nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒08‒17
25 papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Brexit: Dynamic Voting with an Irreversible Option By Moldovanu, Benny; Rosar, Frank
  2. `Information Doesn't Want to Be Free': Informational Shocks with Anonymous Online Platforms By Amedeo Piolatto
  3. Implementation of Optimal Connection Networks By Jens Leth Hougaard; Mich Tvede
  4. Behavioral Strong Implementation By T Hayashi; R Jain; V Korpela; M Lombardi
  5. Cooperation in a State of Anarchy By Muthoo, Abhinay
  6. Two-stage majoritarian choice By Sean Horan; Yves Sprumont
  7. Avoiding Judgement by Recommending Inaction: Beliefs Manipulation and Reputational Concerns By Camara, Fanny
  8. Efficient Incentives in Social Networks: Gamification and the Coase Theorem By Daske, Thomas
  9. Primaries, Strategic Voters and Heterogeneous Valences By Diego Carrasco Novoa; Shino Takayamaz; Yuki Tamura; Terence Yeo
  10. Optimal payment contracts in trade relationships By Fischer, Christian
  11. On dynamic consistency in ambiguous games By Ellis, Andrew
  12. Strategic Information Transmission and Efficient Corporate Control By Paul Voß; Marius Kulms
  13. Goal-oriented agents in a market By Ines Macho-Stadler; David Pérez-Castrillo; Nicolas Quérou
  14. Finite blockchain games By Christian Ewerhart
  15. Against All Odds: Tentative Steps Toward Efficient Information Sharing in Groups By Schlangenotto, Darius; Schnedler, Wendelin; Vadovic, Radovan
  16. Serial Vickrey Mechanism By Yu Zhou; Shigehiro Serizawa
  17. Network Goods, Price Discrimination, and Two-sided Platforms By Paul Belleflamme; Martin Peitz
  18. On the existence of the competitive equilibrium in Grossman and Shapiro (1984) By Creane, Anthony
  19. Tying in Two-Sided Markets with Below-Cost or Negative Pricing By Jong-Hee Hahn; So Hye Yoon
  20. Learning from Manipulable Signals By Mehmet Ekmekci; Leandro Gorno; Lucas Maestri; Jian Sun; Dong Wei
  21. Connected Incomplete Preferences By Leandro Gorno; Alessandro Rivello
  22. Making Decisions under Model Misspecification By Simone Cerreia Vioglio; Lars Peter Hansen; Fabio Maccheroni; Massimo Marinacci
  23. No Holdup in Dynamic Markets By Elliott, M.; Talamàs, E.
  24. Money and Status in a Meritocracy By Pradeep Dubey; John Geanakoplos
  25. Searching Forever After By Antler, Yair; Bachi, Benjamin

  1. By: Moldovanu, Benny; Rosar, Frank
    Abstract: We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly be-tween a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We compare strengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a too small super majority can perform very poorly under circumstances where it is socially optimal to never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problem without relying on fine-tuning, but can lead to inefficient delays. If a final decision for either alternative requires winning by a certain margin, and if a new vote is triggered otherwise, both problems, choosing LEAVE too easily and inefficient delays, can often be avoided.
    Keywords: Dynamic voting; Irreversible option; Option value; Supermajority rules
    JEL: C72 D72 D82
    Date: 2019–11
  2. By: Amedeo Piolatto
    Abstract: Anonymous information platforms (e.g. Airbnb) provide information about experience goods while keeping agents' identity hidden until the transaction is completed. In doing so, they generate heterogeneity in the information levels across consumers. In this paper, I show that such platforms induce a weak increase of fine prices and that only low-valuation goods are cheaper online than offline. Platforms always lead to an increase in profits. In terms of consumer welfare, the platform equilibrium is Pareto superior for low-and high-valuation goods, while for intermediate ranges some buyers benefit while others lose from the presence of the platform.
    Keywords: anonymous information platforms, experience goods, mismatch costs, spokes model, horizontal competition
    JEL: D02 D21 D43 D61 D83 L11 L13 L15
    Date: 2020–07
  3. By: Jens Leth Hougaard (NYU-Shanghai, China; Department of Food and Resource Economics, University of Copenhagen); Mich Tvede (University of East Anglia)
    Abstract: We consider a connection networks model. Every agent has a demand in the form of pairs of locations she wants connected, and a willingness to pay for connectivity. A planner aims at implementing a welfare maximizing network and allocating the resulting cost, but information is asymmetric: agents are fully informed, the planner is ignorant. The options for full implementation in Nash and strong Nash equilibria are studied. We simplify strategy sets without changing the set of Nash implementable correspondences. We show the correspondence of consisting of welfare maximizing networks and individually rational cost allocations is implementable. We construct a minimal Nash implementable desirable solution in the set of upper hemi-continuous and Nash implementable solutions. It is not possible to implement solutions such a the Shapley value unless we settle for partial implementation.
