
on Microeconomics 
By:  Bandyopadhyay, Siddhartha; Cabrales, Antonio 
Abstract:  We consider a model where agents differ in their `types' which determines their voluntary contribution towards a public good. We analyze what the equilibrium composition of groups are under centralized and centralized choice. We show that there exists a topdown sorting equilibrium i.e. an equilibrium where there exists a set of prices which leads to groups that can be ordered by level of types, with the first k types in the group with the highest price and so on. This exists both under decentralized and centralized choosing. We also analyze the model with endogenous group size and examine under what conditions is topdown sorting socially efficient. We illustrate when integration (i.e. mixing types so that each group's average type if the same) is socially better than topdown sorting. Finally, we show that top down sorting is efficient even when groups compete among themselves 
Keywords:  D02, D64, D71, H41 
JEL:  D02 D64 D71 H41 
Date:  2020–08–05 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:102255&r=all 
By:  Dominik Peters; Grzegorz Pierczy\'nski; Piotr Skowron 
Abstract:  We study voting rules for participatory budgeting, where a group of voters collectively decides which projects should be funded using a common budget. We allow the projects to have arbitrary costs, and the voters to have arbitrary additive valuations over the projects. We formulate two axioms that guarantee proportional representation to groups of voters with common interests. To the best of our knowledge, all known rules for participatory budgeting do not satisfy either of the two axioms; in addition we show that the most prominent proportional rules for committee elections (such as Proportional Approval Voting) cannot be adapted to arbitrary costs nor to additive valuations so that they would satisfy our axioms of proportionality. We construct a simple and attractive voting rule that satisfies one of our axioms (for arbitrary costs and arbitrary additive valuations), and that can be evaluated in polynomial time. We prove that our other stronger axiom is also satisfiable, though by a computationally more expensive and less natural voting rule. 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2008.13276&r=all 
By:  Dilip Ravindran; Zhihan Cui 
Abstract:  We study a Bayesian Persuasion game with multiple senders employing conditionally independent experiments. Senders have zerosum preferences over what information is revealed. We characterize when a set of states cannot be pooled in any equilibrium, and in particular, when the state is (fully) revealed in every equilibrium. The state must be fully revealed in every equilibrium if and only if sender utility functions are sufficiently nonlinear. In the binarystate case, the state is fully revealed in every equilibrium if and only if some sender has nontrivial preferences. Our takeaway is that `most' zerosum sender preferences result in full revelation. 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2008.08517&r=all 
By:  Faruk Gul (Princeton University); Wolfgang Pesendorfer (Princeton University) 
Abstract:  A collective choice problem is a finite set of social alternatives and a finite set of economic agents with vNM utility functions. We associate a public goods economy with each collective choice problem and establish the existence and efficiency of (equal income) Lindahl equilibrium allocations. We interpret collective choice problems as cooperative bargaining problems and define a setvalued solution concept, {\it the equitable solution} (ES). We provide axioms that characterize ES and show that ES contains the Nash bargaining solution. Our main result shows that the set of ES payoffs is the same a the set of Lindahl equilibrium payoffs. We consider two applications: in the first, we show that in a large class of matching problems without transfers the set of Lindahl equilibrium payoffs is the same as the set of (equal income) Walrasian equilibrium payoffs. In our second application, we show that in any discrete exchange economy without transfers every Walrasian equilibrium payoff is a Lindahl equilibrium payoff of the corresponding collective choice market. Moreover, for any cooperative bargaining problem, it is possible to define a set of commodities so that the resulting economy's utility possibility set is that bargaining problem {\it and} the resulting economy's set of Walrasian equilibrium payoffs is the same as the set of Lindahl equilibrium payoffs of the corresponding collective choice market. 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2008.09932&r=all 
By:  Georgy Egorov; Konstantin Sonin 
Abstract:  We analyze persuasion in a model in which each receiver can buy a direct access to the sender's signal or rely on her network connections to get it. For the sender, a higher bias increases the impact per direct receiver, yet diminishes the willingness of agents to receive information. Contrary to naive intuition, the optimal propaganda might target peripheral, rather than centrallylocated agents, and is at its maximum levels when the probability that information flows between agents is close to zero or one, but not inbetween. The impact of network density depends on this probability as well. 
