nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒04‒18
eleven papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. The Perils of Friendly Oversight By Dino Gerardi; Edoardo Grillo; Ignacio Monzón
  2. Partial Verifiability Induced Contests By Octavian Strimbu
  3. Strong Forward Induction in Monotonic Multi-Sender Signaling Games By Peter Vida; Takakazu Honryo; Helmuts Azacis
  4. Treating Symmetric Buyers Asymmetrically By Shraman Banerjee
  5. Incentive Compatibility in Two-Stage Repeated Stochastic Games By Bharadwaj Satchidanandan; Munther A. Dahleh
  6. Price discrimination under nonuniform calling circles and call externalities By Clavijo, R
  7. Bargaining over a Divisible Good in the Market for Lemons By Dino Gerardi; Lucas Maestri; Ignacio Monzón
  8. Technological Change, Campaign Spending and Polarization By Pau Balart; Agustín Casas; Orestis Troumpounis
  9. Attitudes towards success and failure By Larbi Alaoui; Antonio Penta
  10. Preference Restrictions for Simple and Strategy-Proof Rules: Local and Weakly Single-Peaked Domains By Agustín Bonifacio; Jordi Massó; Pablo Neme
  11. Stable Decompositions of Coalition Formation Games By Agustín G. Bonifacio; Elena Inarra; Pablo Neme

  1. By: Dino Gerardi (Collegio Carlo Alberto, University of Turin); Edoardo Grillo (University of Padua); Ignacio Monzón (Collegio Carlo Alberto, University of Turin)
    Abstract: Decision makers often rely on experts’ evaluations to decide on complex proposals. Proponents want the approval of their proposals and can work to improve their quality. The scrutiny of experts ought to push proponents to work harder, leading to high-quality proposals. Experts, however, have their own agendas: they may favor or oppose the proposals under their scrutiny. We study how the expert’s agenda affects the likelihood that proposals are approved and their quality. We show that an expert in favor of a proposal can be detrimental towards its approval. This happens when it is easy to incentivize the proponent to work and when the status quo alternative is not too attractive.
    Keywords: : information transmission, moral hazard, oversight, persuasion
    JEL: D72 D73 D82 D83
    Date: 2022–03
  2. By: Octavian Strimbu
    Abstract: In a simple common agency (a first-price menu auction with two bidders), the interest groups compete for the political prize awarded by an official. I show that if in the complete information setting one drops the perfect verifiability of the outcome assumption, the ensuing game turns out to be a contest. As the conicting interest groups observe but may only partially verify the policy chosen by the official, they will play mixed strategies. I characterize these strategies and the interest groups'betting behaviour relative to their verification technologies. The probability of getting an inefficient policy as outcome of the inuence game is derived from the equilibrium strategies.
    Keywords: Contests, Common agency, Partial verifiability
    JEL: D44 D72 D80
    Date: 2022–04
  3. By: Peter Vida; Takakazu Honryo; Helmuts Azacis (Université de Cergy-Pontoise, THEMA)
    Abstract: We introduce a new solution concept called strong forward induction which is implied by strategic stability in generic finite multi-sender signaling games (Proposition 1) and can be easily extended to and applied in arbitrary extensive form games with perfect recall. We apply this notion to infinite monotonic 10 signaling games and show that a unique pure strong forward induction equilibrium exists and its outcome is necessarily non-distorted (Theorem 1). Finally, we show that in this class of games the non-distorted equilibrium outcomes are limits of stable outcomes of finite games (Proposition 2).
    Keywords: multi-sender signaling, forward induction, strategic stability, monotonic games
    JEL: C72 D82
    Date: 2022
  4. By: Shraman Banerjee (Department Of Economics, Shiv Nadar University)
    Abstract: We investigate a finite-horizon dynamic pricing problem of a seller under limited commitment. Even when the buyers are ex-ante symmetric to the seller, the seller can charge different prices to different buyers. We show that under the class of posted-price mechanisms this asymmetric treatment of symmetric buyers strictly revenue-dominates symmetric treatment. The seller implements this by using a priority-based deterministic tie-breaking rule instead of using a random tie-breaking rule. The effect of asymmetric treatment on revenue increment increases monotonically as we increase the time horizon of the game.
    Keywords: Dynamic Pricing, Asymmetric Mechanism.
    JEL: C70 D42 D44 D82
    Date: 2022–03–25
  5. By: Bharadwaj Satchidanandan; Munther A. Dahleh
    Abstract: We address the problem of mechanism design for two-stage repeated stochastic games -- a novel setting using which many emerging problems in next-generation electricity markets can be readily modeled. Repeated playing affords the players a large class of strategies that adapt a player's actions to all past observations and inferences obtained therefrom. In other settings such as iterative auctions or dynamic games where a large strategy space of this sort manifests, it typically has an important implication for mechanism design: It may be impossible to obtain truth-telling as a dominant strategy equilibrium. Consequently, in such scenarios, it is common to settle for mechanisms that render truth-telling only a Nash equilibrium, or variants thereof, even though Nash equilibria are known to be poor models of real-world behavior owing to each player having to make overly specific assumptions about the behaviors of the other players in order for them to employ their Nash equilibrium strategy. In general, the lesser the burden of speculation in an equilibrium, the more plausible it is that it models real-world behavior. Guided by this maxim, we introduce a new notion of equilibrium called Dominant Strategy Non-Bankrupting Equilibrium (DNBE) which requires the players to make very little assumptions about the behavior of the other players to employ their equilibrium strategy. Consequently, a mechanism that renders truth-telling a DNBE as opposed to only a Nash equilibrium could be quite effective in molding real-world behavior along the desired lines. Finally, we present a mechanism for two-stage repeated stochastic games that renders truth-telling a Dominant Strategy Non-Bankrupting Equilibrium. The mechanism also guarantees individual rationality and maximizes social welfare.