    Keywords: Connection networks; Welfare maximization; Nash Implementation; Strong Nash Implementation
    JEL: C70 C72 D71 D85
    Date: 2020–07
  4. By: T Hayashi (Adam Smith Business School, University of Glasgow); R Jain (Institute of Economics, Academia Sinica, Taipei, Taiwan); V Korpela (Turku School of Economics, University of Turku); M Lombardi (Adam Smith Business School, University of Glasgow)
    Abstract: Choice behavior is rational if it is made in accordance with the maximization of some context-independent preference relation. This study re-examines the classical questions of implementation theory under complete information in a setting in which players' choices need not be rational and in which the game theoretic solution concept invoked is an extension of Aumann's (1959) notion of strong equilibrium beyond the rational domain. The proposed equilibrium notion incorporates a notion of Pareto optimality which refines, sometimes strictly, other extended notions of Pareto optimality proposed in the literature. In contrast to what happens when players' choices are rational, de Clippel's (2014) extension of Maskin monotonicity to non-rational domains is not a necessary condition for implementation in behavioral strong equilibria.
    Keywords: : : Strong equilibrium, implementation, state-contingent choice rules, bounded rationality
    JEL: D11 D60 D83
    Date: 2020–08
  5. By: Muthoo, Abhinay (University of Warwick)
    Abstract: We lay down a simple (game-theoretic) model of a state-of-anarchy involving three players. We focus attention on the following question : Which subset of players (if any) will agree to cooperate amongst each other? Will all three players agree to do so, or only two of the three players (and if so, which two players)? Or will no player agree to cooperate with any other player? We show that the socially optimal outcome is for all three players to agree to cooperate with each other. We also show that due to the presence of positive externalities, in equilibrium, cooperation may only be established between two of the three players (which is sub-optimal). JEL codes: D62 ; D74 ; F02
    Date: 2020
  6. By: Sean Horan (Université de Montréal); Yves Sprumont (Université de Montréal)
    Abstract: We propose a class of decisive collective choice rules that rely on an exogenous linear ordering to partition the majority relation into two acyclic relations. The first relation is used to obtain a shortlist of the feasible alternatives while the second is used to make a final choice. In combination with faithfulness to the underlying majority relation, rules in this class are characterized by two desirable rationality properties: Sen’s expansion consistency and a version of Manzini and Mariotti’s weak WARP. The rules also satisfy natural adaptations of Arrow’s independence of irrelevant alternatives and May’s positive responsiveness.
    Keywords: Majority rule, Decisiveness, IIA, Monotonicity, Rational shortlist methods
    JEL: D71 D72
    Date: 2020–05
  7. By: Camara, Fanny
    Abstract: To evaluate an expert, the audience needs to compare the prediction of the expert with the realized outcome. But the prediction often affects the amount of public information about the outcome. The result is that the expert can manipulate her audience's ability to monitor the accuracy of her prediction. In a cheap-talk framework, we study how the endogenous nature of public information about the state of the world affects the information transmitted by an expert with reputational concerns. Our innovation consists in assuming that the precision of the public information on the realized state increases monotonically with the audience's interim beliefs. In addition to the conservatism bias found in the existing literature, our model predicts that (i) the expert is less communicative when the prior is low, and (ii) a higher initial reputation can make the expert less credible.(JEL D82, D83, L15)
    JEL: D82 D83 L15
    Date: 2019–11
  8. By: Daske, Thomas
    Abstract: This study explores mechanism design for networks of interpersonal relationships. Agents' social (more or less altruistic or spiteful) preferences and private payoffs are all subject to asymmetric information. Remarkably, the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. The main result is a constructive proof of the Coase theorem, in its typical mechanism-design interpretation, for networks of at least three agents: If endowments are sufficiently large, any such network can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. The endogenously derived solution concept is interpreted as gamification: Resolve the agents' allocation problem with an efficient social-preference robust mechanism; attract agents' participation by complementing this mechanism with a budget-balanced game that operates on their social preferences and provides them with a platform to live out their propensities to cooperate or compete.
    Keywords: mechanism design,social preferences,gamification,joyful games,Coase theorem
    JEL: C72 C78 D62 D82
    Date: 2020
  9. By: Diego Carrasco Novoa (School of Economics, University of Queensland); Shino Takayamaz (School of Economics, University of Queensland); Yuki Tamura (Department of Economics, University of Rochester); Terence Yeo (School of Economics, University of Queensland)
    Abstract: We propose a two-party model of policy promises and valence for office-seeking candidates under a two-stage electoral process with strategic voters. In each party, there are two candidates, where one of these candidates—called the party’s advantaged candidate—has higher valence than the other. There are two equilibrium regimes. Which equilibrium arises depends on whether an advantaged candidate in one party can win both stages of the election with certainty. We provide the conditions for the existence of each regime and conduct comparative statics. In particular, we show that when an advantaged candidate’s valence increases, the distance between the policy promises made by the two advantaged candidates decreases and when public opinion becomes more diverse, the advantaged candidates shift their policy promises toward their own parties’ bliss points. Finally, we study the case where only one party holds a primary as well as the situation in which candidates strategically choose to enter a primary. Our model is robust under various extensions, and particularly useful for conducting comparative statics and providing testable predictions for electoral outcomes as public opinion changes.
