nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒01‒18
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Rules and Mutation - A Theory of How Efficiency and Rawlsian Egalitarianism/Symmetry May Emerge By Juang, W-T.; Sabourian, H.
  2. Statistical discrimination without knowing statistics: blame social interactions? By Emily Tanimura
  3. Social Media, Content Moderation, and Technology By Yi Liu; T. Pinar Yildirim; Z. John Zhang
  4. I Want to Tell You? Maximizing Revenue in First-Price Two-Stage Auctions By Galit Ashkenazi-Golan; Yevgeny Tsodikovich; Yannick Viossat
  5. Best-response dynamics, playing sequences, and convergence to equilibrium in random games By Torsten Heinrich; Yoojin Jang; Luca Mungo; Marco Pangallo; Alex Scott; Bassel Tarbush; Samuel Wiese
  6. Mimetic Dominance and the Economics of Exclusion: Private Goods in Public Context By Alex Imas; Kristóf Madarász
  7. Sequential Trading With Coarse Contingencies By Sarah Auster; Jeremy Kettering; Asen Kochov
  8. Model Uncertainty in Climate Change Economics: A Review and Proposed Framework for Future Research By Loïc Berger; Massimo Marinacci
  9. Job rotation or specialization? A dynamic matching model analysis By Morimitsu Kurino; Yoshinori Kurokawa
  10. The complementary nature of trust and contract enforcement By Björn Bartling; Ernst Fehr; David Huffman; Nick Netzer
  11. Standard-Essential Patents and Incentives for Innovation By Wipusanawan, Chayanin

  1. By: Juang, W-T.; Sabourian, H.
    Abstract: For any game, we provide a justification for why in the long-run outcomes are mostly both efficient and egalitarian/symmetric in the Rawlsian sense. We do this by constructing an adaptive dynamic framework with four features. First, agents select rules to implement actions. Second, rule selection satisfies some minimal payoff monotonicity: rules that do best are chosen with a positive probability. Third, in choosing rules agents are subject to "small" random mutation. Fourth mutation is payoff-dependent with agents mutating more when they do badly than when they do well. Our main result is: if the set of feasible rules R is sufficiently rich then outcomes that survive maximise the payoff of the player that does least well. We also show that if R is restricted to those that do best-reply on uniform histories then outcomes that survive are efficient and egalitarian amongst the set of minimum weak CURB sets. Finally, we consider long-run outcomes assuming mutation is payoff-independent; in contrast to our strong selection result above, in this case we show indeterminacy: any outcome can survive if R is sufficiently rich.
    JEL: C70 C72 C73
    Date: 2021–01–04
  2. By: Emily Tanimura (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider a model where decision makers repeatedly receive candidates and assign to them a binary decision that we can interpret as hire/not hire. The decision makers base their decision on the characteristics of the candidate but they are also sensitive to the social influence exerted by the observed past choices of their peers. We characterize the long run frequency of decisions in the model, and show in particular that for candidates belonging to a group with "unfavorable" characteristics, the dynamics increase the rejection rate compared to a scenario with independent decisions, suggesting that influence between decision makers can generate effects very similar to those that result from statistical discrimination. In our model, we then relate the long run outcomes, existence and magnitude of reinforcement to the properties of the characteristics distribution.
    Keywords: JEL Classification: D83 D91 J70 C60 R30 Statistical discrimination,Social influence,Binary choice,Decision dynamics,Invariant measures,Reinforcement effects
    Date: 2021–01–04
  3. By: Yi Liu; T. Pinar Yildirim; Z. John Zhang
    Abstract: This paper develops a theoretical model to study the economic incentives for a social media platform to moderate user-generated content. We show that a self-interested platform can use content moderation as an effective marketing tool to expand its installed user base, to increase the utility of its users, and to achieve its positioning as a moderate or extreme content platform. The optimal content moderation strategy differs for platforms with different revenue models, advertising or subscription. We also show that a platform's content moderation strategy depends on its technical sophistication. Because of imperfect technology, a platform may optimally throw away the moderate content more than the extreme content. Therefore, one cannot judge how extreme a platform is by just looking at its content moderation strategy. Furthermore, we show that a platform under advertising does not necessarily benefit from a better technology for content moderation, but one under subscription does. This means that platforms under different revenue models can have different incentives to improve their content moderation technology. Finally, we draw managerial and policy implications from our insights.
