nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒03‒15
thirteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Screening while Controlling an Externality By Franz Ostrizek; Elia Sartori
  2. Acquisition, (Mis)use and Dissemination of Information: The Blessing of Cursedness and Transparency By Franz Ostrizek; Elia Sartori
  3. Selective memory of a psychological agent By Hagenbach, Jeanne; Koessler, Frédéric
  4. Dynamically rational judgment aggregation By Franz Dietrich; Christian List
  5. The Incentive Costs of Welfare Judgments By Daske, Thomas
  6. The T-periodic choice with limited loyalty By Muhammad Mahajne
  7. Optimality of Winner-Take-All Contests: The Role of Attitudes toward Risk By Treich, Nicolas; Liu, Linqun
  8. Mapping an Information Design Game into an All-Pay Auction By Oleg Muratov
  9. Pairwise consensus and Borda rule By Muhammad Mahajne; Oscar Volij
  10. The Distinct Impact of Information and Incentives on Cheating By Julien Benistant; Fabio Galeotti; Marie Claire Villeval
  11. Obfuscation and rational inattention in digitalized markets By Janssen, Aljoscha; Kasinger, Johannes
  12. Prior-free Dynamic Mechanism Design With Limited Liability By Mark Braverman; Jon Schneider; S. Matthew Weinberg
  13. Is the preference of the majority representative ? By Nicolas Gravel; Mihir Bhattacharya

  1. By: Franz Ostrizek (briq - Institute on Behavior & Inequality); Elia Sartori (CSEF)
    Abstract: We propose a tractable framework to introduce externalities into a monopolist screening model. Agents differ both in their payoff type and their influence, i.e. how strongly their action affects the aggregate externality. Applications range from non-linear pricing of a network good, to taxation or subsidization of industries that produce externalities (e.g. pollution and human capital formation). When both dimensions are unobserved (full screening) the optimal allocation satisfies lexicographic monotonicity: within a payoff-type, the monopolist optimally tilts the allocation towards influential agents to increase the externality, while standard IC drives monotonicity across payoff-types. We characterize the solution through a two-step ironing procedure that addresses the nonmonotonicity in virtual values arising from the countervailing impact of payoff-types and influence. The allocation is inefficient if and only if the payoff-type is unobservable. Only influence is observable, equilibrium utility can vary across the latter as it is used as a signal of the payoff-type. We provide sufficient conditions for (expected) rents from influence to emerge.
    Date: 2021–02–03
  2. By: Franz Ostrizek (briq - Institute on Behavior & Inequality); Elia Sartori (CSEF)
    Abstract: This paper studies strategic interactions where players observe statistics of others’ actions, focusing on: First, the endogeneity of the precision of such aggregate information as signals of the fundamental; and second, agents’ well-documented difficulty in making inference based on such signals. We conduct our analysis in a beauty contest game with information acquisition, adapting cursed equilibrium to model agents limited ability to process aggregative information. To discipline information acquisition choices in this setting with incorrect information use, we define a novel notion of cursed expectations equilibrium with information acquisition: Agents assess the value of private information according to a subjective envelope condition, as they correctly anticipate their actions and (incorrectly) deem them optimal. We show that there is inefficiently low acquisition and use of private information in the rational benchmark due to an information dissemination externality. Despite suboptimal use, ursed agents rely more heavily on their private information which pushes information acquisition towards its efficient level and causes an initial increase in welfare. Transparency crowds out private information but always increases the endogenous precision of the aggregative signal and welfare, while other policy instruments can have paradoxical effects due to their interaction with cursedness. Finally, we explore the behavior and welfare of an atomistic rational agent playing against a cursed crowd and demonstrate that transparency may be an elitist policy.
    Keywords: Information Acquisition, Transparency, Cursed Equilibrium, Information Dissemination, Aggregative Information.
    JEL: C72 D62 D83 D90
    Date: 2021–02–03
  3. By: Hagenbach, Jeanne; Koessler, Frédéric
    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
    JEL: C72 D82
    Date: 2021
  4. 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
  5. By: Daske, Thomas
    Abstract: This paper draws an incentive-theoretical perspective on the concept of social welfare. In a simple mechanism-design framework, agents' interpersonal preferences and private payoffs are all subject to asymmetric information. Under reasonable normative assumptions, the following result is established: A policy can be implemented with a budget-balanced mechanism if and only if it is consistent with materialistic utilitarianism, which seeks to maximize aggregate material wealth, not utility. Any other policy, to be implementable, must violate budget balance and therefore comes at incentive costs. The corresponding mechanism is virtually unique, which allows for conclusions upon distributive and procedural justice.
    Keywords: mechanism design,social welfare,distributive justice,procedural justice,utilitarianism,dictatorship
    JEL: C78 D60 D82
    Date: 2021
  6. By: Muhammad Mahajne (Univ. Lyon, UJM Saint-Etienne, CNRS, GATE L-SE UMR 5824, F-42023 Saint-Etienne, France)
    Abstract: We study a decision-maker who selects, in every fixed period of time, T times from every collection of feasible alternatives, where T is pre-determined by him. We axiomatize the class of T-choice functions according to which the decision-maker has fixed preference relation along the same period but has limited loyalty. The decision-maker selects, deterministically, in a way such that the higher an alternative is ranked by his preference relation the higher it is selected in his T choices.
