nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒01‒10
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Learning Efficiency of Multi-Agent Information Structures By Mira Frick; Ryota Iijima; Yuhta Ishii
  2. Contagion Management through Information Disclosure By Jonas Hedlund; Allan Hernández-Chanto; Carlos Oyarzún
  3. Markovian Persuasion By Ehud Lehrer; Dimitry Shaiderman
  4. Simultaneous Search and Adverse Selection By Sarah Auster; Piero Gottardi; Ronald Wolthoff
  5. Strategy-Proof Aggregation Rules in Median Semilattices with Applications to Preference Aggregation By Ernesto Savaglio; Stefano Vannucci
  6. Formation of committees under constraints through random voting rules By Roy, Souvik; Sadhukhan, Soumyarup
  7. Hidden Cost of Sanctions in a Dynamic Principal-Agent Model: Reactance to Controls and Restoration of Freedom By Kohei Daido; Tomoya Tajika
  8. Categorical versus graded beliefs By Franz Dietrich
  9. Local incentive compatibility in non-convex type-spaces By Roy, Souvik; Kumar, Ujjwal
  10. Aggregation of Pareto optimal models By Hamed Hamze Bajgiran; Houman Owhadi
  11. The impacts of suppliers and mutual outsourcing on organizational forms By Yasuhiro Arai; Noriaki Matsushima
  12. Cassandra's Curse: A Second Tragedy of the Commons By Colo, Philippe
  13. Efficiency-Inducing Tax Credits for Charitable Donations when Taxpayers Have Heterogeneous Behavioral Norms By Ngo Van Long
  14. Let the Worst One Fail: A Credible Solution to the Too-Big-To-Fail Conundrum By Thomas Philippon; Olivier Wang
  15. Lifetime employment and reaction functions of socially concerned firms under quantity competition By Ohnishi, Kazuhiro
  16. Single monopoly profits, vertical mergers, and downstream entry deterrence By Hunold, Matthias; Schad, Jannika
  17. Hybrid Marketplaces with Free Entry of Sellers By Federico Etro
  18. Language, internet and platform competition By Doh-Shin Jeon; Bruno Jullien; Mikhail Klimenko
  19. Platform Competition with Free Entry of Sellers By Federico Etro
  20. The Economics of Platforms: A Theory Guide for Competition Policy By Bruno Jullien; Wilfried Sand-Zantman

  1. 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 define 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, first, 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 that are "aligned at certainty." 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, Speed of learning, Higher-order beliefs, Comparison of information structures
    JEL: D80 D83 C70
    Date: 2021–08
  2. By: Jonas Hedlund (University of Texas at Dallas); Allan Hernández-Chanto (School of Economics, University of Queensland, Brisbane, Australia); Carlos Oyarzún (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: We analyze information disclosure as a policy instrument for contagion management in decentralized environments. A benevolent planner (e.g., the government) tests a fraction of the population to learn the infection rate. Individuals meet randomly and exert vigilance effort. Efforts factor in a passage function to probabilistically reduce contagion. We analyze the information disclosure policy that maximizes society’s expected welfare. When efforts are strategic substitutes, we provide sufficient conditions and necessary conditions for full disclosure to be optimal. When efforts are strategic complements, pooling intermediate infection rates is optimal whenever individuals’ equilibrium effort jumps from no-effort (inaction) to full-effort (frenzy).
    Keywords: Contagion, information design, full-disclosure, obfuscation, vigilance effort, passage function, substitutes, complements.
    JEL: D44 D47 D81 D82
    Date: 2021–12–19
  3. By: Ehud Lehrer; Dimitry Shaiderman
    Abstract: In the classical Bayesian persuasion model an informed player and an uninformed one engage in a static interaction. The informed player, the sender, knows the state of nature, while the uninformed one, the receiver, does not. The informed player partially shares his private information with the receiver and the latter then, based on her belief about the state, takes an action. This action determines, together with the state of nature, the utility of both players. We consider a dynamic Bayesian persuasion situation where the state of nature evolves according to a Markovian law. In this repeated persuasion model an optimal disclosure strategy of the sender should, at any period, balance between getting high stage payoff and future implications on the receivers' beliefs. We discuss optimal strategies under different discount factors and characterize when the asymptotic value achieves the maximal value possible.
