nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒04‒17
twenty papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Compatibility Choices, Switching Costs and Data Portability By Doh-Shin Jeon; Domenico Menicucci; Nikrooz Nasr
  2. Communication Protocols under Transparent Motives By Roberto Corrao; Yifan Dai
  3. Asymmetric Information and Differentiated Durable Goods Monopoly: Intra-Period Versus Intertemporal Discrimination By Didier Laussel; Ngo van Long; Joana Resende
  4. Negative Tax Incidence with Multiproduct Firms By Anna D’Annunzio; Antonio Russo
  5. Policy-advising Competition and Endogenous Lobbies By Manuel Foerster; Daniel Habermacher
  6. Strategy-proofness with single-peaked and single-dipped preferences By Jorge Alcalde-Unzu; Oihane Gallo; Marc Vorsatz
  7. Decomposability and Strategy-proofness in Multidimensional Models By Shurojit Chatterji; Huaxia Zeng
  8. The Dynamics of Instability By C\'esar Barilla; Duarte Gon\c{c}alves
  9. Inertial Updating By Adam Dominiak; Matthew Kovach; Gerelt Tserenjigmid
  10. Robust Optimization Approach to Information Design in Linear-Quadratic-Gaussian Games By Furkan Sezer; Ceyhun Eksin
  11. Non-Market Allocation Mechanisms: Optimal Design and Investment Incentives By Victor Augias; Eduardo Perez-Richet
  12. Screening while Controlling an Externality By Franz Ostrizek; Elia Sartori
  13. Proxy Forecasting to Avoid Stochastic Decision Rules in Decision Markets By Wenlong Wang; Thomas Pfeiffer
  14. Signaling corruption through conspicuous consumption By Pablo Zárate
  15. Efficient Public Good Provision in a Multipolar World By Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali SenGupta
  16. A Story of Consistency: Bridging the Gap between Bentham and Rawls Foundations By St\'ephane Gonzalez; Nikolaos Pnevmatikos
  17. On the (Robust) Ex-post Stability of Constitutions By Semin Kim
  18. Which Social Choice Rule is More Dictatorial? By Bednay, Dezső; Fleiner, Balázs; Tasnádi, Attila
  19. Seven types of ambiguity By John Quiggin
  20. Balancing Democracy: Majoritarianism vs. Expression of Preference Intensity By Shmuel I. Nitzan; Asaf D.M. Nitzan

  1. By: Doh-Shin Jeon (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse 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); Domenico Menicucci (UniFI - Università degli Studi di Firenze = University of Florence); Nikrooz Nasr (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse 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)
    Abstract: We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. Contrary to what happens in a static setting where symmetric firms choose compatibility (Matutes and Régibeau, 1988), when switching costs are high and firms make price discrimination based on past purchases, symmetric firms choose incompatibility to soften future competition if the discount factor is large, which harms consumers. Interoperability increases consumer surplus at least for high switching costs. Data portability, by reducing switching costs, induces the firms to choose compatibility more often but, given a compatibility regime, benefits consumers only if a non-negative pricing constraint binds.
    Keywords: Compatibility, Switching Cost, Data Portability, Interoperability, Cloud computing
    Date: 2023
  2. By: Roberto Corrao; Yifan Dai
    Abstract: We study optimal (information) mediation in sender-receiver communication games where the sender has transparent motives: she only cares about the receiver's actions and beliefs. We characterize the feasible distributions over the receiver's beliefs under mediation and the value of mediation. The sender achieves her optimal Bayesian persuasion value by mediation if and only if this value is attained by cheap talk. When the state is binary, mediation strictly improves on cheap talk if and only if the sender cannot do better than under cheap talk by always under -- or over -- stating the state.
    Date: 2023–03
  3. By: Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Ngo van Long (Department of Economics [McGill University] - McGill University = Université McGill [Montréal, Canada], Hitotsubashi Institute for Advanced Study); Joana Resende (Cef.up, Economics Department, University of Porto)
    Abstract: A durable good monopolist faces a continuum of heterogeneous customers who make purchase decisions by comparing present and expected price-quality offers. The monopolist designs a sequence of price-quality menus to segment the market. We consider the Markov perfect equilibrium (MPE) of a game where the monopolist is unable to commit to future price-quality menus. We obtain the novel results that: (a) under certain conditions, the monopolist covers the whole market in the first period (even when a static Mussa–Rosen monopolist would not cover the whole market), because this is a strategic means to convince customers that lower prices would not be offered in future periods and that (b) this can happen only under the stage-wise Stackelberg leadership assumption (whereby consumers base their expectations on the value of the state variable at the end of the period). Conditions under which MPE necessarily involves sequentially trading are also derived.
