nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒08‒08
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. A Dynamic Model of Predation By Patrick Rey; Yossi Spiegel; Konrad O. Stahl
  2. Mechanism Design Approaches to Blockchain Consensus By Joshua S. Gans; Richard T. Holden
  3. A Simple Axiomatization of Neo-Additive Choquet Expected Utility Theory on a Finite State Space By Takao Asano; Hiroyuki Kojima; Kaname Miyagishima
  4. Persuasion Without Priors By Alexei Parakhonyak; Anton Sobolev
  5. False Narratives and Political Mobilization By Kfir Eliaz; Simone Galperti; Ran Spiegler
  6. Voting to Persuade By Tsz-Ning Wong; Lily Ling Yang; Xin Zhao
  7. Optimal Private Payoff Manipulation against Commitment in Extensive-form Games By Yurong Chen; Xiaotie Deng; Yuhao Li
  8. Meetings and Mechanisms By Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
  9. Equilibrium Selection in Hawk-Dove Games By Blázquez, Mario; Koptyug, Nikita
  10. Fair Division with Two-Sided Preferences By Ayumi Igarashi; Yasushi Kawase; Warut Suksompong; Hanna Sumita
  11. Reactance: a Freedom-Based Theory of Choice By Niels Boissonnet; Alexis Ghersengorin
  12. Mechanisms for division problems with single-dipped preferences By Gong, Doudou; Dietzenbacher, Bas; Peters, Hans
  13. Misspecified politics and the recurrence of populism By Razin, Ronny; Levy, Gilat; Young, Alwyn
  14. Revealed Deliberate Preference Change By Niels Boissonnet; Alexis Ghersengorin; Simon Gleyze
  15. Asymmetric Information and Ranked Information Are Equivalent in Making Information Utilization Heterogeneous By Harashima, Taiji
  16. On the Decentralized Implementation of Lockdown Policies By Davide Bosco; Luca Portoghese
  17. Voluntary Information Disclosure in Centralized Matching: Efficiency Gains and Strategic Properties By Andreas Bjerre-Nielsen; Emil Chrisander
  18. Research joint ventures: The role of financial constraints By Philipp Brunner; Igor Letina; Armin Schmutzler
  19. Cost-efficiency in Incomplete Markets By Carole Bernard; Stephan Sturm
  20. Supply-Side Equilibria in Recommender Systems By Meena Jagadeesan; Nikhil Garg; Jacob Steinhardt

  1. By: Patrick Rey; Yossi Spiegel; Konrad O. Stahl
    Abstract: We study the feasibility and profitability of predation in a parsimonious infinite-horizon, complete information setting where an incumbent may face an entrant, in which case it needs to decide whether to accommodate or predate it. If the entrant exits, a new entrant is born with positive probability. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, predation with no future entry, and predation with hit-and-run entry. We use the model to study alternative antitrust policies, derive the best rules for these policies, and compare their welfare effects.
    Keywords: predation, accommodation, entry, legal rules, Markov perfect equilibrium
    JEL: D43 L41
    Date: 2022
  2. By: Joshua S. Gans; Richard T. Holden
    Abstract: Blockchain consensus is a state whereby each node in a network agrees on the current state of the blockchain. Existing protocols achieve consensus via a contest or voting procedure to select one node as a dictator to propose new blocks. However, this procedure can still lead to potential attacks that make consensus harder to achieve or lead to coordination issues if multiple, competing chains (i.e., forks) are created with the potential that an untruthful fork might be selected. We explore the potential for mechanisms to be used to achieve consensus that are triggered when there is a dispute impeding consensus. Using the feature that nodes stake tokens in proof of stake (POS) protocols, we construct revelation mechanisms in which the unique (subgame perfect) equilibrium involves validating nodes propose truthful blocks using only the information that exists amongst all nodes. We construct operationally and computationally simple mechanisms under both Byzantine Fault Tolerance and a Longest Chain Rule, and discuss their robustness to attacks. Our perspective is that the use of simple mechanisms is an unexplored area of blockchain consensus and has the potential to mitigate known trade-offs and enhance scalability.
