nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒11‒15
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Expert-based Knowledge: Communicating over Scientific Models By Colo, Philippe
  2. Political Competition with Endogenous Party Formation and Citizen Activists By Emanuel Hansen
  3. Third-Degree Price Discrimination in Oligopoly When Markets Are Covered By Dertwinkel-Kalt, Markus; Wey, Christian
  4. Too much waste, not enough rationing: the failure of stochastic, competitive markets By De Meza, David; Reito, Francesco
  5. Optimism leads to optimality: Ambiguity in network formation By Bayer, Peter; Guerdjikova, Ani
  6. Marginal Productivity and Coalition Formation with Distributive Norms By Hideaki Goto
  7. Obvious Manipulability of Voting Rules By Haris Aziz; Alexander Lam
  8. Fuzzy Arrovian Theorems when preferences are complete By Armajac Ravent\'os-Pujol
  9. Assortative Matching with Externalities and Farsighted Agents By Kenzo Imamura; Hideo Konishi
  10. Approximately Efficient Bilateral Trade By Yuan Deng; Jieming Mao; Balasubramanian Sivan; Kangning Wang
  11. Investing in Influence: How Minority Interests Can Prevail in a Democracy By Stergios Skaperdas; Samarth Vaidya
  12. Clubs and Networks By Ding, S.; Dziubinski, M.; Goyal, S.
  13. Stability in Matching with Externalities: Pairs Competition and Oligopolistic Joint Ventures By Kenzo Imamura; Hideo Konishi; Chen-Yu Pan
  14. Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice By Saruta, Fuyuki

  1. By: Colo, Philippe
    Abstract: Scientific models structure our perception of reality. This paper studies how we choose among them under expert advise. Scientific models are formalised as probability distributions over possible scenarios. An expert is assumed to know the most likely model and seeks to communicate it to a decision maker, but cannot prove it. As a result, communication is a cheap talk game over models. The decision maker is in a situation of model-uncertainty and is ambiguity sensitive. I show that information transmission depends on the strategic misalignment of players and, unlike similar models in the literature, a form of consensus among scientific models. When science is divided, there is an asymmetry in information transmission when the receiver has maxmin expected utility preferences. No information can be conveyed over models above a certain threshold. All equilibria of the game are outcome equivalent to a partitional equilibria and the most informative one is interim Pareto dominant.
    Keywords: Ambiguity, cheap talk
    JEL: C72 D81 D83
    Date: 2021–10–13
  2. By: Emanuel Hansen
    Abstract: This paper studies the effects of endogenous party formation on political platforms. It develops a model in which parties allow like-minded citizens to, first, share the cost of running in a public election and, second, coordinate on a policy platform. The paper characterizes the set of political equilibria with two competing parties and with one uncontested party. In two-party equilibria, the distance between both platforms is always positive but limited, in contrast to the median voter model and the citizen candidate model. In one-party equilibria, the median voter can be worse off than in all equilibria with two competing parties.
    Keywords: elections, party formation, platform choice, electoral uncertainty
    JEL: D71 D72
    Date: 2021
  3. By: Dertwinkel-Kalt, Markus; Wey, Christian
    JEL: D43
    Date: 2021
  4. By: De Meza, David; Reito, Francesco
    Abstract: There are good reasons why sellers often post prices before the realization of demand shocks. We study whether equilibrium prices chosen ex ante coincide with the ex-ante prices that maximize expected aggregate surplus. The main result is that even in the competitive limit there is a divergence. Waste is excessive and entry decisions are distorted. The problem is that for competitive firms to sell in low-demand states involves a costly sacrifice of high-state revenue.
    Keywords: stochastic demand; rationing; waste; efficiency
    JEL: D61 D81 H23
    Date: 2020–07–01
  5. By: Bayer, Peter; Guerdjikova, Ani
    JEL: D85 D83
    Date: 2021
  6. By: Hideaki Goto (IUJ Research Institutey, International University of University)
    Abstract: This paper analyzes coalition formation under constant, decreasing, and increasing marginal productivity when the total surplus jointly produced by individuals with heterogeneous abilities can only be distributed to its members in egalitarian or meritocratic ways. When marginal productivity is decreasing or constant, the results are simple, as no coalition with multiple members is included in a stable coalition structure when marginal productivity is decreasing, whereas individuals are indifferent to which meritocratic coalition they belong, including singletons, in the case of constant marginal productivity. In contrast, if marginal productivity is increasing, stable structures differ considerably from those obtained by other models. A procedure to identify stable structures is proposed, finding that multiple egalitarian coalitions can exist, each of which is always consecutive, but there is, at most, only one meritocratic coalition, which may or may not be consecutive, in stable structures. Moreover, the grand egalitarian coalition is only stable under certain conditions, whereas the grand meritocratic coalition is always stable.
    Keywords: Coalition formation; Egalitarianism; Meritocracy; Marginal productivity.
    JEL: C71 D71 D63 D30
    Date: 2021–11
  7. By: Haris Aziz; Alexander Lam
    Abstract: The Gibbard-Satterthwaite theorem states that no unanimous and non-dictatorial voting rule is strategyproof. We revisit voting rules and consider a weaker notion of strategyproofness called not obvious manipulability that was proposed by Troyan and Morrill (2020). We identify several classes of voting rules that satisfy this notion. We also show that several voting rules including k-approval fail to satisfy this property. We characterize conditions under which voting rules are obviously manipulable. One of our insights is that certain rules are obviously manipulable when the number of alternatives is relatively large compared to the number of voters. In contrast to the Gibbard-Satterthwaite theorem, many of the rules we examined are not obviously manipulable. This reflects the relatively easier satisfiability of the notion and the zero information assumption of not obvious manipulability, as opposed to the perfect information assumption of strategyproofness. We also present algorithmic results for computing obvious manipulations and report on experiments.