    Keywords: Choice function, Axiomatization
    JEL: D01
    Date: 2021
  7. By: Treich, Nicolas; Liu, Linqun
    Abstract: This paper studies the role of risk attitudes in determining the optimality of winner-take-all contests. We compare the typical singlewinner lottery contest with two alternatives, both spreading the rewards to more players: through holding multiple prize-giving lottery competitions or through guaranteeing a bottom prize for the losers. In the first comparison, we find that the multiple-competition contest is as effective as the winner-take-all contest when the contestants are risk neutral, but the former induces more effort than the latter when the contestants are both risk averse and prudent. In the second comparison, we find that the contest with a bottom prize is always dominated by the winner-take-all contest when the contestants are risk neutral, but the former could have an advantage over the latter when the contestants are both risk averse and prudent, and it is more likely so as the contestants become more prudent.
    Keywords: contests; winner take all; multiple prizes; risk aversion; prudence
    JEL: C72 D72 D81
    Date: 2021–02
  8. By: Oleg Muratov
    Abstract: I show that there exists a mapping between a class of information design games with multiple senders and a class of all-pay auctions. I fully characterize this mapping and show how to use it to find equilibria in the information design game. Such an approach could be applied to establish mappings between other classes of information design games, on the one hand, and contests, on the other.
    Date: 2021–03
  9. By: Muhammad Mahajne (Univ. Lyon, UJM Saint-Etienne, CNRS, GATE L-SE UMR 5824, F-42023 Saint-Etienne, France); Oscar Volij (Ben Gurion University, Beer-Sheba, Israel)
    Abstract: We say that a preference profile exhibits pairwise consensus around some fixed preference relation, if whenever a preference relation is closer to it than another one, the distance of the profile to the former is not greater than its distance to the latter. We say that a social choice rule satisfies the pairwise consensus property if it selects the top ranked alternative in the preference relation around which there is such a consensus. We show that the Borda rule is the unique scoring rule that satisfies this property.
    Keywords: Consensus, Borda rule, scoring rules
    JEL: D71 D72
    Date: 2021
  10. By: Julien Benistant (Univ Lyon, CNRS, ISC Marc Jeannerod, UMR 5229, Bron, France); Fabio Galeotti (Univ Lyon, CNRS, GATE, UMR 5824, F-69130 Ecully, France); Marie Claire Villeval (Univ Lyon, CNRS, GATE, UMR 5824, F-69130 Ecully, France; IZA, Bonn, Germany)
    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
    JEL: C92 M52 D83
    Date: 2021
  11. By: Janssen, Aljoscha; Kasinger, Johannes
    Abstract: This paper studies the behavior of competing firms in a duopoly with rational inattentive consumers. Firms play a sequential game in which they decide to obfuscate their individual prices before competing on price. Probabilistic demand functions are endogenously determined by the consumers' optimal information strategy, which depends on the firms' obfuscation choice and the consumers' unrestricted prior beliefs. We show that the game may result in an obfuscation equilibrium with high prices where both firms obfuscate and a transparency equilibrium with low prices and no obfuscation, providing an argument for market regulation. Lower information costs and asymmetric prior beliefs about prices reduce the probability of an obfuscation equilibrium. Using data on Sweden, we document a decrease in price complexity and corresponding prices in the market for mobile phone subscriptions in the last two decades. Our model rationalizes these changes and explains why complexity and high prices persist in some but not all digitalized markets.
    Keywords: Rational Inattention,Obfuscation,Price Competition,Digitalized Markets
    JEL: D11 D21 D43
    Date: 2021
  12. By: Mark Braverman; Jon Schneider; S. Matthew Weinberg
    Abstract: We study the problem of repeatedly auctioning off an item to one of $k$ bidders where: a) bidders have a per-round individual rationality constraint, b) bidders may leave the mechanism at any point, and c) the bidders' valuations are adversarially chosen (the prior-free setting). Without these constraints, the auctioneer can run a second-price auction to "sell the business" and receive the second highest total value for the entire stream of items. We show that under these constraints, the auctioneer can attain a constant fraction of the "sell the business" benchmark, but no more than $2/e$ of this benchmark. In the course of doing so, we design mechanisms for a single bidder problem of independent interest: how should you repeatedly sell an item to a (per-round IR) buyer with adversarial valuations if you know their total value over all rounds is $V$ but not how their value changes over time? We demonstrate a mechanism that achieves revenue $V/e$ and show that this is tight.
    Date: 2021–03
  13. By: Nicolas Gravel; Mihir Bhattacharya
    Abstract: Given a profile of preferences on a set of alternatives, a majority relation is a complete binary relation that agrees with the strict preference of a strict majority of these preferences whenever such strict majority is observed. We show that a majority binary relation is, among all conceivable binary relations, the most representative of the profile of preferences from which it emanates. We define “the most representative” to mean “the closest in the aggregate”. This requires a definition of what it means for a pair of preferences to be closer to each other then another. We assume that this definition takes the form of a distance function defined over the set of all conceivable preferences. We identify a necessary and sufficient condition for such a distance to be minimized by the preference of the majority. This condition requires the distance to be additive with respect to a plausible notion of compromise between preferences. The well-known Kemeny distance between preference does satisfy this property. We also provide a characterization of the class of distances satisfying this property as numerical representations of a primitive qualitative proximity relation between preferences.
    Keywords: preferences, majority, dissimilarity, distance, aggregation
    JEL: D71 D72
    Date: 2019–08

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