nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒01‒04
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Mediated Persuasion By Andrew Kosenko
  2. Implementation, Honesty, and Common Knowledge By Hitoshi Matsushima
  3. Toxic types and infectious communication breakdown By Kfir Eliaz; Alexander Frug
  4. Communication Enhancement through Information Acquisition by Uninformed Player By Yasuyuki Miyahara; Hitoshi Sadakane
  5. Uninformed Bidding in Sequential Auctions By Emmanuel LORENZON
  6. Welfare of Price Discrimination and Market Segmentation in Duopoly By Xianwen Shi; Jun Zhang
  7. Downstream new product development and upstream process innovation By Akio Kawasaki; Tomomichi Mizuno; Kazuhiro Takauchi
  8. Delegated Career By Liqun Liu
  9. Farsighted Objections and Maximality in One-to-one Matching Problems By Kimya, Mert
  10. The Multiple-Volunteers Principle By Susanne Goldlücke; Thomas Tröger
  11. Ethnic Identities, Public Spending and Political Regimes By Sugata Ghosh; Anirban Mitra
  12. Rise of the Kniesians: The professor-student network of Nobel laureates in economics By Richard S. J. Tol
  13. Optimally Controlling an Epidemic By Dirk Niepelt; Martín Gonzalez-Eiras
  14. Third-Degree Price Discrimination in Oligopoly When Markets Are Covered By Markus Dertwinkel-Kalt; Christian Wey
  15. Product quality and third-party certification in potential lemons markets By Dong Yan; Christian A. Vossler; Scott M. Gilpatric
  16. Strategy-Proof Club Formation with Indivisible Club Facilities By Bhaskar Dutta; Anirban Kar; John Weymark
  17. A political economy of loose means-testing in targeted social programs By Cremer, Helmuth; Klimaviciute, Justina; Pestiau, Pierre
  18. Privacy and antitrust in digital platforms By Nicholas Economides; Ioannis Lianos
  19. Accuracy and Preferences for Legal Error By Murat C. Mungan; Marie Obidzinski; Yves Oytana
  20. Organizational structure and technological investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara

  1. By: Andrew Kosenko
    Abstract: We study a game of strategic information design between a sender, who chooses state-dependent information structures, a mediator who can then garble the signals generated from these structures, and a receiver who takes an action after observing the signal generated by the first two players. We characterize sufficient conditions for information revelation, compare outcomes with and without a mediator and provide comparative statics with regard to the preferences of the sender and the mediator. We also provide novel conceptual and computational insights about the set of feasible posterior beliefs that the sender can induce, and use these results to obtain insights about equilibrium outcomes. The sender never benefits from mediation, while the receiver might. The receiver benefits when the mediator's preferences are not perfectly aligned with hers; rather the mediator should prefer more information revelation than the sender, but less than perfect
    Date: 2020–11
  2. By: Hitoshi Matsushima (University of Tokyo)
    Abstract: We investigate the unique implementation problem of social choice functions (SCFs) from ethical and epistemological concerns. According to Matsushima and Noda (2020), we consider the possibility that in higher-order beliefs there exists an agent who is honest, that is, motivated by intrinsic preference for honesty as well as material interest. We assume only weak honesty in that an honest agent is mostly motivated by material interests and even tells a white lie. We show a very permissive result that any social choice function is uniquely implementable in Bayes Nash equilibrium if “all agents are selfish†never happens to be common knowledge. Hence, any SCF is uniquely implementable even if all agents are selfish and “all agents are selfish†is mutual knowledge. Importantly, any ethical SCF is uniquely implementable whenever “all agents are selfish†never happens to be common knowledge while it is never uniquely implementable otherwise.
    Date: 2020–12
  3. By: Kfir Eliaz; Alexander Frug
    Abstract: We introduce a new channel for breakdown of cheap talk communication between an informed sender and an uninformed receiver. Our framework has the following novel feature: conditional on interacting, both parties agree on the optimal action in each state, but there are sender types with which the receiver prefers not to interact. We show that for a broad class of preferences, any interval equilibrium induces only finitely many actions in the support of the receiver's strategy. We also show that introducing a second stage with noisy signals on the sender type has a dramatic effect on the firststage communication.
