nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒01‒09
twenty-two papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Competition in Signaling By Federico Vaccari
  2. Distributionally Robust Optimal Allocation with Costly Verification By Halil \.Ibrahim Bayrak; \c{C}a\u{g}{\i}l Ko\c{c}yi\u{g}it; Daniel Kuhn; Mustafa \c{C}elebi P{\i}nar
  3. Preference Aggregation with a Robust Pareto Criterion By Chen Li
  4. Robust Contracts with Exploration By Chang Liu
  5. Influential News and Policy-making By Federico Vaccari
  6. Communication via Third Parties By Jacopo Bizzotto; Eduardo Perez-Richet; Adrien Vigier
  7. On the foundations of ex post incentive compatible mechanisms By Takuro Yamashita; Shuguang Zhu
  8. Collusion and Predation Under Cournot Competition By Emilie Dargaud; Maxime Menuet; Petros G. Sekeris
  9. Learning and Strategic Delay in a Dynamic Coordination Game By Dengwei Qi
  10. By Object or by Effect? The Collusive Potential of First Refusal Contracts By Patrick Van Cayseele; Andreas Bovin
  11. The Condorcet Loser Criterion in Committee Selection By Eric Kamwa
  12. Voter Information and Distributive Politics By Blumenthal, Benjamin
  13. Opinion Dynamics and Political Persuasion. By David Desmarchelier; Thomas Lanzi
  14. Social Mechanisms and Political Economy: When Lobbyists Succeed, Pollsters Fail and Populists Win By David K Levine; Andrea Mattozzi; Salvatore Modica
  15. Efficient Communication in Organizations By Federico Vaccari
  16. Bundling with Resale By Drew Vollmer
  17. Folk Theorems in Repeated Games with Switching Costs By Yevgeny Tsodikovich; Xavier Venel; Anna Zseleva
  18. Matching with Incomplete Preferences By Aditya Kuvalekar
  19. Multiple equilibria By Dybvig, Philip
  20. Interrogation and Disclosure of Evidence By Jesse Bull
  21. Financial Intermediation and Financial Crises By Diamond, Douglas
  22. Information Theory and Biased Beliefs By Little, Andrew T.

  1. By: Federico Vaccari (Department of Economics and Management, University of Trento)
    Abstract: I study a multi-sender signaling game between an uninformed decision maker and two senders with common private information and conflicting interests. Senders can misreport information at a cost that is tied to the size of the misrepresentation. The main results concern the amount of information that is transmitted in equilibrium and the language used by senders to convey such information. Fully revealing and pure-strategy equilibria exist but are not plausible. I first identify sufficient conditions under which equilibria are essentially unique, robust, and always exist, and then deliver a complete characterization of these equilibria. As an application, I study the informative value of different judicial procedures.
    Keywords: Signaling, Multi-sender, Competition, Misreporting, Communication
    JEL: C72 D72 D82
    Date: 2022–12
  2. By: Halil \.Ibrahim Bayrak; \c{C}a\u{g}{\i}l Ko\c{c}yi\u{g}it; Daniel Kuhn; Mustafa \c{C}elebi P{\i}nar
    Abstract: We consider the mechanism design problem of a principal allocating a single good to one of several agents without monetary transfers. Each agent desires the good and uses it to create value for the principal. We designate this value as the agent's private type. Even though the principal does not know the agents' types, she can verify them at a cost. The allocation of the good thus depends on the agents' self-declared types and the results of any verification performed, and the principal's payoff matches her value of the allocation minus the costs of verification. It is known that if the agents' types are independent, then a favored-agent mechanism maximizes her expected payoff. However, this result relies on the unrealistic assumptions that the agents' types follow known independent probability distributions. In contrast, we assume here that the agents' types are governed by an ambiguous joint probability distribution belonging to a commonly known ambiguity set and that the principal maximizes her worst-case expected payoff. We study support-only ambiguity sets, which contain all distributions supported on a rectangle, Markov ambiguity sets, which contain all distributions in a support-only ambiguity set satisfying some first-order moment bounds, and Markov ambiguity sets with independent types, which contain all distributions in a Markov ambiguity set under which the agents' types are mutually independent. In all cases we construct explicit favored-agent mechanisms that are not only optimal but also Pareto-robustly optimal.
