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on Microeconomics |
| By: | Koessler, Frédéric; Laclau, Marie; Renault, Jérôme; Tomala, Tristan |
| Abstract: | We analyze information design games between two designers with opposite preferences and a single agent. Before the agent makes a decision, designers repeatedly disclose public information about persistent state parameters. Disclosure continues until no designer wishes to reveal further information. We consider environments with general constraints on feasible information disclosure policies. Our main results characterize equilibrium payoffs and strategies of this long information design game and compare them with the equilibrium outcomes of games where designers move only at a single predetermined period. When information disclosure policies are unconstrained, we show that at equilibrium in the long game, information is revealed right away in a single period; otherwise, the number of periods in which information is disclosed might be unbounded. As an application, we study a competition in product demonstration and show that more information is revealed if each designer could disclose information at a predetermined period. The format that provides the buyer with most information is the sequential game where the last mover is the ex-ante favorite seller. |
| JEL: | C72 D82 |
| Date: | 2022–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127034&r= |
| By: | Thomas Daske; Christoph March |
| Abstract: | This study explores mechanism design with allocation-based social preferences. Agents’ social preferences and private payoffs are all subject to asymmetric information. We assume quasi-linear utility and independent types. We show how the asymmetry of information about agents’ social preferences can be operationalized to satisfy agents’ participation constraints. Our main result is a possibility result for groups of at least three agents: If endowments are sufficiently large, any such group can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. |
| Keywords: | mechanism design, social preferences, Bayesian implementation, participation constraints, participation stimulation |
| JEL: | C72 C78 D62 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9784&r= |
| By: | Bara Kim (Department of Mathematics, Korea University, South Korea); Seung Han Yoo (Department of Economics, Korea University, South Korea) |
| Abstract: | This paper studies an informed mechanism designer problem in which the principal's private information is a number of agents. We define mechanical equivalence such that it holds if each agent's and the principal's perspectives are consistent in the sense that a conversion problem for a grand mechanism is resolved - each agent's expected payment taking into account the principal's private information can be incorporated into the principal's revenue. With mechanical equivalence and, additionally, the principal's expected payoff linearity, there is a single threshold for the optimal grand mechanism if a sub-mechanism cannot depend on the principal's private information. Interestingly, the main result shows that if a sub-mechanism can also depend on his private information, the optimal grand mechanism is characterized by double thresholds such that the principal does not announce the number of agents if it is in the middle range. We further extend the signal structure to include rich signal sets. |
| Keywords: | informed principal, mechanism, population uncertainty, mechanical equivalence |
| JEL: | C72 D44 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:2204&r= |
| By: | Daniel Habermacher (Universidad de los Andes) |
| Abstract: | I study the relationship between a firm’s organization and its ability to aggregate information under interdependence. The firm must adapt the design of two products to innovations over two attributes, such that information about each attribute affects the design of both products. Agents have access to imperfect information but must incur costs to obtain it. The principal can delegate decision-making authority to any agent, and such authority includes private communication channels with other players. I characterize the optimal organizational structure under informational spillovers. The possibility of specialization leads to three novel intuitions. First, the principal benefits from agents’ restricted access to information because it reduces profitable deviations from truthful communication. Second, an agent’s specialization depends on his preferences, the costs of acquiring information, and its expected influence on decisions. Third, delegation leads to suboptimal information aggregation because some agents’ acquisition decisions fail to internalize the interdependence. |
| Keywords: | Multidimensional Cheap Talk, Industrial Organization, Delegation, Organizational Design. |
| JEL: | D21 D83 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:142&r= |
| By: | Onur A. Koska (University of Canterbury); Frank Stähler |
