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on Microeconomics |
| By: | Jeanne Hagenbach (Institut d'Urbanisme de Paris (IUP)); 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 Paris 1 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 Paris 1 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) |
| Abstract: | We consider a single psychological agent whose utility depends on his action, the state of the world, and the belief that he holds about that state. The agent is initially informed about the state and decides whether to memorize it, otherwise he has no recall. We model the memorization process by a multi-self game in which the privately informed first self voluntarily discloses information to the second self, who has identical preferences and acts upon the disclosed information. We identify broad categories of psychological utility functions for which there exists an equilibrium in which every state is voluntarily memorized. In contrast, if there are exogenous failures in the memorization process, then the agent memorizes states selectively. In this case, we characterize the partially informative equilibria for common classes of psychological utilities. If the material cost of forgetting is low, then the agent only memorizes good enough news. Otherwise, only extreme news are voluntarily memorized. |
| Keywords: | Multi-self game,disclosure games,imperfect recall,selective memory,motivated beliefs,psychological games,anticipatory utility |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03151009&r=all |
| By: | Atakan Alp; Ekmekci Mehmet; Renou Ludovic |
| Abstract: | We study a cheap-talk game where two experts first choose what information to acquire and then offer advice to a decision-maker whose actions affect the welfare of all. The experts cannot commit to reporting strategies. Yet, we show that the decision-maker's ability to cross-verify the experts' advice acts as a commitment device for the experts. We prove the existence of an equilibrium, where an expert's equilibrium payoff is equal to what he would obtain if he could commit to truthfully revealing his information. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.13562&r=all |
| By: | Francesc Dilmé (University of Bonn) |
| Abstract: | This paper analyzes a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates. Our full characterization of equilibrium behavior permits studying how patience shapes the bargaining outcome. We obtain that (i) the seller’s commitment problem persists even when she is fully patient, (ii) making the seller more impatient may increase equilibrium prices, (iii) when adverse selection is not strong, the buyer is ex-post better off when he is more impatient, and (iv) when discounting is time-dependent, episodes where the seller or the buyer have a high discount rate feature a large probability of trade, but only periods with high buyer discounting lead to a fast price decline. |
| Keywords: | Bargaining, one-sided offers, different discount factors |
| JEL: | C78 D82 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:063&r=all |
| By: | Vladimir Asriyan; Dana Foarta; Victoria Vanasco |
| 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. |
| Keywords: | complexity, information acquisition, signaling, regulation, financial products |
| JEL: | D82 D83 G18 P16 D78 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20155&r=all |
| By: | Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 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); Christian List (LMU - Ludwig Maximilian University [Munich]) |
| Abstract: | Judgment-aggregation theory has always focused on the attainment of rational collective judgments. But so far, rationality has been understood in static terms: as "coherence" of judgments at a given time, understood as consistency, completeness, and/or deductive closure. By contrast, this paper discusses whether collective judgments can be dynamically rational, so that they change rationally in response to new information. Formally, a judgment aggregation rule is dynamically rational with respect to a given revision operator if, whenever all individuals revise their judgments in light of some information (a learnt proposition), then the new aggregate judgments are the old ones revised in light of this information, i.e., aggregation and revision commute. We prove a general impossibility theorem: if the propositions on the agenda are sufficiently interconnected, no judgment aggregation rule with standard properties is dynamically rational with respect to any revision operator satisfying some mild conditions (familiar from belief revision theory). Our theorem is the dynamic-rationality analogue of some well-known impossibility theorems for static rationality. We also explore how dynamic rationality might be achieved by relaxing some of the conditions on the aggregation rule and/or the revision operator. |
| Keywords: | judgment aggregation,belief revision,static vs. dynamic rationality,premise-based rule |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-03140090&r=all |
| By: | Ivan T. (Federal Reserve Board, 20th Street and Constitution Avenue NW, Washington, DC 20551); Tom Zimmermann (University of Cologne) |
| Abstract: | This paper analyzes a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates. Our full characterization of equilibrium behavior permits studying how patience shapes the bargaining outcome. We obtain that (i) the seller’s commitment problem persists even when she is fully patient, (ii) making the seller more impatient may increase equilibrium prices, (iii) when adverse selection is not strong, the buyer is ex-post better off when he is more impatient, and (iv) when discounting is time-dependent, episodes where the seller or the buyer have a high discount rate feature a large probability of trade, but only periods with high buyer discounting lead to a fast price decline. |
| Keywords: | state and local government debt, debt heterogeneity, fiscal shocks |
| JEL: | H6 F18 M41 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:062&r=all |
| By: | Roy, Sunanda; Singh, Rajesh; Weninger, Quinn |
