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on Microeconomics |
| By: | Athey, Susan (Stanford U); Bryan, Kevin (U of Toronto); Gans, Joshua S. (U of Toronto) |
| 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 AIs are trained. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3856&r=all |
| By: | Sai Krishna Kamepalli; Raghuram Rajan; Luigi Zingales |
| Abstract: | We study why high-priced acquisitions of entrants by an incumbent do not necessarily stimulate more innovation and entry in an industry (like that of digital platforms) where customers face switching costs and enjoy network externalities. The prospect of an acquisition by the incumbent platform undermines early adoption by customers, reducing prospective payoffs to new entrants. This creates a “kill zone” in the space of startups, as described by venture capitalists, where new ventures are not worth funding. Evidence from changes in investment in startups by venture capitalists after major acquisitions by Facebook and Google suggests this is more than a mere theoretical possibility. |
| JEL: | G31 G34 L41 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27146&r=all |
| By: | Masaki Aoyagi |
| Abstract: | This paper studies the problem of a monopolistic platform which offers agents connection with one another. Agents have heterogeneous characteristics that are valued by some other agents and observed privately by the principal. The agents are privately informed about their heterogeneous preferences over the characteristics of the other agents. The platform solicits information from the agents about their preferences and then offers an allocation that consists of groups of connected agents and subscription fees. We study mechanisms which induce truthful reporting and acceptance of the proposed allocation as a unique equilibrium outcome. We identify asymptotically optimal mechanisms which fully extract the agents' informational rents in the limit as the market becomes large. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1089&r=all |
| By: | Bergemann, Dirk (?); Castro, Francisco (?); Weintraub, Gabriel (Stanford U) |
| Abstract: | We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly proï¬ ts. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3860&r=all |
| By: | Dilmé, Francesc; Garrett, Daniel F |
| Abstract: | We study relational contracting with an agent who has consumption-smoothing preferences as well as the ability to save to defer consumption (or to borrow). Our focus is the comparison of principal-optimal relational contracts in two settings. The first where the agent's consumption and savings decisions are private, and the second where these decisions are publicly observed. In the first case, the agent smooths his consumption over time, the agent's effort and payments eventually decrease with time, and the balances on his savings account eventually increase. In the second, the agent consumes earlier than he would like, consumption and the balance on savings fall over time, and effort and payments to the agent increase. Our results suggest a possible explanation for low savings rates in certain industries where compensation often comes in the form of discretionary payments. |
| Keywords: | private savings; Relational Contracts |
| JEL: | C73 J30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14722&r=all |
| By: | Hefti, Andreas; Liu, Shuo; Schmutzler, Armin |
| Abstract: | Do firms seek to make the market transparent, or do they confuse consumers in their product perceptions? We show that the answer to this question depends decisively on preference heterogeneity. Contrary to the well-studied case of homogeneous goods, confusion is not necessarily an equilibrium in markets with differentiated goods. In particular, if the taste distribution is polarized, so that indifferent consumers are relatively rare, firms strive to fully educate consumers. By contrast, if the taste distribution features a concentration of indecisive consumers, confusion becomes part of the equilibrium strategies. The adverse welfare consequences of confusion can be more severe than with homogeneous goods, as consumers may not only pay higher prices, but also choose a dominated option, or inefficiently refrain from buying. Qualitatively similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences. |
| Keywords: | consumer confusion; differentiated products; obfuscation; polarized/indecisive preferences; Political Competition; price competition |
| JEL: | D43 L13 M30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14700&r=all |
| By: | Sahuguet, Nicolas |
| Abstract: | We develop a two-stage model in which parties select candidates before the election. Elections are under first-past-the-post (FPTP) or closed-list proportional representation (PR). Selection is competitive or non-competitive. With non-competitive selection, candidate effort is higher under FPTP. With competitive selection, effort is higher under PR. Under PR, competition motivates candidates to exert effort to be selected (as under FPTP) and to be ranked higher on the list. Empirical studies comparing electoral rules should consider how parties organize, to avoid omitted variable bias. The results also suggest that electoral rules influence how parties organize. |
| Keywords: | Candidate selection; Comparative politics; Contests; Electoral rule; Party Lists. proportional representation; party organization |
| JEL: | C72 D72 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14763&r=all |
| By: | Ekmekci, Mehmet; Maestri, Lucas |
