nep-mic New Economics Papers
on Microeconomics
Issue of 2022‒11‒07
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Optimally Biased Expertise By Pavel Ilinov; Andrei Matveenko; Maxim Senkov; Egor Starkov
  2. It Hurts to Ask By Benabou, Roland; Jaroszewicz, Ania; Loewenstein, George
  3. Mixed-Strategy Equilibria in the War of Attrition under Uncertainty By Décamps, Jean-Paul; Gensbittel, Fabien; Mariotti, Thomas
  4. Credence goods, consumer feedback and (in)efficiency. By Mehdi Ayouni; Thomas Lanzi
  5. Long Information Design By Frédéric Koessler; Marie Laclau; Jérôme Renault; Tristan Tomala
  6. Obvious manipulations of tops-only voting rules By R. Pablo Arribillaga; Agustin G. Bonifacio
  7. Centralized Bargaining with Pre-donation in a Vertically Related Industry By Saglam, Ismail
  8. The Signaling Role of Leaders in Global Games By Panagiotis Kyriazis; Edmund Lou
  9. Market Power and Separating Equilibrium in Job Market Signaling By Khan, Abhimanyu
  10. Agenda manipulation-proofness, stalemates, and redundant elicitation in preference aggregation. Exposing the bright side of Arrow's theorem By Stefano Vannucci
  11. Optimally Stubborn By Sanktjohanser, Anna
  12. Multidimensional Screening and Menu Design in Health Insurance Markets By Hector Chade; Victoria R. Marone; Amanda Starc; Jeroen Swinkels
  13. General Manipulability Theorem for a Matching Model By Paola B. Manasero; Jorge Oviedo
  14. Why known unknowns may be better than knowns, and how that matters for the evolution of happiness By Stennek, Johan
  15. Smooth Calibration, Leaky Forecasts, Finite Recall, and Nash Dynamics By Dean P. Foster; Sergiu Hart
  16. Digital gold? Pricing, inequality and participation in data markets By Charlson, G.
  17. Strategyproofness-Exposing Mechanism Descriptions By Yannai A. Gonczarowski; Ori Heffetz; Clayton Thomas
  18. Revisiting the impact of uncertainty in the private provision of public goods By Billette de Villemeur, Etienne; Cea-Echenique, Sebastián; Cuevas, Conrado

  1. By: Pavel Ilinov; Andrei Matveenko; Maxim Senkov; Egor Starkov
    Abstract: This paper shows that the principal can strictly benefit from delegating a decision to an agent whose opinion differs from that of the principal. We consider a “delegated expertise” problem in which the agent has an advantage in information acquisition relative to the principal, as opposed to having preexisting private information. When the principal is ex ante predisposed towards some action, it is optimal for her to hire an agent who is predisposed towards the same action, but to a smaller extent, since such an agent would acquire more information, which outweighs the bias stemming from misalignment. We show that belief misalignment between an agent and a principal is a viable instrument in delegation, performing on par with contracting and communication in a class of problems.
    Keywords: delegation; rational inattention; heterogeneous beliefs; discrete choice;
    JEL: D82 D83 D91 M51
    Date: 2022–09
  2. By: Benabou, Roland (Princeton University); Jaroszewicz, Ania (Harvard University); Loewenstein, George (Carnegie Mellon University)
    Abstract: We analyze the offering, asking, and granting of help or other benefits as a three-stage game with bilateral private information between a person in need of help and a potential help-giver. Asking entails the risk of rejection, which can be painful: since unawareness of the need can no longer be an excuse, a refusal reveals that the person in need, or the relationship, is not valued very much. We show that a failure to ask can occur even when most helpers would help if told about the need, and that even though a greater need makes help both more valuable and more likely to be granted, it can reduce the propensity to ask. When potential helpers concerned about the recipient's ask-shyness can make spontaneous offers, this can be a double-edged sword: offering reveals a more caring type and helps solve the failure-to-ask problem, but not offering reveals a not-socaring one, and this itself deters asking. This discouragement effect can also generate a trap where those in need hope for an offer while willing helpers hope for an ask, resulting in significant inefficiencies.