    Date: 2021–11
  4. By: Sarah Auster (Department of Economics, University of Bonn); Piero Gottardi (Department of Economics, University of Essex); Ronald Wolthoff (Department of Economics, University of Toronto)
    Abstract: We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents' types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier.
    Keywords: Directed Search, Adverse Selection
    JEL: D82 D83
    Date: 2022–01
  5. By: Ernesto Savaglio; Stefano Vannucci
    Abstract: Two characterizations of the whole class of strategy-proof aggregation rules on rich domains of locally unimodal preorders in finite median join-semilattices are provided. In particular, it is shown that such a class consists precisely of generalized weak sponsorship rules induced by certain families of order filters of the coalition poset. It follows that the co-majority rule and many other inclusive aggregation rules belong to that class. The co-majority rule for an odd number of agents is characterized and shown to be equivalent to a Condorcet-Kemeny rule. Applications to preference aggregation rules including Arrowian social welfare functions are also considered. The existence of strategy-proof anonymous neutral and unanimity-respecting social welfare functions which are defined on arbitrary profiles of total preorders and satisfy a suitably relaxed independence condition is shown to follow from our characterizations.
    Keywords: Strategy-proofness, single peakedness, median join-semilattice, social welfare function
    JEL: D71
    Date: 2021–12
  6. By: Roy, Souvik; Sadhukhan, Soumyarup
    Abstract: We consider the problem of choosing a committee from a set of available candidates through a randomized social choice function when there are bounds on the size (the number of members) of the committee to be formed. We show that for any (non-vacuous) restriction on the size of the committee, a random social choice function (RSCF) is onto and strategy-proof if and only if it is a range-restricted random dictatorial rule. Next, we consider the situation where an “undesirable committee” can be chosen with positive probability only if everyone in the society wants it as his best committee. We call this property strong unanimity. We characterize all strongly unanimous and strategy-proof RSCFs when there is exactly one undesirable committee. A common situation where a single committee is undesirable is one where the null committee is not allowed to be formed. We further show that there is no RSCF satisfying strong unanimity and strategy-proofness when there are more than one undesirable committees. Finally, we extend all our results when strategy-proofness is strengthened with group strategy-proofness.
    Keywords: Committee Formation; Random Social Choice Function; Strategy-proofness; Ontoness; Strong unanimity; Group strategy-proofness
    JEL: D71 D82
    Date: 2021–11–30
  7. By: Kohei Daido (School of Economics, Kwansei Gakuin University); Tomoya Tajika (Hokusei Gakuen University)
    Abstract: This study examines the effect of the principal's control over the agent's behavior in a dynamic principal-agent model with hidden information. We show the condition that the agent who has a similar preference for actions as the principal dares to choose the unpreferred action when the principal imposes a sanction on such an action. This also makes the principal worse off even when imposing sanctions is materially costless. When the principal incurs a cost on sanctions, they cease implementing them after observing the unpreferred action taken by the agent. Our results of the hidden cost of control correspond to the insight from the psychological reactance theory: when an agent's freedom is threatened, they resist it to restore the freedom.
    Keywords: Dynamic principal-agent model, Hidden cost of controls, Psychological reactance, Ratchet effects, Sanction
    JEL: D82 D86 D91 M52
    Date: 2021–12
  8. By: Franz Dietrich (Centre d'Economie de la Sorbonne, Paris School of Economics)
    Abstract: This essay discusses the difficulty to reconcile two paradigms about beliefs: the binary or categorical paradigm of yes/no beliefs and the probabilistic paradigm of degrees of belief. The possibility for someone to hold both types of belief simultaneously is challenged by the lottery paradox, and more recently by a general impossibility theorem. The nature, relevance and implications of the tension are explained and assessed. A more technical elaboration can be found in Dietrich and List (2018, 2021)
    Keywords: logic vs. rational choice theory; yes/no belief vs. subjective probabilities; lottery paradox; general impossibility theorem
    JEL: D80 D83
    Date: 2021–11
  9. By: Roy, Souvik; Kumar, Ujjwal
    Abstract: We explore the equivalence of local incentive compatibility (LIC) (Carroll (2012)) and incentive compatibility (IC) in non-convex type-spaces. We provide a sufficient condition on a type-space called minimal richness for the said equivalence. Using this result, we show that LIC and IC are equivalent on large class of non-convex type-spaces such as type-spaces perturbed by modularity and concave-modularity. The gross substitutes type-space and the generalized gross substitutes and complements type-space are important examples of type-spaces perturbed by modularity and concave-modularity, respectively. Finally, we provide a geometric property consisting of three conditions for the equivalence of LIC and IC, and show that all the conditions are indispensable.