    Date: 2021–01
  4. By: Galit Ashkenazi-Golan (School of Mathematical Sciences [Tel Aviv] - Raymond and Beverly Sackler Faculty of Exact Sciences - Tel Aviv University [Tel Aviv]); Yevgeny Tsodikovich (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Yannick Viossat (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A common practice in many auctions is to offer bidders an opportunity to improve their bids, known as a Best and Final Offer (BAFO) stage. This final bid can depend on new information provided about either the asset or the competitors. This paper examines the effects of new information regarding competitors, seeking to determine what information the auctioneer should provide assuming the set of allowable bids is discrete. The rational strategy profile that maximizes the revenue of the auctioneer is the one where each bidder makes the highest possible bid that is lower than his valuation of the item. This strategy profile is an equilibrium for a large enough number of bidders, regardless of the information released. We compare the number of bidders needed for this profile to be an equilibrium under different information settings. We find that it becomes an equilibrium with fewer bidders when no additional information is made available to the bidders compared to when information regarding the competition is available. As a result, from the auctioneer's revenue perspective, when the number of bidders is unknown, there are some advantages to not revealing information between the stages of the auction.
    Keywords: auctions,multistage auctions,BAFO,information utilization
    Date: 2020–10–14
  5. By: Torsten Heinrich; Yoojin Jang; Luca Mungo; Marco Pangallo; Alex Scott; Bassel Tarbush; Samuel Wiese
    Abstract: We show that the playing sequence--the order in which players update their actions--is a crucial determinant of whether the best-response dynamic converges to a Nash equilibrium. Specifically, we analyze the probability that the best-response dynamic converges to a pure Nash equilibrium in random $n$-player $m$-action games under three distinct playing sequences: clockwork sequences (players take turns according to a fixed cyclic order), random sequences, and simultaneous updating by all players. We analytically characterize the convergence properties of the clockwork sequence best-response dynamic. Our key asymptotic result is that this dynamic almost never converges to a pure Nash equilibrium when $n$ and $m$ are large. By contrast, the random sequence best-response dynamic converges almost always to a pure Nash equilibrium when one exists and $n$ and $m$ are large. The clockwork best-response dynamic deserves particular attention: we show through simulation that, compared to random or simultaneous updating, its convergence properties are closest to those exhibited by three popular learning rules that have been calibrated to human game-playing in experiments (reinforcement learning, fictitious play, and replicator dynamics).
    Date: 2021–01
  6. By: Alex Imas (Booth School of Business); Kristóf Madarász (London School of Economics)
    Abstract: We propose that a person’s valuation from consuming an object or possessing an attribute is increasing in others’ unmet excess desire for it. Such mimetic dominance-seeking helps explain a host of market anomalies and generates novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade, and people exhibit a ‘social’ endowment effect. The value of consuming a good increases in its scarcity, which generates a motive for exclusion. Randomly excluding potential consumers from the opportunity to acquire a product will increase profits for a classic monopolist producing at zero marginal cost and a seller’s rents in first-price auctions. We test the predictions of the model empirically. When auctioning a private good, all else equal, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Such effects are absent when those excluded are known to have lower valuations. In basic exchange, a person’s willingness to pay for a good increases substantially when others are excluded from the opportunity of buying the same kind of good. Mimetic preferences have implications for both non-price and price based methods of exclusion: the model generates "Veblen effects," rationalizes attitudes against redistribution, immigration, and trade, and provides a novel motive for social stratification and discrimination
    Keywords: mimetic preferences, objects of desire, exclusion, Trade, auctions, competition, Inequality
    JEL: L12 D44 D63 F12 D40
    Date: 2021–01
  7. By: Sarah Auster; Jeremy Kettering; Asen Kochov
    Abstract: We consider a dynamic economy in which agents are initially unaware of some risks. As awareness of these risks emerges, markets re-open so agents can re-optimize and purchase insurance. An inefficiency may nonetheless arise as the cost of insurance is not spread over time. This ``savings mistake" does not arise in two benchmark cases. In those, the ability to re-trade fully negates the initial misperception of risks. We also demonstrate the possibility of unexpected default. This arises when agents borrow "too much" and once perceptions change, there is no equilibrium price at which they can refinance their debt.