    Date: 2022–11
  3. By: Chen Li
    Abstract: We present a new Pareto criterion to provide a minimal guidance to a social planner, who is concerned by the robustness of social decision with respect to imprecise beliefs of the true probability distribution over the state space. This new criterion, the obvious belief-free Pareto criterion, implies that the social planner is necessarily ambiguity averse. We show that given the set of reasonable beliefs and the set of individual risk preferences, the obvious belief-free Pareto criterion is the only axiom needed to characterize Maxmin Expected Utility social preferences. This result further brings us a preference aggregation theorem for Subjective Expected Utility individuals: A Maxmin Expected Utility social planner can linearly aggregate individual tastes and beliefs simultaneously if and only if s/he respects the obvious belief-free Pareto criterion.
    Keywords: Decision under uncertainty; Pareto dominance; Pareto efficiency; Preference aggregation
    JEL: D60 D71 D81
    Date: 2022–12
  4. By: Chang Liu
    Abstract: We study a two-period moral hazard problem; there are two agents, with identical action sets that are unknown to the principal. The principal contracts with each agent sequentially, and seeks to maximize the worst-case discounted sum of payoffs, where the worst case is over the possible action sets. The principal observes the action chosen by the first agent, and then offers a new contract to the second agent based on this knowledge, thus having the opportunity to explore in the first period. We characterize the principal's optimal payoff guarantee. Following nonlinear first-period contracts, optimal second-period contracts may also be nonlinear in some cases. Nonetheless, we find that linear contracts are optimal in both periods.
    Date: 2022–11
  5. By: Federico Vaccari (Laboratory for the Analysis of Complex Economic Systems, IMT School of Advanced Studies)
    Abstract: This paper analyzes the implications of those types of interventions that affect misreporting costs. I study a model of communication between an uninformed voter and a media outlet that knows the quality of two competing candidates. The alternatives available to the voter are endogenously championed by the two candidates. I show that higher costs may lead to more misreporting and persuasion, whereas low costs result in full revelation. Yet, interventions that increase misreporting costs never directly harm the voter, but those that do so slightly can be wasteful of public resources. Regulation produced by politicians leads to suboptimal interventions.
    Keywords: Fake news, Misreporting, Media, Policy-making, Regulation, Disinformation
    JEL: D72 D82 D83 L51
    Date: 2022–12
  6. By: Jacopo Bizzotto (Oslo Business School - OsloMet); Eduardo Perez-Richet (Sciences Po); Adrien Vigier (University of Oxford - Department of Economics)
    Abstract: A principal designs an information structure and chooses transfers to an agent that are contingent on the action of a receiver. The principal faces a trade-off between, on the one hand, designing an information structure maximizing non-monetary payoffs, and on the other hand, minimizing the information rent that must be conceded to the agent in order to implement the information structure which the principal designed. We examine how this trade-off shapes communication. Our model can be applied to study the relationship between, e.g.: political organizations and the public relations companies that campaign on their behalf, firms and the companies marketing their products, consultancies and the analysts they employ.
    Keywords: Information Design, Moral Hazard, Agency Cost, Information Acquisition
    JEL: C72 D82
    Date: 2021–03–05
  7. By: Takuro Yamashita (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); Shuguang Zhu (Shanghai University of Finance and Economics)
    Abstract: In private-value auction environments, Chung and Ely (2007) establish maxmin and Bayesian foundations for dominant-strategy mechanisms. We first show that similar foundation results for ex post mechanisms hold true even with interdependent values if the interdependence is only cardinal. This includes, for example, the one-dimensional environments of Dasgupta and Maskin (2000) and Bergemann and Morris (2009b). Conversely, if the environment exhibits ordinal interdependence, which is typically the case with multi-dimensional environments (e.g., a player's private information)
    Date: 2022–11
  8. By: Emilie Dargaud (Univ Lyon, Université Lumière Lyon 2, GATE, UMR 5824, F-69130 Ecully, France); Maxime Menuet (LEO, University of Orleans, Orleans, France. e-mail:; Petros G. Sekeris (Corresponding author: TBS Business School, 1 Place A. Jourdain, 31000 Toulouse, France)
    Abstract: This paper studies how predation strategies can affect the sustainability of collusion. We demonstrate that in the presence of few competitors collusion may be sustained at equilibrium for intermediate discount factors. In such instances predation implies that punishment strategies will yield low subgame perfect payoffs, thereby making collusion easier to sustain. For low discount factors collusion is not sustainable because of the high incentives to deviate to Cournot-Nash strategies. Moreover, for high discount factors it is always optimal to predate colluding firms, thus contrasting with much of the earlier literature showing that collusion is only achievable by sufficiently patient firms.
