nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒03‒22
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Optimal Delegation and Information Transmission Under Limited Awareness By Sarah Auster; Nicola Pavoni
  2. Electoral Competition with Fake News By Gene M Grossman; Elhanan Helpman
  3. Optimal auctions with signaling bidders By Bos, Olivier; Pollrich, Martin
  4. Progressive Participation By Dirk Bergemann; Philipp Strack
  5. The Right to Quit Work: An Efficiency Rationale for Restricting the Freedom of Contract By Müller, Daniel; Schmitz, Patrick W.
  6. Oligopoly model with interdependent preferences: existence and uniqueness of Nash equilibrium By Marco F. Boretto; Fausto Cavalli; Ahmad Naimzada
  7. Simple Social Choice Rules for Exchange By Tierney, Ryan
  8. Motivated Information Acquisition in Social Decisions By Si Chen; Carl Heese
  9. Welfare Comparisons for Biased Learning By Mira Frick; Ryota Iijima; Yuhta Ishii
  10. A Principal-Agent Relationship with No Advantage to Commitment By Rajiv Vohra; Francisco Espinosa; Debraj Ray
  11. The effects of personal information on competition: Consumer privacy and partial price discrimination By Clavorà Braulin, Francesco
  12. Mechanism Design under Approximate Incentive Compatibility By Santiago Balseiro; Omar Besbes; Francisco Castro
  13. Competition in Signaling By Federico Vaccari
  14. A Soul's View of the Optimal Population Problem By David de la Croix; Matthias Doepke
  15. Motivated Information Acquisition in Social Decisions By Si Chen; Carl Heese
  16. Contracts for acquiring information By Aubrey Clark; Giovanni Reggiani
  17. The benefits of being misinformed By Marcus Roel; Manuel Staab
  18. Revenue Maximization for Buyers with Outside Options By Yannai A. Gonczarowski; Nicole Immorlica; Yingkai Li; Brendan Lucier
  19. Selling Data to an Agent with Endogenous Information By Yingkai Li
  20. Vertical Mergers with Input Substitution: Double Marginalization, Foreclosure and Welfare By Marius Schwartz; Serge Moresi

  1. By: Sarah Auster; Nicola Pavoni
    Abstract: We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also has superior awareness of the set of actions that are actually feasible. The agent decides which of the available actions to reveal and which ones to hide. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal's cost of distorting the agent's choices and thereby increases the principal's willingness to grant him higher information rents. We also consider communication between the principal and the agent after the contract is signed and the agent receives information. We show that limited awareness of actions improves communication in such signalling games: the principal makes a coarser inference from the recommendations of the privately informed agent and accepts a larger number of his proposals.
    Keywords: Unawareness, optimal delegation, strategic disclosure
    JEL: D82 D83 D86
    Date: 2021–01
  2. By: Gene M Grossman (Princeton University); Elhanan Helpman (Harvard University and CIFAR)
    Abstract: Misinformation pervades political competition. We introduce opportunities for political candidates and their media supporters to spread fake news about the policy environment and perhaps about parties' positions into a familiar model of electoral competition. In the baseline model with full information, the parties' positions converge to those that maximize aggregate welfare. When parties can broadcast fake news to audiences that disproportionately include their partisans, policy divergence and suboptimal outcomes can result. We study a sequence of models that impose progressively tighter constraints on false reporting and characterize situations that lead to divergence and a polarized electorate.
    Keywords: policy formation, probabilistic voting, misinformation, polarization, fake news
    JEL: D78 D72
    Date: 2020–10
  3. By: Bos, Olivier; Pollrich, Martin
    Abstract: We study optimal auctions in a symmetric private values setting, where bidders' care about winning the object and a receiver's inference about their type. We reestablish revenue equivalence when bidders' signaling concerns are linear, and the auction makes participation observable via an entry fee. With convex signaling concerns, optimal auctions are fully transparent: every standard auction, which reveals all bids yields maximal revenue. With concave signaling concerns there is no general revenue ranking. We highlight a trade-off between maximizing revenue derived from signaling, and extracting information from bidders. Our methodology combines tools from mechanism design with tools from Bayesian persuasion.
    Keywords: optimal auctions,revenue equivalence,Bayesian persuasion,information design
    JEL: D44 D82
    Date: 2020
  4. By: Dirk Bergemann (Cowles Foundation, Yale University); Philipp Strack (Cowles Foundation, Yale University)
    Abstract: A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived. The arrival time and the valuation is private information of each buyer. Any incentive compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation. We derive the optimal stationary mechanism in closed form and characterize its qualitative structure. As the arrival time is private information, the buyer can choose the time at which he reports his arrival. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem. The stopping time determines the time at which the buyer decides to participate in the mechanism. The resulting value function of each buyer cannot be too convex and must be continuously di?erentiable everywhere, reflecting the option value of delaying participation. The optimal mechanism thus induces progressive participation by each buyer: he participates either immediately or at a future random time.
