nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒09‒27
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Price Discrimination By Didier Laussel; Ngo Van Long; Joana Resende
  2. Perceived Competition in Networks By Olivier Bochet; Mathieu Faure; Yan Long; Yves Zenou
  3. Selling Impressions: Efficiency vs. Competition By Dirk Bergemann; Tibor Heumann; Stephen Morris; Constantine Sorokin; Eyal Winter
  4. Persuasion with Ambiguous Receiver Preferences By Eitan Sapiro-Gheiler
  5. Potentials and Solutions of Cooperative Games. By Masayuki Odora
  6. Auctioning with Strategically Reticent Bidders By Jibang Wu; Ashwinkumar Badanidiyuru; Haifeng Xu
  7. Restricted domains with Pareto free pairs By Storcken, Ton
  8. Ignorance is Bliss: A Game of Regret By Claudia Cerrone; Francesco Feri; Philip R. Neary
  9. Value-Based Distance Between Information Structures By Fabien Gensbittel; Marcin Peski; Jérôme Renault
  10. Pareto Improvement in Monopoly Regulation Using Pre-Donation By Saglam, Ismail
  11. The Social Value of Public Information When Not Everyone is Privately Informed By Stephanie L. Chan
  12. (The Impossibility of ) Deliberation-Consistent Social Choice By Tsuyoshi Adachi and Takashi Kurihara; Hun Chung; Takashi Kurihara
  13. Dynamic assignment without money: Optimality of spot mechanisms By Julien Combe; Vladyslav Nora; Olivier Tercieux
  14. Matching markets with middlemen under transferable utility By Ata Atay; Eric Bahel; Tam\'as Solymosi
  15. A contribution to the theory of R&D investments By Buccella, Domenico; Fanti, Luciano; Gori, Luca
  16. Legislators in the Crossfire: The Effect of Transparency on Parliamentary Voting By Heloise Clolery
  17. Equilibria in Matching Markets with Soft and Hard Liquidity Constraints By Herings, P. Jean-Jacques; Zhou, Yu
  18. Equilibrium CEO Contract with Belief Heterogeneity By Bianchi, Milo; Dana, Rose-Anne; Jouini, Elyès
  19. Constrained School Choice with Incomplete Information By Hugo Gimbert; Claire Mathieu; Simon Mauras
  20. Deviation-Based Learning By Junpei Komiyama; Shunya Noda

  1. By: Didier Laussel; Ngo Van Long; Joana Resende
    Abstract: A durable good monopolist faces a continuum of heterogeneous customers who make purchase decisions by comparing present and expected price-quality offers. The monopolist designs a sequence of price-quality menus to segment the market. We consider the Markov Perfect Equilibrium (MPE) of a game where the monopolist is unable to commit to future price-quality menus. We obtain the novel results that (a) under certain conditions, the monopolist covers the whole market in the first period (even when a static Mussa-Rosen monopolist would not cover the whole market), because this is a strategic means to convince customers that lower prices would not be offered in future periods, and that (b) this can happen only under the stage-wise Stackelberg leadership assumption (whereby consumers base their expectations on the value of the state variable at the end of the period). Conditions under which MPE necessarily involve sequentially trading are also derived.
    Keywords: product quality, durable good monopoly, second-degree price discrimination, Coase conjecture
    JEL: C73 D42 L12
    Date: 2021
  2. By: Olivier Bochet; Mathieu Faure; Yan Long; Yves Zenou (Division of Social Science)
    Abstract: We consider an aggregative game of competition in which agents have an imperfect knowledge about the set of agents they are in competition with. We model agent’s perceived competitors by a network in which each agent is assumed to only have information on the activities of their direct neighbors. In this framework, a natural equilibrium concept emerges, the peer-consistent equilibrium (PCE). In a PCE, each agent chooses an action level that maximizes her subjective perceived utility and the action levels of all individuals in the network must be consistent. We decompose the network into communities and completely characterize peer-consistent equilibria by identifying which sets of agents can be active in equilibrium. An agent is active if she either belongs to a strong community or if few agents are aware of her existence. We show that there is a unique stable PCE. We provide a behavioral foundation of eigenvector centrality, since, in any stable PCE, agents’ action levels are proportional to their eigenvector centrality in the network. We illustrate our results with two well-known models: Tullock contest function and Cournot competition.