    Keywords: Cheap talk, contagion
    JEL: D83
    Date: 2020–12
  4. By: Yasuyuki Miyahara (Kobe University); Hitoshi Sadakane (Kyoto University)
    Abstract: We analyze a situation in which an uninformed decision maker can gather information about states by paying a cost before communicating with an informed sender. We focus on multidimensional information gathering: the decision maker can determine how much time to allocate to gather information about each state. It is shown that communication can be enhanced under multidimensional information gathering compared with no information gathering. We also characterize the optimal investigation, which specifies the state the decision maker gathers information about. Our result demonstrates an advantage of multidimensional information gathering over single-dimensional information gathering.
    Keywords: Cheap talk; Communication; Multidimensional information gathering; Strategic information transmission Technology choice; CES production function
    JEL: C72 C73 D83
    Date: 2020–12
  5. By: Emmanuel LORENZON
    Abstract: We consider a private value auction with one-sided incomplete information in which two objects are sold in a sequence of two second-price auctions. Buyers have multi-unit demands and both are asymmetrically informed at the ex-ante stage of the game. One buyer perfectly knows his type and the other is uninformed about his own type. We con-sider interim information acquisition for the uninformed buyer and derive an asymmetric equilibrium which is shown to produce a declining price sequence across both sales. The supermartingale property of the price sequence stems from the uninformed buyer’s incen-tives to gather private information which leads to an aggressive bidding at the first-stage auction.
    Keywords: Sequential auctions; Uninformed bidding; Multi-unit demand; Declining price anomaly
    JEL: D44 D82 L86 M37
    Date: 2020
  6. By: Xianwen Shi; Jun Zhang
    Abstract: We study welfare consequences of third-degree price discrimination and market segmentation in a duopoly market with captive and contested consumers. A market segmentation divides the market into segments that contain different proportions of captive and contested consumers. Firm-optimal segmentation divides the market into two segments and in each segment only one firm has captive consumers. In contrast to the existing literature with exogenous segmentation, price discrimination under firm-optimal segmentation unambiguously reduces consumer surplus for all markets. Consumer-optimal segmentation divides the market into a maximal symmetric segment and the remainder, and yields the lowest producer surplus among all segmentations.
    Keywords: Price Discrimination, Market Segmentation, Information Design, Welfare
    JEL: D43 D82
    Date: 2020–12–25
  7. By: Akio Kawasaki (Faculty of Economics, Oita University); Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce,Kansai University)
    Abstract: This study considers the role of the upstream process research and development (R&D) when downstream develops new products. We build a model in which an upstream firm conducts cost-reducing investment and two downstream firms develop new products. We assume that all products are differentiated. We show that downstream product development promotes upstream investment. We also demonstrate that downstream product development is a strategic complement if upstream R&D efficiency is high, while it is a strategic substitute if it is low. This implies that the occurrence of complementary equilibrium does not need asymmetry in the differentiated final-product markets and is in sharp contrast to the previous study.
    Date: 2020–12
  8. By: Liqun Liu
    Abstract: I analyze how a careerist delegate carries out reform decisions and implementation under alternative information environments. Regardless of his true policy preference, the delegate seeks retention and tries to signal to a principal that he shares an aligned policy predisposition. Given this pandering incentive, the principal best motivates the delegate's implementation if she can commit to a retention rule that is pivotal on reform outcomes. I characterize an informativeness condition under which this retention rule is endogenous, provided that the principal uses an opaque information policy -- she observes the delegate's policy choice and outcomes, but not the effort. With other information policies, the principal has to reward congruent policy choices rather than good policy outcomes; her policy interest is damaged by failing to sufficiently motivate reform implementation.
    Date: 2020–12
  9. By: Kimya, Mert
    Abstract: We characterize the set of stable matchings when individuals are farsighted and when they choose their objections optimally along a farsighted objection path. We use a solution concept called maximal farsighted set (MFS), which is an adaptation of the concepts developed in Dutta and Vohra (2017) and Dutta and Vartiainen (2020) to one-to-one matching problems. MFS always exists, but it need not be unique. There is a unique largest MFS that contains all other, which is equal to the largest consistent set of Chwe (1994). This implies that the largest consistent set embodies the idea of maximality in one-to-one matching problems.