| Abstract: | We introduce a class of two-player dynamic games to study the effectiveness of screening in a principal-agent problem. In every period, the principal chooses either to irreversibly stop the game or to continue, and the agent chooses an action if the principal chooses to continue. The agent’s type is his private information, and his actions are imperfectly observed. Players’ flow payoffs depend on the agent’s action, and players’ lump-sum payoffs when the game stops depends on the agent’s type. Both players are long-lived and share a common discount factor. We study the limit of the equilibrium outcomes as both players get arbitrarily patient. Nash equilibrium payoff vectors converge to the unique Nash equilibrium payoff vector of an auxiliary, two-stage game with observed mixed actions. The principal learns some but not all information about the agent’s type. Any payoff-relevant information revelation takes place at the beginning of the game. We calculate the probability that the principal eventually stops the game, against each type of the agent. |
| Keywords: | Dynamic Games, Screening, Reputation, Imperfect Monitoring |
| JEL: | C73 D82 D86 |
| Date: | 2019–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100885&r=all |
| By: | Hebert, Benjamin (Stanford U); La'O, Jennifer (Columbia U) |
| 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 Hebert 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:ecl:stabus:3836&r=all |
| By: | Fischer, Christian |
| Abstract: | We study a seller's trade credit provision decision in a situation of repeated contracting with incomplete information over the buyer's payment propensity when the enforceability of formal contracts is uncertain. The payment terms of a transaction are selected in an inter-temporal trade-off between improving the quality of information acquisition and mitigating relationship breakdown risks. When contract enforcement institutions are weak, the optimal within-relationship provision dynamics of trade credit can be uniquely determined. We obtain empirical evidence showing that in developing countries the relevance of trade credit in buyers' payment schedules has risen over-proportionally in recent years. |
| Keywords: | Payment contracts, Trade credit, Trade dynamics, Relational contracts, Weak institutions |
| JEL: | D83 F34 L14 O16 |
| Date: | 2020–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100891&r=all |
| By: | Hülya Eraslan; Kirill Evdokimov; Jan Zápal |
| Abstract: | This article surveys the theoretical literature on legislative bargaining with endogenous status-quo. These are the legislative bargaining situations in which in each period a new policy is decided and the policy implemented in the event of no agreement is endogenously determined by the outcome of bargaining in the previous period. After describing a general framework, we discus bargaining over redistributive policies, bargaining over spatial policies, existence issues, efficiency issues and open questions. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1090&r=all |
| 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); Alexis Poindron (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 UFR02 - Université Panthéon-Sorbonne - UFR d'Économie - 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,opinion dynamics,influence,anonymat,anticonformisme,classe absorbante |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:halshs-02799707&r=all |
| By: | Hoppe-Wewetzer, Heidrun C.; Siemering, Christian |
| Abstract: | This paper investigates the incentives of a credit rating agency (CRA) to generate accurate ratings under an advertisement-based business model. We study a two-period endogenous reputation model in which the CRA can choose to provide private effort in evaluating financial products in each period. We show that the advertisement-based business model may provide sufficient incentives to improve the precision of signals when the CRA has an intermediate reputation. Furthermore, we identify conditions under which truthful reporting is incentive compatible. |
| Keywords: | advertisement; Credit rating agencies; Information Acquisition; rating precision; reputation |
| JEL: | D82 G24 L15 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14735&r=all |
| By: | Garrett, Daniel F |
| Abstract: | In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive. |
| Keywords: | mechanism design; Procurement; robustness |
| JEL: | D82 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14725&r=all |
| By: | Moraga-González, José-Luis; Watanabe, Makoto |
| Abstract: | Each firm has one unit to sell of a differentiated product and each consumer has demand for one unit. Consumers queue at the firms, inspect their products if they get the turn, and choose whether to buy or not. We study how selling constraints, which refer to the possible inability of firms to attend to all the buyers who may queue at their premises, affect the equilibrium price and social welfare. Efficient pricing typically involves a positive markup. A higher price, on the one hand, increases the value of trade (because only trades generating positive surplus are consummated) and, on the other hand, reduces the quantity of trade (because fewer buyers can afford paying a higher price). We show that equilibrium markups are inefficiently high except in the limiting situation of no selling constraints, in which case the equilibrium markup is efficient. Thus, selling constraints constitute a source of market power. |
| Keywords: | capacity- and selling-constrained firms; ordered search; price posting |
| JEL: | D4 J6 L1 L8 R3 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14718&r=all |
| By: | Kiho Yoon (Department of Economics, Korea University, Seoul 02841, South Korea) |
| Abstract: | This paper examines necessary and sufficient conditions for the uniqueness of dynamic Groves mechanisms when the domain of valuations is restricted. Our approach is to appropriately define the total valuation function, which is the expected discounted sum of each period's valuation function from the allocation and thus a dynamic counterpart of the static valuation function, and then to port the results for static Groves mechanisms to the dynamic setting. |
