nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒02‒03
nineteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Quick or cheap? Breaking points in dynamic markets By Panayotis Mertikopoulos; Heinrich H. Nax; Bary S. R. Pradelski
  2. Motivated Errors By Christine L. Exley; Judd B. Kessler
  3. Hidden Testing and Selective Disclosure of Evidence By Claudia Herresthal
  4. Procurement design with loss averse bidders By Fugger, Nicolas; Gillen, Philippe; Riehm, Tobias
  5. All Pay Quality-Bids in Score Procurement Auctions By Dan Kovenock; Jingfeng Lu
  6. Beyond Belief: Logic In Multiple Attitudes By Franz Dietrich; Antonios Staras; Robert Sugden
  7. Restricted Probabilistic Fixed Ballot Rules and Hybrid Domains By Chatterji, Shurojit; Roy, Souvik; Sadhukhan, Soumyarup; Sen, Arunava; Zeng, Huaxia
  8. Executive Absolutism: A Model By Howell, William; Shepsle, Kenneth; Wolton, Stephane
  9. Strategy-proofness and responsiveness imply minimal participation By Müller, Michael; Puppe, Clemens
  10. How to Cut a Cake Fairly: A Generalization to Groups By Erel Segal-Halevi; Warut Suksompong
  11. The relation between degrees of belief and binary beliefs: A general impossibility theorem By Franz Dietrich; Christian List
  12. A Note on Nash Equilibrium andFixed Point Theorems By Hannu Salonen; Mitri Kitti
  13. A characterization of Approval Voting without the approval balloting assumption By Federica Ceron; Stéphane Gonzalez
  14. Intertemporal Utility with Heterogeneous Goods and Constant Elasticity of Substitution By Martin F. Quaas; Stefan Baumgärtner; Moritz A. Drupp; Jasper N. Meya
  15. Incentives and implementation in marriage markets with externalities By Matteo Triossi; María Haydée Fonseca-Mairena
  16. On strategic transmission of gradually arriving information By Alexander Frug
  17. Credence update without new information By Kim, Minseong
  18. Optimal contracts with randomly arriving tasks By Daniel Bird; Alexander Frug
  19. Mergers and partial tacit collusion By Grüb, Jens

  1. By: Panayotis Mertikopoulos; Heinrich H. Nax; Bary S. R. Pradelski
    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
  2. By: Christine L. Exley; Judd B. Kessler
    Abstract: In three sets of experiments involving over 4,200 subjects, we show that agents motivated to be selfish make systematic decision errors of the kind generally attributed to cognitive limitations or behavioral biases. We show that these decision errors are eliminated (or dramatically reduced) when self-serving motives are removed. We say that individuals make "motivated errors." They make decision errors, but only when it is self-serving to do so.
    JEL: C91 D64 D91
    Date: 2019–12
  3. By: Claudia Herresthal
    Abstract: An agent can sequentially run informative tests about an unknown state and disclose (some or all) outcomes to a decision maker who then faces an approval choice. Players agree on the optimal choice under certainty, but the decision maker has a higher approval threshold than the agent. I compare the case where testing is hidden and the agent chooses which test outcomes to verifiably disclose to the case where testing is observable. When testing is observable, I show that the agent may strategically stop testing even if further tests could yield a mutual benefit. I find conditions under which the decision maker is strictly better off under hidden testing and in some equilibria both players are strictly better off under hidden testing than in the unique equilibrium under observable testing.
    Keywords: endogenous information acquisition, verifiable disclosure, transparency, questionable research practices
    JEL: D83 D82
    Date: 2020–01
  4. By: Fugger, Nicolas; Gillen, Philippe; Riehm, Tobias
    Abstract: We show that it is beneficial for a buyer to conduct a multi-stage mechanism if bidders are loss averse. In a first step, we derive a revenue equivalence principle. Fixing the multi-stage structure, the revenue is independent of the chosen payment rule. Secondly, we introduce a simple two-stage mechanism which always leads to a decrease in procurement costs compared to any single-stage auction. Finally we derive the optimal efficient two-stage mechanism.