    Keywords: helping, asking, rejection, respect, shyness, altruism, cooperation, prosocial, image, reputation, information aversion
    JEL: D03 D23 D64 D82 D83 D91
    Date: 2022–09
  3. By: Décamps, Jean-Paul; Gensbittel, Fabien; Mariotti, Thomas
    Abstract: We study a generic family of two-player continuous-time nonzero-sum stopping games modeling a war of attrition with symmetric information and stochastic payoffs that depend on an homogeneous linear diffusion. We first show that any Markovian mixed strategy for player i can be represented by a pair (µ i , S i ), where µ i is a measure over the state space representing player i’s stopping intensity, and S i is a subset of the state space over which player i tops with probability 1. We then prove that, if players are asymmetric, then, in all mixed-strategy Markov-perfect equilibria, the measures µ i have to be essentially discrete, and we characterize any such equilibrium through a variational system satisfied by the players’ equilibrium value functions. This result contrasts with the literature, which focuses on pure-strategy equilibria, or, in the case of symmetric players, on mixed-strategy equilibria with absolutely continuous stopping intensities. We illustrate this result by revisiting the model of exit in a duopoly under uncertainty, and exhibit a mixed-strategy equilibrium in which attrition takes place on the equilibrium path though firms have different liquidation values.
    Keywords: War of Attrition; Mixed-Strategy Equilibrium; Uncertainty.
    JEL: C61 D25 D83
    Date: 2022–10
  4. By: Mehdi Ayouni; Thomas Lanzi
    Abstract: We analyze the effects of consumer feedback on a credence goods market. We present a model inspired by Dulleck and Kerschbamer (2006) where consumers sequentially visit a monopolistic expert. Each consumer faces a problem which can be either minor or major. The expert performs a diagnosis that may or may not reveal the severity of the problem faced by each consumer. He then implements a treatment which can solve the problem or not. After visiting the expert, each consumer reveals the received treatment and its outcome, i.e., whether it solved her problem. Each consumer receives the feedback from all previous consumers and uses it to update her belief about the informativeness of the expert’s diagnosis. She then decides whether to visit the expert. We show that consumer feedback can lead to inefficiency. More precisely, when the diagnosis fails, the expert overtreats consumers whereas the probability of a major problem is sufficiently low. This behavior does not arise without consumer feedback.
    Keywords: Consumer feedback; Credence goods; Expert; Overtreatment; Reputation.
    JEL: D82 D83
    Date: 2022
  5. 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, CNRS - Centre National de la Recherche Scientifique); Jérôme Renault (TSE-R - 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 (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique, HEC Paris - Ecole des Hautes Etudes Commerciales)
    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.
    Keywords: Bayesian persuasion,Concavification,Convexification,Information design,Mertens Zamir solution,Product demonstration,Splitting games,Statistical experiments,Stochastic games
    Date: 2022
  6. By: R. Pablo Arribillaga; Agustin G. Bonifacio
    Abstract: In a voting problem with a finite set of alternatives to choose from, we study the manipulation of tops-only rules. Since all non-dictatorial (onto) voting rules are manipulable when there are more than two alternatives and all preferences are allowed, we look for rules in which manipulations are not obvious. First, we show that a rule does not have obvious manipulations if and only if when an agent vetoes an alternative it can do so with any preference that does not have such alternative in the top. Second, we focus on two classes of tops-only rules: (i) (generalized) median voter schemes, and (ii) voting by committees. For each class, we identify which rules do not have obvious manipulations on the universal domain of preferences.
