nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒08‒22
fourteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Legitimize through Endorsement By Andrea Gallice; Edoardo Grillo
  2. Optimal Inspection of Rumors in Networks By Luca Paolo Merlino; Nicole Tabasso
  3. Selling to a principal and a budget-constrained agent By Debasis Mishra; Kolagani Paramahamsa
  4. Withholding Verifiable Information By Kun Zhang
  5. Engagement Maximization By Benjamin H\'ebert; Weijie Zhong
  6. Playing Divide-and-Choose Given Uncertain Preferences By Jamie Tucker-Foltz; Richard Zeckhauser
  7. The Winner-Take-All Dilemma By Kazuya Kikuchi; Yukio Koriyama
  8. Alternative Forms of Buyer Power in a Vertical Duopoly: Implications for profits and consumer welfare By Aditya Bhattacharjea; Srishti Gupta
  9. Information Asymmetry and Search Intensity By Atabek Atayev
  10. Sorting Versus Screening in Decentralized Markets With Adverse Selection By Sarah Auster; Piero Gottardi
  12. Endogenous market structures, product liability, and the scope of product differentiation By Eric Langlais; Andreea Cosnita-Langlais
  13. PayTech and the D(ata) N(etwork) A(ctivities) of BigTech Platforms By Jonathan Chiu; Thorsten Koeppl
  14. Tactical Refereeing and Signaling by Publishing By Popov, Sergey V

  1. By: Andrea Gallice; Edoardo Grillo
    Abstract: Individuals dier in their propensity to violate social norms. Over time, the propensity of some individuals to violate these norms may change in response to socioeconomic shocks. When these changes are not publicly observable, norm abidance may remain high because individuals fear social costs. We study how an opinion leader who is privately informed about the direction and size of the societal change can boost or hinder the abidance by a social norm. We show that the opinion leader can impact individuals' behavior when she is neither too ideologically sided in favor of the norm violation, nor too concerned about her popularity. The impact of the opinion leader is stronger when social concerns are an important driver of individuals' behavior, the uncertainty concerning the deepness of the societal change is high, and citizens interact more often with like- minded individuals.
    Keywords: Social norms; societal change; opinion leaders; endorsements; legitimization
    Date: 2022
  2. By: Luca Paolo Merlino; Nicole Tabasso
    Abstract: We study the diffusion of a true and a false message when agents are (i) biased towards one of the messages and (ii) agents are able to inspect messages for veracity. Inspection of messages implies that a higher rumor prevalence may increase the prevalence of the truth. We employ this result to discuss how a planner may optimally choose information inspection rates of the population. We find that a planner who aims to maximize the prevalence of the truth may find it optimal to allow rumors to circulate.
    Date: 2022–07
  3. By: Debasis Mishra (Indian Statistical Institute, Delhi); Kolagani Paramahamsa (Indian Statistical Institute, Delhi)
    Abstract: We analyze a model of selling a single object to a principal-agent pair who want to acquire the object for a firm. The principal and the agent have different assessments of the object's value to the firm. The agent is budget-constrained while the principal is not. The agent participates in the mechanism, but she can (strategically) approach the principal for decision-making. We derive the revenue-maximizing mechanism in a two-dimensional type space (values of the agent and the principal). We show that below a threshold budget, a mechanism involving two posted prices and three outcomes (one of which involves randomization) is the optimal mechanism for the seller. Otherwise, a single posted price mechanism is optimal.
    Keywords: budget constraint, posted price, multidimensional mechanisms, behavioral mechanism design
    JEL: D82
    Date: 2022–07
  4. By: Kun Zhang
    Abstract: I study a class of verifiable disclosure games where the sender's payoff is state independent and the receiver's optimal action only depends on the posterior mean of the state. The sender's messages are verifiable in the sense that every message must contain the true state. I identify necessary and sufficient conditions for a particular information design outcome to be achieved by an equilibrium of the verifiable disclosure game, and give sufficient conditions on model primitives under which the sender does not benefit from commitment power. These results help in characterizing the sender's preferred equilibria and her equilibrium payoff set in a class of verifiable disclosure games. I apply these insights to study influencing voters and selling with quality disclosure.