    JEL: D02 D47 D82 D86
    Date: 2022–06
  3. By: Takao Asano (Okayama University); Hiroyuki Kojima (Teikyo University); Kaname Miyagishima (Aoyama Gakuin University)
    Abstract: By assuming that a state space is finite, we provide an easy-to-understand axiomatization of neo-additive Choquet expected utility theory (CEU) following Chateauneuf et al. (2007). Our axiomatization based on Möbius inversions sheds new light on their usefulness for our understanding of the behaviors of decision makers and enables us to provide new interpretations for neo-additive CEU from uncertainty aversion (uncertainty lovingness) and certainty equivalent, respectively. Furthermore, our approach enables us to understand the relationship between existing contributions by Chateauneuf et al. (2007), Kajii et al. (2009), and Asano and Kojima (2022) in a clearer and more unified way.
    Keywords: Neo-additive Choquet Expected Utility, Möbius Inversion
    JEL: C71 D81 D90
    Date: 2022–07
  4. By: Alexei Parakhonyak; Anton Sobolev
    Abstract: We consider an information design problem when the sender faces ambiguity regarding the probability distribution over the states of the world, the utility function and the prior of the receiver. The solution concept is minimax loss (regret), that is, the sender minimizes the distance from the full information benchmark in the worst-case scenario. We show that in the binary states and binary actions setting the optimal strategy involves a mechanism with a continuum of messages, which admits a representation as a randomization over mechanisms consisting of two messages. A small level of uncertainty regarding the re- ceiver’s prior makes the sender more truthful than in the full information benchmark, but as uncertainty increases at some point the sender starts to lie more. If the sender either knows the probability distribution over the states of the world, or knows that the receiver knows it, then the maximal loss is bounded from above by 1/e. This result generalizes to an infinite state model, provided that the set of admissible mechanisms is limited to cut-off strategies.
    Keywords: Persuasion, Robustness, Multiple priors, Minimax regret
    JEL: D81 D82 D83
    Date: 2022–07
  5. By: Kfir Eliaz; Simone Galperti; Ran Spiegler
    Abstract: We present an equilibrium model of politics in which political platforms compete over public opinion. A platform consists of a policy, a coalition of social groups with diverse intrinsic attitudes to policies, and a narrative. We conceptualize narratives as subjective models that attribute a commonly valued outcome to (potentially spurious) postulated causes. When quantified against empirical observations, these models generate a shared belief among coalition members over the outcome as a function of its postulated causes. The intensity of this belief and the members' intrinsic attitudes to the policy determine the strength of the coalition's mobilization. Only platforms that generate maximal mobilization prevail in equilibrium. Our equilibrium characterization demonstrates how false narratives can be detrimental for the common good, and how political fragmentation leads to their proliferation. The false narratives that emerge in equilibrium attribute good outcomes to the exclusion of social groups from ruling coalitions.
    Date: 2022–06
  6. By: Tsz-Ning Wong; Lily Ling Yang; Xin Zhao
    Abstract: We consider a model of collective persuasion, in which members of an advisory committee receive private continuous signals and then vote on a policy change. A decision maker then decides whether to adopt the change upon observing each vote. Information transmission between the committee and the decision maker is possible if and only if there exists an infor- mative equilibrium with the unanimity rule. When the decision maker is more conservative, a higher level of consensus is needed to persuade her to abandon the status quo in equilib- rium. Our result thus provide a rationale for the use of the unanimity rule, despite its poor performance in information aggregation (Feddersen and Pesendorfer 1998). Furthermore, the continuous-signal model considered in this paper produces results that contrast the discrete-signal model considered in the literature (Battaglini 2017; Gradwohl and Feddersen 2018) and we discuss how the results depend on the coarseness of the signal structure.
