nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒08‒23
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Persuasion with correlation neglect: a full manipulation result By Levy, Gilat; Moreno de Barreda, Inés; Razin, Ronny
  2. Nonlinear Pricing with Finite Information By Dirk Bergemann; Edmund Yeh; Jinkun Zhang
  3. Fishing for Good News: Motivated Information Acquisition By Si Chen; Carl Heese
  4. Learning Efficiency of Multi-Agent Information Structures By Mira Frick; Ryota Iijima; Yuhta Ishii
  5. From Monopoly to Competition: Optimal Contests Prevail By Xiaotie Deng; Yotam Gafni; Ron Lavi; Tao Lin; Hongyi Ling
  6. Experimental Persuasion By Ian Ball; Jose-Antonio Espin-Sanchez
  7. Fighting Collusion: An Implementation Theory Approach By Azacis, Helmuts; Vida, Peter
  8. Choice by Rejection By Bhavook Bhardwaj; Kriti Manocha
  9. Retrospective Search: Exploration and Ambition on Uncharted Terrain By Can Urgun; Leeat Yariv
  10. Peace through bribing By Jingfeng Lu; Zongwei Lu; Christian Riis
  11. Centralized Matching with Incomplete Information By Marcelo A. Fernandez; Kirill Rudov; Leeat Yariv
  12. A characterization of lexicographic preferences By Mridu Prabal Goswami; Manipushpak Mitra; Debapriya Sen
  13. Third-Degree Price Discrimination in the Age of Big Data By Charlson, G.
  14. Of hired guns and ideologues: why would a law firm ever retain an honest expert witness? By Martin Richardson
  15. Characterizing the Top Cycle via Strategyproofness By Felix Brandt; Patrick Lederer
  16. A Unique and Robust Social Contract: An Application to Negotiations with Probabilistic Conflicts By Jin Yeub Kim
  17. Liquidity Provision with Adverse Selection and Inventory Costs By Martin Herdegen; Johannes Muhle-Karbe; Florian Stebegg
  18. A Partial Order on Preference Profiles By Wayne Yuan Gao
  19. The IO of Selection Markets By Liran Einav; Amy Finkelstein; Neale Mahoney
  20. Information Markets and Nonmarkets By Dirk Bergemann; Marco Ottaviani

  1. By: Levy, Gilat; Moreno de Barreda, Inés; Razin, Ronny
    Abstract: We consider an information design problem in which a sender tries to persuade a receiver that has "correlation neglect", i.e. fails to understand that signals might be correlated. We show that a sender with unlimited number of signals can fully manipulate the receiver. Specifically, the sender can induce the receiver to hold any state-dependent posterior she wishes to. If the sender only wishes to induce a state-independent posterior, she can use fully correlated signals, but generally she needs to design more involved correlation structures.
    JEL: J1
    Date: 2021–08–04
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Edmund Yeh (Department of Electrical and Computer Engineering, Northeastern University); Jinkun Zhang (Department of Electrical and Computer Engineering, Northeastern University)
    Abstract: We analyze nonlinear pricing with finite information. We consider a multi-product environment where each buyer has preferences over a d-dimensional variety of goods. The seller is limited to offering a finite number n of d-dimensional choices. The limited menu reflects a finite communication capacity between the buyer and seller. We identify necessary conditions that the optimal finite menu must satisfy, for either the socially efficient or the revenue-maximizing mechanism. These conditions require that information be bundled, or "quantized," optimally. We introduce vector quantization and establish that the losses due to finite menus converge to zero at a rate of 1/n^2/^d. In the canonical model with one-dimensional products and preferences, this establishes that the loss resulting from using the n-item menu converges to zero at a rate proportional to 1/n^2.
    Keywords: Mechanism Design, Nonlinear Pricing, Multi-Dimension, Multi-Product, Private Information, Limited Information, Quantization, Information Theory
    JEL: D82 D83 D86
    Date: 2021–08
  3. By: Si Chen; Carl Heese
    Abstract: The literature on motivated reasoning argues that people skew their beliefs to feel moral when acting selfishly. We study 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 a motive to act selfishly makes individuals 'fish for good news': they are more likely to continue (stop) acquiring information, having received mostly information suggesting that acting selfishly is harmful (harmless) to others. We find that fishing for good news may improve social welfare. Finally, more intelligent individuals have a higher tendency to fish for good news.