    Date: 2021–09
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Católica de Chile); Stephen Morris (Dept. of Economics, MIT); Constantine Sorokin (Glasgow University and Higher School of Economics); Eyal Winter (The Hebrew University of Jerusalem)
    Abstract: In digital advertising, a publisher selling impressions faces a trade-off in deciding how precisely to match advertisers with viewers. A more precise match generates efficiency gains that the publisher can hope to exploit. A coarser match will generate a thicker market and thus more competition. The publisher can control the precision of the match by controlling the amount of information that advertisers have about viewers. We characterize the optimal trade-off when impressions are sold by auction. The publisher pools premium matches for advertisers (when there will be less competition on average) but gives advertisers full information about lower quality matches.
    Keywords: Second Price Auction, Conflation, Targeted Advertising, Impressions, Two-Sided Private Information, Bayesian Persuasion, Information Design
    JEL: D44 D47 D83 D84
    Date: 2021–08
  4. By: Eitan Sapiro-Gheiler
    Abstract: I describe a Bayesian persuasion problem where Receiver has a private type representing a cutoff for choosing Sender's preferred action, and Sender has maxmin preferences over all Receiver type distributions with a known mean. Sender's utility from any distribution of posterior means is a function of its concavification; this result leads Sender to linearize the prior distribution by inducing a truncated uniform distribution of posterior means. When the prior belief about the state of the world is binary, Sender's unique optimal distribution is an upper-truncated uniform with an atom at 0. When the prior belief about the state of the world is continuous and unimodal, one optimal distribution for Sender is a double-truncated uniform with an atom at the end of the lower truncation. In both cases, the shape and support of the optimal distribution differ qualitatively from the corresponding solution when Sender holds a prior belief over Receiver types.
    Date: 2021–09
  5. By: Masayuki Odora (Graduate School of Economics, Waseda University, 1-6-1, Nishi-Waseda, Shinjuku-ku, Tokyo 169-8050, Japan.)
    Abstract: This study considers strategic communication before voting. Voters have partially conflicting interests rather than common interests. That is, voters cannot tell whether a collective decision is a matter of truth, such as guilty or innocent, or a matter of taste, such as left or right. A set of imperfectly informed voters communicates before casting their votes. From a statistical perspective, truth-telling by all voters in deliberation, coupled with majority rule, may lead to desirable outcomes asymptotically as the population of voters increases. Thus, from a statistical perspective, increasing the population of voters is desirable. This study, however, shows that truthful communication is not incentive-compatible with equilibrium behavior when the size of the electorate is sufficiently large. In particular, truthful communication by all voters is inconsistent with equilibrium for any voting rule and any degree of conflict when the population of voters becomes arbitrarily large. On the other hand, truthful communication might be an equilibrium for a small population of voters. Under these circumstances, voting rules matter. This study shows that majority rule most promotes truthful communication before voting.
    Keywords: Information aggregation, Common value elections, Private value elections, Deliberation, Voting rule, Conflicting interests
    JEL: C72 D71 D72
    Date: 2021–09
  6. By: Jibang Wu; Ashwinkumar Badanidiyuru; Haifeng Xu
    Abstract: Classic mechanism design often assumes that a bidder's action is restricted to report a type or a signal, possibly untruthfully. In today's digital economy, bidders are holding increasing amount of private information about the auctioned items. And due to legal or ethical concerns, they would demand to reveal partial but truthful information, as opposed to report untrue signal or misinformation. To accommodate such bidder behaviors in auction design, we propose and study a novel mechanism design setup where each bidder holds two kinds of information: (1) private \emph{value type}, which can be misreported; (2) private \emph{information variable}, which the bidder may want to conceal or partially reveal, but importantly, \emph{not} to misreport. We show that in this new setup, it is still possible to design mechanisms that are both \emph{Incentive and Information Compatible} (IIC). We develop two different black-box transformations, which convert any mechanism $\mathcal{M}$ for classic bidders to a mechanism $\mathcal{M}'$ for strategically reticent bidders, based on either outcome of expectation or expectation of outcome, respectively. We identify properties of the original mechanism $\mathcal{M}$ under which the transformation leads to IIC mechanisms $\mathcal{M}'$. Interestingly, as corollaries of these results, we show that running VCG with expected bidder values maximizes welfare whereas the mechanism using expected outcome of Myerson's auction maximizes revenue. Finally, we study how regulation on the auctioneer's usage of information may lead to more robust mechanisms.
