nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒01‒31
fifteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Mechanism Design with Informational Punishment By Benjamin Balzer; Johannes Schneider
  2. Robust Implementation with Costly Information By Harry Pei; Bruno Strulovici
  3. Uncertain product availability in search markets By Atayev, Atabek
  4. An Implementation Approach to Rotation Programs By Korpela, Ville; Lombardi, Michele; Saulle, Riccardo
  5. School Choice and Loss Aversion By Vincent Meisner; Jonas von Wangenheim
  6. Bidding in Multi-Unit Auctions under Limited Information By Bernhard Kasberger; Kyle Woodward
  7. Negative results in science: Blessing or (winner's) curse? By Catherine Bobtcheff; Raphaël Levy; Thomas Mariotti
  8. A Commitment Theory of Populism By Massimo Morelli; Antonio Nicolò; Paolo Roberti
  9. Vertical Differentiation in Frictional Product Markets By James Albrecht; Guido Menzio; Susan Vroman
  10. Safe Equilibrium By Sam Ganzfried
  11. Insurance design and arson-type risks By Jean-Gabriel Lauzier
  12. Social Rationalizability with Mediation By Herings, P. Jean-Jacques; Mauleon, Ana; Vannetelbosch, Vincent
  13. Stochastic Contracts and Subjective Evaluations By Matthias Lang
  14. Procedurally Justifiable Strategies: Integrating Context Effects into Multistage Decision Making By Fynn Kemper; Philipp Christoph Wichardt
  15. No-Challenge Clauses in Patent Licensing - Blessing or Curse? By Buehler, Benno; Hunold, Matthias; Schlütter, Frank

  1. By: Benjamin Balzer; Johannes Schneider
    Abstract: We introduce informational punishment to the design of mechanisms that compete with an exogenous status quo: A signal designer can publicly communicate with all players even if some decide not to communicate with the designer. Optimal informational punishment ensures that full participation in the mechanism is optimal even if any single player can publicly enforce the status-quo mechanism. Informational punishment restores the revelation principle, is independent of the mechanism designer's objective, and operates exclusively off the equilibrium path. Informational punishment is robust to refinements and applies in informed-principal settings. We provide conditions that make it robust to opportunistic signal designers.
    Date: 2022–01
  2. By: Harry Pei; Bruno Strulovici
    Abstract: We study whether a planner can robustly implement a state-contingent social choice function when (i) agents must incur a cost to learn the state and (ii) the planner faces uncertainty regarding agents' preferences over outcomes, information costs, and beliefs and higher-order beliefs about one another's payoffs. We propose mechanisms that can approximately implement any desired social choice function when the perturbations concerning agents' payoffs have small ex ante probability. The mechanism is also robust to trembles in agents' strategies and when agents receive noisy information about the state.
    Date: 2021–12
  3. By: Atayev, Atabek
    Abstract: In many markets buyers are poorly informed about which firms sell the product (product availability) and prices, and therefore have to spend time to obtain this information. In contrast, sellers typically have a better idea about which rivals offer the product. Information asymmetry between buyers and sellers on product availability, rather than just prices, has not been scrutinized in the literature on consumer search. We propose a theoretical model that incorporates this kind of information asymmetry into a simultaneous search model. Our key finding is that greater product availability may harm buyers by mitigating their willingness to search and, thus, softening competition.
    Keywords: Consumer Search,Uncertain Product Availability,Information Asymmetry
    JEL: D43 D82 D83
    Date: 2021
  4. By: Korpela, Ville; Lombardi, Michele; Saulle, Riccardo
    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: C7 D02 D04 D47
    Date: 2021–12–16
  5. By: Vincent Meisner; Jonas von Wangenheim
    Abstract: Evidence suggests that participants in direct student-proposing deferred-acceptance mechanisms (DA) play dominated strategies. To explain the data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria in DA. We find that non-truthful preference submissions can be strictly optimal if and only if they are top-choice monotone. In equilibrium, DA may implement allocations with justified envy. Specifically, it discriminates against students who are more loss averse or less confident than their peers, and amplifies already existing discrimination. To level the playing field, we propose sequential mechanisms as alternatives that are robust to these biases.