    Keywords: Dynamic Mechanism Design, Observable Arrival, Unobservable Arrival, Repeated Sales, Interim Incentive Constraints, Interim Participation Constraints, Stopping Problem, Option Value, Progressive Participation
    JEL: D44 D82 D83
    Date: 2019–08
  5. By: Müller, Daniel; Schmitz, Patrick W.
    Abstract: A principal hires an agent to provide a verifiable service. Initially, the agent can exert unobservable effort to reduce his disutility from providing the service. If the agent is free to waive his right to quit, he may voluntarily sign a contract specifying an inefficiently large service level, while there are insufficient incentives to exert effort. If the agent's right to quit is inalienable, the underprovision of effort may be further aggravated, but the service level is ex post efficient. Overall, it turns out that the total surplus can be larger when agents are not permitted to contractually waive their right to quit work. Yet, we also study an extension of our model in which even the agent can be strictly better off when the parties have the contractual freedom to waive the agent's right to quit.
    Keywords: Moral hazard; Incentive theory; Labor contracts; Efficiency wages; Law and economics
    JEL: D23 D86 J83 K12 K31 M55
    Date: 2021
  6. By: Marco F. Boretto; Fausto Cavalli; Ahmad Naimzada
    Abstract: We propose a model to describe and study the effect of social interdependent preferences in a Cournot oligopoly based on a game in which the utility functions of firms depend on a combination of weighted profits of their competitors. If social interaction is neglected, the model reduces to the classic Cournot game, diverting from it as the role of social interaction becomes more and more relevant. Several synthetic measures are proposed to summarize the overall behavior of the agents and some configurations characterized by particular interactional structures are presented. Finally, the study of the well-posedness of the proposed framework is investigated, in terms of the existence and uniqueness of Nash equilibria. To this end, we generalize the conditions under which the existence and/or uniqueness of Nash equilibrium in classic game is guaranteed for particular Cournotian oligopoly models without interdependent preferences. In particular, we focus on two families of oligopolies, respectively consisting of "concave" oligopolies and oligopolies with isoelastic demand function.
    Keywords: Cournot Game, Preference interdependence, Network, Nash Equilibrium, existence and uniqueness
    JEL: D43 C62 C70
    Date: 2021–03
  7. By: Tierney, Ryan (Department of Business and Economics)
    Abstract: We study the classical problem of trade in two-dimensional Euclidean space. It is known that there is no efficient rule for this model that is compatible with dominant strategy incentives, that is, there is no efficient and strategy-proof rule. We observe that, in addition to incentive constraints, informational constraints are also unavoidable for social planners. Thus, we impose the requirement that finite dimensional messages be sufficient information to realize a rule. In addition, we impose the minimal fairness axioms of anonymity and a weakening of non-bossiness, as well as continuity. The result is a class of rules that is similar to those characterized by Barberà and Jackson ["Strategy-proof exchange", Econometrica, 63 (1995), 51-87].
    Keywords: Strategy-proof exchange; communication complexity
    JEL: D44 D47 D51 D83
    Date: 2021–03–11
  8. By: Si Chen; Carl Heese
    Abstract: The literature on motivated reasoning argues that people skew their personal beliefs so that they can feel moral when acting selfishly. We study dynamic information acquisition of decision-makers with a motive to form positive moral self-views and a motive to act selfishly. Theoretically and experimentally, we find that individuals fish for desirable information": they are more likely to continue (stop) acquiring information having received mostly information suggesting that acting selfishly is harmful (harmless) to others. Empirically, the tendency for this behavior is stronger among individuals with above-median cognitive ability. We discuss the resulting welfare effects. We relate our results to the literature on interpersonal Bayesian persuasion (Kamenica and Gentzkow, 2011).
    Keywords: Motivated Beliefs, Social Preferences, Information Preferences, Bayesian Persuasion, Belief Utility
    JEL: D90 D91
    Date: 2021–02
  9. By: Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Yuhta Ishii (Department of Economics at Pennsylvania State University)
    Abstract: We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index†quantifying the speed of belief convergence. Our results yield welfare-founded quantiï¬ cations of the severity of well-documented biases. Moreover, the static and dynamic rankings can disagree, and “smaller†biases can be worse in dynamic settings.
    Keywords: Learning biases, Misspecification, Welfare comparisons
    JEL: D80 D90
    Date: 2021–02
  10. By: Rajiv Vohra; Francisco Espinosa; Debraj Ray
    Abstract: IThis paper explores conditions under which the ability to commit in a principal-agent relationship creates no additional benefit for the principal, over and above simultaneous interaction without commitment. A central assumption is that the principalÕs payoff depends only on the payoff to the agent and her type.