JEL:  D85 L82 P16 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:27631&r=all 
By:  Garrod, Luke; Olczak, Matthew; Wilson, Chris M 
Abstract:  Abstract The developing literature on consumer information and vertical relations has yet to consider information provision via costly retail price advertising. By exploring this, we show that the double marginalisation problem exists in equilibrium despite an upstream supplier offering a twopart tariff that is common knowledge to consumers. Intuitively, the supplier elicits higher retail prices to strategically reduce retailers' advertising expenditure in order to extract additional rents. We then demonstrate how vertical restraints, such as resale price maintenance, can increase supplychain profits and consumer welfare by lowering retail prices despite paradoxically discouraging price advertising. 
Keywords:  Price Advertising; Consumer Search; Double Marginalisation; Vertical Restraints; Clearinghouse 
JEL:  D40 D83 L42 
Date:  2020–08–26 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:102621&r=all 
By:  BELLEFLAMME, Paul, (CORE, Université catholique de Louvain); PEITZ, Martin, (Universität Mannheim) 
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 twosided platform if it can condition prices on some user characteristics. This still holds true if the network operator cannot obsoerve consumer characteristics but induces user selfselection 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 twosided platform. 
Keywords:  network goods, twosided markets, platform pricing, group pricing, menu pricing 
JEL:  D62 L12 L82 L86 
Date:  2020–07–01 
URL:  http://d.repec.org/n?u=RePEc:cor:louvco:2020024&r=all 
By:  Gilbert L. Skillman (Department of Economics, Wesleyan University) 
Abstract:  The nonsymmetric Nash bargaining solution is frequently applied in the study of labor market outcomes, but the axiomatic approach in which it is grounded offers little guidance as to the determinants of agents’ threat points and relative bargaining power. This paper modifies the RubinsteinWolinsky (1985) sequential matching and bargaining model to study the role of individual bargaining costs, status quo payoffs, and outside options in determining bargaining power weights and threat points in Nash bargaining solution. Key results differentiate the strategic implications of fixed and time discountbased bargaining costs and demonstrate the general validity of the Nash bargaining solution in characterizing steadystate market outcomes in which outside options are endogenously determined. In this scenario, agents’ relative bargaining weights depend on their matching probabilities. 
Keywords:  Nash bargaining solution, strategic bargaining, outside options, status quo payoffs, labor markets, matching and bargaining 
JEL:  C78 J31 J52 
Date:  2020–04 
URL:  http://d.repec.org/n?u=RePEc:wes:weswpa:2020005&r=all 
By:  Achille Basile; Surekha Rao; K. P. S. Bhaskara Rao 
Abstract:  Let V be a finite society whose members express weak orderings (hence also indifference, possibly) about two alternatives. We show a simple representation formula that is valid for all, and only, anonymous, nonmanipulable, binary social choice functions on V . The number of such functions is $2^{n+1}$ if V contains $n$ agents. 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2007.01552&r=all 
By:  Joseph Y. Halpern; Evan Piermont 
Abstract:  We investigate how to model the beliefs of an agent who becomes more aware. We use the framework of Halpern and Rego (2013) by adding probability, and define a notion of a model transition that describes constraints on how, if an agent becomes aware of a new formula $\phi$ in state $s$ of a model $M$, she transitions to state $s^*$ in a model $M^*$. We then discuss how such a model can be applied to information disclosure. 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2007.02823&r=all 
By:  Ana Babus; Maryam Farboodi 
Abstract:  We explore a model in which banks strategically hold interconnected and opaque portfolios, despite increasing the likelihood they are subject to financial crises. In our framework, banks choose their degree of exposure to other banks to influence how investors can use their information. In equilibrium banks choose portfolios which are neither fully opaque, nor fully transparent. However, their portfolios are excessively interconnected to obfuscate investor information. Banks can create a degree of opacity that decreases welfare, and makes bank crises more likely. Our model is suggestive about the implications of asset securitization, as well as government bailouts. 
