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on Microeconomics |
| By: | Frédéric Koessler (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Vasiliki Skreta (CEPR - Center for Economic Policy Research - CEPR, University of Texas at Austin [Austin], UCL - University College of London [London]) |
| Abstract: | A designer is privately informed about the state and chooses an information disclosure mechanism to influence the decisions of multiple agents playing a game. We define an intuitive class of incentive compatible information disclosure mechanisms which we coin interim optimal mechanisms. We prove that an interim optimal mechanism exists, and that it is an equilibrium outcome of the interim information design game. An ex-ante optimal mechanism may not be interim optimal, but it is whenever it is ex-post optimal. In addition, in leading settings in which action sets are binary, every ex-ante optimal mechanism is interim optimal. We relate interim optimal mechanisms to other solutions of informed principal problems. |
| Keywords: | strong-neologism proofness,neutral optimum,informed principal,Bayesian persuasion,interim information design,core mechanism,verifiable types. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03107866&r=all |
| By: | Franz Dietrich (Centre d'Economie de la Sorbonne, Paris School of Economics) |
| Abstract: | Can a group be an orthodox rational agent? This requires the group's aggregate preferences to follow expected utility (static rationality) and to evolve by Bayesian updating (dynamic rationality). Group rationality is possible, but the only preference aggregation rules which achieve it (and are minimally Paretian and continuous) are the linear-geometric rules, which combine individual values linearly and individual beliefs geometrically. Linear-geometric preference aggregation contrasts with classic linear-linear preference aggregation, which combines both values and beliefs linearly, and achieves only static rationality. Our characterisation of linear-geometric preference aggregation implies as corollaries a characterisation of linear value aggregation (Harsanyi's Theorem) and a characterisation of geometric belief aggregation |
| Keywords: | rational group agent; uncertainty; preference aggregation; opinion pooling, static versus dynamic rationality; expected-utility hypothesis; Bayesianism; group rationality versus Paretianism; spurious unanimity; ex-ante versus ex-post Pareto |
| JEL: | D7 D8 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:20014r&r=all |
| By: | Peter M. DeMarzo; Ron Kaniel |
| Abstract: | We consider multi-agent multi-firm contracting when agents benchmark their wages to a weighted average of their peers, where weights may vary within and across firms. Despite common shocks, compensation benchmarking can undo performance benchmarking, so that wages load positively rather than negatively on peer output. Although contracts appear inefficient, when a single principal commits to a public contract, the optimal contract hedges agents’ relative wage risk without sacrificing efficiency. Moreover, the principal can exploit any asymmetries in peer effects to enhance profits. With multiple principals, or a principal that is unable to commit, a “rat race” emerges in which agents are more productive, but wages increase even more, reducing profits and undermining efficiency. Effort levels are too high rather than too low, and can exceed first best. Wage transparency and disclosure requirements exacerbate these effects. |
| JEL: | D85 D86 G3 G4 J3 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28378&r=all |
| By: | Takaaki Abe (School of Political Science and Economics, Waseda University) |
| Abstract: | We study stable strategy profiles in a pure exchange game of bads, where each player dumps his/her bads such as garbage onto someone else. Hirai et al. (2006) show that cycle dumping, in which each player follows an ordering and dumps his/her bads onto the next player, is a strong Nash equilibrium and that self-disposal is α-stable for some initial distributions of bads. In this paper, we show that a strategy profile of bullying, in which all players dump their bads onto a single player, becomes α-stable for every exchange game of bads. We also provide a necessary and sufficient condition for a strategy profile to be α-stable in an exchange game of bads. Moreover, we show that cycle dumping is the only dumping behavior that generates a strong Nash equilibrium. In addition, we show that repeating an exchange after the first exchange makes self-disposal stationary. |
| Keywords: | bads; dumping; exchange; stability |
| JEL: | C72 C71 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1918&r=all |
| By: | Schuler, Sebastian |
| Abstract: | This paper analyzes the welfare impact of a cap on commissions paid by product providers to intermediaries who advise consumers. In contrast to the extant literature, with a downward sloping demand capped commissions have a direct impact on product providers' margins and consumers' prices. I show that a general ban is not welfare optimal as higher commissions do not necessarily lead to higher consumer prices. Starting from a general ban, allowing (marginally) higher commissions leads to lower prices as positive commissions make intermediaries wary to recommend more expensive products to consumers, thus making demand more elastic with respect to price. |