    Keywords: Motivated Beliefs, Social Preferences, Information Preferences, Bayesian Persuasion, Belief Utility
    JEL: D90 D91
    Date: 2021–08
  4. 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 settings in which, prior to playing an incomplete information game, players observe many draws of private signals about the state from some information structure. Signals are i.i.d. across draws, but may display arbitrary correlation across players. For each information structure, we deï¬ ne a simple learning efficiency index, which only considers the statistical distance between the worst-informed player’s marginal signal distributions in different states. We show, ï¬ rst, that this index characterizes the speed of common learning (Cripps, Ely, Mailath, and Samuelson, 2008): In particular, the speed at which players achieve approximate common knowledge of the state coincides with the slowest player’s speed of individual learning, and does not depend on the correlation across players’ signals. Second, we build on this characterization to provide a ranking over information structures: We show that, with sufficiently many signal draws, information structures with a higher learning efficiency index lead to better equilibrium outcomes, robustly for a rich class of games and objective functions. We discuss implications of our results for constrained information design in games and for the question when information structures are complements vs. substitutes.
    Keywords: Common learning, Learning efficiency, Comparison of information structures
    JEL: D80 D83 C70
    Date: 2021–08
  5. By: Xiaotie Deng; Yotam Gafni; Ron Lavi; Tao Lin; Hongyi Ling
    Abstract: We study competition among contests in a general model that allows for an arbitrary and heterogeneous space of contest design, where the goal of the contest designers is to maximize the contestants' sum of efforts. Our main result shows that optimal contests in the monopolistic setting (i.e., those that maximize the sum of efforts in a model with a single contest) form an equilibrium in the model with competition among contests. Under a very natural assumption these contests are in fact dominant, and the equilibria that they form are unique. Moreover, equilibria with the optimal contests are Pareto-optimal even in cases where other equilibria emerge. In many natural cases, they also maximize the social welfare.
    Date: 2021–07
  6. By: Ian Ball (Department of Economics, MIT); Jose-Antonio Espin-Sanchez (Cowles Foundation, Yale University)
    Abstract: We introduce experimental persuasion between Sender and Receiver. Sender chooses an experiment to perform from a feasible set of experiments. Receiver observes the realization of this experiment and chooses an action. We characterize optimal persuasion in this baseline regime and in an alternative regime in which Sender can commit to garble the outcome of the experiment. Our model includes Bayesian persuasion as the special case in which every experiment is feasible; however, our analysis does not require concaviï¬ cation. Since we focus on experiments rather than beliefs, we can accommodate general preferences including costly experiments and non-Bayesian inference.
    Keywords: Experiments, Beliefs, Decision Making, Information, Bayesian
    JEL: D81 D82 D83
    Date: 2021–08
  7. By: Azacis, Helmuts (Cardiff Business School); Vida, Peter (Corvinus Institute for Advanced Studies, Corvinus University of Budapest)
    Abstract: A competition authority has an objective, which specifies what output profile firms need to produce as a function of production costs. These costs change over time and are only known by the firms. The objective is implementable if in equilibrium, the firms cannot collude on their reports to the competition authority. Assuming that the firms can only report prices and quantities, we characterize what objectives are one-shot and repeatedly implementable. We use this characterization to identify conditions when the competitive output is implementable. We extend the analysis to the cases when a buyer also knows the private information of firms and when the firms can supply hard evidence about their costs.
    Keywords: Collusion, Antitrust, (Repeated) Implementation, Monotonicity, Price-Quantity Mechanism, Hard Evidenc
    JEL: C72 C73 D71 D82 L41
    Date: 2021–08
  8. By: Bhavook Bhardwaj; Kriti Manocha
    Abstract: We propose a boundedly rational model of choice where agents eliminate dominated alternatives using a transitive rationale before making a choice using a complete rationale. This model is related to the seminal two-stage model of Manzini and Mariotti (2007), the Rational Shortlist Method (RSM). We analyze the model through reversals in choice and provide its behavioral characterization. The procedure satisfies a weaker version of the Weak Axiom of Revealed Preference (WARP) allowing for at most two reversals in choice in terms of set inclusion for any pair of alternatives. We show that the underlying rationales can be identified from the observable reversals in the choice. We also characterize a variant of this model in which both the rationales are transitive
    Date: 2021–08
  9. By: Can Urgun; Leeat Yariv
    Abstract: We study a model of retrospective search in which an agent—a researcher, an online shopper, or a politician—tracks the value of a product. Discoveries beget discoveries and their observations are correlated over time, which we model using a Brownian motion. The agent, a standard exponential discounter, decides the breadth and length of search. We fully characterize the optimal search policy. The optimal search scope is U-shaped, with the agent searching most ambitiously when approaching a breakthrough or when nearing search termination. A drawdown stopping boundary is optimal, where the agent ceases search whenever current observations fall a constant amount below the maximal achieved alternative. We also show special features that emerge from contracting with a retrospective searcher.
