nep-mic New Economics Papers
on Microeconomics
Issue of 2020‒12‒14
ten papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Signaling under Double-Crossing Preferences By Chia-Hui Chen; Junichiro Ishida; Wing Suen
  2. Operationalizing Reverse Bayesianism By Surajeet Chakravarty; David Kelsey; Joshua C. Teitelbaum
  3. Quid pro Quo: Friendly Information Exchange between Rivals By Andreas Blume; In-Uck Park
  4. Homo moralis goes to the voting booth: coordination and information aggregation By Alger, Ingela; Laslier, Jean-François
  5. Marketing resource allocation in duopolies over social networks By Vineeth S. Varma; Irinel-Constantin Morarescu; Samson Lasaulce; Samuel Martin
  6. Searching for Results: Optimal Platform Design in a Network Setting By Charlson, G.
  7. Optimally Imprecise Memory and Biased Forecasts By Rava Azeredo da Silveira; Yeji Sung; Michael Woodford
  8. Interim Rationalizable Implementation of Functions By Takashi Kunimoto; Rene Saran; Roberto Serrano
  9. The Role of Diagnostic Ability in Markets for Expert Services By Fang Liu; Alexander Rasch; Marco Alexander Schwarz; Christian Waibel
  10. Price Commitments in Standard Setting under Asymmetric Information By Boone, Jan; Schuett, Florian; Tarantino, E.

  1. By: Chia-Hui Chen; Junichiro Ishida; Wing Suen
    Abstract: This paper provides a general analysis of signaling under double-crossing preferences with a continuum of types. There are natural economic environments where indifference curves of two types cross twice, so that the celebrated single-crossing property fails to hold. Equilibrium exhibits a particular form of pooling: there is a threshold type below which types choose actions that are fully revealing and above which they choose actions that are clustered in possibly non-monotonic ways, with a gap separating these two sets of types. We also provide an algorithm to establish equilibrium existence by construction under mild conditions.
    Date: 2020–10
  2. By: Surajeet Chakravarty (University of Exeter); David Kelsey (University of Exeter, University of Nottingham); Joshua C. Teitelbaum (Georgetown University)
    Abstract: Karni and Viero (2013) propose a model of belief revision under growing awareness reverse Bayesianism which posits that as a person becomes aware of new acts, consequences, or act-consequence links, she revises her beliefs over an expanded state space in a way that preserves the relative likelihoods of events in the original state space. A key limitation of the model is that reverse Bayesianism alone does not fully determine the revised probability distribution. We provide an assumption act independence that imposes additional restrictions on reverse Bayesian belief revision. We show that under act independence, knowledge of the probabilities of new events in the expanded state space is sufficient to fully determine the revised probability distribution in each case of growing awareness. We thereby operationalize the reverse Bayesian model for applications. To illustrate how act independence operationalizes reverse Bayesianism, we consider the law and economics problem of optimal safety regulation.
    Keywords: act independence, reverse Bayesianism, safety regulation, unawareness
    Date: 2020
  3. By: Andreas Blume; In-Uck Park
    Abstract: We show that information exchange via disclosure is possible in equilibrium even if only one party benefits from the information ex post. The incentive to disclose results either from an expectation of disclosure being reciprocated- the quid pro quo motive - or from the possibility of learning from the rival's failure to act in response to a disclosure - the screening motive. Alternating and gradual disclosures are generally indispensable for information exchange and the number of disclosure rounds grows without bound if the agents' initial information becomes sufficiently diffuse - in that sense, the less informed agents are the more they talk. Patient individuals can achieve efficiency by means of continuous alternating disclosures of limited amounts of information. This provides a rationale for protracted dialogues.
    Date: 2020–11–19
  4. By: Alger, Ingela; Laslier, Jean-François
    Abstract: This paper revisits two classical problems in the theory of voting-viz. the divided majority problem and the strategic revelation of information by majority vote-in the light of evolutionarily founded partial Kantian morality. It is shown that, compared to electorates consisting of purely self-interested voters, such Kantian morality helps voters solve coordination problems and improves the information aggregation properties of equilibria, even for modest levels of morality.