    Date: 2020–09
  10. By: Susanne Goldlücke; Thomas Tröger
    Abstract: We consider mechanisms for assigning an unpleasant task among a group of agents with heterogenous abilities. We emphasize threshold rules: every agent decides whether or not to ``volunteer''; if the number of volunteers exceeds a threshold number, the task is assigned to a random volunteer; if the number is below the threshold, the task is assigned to a random non-volunteer. We show that any non-extreme threshold rule allows for a symmetric equilibrium in which every ability type is strictly better off than in a random assignment. This holds for arbitrarily high costs of performing the task. Within the class of binary-action mechanisms, some threshold rule is utilitarian optimal. The first-best can be approximated arbitrarily closely with a threshold rule as the group size tends to infinity; that is, there exist threshold numbers such that with probability arbitrarily close to 1 the task is performed by an agent with an ability arbitrarily close to the highest possible ability. The optimal threshold number goes to infinity as the group size tends to infinity.
    Date: 2020–12
  11. By: Sugata Ghosh (Brunel University); Anirban Mitra (University of Kent)
    Abstract: Do democracies discriminate less against minorities as compared to non-democracies? How does the dominance of an ethnic group a ect discrimination under various political regimes? We build a theory which tries to answer such questions. In our model, political leaders (democratically elected or not) decide on the allocation of spending on di erent types of public goods: a general public good and an ethnically-targetable public good which benefits the majority ethnic group while imposing a cost on the other minorities. We show that, under democracy, lower ethnic dominance leads to greater provision of the general public good while higher dominance implies higher provision of the ethnically-targetable good. Interestingly, the opposite relation obtains under dictatorship. This implies that political regime changes can favour or disfavour minorities based on the ambient level of ethnic dominance. Several historical events involving regime changes can be analysed within our framework and are consistent with our results.
    Keywords: Ethnic identities, Discrimination, Public spending, Political regimes.
    JEL: D72 D74 H40
    Date: 2019–05
  12. By: Richard S. J. Tol
    Abstract: The paper presents the professor-student network of Nobel laureates in economics. 74 of the 79 Nobelists belong to one family tree. The remaining 5 belong to 3 separate trees. There are 350 men in the graph, and 4 women. Karl Knies is the central-most professor, followed by Wassily Leontief. No classical and few neo-classical economists have left notable descendants. Harvard is the central-most university, followed by Chicago and Berlin. Most candidates for the Nobel prize belong to the main family tree, but new trees may arise for the students of Terence Gorman and Denis Sargan.
    Date: 2020–11
  13. By: Dirk Niepelt; Martín Gonzalez-Eiras
    Abstract: We propose a exible model of infectious dynamics with a single endogenous state variable and economic choices. We characterize equilibrium, optimal outcomes, static and dynamic externalities, and prove the following: (i) A lockdown generically is followed by policies to stimulate activity. (ii) Re-infection risk lowers the activity level chosen by the government early on and, for small static externalities, implies too cautious equilibrium steady-state activity. (iii) When a cure arrives deterministically, optimal policy is dis-continous, featuring a light/strict lockdown when the arrival date exceeds/falls short of a speci c value. Calibrated to the ongoing COVID-19 pandemic the baseline model and a battery of robustness checks and extensions imply (iv) lockdowns for 3{4 months, with activity reductions by 25{40 percent, and (v) substantial welfare gains from optimal policy unless the government lacks instruments to stimulate activity after a lockdown.
    Keywords: Epidemic, lockdown, forced opening, SIR model, SIS model, SI model, logistic model, COVID-19
    JEL: I18
    Date: 2020–12
  14. By: Markus Dertwinkel-Kalt; Christian Wey
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm’s Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm’s relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the gain in consumer surplus and loss in firms’ profits from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: third-degree price discrimination, oligopolistic competition, market integration
    JEL: D43 L13 L41 K21
    Date: 2020
  15. By: Dong Yan (Department of Environment and Resource Economics, Renmin University of China, Beijing); Christian A. Vossler (Department of Economics, University of Tennessee); Scott M. Gilpatric (Department of Economics, University of Tennessee)
    Abstract: This paper examines a seller’s incentives for investing in product quality when buyers have incomplete information on quality, and either the seller or the buyer can purchase quality certification from a credible third party. When the seller invests in quality before the certifier sets a price, we find that both seller effort and social welfare are higher in a setting where certification is available to the buyer relative to one where it is available to the seller. When the certifier instead moves first in the game, buyer certification continues to incentivize relatively more seller effort, although social welfare is not necessarily higher. In a complementary lab experiment, we find empirical support for some basic implications of the theory: certification improves market outcomes relative to when certification is not available, decreasing the price of certification increases its uptake, and making the certification process error-prone decreases seller effort and social welfare. Comparisons of seller and buyer certification settings suggest that differences are smaller than predicted by theory, which may be explained by behavioral factors that motivate buyers to over- or under-utilize certification. Our results also suggest that seller certification is a more robust tool for improving market efficiency.