    Date: 2022–10
  7. By: Saglam, Ismail
    Abstract: This paper studies the incentives for, and the welfare effects of, pre-donation in a vertically related industry where two downstream firms that produce a homogenous good jointly bargain, using the generalized Nash rule, with an upstream firm over a linear input price before they engage in Cournot competition. We theoretically show that the downstream industry has no incentive to make any pre-donation and this is irrespective of its bargaining power. We also show computationally that (i) the upstream firm finds to make unilateral pre-donation optimal if and only if its bargaining power is sufficiently small and (ii) its optimal pre-donation (whenever positive) always yields Pareto welfare gains.
    Keywords: Vertically related industry; Nash bargaining; pre-donation.
    JEL: C78 L12 L13 L22
    Date: 2022–09
  8. By: Panagiotis Kyriazis; Edmund Lou
    Abstract: How important are leaders' actions in facilitating coordination? In this paper, we investigate their signaling role in a global games framework. A perfectly informed leader and a team of followers face a coordination problem. Despite the endogenous information generated by the leader's action, we provide a necessary and sufficient condition that makes the monotone equilibrium strategy profile uniquely $\Delta$-rationalizable and hence guarantees equilibrium uniqueness. Moreover, the unique equilibrium is fully efficient. This result remains valid when the leader observes a noisy signal about the true state except full efficiency may not be obtained. We discuss the implications of our results for a broad class of phenomena such as adoption of green technology, currency attacks and revolutions.
    Date: 2022–09
  9. By: Khan, Abhimanyu
    Abstract: The job market signaling model in Spence (1973) deals with a situation of asymmetric information. Workers vary in their productivity. A worker is privately informed of his productivity but the firms are not informed. Spence (1973) shows that in competitive markets, costly education may signal productivity -- workers of different productivities take up education to varying degrees, thereby resulting in a separating equilibrium where firms can infer a worker's productivity from his education choice. The importance of a separating equilibrium is that it resolves the informational asymmetry. In this paper, I enquire into the relationship between the firm's market power in the labour market (the market that is the source of asymmetric information) and the existence of separating equilibria. I show that a separating equilibrium exists, and therefore the informational asymmetry may be resolved, if and only if the market power of the firm in the labour market is not above a particular threshold.
    Keywords: asymmetric information, signaling, separating equilibrium, monopsony, market power
    JEL: D43 D82
    Date: 2022–10–13
  10. 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 idempotent 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 tightly related to the classic Arrowian `independence of irrelevant alternatives' (IIA) for social welfare functions. In particular, it is shown that using IIA to secure such `sequential' version of agenda manipulation-proofness and combining it 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 indifference. 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.
    Date: 2022–10
  11. By: Sanktjohanser, Anna
    Abstract: Models on reputational bargaining have introduced a perturbation with simple be-havioral types as a way of refining payo˙ predictions for the rational type. I show that this outcome refinement is not robust to the specification of the behavioral type. More specifically, I consider a slight relaxation of the strategy restriction on behavioral types relative to the literature, allowing behavioral types to choose their initial demands. I show that with this relaxation any feasible payo˙ can be achieved in equilibrium for the rational type when the probability of facing a behavioral type is small. My results highlight the implications of di˙erent perturbations for economic applications.
    Date: 2022–10–04
  12. By: Hector Chade; Victoria R. Marone; Amanda Starc; Jeroen Swinkels
    Abstract: We study a general screening model that encompasses a health insurance market in which consumers have multiple dimensions of private information and a price-setting insurer (e.g., a monopolist or a social planner) offers vertically differentiated contracts. We combine theory and empirics to provide three novel results: (i) optimal menus satisfy intuitive conditions that generalize the literature on multidimensional screening and shed light on insurer incentives; (ii) the insurer's problem with an unlimited number of contracts is well-approximated with only a small set of contracts; and (iii) under an additional assumption, the problem becomes dramatically simpler and can be solved using familiar graphical analysis. Calibrated numerical simulations validate assumptions, quantify the differential incentives of a monopolist and a social planner, and evaluate common policy interventions in a monopoly market.
