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on Microeconomics |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Tan Gan (Department of Economics, Yale University) |
| Abstract: | A data intermediary pays consumers for information about their preferences and sells the information so acquired to ï¬ rms that use it to tailor their products and prices. The social dimension of the individual data - whereby an individual’s data are predictive of the behavior of others - generates a data externality that reduces the intermediary’s cost of acquiring information. We derive the intermediary’s optimal data policy and show that it preserves the privacy of the consumers’ identities while providing precise information about market demand to the ï¬ rms. This enables the intermediary to capture the entire value of information as the number of consumers grows large. |
| Keywords: | Social data, Personal information, Consumer privacy, Privacy paradox, Data intermediaries, Data externality, Data flow, Data policy, Data rights |
| JEL: | D44 D82 D83 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2203r&r=all |
| By: | Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Takuro Yamashita (Toulouse School of Economics, University of Toulouse) |
| Abstract: | There is accumulating evidence that some consumers are behavioral in the sense that they may make suboptimal decisions. This paper investigates adverse selection with general types of such behavioral biases. In our model, some buyers (i.e., consumers) may take actions that do not necessary optimize own payoffs, which encompass virtually any type of biases including subjective probability,framing, model misspecification, random errors, and inferential naivety. We focus on a situation in which there exists severe adverse selection where only no-trade outcome is possible under rational agents. We show that the no-trade theorem remains to hold without imposing any additional assumption on buyers' behavior. That is, if there is any trade under a mechanism which is incentive compatible for sellers, then the expected payoff from the trade is negative (i.e., ex ante individual rationality constraint is violated) for some type of buyers. Our result sheds light on a new trade-off between social surplus and payoff losses of boundedly-rational buyers. |
| Keywords: | adverse selection, bounded rationality, mechanism design, no-trade theorem |
| JEL: | D82 D83 D86 D90 D91 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:20e002&r=all |
| By: | Brian Hill (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique, 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) |
| Abstract: | The famous conflict between dynamic consistency and ambiguity purportedly undermines these models' normative credibility, and challenges their use in economic applications. Dynamic consistency concerns preferences over contingent plans: so what counts are the contingencies the decision maker envisages-and plans for-rather than independently fixed contingencies , as implicitly assumed in standard formalisations. An appropriate formulation of dynamic consistency resolves the aforementioned conflict, hence undermining the criticisms of ambiguity models based on it. Moreover, it provides a principled justification for the restriction to certain families of beliefs in applications of these models in dynamic choice problems. Finally, it supports a new analysis of the value of information under ambiguity, showing that decision makers may only turn down information if it has an opportunity cost, in terms of the compromising of information they had otherwise expected to receive. |
| Keywords: | Dynamic Consistency,Ambiguity,Value of Information,Envisaged Contingency,Decision under Uncertainty,Dynamic Choice |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02457455&r=all |
| By: | Kohei Daido (School of Economics, Kwansei Gakuin University); Tomoya Tajika (Department of Law and Economics, Hokusei Gakuen University) |
| Abstract: | This paper builds a two-candidate election model, in which voters are loss averse and face uncertainty about whether their preferred candidate is supported by a majority. Even without costs for voting, abstention may occur when voters have expectations-based reference-dependent preferences, as in KÅ‘szegi and Rabin (2006, 2007). The model shows that loss aversion leads to the equilibrium in which abstention is more likely as an election becomes more competitive and the abstention rate of voters who prefer a minority candidate is higher than for those who prefer a majority candidate. |
| Keywords: | Abstention, Expectations-Based Reference-Dependent Preferences, Loss Aversion, Voting |
| JEL: | D72 D91 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:205&r=all |
| By: | Else Gry Bro Christensen (RBB Economics, Düsseldorf); Takeshi Murooka (Osaka School of International Public Policy, Osaka University) |
| Abstract: | We study a model of task completion with the opportunity to learn about own self-control problems over time. While the agent is initially uncertain about her future self-control, in each period she can choose to learn about it by paying a non-negative learning cost and spending one period. If the agent has time-consistent preferences, she always chooses to learn whenever the learning is beneficial. If the agent has time-inconsistent preferences, however, she may procrastinate such a learning opportunity. Further, if her time preferences exhibit inter-temporal conflicts between future selves (e.g., hyperbolic discounting), the procrastination of learning can occur even when the learning cost is zero. Such procrastination also leads to non-completion of the task. Our results help explain why people pursue implausible dreams and never start any task instead of taking better alternatives. When the agent has multiple initially uncertain attributes (e.g., own future self-control and own ability for the task), the agent's endogenous learning decisions may be misdirected – she chooses to learn what she should not learn from her initial perspective, and she chooses not to learn what she should. |