    Keywords: local incentive compatibility, (global) incentive compatibility, non-convex type-spaces, minimally rich type-spaces, gross substitutes type-space, generalized gross substitutes and complements type-space
    JEL: D44 D47 D82
    Date: 2021–11–30
  10. By: Hamed Hamze Bajgiran; Houman Owhadi
    Abstract: In statistical decision theory, a model is said to be Pareto optimal (or admissible) if no other model carries less risk for at least one state of nature while presenting no more risk for others. How can you rationally aggregate/combine a finite set of Pareto optimal models while preserving Pareto efficiency? This question is nontrivial because weighted model averaging does not, in general, preserve Pareto efficiency. This paper presents an answer in four logical steps: (1) A rational aggregation rule should preserve Pareto efficiency (2) Due to the complete class theorem, Pareto optimal models must be Bayesian, i.e., they minimize a risk where the true state of nature is averaged with respect to some prior. Therefore each Pareto optimal model can be associated with a prior, and Pareto efficiency can be maintained by aggregating Pareto optimal models through their priors. (3) A prior can be interpreted as a preference ranking over models: prior $\pi$ prefers model A over model B if the average risk of A is lower than the average risk of B. (4) A rational/consistent aggregation rule should preserve this preference ranking: If both priors $\pi$ and $\pi'$ prefer model A over model B, then the prior obtained by aggregating $\pi$ and $\pi'$ must also prefer A over B. Under these four steps, we show that all rational/consistent aggregation rules are as follows: Give each individual Pareto optimal model a weight, introduce a weak order/ranking over the set of Pareto optimal models, aggregate a finite set of models S as the model associated with the prior obtained as the weighted average of the priors of the highest-ranked models in S. This result shows that all rational/consistent aggregation rules must follow a generalization of hierarchical Bayesian modeling. Following our main result, we present applications to Kernel smoothing, time-depreciating models, and voting mechanisms.
    Date: 2021–12
  11. By: Yasuhiro Arai; Noriaki Matsushima
    Abstract: We consider a downstream duopoly model with a monopolistic common supplier and mutual outsourcing between the two symmetric downstream firms. The market structure captures the recent procurement environment in the smartphone industry. We also incorporate managerial delegations into the duopoly model because deciding on organizational forms within a firm is critical to achieving better performance in almost all industries. There is an equilibrium in which only one of the firms delegates its downstream production to its sales manager. A delegating firm becomes less aggressive. The profits when both firms delegate can be higher than those when no firm delegates. The total surplus when both firms delegate is smaller than that when no firm delegates.
    Date: 2021–12
  12. By: Colo, Philippe
    Abstract: This paper studies why scientific forecasts regarding exceptional or rare events generally fail to trigger adequate public response. A major example is climate change: despite years of scientific reporting, public acceptance of economic regulations is still limited. Building on the main causes identified by surveys for these reluctances, this paper offers an explanatory mechanism for this paradox. I consider a game of contribution to a public bad: greenhouse gases emissions. Prior to that, contributors receive expert advice regarding climate damages. Because of climate science's complexity, experts' forecasts are non-verifiable. In addition, I assume that the expert cares only about social welfare. Under mild assumptions, I show that no information transmission can happen at equilibrium when the number of contributors is high or the severity of climate damages is low. Then, contributors ignore scientific reports and act solely upon their prior belief.
    Keywords: Contribution to a public bad, Cheap talk, Climate change
    JEL: D62 D83
    Date: 2021–11–30
  13. By: Ngo Van Long
    Abstract: We consider an economy in which some taxpayers behave in a Kantian way in their donation behavior while others are Nash players. A Kantian taxpayer holds the norm that any suggested deviation from a proposed equilibrium profile would be adopted by him only if when all members of their community adopted the same deviation, they would all achieve a higher level of welfare. In contrast, a Nash player follows the individual rationality criterion: He would deviate if, assuming all others do not deviate, he would improve his own payoff. We show that if all taxpayers are Nash players, then there is an efficiency-inducing tax credit scheme for charitable contributions. In contrast, if all taxpayers are Kantian, the optimal tax credit for charity is zero. If both types of taxpayers co-exist, and the government does not know who is of what type, then it is not possible for the government to induce the first-best outcome, but it must rely on a second-best tax-credit scheme.