    Keywords: Market transparency, Certification, Information and product quality, Asymmetric information, Endogenous quality, Experiments
    JEL: C91 D82 D83 L15
    Date: 2020–12
  16. By: Bhaskar Dutta (Ashoka University); Anirban Kar (Delhi School of Economics); John Weymark (Vanderbilt University)
    Abstract: We investigate the strategy-proof provision and financing of indivisible club good facilities when individuals are subject to congestion costs that are nondecreasing in the number of other club members and in a private type parameter. An allocation rule specifies how the individuals are to be partitioned into clubs and how the costs of the facilities are to be shared by club members as a function of the types. We show that no allocation rule is strategy-proof and cost efficient (i.e., it always minimizes the aggregate of the financial and congestion costs of the club facilities) when congestion costs are strictly increasing in the type parameter, but that these properties are compatible if congestion costs are dichotomous and costs are equally shared within a club. We also provide examples of strategy-proof allocation rules with equal cost sharing that are (i) Pareto optimal and (ii) Pareto optimal, nondictatorial, and individually rational when the congestion cost is linear in the type parameter.
    Keywords: club goods, strategy-proofness
    Date: 2020–12
  17. By: Cremer, Helmuth; Klimaviciute, Justina; Pestiau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: This paper studies the political sustainability of programs that are targeted towards the poor. Given that the poor to whom these programs cater do not constitute a majority, we show that for their own good it pays to let the middle class benefit from them in a random way. This approach mimics the actual institutional arrangements whereby middle-class individuals feel that they can successfully apply to the programs. We consider a two stage decision process: first a Rawlsian government chooses the probability at which the middle class is allowed to benefit from a given program; then, majority voting determines the level of benefit and the rate of contribution. At the first, constitutional stage, the government cannot commit to a specific level of taxes and benefit but anticipates that these are set by majority voting in the second stage.
    Keywords: Targeted transfers; Political support; Redistribution paradox
    JEL: H23 D72 H50
    Date: 2020–12–01
  18. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: Dominant digital platforms such as Google and Facebook collect personal information of users by default precipitating a market failure in the market for personal information. We establish the economic harms from the market failure. We discuss conditions for eliminating the market failure and various remedies to restore competition.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; data dominance; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2021–01
  19. By: Murat C. Mungan (Antonin Scalia Law School George Mason University); Marie Obidzinski (Université Paris II Panthéon-Assas, CRED EA 7321, 75005 Paris, France); Yves Oytana (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)
    Abstract: We study how legal procedures may evolve over time in response to technological advancements which increase the accuracy of evidence collection methods. First, we show that accuracy and type-1 errors (wrongful findings of liability) must reduce each other's effectiveness in mitigating optimal type-2 errors (wrongful failures to assign liability) for previous results in the literature to hold. When this condition holds, for major crimes the median voter's tolerance for type-1 errors is reduced as the legal system's accuracy increases. However, this relationship need not hold for minor offenses. Our analysis also reveals that legal processes that emerge under electoral pressures convict more often than is optimal but less often than necessary to maximize deterrence. Moreover, when the median voter's preferences are implemented, an increase in accuracy can counter-intuitively reduce welfare.
    JEL: K4
    Date: 2020–12
  20. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms' decisions on their vertical organization, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors invest in R&D. Such investment determines the production costs of the downstream sector and has spillovers on the production and the investment costs of the rival. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, R&D spillover, and R&D incentives interact to determine the equilibrium vertical structure.
    Date: 2019–11

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