| Abstract: | This paper discusses the role of secret versus public reserve prices when bidders’ valuations depend positively on the seller’s private signal. A public reserve price is announced before the auction starts, and a secret reserve price is disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payoff-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a secret (public) reserve price design qualifies as an equilibrium if the distortion is large (small). |
| Keywords: | Auctions; Interdependent values; Optimal reserve prices; Rational signaling |
| JEL: | D44 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:22/10&r= |
| By: | Eliaz, Kfir; Spiegler, Ran; Thysen, Heidi C. |
| Abstract: | We study strategic communication when the sender's multi-dimensional messages are given an interpretation by the sender himself or by a proxy. Interpreting messages involves the provision of some data about their statistical state-dependence. Interpretation can be selective: different kinds of data interpret different sets of message components. The receiver uses this data to decipher messages, yet he does not draw any inferences from the kind of data he is given. In this way, strategic interpretation of messages can influence the receiver's understanding of their equilibrium meaning. We show that in a two-action, two-state setting, the sender can attain his first-best payoff when the prior on one state exceeds a threshold that decays quickly with message dimensionality. We examine the result's robustness to the critique that our receiver does not attempt any inferences from selective interpretations. |
| Keywords: | bounded rationality; model misspecification; persuasion; Advanced Investigator grant no. 692995; 1779091 |
| JEL: | C72 D83 |
| Date: | 2021–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108660&r= |
| By: | Antoine Dubus (D-MTEC - Department of Management, Technology, and Economics [ETH Zürich] - ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]); Patrick Legros (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles) |
| Abstract: | Firms may share information to discover potential synergies between their data sets and algorithms, which eventually may lead to more efficient mergers and acquisitions (M&A) decisions. However, as pointed out by Arrow, information sharing also modifies the competitive balance when companies do not merge, and a firm may be reluctant to share information with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing information. Because more sharing of information may increase industry expected profits both when there is head-to-head competition and when there is an M&A, the presence of a regulator who can prevent or allow the M&A can decrease or increase the level of information sharing, as well as consumer surplus, with respect to the no-regulator case. A regulator who can also control the level of information sharing will allow firms to share information. |
| Date: | 2022–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03698203&r= |
| By: | Antonio Estache; Renaud Foucart; Tomas Serebrisky |
| Abstract: | We study the feasibility, challenges, and potential benefits of adding a lottery component to standard negotiated and rule-based procurement procedures. For negotiated procedures, we introduce a “discrete lottery” in which local bureaucrats negotiate with a small number of selected bidders and a lottery decides who is awarded the contract. We show that the discrete lottery performs better than a standard negotiated procedure when the pool of firms to choose from is large and corruption is high. For rule-based auction procedures, we introduce a “third-price lottery” in which the two highest bidders are selected with equal probability and the project is contracted at a price corresponding to the third highest bid. We show that the third-price lottery reduces the risks from limited liability and renegotiation. It performs better than a standard second-price or ascending auction when the suppliers’ pool size, the risk of cost overrun, delays and non-delivery of the project are high. The choice between a second-price auction, a third price lottery and a lottery amongst all bidders also depends on the weight placed on producer surplus, including for instance the desire to increase the participation of local SMEs in public sector services markets. |
| Keywords: | rules, discretion, procurement, lotteries, corruption, auctions |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/345092&r= |
| By: | Eddie Dekel; John K. -H. Quah; Ludvig Sinander |
| Abstract: | We develop a theory of monotone comparative statics in the presence of adjustment costs. We show that comparative-statics conclusions may be drawn under the usual ordinal complementarity assumptions on the objective function, assuming almost nothing about costs: the only requirement is that non-adjustment be costless. We use this insight to provide a general treatment of the le Chatelier principle based on adjustment costs. We extend these results to a fully dynamic, forward-looking model of adjustment over time: given only minimal structure on costs, optimal adjustment follows a monotone path. We apply our results to models of investment and of sticky prices. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.00347&r= |
| By: | Weijie J. Su |
