nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒02‒10
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Incomplete-Information Games in Large Populations with Anonymity By Martin Hellwig
  2. Strategic information transmission with sender's approval By Françoise Forges; Jérôme Renault
  3. Long Information Design By Frédéric Koessler; Marie Laclau; Jérôme Renault; Tristan Tomala
  4. Incentive-Compatible Diffusion Auctions By Bin Li; Dong Hao; Dengji Zhao
  5. Commitment in first-price auctions By Gillen, Philippe
  6. The Rational Group By Franz Dietrich
  7. Antitrust and Restrictions on Privacy in the Digital Economy By Nicholas Economides; Ioannis Lianos
  8. Essential stability in large square economies By Sebastián Cea-Echenique; Matías Fuentes
  9. Information Design in Blockchain: A Role of Trusted Intermediaries By Hitoshi Matsushima
  10. A game of hide and seek in networks By Francis Bloch; Bhaskar Dutta; Marcin Dziubinski
  11. Two-sided markets : the role of technological uncertainty By Hamed Ghoddusi; Alexander Rodivilov; Baran Siyahhan
  12. The Allocation of Decision Authority to Human and Artificial Intelligence By Susan C. Athey; Kevin A. Bryan; Joshua S. Gans
  13. Targeting in social networks with anonymized information By Francis Bloch; Shaden Shabayek
  14. "Collective Reputation and Learningin Political Agency Problem" By Satoshi Kasamatsu; Daiki Kishishita
  15. Rational Belief Bubbles By H. Sohn; Didier Sornette
  16. Optimal Contracts with Randomly Arriving Tasks By Daniel Bird; Alexander Frug
  17. The Polarization of Reality By Alberto F. Alesina; Armando Miano; Stefanie Stantcheva
  18. On Strategic Transmission of Gradually Arriving Information By Alexander Frug
  19. A general model of synchronous updating with binary opinions By Alexis Poindron
  20. Relational Contracting, Negotiation, and External Enforcement By Miller, David A; Olsen, Trond E; Watson, Joel

  1. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: The paper provides mathematical foundations for modeling strategic interdependence with a continuum of agents where uncertainty has an aggregate component and an agent-speci?c component and the latter satis?es a conditional law of large numbers. This decomposition of uncertainty is implied by a condition of anonymity in beliefs, under which the agent in question considers the other agents? types to be essentially pairwise exchangeable. If there is also anonymity in payoff functions, all strategically relevant aspects of beliefs are contained in an agent?s macro beliefs about the cross-section distribution of the other agents?types. The paper also gives conditions under which a function assigning macro beliefs to types is compatible with the existence of a common prior. Key Words: Incomplete-information games, large populations, belief functions, common priors, exchangeability, conditional independence, conditional exact law of large numbers.
    Keywords: Monetary union, central banking, politics of banks, banking union, bank resolution, bail-in.
    JEL: C70 D82 D83
    Date: 2019–11
  2. By: Françoise Forges (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique, Université Paris-Dauphine, PSL Research University); 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, UT1 - Université Toulouse 1 Capitole)
    Abstract: We consider a sender-receiver game with an outside option for the sender. After the cheap talk phase, the receiver makes a proposal to the sender, which the latter can reject. We study situations in which the sender's approval is crucial to the receiver. We show that a partitional, (perfect Bayesian Nash) equilibrium exists if the sender has only two types or if the receiver's preferences over decisions do not depend on the type of the sender as long as the latter participates. The result does not extend: we construct a counter-example (with three types for the sender and type-dependent affine utility functions) in which there is no mixed equilibrium. In the three type case, we provide a full characterization of (possibly mediated) equilibria.
    Date: 2020–01–15
  3. 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
  4. By: Bin Li; Dong Hao; Dengji Zhao
    Abstract: Diffusion auction is a new model in auction design. It can incentivize the buyers who have already joined in the auction to further diffuse the sale information to others via social relations, whereby both the seller's revenue and the social welfare can be improved. Diffusion auctions are essentially non-typical multidimensional mechanism design problems and agents' social relations are complicatedly involved with their bids. In such auctions, incentive-compatibility (IC) means it is best for every agent to honestly report her valuation and fully diffuse the sale information to all her neighbors. Existing work identified some specific mechanisms for diffusion auctions, while a general theory characterizing all incentive-compatible diffusion auctions is still missing. In this work, we identify a sufficient and necessary condition for all dominant-strategy incentive-compatible (DSIC) diffusion auctions. We formulate the monotonic allocation policies in such multidimensional problems and show that any monotonic allocation policy can be implemented in a DSIC diffusion auction mechanism. Moreover, given any monotonic allocation policy, we obtain the optimal payment policy to maximize the seller's revenue.
