nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒01‒03
sixteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. An implementation approach to rotation programs By Ville Korpela; Michele Lombardi; Riccardo D. Saulle
  2. Best-Response Dynamics, Playing Sequences, And Convergence To Equilibrium In Random Games By Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
  3. The Central Influencer Theorem: Spatial Voting Contests with Endogenous Coalition Formation By Subhasish M. Chowdhury; Sang-Hyun Kim
  4. Information Flows and Memory in Games By Pierpaolo Battigalli; Nicolò Generoso
  5. Dissonance Minimization and Conversation in Social Networks By Mikhail Anufriev; Kirill Borissov; Mikhail Pakhnin
  6. Advantageous Smallness in Contests By J. Atsu Amegashie
  7. Network games with heterogeneous players By Orlova, Olena
  8. Belief change, Rationality, and Strategic Reasoning in Sequential Games By Pierpaolo Battigalli; Emiliano Catonini; Julien Manili
  9. Contest Copycats: Adversarial Duplication of Effort in Contests By Jonas Send
  10. On the Robustness of Pricing Mechanisms By Han Han Peking; Benoit Julien; Liang Wang
  11. On Risk and Time Pressure: When to Think and When to Do By Christoph Carnehl; Johannes Schneider
  12. Truthful Cake Sharing By Xiaohui Bei; Xinhang Lu; Warut Suksompong
  13. Optimal Investment and Equilibrium Pricing under Ambiguity By Michail Anthropelos; Paul Schneider
  14. The Revelation Incentive for Issue Engagement By Chitralekha Basu; Matthew Knowles
  15. Optimal bidding strategies for digital advertising By Médéric Motte; Huyên Pham
  16. Collective Action in Intra-group Conflict with Fixed Budgets By Kai A. Konrad; Florian Morath

  1. By: Ville Korpela (Turku School of Economics, University of Turku); Michele Lombardi (University of Liverpool Management School, Liverpool, UK; Department of Economics and Statistics, University of Napoli Federico II); Riccardo D. Saulle (Department of Economics and Management, University of Padova)
    Abstract: We study rotation programs within the standard implementation framework under complete information. A rotation program is a myopic stable set whose states are arranged circularly, and agents can effectively move only between two consecutive states. We provide characterizing conditions for the implementation of efficient rules in rotation programs. Moreover, we show that the conditions fully characterize the class of implementable multi-valued and efficient rules.
    Keywords: Rotation Programs, Job Rotation, Assignment Problems, Implementation, rights structures, Stability
    JEL: C71 D71 D82
    Date: 2021–12
  2. By: Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
    Abstract: We analyze the performance of the best-response dynamic across all normal-form games using a random games approach. The playing sequence—the order in which players update their actions—is essentially irrelevant in determining whether the dynamic converges to a Nash equilibrium in certain classes of games (e.g. in potential games) but, when evaluated across all possible games, convergence to equilibrium depends on the playing sequence in an extreme way. Our main asymptotic result shows that the best-response dynamic converges to a pure Nash equilibrium in a vanishingly small fraction of all (large) games when players take turns according to a fixed cyclic order. By contrast, when the playing sequence is random, the dynamic converges to a pure Nash equilibrium if one exists in almost all (large) games.
    Keywords: Best-response dynamics, equilibrium convergence, random games
    JEL: C62 C72 C73 D83
    Date: 2021–11
  3. By: Subhasish M. Chowdhury (University of Bath); Sang-Hyun Kim (Yonsei University)
    Abstract: We analyze a spatial voting contest without the “one person, one vote” restriction. Players exert continuous influence effort and incurs cost accordingly. They can be heterogeneous in terms of position, disutility function, and cost function. In equilibrium, two groups endogenously emerge: players in one group try to implement more leftist policy, while those in the other group more rightist one. Since the larger group suffers more severe free-riding problem, the equilibrium policy does not converge to the center if the larger group does not have a cost advantage. We demonstrate how the location of the center (i.e., the steady-state point) depends the convexities of the utility and cost functions. We extend the model to a dynamic setting.
    Keywords: Spatial Competition; Contest; Lobbying; Median Voter Theorem
    JEL: C72 D72 D74 D78
    Date: 2021–12
  4. By: Pierpaolo Battigalli; Nicolò Generoso
    Abstract: We propose that the mathematical representation of situations of strategic interactions, i.e., of games, should separate the description of the rules of the game from the description of players’ personal traits. Yet, we note that the standard extensive-form partitional representation of information in sequential games does not comply with this separation principle. We offer an alternative representation that extends to all (finite) sequential games the approach adopted in the theory of repeated games with imperfect monitoring, that is, we describe the flow of information accruing to players rather than the stock of information retained by players, as encoded in information partitions. Mnemonic abilities can be represented independently of games. Assuming that players have perfect memory, our flow representation gives rise to information partitions satisfying perfect recall. Different combinations of rules about information flows and of players mnemonic abilities may give rise to the same information partition . All extensive-form representations with information partitions, including those featuring absentmindedness, can be generated by some such combinations.