    Keywords: market design, matching, school choice, reference-dependent preferences, loss aversion, deferred acceptance
    JEL: C78 D47 D78 D81 D82 D91
    Date: 2021
  6. By: Bernhard Kasberger; Kyle Woodward
    Abstract: We study multi-unit auctions in which bidders have limited knowledge of opponent strategies and values. We characterize optimal prior-free bids; these bids minimize the maximal loss in expected utility resulting from uncertainty surrounding opponent behavior. Optimal bids are simply computable despite bidders having multi-dimensional private information, and in certain cases admit closed-form solutions. In the pay-as-bid auction the minimax-loss bid is unique; in the uniform-price auction the minimax-loss bid is unique if the bidder is allowed to determine the quantities for which they bid, as in many practical applications. Payments to the seller may be higher in either auction format, but minimax-loss bids are never uniformly higher in the pay-as-bid auction.
    Date: 2021–12
  7. By: Catherine Bobtcheff (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Raphaël Levy (HEC Paris - Ecole des Hautes Etudes Commerciales); Thomas Mariotti (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, CNRS - Centre National de la Recherche Scientifique)
    Abstract: Two players receiving independent signals on a risky project with common value compete to be the first to invest. We characterize the equilibrium of this preemption game as the publicity of signals varies. Private signals create a winner's curse: the first mover suspects that his rival might have privately received adverse information, hence exited. To compensate, players seek more evidence supporting the project, resulting in later investment. A conservative planner concerned with avoiding unprofitable investments may then prefer private signals. Our results suggest that policy interventions should primarily tackle winner-takes-all competition, and regulate transparency only once competition is sufficiently mild.
    Date: 2022–01
  8. By: Massimo Morelli; Antonio Nicolò; Paolo Roberti
    Abstract: When voters’ trust in politicians collapses, they demand simple policies that they can easily monitor. Disenchanted citizens therefore prefer committed delegates to politicians who propose themselves as competent policy makers but without a specific policy commitment (trustees). In a two-party competition, the unique asymmetric equilibrium is such that voters with lower interest for the common good select a committed delegate, while those with higher interest for the common good appoint a trustee. In this equilibrium, we show that the committed delegate also chooses all the strategies typically associated with populism in the literature. Hence, this paper puts forward a commitment theory of populism.
    Keywords: populism, competence, commitment, information acquisition, interest groups, moral universalism
    JEL: D72 D78
    Date: 2021
  9. By: James Albrecht; Guido Menzio; Susan Vroman
    Abstract: We consider a version of the imperfect competition model of Butters (1977), Varian (1980) and Burdett and Judd (1983) in which sellers make an ex-ante investment in the quality of their variety of the product. Equilibrium exists, is unique and is efficient. In equilibrium, search frictions not only cause sellers to offer different surpluses to buyers but also cause sellers to choose different qualities for their varieties. That is, equilibrium involves endogenous vertical differentiation. As search frictions decline, the market becomes more and more unequal as a smaller and smaller fraction of sellers produces varieties of increasing quality, offers increasing surplus to their customers, and captures an increasing share of the market, while a growing fraction of sellers produces varieties of decreasing quality. Gains from trade and welfare grow. Under some conditions, the growth rate of gains from trade and welfare is constant.
    JEL: D43 D83 L13 O40
    Date: 2021–12
  10. By: Sam Ganzfried
    Abstract: The standard game-theoretic solution concept, Nash equilibrium, assumes that all players behave rationally. If we follow a Nash equilibrium and opponents are irrational (or follow strategies from a different Nash equilibrium), then we may obtain an extremely low payoff. On the other hand, a maximin strategy assumes that all opposing agents are playing to minimize our payoff (even if it is not in their best interest), and ensures the maximal possible worst-case payoff, but results in exceedingly conservative play. We propose a new solution concept called safe equilibrium that models opponents as behaving rationally with a specified probability and behaving potentially arbitrarily with the remaining probability. We prove that a safe equilibrium exists in all strategic-form games (for all possible values of the rationality parameters), and prove that its computation is PPAD-hard. We present exact algorithms for computing a safe equilibrium in both 2 and $n$-player games, as well as scalable approximation algorithms.
