nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒05‒25
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Competition in public service provision: the role of not-for-profit providers By Besley, Timothy; Malcomson, James M.
  2. On the Existence of Positive Equilibrium Profits in Competitive Screening Markets By Yehuda John Levy; Andre Veiga
  3. Costly agreement-based transfers and targeting on networks with synergies By Mohamed Belhaj; Frédéric Deroïan; Shahir Safi
  4. On the Optimality of Price-posting in Rental Markets By Juan Beccuti
  5. Merchants of doubt: Corporate political action when NGO credibility is uncertain By Mireille Chiroleu-Assouline; Thomas Lyon
  6. Dynamic competition with network externalities: how history matters By Hanna Halaburda; Bruno Jullien; Yaron Yehezkel
  7. All Symmetric Equilibria in Differential Games with Public Goods By Niko Jaakkola; Florian Wagener; Florian O.O. Wagener
  8. Exploring Weak Strategy-Proofness in Voting Theory By Anne Carlstein
  9. Anti-conformism in the Threshold Model of Collective Behavior By Michel Grabisch; Fen Li
  10. Infinite-Duration All-Pay Bidding Games By Guy Avni; Isma\"el Jecker; {\DJ}or{\dj}e \v{Z}ikeli\'c
  11. Information Design for Congested Social Services: Optimal Need-Based Persuasion By Jerry Anunrojwong; Krishnamurthy Iyer; Vahideh Manshadi
  12. Substitution Effects in Intertemporal Problems By Davide Dragone; Paolo Vanin
  13. Rationalist Explanations for Two-Front War By Nakao, Keisuke
  14. A model of anonymous influence with anti-conformist agents By Michel Grabisch; Alexis Poindron; Agnieszka Rusinowska

  1. By: Besley, Timothy; Malcomson, James M.
    Abstract: With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores the implications of entry by for-profit providers when there is unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.
    Keywords: Public services; Competition; Not-for-profit providers
    JEL: H11 H44 L21 L31
    Date: 2018–06–01
  2. By: Yehuda John Levy; Andre Veiga
    Abstract: We assume a fixed number of symmetric firms, competition in prices, constant returns to scale and frictionless consumer choices. Consumers differ in their preferences and profitability (e.g., due to heterogeneous risk aversion and loss probabilities), which creates adverse selection. Firms can offer multiple contracts to screen individuals, in equilibrium and in any deviation. We show that equilibrium profits vanish if each consumer has a unique optimizing bundle at equilibrium prices or, more generally, if there exists a linear ordering over of contracts that dictates the preferences of firms whenever consumers are indifferent between multiple optimal contracts. For instance, equilibrium profits vanish if the marginal rate of substitution of quality for price is sharper for profit than for utility. In particular, profit also vanishes if utility equals the sum of (negative) profit, and a surplus (eg, due to risk aversion). We provide examples of economies where there exists an equilibrium with strictly positive profit and show that these examples are robust (hold for an open set of economies).
    Keywords: Perfect Competition, Equilibrium, Screening
    JEL: D41 C62 D82 G22
    Date: 2020–01
  3. By: Mohamed Belhaj (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.); Frédéric Deroïan (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.); Shahir Safi (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.)
    Abstract: We consider agents organized in an undirected network of local complementarities. A principal with a limited budget offers costly bilateral contracts in order to increase the sum of agents' effort. We study excess-effort linear payment schemes, i.e. contracts rewarding effort in excess to the effort made in absence of principal. The analysis provides the following main insights. First, for all contracting costs, the optimal unit returns offered to every targeted agent are positive and generically heterogeneous. This heterogeneity is due to the presence of outsiders, who create asymmetric interaction between contracting agents. Second, when contracting costs are low, it is optimal to contract with everyone and optimal unit returns are identical for all agents. Third, when contracting costs are sufficiently high, it becomes optimal to target a subset of agents, and optimal targeting can lead to NP-hard problems. In particular, when the intensity of complementarities is sufficiently low, a correspondence is established between optimal targeting and the densest k subgraph problem. Overall, the optimal targeting problem involves a trade-off between centrality and budget spending-central agents are influential, but are also more budget-consuming. These considerations can lead the principal to not target central agents.