    Keywords: coarse perceptions, unforeseen risks, sequential trading, default
    JEL: D50 D81 D83
    Date: 2021–01
  8. By: Loïc Berger; Massimo Marinacci (Bocconi University [Milan, Italy])
    Abstract: We review recent models of choices under uncertainty that have been proposed in the economic literature. In particular, we show how different concepts and methods of economic decision theory can be directly useful for problems in environmental economics. The framework we propose is general and can be applied in many different fields of environmental economics. To illustrate, we provide a simple application in the context of an optimal mitigation policy under climate change.
    Keywords: Ambiguity,non-expected utility,model uncertainty,climate change
    Date: 2020–09–19
  9. By: Morimitsu Kurino (Faculty of Economics, Keio University); Yoshinori Kurokawa (Faculty of Humanities and Social Sciences, University of Tsukuba)
    Abstract: Which works better when making a job assignment in firms, rotation or specialization? To answer this question, we develop a dynamic firm model of matching workers with indivisible jobs as in an overlapping generations (OLG) matching model a la Kurino (2014). First, we build a simple benchmark model without OLG in which all workers are either under-training or fully trained in each period, and then we show that either the rotation or the specialization of jobs for a worker emerges from the firms' profit maximization. We extend the benchmark model to the OLG model in which workers under- and posttraining coexist in each period. We show that the profit-maximizing allocation is either a rotation or a specialization in this extended model as well. Hence, in both the benchmark and the extended models, the rotation and specialization schemes are the only variations that can be optimal in terms of profits. Moreover, the rotation scheme is better when the training cost is smaller, the uncertainty about job continuation in the future is larger, or the slope of seniority wages is larger.Length: 36 pages
    Keywords: Job assignment, Overlapping generations, Rotation, Specialization
    JEL: C78 P51
    Date: 2020–12–17
  10. By: Björn Bartling; Ernst Fehr; David Huffman; Nick Netzer
    Abstract: Under weak contract enforcement the trading parties’ trust, defined as their belief in the other party’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about the other party’s trustworthiness appear less important, suggesting that trust and contract enforcement are substitutes. Here, we show, however, that trust and contract enforcement are complements. We demonstrate that in a weak contract enforcement environment trust has no effect on the gains from trade, but when we successively improve contract enforcement, larger effects of trust emerge. We also document that improvements in contract enforcement lead to no, or only small, increases in gains from trade under low initial trust, but generate high increases in gains from trade when initial trust is high. Thus, the effect of improvements in contract enforcement is trust-dependent, and the effect of increases in trust is dependent on the strength of contract enforcement. We identify three key ingredients underlying this complementarity: (1) heterogeneity in trading partners’ trustworthiness; (2) strength of contract enforcement affecting the ability to elicit reciprocal behavior from trustworthy types, and screen out untrustworthy types; (3) trust beliefs determining willingness to try such strategies.
    Keywords: Trust, contract enforcement, complementarity, equilibrium selection, causal effect, screening, belief distortions, institutions
    JEL: C91 D02 D91 E02
    Date: 2021–01
  11. By: Wipusanawan, Chayanin (Tilburg University, School of Economics and Management)
    Date: 2020

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