nep-mic New Economics Papers
on Microeconomics
Issue of 2021‒12‒06
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. First Best Implementation with Costly Information Acquisition By Larionov, Daniil; Pham, Hien; Yamashita, Takuro
  2. Buyer’s Optimism, Information Design, and Price Discrimination By Pham, Hien
  3. Can Media Pluralism Be Harmful to News Quality? By Federico Innocenti
  4. Misspecified Bayesian Learning by Strategic Players: First-Order Misspecification and Higher-Order Misspecification By Takeshi Murooka; Yuichi Yamamoto
  5. Auction Design with Approximate Common Prior By Pham, Hien; Yamashita, Takuro
  6. Do Not Compromise By Liqun Liu
  7. The Wrong Kind of Information By Aditya Kuvalekar; Jo\~ao Ramos; Johannes Schneider
  8. Equilibrium Existence and Expected Payoffs in All-Pay Auctions with Constraints By Tuvana Pastine; Ivan Pastine
  9. R&D innovation with socially responsible firms By Domenico Buccella; Luciano Fanti; Luca Gori
  10. Surplus Extraction with Behavioral Types By Nicolas Pastrian
  11. Maximal Domains for Strategy-Proof Pairwise Exchange By Carmelo Rodríguez-Álvarez

  1. By: Larionov, Daniil; Pham, Hien; Yamashita, Takuro
    Abstract: We study a mechanism design model with flexible but costly information acquisition. There is a principal and I ≥ 4 agents. The principal and the agents share a common prior over the set of payoff-relevant states of the world. The principal proposes a mechanism to the agents who can then acquire information about the state of the world by privately designing a signal device. As long as it is costless for each agent to acquire a signal that is pairwise independent from the state of the world, we show that there exists a mecha-nism which allows the principal to implement any social choice rule at zero information acquisition cost to the agents.
    Date: 2021–11
  2. By: Pham, Hien
    Abstract: A seller (she) faces a single buyer (he) who holds a biased and private prior belief regarding whether the product fits his need (which brings him a higher payoff than otherwise). The seller can provide additional information about the product that helps the buyer privately refine his belief. We fully characterize the revenue-maximizing menu of prices and disclosure policies that follows a simple cutoff structure. While the diversity in the priors alone is not sufficient to trigger price discrimi-nation, the presence of information design induces the optimal mech-anism featuring both information and price discrimination. Further-more, the seller does not strictly benefit from charging upfront pay-ments for information.
    Date: 2021–11
  3. By: Federico Innocenti
    Abstract: I study the effect of polarization and competition on information provision. With a single expert who faces decision-makers with het- erogeneous priors, the expert solves a trade-off between persuading sceptics and retaining believers. With high polarization, an expert has incentives to supply low-quality information to leverage believers' credulity. With multiple experts with opposite biases, competition is harmful if attention is limited. Unbiased and Bayesian decision-makers rationally devote attention to like-minded experts. Echo chambers arise endogenously, whereas decision-makers would be better informed in monopoly. My model can rationalize the spread and persistence of conspiracy theories and fake news.
    Keywords: Bayesian Persuasion, Competition, Echo Chambers, Heterogeneous Priors, Limited Attention, Media Pluralism
    JEL: D82 D83 L82
    Date: 2021–05
  4. By: Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Yuichi Yamamoto (Institute of Economic Research, Hitotsubashi University)
    Abstract: We consider strategic players who may have a misspecified view about the world, and investigate their long-run behavior when they learn an unknown state from public signals over time. Our framework is flexible and allows for higher-order misspecification, in that a player may have a bias about the physical environment, a bias about the opponent's bias about the physical environment, and so on. We provide a condition under which players' beliefs and actions converge to a steady state, and then characterize how one's misspecification influences the long-run (steady-state) outcome. We apply these results to various economic examples such as Cournot competition, team production, and discrimination. We find that higher-order misspecification can have a significant impact on the equilibrium outcome: One's overconfidence can have opposite effects on the equilibrium outcome, depending on whether the opponent is aware of this bias or not.
    Keywords: model misspecification, learning, convergence, overconfidence, bias transmission
    JEL: C73 D83 D90 D91
    Date: 2021–12
  5. By: Pham, Hien; Yamashita, Takuro
    Abstract: We consider an auction design problem with private values which are dis-tributed in a possibly correlated way. Both the seller and bidders do not know the true distribution, but (perhaps based on the data about past auctions), each of them has some “benchmark” distribution in mind. They face “local” uncertainty in the sense that their benchmark distributions are “ε-close” to each other and to the true distribution, and this itself is common knowledge. We show that, no matter how small (but positive) is ε (i.e., except for an ex-act common prior case), the worst-case-minded seller finds it optimal to offer a dominant-strategy mechanism. With an appropriate transfer reduction, we show that, as ε vanishes, the seller’s expected revenue converges to the ex-pected revenue in the optimal dominant-strategy mechanism with ε = 0 (i.e., with an exact common prior), but not to the expected revenue in the optimal Bayesian mechanism with ε = 0.