    Keywords: categorical imperative, Kantian behaviour, Kantian equilibrium, Kant-Nash equilibrium, voluntary contributions to a public good, tax credits
    JEL: H21 H31 H41
    Date: 2021
  14. By: Thomas Philippon; Olivier Wang
    Abstract: We study time-consistent bank resolution mechanisms. When interventions are ex post efficient, a government cannot commit not to inject capital into the banking system. Contrary to common wisdom, we show that the government may still avoid moral hazard and implement the first best allocation by using the distribution of bailouts across banks to provide ex ante incentives. In particular, we analyze properties of credible tournament mechanisms that provide support to the best performing banks and resolve the worst performing ones, including through mergers. Our mechanism continues to perform well if banks are partially substitutable, and if they are heterogeneous in their size, interconnections, and thus systemic risk, as long as bailout funds can be targeted to particular banks.
    JEL: G01 G2 G33 G34 G38 H12
    Date: 2021–12
  15. By: Ohnishi, Kazuhiro
    Abstract: This paper considers a Cournot oligopoly model with a concave demand function where socially concerned firms can offer lifetime employment as a strategic commitment device. Each socially concerned firm maximizes its own profit plus a share of consumer surplus. The paper presents the reaction functions of socially concerned firms in the Cournot oligopoly model.
    Keywords: Cournot oligopoly model; Lifetime employment; Reaction functions; Socially concerned firms
    JEL: C72 D21 L20
    Date: 2021–11–30
  16. By: Hunold, Matthias; Schad, Jannika
    Abstract: We review the Chicago school's single monopoly profit theory whereby an upstream monopolist cannot increase its profits through vertical integration as it has sufficient market power anyways. In our model the dominant supplier has full bargaining power and uses observable two-part tariffs. We show that, by vertically integrating with a downstream incumbent, the supplier can profitably commit to pricing more aggressively if a downstream entrant refuses its supply contract. This can deter welfare-enhancing entry. The anti-competitive effects arise from the seemingly pro-competitive elimination of double marginalization. We relate our model to hybrid platforms and, in particular, Apple's App store.
    Keywords: double marginalization,entry deterrence,exclusive dealing,foreclosure,verticalmerger
    JEL: L22 L40 L42
    Date: 2021
  17. By: Federico Etro
    Abstract: We study a hybrid marketplace such as Amazon selling its own products and setting commissions on sellers engaged in monopolistic competition with free entry. For a large class of microfoundations based on a representative agent, the introduction of products by the marketplace is neutral on consumer welfare for a given commission, but exerts an ambiguous impact through its changes: a "demand substitution mechanism" pushes for a higher commission, but an "extensive margin mechanism" pushes for a lower commission aimed at attracting new sellers and more purchases on the marketplace. With constant demand elasticities, a hybrid marketplace sets a lower (higher) commission rate and increases (decreases) consumer welfare compared to a pure marketplace if its products face a less (more) elastic demand. We extend the analysis to alternative timing, Bertrand competition between sellers, endogenous product selection by the marketplace, specific commissions and ads for product discovery.
    Keywords: Hybrid marketplaces, 3P Sellers, Commissions, Entry, Monopolistic Competition.
    JEL: L1 L4
    Date: 2021
  18. By: Doh-Shin Jeon; Bruno Jullien (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); Mikhail Klimenko
    Date: 2021–07
  19. By: Federico Etro
    Abstract: We study platforms setting access prices and commissions on revenues of sellers engaged in monopolistic competition with free entry, as the app providers on the app stores of Apple and Android devices. Competition to attract buyers and sellers induces the platforms to redistribute all the revenues through lower access prices and set the optimal commission rates from the point of view of consumers, taking into account the pass-through on the prices of sellers, the elasticities of demand and surplus for their services and the elasticity of entry with respect to profitability. We discuss the role of heterogeneous sellers, substitutability between sellers's products and the introduction of platforms's products, as well as some limitations of the basic alignment of interest of platforms and consumers due to direct channels for sellers and consumer myopia.
    Keywords: Digital platforms, Third-party Sellers, Commissions, Entry.
    JEL: L1 L4
    Date: 2021
  20. By: Bruno Jullien (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); Wilfried Sand-Zantman
    Date: 2021–03

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