    Date: 2022–06
  5. By: Benjamin H\'ebert; Weijie Zhong
    Abstract: We consider the problem of a rational, Bayesian agent receiving signals over time for the purpose of taking an action. The agent chooses when to stop and take an action based on her current beliefs, and prefers (all else equal) to act sooner rather than later. However, the signals received by the agent are determined by a principal, whose objective is to maximize engagement (the total attention paid by the agent to the signals). We show that engagement maximization by the principal minimizes the agent's welfare; the agent does no better than if she gathered no information at all. Relative to a benchmark in which the agent chooses which signals to acquire, engagement maximization leads to excessive information acquisition and to more extreme beliefs. We show that an optimal strategy involves "suspensive signals" that lead the agent's belief to change while keeping it "less certain than the prior" and "decisive signals" that lead the agent's belief to jump to the stopping region.
    Date: 2022–07
  6. By: Jamie Tucker-Foltz; Richard Zeckhauser
    Abstract: We study the classic divide-and-choose method for equitably allocating divisible goods between two players who are rational, self-interested Bayesian agents. The players have additive private values for the goods. The prior distributions on those values are independent and common knowledge. We characterize the structure of optimal divisions in the divide-and-choose game and show how to efficiently compute equilibria. We identify several striking differences between optimal strategies in the cases of known versus unknown preferences. Most notably, the divider has a compelling "diversification" incentive in creating the chooser's two options. This incentive, hereto unnoticed, leads to multiple goods being divided at equilibrium, quite contrary to the divider's optimal strategy when preferences are known. In many contexts, such as buy-and-sell provisions between partners, or in judging fairness, it is important to assess the relative expected utilities of the divider and chooser. Those utilities, we show, depend on the players' uncertainties about each other's values, the number of goods being divided, and whether the divider can offer multiple alternative divisions. We prove that, when values are independently and identically distributed across players and goods, the chooser is strictly better off for a small number of goods, while the divider is strictly better off for a large number of goods.
    Date: 2022–07
  7. By: Kazuya Kikuchi; Yukio Koriyama
    Abstract: We consider collective decision making when the society consists of groups endowed with voting weights. Each group chooses an internal rule that specifies the allocation of its weight to the alternatives as a function of its members' preferences. Under fairly general conditions, we show that the winner-take-all rule is a dominant strategy, while the equilibrium is Pareto dominated, highlighting the dilemma structure between optimality for each group and for the whole society. We also develop a technique for asymptotic analysis and show Pareto dominance of the proportional rule. Our numerical computation for the US Electoral College verifies its sensibility.
    Date: 2022–06
  8. By: Aditya Bhattacharjea (Department of Economics, Delhi School of Economics); Srishti Gupta (Department of Economics, Delhi School of Economics)
    Abstract: We derive several variations of a model in which two upstream firms supply a differentiated product to two downstream firms under exclusive contracts of different kinds. We first derive a benchmark model with upstream first-mover pricing. We then compare its outcomes with four other types of vertical arrangements representing different modes of exploiting buyer power: downstream first mover pricing; Nash bargaining, alternatively with linear and two-part tariffs; and vertical integration. In each case, we show how the equilibrium values of wholesale and retail prices as well as downstream firms’ profits are affected by changes in the exogenous parameters (degree of product differentiation, bargaining power, and production costs). We evaluate the various vertical regimes from the perspective of downstream firms’ profits as well as consumer welfare, and show how more powerful downstream firms can benefit consumers by exercising “countervailing power” against upstream firms. Key Words: Buyer power, Bertrand duopoly, Vertical contracts, Nash bargaining, Vertical integration. JEL Codes: D43, L13, L22
    Date: 2022–07
  9. By: Atabek Atayev
    Abstract: The existing studies on consumer search agree that consumers are worse-off when they do not observe sellers' production marginal cost than when they do. In this paper we challenge this conclusion. Employing a canonical model of simultaneous search, we show that it may be favorable for consumer to not observe the production marginal cost. The reason is that, in expectation, consumer search more intensely when they do not know sellers' production marginal cost than when they know it. More intense search imposes higher competitive pressure on sellers, which in turn benefits consumers through lower prices.
    Date: 2022–06
  10. By: Sarah Auster; Piero Gottardi
    Abstract: We study the role of traders' meeting capacities in decentralized markets with adverse selection. Uninformed customers choose trading mechanisms in order to find a provider for a service. Providers are privately informed about their quality and aim to match with one of the customers. We consider a rich set of meeting technologies and characterize the properties of the equilibrium allocations for each of them. In equilibrium, different provider types can be separated either via sorting---they self-select into different submarkets---or screening within the trading mechanism, or a combination of the two. We show that, as the meeting technology improves, the equilibrium features more screening and less sorting. Interestingly, this reduces both the average quality of trade as well as the total level of trade in the economy. The trading losses are, however, compensated by savings in entry costs, so that welfare increases.