    Date: 2021–09
  7. By: Storcken, Ton (RS: FSE DKE Mathematics Centre Maastricht, RS: GSBE Theme Conflict & Cooperation, QE Math. Economics & Game Theory)
    Abstract: Among the domains restricted by Pareto free pairs we determine those allowing for preference rules being anonymous and independent of irrelevant alternatives. Essentially such preference rules appear to be based on a priority ordered at which adjacent alternatives can only be swapped in order is all agents agree with this swap.
    JEL: D71 D79
    Date: 2021–09–16
  8. By: Claudia Cerrone; Francesco Feri; Philip R. Neary
    Abstract: The outcome of a foregone alternative is not always learnt. We incorporate this observation into a model of regret, supposing that the ex-post information available depends on choice. We show that a more informative ex-post environment is never desirable for a regret averse individual. We then suppose that there are multiple regret averse individuals where the ex-post information available depends on own choice and the choices of others. This implies that what appears to be a series of isolated decision problems is in fact a behavioural game with multiple equilibria. We experimentally test the model and find support for our theory.
    Date: 2021–09
  9. By: Fabien Gensbittel (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Marcin Peski (University of Toronto); Jérôme Renault (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We define the distance between two information structures as the largest possible difference in value across all zero-sum games. We provide a tractable characterization of distance and use it to discuss the relation between the value of information in games versus single-agent problems, the value of additional information, informational substitutes, complements, or joint information. The convergence to a countable information structure under value-based distance is equivalent to the weak convergence of belief hierarchies, implying, among other things, that for zero-sum games, approximate knowledge is equivalent to common knowledge. At the same time, the space of information structures under the value-based distance is large: there exists a sequence of information structures where players acquire increasingly more information, and ε > 0 such that any two elements of the sequence have distance of at least ε. This result answers by the negative the second (and last unsolved) of the three problems posed by J.F. Mertens in his paper Repeated Games , ICM 1986.
    Date: 2021–09–16
  10. By: Saglam, Ismail
    Abstract: Revelation principle implies that given any admissible social welfare function, the outcome of Baron and Myerson's (1982) (BM) optimal direct-revelation mechanism under incentive constraints cannot be dominated by any other mechanism in expected utilities. However, since the expected total surplus varies with a change in the social welfare function, Pareto improvements should be possible if the monopolist and consumers can agree, by means of side payments that reveal no additional information to the regulator, on the use of an alternative social welfare function which would generate a lower expected deadweight loss. We check the validity of this intuition by integrating the BM mechanism with an induced cooperative bargaining model where unilateral pre-donation by consumers or the producer is allowed. Under this new mechanism producer's pre-donation in the ex-ante stage always leads to ex-ante Pareto improvement while a certain amount of it completely eliminates the expected deadweight loss. Moreover, if optimally designed in the interim stage, the producer's pre-donation may also lead under some cost parameters to interim (and also (ex-post) Pareto improvement. Consumers, on the other hand, have no incentive to make a unilateral pre-donation, nor to reverse the optimal pre-donation of the monopolist.
    Keywords: Monopoly regulation; cooperative bargaining; pre-donation.
    JEL: C78 D42 L51
    Date: 2021–09–15
  11. By: Stephanie L. Chan (Xiamen University)
    Abstract: When there is strategic complementarity and all agents have access to public information, but only a subset of them has access to private information, strategic complementarity within the subset of privately-informed agents enhances the focal power of public information. This results to an expected social welfare function that is convex in the precision of both private and public information. The welfare gain from increasing the precision of the public information always exceeds the welfare loss from the underutilization of private information by a subset of agents. The results support the use of public information campaigns to change agent behavior regarding risky health behavior, public health crises and social injustices. The findings are robust to several extensions such as biased perceptions about public signals and costly acquisition of private information.