    Date: 2020–01
  5. By: Gillen, Philippe
    Abstract: We study the role of commitment in a first-price auction environment. We devise a simple two-stage model in which bidders first submit an initial offer that the auctioneer can observe and then make a counteroffer. There is no commitment on the auctioneer's side to accept an offer as is or even to choose the lowest bidder. We compare this setting to a standard first-price auction both theoretically and experimentally. While theory suggests that the offers and the auctioneer's revenue should be higher in a standard first-price auction compared to the first-price auction with renegotiation, we cannot confirm these hypotheses in the experiment.
    Keywords: Auctions,Experiment
    JEL: D44 D47
    Date: 2019
  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)
    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
  7. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: We present a model of a market failure based on a requirement provision by digital platforms in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using traditional antitrust methodology. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information would create a functioning market for personal information that would benefit users. Even though market harm is established under the assumption that consumers are perfectly informed about the value of their privacy, we show that when users are not well informed, there can be additional harms to this market failure.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–01
  8. By: Sebastián Cea-Echenique; Matías Fuentes (UNSAM - Universidad Nacional de San Martin)
    Abstract: Exchange economies are defined by a mapping between an atomless space of agents and a space of characteristics where the commodity space is a separable Banach space. We characterize equilibrium stability of economies relaying on the continuity of the equilibrium correspondence. We provide a positive answer to an open question about the continuity of the Walras correspondence in infinite dimensional spaces. In addition, we do not assume neither differentiability nor a fixed set of agents for the different economies, like it is usually assumed in the stability literature.
    Keywords: Essential Stability,Walras Correspondence,Infinitely Many Commodities,Large Economies,Nowhere Equivalence
    Date: 2020–01–07
  9. By: Hitoshi Matsushima (University of Tokyo)
    Abstract: This study clarifies that blockchain cannot replace the strategic value of trusted intermediaries, despite sufficient technological advancement for its implementation. Given the progress expected in the future, this study assumes that blockchain can implement various commitment devices for communication explored in the information design literature, without disclosing their details to anonymous record keepers. By considering revelation incentives explicitly, we show that substituting the verification task of players’ pre-owned private signals with a trusted intermediary can reduce transaction costs in liability, which cannot be achieved non-judicially by blockchain. Hence, trusted intermediaries play a significant role in executing information design through blockchain.
    Keywords: Blockchain, Information Design, Verification, Intermediary, Limited Liability
    JEL: D44 D82 D86 G20 L86
    Date: 2019–07
  10. By: Francis Bloch; Bhaskar Dutta; Marcin Dziubinski
    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.
    Date: 2020–01
  11. By: Hamed Ghoddusi (Stevens Institute of Technology [Hoboken]); Alexander Rodivilov (Stevens Institute of Technology [Hoboken]); Baran Siyahhan (LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School, DEFI - Département Droit, Economie et Finances - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School)
    Abstract: This paper examines the effect of technological uncertainty on the optimal pricing and investment decisions in a two-sided market. A platform offers a basic good and a developer offers a complementary good. The performance of the complementary good is stochastic and is endogenously determined by the pricing policy the platform adopts. Heterogeneous consumers join the platform either before uncertainty is resolved or after. In the former case, consumers obtain the basic good and an option to benefit from the complementary good in the future. The platform trades off building an earlier mass of consumer base and extracting profits from late adopters. Consumers are divided into three groups: early adopters, late adopters, and those who never join the platform. A platform's pricing policy depends on the value of the complementary good and the cost of its development. If the cost is small, a price skimming policy is optimal. When the cost is higher, price skimming remains optimal if the value of the complementary good is either small or relatively high. For intermediate values, the platform adopts a price penetration policy. We discuss some examples from the empirical literature in light of the model.