| Keywords: | Advice; Cheap Talk;, Commissions; Regulation |
| JEL: | D21 D82 D83 L15 |
| Date: | 2020–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104867&r=all |
| By: | Yasushi Asako (Faculty of Political Science and Economics, Waseda University) |
| Abstract: | Political parties and candidates usually prefer making ambiguous promises. This study identiÖes the conditions under which candidates choose ambiguous promises in equilibrium, given convex utility functions of voters. The results show that in a deterministic model, no equilibrium exists when voters have convex utility functions. However, in a probabilistic voting model, candidates make ambiguous promises in equilibrium when, (i) voters have convex utility functions, and (ii) the distribution of votersímost preferred policies is polarized. |
| Keywords: | elections; political ambiguity; public promise; campaign platform; probabilistic voting; polarization |
| JEL: | D71 D72 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1906&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03096126&r=all |
| By: | Peter G. Hansen |
| Abstract: | I introduce novel preference formulations which capture aversion to ambiguity about unknown and potentially time-varying volatility. I compare these preferences with Gilboa and Schmeidler's maxmin expected utility as well as variational formulations of ambiguity aversion. The impact of ambiguity aversion is illustrated in a simple static model of portfolio choice, as well as a dynamic model of optimal contracting under repeated moral hazard. Implications for investor beliefs, optimal design of corporate securities, and asset pricing are explored. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2101.12306&r=all |
| By: | Aifan Ling; Jianjun Miao; Neng Wang |
| Abstract: | We study how investors' preferences for robustness influence corporate investment, financing, and compensation decisions and valuation in a financial contracting model with agency. We characterize the robust contract and show that early liquidation can be optimal when investors are sufficiently ambiguity averse. We implement the robust contract by debt, equity, cash, and a financial derivative asset. The derivative is used to hedge against the investors' concern that the entrepreneur may be overly optimistic. Our calibrated model generates sizable equity premium and credit spread, and implies that ambiguity aversion lowers Tobin's q; the average investment, and investment volatility. The entrepreneur values the project at an internal rate of return of 3.5% per annum higher than investors do. |
| JEL: | D81 E22 G12 G32 J33 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28367&r=all |
| By: | Julien Benistant (CNC - Institut des sciences cognitives Marc Jeannerod - Centre de neuroscience cognitive - UMR5229 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Fabio Galeotti (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon) |
| Abstract: | We study a dynamic variant of the die-under-the-cup task where players can repeatedly misreport the outcomes of consecutive die rolls to earn more money, either under a noncompetitive piece rate scheme or in a two-player competitive tournament. In this dynamic setting we test (i) whether giving continuous feedback (vs. final ex post feedback) on the opponent's reported outcome to both players encourages cheating behavior, and (ii) to what extent this influence depends on the incentive scheme in use (piece rate vs. tournament). We also vary whether the opponent is able to cheat or not. We find that people lie more when placed in a competitive rather than a non-competitive setting, but only if both players can cheat in the tournament. Continuous feedback on the counterpart's reports increases cheating under the piece-rate scheme but not in a competitive setting. Our results provide new insights on the role that feedback plays on cheating behavior in dynamic settings under different payment schemes, and shed liht on the origins of the effect of competition on dishonesty. |
| Keywords: | Dishonesty,feedback,peer effects,competitive incentives,experiment |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03110295&r=all |
| By: | Foarta, Dana (Stanford U); Morelli, Massimo (Bocconi U and IGIER) |
