nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒05‒16
twelve papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Attraction Versus Persuasion By Pak Hung Au; Mark Whitmeyer
  2. The failure of the delegation principle in a principal-agent model with transfers. By Mehdi Ayouni; Franck Bien; Thomas Lanzi
  3. Collective Learning and Distributive Uncertainty By Ginzburg, Boris
  4. Public Information Disclosure under Private Information Acquisition By Takashi Ui
  5. Coalition formation versus free riding in rent-seeking contests (title of the paper) By Lukas Block
  6. Fundamental Uncertainty as Model Uncertainty By Owen F. Davis
  7. Fare Evasion and Monopoly Regulation By Martin Besfamille; Nicolás Figueroa; León Guzmán
  8. On the outside-option principle with one-sided options By Watson, Joel
  9. Policy Learning with Competing Agents By Roshni Sahoo; Stefan Wager
  10. Infinite Population Utilitarian Criteria By Geir B. Asheim; Kohei Kamaga; Stéphane Zuber
  11. Collusion by Algorithm: The Role of Unobserved Actions By Simon Martin; Alexander Rasch
  12. Doubling Back on Double Marginalization By Laurent Linnemer

  1. By: Pak Hung Au (Department of Economics, The Hong Kong University of Science and Technology); Mark Whitmeyer (Hausdorff Center for Mathematics & Institute for Microeconomics, University of Bonn)
    Abstract: We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer’s visit will glean. We characterize the unique symmetric equilibrium of this game, which, due to the countervailing incentives of attraction and persuasion, generates a payoff function for each firm that is linear in the firm’s realized effective value. If the expected quality of the products is sufficiently high (or competition is sufficiently fierce), this corresponds to full information–search frictions beget the first-best level of information provision. If not, this corresponds to information dispersion–firms randomize over signals. If the attraction incentive is absent (due to hidden information or costless search), firms reveal less information and information dispersion does not arise.
    Date: 2021–02
  2. By: Mehdi Ayouni; Franck Bien; Thomas Lanzi
    Abstract: In a principal-agent model with monetary transfers, we show that the delegation principle always fails even if preferences are perfectly aligned. This result holds if (i) an action that is payoff-relevant for both the principal and the agent has to be taken even if the agent rejects the proposed contract and (ii) the principal can contractually extract surplus from the agent.
    Keywords: Contract; Delegation; Information; Transfers.
    JEL: D23 D82
    Date: 2022
  3. By: Ginzburg, Boris
    Abstract: I study a committee that is considering a costly project whose distributive consequences are unknown. The committee is divided into two factions. Support of both factions is required for the project to be approved. By delaying approval, the committee can gradually learn which faction benefits from the project. I show that a project that gives a lower payoff to everyone is more likely to be approved than a more socially efficient project. Furthermore, the equilibrium amount of learning is excessive, and a deadline on adopting the project is socially optimal in a wide range of settings.
    Keywords: voting, learning, reform adoption, collective experimentation, distributive uncertainty
    JEL: D72 D83
    Date: 2022–03–09
  4. By: Takashi Ui
    Abstract: A policymaker discloses public information to interacting agents who also acquire costly private information. More precise public information reduces the precision and cost of acquired private information. Considering this effect, what disclosure rule should the policymaker adopt? We address this question under two alternative assumptions using a linear quadratic Gaussian game with arbitrary quadratic material welfare and convex information costs. First, the policymaker knows the cost of private information and adopts an optimal disclosure rule to maximize the expected welfare. Second, the policymaker is uncertain about the cost and adopts a robust disclosure rule to maximize the worst-case welfare. Depending on the elasticity of marginal cost, an optimal rule is qualitatively the same as that in the case of either a linear information cost or exogenous private information. Full disclosure is robust if and only if it is optimal under some information costs, even when no disclosure is optimal under other information costs.