    Keywords: coordination, information asymmetry, private information, public information, strategic complementarity, welfare
    JEL: C70 D80 D82 D83 D84
    Date: 2021–09–18
  12. By: Tsuyoshi Adachi and Takashi Kurihara (Faculty of Political Science and Economics, Waseda University); Hun Chung (Faculty of Political Science and Economics, Waseda University); Takashi Kurihara (School of Political Science and Economics, Tokai University)
    Abstract: There is now a growing consensus among democratic theorists that we should incorporate both ‘democratic deliberation’ and ‘aggregative voting’ into our democratic processes, where democratic deliberation precedes aggregating people’s votes. But how should the two democratic mechanisms of deliberation and voting interact? The question we wish to ask in this paper is which social choice rules are consistent with successful deliberation once it has occurred. For this purpose, we introduce a new axiom, which we call “Non-Negative Response toward Successful Deliberation (NNRD).” The basic idea is that if some individuals change their preferences toward other individuals’ preferences through successful deliberation, then the social choice rule should not make everybody who has successfully persuaded others through reasoned deliberation worse-off than what s/he would have achieved without deliberation. We prove an impossibility theorem that shows that there exists no aggregation rule that can simultaneously satisfy (NNRD) along with other mild axioms that reflect deliberative democracy’s core commitment to unanimous consensus and democratic equality. We offer potential escape routes: however, it is shown that each escape route can succeed only by compromising some core value of deliberative democracy.
    Keywords: Social Choice Theory; Deliberative Democracy; Deliberation; Aggregation; NNRD
    Date: 2021–06
  13. By: Julien Combe (CREST-Ecole polytechnique, France); Vladyslav Nora (Economics department, Nazarbayev University); Olivier Tercieux (Paris School of Economics ,France)
    Abstract: We study a large market model of dynamic matching with no monetary transfers and a continuum of agents. Time is discrete and horizon finite. Agents are in the market from the first date and, at each date, have to be assigned items (or bundles of items). When the social planner can only elicit ordinal preferences of agents over the sequences of items, we prove that, under a mild regularity assumption, incentive compatible and ordinally efficient allocation rules coincide with spot mechanisms. A spot mechanism specifies “virtual prices” for items at each date and, at the beginning of time, for each agent, randomly selects a budget of virtual money according to a (potentially non-uniform) distribution over [0,1]. Then, at each date, the agent is allocated the item of his choice among the affordable ones. Spot mechanisms impose a linear structure on prices and, perhaps surprisingly, our result shows that this linear structure is what is needed when one requires incentive compatibility and ordinal efficiency. When the social planner can elicit cardinal preferences, we prove that, under a similar regularity assumption, incentive compatible and Pareto efficient mechanisms coincide with a class of mechanisms we call Spot Menu of Random Budgets mechanisms. These mechanisms are similar to spot mechanisms except that, at the beginning of the time, each agent must pick a distribution in a menu. This distribution is used to initially draw the agent's budget of virtual money.
    Date: 2021–07–27
  14. By: Ata Atay; Eric Bahel; Tam\'as Solymosi
    Abstract: This paper studies matching markets in the presence of middlemen. In our framework, a buyer-seller pair may either trade directly or use the services of a middleman; and a middleman may serve multiple buyer-seller pairs. Direct trade between a buyer and a seller is costlier than a trade mediated by a middleman. For each such market, we examine an associated cooperative game with transferable utility. First, we show that an optimal matching for a matching market with middlemen can be obtained by considering the two-sided assignment market where each buyer-seller pair is allowed to use the mediation service of the middlemen free of charge and attain the maximum surplus. Second, we prove that the core of a matching market with middlemen is always non-empty. Third, we show the existence of a buyer-optimal core allocation and a seller-optimal core allocation. In general, the core does not exhibit a middleman-optimal matching. Finally, we establish the coincidence between the core and the set of competitive equilibrium payoff vectors.
    Date: 2021–09
  15. By: Buccella, Domenico; Fanti, Luciano; Gori, Luca
    Abstract: This research contributes to the theory of cost-reducing R&D investments by offering a tractable three-stage non-cooperative Cournot duopoly game in which R&D-investing firms choose whether to disclose R&D-related information to the rival. Though in a noncooperative context firms have no incentive to unilaterally disclose information on their costreducing R&D activity to prevent the rival from freely appropriate it, this work shows that there is room for the government to design an optimal policy aimed at incentivising unilaterally each owner towards R&D disclosure. Under this welfare improving policy, sharing R&D-related information becomes a Pareto efficient Nash equilibrium strategy of selfish firms. These findings suggest that introducing public subsidies aimed at favouring R&D disclosure represents a win-win result, eliminating the so far established - and unpleasant for both firms and society - non-disclosing outcome.