    Keywords: Auctions,Experiment,Loss aversion,Preferences
    JEL: D44 D47 D90
    Date: 2019
  5. By: Dan Kovenock (Economic Science Institute, Chapman University); Jingfeng Lu (Department of Economics, National University of Singapore)
    Abstract: In this paper, we study score procurement auctions with all-pay quality bids. A supplierís score is the di§erence between his quality and price bids. The supplier with the highest score wins and gets paid his own price bid. The procurerís payo§ is the di§erence between the winnerís quality and the procurerís payments to the suppliers. Equilibrium quality and price bids are solved without Örst obtaining the corresponding equilibrium scores. We Önd that quality bids, the suppliersípayo§s and the procurerís payo§ do not depend on whether price bids are made contingent on quality bids. Compared to a benchmark of winner-pay quality bids, in which the losing suppliersí quality bidding costs are reimbursed by the procurer, all-pay quality bids tend to reduce quality provision and suppliersípayo§s, but they tend to increase the total surplus and the procurerís payo§.
    Keywords: All-pay quality bids, Equilibrium analysis, Score auctions, Score procurements, Winner-pay quality bid
    JEL: C70 D44 D89 L12 O32
    Date: 2020
  6. 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
  7. By: Chatterji, Shurojit (School of Economics, Singapore Management University); Roy, Souvik (Indian Statistical Institute); Sadhukhan, Soumyarup (Indian Statistical Institute); Sen, Arunava (Indian Statistical Institute); Zeng, Huaxia (Shanghai University of Finance and Economics)
    Abstract: We study Random Social Choice Functions (or RSCFs) in a standard ordinal mech-anism design model. We introduce a new preference domain called a hybrid domain which includes as special cases as the complete domain and the single-peaked domain. We characterize the class of unanimous and strategy-proof RSCFs on these domains and refer to them as Restricted Probabilistic Fixed Ballot Rules (or RPFBRs). These RSCFs are not necessarily decomposable, i.e., cannot be written as a convex combina-tion of their deterministic counterparts. We identify a necessary and sufficient condition under which decomposability holds for anonymous RPFBRs. Finally, we provide an axiomatic justification of hybrid domains and show that every connected domain satis-fying some mild conditions is a hybrid domain where the RPFBR characterization still prevails.
    Keywords: Strategy-proofness; hybrid domain; restricted probabilistic fixed ballot rule; decomposability; connectedness
    JEL: D71 H41
    Date: 2020–01–09
  8. By: Howell, William; Shepsle, Kenneth; Wolton, Stephane
    Abstract: Separated powers cannot permanently constrain individual ambitions. Concerns about a government's ability to respond to contemporary and future crises, we show, invariably compromise the principled commitments one branch of government has in limiting the authority of another. We study a dynamic model in which a politician (most commonly an executive) makes authority claims that are subject to a hard constraint (administered, typically, by a court). At any period, the court is free to rule against the executive and thereby permanently halt her efforts to acquire more power. Because it appropriately cares about the executive's ability to address real-world disruptions, however, the court is always willing to affirm more authority. Neither robust electoral competition nor alternative characterizations of judicial rule fundamentally alters this state of affairs. The result, we show, is a persistent accumulation of executive authority.
    Keywords: Authority, Executive Growh, Judicial Decision, Separation of Power, Federalist
    JEL: C73 D02 D70 D72 H11 K39
    Date: 2020–01–16
  9. By: Müller, Michael; Puppe, Clemens
    Abstract: We study a model in which agents with single-peaked preferences can participate in a costly voting procedure to determine the value of a one-dimensional variable. We show that, for all positive participation cost and all profiles of individual preferences, there exists a (generically) unique equilibrium with (at most) one single participant whenever the voting mechanism is strategy-proof, anonymous, and responsive in the sense that the outcome reacts to a unanimous move of the votes of all agents in the same direction.
    Date: 2020
  10. By: Erel Segal-Halevi; Warut Suksompong
    Abstract: A fundamental result in cake cutting states that for any number of players with arbitrary preferences over a cake, there exists a division of the cake such that every player receives a single contiguous piece and no player is left envious. We generalize this result by showing that it is possible to partition the players into groups of any desired sizes and divide the cake among the groups, so that each group receives a single contiguous piece and no player finds the piece of another group better than that of the player's own group.