    Keywords: Collusion, Predation, Cournot competition
    JEL: D43 L13 L41
    Date: 2022
  9. By: Dengwei Qi
    Abstract: Heterogeneously informed agents decide their optimal action timings while observing past activities over time. We construct such a dynamic global coordination game to investigate the impact of learning and delay options on coordination behaviors and outcomes. A unique monotone equilibrium is characterized, which is analytically convenient for all ranges of learning efficiencies, and we demonstrate that learning improves coordination success, while the delay options alone have no impact, relative to the one-shot game. Dynamics of agents’ behaviors and welfare implications are then presented. In addition, we show that full learning about the state achieves in the limit, and find the condition on which observing actions reveals more accurate information about the state than directly observing it.
    Keywords: Learning; Strategic delay; Global games; Dynamics
    JEL: D82 D83
    Date: 2022–12
  10. By: Patrick Van Cayseele; Andreas Bovin
    Abstract: This article examines the collusive potential of first refusal contracts, which are contracts that grant one party, the buyer, a right of first refusal on the output of another party, the seller. When two parties enter into this type of contract, the seller is obligated to offer any output she wishes to sell to the buyer first. It is only after a 'first refusal' by the buyer that output can be offered to third parties. We compare the outcomes which arise under first refusal contracts with those resulting from explicit cooperation. Our findings suggest that these contracts can result in an identical distortion of competition, while remaining under the radar of antitrust authorities.
    Keywords: Right of first refusal, contract, theory of harm, abuse of bargaining power
    JEL: L4 L40 L41 L42
    Date: 2022
  11. By: Eric Kamwa (LC2S - Laboratoire caribéen de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UA - Université des Antilles)
    Abstract: In committee selection setting, we introduce the Condorcet Loser Committee (CLC) which when it exists, is a committee such that each of its members is defeated in pairwise comparisons by any outside candidate. It turns out that most popular committee selection rules can elect the CLC when it exists. From the perspective of the Condorcet majority criterion, the election of the CLC is simply not acceptable. We identify the few rules that will never elect the CLC when it exists. We show among others that the k-Borda rule is the only k-scoring committee rule that never select the CLC. This also holds with k-iterative Borda rule, Nanson rule, Kemeny rule, Copeland rule. As a corollary, it appeared that the Chamberlin-Courant rule can elect the CLC when it exists.
    Keywords: Committee, Condorcet, Scoring, Borda
    Date: 2022–11–30
  12. By: Blumenthal, Benjamin
    Abstract: I consider a series of models of political agency with moral hazard and adverse selection, in which politicians allocate resources to voters. Within these models combining electoral accountability and distributive politics, I ask: is more information good for voters? With homogeneously informed electorates, I first show how and when less information can benefit voters, through the interaction of both partial control and partial screening effects. Building on this mechanism, I subsequently consider heterogeneously informed electorates and ask: how can voters’ welfare be affected by the informational advantage of a few voters? Is it better to be among the more informed few or the less informed many? I show that the ability of more informed voters to communicate with less informed voters and the nature of their informational advantage can play a significant role in affecting voters’ welfare by influencing politicians’ incentives to allocate resources to specific voters
    Date: 2022–12–10
  13. By: David Desmarchelier; Thomas Lanzi
    Abstract: This paper proposes to adapt a simple disease spread model for political persuasion. More precisely, we observe how a policy presented by a leader prevails into a population divided in two groups: subscribers and resistants. At each date, agents from the two groups meet and influence each other due to the leaderís persuasion force. If the leader's persuasion force dominates (is dominated), then some resistants (subscribers) become subscribers (resistants). Moreover, agents can also change their opinions simply because of the attractive force of each groups (intrinsic attraction). In the long run, it appears that a high attractive force can compensate a lack of persuasion force to ensure that more than half members subscribe to the policy presented by the leader. Such a situation is stable. Conversely, a high persuasion force, when the attractive force of the leader's group is relatively low, can generate the occurrence of a two-period cycle through a flip bifurcation such that the leader looses the majority from a period to another.
    Keywords: Flip bifurcation, Opinion dynamics, Political persuasion, SIS models.