    Keywords: Advisory committee, Persuasion, Voting
    JEL: D71 D72 D83
    Date: 2022–06
  7. By: Yurong Chen; Xiaotie Deng; Yuhao Li
    Abstract: To take advantage of strategy commitment, a useful tactic of playing games, a leader must learn enough information about the follower's payoff function. However, this leaves the follower a chance to provide fake information and influence the final game outcome. Through a carefully contrived payoff function misreported to the learning leader, the follower may induce an outcome that benefits him more, compared to the ones when he truthfully behaves. We study the follower's optimal manipulation via such strategic behaviors in extensive-form games. Followers' different attitudes are taken into account. An optimistic follower maximizes his true utility among all game outcomes that can be induced by some payoff function. A pessimistic follower only considers misreporting payoff functions that induce a unique game outcome. For all the settings considered in this paper, we characterize all the possible game outcomes that can be induced successfully. We show that it is polynomial-time tractable for the follower to find the optimal way of misreporting his private payoff information. Our work completely resolves this follower's optimal manipulation problem on an extensive-form game tree.
    Date: 2022–06
  8. By: Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
    Abstract: In this paper, we construct a framework to investigate how the way in which market participants meet each other affects outcomes like equilibrium trading mechanisms and allocations. We do so in an environment in which identical sellers post mechanisms to compete for buyers with ex-ante heterogeneous private valuations. We show that the market may segment into multiple submarkets, each consisting of all sellers posting a particular mechanism and all buyers deciding to visit those sellers. Under mild conditions, high-valuation buyers are all located in the same submarket. Then, we establish under what conditions, low valuation buyers are in: (i) the same submarket, (ii) a different submarket and (iii) a mixture of (i) and (ii). The decentralized equilibrium is always efficient when sellers can post auctions with reserve prices or entry fees.
    Keywords: search frictions; directed search; matching function; meeting technology; competing mechanisms; competing auctions
    JEL: C78 D44 D83
    Date: 2022–07–01
  9. By: Blázquez, Mario (Dept. of Business and Management Science, Norwegian School of Economics); Koptyug, Nikita (Research Institute of Industrial Economics)
    Abstract: In Hawk-Dove games with mulitiplicity of equilibria, we study which equilibria are selected using various equilibrium selection methods. Using a uniform price auction as an illustrative example, we apply the tracing procedure method of Harsanyi and Selten (1988), the robustness to strategic uncertainty method of Andersson, Argenton and Weibull (2014), and the quantal response method of McKelvey and Palfrey (1998) to predict which equilibrium is selected by the players and how changes to the various model parameters impact the selected equilibria.
    Keywords: Hawk-Dove games; equilibrium selection; tracing procedure method; robustness to strategic uncertainty method; quantal response method
    JEL: C72 C79 D44 D47
    Date: 2022–06–29
  10. By: Ayumi Igarashi; Yasushi Kawase; Warut Suksompong; Hanna Sumita
    Abstract: We study a fair division setting in which a number of players are to be fairly distributed among a set of teams. In our model, not only do the teams have preferences over the players as in the canonical fair division setting, but the players also have preferences over the teams. We focus on guaranteeing envy-freeness up to one player (EF1) for the teams together with a stability condition for both sides. We show that an allocation satisfying EF1, swap stability, and individual stability always exists and can be computed in polynomial time, even when teams may have positive or negative values for players. Similarly, a balanced and swap stable allocation that satisfies a relaxation of EF1 can be computed efficiently. In addition, when teams have nonnegative values for players, we prove that an EF1 and Pareto optimal allocation exists, and such an allocation can be found in polynomial time if the valuations are binary.
    Date: 2022–06
  11. By: Niels Boissonnet (Universität Bielefeld = Bielefeld University); Alexis Ghersengorin (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - 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)
    Abstract: A decision exhibits reactance if it is not directly welfare maximizing but represents a way to protest against a threat to the decision maker's freedom of choice. We provide a first axiomatic revealed preference characterization of this phenomenon, which yields necessary and sufficient conditions for deviations from rational choice to be ascribed to reactance. These conditions are shown to characterize a representation of preferences underlying choices consistent with reactance. We next look at two applications that have been (informally) associated with reactance in the psychology literature and demonstrate that reactance can imply the emergence of conspiracy theories and a backlash of integration policy targeted towards immigrants. Finally, we derive the resulting preference ordering over opportunity sets for agents whose final choices are consistent with reactance.
