic delegation problem where a principal decides on a project with uncertain profitability. A biased agent, who is initially as uninformed as the principal, privately learns the profitability over time and communicates to the principal. We formulate learning delegation as a dynamic mechanism design problem and characterize the optimal delegation scheme. We show that private learning gives rise to the tradeoff between how much information to acquire and how promptly it is reflected in the decision. We discuss implications on learning delegation for distinct organizations. Key words: cheap talk.,commitment,deadlines,delays,delegation,private learning
    Date: 2019
  4. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Antonios Staras (Cardiff University); Robert Sugden (UEA - University of East Anglia [Norwich])
    Abstract: Logical models of the mind focus on beliefs, and how one reasons with beliefs. But we also have desires, intentions, preferences, and other attitudes-and arguably we reason with them, particularly when making decisions. To enable a logical analysis of someone's psychology and decision-making, we generalize three classic logical desiderata on beliefs -- consistency, completeness, and implication-closedness -- towards multiple attitudes. The three resulting 'logical' desiderata on our psychology contrast with the classic notion of 'rationality requirements': requirements of having transitive preferences, non-contradictory beliefs, non-acratic intentions, intentions consistent with preferences, and so on. We prove a theorem that connects the logical desiderata to rationality requirements: each of the three logical desiderata (generalized to multiple attitudes) is equivalent to the satisfaction of a certain class of rationality requirements. This result connects logic with choice theory and psychology, and has implications for whether reasoning can make our attitudes consistent, complete, and closed.
    Date: 2020–01–08
  5. By: Masaki Aoyagi; Seung Han Yoo
    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.
    Date: 2019–12
  6. By: Sarah Auster; Christian Kellner
    Abstract: We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder’s payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.
    Keywords: Auctions, Ambiguity, Consistent Planning
    Date: 2020–01
  7. By: Péter Bayer; György Kozics; Nóra Gabriella Szőke
    Abstract: We study public goods games played on networks with possibly non-reciprocal relationships between players. Examples for this type of interactions include one-sided relationships, mutual but unequal relationships, and parasitism. It is well known that many simple learning processes converge to a Nash equilibrium if interactions are reciprocal, but this is not true in general for directed networks. However, by a simple tool of rescaling the strategy space, we generalize the convergence result for a class of directed networks and show that it is characterized by transitive weight matrices. Additionally, we show convergence in a second class of networks; those rescalable into networks with weak externalities. We characterize the latter class by the spectral properties of the absolute value of the network's weight matrix and show that it includes all directed acyclic networks.
    Date: 2020–01–13
  8. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Can a group be a standard rational agent? This would require the group to hold aggregate preferences which maximise expected utility and change only by Bayesian updating. Group rationality is possible, but the only preference aggregation rules which support it (and are minimally Paretian and continuous) are the linear-geometric rules, which combine individual tastes linearly and individual beliefs geometrically.
    Date: 2020–01–08
  9. By: Federica Ceron (Paris School of Economics, Université Paris 1 Panthéon-Sorbonne, Université Paris-Est Créteil); Stéphane Gonzalez (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint- Etienne)
    Abstract: We provide an axiomatic characterization of Approval Voting without the approval balloting assumption. The dichotomous structure of the informational basis of Approval voting as well as its aggregative rationale are jointly derived from a set of normative conditions on the voting procedure. The first one is the well-known social-theoretic principle of consistency; the second one, ballot richness, requires voters to be able to express a sufficiently rich set of opinions; the last one, dubbed no single-voter overrides, demands that the addition of a voter to an electorate cannot radically change the outcome of the election. Such result is promising insofar it suggests that the informational basis of voting may have a normative relevance that deserves formal treatment.
    Keywords: Informational basis, balloting procedure, Approval voting, Evaluative voting
    JEL: C71
    Date: 2019
  10. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics and Political Science)
    Abstract: Agents are often assumed to have degrees of belief ("credences") and also binary beliefs ("beliefs simpliciter"). How are these related to each other? A much-discussed answer asserts that it is rational to believe a proposition if and only if one has a high enough degree of belief in it. But this answer runs into the "lottery paradox": the set of believed propositions may violate the key rationality conditions of consistency and deductive closure. In earlier work, we showed that this problem generalizes: there exists no local function from degrees of belief to binary beliefs that satisfies some minimal conditions of rationality and non-triviality. "Locality" means that the binary belief in each proposition depends only on the degree of belief in that proposition, not on the degrees of belief in others. One might think that the impossibility can be avoided by dropping the assumption that binary beliefs are a function of degrees of belief. We prove that, even if we drop the "functionality" restriction, there still exists no local relation between degrees of belief and binary beliefs that satisfies some minimal conditions. Thus functionality is not the source of the impossibility; its source is the condition of locality. If there is any non-trivial relation between degrees of belief and binary beliefs at all, it must be a "holistic" one. We explore several concrete forms this "holistic" relation could take.