    Date: 2022–03
  5. By: Lukas Block (Paderborn University)
    Abstract: We study lobby group formation in a two-stage model where the players first form lobby groups that then engage in a rent-seeking contest to influence the legislator. However, the outcome of the contest affects all players according to the ideological distance between the implemented policy and the players' preferences. The players can either lobby by themselves, form a coalition of lobbyists or free ride. We find that free coalition formation is reasonable if either players with moderate preferences face lobby groups with extreme preferences, or if there are two opposing coalitions with an equal number of members. Otherwise, there are always free riders among the players. (abstract of the paper)
    Keywords: Group formation, Rent-seeking, Free riding
    JEL: C71 D72 D74
    Date: 2022–04
  6. By: Owen F. Davis (Department of Economics, New School for Social Research)
    Abstract: Economic agents must form models of their environments in order to develop expectations and make decisions, yet these models are certain to be misspecified. An agent aware of their own inability to perfectly capture the structural relationships of their observed world will entertain model uncertainty. Under the plausible assumptions that the “true” model is not known to the decision-maker and the decision-maker knows this—known as the M-open case in Bayesian statistics—uncertainty over propositions becomes numerically irreducible. The notion of model uncertainty is developed with reference to Post Keynesian theories of fundamental uncertainty as well as relevant areas of study within decision theory, including the growing literature on unawareness. The model uncertainty view poses challenges for both literatures and provides a novel justification for the types of uncertainty associated with Knight and Keynes.
    Keywords: Fundamental uncertainty, model uncertainty, decision theory, Post Keynesian
    JEL: C11 D81 E12
    Date: 2022–04
  7. By: Martin Besfamille; Nicolás Figueroa; León Guzmán
    Abstract: We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard.
    Keywords: regulation, natural monopoly, evasion, marginal cost of public funds
    JEL: D42 H20 L43 L51
    Date: 2022
  8. By: Watson, Joel
    Keywords: Near-efficient outside options, Bargaining games, Negotiation, Bargaining solutions, The hold-up problem, Economics
    Date: 2020–06–01
  9. By: Roshni Sahoo; Stefan Wager
    Abstract: Decision makers often aim to learn a treatment assignment policy under a capacity constraint on the number of agents that they can treat. When agents can respond strategically to such policies, competition arises, complicating the estimation of the effect of the policy. In this paper, we study capacity-constrained treatment assignment in the presence of such interference. We consider a dynamic model where heterogeneous agents myopically best respond to the previous treatment assignment policy. When the number of agents is large but finite, we show that the threshold for receiving treatment under a given policy converges to the policy's mean-field equilibrium threshold. Based on this result, we develop a consistent estimator for the policy effect and demonstrate in simulations that it can be used for learning optimal capacity-constrained policies in the presence of strategic behavior.
    Date: 2022–04
  10. By: Geir B. Asheim; Kohei Kamaga; Stéphane Zuber
    Abstract: We examine utilitarian criteria for evaluating profiles of wellbeing among infinitely many individuals. Motivated by the non-existence of a natural 1-to-1 correspondence between people when alternatives have different population structures, with a different number of people in each generation, we impose equal treatment in the form of Strong Anonymity. We show how a novel criterion, Strongly Anonymous Utilitarianism, can be characterized by combining Strong Anonymity with other regularity axioms (Monotonicity, Finite Completeness, and continuity axioms) as well as axioms of equity, sensitivity, separability, and population ethics. We relate it to other strongly anonymous utilitarian criteria and demonstrate its applicability by showing how it leads to an efficient and sustainable stream in the Ramsey model.
    Keywords: utilitarianism, intergenerational equity, population ethics
    JEL: D63 D71 Q01
    Date: 2022
  11. By: Simon Martin; Alexander Rasch
    Abstract: We analyze the effects of better algorithmic demand forecasting on collusive profits. We show that the comparative statics crucially depend on the whether actions are observable. Thus, the optimal antitrust policy needs to take into account the institutional settings of the industry in question. Moreover, our analysis reveals a dual role of improving forecasting ability when actions are not observable. Deviations become more tempting, reducing profits, but also uncertainty concerning deviations is increasingly eliminated. This results in a u-shaped relationship between profits and prediction ability. When prediction ability is perfect, the ‘observable actions’ case emerges.
    Keywords: algorithm, collusion, demand forecasting, unobservable actions, secret price cutting
    JEL: L41 L13 D43
    Date: 2022
  12. By: Laurent Linnemer
    Abstract: “Double marginalization” and “Elimination of Double marginalization” are catch-phrases commonly used in the IO literature. In this note, I trace back the origin of the idea to Chapter IX, on complementary goods monopolies, of Cournot (1838). Through the years Cournot’s contribution remained a reference but ended being viewed as a special case of the bilateral monopoly model. Yet, it is worth wondering why the most cited paper on this issue is nowadays Spengler (1950) which contains only an informal treatment of the question. In addition to retracing the origin of the idea, I emphasize the elegant proof of Cournot for the simultaneous game and extend it to the sequential game. I also show that prices are usually higher in the sequential game but that they could be lower if demand is very convex.
    Keywords: Cournot, complements, successive monopolies
    JEL: B16 B21 K21 L12 L13 L42
    Date: 2022

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