    Keywords: revealed preferences,freedom,reactance
    Date: 2022–05–19
  12. By: Gong, Doudou (RS: GSBE other - not theme-related research, Quantitative Economics); Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Peters, Hans (RS: FSE DKE Mathematics Centre Maastricht, QE Math. Economics & Game Theory)
    Abstract: A mechanism allocates one unit of an infinitely divisible commodity among agents reporting a number between zero and one. Nash, Pareto optimal Nash, and strong equilibria are analyzed for the case where the agents have single-dipped preferences. One of the main results is that when the mechanism is anonymous, monotonic, standard, and order preserving, then the Pareto optimal Nash and strong equilibria coincide and assign Pareto optimal allocations that are characterized by so-called maximal coalitions: members of a maximal coalition prefer an equal coalition share over obtaining zero, whereas the outside agents prefer zero over obtaining an equal share from joining the coalition.
    JEL: C72 D71
    Date: 2022–07–18
  13. By: Razin, Ronny; Levy, Gilat; Young, Alwyn
    Abstract: We develop a dynamic model of political competition between two groups that differ in their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that policy cycles must arise and that simple world views—which can be interpreted as populist world views—imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to overestimate the positive impact of a few extreme policy actions.
    Keywords: Horizon 2020; 681579
    JEL: D72 D83 K42
    Date: 2022–03–01
  14. By: Niels Boissonnet (Universität Bielefeld = Bielefeld University); Alexis Ghersengorin (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - 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); Simon Gleyze (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - 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)
    Abstract: We propose a model of rational preference change that is identifiable, empirically testable and founded on two normative principles. First, the decision maker (DM) must be able to justify her preference change by making attributes of the alternatives relevant or irrelevant. For instance, an employer who stops discriminating against candidates based on race or gender must make the attribute "race" or "gender" irrelevant for all her future choices. Second, DM must be consistent in her preference change. For instance, in the future the employer cannot make relevant again the attribute "race" or "gender", unless she makes (ir)relevant other complementary attributes. We show that two axioms on choice data which reflect these principles are necessary and sufficient to represent preference change by the maximization of a meta-preference. Finally, we apply our model to derive new insights on the polarization of political preferences.
    Date: 2022–05–19
  15. By: Harashima, Taiji
    Abstract: In information economics, any piece of information is assumed to have the same value across people, even if the information is distributed asymmetrically. However, in actuality, information has different values across people, even if it is distributed equally, because people utilize the same information differently and reach different conclusions with it. In this paper, I construct a model of heterogeneous information utilization by introducing the concept of ranked information. I conclude that the effects of asymmetric information and ranked information on economic activities are essentially equivalent. However, there are still some differences between them, and ranked information will be more economically important than asymmetric information. Furthermore, ranked information can cause an extreme economic inequality.
    Keywords: Asymmetric information; Economic inequality; Government intervention; Heterogeneity; Information retrieval; Ranking
    JEL: D60 D63 D80 D82 D83
    Date: 2022–06–27
  16. By: Davide Bosco; Luca Portoghese
    Abstract: This paper presents a stylised social-interaction game where the implementation of a lockdown policy is delegated to the decentralised, uncoordinated decision-making of a large population of atomistic agents – assumed risk-neutral and demographically heterogeneous. Compliance with policy prescriptions is socially beneficial but individually costly. In the static, it determines the individual risk of contagion in social interactions (at the micro-level) and the number of new infections (at the macro-). Over time, it affects the peak prevalence of the disease and the duration of the epidemic. Albeit atomistic, agents act strategically, for they rationally anticipate others’ behaviour when deciding (not) to comply. Three are the key results of our analysis. First, the strategic incentives faced by the agents co-evolve with the epidemic. When prevalence is low, compliance is a dominated strategy. When prevalence is high, individual decisions to comply are strategic substitutes: older/weaker agents self-protect by implementing social distancing and younger/healthier ones free-ride. Second, the strategic incentives faced by the agents co-evolve, too, with their beliefs about susceptibility. When they disregard any information about their past behaviour and use the aggregates to estimate susceptibility, strategic substitutability prevails. When beliefs are path-dependent, both complementarity and substitutability may arise. Third, we show that SIR-based models that fail to account for the endogenous response to policy prescriptions may substantially overestimate the effectiveness of lockdowns. Incidentally, we highlight that myopic behaviour may cease to be rational in a dynamic setting where agents’ beliefs about susceptibility are path-dependent.