    Date: 2021
  11. By: Clavorà Braulin, Francesco
    Abstract: This article studies the effects of consumer information on the intensity of competition. In a two dimensional duopoly model of horizontal product differentiation, firms use consumer information to price discriminate. I contrast a full privacy and a no privacy benchmark with intermediate regimes in which the firms target consumers only partially. No privacy is traditionally detrimental to industry profits. Instead, I show that with partial privacy firms are always better-off with price discrimination: the relationship between information and profits is hump-shaped. Consumers prefer either no or full privacy in aggregate. However, even though this implies that privacy protection in digital markets should be either very hard or very easy, the effects of information on individual surplus are ambiguous: there are always winners and losers. When an upstream data seller holds partially informative data, an exclusive allocation arises. Instead, when data is fully informative, each competitor acquires consumer data but on a different dimension.
    Keywords: price discrimination,data broker,consumer information,privacy
    JEL: D43 L11 L13
    Date: 2021
  12. By: Santiago Balseiro; Omar Besbes; Francisco Castro
    Abstract: A fundamental assumption in classical mechanism design is that buyers are perfect optimizers. However, in practice, buyers may be limited by their computational capabilities or a lack of information, and may not be able to perfectly optimize their response to a mechanism. This has motivated the introduction of approximate incentive compatibility (IC) as an appealing solution concept for practical mechanism design. While most of the literature has focused on the analysis of particular approximate IC mechanisms, this paper is the first to study the design of \textit{optimal} mechanisms in the space of approximate IC mechanisms and to explore how much revenue can be garnered by moving from exact to approximate incentive constraints. In particular, we study the problem of a seller facing one buyer with private values and analyze optimal selling mechanisms under $\varepsilon$-incentive compatibility. We establish that an optimal mechanism needs to randomize as soon as $\varepsilon>0$ and that no mechanism can garner gains higher than order $\varepsilon^{2/3}$. This improves upon state-of-the art results which imply maximum gains of $\varepsilon^{1/2}$. Furthermore, we construct a mechanism that is guaranteed to achieve order $\varepsilon^{2/3}$ additional revenues, leading to a tight characterization of the revenue implications of approximate IC constraints. Our study sheds light on a novel class of optimization problems and the challenges that emerge when relaxing IC constraints. In particular, it brings forward the need to optimize not only over allocations and payments but also over best responses, and we develop a new framework to address this challenge.
    Date: 2021–03
  13. By: Federico Vaccari
    Abstract: I study a multi-sender signaling game between an uninformed decision maker and two senders with common private information and conflicting interests. Senders can misreport information at a cost that is tied to the size of the misrepresentation. The main results concern the amount of information that is transmitted in equilibrium and the language used by senders to convey such information. Fully revealing and pure-strategy equilibria exist but are not plausible. I first identify sufficient conditions under which equilibria are essentially unique, robust, and always exist, and then deliver a complete characterization of these equilibria. As an application, I study the informative value of different judicial procedures.
    Date: 2021–03
  14. By: David de la Croix (Université Catholique de Louvain); Matthias Doepke (Northwestern University)
    Abstract: A long-standing challenge for welfare economics is to develop welfare criteria that can be applied to allocations with different population levels. Such a criterion is essential to resolve the optimal population problem, i.e., the tradeoff between population size and the welfare of each person alive. A welfare criterion that speaks to this issue inherently requires evaluating the welfare of nonexistent people, because some people exist only in some allocations but not in others. To make progress, we consider the population problem in an environment where population is variable, but there is a fixed supply of souls, who may experience multiple incarnations over time. Rather than pondering the value of nonexistence, from the souls’ perspective comparing larger or smaller populations merely involves valuing shorter or longer waits until the next incarnation. We argue that such comparisons are possible on the basis of introspection and lead to intuitive welfare criteria with attractive properties. We emphasize that one does not have to believe in reincarnation to accept the resulting criteria—rather, reincarnation serves as a metaphor to facilitate the necessary utility comparisons.
    Keywords: population growth, reincarnation, introspection
    JEL: D63 J17 O43
    Date: 2021–03
  15. By: Si Chen; Carl Heese
    Abstract: Individuals can often inquire about how their decisions would affect others. When do they stop the inquiry if one of their options is preferred based on a selfish motive but is potentially in conflict with social motives? Using a laboratory experiment, we provide causal evidence that having a selfishly preferred option makes individuals more likely to continue the inquiry when the information received up to that point predominantly suggests that the selfish behavior harms others. In contrast, when the information received up to that point predominantly suggests that being selfish harms nobody, individuals are more likely to stop acquiring information. We propose a theoretical model drawing on the Bayesian persuasion model of (Kamenica and Gentzkow, 2011). The model shows that the information acquisition strategy documented in our experiment can be optimal for a Bayesian agent who values the belief of herself not harming others but attempts to persuade herself to behave self-interestedly. The model predicts that strategic information acquisition motivated by self-interest can reduce the decisions' resulting negative externalities and improve the welfare of the affected others. Our laboratory experiment indeed confirms this prediction.