    Keywords: Dynamic pricing,Two-sided markets,Real options
    Date: 2019–11
  12. By: Susan C. Athey; Kevin A. Bryan; Joshua S. Gans
    Abstract: The allocation of decision authority by a principal to either a human agent or an artificial intelligence (AI) is examined. The principal trades off an AI’s more aligned choice with the need to motivate the human agent to expend effort in learning choice payoffs. When agent effort is desired, it is shown that the principal is more likely to give that agent decision authority, reduce investment in AI reliability and adopt an AI that may be biased. Organizational design considerations are likely to impact on how AI’s are trained.
    JEL: C7 M54 O32 O33
    Date: 2020–01
  13. By: Francis Bloch; Shaden Shabayek
    Abstract: This paper studies whether a planner who only has information about the network topology can discriminate among agents according to their network position. The planner proposes a simple menu of contracts, one for each location, in order to maximize total welfare, and agents choose among the menu. This mechanism is immune to deviations by single agents, and to deviations by groups of agents of sizes 2, 3 and 4 if side-payments are ruled out. However, if compensations are allowed, groups of agents may have an incentive to jointly deviate from the optimal contract in order to exploit other agents. We identify network topologies for which the optimal contract is group incentive compatible with transfers: undirected networks and regular oriented trees, and network topologies for which the planner must assign uniform quantities: single root and nested neighborhoods directed networks.
    Date: 2020–01
  14. By: Satoshi Kasamatsu (Faculty of Economics, The University of Tokyo); Daiki Kishishita (Graduate School of Economics, The University of Tokyo)
    Abstract: This study aims to reveal how an endogenous change in political trust affectsthe performance of a representative democracy. To this end, we construct a two-period political agency model wherein voters face uncertainty about the distribution of politicians' types (model uncertainty) as well as each individual politician's type. Such model uncertainty allows political trust to endogenously change overtime, whereas political trust is invariant without model uncertainty. We show that model uncertainty substantially increases corruption. Furthermore, it generates self-fulfilling multiple equilibria: a high-accountability equilibrium and a low-accountability equilibrium coexist. In countries experiencing democracy only for a short time, model uncertainty would be severe. Our results indicate that democratic performance tends to be low and even similar countries could experience different performances depending on citizens’expectations in such new democracies. By extending the model, we also discuss the relationship between political trust and therise of an outsider candidate.
  15. By: H. Sohn (ETH Zürich); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute)
    Abstract: We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs setting of \cite{Kurz:1994,Kurz:1994a}. In a potentially non-stationary but stationarizable environment, among an heterogenous population of agents, it is possible to hold more than one ``rational'' expectation. When rational but diverse beliefs converge (``correlated beliefs''), they do not cancel each other out in aggregate anymore. This can make them an object of rational speculation. Accounting for the fact that market efficiency has an intrinsic time dimension, we show that diverse but correlated beliefs can thus account for speculative bubbles, without the need for irrational agents or limits to arbitrage. Many of the shortcomings of REBs that make rational bubbles implausible can be overcome once we relax the ergodicity requirement. In particular, we argue that the hitherto unexplained ``bubble component'' of REBs corresponds to an extension of the state space in \citet{Kurz:2011}.
    Keywords: Asset pricing, Bubbles, Ecient markets, Rational expectations, Rational Beliefs, Aggregation, Heterogeneous expectations, Correlated beliefs
    JEL: B20 D53 D58 D81 D83 D84 D85 E13 G00
    Date: 2020–02
  16. 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 fluctuating needs of the organization where they are employed. In this paper, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sufficient to generate 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
  17. By: Alberto F. Alesina; Armando Miano; Stefanie Stantcheva
    Abstract: Americans are polarized not only in their views on policy issues and attitudes towards government and society, but also in their perceptions of the same factual reality. We conceptualize how to think about the “polarization of reality” and review recent papers that show that Republicans and Democrats view the same reality through a different lens. Perhaps, as a result, they hold different views about policies and what should be done to address economic and social issues. We also show that providing information leads to different reassessments of reality and different responses along the policy support margin, depending on one's political leaning.
    JEL: D71 D72 H41 J15 P16 P35
    Date: 2020–01
  18. 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.
    Keywords: gradual learning, cheap talk
    JEL: D82 D83
    Date: 2020–01
  19. 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
  20. By: Miller, David A; Olsen, Trond E; Watson, Joel
    Keywords: Relational contracts, negotiation, external enforcement
    Date: 2018–05–18

This nep-mic issue is ©2020 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.