nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒11‒23
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Incomplete-Information Games in Large Populations with Anonymity By Martin F. Hellwig
  2. Mechanism Design for Unequal Societies By Marco Reuter; Carl-Christian Groh
  3. Allocation With Correlated Information: Too Good to Be True By Deniz Kattwinkel
  4. Price of Anarchy of Simple Auctions with Interdependent Values By Alon Eden; Michal Feldman; Inbal Talgam-Cohen; Ori Zviran
  5. Inefficiency and Regulation in Credence Goods Markets with Altruistic Experts By Farukh, Razi; Kerkhof, Anna; Loebbing, Jonas
  6. Fighting for Lemons: The Encouragement Effect in Dynamic Contests with Private Information By Juan Beccuti; Marc Möller
  7. Persuading an Informed Committee By Nina Bobkova; Saskia Klein
  8. Ad Clutter, Time Use and Media Diversity By Simon P. Anderson; Martin Peitz
  9. A general framework for studying contests By Bastani, Spencer; Giebe, Thomas; Gürtler, Oliver
  10. Platform-Mediated Competition By Quitz\'e Valenzuela-Stookey
  11. Intensity-Efficient Allocations By Georgios Gerasimou
  12. Screening and Information-Sharing Externalities By Quitz\'e Valenzuela-Stookey
  13. When "Better" is better than "Best" By Ben Amiet; Andrea Collevecchio; Kais Hamza
  14. Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics By Garibaldi, Pietro; Moen, Espen R.; Pissarides, Christopher A.
  15. Data Sharing and Market Power with Two-Sided Platforms By Rishabh Kirpalani; Thomas Philippon

  1. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper provides theoretical foundations for models of strategic interdependence under uncertainty that have a continuum of agents and a decomposition of uncertainty into a macro component and an agent-specific micro component, with a law of large numbers for the latter. The decomposition of uncertainty is implied by a condition of exchangeability of agents' types, which is imposed equivalently imposed at the level of the prior or at the level of beliefs, i.e., posteriors. Under an additional condition of anonymity in payoffs, agents' behaviors are fully determined by their macro beliefs about the cross-section distribution of types and by the cross-section distribution of other agents' strategies. Any probability distribution over cross-section distributions of types is admissible, but not every macro belief function is compatible with a common prior.
    Keywords: Incomplete-information games, large populations, belief functions, common priors, exchangeability, conditional independence, conditional exact law of large numbers
    JEL: C70 D82 D83
    Date: 2020–08
  2. By: Marco Reuter; Carl-Christian Groh
    Abstract: We study optimal mechanisms for a utilitarian designer who seeks to assign multiple units of an indivisible good to a group of agents with unit demand. The agents have heterogeneous marginal utilities of money, which implies that utility is not perfectly transferable between them. Heterogeneous marginal utilities of money may naturally arise in environments where agents have different wealth endowments. We show that the ex post efficient allocation rule is not optimal in our setting. Firstly, a high willingness to pay may stem from a low marginal utility of money. Moreover, the transfer rule does not only facilitate implementation of the desired social choice function in our setting, but also directly affects social welfare. In the optimal mechanism, rationing may occur, which entails a conflict between ex ante and ex post efficiency. In an extension, we show that it is still not utilitarian optimal to allocate the good solely based on willingness to pay even when redistribution is not possible. Finally, we highlight how our mechanism can be implemented as an auction with minimum bids and bidding subsidies.
    Keywords: optimal mechanism design, redistribution, inequality, auctions
    JEL: D44 D47 D61 D63 D82
    Date: 2020–11
  3. By: Deniz Kattwinkel
    Abstract: A principal can allocate an indivisible good to an agent. The agent privately learns the value of the good while the principal privately learns the cost. Value and cost are correlated. The agent wants to have the good in any case. The principal wants to allocate whenever the value exceeds the cost. She cannot use monetary transfers to screen the agent. I study how the principal utilizes her information in the optimal mechanism: when the correlation is negative, she bases her decision only on the costs, and when the correlation is positive, she screens the agent. To this end, she forgoes her best allocation opportunities: when the agent reports high valuations but her own costs are low. Under positive correlation, these realizations are unlikely; the principal will find them too good to be true. In contrast to standard results, this optimal mechanism may not allocate to a higher value agent with higher probability. I discuss applications to intra-firm allocations, task-delegation, and industry self-regulation.