    Date: 2021
  5. By: Mikhail Anufriev; Kirill Borissov; Mikhail Pakhnin
    Abstract: We study a model of social learning in networks where the dynamics of beliefs are driven by conversations of dissonance-minimizing agents. Given their current beliefs, agents make statements, tune them to the statements of their associates, and then revise their beliefs. We characterize the long-run beliefs in a society, provide the necessary and sufficient conditions for a society to reach a consensus, and show that agents’ social influences (weights on the consensus belief) are decreasing in their dissonance sensitivities. Comparing the outcomes of two models, with and without conversation, we show that conversation leads to a redistribution of social influences in favor of agents with higher self-confidence. Finally, we provide analytical insights for the model where agents minimize dissonance by revising both beliefs and network, and show that an endogenous change of network may prevent a society from reaching a consensus.
    Keywords: social networks, DeGroot learning, social influence, dissonance minimization, conversation
    JEL: D83 D85 D91 Z13
    Date: 2021
  6. By: J. Atsu Amegashie
    Abstract: A standard result in contests is that a higher-ability player has a higher probability of winning the prize than a lower-ability player. Put differently, a stronger player has an advantage over a weaker player in a contest. There are very few exceptions to this standard result. I consider a model in which being “too big” is only a necessary condition for an insolvent firm to receive a government bailout because, in addition to meeting a threshold asset size, the firm must engage in a lobbying contest in order to be bailed out. The firm has an advantage because its probability of winning the contest is increasing in its size. When the firm experiences an unfavorable price shock, I find that the balance between the size of the requisite bailout and the firm’s political advantage of being “too big” determines the firm's probability of getting a bailout. Surprisingly, I find that a smaller firm may receive a bailout while a bigger firm will not, although the firm’s (political) advantage is increasing in its size. This result is weakened but not overturned if the firms are uncertain about the threshold size for being considered too big. The paper’s main result will not hold in a contest with independent valuations. In the bailout contest, the players have interdependent valuations.
    Keywords: insolvency, bail-out, biased contests, political advantage, too-big
    JEL: O10 P16 P48
    Date: 2021
  7. By: Orlova, Olena (Center for Mathematical Economics, Bielefeld University)
    Abstract: We consider network games in which players simultaneously form partnerships and choose actions. Players are heterogeneous with respect to their action preferences. We characterize pairwise Nash equilibria for a large class of games, including coordination and anti-coordination games, varying the strength of action preferences and the size of the linking cost. We find that, despite the symmetry and simplicity of the setting, quite irregular network structures can arise in equilibrium, implying that heterogeneity in players' action preferences may already explain a large part of observed irregularity in endogenously formed networks.
    Keywords: network games, strategic network formation, preference heterogeneity, efficiency
    Date: 2021–12–22
  8. By: Pierpaolo Battigalli; Emiliano Catonini; Julien Manili
    Abstract: Strategic reasoning in sequential games rests on figuring out how (co)players would react to information about past play, which in turn depends on how players update or revise their beliefs. Several notions of belief systems have been used to represent and discipline how players’ beliefs change as they obtain new information. Such notions differ and can be nested according to the imposed consistency restrictions relating beliefs at different information sets. The minimal restriction requires that beliefs about others change from one information set to a following, more informative one in compliance with the chain rule, i.e., by standard updating whenever possible. On top of this, more demanding restrictions require that beliefs about co-players depend only on information about them, not on own past moves. Even stronger restrictions require that players update, or revise their beliefs as if they could notionally condition on any nonempty event about co-players’ behavior in compliance with the chain rule. We analyze restrictions on belief change, providing characterizations and interpretations in terms of introspection and cognitive rationality. We then argue that these differences between consistency restrictions do not affect the behavioral implications of strategic reasoning in games.
    Keywords: Sequential games, chain rule, partial introspection, rational planning, rationalizability. JEL Codes: C72, C73, D83.
    Date: 2021
  9. By: Jonas Send
    Abstract: Participants in an innovation contest may steal their opponents’ ideas to enhance their chance of winning. To model this, I introduce the ability to copy another player’s effort in a Tullock contest between two players. I characterise the unique equilibrium in this game dependent on the cost of copying and one of the players’ productivity advantage. If effort costs are low, the less productive player is more likely to win the contest. The model’s comparative statics have important implications for governments who subsidise ï¬ rms in contests and for contest designers.