    Keywords: Cost-reducing innovation,Nash equilibrium,Government,Social welfare
    JEL: D43 L13 O31
    Date: 2021
  16. By: Heloise Clolery (CREST-Ecole polytechnique, France)
    Abstract: Legislators are agents who serve two different principals: their constituents and their Party. Legislators are caught in the crossfire if their Party leaders' position contradicts the electorate's interests. Legislators care about their reputation with both principals as they are career-motivated. Making their votes public increases the incentive to use voting for reputation-building, and therefore distortion in group decision-making. This paper first shows that reputational concerns drive the decision to participate in a vote. Second, the French transparency reform of 2014 provides a quasi-natural setting for a Difference-in-Differences analysis. Greater transparency has led to less participation and more alignment to the Party line. As such, knowing that their behavior is more easily observable, legislators prefer not to take sides, and additional information benefits Party leaders more than constituents in the short term. The effect size is sufficient to switch results in 12 percent of the vote outcomes.
    Keywords: Voting, Transparency, Party discipline, Principal agent
    JEL: D72 D82 H11
    Date: 2021–08–24
  17. By: Herings, P. Jean-Jacques (RS: GSBE Theme Data-Driven Decision-Making, RS: GSBE Theme Conflict & Cooperation, Microeconomics & Public Economics); Zhou, Yu
    Abstract: We consider a matching with contracts model in the presence of liquidity constraints on the buyers side. Liquidity constraints can be either soft or hard. A convergent sequence of economies with increasingly stringent soft liquidity constraints is an economy with hard liquidity constraints at the limit. The limit of a corresponding convergent sequence of competitive equilibria may fail to be a competitive equilibrium in the limit economy. We establish limit results of two alternative notions of competitive equilibrium, quantity-constrained competitive equilibrium and expectational equilibrium, which do not suffer from such discontinuity problems. The implications of these limit results are discussed.
    JEL: C72 C78 D45 D52
    Date: 2021–09–20
  18. By: Bianchi, Milo; Dana, Rose-Anne; Jouini, Elyès
    Abstract: Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their departure from linear compensations.
    Keywords: heterogeneous beliefs; asymmetric information; manager-shareholders equi-; librium.
    JEL: G32 G34 D24 D51 D70
    Date: 2021–04
  19. By: Hugo Gimbert; Claire Mathieu; Simon Mauras
    Abstract: School choice is the two-sided matching market where students (on one side) are to be matched with schools (on the other side) based on their mutual preferences. The classical algorithm to solve this problem is the celebrated deferred acceptance procedure, proposed by Gale and Shapley. After both sides have revealed their mutual preferences, the algorithm computes an optimal stable matching. Most often in practice, notably when the process is implemented by a national clearinghouse and thousands of schools enter the market, there is a quota on the number of applications that a student can submit: students have to perform a partial revelation of their preferences, based on partial information on the market. We model this situation by drawing each student type from a publicly known distribution and study Nash equilibria of the corresponding Bayesian game. We focus on symmetric equilibria, in which all students play the same strategy. We show existence of these equilibria in the general case, and provide two algorithms to compute such equilibria under additional assumptions, including the case where schools have identical preferences over students.
    Date: 2021–09
  20. By: Junpei Komiyama; Shunya Noda
    Abstract: We propose deviation-based learning, a new approach to training recommender systems. In the beginning, the recommender and rational users have different pieces of knowledge, and the recommender needs to learn the users' knowledge to make better recommendations. The recommender learns users' knowledge by observing whether each user followed or deviated from her recommendations. We show that learning frequently stalls if the recommender always recommends a choice: users tend to follow the recommendation blindly, and their choices do not reflect their knowledge. Social welfare and the learning rate are improved drastically if the recommender abstains from recommending a choice when she predicts that multiple arms will produce a similar payoff.
    Date: 2021–09

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