    Keywords: cprimary election, median voter, uncertainty, valence.
    JEL: D72
    Date: 2020–07–12
  10. 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 and depend on the share of patient buyers in the destination market as well as their access to liquidity. 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
  11. By: Ellis, Andrew
    Abstract: I consider static, incomplete information games where players may not be ambiguity neutral. Every player is one of a finite set of types, and each knows her own type but not that of the other players. Ex ante, players differ only in their taste for outcomes. If every player is dynamically consistent with respect to her own information structure and respects Consequentialism, then players act as if expected utility for uncertainty about types.
    Keywords: Ambiguity; incomplete information; dynamic consistency; strategic interaction
    JEL: J1
    Date: 2018–09–01
  12. By: Paul Voß; Marius Kulms
    Abstract: We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.
    Keywords: Communication, cheap talk, takeover, tender o er, signaling
    JEL: D82 D83 G34 G38
    Date: 2020–06
  13. By: Ines Macho-Stadler (UAB - Universitat Autònoma de Barcelona [Barcelona]); David Pérez-Castrillo (UAB - Universitat Autònoma de Barcelona [Barcelona]); Nicolas Quérou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We consider a market where \standard" risk-neutral agents coexist with "goalorented" agents who, in addition to the expected income, seek a high-enough monetary payo (the \trigger") to ful ll a goal. We analyze a two-sided one-to-one matching model where the matching between principals and agents and incentive contracts are endogenous. In any equilibrium contract, goal-oriented agents are matched with the principals with best projects and receive the trigger with positive probability. Moreover, goal and monetary incentives are complementary: goaloriented agents receive stronger monetary incentives. Finally, we discuss policy interventions in relevant environments..
    Keywords: Goal-oriented agents,incentives,matching market
    Date: 2020–07–17
  14. By: Christian Ewerhart
    Abstract: This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect.
    Keywords: Blockchain, proof-of-work, Nash equilibrium, subgame perfection, selfish mining
    JEL: C72 C73 D72 E42
    Date: 2020–07
  15. By: Schlangenotto, Darius; Schnedler, Wendelin; Vadovic, Radovan
    Abstract: When groups face difficult problems, the voice of experts may be lost in the noise of others' contributions. We present results from a "naturally noisy" setting, a large first-year undergraduate class, in which the expert's voice is "lost" to such a degree that it is in fact optimal for all non-experts to contribute their bits of information. A single individual has little chance to improve the outcome and coordinating with the whole group is impossible. In this setting, we examine the change in behavior before and after people can talk to their neighbors. We find that the number of people who reduce noise by holding back their information strongly and significantly increases.
    Keywords: information aggregation,coordination,communication,swing voter's curse
    JEL: D71 D72 D81 D82 C99
    Date: 2020
  16. By: Yu Zhou; Shigehiro Serizawa
    Abstract: We study an assignment market where multiple heterogenous objects are sold to unit demand agents who have general preferences accommodating imperfect transferability of utility and income effects. In such a model, there is a minimum price equilibrium. We establish the structural characterizations of minimum price equilibria and employ these results to design the "Serial Vickrey mechanism," that finds a minimum price equilibrium in a finite number of steps. The Serial Vickrey mechanism introduces the objects one by one, and requires agents to report finite-dimensional prices in finitely many times. Besides, the Serial Vickrey mechanism also has nice dynamic incentive properties.
    Date: 2020–07
  17. By: Paul Belleflamme; Martin Peitz
    Abstract: A monopolist sells a network good to a set of heterogeneous users who all care about total participation. We show that the provider of the network good effectively becomes a two-sided platform if it can condition prices on some user characteristics. This still holds true if the network operator cannot observe consumer characteristics but induces user self-selection when it offers screening contracts. In our setting, all incentive constraints are slack. The use of freemium strategies emerges as a special case of versioning. Here, a base version is offered at zero price and a premium version at a positive price. Overall, the paper illustrates the close link between price discrimination in the presence of a network good and pricing by a two-sided platform.