    JEL: C61 D72
    Date: 2022
  14. By: David K Levine; Andrea Mattozzi; Salvatore Modica
    Date: 2022–12–19
  15. By: Federico Vaccari (Laboratory for the Analysis of Complex Economic Systems, IMT School of Advanced Studies)
    Abstract: Organizations design their communication structures to improve decision-making while limiting wasteful influence activities. An efficient communication protocol grants complete information payoffs to all organization members, thereby overcoming asymmetric information problems at no cost. This paper characterizes efficient protocols assuming that: (i) some agents within the organization have the knowledge required for optimal decision-making; (ii) both the organization and consulted agents incur losses proportional to the exerted influence activities; and (iii) informed agents can discuss their strategies before being consulted. Under these assumptions, “public advocacy” is the unique efficient communication protocol. This result provides a novel rationale for public advocacy.
    Keywords: Information, Communication, Organizations, Efficiency, Costly Talk
    JEL: D23 D82 D83
    Date: 2022–12
  16. By: Drew Vollmer (U.S. Department of Justice)
    Abstract: How does resale affect multiproduct bundling? I investigate using a model of monopoly bundling with costly resale. Consumers purchase in the primary market while anticipating resale, then participate in a resale market with market-clearing prices. Resale forces the monopolist to balance the additional profit from a discounted bundle against the opportunity for consumer arbitrage. In equilibrium, the monopolist may still other a discounted bundle, but resale reduces the returns to bundling and has an ambiguous effect on consumer and total welfare. When consumers have heterogeneous costs of resale, it is possible for consumers to resell in equilibrium.
    Date: 2022–12
  17. By: Yevgeny Tsodikovich (Bar-Ilan University [Israël]); Xavier Venel (LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma]); Anna Zseleva (Maastricht University [Maastricht])
    Abstract: We study how switching costs affect the sub-game perfect equilibria in repeated games. We show that (i) the Folk Theorem holds whenever the players are patient enough; (ii) the set of equilibrium payoffs is obtained by considering the payoffs of a simple one-shot auxiliary game; and (iii) the switching costs have a negative impact on a player in the infinitely undiscounted repeated game but can be beneficial for him in a finitely repeated game or in a discounted game.
    Keywords: Switching Costs, Repeated Games, Folk Theorem, Stochastic Games, Non-Zero-sum games
    Date: 2022–12–07
  18. By: Aditya Kuvalekar
    Abstract: I study a two-sided marriage market in which agents have incomplete preferences -- i.e., they find some alternatives incomparable. The strong (weak) core consists of matchings wherein no coalition wants to form a new match between themselves, leaving some (all) agents better off without harming anyone. The strong core may be empty, while the weak core can be too large. I propose the concept of the ``compromise core'' -- a nonempty set that sits between the weak and the strong cores. Similarly, I define the men-(women-) optimal core and illustrate its benefit in an application to India's engineering college admissions system.
    Date: 2022–12
  19. By: Dybvig, Philip (Washington University)
    Abstract: Nobel lecture presentation slides
    Keywords: Banking; financial crisis
    JEL: E53 G21 G28
    Date: 2022–12–08
  20. By: Jesse Bull (Department of Economics, Florida International University)
    Abstract: In recent years there has been a shift to less confrontational interrogation methods. One argument in favor of these methods is that they reduce the scope for false confessions. This paper explores this idea from an information perspective with rational agents. Should a police officer choose to interrogate an accused person, the goal is a confession. The police officer bases her decision of whether to interrogate on both the realization of some evidence and on a private non-verifiable signal; both of these influence the outcome at trial, should the case proceed to trial. So there are potentially two channels of information to the accused: 1) that the police officer decided to interrogate, and 2) the presentation of evidence to the accused during interrogation. The accused chooses whether to confess by weighing his expected payoff from going to trial against that from confessing. Less confrontational interrogation methods close the second channel of information and can reduce false confessions while still inducing guilty to confess. It is helpful for the accused to be somewhat informed about the strength of the case against him, and this comes through being interrogated. However, it can be detrimental for the accused to be too well informed about the strength of the case against him.
    Date: 2022–10
  21. By: Diamond, Douglas (University of Chicago)
    Abstract: Nobel Lecture lecture slides
    Keywords: Banking; Financial crises
    JEL: E53 G21 G28
    Date: 2022–12–08
  22. By: Little, Andrew T.
    Abstract: Beliefs can be incorrect or biased in many ways. I propose a unifying microfoundation for many well-documented biases using ideas from information theory. The common theme is that subjective beliefs are the solution to an optimization problem where one goal is accuracy, formalized by minimizing Kullback-Leibler divergence from the objective belief. Correct beliefs are a special case where accuracy is the only goal. Other goals or constraints produce biases such as motivated beliefs, partition dependence, anchoring, overconfidence, confirmation bias, base-rate neglect, and conservatism.
    Date: 2022–11–28

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