| Abstract: | Alice (owner) has knowledge of the underlying quality of her items measured in grades. Given the noisy grades provided by an independent party, can Bob (appraiser) obtain accurate estimates of the ground-truth grades of the items by asking Alice a question about the grades? We address this when the payoff to Alice is additive convex utility over all her items. We establish that if Alice has to truthfully answer the question so that her payoff is maximized, the question must be formulated as pairwise comparisons between her items. Next, we prove that if Alice is required to provide a ranking of her items, which is the most fine-grained question via pairwise comparisons, she would be truthful. By incorporating the ground-truth ranking, we show that Bob can obtain an estimator with the optimal squared error in certain regimes based on any possible way of truthful information elicitation. Moreover, the estimated grades are substantially more accurate than the raw grades when the number of items is large and the raw grades are very noisy. Finally, we conclude the paper with several extensions and some refinements for practical considerations. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.08149&r= |
| By: | Claus-Jochen Haake (Paderborn University); Thomas Streck (Paderborn University) |
| Abstract: | We study the consequences of modeling asymmetric bargaining power in two-person bargaining problems. For this, we compare application of an asymmetric version of a bargaining solution to a corresponding modification of the disagreement point. It turns out that the distortion between these two methods crucially depends on the bargaining solution concept. While for the Kalai-Smorodinsky solution weaker players benefit from modifying the disagreement point, the situation is reversed for the Nash bargaining solution. There, weaker players are better off in the asymmetric bargaining solution. When comparing application of the asymmetric versions of the Nash and the Kalai-Smorodinsky solutions, we demonstrate that there is an upper bound for the weight of a player, so that he is better off with the Nash bargaining solution. This threshold is ultimately determined by the relative utilitarian bargaining solution. From a mechanism design perspective, our results provide valuable information for a social planner, when implementing a bargaining solution for unequally powerful players. |
| Keywords: | Asymmetric bargaining power, Nash bargaining solution, Kalai-Smorodinsky bargaining solution |
| JEL: | C78 D63 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:ciepap:148&r= |
| By: | Frédéric Koessler (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - 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, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - 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); Marie Laclau (HEC Paris - Ecole des Hautes Etudes Commerciales, GREGHEC - Groupement de Recherche et d'Etudes en Gestion - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique); Jérôme Renault (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); Tristan Tomala (HEC Paris - Ecole des Hautes Etudes Commerciales, GREGHEC - Groupement de Recherche et d'Etudes en Gestion - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper studies zero-sum splitting games with finite sets of states. Players dynamically choose a pair of martingales {pt,qt}t, in order to control a terminal payoff u(p∞,q∞). A first part introduces the notion of "Mertens–Zamir transform" of a real-valued matrix and use it to approximate the solution of the Mertens–Zamir system for continuous functions on the square [0,1]2. A second part considers the general case of finite splitting games with arbitrary correspondences containing the Dirac mass on the current state: building on Laraki and Renault (Math Oper Res 45:1237–1257, 2020), we show that the value exists by constructing non Markovian ε-optimal strategies and we characterize it as the unique concave-convex function satisfying two new conditions. |
| Keywords: | Splitting games,Mertens-Zamir system,Repeated games with incomplete information,Bayesian persuasion,Information design |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:halshs-03672222&r= |
| By: | Guido Merzoni; Federico Trombetta |
| Abstract: | This paper proposes the first game theoretical model of technocratic governments, i.e. cases where a non political technocrat is put in charge by political parties. Based on the literature on post-electoral politics and agenda setting, we show conditions for the existence of a technocratic government equilibrium, where both parties agree to delegate the agenda setting power to technocrats, committed to maximize social welfare. Such an equilibrium exists only if the technocrats have a superior competence with respect to the majority party/coalition, or if the country is in a sufficiently important economic crisis. Furthermore, it is more likely to exist in countries with unstable parliament (i.e. one where the governing coalition is not always able to impose its will) and where parties care about the common value dimension, vis-a-vis the ideological one. Finally, we show that polarization increases the set of parameters where the technocratic government equilibrium exists, when parliament is unstable. |