JEL:  D43 D82 G14 G21 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:27471&r=all 
By:  Paul Belleflamme; Martin Peitz; Eric Toulemonde 
Abstract:  We introduce asymmetries across platforms in the linear model of competing twosided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets. 
Keywords:  Twosided platforms, market share, market power, oligopoly, network effects, antitrust 
JEL:  D43 L13 L86 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_204&r=all 
By:  Ayca Kaya (University of Miami); Santanu Roy (Southern Methodist University) 
Abstract:  We consider repeated trading by sellers with persistent private information in dynamic lemons markets. We compare the outcomes of a transparent market where past trading prices are public to those of an opaque market, where they are private. We characterize the upper bound of trading surplus in an opaque market and construct a class of equilibria in a transparent market that improves upon this bound. We conclude that price transparency is beneficial in a repeated trading environment. The advantage of price transparency is indirect and operates through the strategic tools it provides the sellers of high quality to sustain high payoffs. 
Keywords:  Repeated sales, adverse selection, lemons market, price transparency. 
JEL:  D82 C73 D61 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:smu:ecowpa:2008&r=all 
By:  V. Filipe MartinsDaRocha (LEDa  Laboratoire d'Economie de Dauphine  CNRS  Centre National de la Recherche Scientifique  IRD  Institut de Recherche pour le Développement  Université Paris DauphinePSL, EESP  Sao Paulo School of Economics  FGV  Fundacao Getulio Vargas [Rio de Janeiro]); Rafael Mouallem (EESP  Sao Paulo School of Economics  FGV  Fundacao Getulio Vargas [Rio de Janeiro]) 
Abstract:  We present an axiomatization of the SecondOrder Expected Utility model in the environment of Anscombe and Aumann (1963) where the domain of the preference relation is the set of lotteries over all acts whose prize are lotteries. We replace the axiom of reversal of order in compound lotteries (Assumption 1 in Anscombe and Aumann (1963)) by an extension of monotonicity in the prizes (Assumption 2 in Anscombe and Aumann (1963)) that is a strengthening of the Dominance axiom introduced by Seo (2009). This extends the contributions of Grant et al. (2009) by allowing for a general representation result without restricting the decision maker's attitude towards subjective uncertainty. 
Date:  2020–08–26 
URL:  http://d.repec.org/n?u=RePEc:hal:wpaper:hal02922263&r=all 
By:  Canta, Chiara (Toulouse Business School); Cremer, Helmuth (Toulouse School of Economics); Gahvari, Firouz (University of Illinois at UrbanaChampaign) 
Abstract:  We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing lowproductivity types to cheat leads to Paretosuperior outcomes as compared to deterring them, even if audits can be performed costlessly. When there is no cheating, redistribution takes place on first and secondbest frontiers and can never make lowability types more welloff than highability types. Letting lowability types cheat allows firstbest redistribution up to a limit at which lowability types are better off than highability types. 
Keywords:  optimal taxation, tax evasion, audits, welfareimproving 
JEL:  H20 H21 H26 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:iza:izadps:dp13483&r=all 
By:  Christina Luxen; Tobias Rachidi 
Abstract:  This paper studies committee search where members either assess candidates “one at a time”, i.e., on a rolling basis, or they simultaneously review a set of candidates of fixed size in each time period. We compare both search procedures in terms of acceptance standards and welfare. There is a tradeoff between the expected value of a candidate conditional on stopping and the expected search costs. The resolution of this tradeoff depends on the voting rule and the specification of search costs associated with the simultaneous evaluation of multiple candidates. The adoption of a qualified majority rule changes the evaluation of search procedures compared to the unanimity rule, revealing that the presence of a search committee alters the search design problem in comparison with the single decisionmaker case. This is the main qualitative insight of this paper and we discuss its implications for committee search in practice. 