    Date: 2020–01
  11. 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
  12. By: Hannu Salonen (University of Turku); Mitri Kitti (University of Turku)
    Abstract: We give a proof of the existence of a Nash equilibrium forn-personnormal form games when each player’s utility function is continuousw.r.t. strategy profiles, and concave and differentiable w.r.t. his ownstrategy. The proof uses only elementary mathematical tools such asmathematical induction. We show that this equilibrium existence re-sult is sufficiently general to imply the Brouwer Fixed Point Theorem.The Kakutani Fixed Point Theorem is obtained as a corollary by usingstandard techniques.
    Keywords: Nash equilibrium, fixed-point theorem
    JEL: C72
    Date: 2019–12
  13. By: Federica Ceron (UP1 UFR02 - Université Panthéon-Sorbonne - UFR d'Économie - UP1 - Université Panthéon-Sorbonne); Stéphane Gonzalez (UJM - Université Jean Monnet [Saint-Étienne], GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    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: Approval voting,balloting procedure,Informational basis,Evaluative voting
    Date: 2019
  14. By: Martin F. Quaas; Stefan Baumgärtner; Moritz A. Drupp; Jasper N. Meya
    Abstract: We characterize intertemporal utility functions over heterogeneous goods that feature (i) a constant elasticity of substitution between goods at each point in time and (ii) a constant intertemporal elasticity of substitution for at least one of the goods. We find that a standard (stationary) intertemporal utility function is consistent with these two properties if and only if it either is of the intertemporal constant elasticity of substitution (ICES) form, that is, if all elasticities of substitution are identical, or if the instantaneous utility function is Cobb-Douglas. We also characterize the families of standard intertemporal utility functions that feature either (i) or (ii), but not the respective other property. The ICES utility function offers a simple and consistent solution for applications that use constant good-specific intertemporal substitutability. This is, for example, relevant for dual discounting of market and non-market goods.
    Keywords: substitutability, CES, CIES, intertemporal utility, non-market goods
    JEL: D61 Q51
    Date: 2019
  15. By: Matteo Triossi; María Haydée Fonseca-Mairena
    Abstract: We study the implementability of stable correspondences in marriage markets with externalities. We prove that, contrary to what happens in markets without externalities, no stable revelation mechanism makes a dominant strategy for the agents on one side of the market to reveal their preferences. However, the stable correspondence in implementable in Nash equilibrium. JEL Codes:Economic Literature Classification Numbers: C72, C78, D62, D78. Key words: Marriage market with externalities; Incentives; Implementation.
    Date: 2019
  16. By: Alexander Frug
    Abstract: The main insight of the literature on strategic information transmission is that even a small conflict of interest between a fully informed sender (e.g., a financial adviser) and an uninformed receiver (an investor) often poses considerable difficulties for effective communication. However, in many real-life situations, the sender is not fully informed at the outset but gradually studies the case before offering advice. The gradual arrival of information to the sender weakens the strategic barriers between the players and significantly improves communication.
    JEL: D82 D83
    Date: 2019–12
  17. By: Kim, Minseong
    Abstract: In this paper, it is argued that notion of what credence is affects how one should view and solve the sleeping beauty problem. If credence is decoupled from using all known information to approximate probabilistic distribution of a (mathematical and classical) stochastic process, then credence may have to be updated even if there is no new information.
    Date: 2019–10–25
  18. By: Daniel Bird; Alexander Frug
    Abstract: Workers rarely perform exactly the same tasks every day. Instead, their daily workload may change randomly over time to comply with the uctuating needs of the organiza- tion where they are employed. In this paper, we show that this typical randomness in workplaces has a striking e ect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sucient to gen- erate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.
    Keywords: Dynamic contracting, random tasks, seniority, promotion.
    JEL: D86 M51
    Date: 2020–01
  19. By: Grüb, Jens
    Abstract: This paper studies whether mergers may lead to partial tacit collusion, thereby having the potential to induce simultaneous coordinated and non-coordinated effects. We use a Bertrand-Edgeworth model with heterogeneous discount factors to derive conditions for profitable and stable collusion and provide a numerical example. Mergers that change the market structure in a way such that maverick firms are eliminated or colluding firms reach a critical share in total capacity can lead to partial collusion.
    Keywords: Partial Collusion,Tacit Collusion,Mergers,Coordinated Effects,Non-coordinated Effects,Umbrella Effects
    Date: 2019

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