    Date: 2022–03
  6. By: Clavijo, R
    Abstract: This work develops a competition model between two asymmetrical networks with calling circles, allowing subscribers to derive utility by receiving calls. Unlike the traditional literature predictions, in equilibrium firms have strategies to set off-net price below on-net price. In markets where consumers display strongly concentrated calling patterns, firms can only extract limited surplus from off-net calls. This is reinforced if consumers display weak call externalities, languishing the price strategies to discourage off-net calls. Furthermore, regulating price differential of the large firm can lead consumers to face higher fees compared to discriminatory setting. Therefore, regulators should broaden efforts to measure call externalities and calling circles strength before making decisions on retail tariff regulation.
    Keywords: Calling circles; Call externalities; Network competition; Price differentials.
    JEL: D43 D62 L14
    Date: 2022–04–08
  7. By: Dino Gerardi (Collegio Carlo Alberto/University of Turin); Lucas Maestri (FGV/EPGE); Ignacio Monzón (Collegio Carlo Alberto/University of Turin)
    Abstract: We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing. The buyer makes offers over time. Divisibility introduces a new channel of competition between the buyer’s present and future selves. The buyer’s temptation to split the purchases of the high-quality good is detrimental to him. As bargaining frictions vanish and the good becomes arbitrarily divisible, the high-quality good is traded smoothly over time and the buyer’s payoff shrinks to zero.
    Keywords: : bargaining, gradual sale, Coase conjecture, divisible objects, interdependent valuations, market for lemons.
    Date: 2022–01
  8. By: Pau Balart ((Universitat de les Illes Balears); Agustín Casas (CUNEF); Orestis Troumpounis ((Lancaster University/University of Padova)
    Abstract: We present a model of electoral competition with endogenous platforms and campaign spending where the division of voters between impressionable and ideological is also endogenous and depends on parties’ strategic platform choices. Our approach results in a tractable model that provides interesting comparative statics on the effect of recent technological advancements. For instance, we can accommodate a new justification behind the well-documented simultaneous increase in campaign spending and polarization: an increase in the effectiveness of electoral advertising or a decrease in the electorate’s political awareness, surely increases polarization and may also increase campaign spending.
    Keywords: electoral competition, office motives, endogenous valence, campaign spending, impressionable voters, semiorder lexicographic preferences
    JEL: D72
    Date: 2022–01
  9. By: Larbi Alaoui; Antonio Penta
    Abstract: Individuals often attach a special meaning to obtaining a certain goal, and getting past a threshold marks the difference between what they consider a success or a failure. In this paper we take a standard von Neumann-Morgenstern Expected Utility setting with an exogenous reference point that separates success from failure, and define attitudes towards success and failure as features of preferences over lotteries. The distinctive feature of our definitions is that they all concern a local reversal of the decision maker's risk attitude between riskaversion and risk-lovingness across the reference point. Our findings provide a unified view of several well-known models of reference-dependent preferences in economics, finance and psychology, and also include novel representations. Moreover, we introduce orderings over the primitive space of preferences to define different attitudes with which each attitudes can be displayed, and characterize them in terms of the representation, with indices analogous to the well-known Arrow-Pratt index of risk aversion. Our findings shed new light on frequently used notions of reference-dependent preferences, and suggest that new comparative statics analyses be conducted in these settings. Finally, we argue that our framework may prove useful to incorporate, within a standard economic model, behavioral manifestations of personality traits that have received increasing attention within the empirical economics literature.
    Keywords: Expected utility; loss aversion; aspirations; risk aversion; reference-dependence
    JEL: D01 D81
    Date: 2022–03
  10. By: Agustín Bonifacio (Universidad Nacional de San Luis/CONICET); Jordi Massó (Universitat Autònoma de Barcelona/BSE); Pablo Neme (Universidad Nacional de San Luis/CONICET)
    Abstract: We show that if a rule is strategy-proof, unanimous, anonymous and tops-only, then the preferences in its domain have to be local and weakly single-peaked, relative to a family of partial orders obtained from the rule by confronting at most three alternatives with distinct levels of support. Moreover, if this domain is enlarged by adding a non local and weakly single-peaked preference, then the rule becomes manipulable. We finally show that local and weak single-peakedness constitutes a weakening of known and well-studied restricted domains of preferences.
    Keywords: : Single-peakedness; Strategy-proofness; Anonymity; Unanimity; Tops-onlyness
    JEL: D71
    Date: 2022–03
  11. By: Agustín G. Bonifacio (Universidad Nacional de San Luis/CONICET); Elena Inarra (University of the Basque Country); Pablo Neme (Universidad Nacional de San Luis/CONICET)
    Abstract: It is known that a coalition formation game may not have a stable coalition structure. In this study we propose a new solution concept for these games, which we call “stable decomposition”, and show that each game has at least one. This solution consists of a collection of coalitions organized in sets that “protect” each other in a stable way. When sets of this collection are singletons, the stable decomposition can be identified with a stable coalition structure. As an application, we study convergence to stability in coalition formation games.
    Keywords: Coalition formation, matching, absorbing sets, stable decompositions.
    JEL: C71 C78
    Date: 2022–01

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