| Abstract: | We present a model of firm entry in an industry that is managed with an aggregate production quota or cap-and-trade (CAT) regulation. Firms are heterogeneous in productivity; each knows its own costs of production but is uncertain about where its costs rank among an entrant population. Entry is modeled as a simultaneous move game with incomplete information. Under CAT, firms compete to secure shares of a fixed number of production permits. Entry payoffs are determined by own and rival entrant productivity. We derive the Bayesian Nash entry equilibrium and show conditions under which placement uncertainty leads to excess entry relative to full information. We derive conditions where the reverse, inefficiency due to under entry, occurs. Whereas the behavioral IO literature has attributed over-entry and over-investment to bias, i.e., entrepreneurs are overconfident believing that they are better than average, we show that rational uncertainty regarding post entry competition is sufficient. Our results offer a new explanation for often-observed rational exuberance and for rational pessimism in investment by entrepreneurs. |
| Date: | 2021–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202102240800001096&r=all |
| By: | Joonbae Lee; Hanna Wang |
| Abstract: | This paper studies the relationship between search effort and workers’ ranking by employers. We propose a matching model in which employers’ common preferences over a continuum of heterogeneous workers affect the number of applications each worker sends out. We show that in equilibrium, the relationship is hump-shaped for sufficiently high vacancy-to-worker ratios, that is highly-ranked and lowly-ranked workers send out fewer applications than workers of mid-range rank. This arises due to two opposing forces driving the incentive of applicants. Increasing the number of applications acts as insurance against unemployment, but is less effective when the probability of success for each application is low. This mechanism exacerbates the negative employment outcomes of low-rank workers. We discuss comparative statics with regards to the size of the vacancy pool and application cost, and show that, in contrast to the market equilibrium, in the solution of the social planner the number of applications are monotonously decreasing in rank. |
| Keywords: | simultaneous search, search effort, worker heterogeneity |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1242&r=all |
| By: | Stark, Oded; Kosiorowski, Grzegorz |
| Abstract: | The inclination of individuals to improve their performance when it lags behind that of others with whom they naturally compare themselves can be harnessed to optimize the individuals' effort in work and study. In a given set of individuals, we characterize each individual by his relative deprivation, which measures by how much the individual trails behind other individuals in the set doing better than him. We seek to divide the set into an exogenously predetermined number of groups (subsets) in order to maximize aggregate relative deprivation, so as to ensure that the incentive for the individuals to work or study harder because of unfavorable comparison with others is at its strongest. We find that the solution to this problem depends only on the individuals' ordinally-measured levels of performance independent of the performance of comparators. |
| Keywords: | Social preferences,Relative deprivation,Effort elicitation,Assignment to groups,Performance optimization |
| JEL: | D01 D02 D23 D61 D90 L22 M11 M52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:142&r=all |
| By: | David K Levine; Andrea Mattozzi |
| Date: | 2021–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:11694000000000049&r=all |
| By: | Makris Miltiadis; Renou Ludovic |
| Abstract: | This paper generalizes the concept of Bayes correlated equilibrium (Bergemann and Morris, 2016) to multi-stage games. We demonstrate the power of our characterization results by applying them to a number of illustrative examples and applications. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.13482&r=all |
| By: | Jesús Fernández-Villaverde; Federico Mandelman; Yu Yang; Francesco Zanetti |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| Keywords: | market concentration, superstar firms, search complementarities, monopsony power in the labor market |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8897&r=all |
| By: | Koch, Alexander K. (Aarhus University); Nafziger, Julia (Aarhus University) |
| Abstract: | We provide a tractable model of motivational goal bracketing by a present-biased individual, extending previous work to show that the main insights from models with rational goals carry over to a setting with non-rational goals. Goals motivate because they serve as reference points that make substandard performance psychologically painful. A broad goal allows high performance in one task to compensate for low performance in the other. This partially insures against the risk of falling short of ones' goal(s), but creates incentives to shirk in one of the tasks. Narrow goals have a stronger motivational force and thus can be optimal, providing an explanation for observed instances of narrow bracketing. In particular, if one task outcome becomes known before working on the second task, narrow bracketing is always optimal. |
| Keywords: | non-rational goals, multiple tasks, motivational bracketing, self-control |
| JEL: | A12 C70 D91 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14142&r=all |
| By: | Moreno, Diego; Takalo, Tuomas |
| Abstract: | We study the optimal precision of public information disclosures about banks assets quality. In our model the precision of information affects banks' cost of raising funding and asset profile riskiness. In an imperfectly competitive banking sector, banks'stability and social surplus are non-monotonic functions of precision: an intermediate precision (or low-to-intermediate precision if banks contract their repayment promises on public information) maximizes stability, and also yields the maximum surplus when the social cost of bank failure c is large. When c is small and the banks' asset risk taking is not too sensitive to changes in the precision, the maximum surplus (and maximum risk) are reached at maximal precision. In a perfectly competitive banking sector in which banks' asset risk taking is not too sensitive to the precision of information, the maximum surplus (and maximum risk) are reached at maximal precision, while maximum stability is reached at minimal precision. |