    Keywords: Product quality, Durable good monopoly, Second-degree price discrimination, Coase conjecture
    Date: 2022–06
  4. By: Anna D’Annunzio (TBS Business School, CSEF (University Federico II) and Toulouse School of Economics); Antonio Russo (University of Sheffield and CESifo)
    Abstract: A fundamental result in the theory of commodity taxation is that taxes increase consumer prices and reduce supply, aggravating the distortions caused by market power. This result hinges on the assumption that each firm provides a single product. We study the effects of commodity taxes in presence of multiproduct firms that have market power. We consider a monopolist providing two goods and obtain simple conditions such that differentiated ad valorem tax reduce the prices and increases the supply of both goods, thereby increasing total surplus. We show that these conditions can hold in a variety of settings, including add-on pricing, multiproduct retailing with price advertising, intertemporal models with switching costs and two-sided markets. Differentiated unit taxes can induce prices to decrease (as the Edgeworth’s paradox states), but the quantity of the taxed good always decreases.
    Keywords: Commodity taxation; tax incidence; multi-product firms
    JEL: D42 H21 H22
    Date: 2023–03
  5. By: Manuel Foerster (Bielefeld University); Daniel Habermacher (Universidad de los Andes, Chile)
    Abstract: We investigate competition between experts with different motives. A policy-maker has to implement a policy and can either acquire information herself or hire a biased but well-informed expert. We show that the expertcharges a fee if interests between the agents are roughly aligned, and pays contributions in order to get the decision delegated—and thus acts as a lobbyist instead of as an advisor—if the conflict of interest is substantial and the policy is important to her. We then introduce an unbiased careerconcerned expert and show that lobbying may occur because of competition. Finally, the effect of competition on societal welfare may be negative if policy is (not) important to society but the unbiased expert provides bad (good) advice.
    Keywords: Policy advice, private information, delegation, lobbying, competition
    JEL: C72 D72 D82 D83
    Date: 2023–03
  6. By: Jorge Alcalde-Unzu; Oihane Gallo; Marc Vorsatz
    Abstract: We analyze the problem of locating a public facility in a domain of single-peaked and single-dipped preferences when the social planner knows the type of preference (single-peaked or single-dipped) of each agent. Our main result characterizes all strategy-proof rules and shows that they can be decomposed into two steps. In the first step, the agents with single-peaked preferences are asked about their peaks and, for each profile of reported peaks, at most two alternatives are preselected. In the second step, the agents with single-dipped preferences are asked to reveal their dips to complete the decision between the preselected alternatives. Our result generalizes the findings of Moulin (1980) and Barber\`a and Jackson (1994) for single-peaked and of Manjunath (2014) for single-dipped preferences. Finally, we show that all strategy-proof rules are also group strategy-proof and analyze the implications of Pareto efficiency.
    Date: 2023–03
  7. By: Shurojit Chatterji; Huaxia Zeng
    Abstract: We introduce the notion of a multidimensional hybrid preference domain on a (finite) set of alternatives that is a Cartesian product of finitely many components. We study strategy-proof rules on this domain and show that every such rule can be decomposed into component-wise strategy proof rules. More importantly, we show that under a suitable ``richness'' condition, every domain of preferences that reconciles decomposability of rules with strategy-proofness must be a multidimensional hybrid domain. We finally identify an intuitive weakening of separability that explains how a multidimensional hybrid domain may arise in a public goods provision model.
    Date: 2023–03
  8. By: C\'esar Barilla; Duarte Gon\c{c}alves
    Abstract: We study a model in which two players with opposing interests try to alter a status quo through instability-generating actions. We show that instability can be used to secure longer-term durable changes, even if it is costly to generate and does not generate short-term gains. In equilibrium, instability generated by a player decreases when the status quo favors them more. Equilibrium always exhibits a region of stable states in which the status quo persists. As players' threat power increases, this region shrinks, ultimately collapsing to a single stable state that is supported via a deterrence mechanism. There is long-run path-dependency and inequity: although instability eventually leads to a stable state, it typically selects the least favorable one for the initially disadvantaged player.