    Keywords: networked synergies, aggregate effort, optimal group targeting, linear contract
    JEL: C72 D85
    Date: 2020–04
  4. By: Juan Beccuti
    Abstract: This paper considers a multi-period setting where a monopolist, with short-term commitment, rents one unit of a durable good to a single consumer in every period. The consumer's valuation constitutes his private information and remains constant over time. By using a mechanism design approach, the paper shows that the optimal renting strategy is to offer a simple price in every period. Although sophisticated mechanisms can make separation feasible when price-posting cannot achieve it, this happens precisely when separation is dominated by pooling. Moreover, the monopolist's choice of whether to discriminate or not depends on a simple and apparently myopic rule, reminiscent of its static equivalent.
    Keywords: Durable good, renting, dynamic adverse selection, mechanism design, short-term commitment, price-posting
    JEL: D82 D86 D42
    Date: 2020–03
  5. By: Mireille Chiroleu-Assouline (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics); Thomas Lyon (University of Michigan [Ann Arbor] - University of Michigan System)
    Abstract: The literature on special interest groups emphasizes two main influence channels: campaign contributions and informational lobbying. We introduce a third channel: providing information about the credibility of political rivals. In particular, nongovernmental organizations (NGOs) often aim to communicate scientific knowledge to policymakers, but industry‐backed groups often attempt to undermine their credibility. We extend a standard signaling model of interest‐group lobbying to include fixed costs of policymaker action and show that these costs make possible two mechanisms for creating doubt about the value of policy action. The first uses Bayesian persuasion to suggest the NGO may be a noncredible radical. The second involves creating an opposition think tank (TT) that acts as a possible radical, not a credible moderate. We show that the TT cannot always implement the Bayesian persuasion benchmark, and we characterize how optimal TT design varies with exogenous parameters.
    Keywords: Informational lobbying,persuasion,nonmarket strategy,special interest politics
    Date: 2020
  6. By: Hanna Halaburda (Unknown); Bruno Jullien (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Yaron Yehezkel (Tel Aviv University [Tel Aviv])
    Abstract: We consider dynamic competition among platforms in a market with network externalities. A platform that dominated the market in the previous period becomes "focal" in the current period, in that agents play the equilibrium in which they join the focal platform whenever such equilibrium exists. Yet when faced with higher‐quality competition, can a low‐quality platform remain focal? In the finite‐horizon case, the unique equilibrium is efficient for "patient" platforms; with an infinite time horizon, however, there are multiple equilibria where either the low‐ or high‐quality platform dominates. If qualities are stochastic, the platform with a better average quality wins with a higher probability, even when its realized quality is lower, and this probability increases as platforms become more patient. Hence, social welfare may decline as platforms become more forward looking.
    Date: 2020–03
  7. By: Niko Jaakkola; Florian Wagener; Florian O.O. Wagener
    Abstract: We characterise the entire set of symmetric stationary Markov-perfect Nash equilibria (MPE) in a differential game of public good investment, using the canonical problem of climate change as an example. We provide a sufficient and necessary condition for MPE and show how the entire set of MPE is constructed. The equilibrium in continuous strategies, unique in our context, is Pareto-dominated by any other equilibrium. If a Pareto-undominated steady state exists, it is sustained by trigger-like strategies, with deviations above and below the steady state leading to different responses. We extend the theory of differential games to deal with payoffs under discontinuous strategies. Our methods work under general functional forms.
    Keywords: differential games, Markov-perfect Nash equilibrium, dynamic investment games, dynamic public goods, climate change
    JEL: C61 C73 D90 Q54
    Date: 2020
  8. By: Anne Carlstein (Massachusetts Institute of Technology)
    Abstract: Voting is the aggregation of individual preferences in order to select a winning alternative. Selection of a winner is accomplished via a voting rule, e.g., rank-order voting, majority rule, plurality rule, approval voting. Which voting rule should be used? In social choice theory, desirable properties of voting rules are expressed as axioms to be satisfied. This thesis focuses on axioms concerning strategic manipulation by voters. Sometimes, voters may intentionally misstate their true preferences in order to alter the outcome for their own advantage. For example, in plurality rule, if a voter knows that their top-choice candidate will lose, then they might instead vote for their second-choice candidate just to avoid an even less desirable result. When no coalition of voters can strategically manipulate, then the voting rule is said to satisfy the axiom of Strategy-Proofness. A less restrictive axiom is Weak Strategy-Proofness (as defined by Dasgupta and Maskin (2019)), which allows for strategic manipulation by all but the smallest coalitions. Under certain intuitive conditions, Dasgupta and Maskin (2019) proved that the only voting rules satisfying Strategy-Proofness are rank-order voting and majority rule. In my thesis, I generalize their result, by proving that rank-order voting and majority rule are surprisingly still the only voting rules satisfying Weak Strategy-Proofness.