    Keywords: COVID-19, Contagion, Social distancing, Collective action, Strategic complements and substitutes
    JEL: C72 D71 H41 I13
    Date: 2022–06
  17. By: Andreas Bjerre-Nielsen; Emil Chrisander
    Abstract: Information frictions can harm the welfare of participants in two-sided matching markets. Consider a centralized admission, where colleges cannot observe students' preparedness for success in a particular major or degree program. Colleges choose between using simple, cheap admission criteria, e.g., high school grades as a proxy for preparedness, or screening all applications, which is time-consuming for both students and colleges. To address issues of fairness and welfare, we introduce two novel mechanisms that allow students to disclose private information voluntarily and thus only require partial screening. The mechanisms are based on Deferred Acceptance and preserve its core strategic properties of credible preference revelation, particularly ordinal strategy-proofness. In addition, we demonstrate conditions for which cardinal welfare improves for market participants compared to not screening. Intuitively, students and colleges benefit from voluntary information disclosure if public information about students correlates weakly with students' private information and the cost of processing disclosed information is sufficiently low. Finally, we present empirical evidence from the Danish higher education system that supports critical features of our model. Our work has policy implications for the mechanism design of large two-sided markets where information frictions are inherent.
    Date: 2022–06
  18. By: Philipp Brunner; Igor Letina; Armin Schmutzler
    Abstract: This paper provides a novel theory of research joint ventures for financially constrained firms. When firms choose R&D portfolios, an RJV can help to coordinate research efforts, reducing investments in duplicate projects. This can free up resources, increase the variety of pursued projects and thereby increase the probability of discovering the innovation. RJVs improve innovation outcomes when market competition is weak and external financing conditions are bad. An RJV may increase the innovation probability and nevertheless lower total R&D costs. RJVs that increase innovation tend to be profitable, but innovation-reducing RJVs also exist. Finally, we compare RJVs to innovation-enhancing mergers.
    Keywords: Innovation, research joint ventures, financial constraints, mergers, intensity of competition, licensing
    JEL: L13 L24 O31
    Date: 2022–07
  19. By: Carole Bernard; Stephan Sturm
    Abstract: This paper studies the topic of cost-efficiency in incomplete markets. A portfolio payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature exists for the case of a complete financial market. We show how the problem can be extended to incomplete markets and that the main results from the theory of complete markets still hold in adapted form. In particular, we find that in incomplete markets, the optimal portfolio choice for law-invariant non-decreasing preferences must be "perfectly" cost-efficient. This notion of perfect cost-efficiency is shown to be equivalent to the fact that the payoff can be rationalized, i.e., it is the solution to an expected utility problem.
    Date: 2022–06
  20. By: Meena Jagadeesan; Nikhil Garg; Jacob Steinhardt
    Abstract: Digital recommender systems such as Spotify and Netflix affect not only consumer behavior but also producer incentives: producers seek to supply content that will be recommended by the system. But what content will be produced? In this paper, we investigate the supply-side equilibria in content recommender systems. We model users and content as $D$-dimensional vectors, and recommend the content that has the highest dot product with each user. The main features of our model are that the producer decision space is high-dimensional and the user base is heterogeneous. This gives rise to new qualitative phenomena at equilibrium: First, the formation of genres, where producers specialize to compete for subsets of users. Using a duality argument, we derive necessary and sufficient conditions for this specialization to occur. Second, we show that producers can achieve positive profit at equilibrium, which is typically impossible under perfect competition. We derive sufficient conditions for this to occur, and show it is closely connected to specialization of content. In both results, the interplay between the geometry of the users and the structure of producer costs influences the structure of the supply-side equilibria. At a conceptual level, our work serves as a starting point to investigate how recommender systems shape supply-side competition between producers.
    Date: 2022–06

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