    Date: 2022–01
  11. By: Jean-Gabriel Lauzier
    Abstract: We design the insurance contract when the insurer faces arson-type risks. The optimal contract must be manipulation-proof. It is therefore continuous, it has a bounded slope, and it satisfies the no-sabotage condition when arson-type actions are free. Any contract that mixes a deductible, coinsurance and an upper limit is manipulation-proof. We also show that the ability to perform arson-type actions reduces the insured's welfare as less coverage is offered in equilibrium.
    Date: 2021–12
  12. By: Herings, P. Jean-Jacques; Mauleon, Ana (Université catholique de Louvain, LIDAM/CORE, Belgium); Vannetelbosch, Vincent (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We propose a solution concept for social environments called social rationalizability with mediation that identifies the consequences of common knowledge of rationality and farsightedness. In a social environment several coalitions may and could be willing to move at the same time. Individuals not only hold conjectures about the behaviors of other individuals but also about how a mediator is going to solve conflicts of interest. The set of socially rationalizable outcomes with mediation is shown to be non-empty for all social environments and it can be computed by an iterative reduction procedure. We show that social rationalizability with mediation does not necessarily satisfy coalitional rationality when the number of coalition members is greater than two.
    Keywords: Social environments ; rationalizability ; mediation ; coalitional rationality
    JEL: C70 C72 C78
    Date: 2021–11–26
  13. By: Matthias Lang
    Abstract: Subjective evaluations are widely used, but call for different contracts from traditional moral-hazard settings. Previous literature shows that contracts require payments to third parties, which real-world contracts rarely use. I show that the implicit assumption of deterministic contracts makes payments to third parties necessary. This paper studies stochastic contracts, like uncertain arbitration procedures or payments in stock options. These contracts incentivize employees without the need for payments to third parties. In addition, stochastic contracts can make the principal better off compared to deterministic contracts. My results also address the puzzle about the prevalence of labor contracts with stochastic compensation.
    Keywords: subjective evaluations, stochastic contracts, budget-balanced contracts, moral hazard, subjective performance measures, incentives
    JEL: D80 J41 J70
    Date: 2021
  14. By: Fynn Kemper; Philipp Christoph Wichardt
    Abstract: This paper proposes a simple framework to model contextual influences on procedural decision making. In terms of utility, we differentiate between monetary payoffs and contextual psychological ones, e.g. deriving from the subjects’ normative frame of reference. Monetary payoffs are treated as common knowledge while psychological payoffs are treated as partly unforeseeable. Regarding behaviour, we assume that players act optimal given their local perception of the game. As perceptions may be incorrect, we do not consider common equilibrium conditions but instead require strategies to be procedurally justifiable. As we will argue, various common inconsistencies considered in behavioural economics can be understood as procedurally justifiable behaviour. With the present framework, we add an abstract tool to the discussion which allows to consider also the behavioural implications of players foreseeing the corresponding behavioural effects - which is often not considered in the respective original models.
    Keywords: behavioural inconsistencies, context effects, limited foresight, procedural decision making, utility
    JEL: C70 D01 D91
    Date: 2021
  15. By: Buehler, Benno; Hunold, Matthias; Schlütter, Frank (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We analyze the effects of no-challenge clauses that prevent licensees from challenging the validity of patents. Contrary to popular arguments, we show that banning these clauses does not necessarily improve the frequency of successful patent challenges. Depending on the patent strength, patent holders may profitably offer license contracts that incentivize licensees to not challenge the patent. Even worse, such a strategy can lead to higher running royalties and lower consumer surplus compared to contracts with no-challenge clauses. We demonstrate that measures that aim at improving the prospects of patent challenges, such as prohibiting termination-upon-challenge clauses, can cause additional detrimental effects.
    Keywords: No-challenge clause ; probabilistic patents ; license contracts
    JEL: K11 K41 L24 L42
    Date: 2021–12–03

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