| Abstract: | Decision makers called to evaluate and approve a reform proposed by a politician, a bureaucrat, or an interest group face a double asymmetric information problem: about the competence of the proposer and the consequences of the proposal. Moreover, the ability of decision makers to evaluate proposals depends on the complexity of the legislative environment, itself a product of past reforms. We model the strategic interaction between reformers and decision makers as a function of legislative complexity and study the resulting endogenous complexity and stability of reforms. Reform complexity is non-monotonic in the expected competence of the proposer. Dynamically, complexification-simplification cycles can occur on the equilibrium path. Expected complexity is path dependent when competence of reform proposers is lower, leading to 'complexity traps,' with bad or unnecessary complex reforms, or 'inaction traps,' where reforms are blocked. The results nest and reconcile a number of recent findings in legislative and regulation studies, and provide implications for institutional design. |
| JEL: | D73 G28 H83 L51 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3891&r=all |
| By: | Bary S.R. Pradelski; Jacob Leshno; Bary Pradelski (POLARIS - Performance analysis and optimization of LARge Infrastructures and Systems - LIG - Laboratoire d'Informatique de Grenoble - UJF - Université Joseph Fourier - Grenoble 1 - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique - INPG - Institut National Polytechnique de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - Inria Grenoble - Rhône-Alpes - Inria - Institut National de Recherche en Informatique et en Automatique) |
| Abstract: | We study the dynamics of price discovery in decentralized two-sided markets. We show that there exist memoryless dynamics that converge to the core of the underlying assignment game in which agents' actions depend only on their current payoff. However, we show that for any such dynamic the convergence time can grow exponentially in relation to the population size. We present a natural dynamic in which a player's reservation value provides a summary of his past information and show that this dynamic converges to the core in polynomial time in homogeneous markets. |
| Keywords: | assignment game,price discovery,information,convergence time |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03100097&r=all |
| By: | Asriyan, Vladimir (CREi and Barcelona GSE); Foarta, Dana (Stanford U); Vanasco, Victoria (CREi and Barcelona GSE) |
| Abstract: | We study the joint determination of product quality and complexity in a rational setting. We introduce a novel notion of complexity, which affects how costly it is for an agent to acquire information about product quality. In our model, an agent can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. Examples include banks that design financial products that they offer to retail investors, or policymakers who propose policies for approval by voters. We find that complexity is not necessarily a feature of low quality products. While an increase in alignment between the agent and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings produce novel empirical implications on the relationship between quality and complexity, which we relate to evidence within the context of financial products and regulatory policies. |
| JEL: | D78 D82 D83 G18 P16 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3885&r=all |
| By: | Kazuyuki Sasakura (Faculty of Political Science and Economics, Waseda Universi) |
| Abstract: | This paper provides a simple example of the utility function with two consumption goods which can be calculated by hand to produce a Giffen good. It is based on the theoretical result by Kubler, Selden, and Wei (2013). Using a model of portfolio selection with a risk-free asset and a risky asset, they showed that the risk-free asset becomes a Giffen good if the utility belongs to the HARA family. This paper investigates their result further in a usual microeconomic setting, and derives the conditions for one of the consumption goods to be a Giffen good from a broader perspective. |
| Keywords: | HARA family; Decreasing relative risk aversion; Giffen good; Slutsky equation; Ratio effect |
| JEL: | D11 D01 G11 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1908&r=all |
| By: | Mamoru Kaneko (Waseda University) |
| Abstract: | We reformulate expected utility theory, from the viewpoint of bounded rationality, by introducing probability grids and a cognitive bound; we restrict permissible probabilities only to decimal (`-ary in general) fractions of Önite depths up to a given cognitive bound. We distinguish between measurements of utilities from pure alternatives and their extensions to lotteries involving more risks. Our theory is constructive, from the viewpoint of the decision maker. When a cognitive bound is small, the preference relation involves many incomparabilities, but these diminish as the cognitive bound is is relaxed. Similarly, the EU hypothesis would hold more for a weaker cognitive bound. The main part of the paper is a study of preferences including incomparabilities in cases with Önite cogntive bounds; we give representation theorems in terms of a 2-dimensional vector-valued utility functions. We exemplify the theory with one experimental result reported by Kahneman-Tversky. |
| Keywords: | Expected Utility; Measurement of Utility; Bounded Rationality; Probability |
| JEL: | C72 C79 C91 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1902&r=all |