    Keywords: correlated information, mechanism design without transfers, bilateral trade, delegation
    JEL: D61 D82 D86 L50
    Date: 2020–11
  4. By: Alon Eden; Michal Feldman; Inbal Talgam-Cohen; Ori Zviran
    Abstract: We expand the literature on the price of anarchy (PoA) of simultaneous item auctions by considering settings with correlated values; we do this via the fundamental economic model of interdependent values (IDV). It is well-known that in multi-item settings with private values, correlated values can lead to bad PoA, which can be polynomially large in the number of agents $n$. In the more general model of IDV, we show that the PoA can be polynomially large even in single-item settings. On the positive side, we identify a natural condition on information dispersion in the market, termed $\gamma$-heterogeneity, which enables good PoA guarantees. Under this condition, we show that for single-item settings, the PoA of standard mechanisms degrades gracefully with $\gamma$. For settings with $m>1$ items we show a separation between two domains: If $n \geq m$, we devise a new simultaneous item auction with good PoA (with respect to $\gamma$), under limited information asymmetry. To the best of our knowledge, this is the first positive PoA result for correlated values in multi-item settings. The main technical difficulty in establishing this result is that the standard tool for establishing PoA results -- the smoothness framework -- is unsuitable for IDV settings, and so we must introduce new techniques to address the unique challenges imposed by such settings. In the domain of $n \ll m$, we establish impossibility results even for surprisingly simple scenarios.
    Date: 2020–11
  5. By: Farukh, Razi; Kerkhof, Anna; Loebbing, Jonas
    Abstract: We study a credence goods problem - that is, a moral hazard problem with non-contractible outcome - where altruistic experts (the agents) care both about their income and the utility of consumers (the principals). Experts' preferences over income and their consumers' utility are convex, such that experts care less for consumers when their financial situation is bad. In a market setting with multiple consumers per expert, a cross-consumer externality arises: one consumer's payment raises the expert's income, which makes the non-selfish part of preferences more important and thereby induces the expert to provide higher quality services to all consumers. The externality renders the market outcome inefficient. Price regulation partially overcomes this inefficiency and Pareto-improves upon the market outcome. If market entry of experts is endogenous, price regulation should be accompanied by licensing arrangements that cap the number of experts in the market. Our theory provides a novel rationale for the wide-spread use of price regulation and licensing in real-world markets for expert services.
    Keywords: altruism,asymmetric information,common agency,credence goods,expert services,externality,inefficiency,moral hazard,regulation
    JEL: D64 D82 D86 L15 L51
    Date: 2020
  6. By: Juan Beccuti; Marc Möller
    Abstract: This paper proposes a tractable model of a dynamic contest where players have private information about the contest’s prize. We show that private information helps to encourage players who have fallen behind, leading to an increase in aggre- gate incentives. We derive the optimal information design for a designer interested in the maximization of aggregate effort. Optimal signals turn out to be private and imperfectly informative and aim to level the playing field at any stage of the dynamic interaction.
    Keywords: Dynamic contests, discouragement effect, information design
    JEL: C72 D72 D82
    Date: 2020–11
  7. By: Nina Bobkova; Saskia Klein
    Abstract: A biased sender seeks to persuade a committee to vote for a proposal by providing public information about its quality. Each voter has some private information about the proposal's quality. We characterize the sender-optimal disclosure policy under unanimity rule when the sender can versus cannot ask voters for a report about their private information. The sender can only profit from asking agents about their private signals when the private information is sufficiently accurate. For all smaller accuracy levels, a sender who cannot elicit the private information is equally well off.
    Keywords: Voting, Bayesian Persuasion, Strategic Voting, Unanimity
    Date: 2020–11
  8. By: Simon P. Anderson; Martin Peitz
    Abstract: We introduce advertising congestion along with a time-use model of consumer choice among media. Both consumers and advertisers multi-home. Higher equilibrium adver- tising levels ensue on less popular media platforms because platforms treat consumer attention as a common property resource: smaller platforms internalize less the conges- tion from advertising and so advertise more. Platform entry raises the ad nuisance price to consumers and diminishes the quality of the consumption experience on all platforms. With symmetric platforms, entry still leads to higher consumer bene ts. However, entry of less attractive platforms can increase ad nuisance levels so much that consumers are worse off.
    Keywords: media economics, advertising clutter, limited attention, information congestion, two-sided markets
    JEL: D43 L13
    Date: 2020–07
  9. By: Bastani, Spencer; Giebe, Thomas; Gürtler, Oliver
    Abstract: We develop a general framework to study contests, containing the well-known models of Tullock (1980) and Lazear & Rosen (1981) as special cases. The contest outcome depends on players' effort and skill, the latter being subject to symmetric uncertainty. The model is tractable, because a symmetric equilibrium exists under general assumptions regarding production technologies and skill distributions. We construct a link between our contest model and expected utility theory and exploit this link to revisit important comparative statics results of contest theory and show how these can be overturned. Finally, we apply our results to study optimal workforce composition.