| JEL: | G21 G28 D83 |
| Date: | 2021–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2021_003&r=all |
| By: | Jacopo Bizzotto (Oslo Business School - OsloMet); Bård Harstad (Universitetet i Oslo) |
| Abstract: | For markets to work, buyers must know when products are of high quality. This paper provides a theoretical framework for studying the consequences of the certifier's identity, the characteristics of the best certifier, and the identity of the equilibrium certifier. A certifier that cares about quality and externalities (such as an NGO) motivates firms to invest in their capacities to provide quality; a certifier concerned with the firms' profits (such as an industry association) motivates more firms to enter the market in the first place. The relative importance of externalities, investments, and entry determines the socially optimal certification authority but also the type of certifier that is most likely to enter in equilibrium. The theory's predictions are empirically testable and shed light on the variety of certifiers across markets and over time. |
| Keywords: | Certification, delegation, entry of firms, investments in quality, private politics |
| JEL: | G24 L15 L31 |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:oml:wpaper:202007&r=all |
| By: | Kondor, Peter; Zawadowski, Adam |
| Abstract: | We present a novel entry-game with endogenous information acquisition to study the welfare effects of opacity and competition. Potential entrants to an opaque market are uncertain about their competitive advantage relative to other investors, i.e. their type. They construct optimal costly signals to learn about their types, where the marginal cost of learning captures the opacity of the market. In general, the individually optimal entry and learning decisions are socially suboptimal. Players over-invest in learning and more opaque markets are associated with more crowding. Nevertheless, more opaque markets might still lead to higher welfare by implying a better trade-off between the degree of crowding and the total cost of learning. Similarly, decreasing the share of smart investors in the market might also improve welfare. However, fierce competition is always detrimental to welfare as it leads to more wasteful learning without changing the level of crowding. |
| Keywords: | crowded markets; inattention |
| JEL: | G10 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101378&r=all |
| By: | Johannes Schneider; Christoph Wolf |
| Abstract: | Which discoveries improve decision making? Which question does a researcher pursue? How likely will a researcher discover an answer? We propose a model in which the answers to research questions are correlated. Revealing an answer endogenously improves conjectures on unanswered questions. A decision maker uses conjectures to address problems. We derive the benefits of a discovery on decision making. A researcher maximizes the benefits of discovery net the cost of research. We characterize the researcher's optimal choice of research question and research effort. Benefits and cost of research crucially depend on the structure of pre-existing knowledge. We find that discoveries are rare but advance knowledge beyond the frontier if existing knowledge is dense. Otherwise, discoveries are more likely and improve conjectures inside the frontier. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.13434&r=all |
| By: | Xiang Hui; Tobias J. Klein; Konrad Stahl |
| Abstract: | Anonymous markets would be very difficult to successfully operate without the possibility that buyers rate the seller. Yet many empirical results yield that ratings are non-random and concentrate on extreme experiences. We develop a model of rating decisions in which the buyer is willing to share publicly her opinion about a transaction, if its realized quality differs much from the quality expected by her, where expected quality is influenced by an aggregate of the seller’s past ratings. We demonstrate our results empirically using raw data from eBay. In spite of the non-randomness of responses, unweighted rating aggregates appear to rather well reflect reported buyer experience as long as expectations are not extreme. |
| Keywords: | Online Markets, Rating, Reputation |
| JEL: | D83 L12 L13 L81 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_267&r=all |
| By: | Gaetano Gaballo; Guillermo Ordoñez |
| Abstract: | In absence of insurance contracts to share risk, public information is a double-edged sword. On the one hand, it empowers self-insurance as agents better react to shocks, reducing risk. On the other hand, it weakens market-insurance as common knowledge of shocks restricts trading risk. We embody these two faces of information in a single general-equilibrium model. We characterize the conditions under which market-insurance is superior, and then public information – even though costless and precise – is socially undesirable. In the absence of information, however, market-insurance is still underprovided as individuals fail to internalize its general equilibrium benefits. |
| JEL: | D52 D53 D62 D8 E21 G11 G12 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28489&r=all |
| By: | Jacopo Bizzotto (Oslo Business School - OsloMet); Eduardo Perez-Richet (Sciences Po); Adrien Vigier (University of Oxford - Department of Economics) |
| Abstract: | We consider a general information design problem in which the task of running a procedure generating information for a continuation game is performed by an agent. A moral hazard roblem therefore emerges in which the principal faces a trade-off between generating information with an eye to the continuation game, and incentivizing the agent to comply with the procedure designed. We provide a methodology to tackle such problems, and examine the way in which moral hazard affects the optimal procedure of the principal. |
| Keywords: | Information Design, Moral Hazard, Agency Cost, Information Acquisition |
| JEL: | C72 D82 |
| Date: | 2020–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:oml:wpaper:202006&r=all |