    JEL: C61 C73 D25 D83
    Date: 2021–08
  10. By: Jingfeng Lu; Zongwei Lu; Christian Riis
    Abstract: We study a model in which before a conflict between two parties escalates into a war (in the form of an all-pay auction), a party can offer a take-it-or-leave-it bribe to the other one for a peaceful settlement. We distinguish between various degrees of peace prospects--implementability, weak security and strong security. We first characterize the necessary and sufficient conditions for peace implementability and weak security. We then show that weak security implies strong security. We also consider a requesting-a-bribe game and characterize the necessary and sufficient conditions for existence of a robust peaceful equilibrium. We find that all such robust peaceful equilibria share the same request.
    Date: 2021–07
  11. By: Marcelo A. Fernandez; Kirill Rudov; Leeat Yariv
    Abstract: We study the impacts of incomplete information on centralized one-to-one matching markets. We focus on the commonly used Deferred Acceptance mechanism (Gale and Shapley, 1962). We show that many complete-information results are fragile to a small infusion of uncertainty about others' preferences.
    JEL: C78 D47 D82
    Date: 2021–07
  12. By: Mridu Prabal Goswami; Manipushpak Mitra; Debapriya Sen
    Abstract: This paper characterizes lexicographic preferences over alternatives that are identified by a finite number of attributes. Our characterization is based on two key concepts: a weaker notion of continuity called 'mild continuity' (strict preference order between any two alternatives that are different with respect to every attribute is preserved around their small neighborhoods) and an 'unhappy set' (any alternative outside such a set is preferred to all alternatives inside). Three key aspects of our characterization are: (i) use of continuity arguments, (ii) the stepwise approach of looking at two attributes at a time and (iii) in contrast with the previous literature, we do not impose noncompensation on the preference and consider an alternative weaker condition.
    Date: 2021–08
  13. By: Charlson, G.
    Abstract: A platform holds information on the demographics of its users and wants maximise total surplus. The data generates a probability over which of two products a buyer prefers, with different data segmentations being more or less informative. The platform reveals segmentations of the data to two firms, one popular and one niche, preferring to reveal no information than completely revealing the consumer's type for certain. The platform can improve profits by revealing to both firms a segmentation where the niche firm is relatively popular, but still less popular than the other firm, potentially doing even better by revealing information asymmetrically. The platform has an incentive to provide more granular data in markets in which the niche firm is particularly unpopular or in which broad demographic categories are not particularly revelatory of type, suggesting that the profit associated with big data techniques differs depending on market characteristics.
    Keywords: Strategic interaction, network games, interventions, industrial organisation, platforms, hypergraphs
    JEL: D40 L10 L40
    Date: 2021–08–19
  14. By: Martin Richardson
    Abstract: We suppose that expert witnesses are, generically, either honest in their assessment of a fact situation or are mercenary ‘hired guns’ that advocate for their retaining party. The type of a witness is known to law firms, who engage with them repeatedly, but not to courts. If the only way an honest witness can credibly reveal their type to a court is by siding with the opposing party then the question arises of why a law firm would ever retain an honest expert. We show that it can act as a signaling device in a game between the law firms to communicate private information regarding a party’s confidence in winning the case. Our results indicate, amongst other things, that the ‘English’ rule of costs allocation can make a socially desirable separating equilibrium less likely, compared to the ‘American’ rule.
    Keywords: expert witnesses, signaling, litigation
    JEL: K41 D82 C72
    Date: 2021–08
  15. By: Felix Brandt; Patrick Lederer
    Abstract: Gibbard and Satterthwaite have shown that the only single-valued social choice functions (SCFs) that satisfy non-imposition (i.e., the function's range coincides with its codomain) and strategyproofness (i.e., voters are never better off by misrepresenting their preferences) are dictatorships. In this paper, we consider set-valued social choice correspondences (SCCs) that are strategyproof according to Fishburn's preference extension and, in particular, the top cycle, an attractive SCC that returns the maximal elements of the transitive closure of the weak majority relation. Our main theorem implies that, under mild conditions, the top cycle is the only non-imposing strategyproof SCC whose outcome only depends on the quantified pairwise comparisons between alternatives. This result effectively turns the Gibbard-Satterthwaite impossibility into a complete characterization of the top cycle by moving from SCFs to SCCs. It is obtained as a corollary of a more general characterization of strategyproof SCCs.