    Keywords: Motivated Beliefs, Social Preferences, Information Preferences, Bayesian Persuasion, Belief Utility
    JEL: D90 D91
    Date: 2020–10
  16. By: Aubrey Clark; Giovanni Reggiani
    Abstract: This paper studies the provision of incentives for information acquisition. Information is costly for an agent to acquire and unobservable to a principal. We show that any Pareto optimal contract has a decomposition into a fraction of output, a state-dependent transfer, and an optimal distortion. Under this decomposition: 1) the fraction of output paid is increasing in the set of experiments available to the agent, 2) the state-dependent transfer indexes contract payments to account for differences in output between states, 3) the optimal distortion exploits complementarities in the cost of information acquisition: experiment probabilities unalterable via contract payments stuck against liability limits are substituted for, the substitution occurring according to complementarities in the cost of information acquisition, and 4) if and only if the agent's cost of experimentation is mutual information, the optimal distortion takes the form of a decision-dependent transfer.
    Date: 2021–03
  17. By: Marcus Roel (BNU - Beijing Normal University); Manuel Staab (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)
    Abstract: In the spirit of Blackwell (1951), we analyze how two fundamental mistakes in information processing-incorrect beliefs about the world and misperception of information-affect the expected utility ranking of information experiments. We explore their individual and combined influence on welfare and provide necessary and sufficient conditions when mistakes alter and possibly reverse the ranking of information experiments. Both mistakes by themselves reduce welfare in a model where payoff relevant actions also generate informative signals. This is true for naive decisionmakers, unaware of any errors, as well as for sophisticated decision-makers, who account for the possibility of mistakes. However, mistakes can interact in non-obvious ways and an agent might be better off suffering from both, rather than just one. We provide a characterization when such positive interactions are possible. Surprisingly, this holds true only for naive decision-makers and thus naivete can be beneficial. We discuss implications for information acquisition and avoidance, welfare-improving belief manipulation, and policy interventions in general.
    Keywords: ranking of experiments,information acquisition,misperception,confirmation bias,overconfidence,underconfidence
    Date: 2021–02–16
  18. By: Yannai A. Gonczarowski; Nicole Immorlica; Yingkai Li; Brendan Lucier
    Abstract: We study mechanisms for selling a single item when buyers have private values for their outside options, which they forego by participating in the mechanism. This substantially changes the revenue maximization problem. For example, the seller can strictly benefit from selling lotteries already in the single-buyer setting. We bound the menu size and the sample complexity for the optimal single-buyer mechanism. We then show that posting a single price is in fact optimal under the assumption that the item value distribution has decreasing marginal revenue or monotone hazard rate. Moreover, when there are multiple buyers, we show that sequential posted pricing guarantees a large fraction of the optimal revenue when the item value distribution has decreasing marginal revenue.
    Date: 2021–03
  19. By: Yingkai Li
    Abstract: We consider the model of the data broker selling information to a single agent to maximize his revenue. The agent has private valuation for the additional information, and upon receiving the signal from the data broker, the agent can conduct her own experiment to refine her posterior belief on the states with additional costs. In this paper, we show that in the optimal mechanism, there is no distortion at the top and the agent has no incentive to acquire any additional costly information under equilibrium. Still, the ability to acquire additional information distorts the incentives of the agent, and reduces the optimal revenue of the data broker. Finally, we show that posting a deterministic price on fully revealing the states is optimal when the prior distribution is sufficiently informative.
    Date: 2021–03
  20. By: Marius Schwartz (Department of Economics, Georgetown University); Serge Moresi (Charles River Associates, Inc.)
    Abstract: We consider differentiated duopolists that face symmetric linear demands and produce using identical or different Cobb-Douglas technologies with a monopolized input and a competitively supplied input. A merger between the input monopolist and either firm eliminates double marginalization but—unlike with fixed-proportions technologies in the same setting—can lead to foreclosure and reduce consumer welfare and total welfare. The same can occur under a CES technology with greater input substitutability than Cobb-Douglas. When firms use identical Cobb-Douglas technologies, the merged firm raises the rival’s cost by more, and the welfare effects are worse, when the input it controls constitutes a low rather than high share of downstream input costs. If that share is sufficiently low then consumer welfare and total welfare decline, while rising elsewhere despite foreclosure. With different Cobb-Douglas technologies, the input monopolist may foreclose completely either firm pre-merger. A merger’s welfare effects then can be non-monotonic in the monopoly input’s share of costs. Classification-L4, L41, L42
    Keywords: Vertical Mergers, Foreclosure, Input Substitution, Antitrust
    Date: 2021–03–14

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