    Keywords: Innovation Contest, Espionage, Imitation, Tullock Contest
    JEL: C72 C78 O31
    Date: 2021–10
  10. By: Han Han Peking (University School of Economics); Benoit Julien (UNSW Sydney); Liang Wang (University of Hawaii Manoa)
    Abstract: We study the robustness of two well-known and frequently observed multilateral trading protocols, price posting and auction, in small markets. In the context of directed search, sellers choose and commit to an ex-ante trading protocol to attract buyers. When constructing equilibrium, the deviating seller usually chooses the same mechanism as non-deviating sellers. In this paper, however, we allow the deviating seller to bargain with a buyer. In this setup, we find that price posting and auction are not robust mechanisms, because there is always a profitable deviation of bargaining. Then, we introduce a new hybrid multilateral trading protocol, which combines auction and bargaining. We show that when sellers commit to such a mechanism, the equilibrium is robust to deviations of bargaining.
    Keywords: Housing market; Auction; Bargaining; Directed Search; Price Posting
    JEL: D40 D83 E40
    Date: 2021–12
  11. By: Christoph Carnehl; Johannes Schneider
    Abstract: We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. The agent takes risks early on to quickly arrive at a solution, sacrificing the prospects of alternatives.
    Date: 2021–11
  12. By: Xiaohui Bei; Xinhang Lu; Warut Suksompong
    Abstract: The classic cake cutting problem concerns the fair allocation of a heterogeneous resource among interested agents. In this paper, we study a public goods variant of the problem, where instead of competing with one another for the cake, the agents all share the same subset of the cake which must be chosen subject to a length constraint. We focus on the design of truthful and fair mechanisms in the presence of strategic agents who have piecewise uniform utilities over the cake. On the one hand, we show that the leximin solution is truthful and moreover maximizes an egalitarian welfare measure among all truthful and position oblivious mechanisms. On the other hand, we demonstrate that the maximum Nash welfare solution is truthful for two agents but not in general. Our results assume that mechanisms can block each agent from accessing parts that the agent does not claim to desire; we provide an impossibility result when blocking is not allowed.
    Date: 2021–12
  13. By: Michail Anthropelos (University of Piraeus - Department of Banking and Financial Management); Paul Schneider (University of Lugano - Institute of Finance; Swiss Finance Institute)
    Abstract: We consider portfolio selection under nonparametric alpha-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion.Implied demand functions are nondifferentiable, resemble observed bid-ask spreads, and are consistent with existing parametric limiting participation results under ambiguity. Ambiguity seekers exhibit a discontinuous demand function, implying an empty set of reservation prices. If agents have identical, or sufficiently similar prior beliefs, the first best equilibrium is no trade. Simple sufficient conditions yield the existence of a Pareto-efficient second-best equilibrium which reconciles many observed phenomena in financial markets, such as liquidity dry-ups, portfolio inertia, and negative risk premia.
    Keywords: ambiguity,equilibrium,asset pricing
    JEL: G11 G12 G41 C62 D84
    Date: 2021–11
  14. By: Chitralekha Basu (University of Cologne); Matthew Knowles (University of Cologne)
    Abstract: How do parties choose issues to emphasize in campaigns, and when does electoral competition force parties to address issues important to voters? Empirical studies have found that although parties focus disproportionately on favourable issues in campaigns, they also spend much of the `short campaign' addressing the same issues - and especially if these are salient issues. We write a model of multiparty competition with endogenous issue salience, where, in equilibrium, parties behave in line with these patterns. In our model, parties' issue emphases have two effects: influencing voter priorities, and also informing voters about their issue positions. Thus, parties trade off two incentives when choosing issues to emphasize: increasing the importance of favorable issues ('the salience incentive'), and revealing their positions on salient issues to sympathetic voters ('the revelation incentive'). The relative strength of these two incentives determines how far elections constrain parties to respond to voters' initial issue priorities.
    Keywords: Electoral competition; Issue salience; Issue selection; Party strategy; Campaigns
    JEL: D72 D83
    Date: 2021–12
  15. By: Médéric Motte (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistiques et Modélisations - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique); Huyên Pham (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistiques et Modélisations - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Keywords: Bid optimisation,auction,targeted advertising,digital information,Point processes,martingale techniques JEL Classification: C70,C61 MSC Classification: 91B26,90B60,60G55
    Date: 2021–11–15
  16. By: Kai A. Konrad; Florian Morath
    Abstract: We study collective action under adverse incentives: each member of the group has a given budget (‘use-it-or-lose-it’) that is his private information and that can be used for contributions to make the group win a prize and for internal …fights about this very prize. Even in the face of such rivalry in resource use, the group often succeeds to overcome the collective action problem in non-cooperative equilibrium. One type of equilibrium has group members who both contribute, the other type has volunteers who make full stand-alone contributions. Both types of equilibrium exist for larger and partially overlapping parameter ranges.
    Keywords: Blotto budgets; intra-group conflict; threshold public good; collective action; all-pay auction; incomplete information
    JEL: D72 D74
    Date: 2021–08

This nep-mic issue is ©2022 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.