| Keywords: | Groves mechanism, dynamic mechanism design, ex-post incentive compatibility, outcome efficiency |
| JEL: | C73 D47 D82 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:2004&r=all |
| By: | Chen, Daniel (Stanford U); Duffie, Darrell (Stanford U) |
| Abstract: | We model a simple market setting in which fragmentation of trade of the same asset across multiple exchanges improves allocative efficiency. Fragmentation reduces the inhibiting effect of price-impact avoidance on order submission. Although fragmentation reduces market depth on each exchange, it also isolates cross-exchange price impacts, leading to more aggressive overall order submission and better rebalancing of unwanted positions across traders. Fragmentation also has implications for the extent to which prices reveal traders' private information. While a given exchange price is less informative in more fragmented markets, all exchange prices taken together are more informative. |
| JEL: | D47 D82 G14 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3854&r=all |
| By: | Gratton, Gabriele; Morelli, Massimo |
| Abstract: | Political checks and balances are certainly among the most debated desiderata in the construction of democratic systems and their evaluation. This paper suggests a conceptual framework that could be useful to inform this debate. We propose a model where the pros and cons of a strengthening of checks and balances are respectively the reduction of type-I errors and the increase of potential type-II errors in policy decision-making. Checks and balances are less desirable for intermediate levels of competence of the political class and more desirable when the bureaucracy is slower or when the political system involves frequent turnover, and in policy areas where the welfare effects of a reform are harder to evaluate and effective accountability is low. |
| Keywords: | Checks and balances; effective accountability; Information; Uncertain policy quality |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14745&r=all |
| By: | Yu-Jui Huang; Zhenhua Wang |
| Abstract: | We study an optimal stopping problem under non-exponential discounting, where the state process is a multi-dimensional continuous strong Markov process. The discount function is taken to be log sub-additive, capturing decreasing impatience in behavioral economics. On strength of probabilistic potential theory, we establish the existence of an optimal equilibrium among a sufficiently large collection of equilibria, consisting of finely closed equilibria satisfying a boundary condition. This generalizes the existence of optimal equilibria for one-dimensional stopping problems in prior literature. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.00754&r=all |
| By: | V. K. Oikonomou; J. Jost |
| Abstract: | At a mixed Nash equilibrium, the payoff of a player does not depend on her own action, as long as her opponent sticks to his. In a periodic strategy, a concept developed in a previous paper (arXiv:1307.2035v4), in contrast, the own payoff does not depend on the opponent's action. Here, we generalize this to multi-player simultaneous perfect information strategic form games. We show that also in this class of games, there always exists at least one periodic strategy, and we investigate the mathematical properties of such periodic strategies. In addition, we demonstrate that periodic strategies may exist in games with incomplete information; we shall focus on Bayesian games. Moreover we discuss the differences between the periodic strategies formalism and cooperative game theory. In fact, the periodic strategies are obtained in a purely non-cooperative way, and periodic strategies are as cooperative as the Nash equilibria are. Finally, we incorporate the periodic strategies in an epistemic game theory framework, and discuss several features of this approach. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.12832&r=all |
| By: | Gur, Yonatan (Stanford U); Macnamara, Gregory (Stanford U); Saban, Daniela (Stanford U) |
| Abstract: | In many marketplaces that facilitate trade with the objective of maximizing consumer surplus, prices are set by revenue-maximizing sellers but platforms can influence prices through (i) price-dependent promotion policies that can increase demand for a product by featuring it in a prominent position in the webpage and (ii) the information revealed to sellers about the value of being promoted. Identifying effective joint information design and promotion policies is a challenging dynamic problem as sellers can sequentially learn the promotion value from sales observations and update prices accordingly. We introduce the notion of confounding promotion policies, which are designed to prevent a Bayesian seller from learning the promotion value (at the expense of the short-run loss of diverting consumers from the best product offering). Leveraging these policies, we characterize the maximum long-run average consumer surplus that is achievable through joint information design and promotion policies when the seller sets prices myopically. We then establish a Bayesian Nash equilibrium by showing that the seller's best response to the platform's optimal policy is to price myopically at every history. The equilibrium we identify is platform-optimal within the class of horizon-maximin equilibria, in which strategies are not predicated on precise knowledge of the horizon length, and are designed to maximize payoff over the worst-case horizon. Our analysis allows one to identify effective platform policies in a broad range of demand models. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3865&r=all |