Keywords:  Committee search, sequential search, multiple options 
JEL:  D71 D83 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_203&r=all 
By:  Cellini, Roberto 
Abstract:  The paper presents a simple model of oligopoly, in which three firms supply differentiated products. The degree of product substitutability is not uniform across goods. We investigate the merger profitability, and we show that profitability depends on the degree of good differentiation. Contrary to what seems to emerge from different models, we find that merger between firms that supply “more similar” product is more profitable as compared to merger between firms supplying more differentiated goods. 
Keywords:  oligopoly; merger; profitability; merger paradox 
JEL:  D43 L13 
Date:  2020–06 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:102416&r=all 
By:  Takaaki Hamada 
Abstract:  We investigate a group choice problem of agents pursuing social status. We assume heterogeneous agents want to signal their private information (ability, income, patience, altruism, etc.) to others, facing tradeoff between "outside status" (desire to be perceived in prestigious group from outside observers) and "inside status" (desire to be perceived talented from peers inside their group). To analyze the tradeoff, we develop two stage signaling model in which each agent firstly chooses her group and secondly chooses her action in the group she chose. They face binary choice problems both in group and action choices. Using cutoff strategy, we construct an partially separating equilibrium such that there are four populations: (i) choosing high group with strong incentive for action in the group, (ii) high group with weak incentive, (iii) low group with strong incentive, and (iv) low group with weak incentive. By comparative statics results, we find some spillover effects from a certain group to another, on how four populations change, when a policy is taken in each group. These results have rich implications for group choice problems like school, firm or residential preference. 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2008.10145&r=all 
By:  Oleg Muratov 
Abstract:  I consider an environment in which the entrepreneur generates information about the quality of the projects prior to contracting with the investor. The investor faces a moral hazard problem, since the entrepreneur may divert the funding for private consumption. When the investor bargains with the entrepreneur, I nd that the ecient amount of information is generated if and only if the bargaining power of the entrepreneur is high enough. I interpret this result in terms of investors' concentration, competitiveness, and generosity measures. I show that the investor prefers a nonabsolute bargaining power when the project costs are high enough. 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2014&r=all 
By:  Toru Suzuki (University of Technology Sydney) 
Abstract:  Actual contracts are often written in an imprecise manner. This paper introduces a formal writing cost framework in which the language of a contract, i.e., natural language, is explicitly modeled with predicate logic. It is shown that even if any obligation is contractible and describable by the language, the equilibrium contract can exhibit two kinds of impreciseness: (i) descriptive impreciseness, i.e., a contract leaves some relevant detail of the duty unmentioned, and (ii) semantic impreciseness, i.e., a contract uses some imprecise words leaving room for interpretation. Contractual impreciseness can persist even under a vanishingly small writing cost. Some novel comparative statics and other economic applications are provided. 
Keywords:  A foundation of incomplete contract; contractual impreciseness; writing cost; predicate logic 
Date:  2020–09–02 
URL:  http://d.repec.org/n?u=RePEc:uts:ecowps:2020/07&r=all 
By:  Mikhail Drugov (New Economic School); Dmitry Ryvkin (Florida State University) 
Abstract:  The "discouragement effect" (DE) is mentioned routinely as a reason for why heterogeneity is detrimental for incentives in contests. It serves as a theoretical argument for various policies aimed at homogenizing contestants. We show that, at least in static contests, the DE has no robust theoretical foundation. We divide widely used contest models into two classes. In the first class, heterogeneity either decreases or increases aggregate effort. In the second class, the effect of heterogeneity depends crucially on how it is defined. Hence, the DE cannot serve as a goto argument for why heterogeneity in contests is undesirable. 
Keywords:  discouragement effect, contest, heterogeneity 
JEL:  C72 D63 
Date:  2020–07 
URL:  http://d.repec.org/n?u=RePEc:abo:neswpt:w0278&r=all 