    Date: 2020–01–08
  11. By: Mause, Karsten
    Abstract: In many cases, the expected efficiency advantages of public-private partnership (PPP) projects as a specific form of infrastructure provision did not materialize ex post. From a Public Choice perspective, one simple explanation for many of the problems surrounding the governance of PPPs is that the public decision-makers being involved in the process of initiating and implementing PPP projects (namely, politicians and public bureaucrats) in many situations make low-cost decisions in the sense of Kirchgässner. That is, their decisions may have a high impact on the wealth of the jurisdiction in which the PPP is located (most notably, on the welfare of citizen-taxpayers in this jurisdiction) but, at the same time, these decisions often only have a low impact on the private welfare of the individual decision-makers in politics and bureaucracies. The latter, for example, in many settings often have a low economic incentive to monitor/control what the private sector partners are doing (or not doing) within a PPP arrangement. The purpose of this paper is to draw greater attention to the problems created by low-cost decisions for the governance of PPPs. Moreover, the paper discusses potential remedies arising from the viewpoint of Public Choice and constitutional political economy.
    Keywords: Public-Private Partnerships, PPPs, Efficiency, Public Choice, Government Failure, Governance.
    JEL: D72 D73 H10 H54 H57 H82 K00 L32 L33
    Date: 2019–12
  12. By: Orlova, Olena (Center for Mathematical Economics, Bielefeld University)
    Abstract: We consider a network of players endowed with individual preferences and involved in interactions of various patterns. We show that their ability to make choices according to their preferences is limited, in a specific way, by their involvement in the network. The earlier literature demonstrated the conflict between individuality and peer pressure. We show that such a conflict is also present in contexts in which players do not necessarily aim at conformity with their peers. We investigate the consequences of preference heterogeneity for different interaction patterns, characterize corresponding equilibria and outline the class of games in which following own preferences is the unique Nash equilibrium. The introduction of personal preferences changes equilibrium outcomes in a non-trivial fashion: some equilibria disappear, while other, qualitatively new, appear. These results are robust to both independent and interdependent relationship between personal and social utility components.
    Date: 2020–01–13
  13. By: Jan-Peter Siedlarek
    Abstract: High levels of clustering—the tendency for two nodes in a network to share a neighbor—are ubiquitous in economic and social networks across different applications. In addition, many real-world networks show high payoffs for nodes that connect otherwise separate network regions, representing rewards for filling “structural holes” in the sense of Burt (1992) and keeping distances in networks short. This paper proposes a parsimonious model of network formation with introductions and intermediation rents that can explain both these features. Introductions make it cheaper to create connections that share a common node. They are subject to a tradeoff between gains from shorter connections with lower search cost and losses from lower intermediation rents for the central node. Stable networks are shown to have high levels of clustering at the same time that they permit substantial intermediation rents for nodes bridging structural holes.
    Keywords: networks; network formation; clustering; intermediation; introductions
    JEL: A14 D85
    Date: 2020–01–15
  14. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We re-consider the bilateral bargaining problem of a multi-product, manufacturer-retailer trading relationship. O'Brien and Shaffer (Rand JE 35:573-598, 2005) have shown that the unbundling of contracts leads to downward distorted production levels if seller power is strong, while otherwise the joint profit maximizing quantities are contracted (which is also always the case when bundling contracts are feasible). We show that the unbundling of contracts also leads to downward distorted output levels when the buyer firm has sufficient (Nash) bargaining power (i.e., buyer power). Our result is driven by cost substitutability (diseconomies of scope).
    Keywords: Vertical Restraints,Bundling,Buyer Power
    JEL: L13 L41 K21
    Date: 2019
  15. By: Sofia Moroni
    Abstract: In this paper we define notions of trembling hand and sequential equilibrium and show that both types of equilibria exist in a large class of stochastic games that may feature incomplete and imperfect information. These equilibria do not necessitate the use of a public correlating device. Under further regularity assumptions each stochastic game has a sequence of approximating finite games whose equilibria approximate equilibria of the limit game.
    Date: 2020–01
  16. By: Nikolaj Kirkeby Niebuhr (Department of Economics and Business Economics, Aarhus University)
    Abstract: I consider the optimal contract for an overconfident manager in a principal-agent model with moral hazard where the contract is written on the earnings of the firm. Overconfidence causes the manager to overestimate his ability to affect the outcome of the firm. Overconfidence first reduces cost of agency, and if the level of overconfidence is significant enough, it causes the manager to wager on his wrong beliefs. The accounting system obscures the outcome of the manager's effort, which attenuates the effect of significant overconfidence and decreases the principal's profit. Inducing the manager to truthfully communicate his self-observed success allows the principal to directly contract on the cause of disagreement, the manager's effect on firm outcome. This reduces the risk premium for a slightly overconfident manager and emphasizes the wager effect for a significantly overconfident manager. The value of communication is first decreasing in overconfidence for a slightly overconfident manager and then increasing in overconfidence for a significantly overconfident manager.
    Keywords: Overconfidence, Moral hazard, Communication, Disclosure
    JEL: D83 D86 D91 M41
    Date: 2020–01–10

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