| Keywords: | procrastination, self-control, naivete, hyperbolic discounting, misdirected learning |
| JEL: | C70 D83 D90 D91 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:20e001&r=all |
| By: | Benjamin M. Hébert; Jennifer La'O |
| Abstract: | This paper analyzes non-fundamental volatility and efficiency in a class of large games (including e.g. linear-quadratic beauty contests) that feature strategic interaction and endogenous information acquisition. We adopt the rational inattention approach to information acquisition but generalize to a large class of information costs. Agents may learn not only about exogenous states, but also about endogenous outcomes. We study how the properties of the agents’ information cost relate to the properties of equilibria in these games. We provide the necessary and sufficient conditions information costs must satisfy to guarantee zero non-fundamental volatility in equilibrium, and provide another set of necessary and sufficient conditions to guarantee equilibria are efficient. We show in particular that mutual information, the cost function typically used in the rational inattention literature, both precludes non-fundamental volatility and imposes efficiency, whereas the Fisher information cost introduced by Hébert and Woodford [2020] generates both non-fundamental volatility and inefficiency. |
| JEL: | C72 D62 D83 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26771&r=all |
| By: | Bavly, Gilad; Heller, Yuval; Schreiber, Amnon |
| Abstract: | We consider games in which players search for a hidden prize, and they have asymmetric information about the prize's location. We study the social payoff in equilibria of these games. We present sufficient conditions for the existence of an equilibrium that yields the first-best payoff (i.e., the highest social payoff under any strategy profile), and we characterize the first-best payoff. The results have interesting implications for innovation contests and R&D races. |
| Keywords: | search duplication, decentralized research, social welfare, incomplete information |
| JEL: | C72 D82 D83 |
| Date: | 2020–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98838&r=all |
| By: | Emin Karagözoglu; Cagri Saglam; Agah R. Turan |
| Abstract: | We model the dynamic contest between two players as a game of tug-of-war with a Tullock contest success function (CSF). We show that (pure strategy) Markov perfect equilibrium of this game exists, and it is unique. In this equilibrium - in stark contrast to a model of tug-of-war with an all pay auction CSF - players exert positive efforts until the very last battle. Since the outcome of an individual battle is determined stochastically, even disadvantaged players who fell behind will occasionally win battles and hence the advantage likely change hands. We deliver a set of empirically appealing results on effort dynamics. |
| Keywords: | contests, discouragement effect, perseverance, stochastic games, tug-of-war, Tullock contest success function |
| JEL: | C72 D72 D74 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8103&r=all |
| By: | René Kirkegaard (Department of Economics and Finance, University of Guelph, Guelph ON Canada) |
| Abstract: | This paper examines a unifying model of contests that distinguishes between unobservable actions and observable but noisy performance. Special versions of the model have been used to provide microfoundations for the popular generalized lottery contest success function. However, extensions to contests with exogenous or endogenous biases have strayed from the microfoundations. Consequently, biases and design instruments have been modelled in ad hoc and poorly founded ways. Here, starting directly from the stochastic-performance foundation, internally consistent and fully optimal contests are derived from first principles. The problem resembles a contracting problem. The optimally designed contest is not a generalized lottery contest. |
| Keywords: | Contest design; Generalized lottery contests; Stochastic performance contests; Team moral hazard; Tournaments; Tullock contests. |
| JEL: | C72 D72 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2020-03&r=all |
| By: | Itai Arieli; Yakov Babichenko; Fedor Sandomirskiy; Omer Tamuz |
| Abstract: | We study the set of possible joint posterior belief distributions of a group of agents who share a common prior regarding a binary state and who observe some information structure. Our main result is that, for the two agent case, a quantitative version of Aumann's Agreement Theorem provides a necessary and sufficient condition for feasibility. We use our characterization to construct joint belief distributions in which agents are informed regarding the state, and yet receive no information regarding the other's posterior. We also study a related class of Bayesian persuasion problems with a single sender and multiple receivers, and explore the extreme points of the set of feasible distributions. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.11362&r=all |