    Date: 2023–03
  9. By: Adam Dominiak; Matthew Kovach; Gerelt Tserenjigmid
    Abstract: We introduce and characterize inertial updating of beliefs. Under inertial updating, a decision maker (DM) chooses a belief that minimizes the subjective distance between their prior belief and the set of beliefs consistent with the observed event. Importantly, by varying the subjective notion of distance, inertial updating provides a unifying framework that nests three different types of belief updating: (i) Bayesian updating, (ii) non-Bayesian updating rules, and (iii) updating rules for events with zero probability, including the conditional probability system (CPS) of Myerson (1986a, b). We demonstrate that our model is behaviorally equivalent to the Hypothesis Testing model (HT) of Ortoleva (2012), clarifying the connection between HT and CPS. We apply our model to a persuasion game.
    Date: 2023–03
  10. By: Furkan Sezer; Ceyhun Eksin
    Abstract: Information design in an incomplete information game includes a designer with the goal of influencing players' actions through signals generated from a designed probability distribution so that its objective function is optimized. If the players have quadratic payoffs that depend on the players' actions and an unknown payoff-relevant state, and signals on the state that follow a Gaussian distribution conditional on the state realization, then the information design problem under quadratic design objectives is a semidefinite program (SDP). We consider a setting in which the designer has partial knowledge on agents' utilities. We address the uncertainty about players' preferences by formulating a robust information design problem. Specifically, we consider ellipsoid perturbations over payoff matrices in linear-quadratic-Gaussian (LQG) games. We show that this leads to a tractable robust SDP formulation. Using the robust SDP formulation, we obtain analytical conditions for the optimality of no information and full information disclosure. The robust convex program is also extended to interval and general convex cone uncertainty sets on the payoff matrices. Numerical studies are carried out to identify the relation between the perturbation levels and the optimal information structures.
    Date: 2023–03
  11. By: Victor Augias; Eduardo Perez-Richet
    Abstract: We study how to optimally design selection mechanisms, accounting for agents' investment incentives. A principal wishes to allocate a resource of homogeneous quality to a heterogeneous population of agents. The principal commits to a possibly random selection rule that depends on a one-dimensional characteristic of the agents she intrinsically values. Agents have a strict preference for being selected by the principal and may undertake a costly investment to improve their characteristic before it is revealed to the principal. We show that even if random selection rules foster agents' investments, especially at the top of the characteristic distribution, deterministic "pass-fail" selection rules are in fact optimal.
    Date: 2023–03
  12. By: Franz Ostrizek (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Elia Sartori
    Abstract: We propose a tractable framework to introduce externalities in a screening model. Agents differ in both payoff-type and influence-type (ranking how beneficial their actions are for others). Applications range from pricing network goods to regulating industries that create externalities. Inefficiencies arise only if the payoff-type is unobservable. When both dimensions are unobserved, the optimal allocation satisfies lexicographic monotonicity: increasing along the payoff-type to satisfy incentive compatibility, but tilted towards influential agents to move the externality in the socially desirable direction. In particular, the allocation depends on a private characteristic that is payoff-irrelevant for the agent. We characterize the solution through a two-step ironing procedure that addresses the nonmonotonicity in virtual values arising from the countervailing impact of payoffand influence-type. Rents from influence can emerge but only indirectly, i.e. when the observed level of influence is used as a signal of the unobserved payoff-type.
    Keywords: Multidimensional Screening, Externality, Ironing, Network Goods, Influence
    Date: 2023–05
  13. By: Wenlong Wang; Thomas Pfeiffer
    Abstract: Information that is of relevance for decision-making is often distributed, and held by self-interested agents. Decision markets are well-suited mechanisms to elicit such information and aggregate it into conditional forecasts that can be used for decision-making. However, for incentive-compatible elicitation, decision markets rely on stochastic decision rules which entails that sometimes actions have to be taken that have been predicted to be sub-optimal. In this work, we propose three closely related mechanisms that elicit and aggregate information similar to a decision market, but are incentive compatible despite using a deterministic decision rule. Following ideas from peer prediction mechanisms, proxies rather than observed future outcomes are used to score predictions. The first mechanism requires the principal to have her own signal, which is then used as a proxy to elicit information from a group of self-interested agents. The principal then deterministically maps the aggregated forecasts and the proxy to the best possible decision. The second and third mechanisms expand the first to cover a scenario where the principal does not have access to her own signal. The principal offers a partial profit to align the interest of one agent and retrieve its signal as a proxy; or alternatively uses a proper peer prediction mechanism to elicit signals from two agents. Aggregation and decision-making then follow the first mechanism. We evaluate our first mechanism using a multi-agent bandit learning system. The result suggests that the mechanism can train agents to achieve a performance similar to a Bayesian inference model with access to all information held by the agents.