    JEL: I11
    Date: 2022–10
  13. By: Paola B. Manasero; Jorge Oviedo
    Abstract: In a many-to-many matching model in which agents' preferences satisfy substitutability and the law of aggregate demand, we proof the General Manipulability Theorem. We result generalizes the presented in Sotomayor (1996 and 2012) for the many-to-one model. In addition, we show General Manipulability Theorem fail when agents' preferences satisfy only substitutability.
    Date: 2022–10
  14. By: Stennek, Johan (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Rayo and Becker (2007) model happiness as an imperfect measurement tool: It provides a partial ordering of alternative courses of actions. In this note, decisionmakers use their inability to rank two actions, to infer rankings of other pairs of actions. It is demonstrated that coarser happiness information actually increases the power of inference. As a result behavior is maximizing, not merely satisficing, almost independent of how coarse the happiness information is. Moreover, to support inference, evolution selects a happiness function with different properties than the one maximizing direct sensory information.
    Keywords: Indirect evolutionary approach; utility function
    JEL: B52 D91 I31
    Date: 2022–10
  15. By: Dean P. Foster; Sergiu Hart
    Abstract: We propose to smooth out the calibration score, which measures how good a forecaster is, by combining nearby forecasts. While regular calibration can be guaranteed only by randomized forecasting procedures, we show that smooth calibration can be guaranteed by deterministic procedures. As a consequence, it does not matter if the forecasts are leaked, i.e., made known in advance: smooth calibration can nevertheless be guaranteed (while regular calibration cannot). Moreover, our procedure has finite recall, is stationary, and all forecasts lie on a finite grid. To construct the procedure, we deal also with the related setups of online linear regression and weak calibration. Finally, we show that smooth calibration yields uncoupled finite-memory dynamics in n-person games "smooth calibrated learning" in which the players play approximate Nash equilibria in almost all periods (by contrast, calibrated learning, which uses regular calibration, yields only that the time-averages of play are approximate correlated equilibria).
    Date: 2022–10
  16. By: Charlson, G.
    Abstract: I examine inequalities arising from biases brought by the incentives and externalities present in data markets, where a data collector ultimately provides an end-service which is beneficial. Agents receive different prices for their data, which is valued according to the extent that it is representative of the data of non-participating agents. The service provider estimates the characteristics of high-cost and minority groups with less accuracy, leading to these groups receiving lower quality services on average, and lower utility in equilibrium. Data privacy policies tend to reduce such inequalities but at the cost of consumer surplus, while a subsidy strategy targeted at increasing the utility of those disadvantaged by data markets increases consumer surplus but may also widen inequality.
    Date: 2022–10–19
  17. By: Yannai A. Gonczarowski; Ori Heffetz; Clayton Thomas
    Abstract: A menu description defines a mechanism to player $i$ in two steps. Step (1) uses the reports of other players to describe $i$'s menu: the set of $i$'s potential outcomes. Step (2) uses $i$'s report to select $i$'s favorite outcome from her menu. Can menu descriptions better expose strategyproofness, without sacrificing simplicity? We propose a new, simple menu description of Deferred Acceptance. We prove that -- in contrast with other common matching mechanisms -- this menu description must differ substantially from the corresponding traditional description. We demonstrate, with a lab experiment on two simple mechanisms, the promise and challenges of menu descriptions.
    Date: 2022–09
  18. By: Billette de Villemeur, Etienne; Cea-Echenique, Sebastián; Cuevas, Conrado
    Abstract: We revisit the consequences of uncertainty in the private provision of a public good. We show that, despite the risk aversion of agents and the decreasing returns to scale in the production function of the public good, uncertainty may improve welfare. This may hold true even if uncertainty leads to a reduction in the aggregate amount of donations for the production of the public good. This may also hold true when uncertainty makes the production of the public good more costly on average. Our findings suggest that regulation and control over the production process for public goods might not always be a desirable policy.
    Keywords: Public goods; Uncertainty; Control
    JEL: D64 D8 H41
    Date: 2022–10

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