    Date: 2021–08
  16. By: Jin Yeub Kim (Yonsei Univ)
    Abstract: This paper considers social contracts (or mechanisms) in negotiations with incomplete information in which an outside option is a probabilistic conflict and a peaceful agreement is ex ante efficient. Applications include partnership, labor-management bargaining, pretrial negotiations, and international negotiations. I compute the set of interim incentive efficient mechanisms, the ex ante incentive efficient mechanism, as well as the neutral bargaining solution. I numerically illustrate that the focus on the ex ante incentive efficient mechanism as the most reasonable prediction is not robust. This paper justifies the neutral bargaining solution as the unique, robust solution among all interim incentive efficient mechanisms.
    Keywords: Negotiation; Social contracts; Incomplete information; Incentive efficiency; Neutral bargaining solution
    JEL: C78 D74 D82 F51 J52
    Date: 2021–08
  17. By: Martin Herdegen; Johannes Muhle-Karbe; Florian Stebegg
    Abstract: We study one-shot Nash competition between an arbitrary number of identical dealers that compete for the order flow of a client. The client trades either because of proprietary information, exposure to idiosyncratic risk, or a mix of both trading motives. When quoting their price schedules, the dealers do not know the client's type but only its distribution, and in turn choose their price quotes to mitigate between adverse selection and inventory costs. Under essentially minimal conditions, we show that a unique symmetric Nash equilibrium exists and can be characterized by the solution of a nonlinear ODE.
    Date: 2021–07
  18. By: Wayne Yuan Gao
    Abstract: We propose a theoretical framework under which preference profiles can be meaningfully compared. Specifically, given a finite set of feasible allocations and a preference profile, we first define a ranking vector of an allocation as the vector of all individuals' rankings of this allocation. We then define a partial order on preference profiles and write "$P \geq P^{'}$", if there exists an onto mapping $\psi$ from the Pareto frontier of $P^{'}$ onto the Pareto frontier of $P$, such that the ranking vector of any Pareto efficient allocation $x$ under $P^{'}$ is weakly dominated by the ranking vector of the image allocation $\psi(x)$ under $P$. We provide a characterization of the maximal and minimal elements under the partial order. In particular, we illustrate how an \emph{individualistic} form of social preferences can be $\trianglerighteqslant$-maximal in a specific setting. We also discuss how the framework can be further generalized to incorporate additional economic ingredients.
    Date: 2021–08
  19. By: Liran Einav; Amy Finkelstein; Neale Mahoney
    Abstract: This is an invited chapter for the forthcoming Volume 4 of the Handbook of Industrial Organization. We focus on "selection markets," which cover markets in which consumers vary not only in how much they are willing to pay for a product but also in how costly they are to the seller. The chapter tries to organize the recent wave of IO-related papers on selection markets, which has largely focused on insurance and credit markets. We provide a common framework, terminology, and notation that can be used to understand many of these papers, and that we hope can be usefully applied going forward.
    JEL: G22 L00 L13
    Date: 2021–07
  20. By: Dirk Bergemann (Cowles Foundation, Yale University); Marco Ottaviani (Department of Economics, Bocconi University)
    Abstract: As large amounts of data become available and can be communicated more easily and processed more e¤ectively, information has come to play a central role for economic activity and welfare in our age. This essay overviews contributions to the industrial organization of information markets and nonmarkets, while attempting to maintain a balance between foundational frameworks and more recent developments. We start by reviewing mechanism-design approaches to modeling the trade of information. We then cover ratings, predictions, and recommender systems. We turn to forecasting contests, prediction markets, and other institutions designed for collecting and aggregating information from decentralized participants. Finally, we discuss science as a prototypical information nonmarket with participants who interact in a non-anonymous way to produce and disseminate information. We aim to make the reader familiar with the central notions and insights in this burgeoning literature and also point to some open critical questions that future research will have to address.
    Keywords: Information, Data, Data Intermediaries, Information Markets, Information Non-markets, Science
    JEL: D82 D83 D84 G14 L86
    Date: 2021–08

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