    Date: 2020–05
  9. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics); Fen Li (Department of Entomology - Michigan State University [East Lansing] - Michigan State University System)
    Abstract: We provide a detailed study of the threshold model, where both conformist and anti-conformist agents coexist. Our study bears essentially on the convergence of the opinion dynamics in the society of agents, i.e., finding absorbing classes, cycles, etc. Also, we are interested in the existence of cascade effects, as this may constitute a undesirable phenomenon in collective behavior. We divide our study into two parts. In the first one, we basically study the threshold model supposing a fixed complete network, where every one is connected to every one, like in the seminal work of Granovetter. We study the case of a uniform distribution of the threshold, of a Gaussian distribution, and finally give a result for arbitrary distributions, supposing there is one type of anti-conformist. In a second part, we suppose that the neighborhood of an agent is random, drawn at each time step from a distribution. We distinguish the case where the degree (number of links) of an agent is fixed, and where there is an arbitrary degree distribution. We show the existence of cascades and that for most societies, the opinion converges to a chaotic situation.
    Keywords: threshold model,anti-conformism,absorbing class,opinion dynamics
    Date: 2019
  10. By: Guy Avni; Isma\"el Jecker; {\DJ}or{\dj}e \v{Z}ikeli\'c
    Abstract: A graph game is a two-player zero-sum game in which the players move a token throughout a graph to produce an infinite path, which determines the winner or payoff of the game. In "bidding games", in each turn, we hold an 'auction' (bidding) to determine which player moves the token. The players simultaneously submit bids and the higher bidder moves the token. Several different payment schemes have been considered. In "first-price" bidding, only the higher bidder pays his bid, while in "all-pay" bidding, both players pay their bids. Bidding games were largely studied with variants of first-price bidding. In this work, we study, for the first time, infinite-duration all-pay bidding games, and show that they exhibit the elegant mathematical properties of their first-price counterparts. This is in stark contrast with reachability games, which are known to be much more complicated under all-pay bidding than first-price bidding. Another orthogonal distinction between the bidding rules is in the recipient of the payments: in "Richman" bidding, the bids are paid to the other player, and in "poorman" bidding, the bids are paid to the 'bank'. We focus on strongly-connected games with "mean-payoff" and "parity" objectives. We completely solve all-pay Richman games: a simple argument shows that deterministic strategies cannot guarantee anything in this model, and it is technically much more challenging to find optimal probabilistic strategies that achieve the same expected guarantees in a game as can be obtained with deterministic strategies under first-price bidding. Under poorman all-pay bidding, in contrast to Richman bidding, deterministic strategies are useful and guarantee a payoff that is only slightly lower than the optimal payoff under first-price poorman bidding. Our proofs are constructive and based on new and significantly simpler constructions for first-price bidding.
    Date: 2020–05
  11. By: Jerry Anunrojwong; Krishnamurthy Iyer; Vahideh Manshadi
    Abstract: We study the effectiveness of information design in reducing congestion in social services catering to users with varied levels of need. In the absence of price discrimination and centralized admission, the provider relies on sharing information about wait times to improve welfare. We consider a stylized model with heterogeneous users who differ in their private outside options: low-need users have an acceptable outside option to the social service, whereas high-need users have no viable outside option. Upon arrival, a user decides to wait for the service by joining an unobservable first-come-first-serve queue, or leave and seek her outside option. To reduce congestion and improve social outcomes, the service provider seeks to persuade more low-need users to avail their outside option, and thus better serve high-need users. We characterize the Pareto-optimal signaling mechanisms and compare their welfare outcomes against several benchmarks. We show that if either type is the overwhelming majority of the population, information design does not provide improvement over sharing full information or no information. On the other hand, when the population is a mixture of the two types, information design not only Pareto dominates full-information and no-information mechanisms, in some regimes it also achieves the same welfare as the "first-best", i.e., the Pareto-optimal centralized admission policy with knowledge of users' types.