    Keywords: Competitive Search, Adverse Selection, Market Segmentation
    JEL: C78 D44 D83
    Date: 2022–08
  11. By: Stefano Vannucci
    Abstract: This paper provides a general framework to explore the possibility of agenda manipulation-proof and proper consensus-based preference aggregation rules, so powerfully called in doubt by a disputable if widely shared understanding of Arrow’s ‘general possibility theorem’. We consider two alternative versions of agenda manipulation-proofness for social welfare functions, that are distinguished by ‘parallel’ vs. ‘sequential’ execution of agenda formation and preference elicitation, respectively. Under the ‘parallel’ version, it is shown that a large class of anonymous and idem-potent social welfare functions that satisfy both agenda manipulation-proofness and strategy-proofness on a natural domain of single-peaked ‘meta-preferences’ induced by arbitrary total preference preorders are indeed available. It is only under the second, ‘sequential’ version that agenda manipulation-proofness on the same natural domain of single-peaked ‘meta-preferences’ is in fact shown to be equivalent to the classic Arrowian ‘independence of irrelevant alternatives’ for social welfare functions. In particular, it is shown that combining such ‘sequential’ version of agenda manipulation-proofness with a very minimal requirement of distributed responsiveness results in a characterization of the ‘global stalemate’ social welfare function, the constant function which invariably selects universal social indi¤erence. It is also argued that, altogether, the foregoing results provide new significant insights concerning the actual content and the constructive implications of Arrow’s ‘general possibility theorem’ from a mechanism-design perspective
    Keywords: Agenda manipulation, strategy-proofness, social welfare functions, aggregation, median join-semilattices.
    JEL: D71
    Date: 2022–05
  12. By: Eric Langlais; Andreea Cosnita-Langlais
    Abstract: The paper considers how product liability may shape firm size, product specification choices and market structure. We introduce a spatial Cournot duopoly on the linear market, where firms make an initial decision of product differentiation, then invest in precaution, before competing in quantity. Our main results are fourfold; 1) with full coverage of the market by the duopoly, there exist two equilibria (in pure strategies): central agglomeration (which is stable for low liability costs), and dispersion (which is stable for not too large liabiliy costs); 2) for larger liability costs, a mixed market structure duopoly/monopoly sustains a unique equilibrium with product differentiation; 3) this equilibrium enables a scope of differentiation higher (smaller) than the full duopoly (the social optimum); 4) the impact of liability costs on firms size and profits is complex, since it depends on the impact on both product differentiation and market structure. Finally, we show that consumer surplus and social welfare are both higher under the mixed market structure than under the full duopoly in an equilibrium with product differentiation.
    Keywords: horizontal differentiation, Cournot competition, spatial model, endogenous market structures, product liability, strict liability, negligence
    JEL: L41 K21 D82
    Date: 2022
  13. By: Jonathan Chiu; Thorsten Koeppl
    Abstract: Why do BigTech platforms introduce payment services? Digital platforms often run business models where activities on the platform generate data that can be monetized off the platform. There is a trade-off between the value of such data and the privacy concerns of users, since platforms need to compensate users for their privacy loss by subsidizing activities. The nature of complementarities between data and payments determines whether and how payment services are provided. When data help to provide better payments (data-driven payments), platforms have too little incentive to adopt. When payments generate additional data (payments-driven data), platforms may adopt payments inefficiently.
    Keywords: Digital currencies and fintech; Payment clearing and settlement systems
    JEL: D8 E42 L1
    Date: 2022–08
  14. By: Popov, Sergey V (Cardiff Business School)
    Abstract: A peer review is used ubiquitously in hiring, promotional, and evaluation decisions, within academia and beyond. It is usually conducted to allocate limited resources, such as the budget of a funder or the pages of a journal. With limited capacity, a peer review may lead to negatively biased evaluations precisely because approving a peer’s worthy project lowers the chance that a referee’s own project will be approved. I show that limited capacity is inconsistent with a hypothesis that the decision-maker’s policy is to stimulate efforts, and I discuss possible decision-maker motivations that could lead to a limited capacity policy.
    Keywords: refereeing, peer review
    JEL: C78
    Date: 2022–07

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