    Keywords: voting, Homo moralis, Kantian morality, social dilemmas, divided majority problem, Condorcet jury theorem
    Date: 2020–11
  5. By: Vineeth S. Varma; Irinel-Constantin Morarescu; Samson Lasaulce; Samuel Martin
    Abstract: One of the key features of this paper is that the agents' opinion of a social network is assumed to be not only influenced by the other agents but also by two marketers in competition. One of our contributions is to propose a pragmatic game-theoretical formulation of the problem and to conduct the complete corresponding equilibrium analysis (existence, uniqueness, dynamic characterization, and determination). Our analysis provides practical insights to know how a marketer should exploit its knowledge about the social network to allocate its marketing or advertising budget among the agents (who are the consumers). By providing relevant definitions for the agent influence power (AIP) and the gain of targeting (GoT), the benefit of using a smart budget allocation policy instead of a uniform one is assessed and operating conditions under which it is potentially high are identified.
    Date: 2020–11
  6. By: Charlson, G.
    Abstract: Large online platforms, like Airbnb or Amazon Marketplace, increasingly direct users to internal search engines that limit the number of sellers consumers observe. We show that such behaviour is consistent with profit maximisation. To do so, we model buyer-seller interactions as a series bipartite graphs, which are each realised with a probability chosen by the platform owner. Prominent players disproportionately increase competition, which decreases prices. To maximise profit, the platform owner ensures that buyers only observe a consistent number of sellers in every state of the world realised with positive probability. When products are vertically differentiated, the platform owner biases observation towards high-quality products, but doing so reduces prices, and, as a result, the optimal number of sellers in the network. The extent to which platforms in different markets highlight high-quality products and the number of sellers their search processes show is a function of both quality dispersion and substitutability.
    Keywords: networks, platforms, industrial organisation, network design, games on networks
    JEL: D20 L20
    Date: 2020–12–02
  7. By: Rava Azeredo da Silveira; Yeji Sung; Michael Woodford
    Abstract: We propose a model of optimal decision making subject to a memory constraint. The constraint is a limit on the complexity of memory measured using Shannon’s mutual information, as in models of rational inattention; but our theory differs from that of Sims (2003) in not assuming costless memory of past cognitive states. We show that the model implies that both forecasts and actions will exhibit idiosyncratic random variation; that average beliefs will also differ from rational-expectations beliefs, with a bias that fluctuates forever with a variance that does not fall to zero even in the long run; and that more recent news will be given disproportionate weight in forecasts. We solve the model under a variety of assumptions about the degree of persistence of the variable to be forecasted and the horizon over which it must be forecasted, and examine how the nature of forecast biases depends on these parameters. The model provides a simple explanation for a number of features of reported expectations in laboratory and field settings, notably the evidence of over-reaction in elicited forecasts documented by Afrouzi et al. (2020) and Bordalo et al. (2020a).
    Keywords: rational inattention, over-reaction, survey expectations
    JEL: D84 E03 G41
    Date: 2020
  8. By: Takashi Kunimoto; Rene Saran; Roberto Serrano
    Abstract: This paper investigates rationalizable implementation of social choice functions (SCFs) in incomplete information environments. We identify weak interim rationalizable monotonicity (weak IRM) as a novel condition and show that weak IRM is a necessary and almost sufficient condition for rationalizable implementation. We show by means of an example that interim rationalizable monotonicity (IRM), found in the literature, is strictly stronger than weak IRM as its name suggests, and that IRM is not necessary for rationalizable implementation, as had been previously claimed. The same example also demonstrates that Bayesian monotonicity, the key condition for full Bayesian implementation, is not necessary for rationalizable implementation. This implies that rationalizable implementation can be more permissive than Bayesian implementation: one can exploit the fact that there are no mixed Bayesian equilibria in the implementing mechanism.
    Date: 2020
  9. By: Fang Liu; Alexander Rasch; Marco Alexander Schwarz; Christian Waibel
    Abstract: In credence goods markets, experts have better information about the appropriate quality of treatment than their customers. Experts may exploit their informational advantage by defrauding customers. Market institutions have been shown theoretically to be effective in mitigating fraudulent expert behavior. We analyze whether this positive result carries over to a situation in which experts are heterogeneous in their diagnostic abilities. We find that efficient market outcomes are always possible. However, inefficient equilibria can also exist. If, in equilibrium, experts provide diagnosis-independent treatments, an increase in experts’ ability or in the probability of high-ability experts might not improve relative market efficiency.
    Keywords: credence good, diagnosis, expert, fraud, overtreatment, undertreatment
    JEL: D82 L15
    Date: 2020
  10. By: Boone, Jan (Tilburg University, School of Economics and Management); Schuett, Florian (Tilburg University, School of Economics and Management); Tarantino, E. (Tilburg University, School of Economics and Management)
    Date: 2019

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