    Keywords: contest theory,symmetric equilibrium,heterogeneity,risk,decision theory
    JEL: C72 D74 D81 J23 M51
    Date: 2020
  10. By: Quitz\'e Valenzuela-Stookey
    Abstract: Cross-group externalities and network effects in two-sided platform markets shape market structure and competition policy, and are the subject of extensive study. Less understood are the within-group externalities that arise when the platform designs many-to-many matchings: the value to agent $i$ of matching with agent $j$ may depend on the set of agents with which $j$ is matched. These effects are present in a wide range of settings in which firms compete for individuals' custom or attention. I characterize platform-optimal matchings in a general model of many-to-many matching with within-group externalities. I prove a set of comparative statics results for optimal matchings, and show how these can be used to analyze the welfare effects various changes, including vertical integration by the platform, horizontal mergers between firms on one side of the market, and changes in the platform's information structure. I then explore market structure and regulation in two in-depth applications. The first is monopolistic competition between firms on a retail platform such as Amazon. The second is a multi-channel video program distributor (MVPD) negotiating transfer fees with television channels and bundling these to sell to individuals.
    Date: 2020–11
  11. By: Georgios Gerasimou
    Abstract: We study the problem of allocating $n$ indivisible objects to $n$ agents when the latter can express strict and purely ordinal preferences and preference intensities. We suggest a rank-based criterion to make ordinal interpersonal comparisons of preference intensities in such an environment without assuming interpersonally comparable utilities. We then define an allocation to be "intensity-efficient" if it is Pareto efficient and also such that, whenever another allocation assigns the same pairs of objects to the same pairs of agents but in a "flipped" way, then the former assigns the commonly preferred alternative within every such pair to the agent who prefers it more. We show that an intensity-efficient allocation exists for all 1,728 profiles when $n=3$.
    Date: 2020–11
  12. By: Quitz\'e Valenzuela-Stookey
    Abstract: In many settings, multiple uninformed agents bargain simultaneously with a single informed agent in each of multiple periods. For example, workers and firms negotiate each year over salaries, and the firm has private information about the value of workers' output. I study the effects of transparency in these settings; uninformed agents may observe others' past bargaining outcomes, e.g. wages. I show that in equilibrium, each uninformed agent will choose in each period whether to try to separate the informed agent's types (screen) or receive the same outcome regardless of type (pool). In other words, the agents engage in a form of experimentation via their bargaining strategies. There are two main theoretical insights. First, there is a complementary screening effect: the more agents screen in equilibrium, the lower the information rents that each will have to pay. Second, the payoff of the informed agent will have a certain supermodularity property, which implies that equilibria with screening are "fragile" to deviations by uninformed agents. I apply the results to study pay-secrecy regulations and anti-discrimination policy. I show that, surprisingly, penalties for pay discrimination have no impact on bargaining outcomes. I discuss how this result depends on the legal framework for discrimination cases, and suggest changes to enhance the efficacy of anti-discrimination regulations. In particular, anti-discrimination law should preclude the so-called "salary negotiation defense".
    Date: 2020–11
  13. By: Ben Amiet; Andrea Collevecchio; Kais Hamza
    Abstract: We consider two-player normal form games where each player has the same finite strategy set. The payoffs of each player are assumed to be i.i.d. random variables with a continuous distribution. We show that, with high probability, the better-response dynamics converge to pure Nash equilibrium whenever there is one, whereas best-response dynamics fails to converge, as it is trapped.
    Date: 2020–10
  14. By: Garibaldi, Pietro (University of Turin); Moen, Espen R. (Norwegian Business School (BI)); Pissarides, Christopher A. (London School of Economics)
    Abstract: In an optimizing model of epidemics several externalities arise when agents shield to avoid infection. Optimizing behaviour delays herd immunity but also reduces overall infections to approximately the minimum consistent with herd immunity. For reasonable parameter values, and with no vaccine, we find that agents delay too much because of a "rat race to shield": they shield too much in the hope that others catch the disease and reach herd immunity. This and other externalities drive large wedges between private and social outcomes. The expectation of a vaccine reverses the effects, and agents shield too little.
    Keywords: SIR models, matching model, COVID-19, social distancing, rat race, herd immunity
    JEL: A12 I10 J18 D61 D62
    Date: 2020–11
  15. By: Rishabh Kirpalani; Thomas Philippon
    Abstract: We study an economy in which consumers and merchants (sellers) interact on a two-sided platform. Consumers can share data about their tastes for different varieties of a single good with the platform which in turn sells this data to merchants. Data sharing increases gains from trade by improving match quality but gives more market power to the platform relative to the merchants which can reduce entry and consequently consumer welfare. This leads to an externality not internalized by consumers thus leading to more data sharing than is efficient. We highlight two reasons why more precise information increases the market power of the platform. The first is a copycat (private label) externality that increases the outside option for the platform of selling the good directly to consumers. The second is a consumer access externality that reduces the outside option of the merchants when information gets more precise, as more buyers are able to find their desired variety on the platform. Our model explains the qualitative differences between traditional retail platforms (physical stores) and digital online platforms and why the latter are more likely to require regulatory interventions that the former.
    JEL: D2 D4 D42 D43 L11 L12
    Date: 2020–10

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