    Keywords: Network goods, Two-sided markets, Platform pricing, Group pricing, Menu pricing
    JEL: D62 L12 L82 L86
    Date: 2020–06
  18. By: Creane, Anthony
    Abstract: In their seminal paper, Grossman and Shapiro (1984) assume that it is not profitable for a firm to deviate to the supercompetitive price of Salop (1979). In this paper, it is shown that this assumption is violated if, roughly, each firm reaches less than half of all consumers unless it is a duopoly. This implies that most of the simulations in Grossman and Shapiro (1984) are not actually equilibria. More importantly, this implies that for their equilibrium to exist nearly all consumers must receive at least one ad. For example, with more than four firms in the market, at least 96% of the consumers must receive at least one ad, and the percentage increases with the number of firms.
    Keywords: informative advertising; existence of equilibrium
    JEL: D83 L13 L15
    Date: 2020–07–26
  19. By: Jong-Hee Hahn (Yonsei Univ); So Hye Yoon (Yonsei Univ)
    Abstract: We show that tying can be profitable in two-sided markets even if below-cost or negative pricing is allowed. With the coexistence of two consumer groups (one treating tying and tied goods as perfect complements and the other as independent products), a tying-good monopolist may face difficulties in extracting rent and wish to use tying to directly capture the large advertising revenue created in the comple- mentary segment. Such tying normally reduces consumer surplus and total welfare. Our theory of tying can be applied to the practice of self-preferencing or requiring pre-installation as in the Google Android and Shopping cases.
    Keywords: Tying, Bundling, Leverage theory, Two-sided markets, Negative prices, Platform envelopment, Self-preferencing, Raising rivals' Â’costs
    JEL: D4 L1 L4
    Date: 2020–08
  20. By: Mehmet Ekmekci; Leandro Gorno; Lucas Maestri; Jian Sun; Dong Wei
    Abstract: We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent's type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium, and find that terminations/market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the observed signal.
    Date: 2020–07
  21. By: Leandro Gorno; Alessandro Rivello
    Abstract: The standard model of choice in economics is the maximization of a complete and transitive preference relation over a fixed set of alternatives. While completeness of preferences is usually regarded as a strong assumption, weakening it requires care to ensure that the resulting model still has enough structure to yield interesting results. This paper takes a step in this direction by studying the class of "connected preferences", that is, preferences that may fail to be complete but have connected maximal domains of comparability. We offer four new results. Theorem 1 identifies a basic necessary condition for a continuous preference to be connected in the sense above, while Theorem 2 provides sufficient conditions. Building on the latter, Theorem 3 characterizes the maximal domains of comparability. Finally, Theorem 4 presents conditions that ensure that maximal domains are arc-connected.
    Date: 2020–08
  22. By: Simone Cerreia Vioglio; Lars Peter Hansen; Fabio Maccheroni; Massimo Marinacci
    Abstract: We use decision theory to confront uncertainty that is sufficiently broad to incorporate "models as approximations".We presume the existence of a featured collection of what we call "structured models" that have explicit substantive motivations. The decision maker confronts uncertainty through the lens of these models, but also views these models as simplifications, and hence, as misspecified. We extend min-max analysis under model ambiguity to incorporate the uncertainty induced by acknowledging that the models used in decision-making are simplified approximations. Formally, we provide an axiomatic rationale for a decision criterion that incorporates model misspecification concerns.
    Date: 2020
  23. By: Elliott, M.; Talamàs, E.
    Abstract: In many markets, heterogenous agents make non-contractible investments before bargaining over both who matches with whom and the terms of trade. In static markets, the holdup problem—that is, inefficient investments caused by agents receiving only a fraction of their returns—is ubiquitous. Markets are often dynamic, however, with agents entering over time. Taking a general non-cooperative investment and bargaining approach, we show that the holdup problem vanishes in markets with dynamic entry as agents become patient: While there is substantial wiggle room for bargaining to determine outcomes, every bargaining outcome gives everyone her marginal product.
    Date: 2020–07–20
  24. By: Pradeep Dubey; John Geanakoplos
    Abstract: Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status to get her employees to work hard for the least total cost. We find that if rewards are merit based, then she should use a small number of titles and wage levels. Moreover, she should motivate workers of low skill mostly by status and high skill mostly by money. This often results in star wages to the elite performers and in wage jumps for small increases in productivity.
    Date: 2020
  25. By: Antler, Yair; Bachi, Benjamin
    Abstract: We study a model of two-sided search in which agents' reasoning is coarse. In equilibrium, the most desirable agents behave as if they were fully rational, while, for all other agents, coarse reasoning results in overoptimism with regard to their prospects in the market. Consequently, they search longer than optimal. Moreover, agents with intermediate match values may search indefinitely while all other agents eventually marry. We show that the share of eternal singles converges monotonically to 1 as search frictions vanish. Thus, improvements in the search technology may backfire and even lead to market failure.
    Keywords: Boundedly rational expectations; Coarse reasoning; Dating; Marriage Market; Matching; Two-sided search
    Date: 2019–11

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