| By: | Nada Belhadj (ISG - Institut Supérieur de Gestion de Tunis [Tunis] - Université de Tunis [Tunis]); Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Economics Department, University of Porto) |
| Abstract: | This paper shows that the platforms' private information on demand may explain the empirical observation that platforms like Amazon resell high-demand products, while acting as marketplace for low-demand goods. More precisely, the paper examines the strategic interaction between a seller and a better informed platform within a signalling game. We consider that the platform may choose between two distinct business models: act as a reseller or work as a pure marketplace between the buyers and the seller. The marketplace mode, which allows to internalize the spillover between the platform's sales and the seller's direct sales is always preferred for a low-value good. The reselling mode, which allows the platform to take advantage of its private information, may be selected in the case of high-value goods provided that (i) the externalities between direct sales and platform sales are not too strong and (ii) the difference between consumers' willingness to pay for the high and the low-value goods is large enough. Under these conditions, the game displays a Least-Cost Separating Equilibrium in which the platform works as a marketplace for low-demand goods, while it acts as a reseller in the case of high-demand goods. |
| Keywords: | Marketplace,Reselling,Asymmetric information,Platform,Demand uncertainty |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02469425&r=all |
| By: | Edmond Baranes; Cuong Hung Vuong |
| Abstract: | This paper studies the investment decision by a monopolistic internet service provider (ISP) in different regulatory environments. We consider that the ISP could technically provide separate quality upgrades to two vertically differentiated content providers (CPs); therefore, it could potentially extract the CPs’ marginal profits through an offer to provide the quality upgrades. Our results show that if unregulated, the ISP optimally provides asymmetric quality upgrades, in favor of the high-quality CP. This subsequently increases the degree of content differentiation, softening competition between the CPs. Imposing a nondiscrimination regulation that forces the ISP to provide an equal quality upgrade to both CPs, however, can reduce the ISP.s investment incentive and social welfare. Furthermore, the investment level is higher if the regulated ISP is allowed to charge the CPs. Finally, a socially optimal investment can be opposite to the ISP’s choice when the contents are enough substitutes. |
| Keywords: | complementary, differentiation, investment, internet, regulation |
| JEL: | L13 L51 L96 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8074&r=all |
| By: | Uri Gneezy; Silvia Saccardo; Marta Serra-Garcia; Roel van Veldhuizen |
| Abstract: | Expert advice is often biased in ways that benefit the advisor. We demonstrate how self-deception helps advisors be biased while preserving their self-image as ethical and identify limits to advisors’ ability to self-deceive. In experiments where advisors recommend one of two investments to a client and receive a commission that depends on their recommendation, we vary the timing at which advisors learn about their own incentives. When advisors learn about their incentives before evaluating the available investments, they are more likely to be biased than when they learn about their incentives only after privately evaluating the investments. Consistent with self-deception, learning about the incentive before evaluating the options affects advisors’ beliefs and preferences over the investments. Biased advice persists with minimal justifications but is eliminated when all justifications are removed. These findings show how self-deception can be constrained to improve advice provision. |
| Keywords: | advice, self-deception, self-image, motivated beliefs, laboratory experiment |
| JEL: | D03 D83 C91 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8065&r=all |
| By: | Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho |
| Abstract: | This study investigates an interplay between strategic CSR (corporate social responsibility) by a multiproduct corporation and merger decisions by rival firms each having single plant. We examine and compare two different timings of choosing CSR, i.e., ”merge-then-CSR” and ”CSR-then-merge” games. In the former case, we show that the level of CSR increases in products substitutability, but its level under merger is lower than that without merger. In the latter case where a multiproduct corporation can commit to a higher level of CSR before rival firms’ mergers, however, the level of CSR decreases in products substitutability and it might increase not only consumer surplus but social welfare. |
| Keywords: | multiproduct corporation; strategic CSR; timing of commitment; products substitutability; merger decision; |
| JEL: | L2 L4 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98830&r=all |
| By: | Marc Bourreau; Carlo Cambini; Steffen Hoernig; Ingo Vogelsang |
| Abstract: | In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents’ investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare. |
| Keywords: | co-investment, uncertainty, opportunism, options, risk premia |
| JEL: | L96 L51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8078&r=all |