| JEL: | C78 D72 D73 D78 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:dis:wpaper:dis2204&r= |
| By: | Raphael Soubeyran (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Université de Montpellier 2022); Nicolas Quérou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Université de Montpellier 2022); Mamadou Gueye (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Motivated by the potential tension between coordination, which may require discriminating between identical agents, and social comparisons, which may call for small pay differentials, we analyze the optimal reward scheme in an organization involving agents with social preferences whose tasks are complementary. Although a tension exists between the effects of inequality aversion and altruism, there is always more reward inequality when agents are inequality-averse and altruistic than when they are purely self-interested. We then highlight how our results differ when agents are not altruistic but rather inequality-averse a la Fehr and Schmidt (1999).. |
| Keywords: | incentives,coordination,principal,agents,social comparisons |
| Date: | 2022–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-03707471&r= |
| By: | Ryan Kor; Junjie Zhou |
| Abstract: | We study a planner's optimal interventions in both the standalone marginal utilities of players on a network and weights on the links that connect players. The welfare-maximizing joint intervention exhibits the following properties: (a) when the planner's budget is moderate (so that optimal interventions are interior), the change in weight on any link connecting a pair of players is proportional to the product of eigen-centralities of the pair; (b) when the budget is sufficiently large, the optimal network takes a simple form: It is either a complete network under strategic complements or a complete balanced bipartite network under strategic substitutes. We show that the welfare effect of joint intervention is shaped by the principal eigenvalue, while the distributional effect is captured by the dispersion of the corresponding eigenvalues, i.e., the eigen-centralities. Comparing joint intervention in our setting with single intervention solely on the standalone marginal utilities, as studied by Galeotti et al. (2020), we find that joint intervention always yields a higher aggregate welfare, but may lead to greater inequality, which highlights a possible trade-off between the welfare and distributional impacts of joint intervention. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.03863&r= |
| By: | Döpper, Hendrik; Sapi, Geza; Wey, Christian |
| Abstract: | This paper analyzes vertical integration incentives in a bilaterally duopolistic industry where input market outcomes are determined by bargaining. Vertical integration incentives are a combination of horizontal integration incentives up- and downstream and depend on the strength of substitutability or complementarity and the shape of the unit cost function. In contrast to the widely prevailing view in competition policy, vertical integration can under particular circumstances convey more bargaining power to the merged entity than a horizontal merger to monopoly. In a bidding game for an exogenously determined target firm, a vertical merger can dominate a horizontal one, while pre-emption does not occur. |
| Keywords: | Bargaining,Vertical Mergers,Shapley Value |
| JEL: | L13 L22 L42 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:389&r= |
| By: | Clara Graziano; Annalisa Luporini |
| Abstract: | We analyze the effects of optimism and overconfidence when the manager’s compensation package includes severance pay and the CEO has bargaining power. We find that optimism does not affect incentive pay but increases severance pay with a negative effect on profit. Overconfidence, on the contrary, reduces incentive pay as shown by the previous literature, while its effect on severance pay depends on the intensity of the bias. High values of overconfidence yield an inefficient level of investment which in turn increases severance pay with a negative impact on firm profit. Thus, the attempt to exploit managerial overconfidence to reduce incentive pay may back.re if the manager is replaced and severance agreements come into effect. Our model explains the large severance payments documented by empirical literature by showing that discretionary pay in excess of contractual severance pay may represent a form of efficient contracting when the manager is overconfident and optimist. |
| Keywords: | overconfidence, optimism, managerial compensation, severance pay, entrenchment |
| JEL: | J33 D86 D90 L21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9801&r= |
| By: | Juan Ortner (Boston University); Sylvain Chassang (Princeton University); Kei Kawai (University of California, Berkeley); Jun Nakabayashi (Kindai University) |
| Abstract: | We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern. |
| Keywords: | collusion, auctions, bidding rings, cartels, procurement, antitrust |
| JEL: | D44 L40 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:300&r= |