    Date: 2020–05
  12. By: Davide Dragone; Paolo Vanin
    Abstract: We consider a broad class of intertemporal economic problems and we characterize the short and long-run response of the demand for a good to a permanent increase in its market price. Depending on the interplay between self-productivity and time discounting, we show that dynamic substitution effects can generate price elasticities of opposite sign in the short and in the long run.
    JEL: D11 D91 I00
    Date: 2020–05
  13. By: Nakao, Keisuke
    Abstract: By extending the extant costly-lottery models of war to three-party bargaining scenarios, we offer rationalist explanations for two-front war, where a state at the center is fought by two enemies at opposing peripheries. We found that even though private information exists only in one front, war can break out in both fronts. Because the war outcome in one front can affect the outcome in the other through the shift of military balance, the central state may preemptively initiate war in one front to establish its preponderance in the other (e.g., World War I), or a peripheral state may preventively join the war waging in the other front to leverage its power (e.g., Napoleonic Wars). These findings echo Waltz's neorealism concern that a multi-polar system may not be so stable as the bipolar system that bargaining models of dyadic war commonly presume.
    Keywords: costly-lottery models, rationalist explanations for war, three-party bargaining, two-front war.
    JEL: C78 D74 F51
    Date: 2020–05–15
  14. By: Michel Grabisch (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Alexis Poindron (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics)
    Abstract: We study a stochastic model of anonymous influence with conformist and anti-conformist individuals. Each agent with a ‘yes' or ‘no' initial opinion on a certain issue can change his opinion due to social influence. We consider anonymous influence, which depends on the number of agents having a certain opinion, but not on their identity. An individual is conformist/anti-conformist if his probability of saying ‘yes' increases/decreases with the number of ‘yes'- agents. In order to consider a society in which both conformists and anti-conformists co-exist, we investigate a generalized aggregation mechanism based on ordered weighted averages. Additionally, every agent has a coefficient of conformism which is a real number in [-1, 1], with negative/positive values corresponding to anti-conformists/conformists. The two extreme values -1 and 1 represent a pure anti-conformist and a pure conformist, respectively, and the remaining values - so called ‘mixed' agents. We consider two kinds of a society: without mixed agents, and with mixed agents who play randomly either as conformists or anti-conformists. For both cases of the model, we deliver a qualitative analysis of convergence, i.e., find all absorbing classes and conditions for their occurence.
    Abstract: Nous étudions un modèle d'influence anonyme en présence d'agents conformistes et anticonformistes. Chaque agent a une opinion initiale ‘oui' ou ‘non' pour un problème donné et, influencé par les opinions des autres agents, il met son opinion à jour période après période. Notre modèle est anonyme, c'est-à-dire, l'influence de la société sur chaque agent ne dépend que du nombre, et non de l'identité, d'agents avant telle ou telle opinion. Un agent est conformiste anticonformiste) si la probabilité qu'il dise ‘oui' à la prochaine période augmente lorsque davantage d'agents disent ‘oui' (‘non'). Afin d'étudier une société comportant les deux types d'agents, nous utilisons un mécanisme d'agrégation anonyme basé sur les moyennes pondérées ordonnées. Par ailleurs, à chaque agent est attribué un coefficient allant de -1 à 1. L'agent est anticonformiste si ce coefficient est négatif, il est conformiste s'il est positif. Les bornes -1 et 1 représentent les agents purs, les réels entre -1 et 1 strictement les agents qu'on appelle ‘mixtes'. Nous étudions deux types de société : sans agents mixtes, et avec des agents mixtes qui tirent à pile ou face pour choisir d'être conformistes ou anticonformistes. Nous proposons pour chaque cas une analyse qualitative de convergence, c'est-à-dire, une liste des classes absorbantes et les conditions d'occurrence.
    Keywords: anonymity,anti-conformism,convergence,absorbing class,influence,anonymat,anticonformisme,classe absorbante
    Date: 2019

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