    Date: 2023–03
  14. By: Pablo Zárate (Department of Economics, Universidad de San Andres)
    Abstract: Public officers suspected of corruption are often seen consuming conspicuously luxury goods. Since this raises public awareness about them, it can backfire and lead to an investigation that eventually finds them guilty. One plausible explanation to rationalize this behavior is that they are signaling their willingness to be corrupt, to attract the pool of corrupt firms and obtain higher bribes. In this work, we consider a public procurement setting where the government delegates a procurement officer (PO) to run the process. If the cost of the luxury good is low enough, then there exists a separating equilibrium where the corrupt PO signals his type and obtains a higher bribe. Even if the government fixes a budget constraint or maximum price before assigning a PO, a signaling equilibrium can still exist, but with a lower reserve price than socially optimal. Therefore, even though the government can reduce the bribe revenue, corruption and signaling results in aggregate welfare loss.
    Keywords: corruption
    Date: 2021–11
  15. By: Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali SenGupta
    Abstract: We model a public goods game with groups, position uncertainty, and observational learning. Contributions are simultaneous within groups, but groups play sequentially based on their observation of an incomplete sample of past contributions. We show that full cooperation between and within groups is possible with self-interested players on a fixed horizon. Position uncertainty implies the existence of an equilibrium where groups of players conditionally cooperate in the hope of influencing further groups. Conditional cooperation implies that each group member is pivotal, so that efficient simultaneous provision within groups is an equilibrium.
    Date: 2023–03
  16. By: St\'ephane Gonzalez; Nikolaos Pnevmatikos
    Abstract: The axiomatic foundations of Bentham and Rawls solutions are discussed within the broader domain of cardinal preferences. It is unveiled that both solution concepts share all four of the following axioms: Nonemptiness, Anonymity, Unanimity, and Continuity. In order to fully characterize the Bentham and Rawls solutions, three variations of a consistency criterion are introduced and their compatibility with the other axioms is assessed. Each expression of consistency can be interpreted as a property of decision-making in uncertain environments.
    Date: 2023–03
  17. By: Semin Kim (Yonsei University)
    Abstract: Barbera and Jackson (2004) define a constitution as a pair of voting rules (f, F), where f is employed for ordinary decisions, and F is employed to choose between f and a proposed voting rule. While they study the stability of constitutions at the ex-ante stage, where agents’ preferences over final outcomes are uncertain, we focus on the ex-post stage, where agents’ preferences are known. We present a characterization of ex-post stable constitutions. Furthermore, we examine the robustness of this characterization to the changes in the voting environment and the relationship between ex-post stability and ex-ante stability of constitutions.
    Keywords: Constitutions, Ex-post stability, Voting rules.
    JEL: D02 D71 D72
    Date: 2023–03
  18. By: Bednay, Dezső; Fleiner, Balázs; Tasnádi, Attila
    Abstract: Social choice rules (SCRs) aggregate individual preferences to social preferences. By Arrow's (1951) impossibility theorem there does not exist a non-dictatorial SCR satisfying three desirable properties. Considering this negative axiomatic result, in this paper we determine distances of SCRs from the dictatorial rules to rank common SCRs. In particular, we apply the Kendall tau, the Spearman rank correlation and the Spearman footrule metrics. We find that from the investigated SCRs the Borda, the Copeland and the Kemény-Young SCRs stand out. Furthermore, we show that anonymous SCRs approach the constant rule when the number of alternatives is fixed and the number of voters tends to infinity.
    Keywords: Simulation, Asymptotic behavior, Dictatorship, Kendall tau, Spearman rank correlation, Spearman footrule
    JEL: D71
    Date: 2023–03–30
  19. By: John Quiggin (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: Reducing ambiguity to a purely technical property of preferences misses much of the insight in Ellsberg’s (1961) paper, as well as in more recent developments in the study of differential awareness. In this paper, syntac- tic approaches to ambiguity are used to illustrate the point that Reducing ambiguity to a purely technical property of preferences misses much of the insight in Ellsberg’s (1961) paper, as well as in more recent developments in the study of differential awareness.
    Date: 2023–02
  20. By: Shmuel I. Nitzan (Bar-Ilan University); Asaf D.M. Nitzan
    Abstract: Direct confrontation between majority rule (MR) and the most in-depth studied scoring rules—the Borda rule (BR) and the plurality rule (PR)—on the basis of their fundamental weaknesses (violating one of the two principles: majoritarianism and suitable recognition of preference intensity) has not been attempted. Defining the cost of a rule as the expected erosion of the principle that it violates, this study fills the gap by comparing MR with PR and BR in terms of their mutual costs. The main findings are the evident superiority of PR over MR and the superiority of MR over BR.
    Date: 2023–02

This nep-mic issue is ©2023 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.