    Date: 2021–11
  6. By: Liqun Liu
    Abstract: Complex reform decisions hinge crucially on precise policy-relevant information. Yet, when decision makers care about their reputation, they may be reluctant to collect information for fear of implementing good policies that are bad for future careers. I model the endogenous information acquisition in the delegated reform decision-making, allowing the public to constrain the decision maker's policy discretion. I show that the public almost ubiquitously benefits from eliminating or penalizing policies that are ex ante plausible. The public finds it optimal to ban the extreme but ex ante noncongruent policy to motivate information acquisition when 1) the decision maker is less likely to be congruent; 2) the appropriate policies are less likely to be extreme; 3) the scale of reform becomes more radical.
    Date: 2021–10
  7. By: Aditya Kuvalekar; Jo\~ao Ramos; Johannes Schneider
    Abstract: An agent decides whether to approve a project based on his information, some of which is verified by a court. An unbiased agent wants to implement projects that are likely to succeed; a biased agent wants to implement any project. If the project fails, the court examines the verifiable information and decides the punishment. The court seeks to deter ill-intentioned agents from implementing projects likely to fail while incentivizing the use of the unverifiable information. We show how information of different kinds affects welfare. Improving the verifiable information can reduce welfare, whereas improving the unverifiable information always increases welfare.
    Date: 2021–11
  8. By: Tuvana Pastine (Department of Economics, Maynooth University.); Ivan Pastine (University College Dublin)
    Abstract: This paper introduces constraints on player choices in a broad class of all-pay auctions by allowing for upper bounds on players’ strategy sets. It proves the existence of equilibrium and derives simple closed-form formulae for players’ expected payoffs in any equilibrium. These formulae are straightforward to calculate in applications and do not require the derivation of the equilibrium or equilibria. This may be useful because: (i) In some applications players’ expected payoffs are the main item of interest. For example, one may be concerned about the effect of a policy on the market participants. In these cases the results can be used directly, bypassing the need for the full derivation of the equilibrium. (ii) In all-pay auctions, equilibrium is typically in mixed strategies. So in applications where the full characterization of the equilibrium is of interest, finding the players’ expected payoffs is a crucial first step in the derivation of the equilibrium.
    Date: 2021
  9. By: Domenico Buccella; Luciano Fanti; Luca Gori
    Abstract: This work revisits the R&D model à la D’Aspremont –Jacquemin (1988) (AJ) in a context with socially responsible firms. In the traditional model firms invest but, in equilibrium, they are cast into a prisoner’s dilemma. Socially responsible firms also invest in equilibrium. However, provided that firms consider sufficiently high consumer welfare, to invest is firms’ utility-enhancing: the prisoner’s dilemma vanishes, and the R&D investment is the firms’ Pareto-efficient choice. That is, while in the traditional AJ context to invest in R&D is Pareto-inferior for the whole society, when firms are of CSR type their R&D innovation becomes a Pareto-superior choice.
    Keywords: Process innovation; Corporate social reponsibility; Nash equilibrium; Social welfare
    JEL: D43 L13 O31
    Date: 2021–11–01
  10. By: Nicolas Pastrian
    Abstract: We examine the surplus extraction problem in a mechanism design setting with behavioral types. In our model behavioral types always perfectly reveal their private information. We characterize the sufficient conditions that guarantee full extraction in a finite version of the reduced form environment of McAfee and Reny (1992). We found that the standard convex independence condition identified in Cremer and McLean (1988) is required only among the beliefs of strategic types, while a weaker condition is required for the beliefs of behavioral types.
    Date: 2021–10
  11. By: Carmelo Rodríguez-Álvarez (Universidad Complutense de Madrid and ICAE (Spain).)
    Abstract: We analyze centralized non-monetary markets for indivisible objects through pairwise exchange when each agent initially owns a single object. We characterize a family of do- mains of preferences (minimal reversal domains) such that there exist pairwise exchange rules that satisfy individual rationality, efficiency, and strategy-proofness. Minimal reversal domains are maximal rich domains for individual rationality, efficiency, and strategy- proofness. Each minimal reversal domain is defined by a common ranking of the set of objects, and agents’ preferences over admissible objects coincide with such common rank- ing but for a specific pair of objects.
    Keywords: Pairwise Exchange; Individual Rationality; Constrained Efficiency; Strategy-Proofness; Maximal Domain.
    JEL: C71 C78 D71 D78
    Date: 2021–11

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