    Date: 2021–11
  8. By: Armajac Ravent\'os-Pujol
    Abstract: In this paper we study the aggregation of fuzzy preferences on non-necessarily finite societies. We characterize in terms of possibility and impossibility a family of models of complete preferences in which the transitivity is defined for any t-norm. For that purpose, we have described each model by means of some crisp binary relations and we have applied the results obtained by Kirman and Sondermann.
    Date: 2021–11
  9. By: Kenzo Imamura (University of Tokyo Market Design Center); Hideo Konishi (Boston College)
    Abstract: We consider a one-to-one assortative matching problem in which matched pairs compete for a prize. With such externalities, the standard solution concept, pairwise stable matching, may not exist. In this paper, we consider farsighted agents and analyze the largest consistent set (LCS) of Chwe (1994). Despite the assortative structure of the problem, LCS tend to be large with the standard effectiveness functions: LCS can be the set of all matchings, including an empty matching with no matched pair. By modifying the effectiveness function motivated by Knuth (1976), LCS becomes a singleton of the positive assortative matching. Our results suggest that the choice of effectiveness function can significantly impact the solution in a matching problem with externalities.
    Keywords: group contest, pairwise stable matching, assortative matching, farsightedness, largest consistent set, effectiveness function
    JEL: C7 D71 D72
    Date: 2021–11–04
  10. By: Yuan Deng; Jieming Mao; Balasubramanian Sivan; Kangning Wang
    Abstract: We study bilateral trade between two strategic agents. The celebrated result of Myerson and Satterthwaite states that in general, no incentive-compatible, individually rational and weakly budget balanced mechanism can be efficient. I.e., no mechanism with these properties can guarantee a trade whenever buyer value exceeds seller cost. Given this, a natural question is whether there exists a mechanism with these properties that guarantees a constant fraction of the first-best gains-from-trade, namely a constant fraction of the gains-from-trade attainable whenever buyer's value weakly exceeds seller's cost. In this work, we positively resolve this long-standing open question on constant-factor approximation, mentioned in several previous works, using a simple mechanism.
    Date: 2021–11
  11. By: Stergios Skaperdas; Samarth Vaidya
    Abstract: How can the West’s economic and political polarization be explained? We argue that persuasive lobbying at various levels of government leads to systematic deviations of policies from those desired by the majority. Implemented policies diverge from the majority position despite centripetal forces that induce interest groups to select positions closer to that majority position. Resources, organization, and cognitive biases can induce one-sided outcomes. When we allow for long-term lobbying infrastructure investments in a simpli_ed tax-and-spend model, the deviations between majority desires and implemented policies are even larger than those in the absence of long-term investments.
    Keywords: interest groups, lobbying, polarization, persuasion, regulatory capture
    JEL: D72 D73 D78 H20
    Date: 2021
  12. By: Ding, S.; Dziubinski, M.; Goyal, S.
    Abstract: A recurring theme in the study of society is the concentration of influence and power that is driven through unequal membership of groups and associations. In some instances these bodies constitute a small world while in others they are fragmented into distinct cliques. This paper presents a new model of clubs and networks to understand the sources of individual marginalization and the origins of different club networks. In our model, individuals seek to become members of clubs while clubs wish to have members. Club value is increasing in its size and in the strength of ties with other clubs. We show that a stable membership profile exhibits marginalization of individuals and that this is generally not welfare maximizing. Our second result shows that if returns from strength of ties are convex (concave) then stable memberships support fragmented networks with strong ties (small worlds held together by weak ties). We illustrate the value of these theoretical results through case studies of inter-locking directorates, boards of editors of journals, and defence and R&D alliances.
    Date: 2021–10–25
  13. By: Kenzo Imamura (University of Tokyo Market Design Center); Hideo Konishi (Boston College); Chen-Yu Pan (National Chengchi University, Taiwan)
    Abstract: This paper presents one-to-one matching and assignment problems with externalities across pairs such as pairs figure skating competition and joint ventures in oligopolistic markets. In these models, players care not only about their partners but also which and how many rival pairs are formed. Thus, it is important for a deviating pair to know which matching will realize after it deviates from a matching (an effectiveness function) in order to define pairwise stable matching. Using a natural effectiveness function for such environments, we show that the assortative matching is pairwise stable. We discuss two generalizations of our model including intrinsic preferences on partners and pair-specific match qualities to see how our stability concept performs in these generalized models.
    Keywords: one-to-one matching, matching with externalities, pairwise stable matching, coalition formation, group contest, joint ventures, myopia, farsightedness.
    JEL: C7 D71 D72
    Date: 2021–11–04
  14. By: Saruta, Fuyuki
    Abstract: This study investigates the effects of vertical integration between an Internet service provider (ISP) and a content provider (CP) on the ISP's zero-rating choice and social welfare. We develop a simple model where a monopolistic ISP delivers content from two CPs to a representative consumer. The ISP can offer zero-rating contracts to one or two CPs, allowing the consumer to use zero-rated content without consuming monthly data usage. We investigate how the integration between the ISP and a CP impacts the ISP's zero-rating choice and social welfare. Our findings are as follows. First, the vertically integrated ISP may zero-rate the unaffiliated CP exclusively when the CPs' profitability is low and the ISP's operating cost is high. Second, the integration decreases the total surplus when the CP's profitability is sufficiently low; otherwise, it improves the total surplus. Our results indicate that a vertical integration and zero-rating could be both welfare-enhancing and reducing.
    Keywords: Mobile Internet; Zero-rating; Sponsored data; Net neutrality; Vertical integration
    JEL: D21 L11 L96
    Date: 2021–10–23

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