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on Microeconomics |
| By: | Jean-Charles Rochet (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); Bruno Biais (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, CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Taxing financial transactions is often advocated for Pigouvian reasons, when financial speculation is supposed to generate inefficiencies. We adopt instead a Mirrleesian approach, and study the optimal taxation of financial transactions when financial markets are efficient, but the tax system is imperfect, due to asymmetric information. In our model, financial transactions are used by entrepreneurs to hedge shocks on their skills, in line with the New Dynamic Public Finance literature. Entrepreneurs privately observe their skills, but trades in financial markets are publicly observable. The optimal mechanism maximizes a convex combination of utilitarian welfare and Rawlsian criterion, subject to feasibility and incentive constraints. Entrepreneurial projects are subject to liquidity shocks, which can be smoothed by conducting financial transactions. Better skilled entrepreneurs' projects have larger expected profits, but also larger shocks. Trades therefore signal skills, implying it is optimal to tax financial transactions, in addition to capital income and wealth. |
| Date: | 2023–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-04016358&r=mic |
| By: | Takashi Ui |
| Abstract: | In games with incomplete and ambiguous information, rational behavior depends not only on fundamental ambiguity (ambiguity about states) but also on strategic ambiguity (ambiguity about others' actions). We study the impact of strategic ambiguity in global games. Ambiguous-quality information makes more players choose an action yielding a constant payoff, whereas (unambiguous) low-quality information makes more players choose an ex-ante best response to the uniform belief over the opponents' actions. If the ex-ante best-response action yields a constant payoff, sufficiently ambiguous-quality information induces a unique equilibrium, whereas sufficiently low-quality information generates multiple equilibria. In applications to financial crises, we demonstrate that news of more ambiguous quality triggers a debt rollover crisis, whereas news of less ambiguous quality triggers a currency crisis. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.12263&r=mic |
| By: | Chia-Hui Chen; Kong-Pin Chen; Junichiro Ishida |
| Abstract: | Despite widespread use in online transactions, rating systems only provide summary statistics of buyers' diverse opinions at best. To investigate the consequences of this coarse form of information aggregation, we consider a dynamic lemons market in which buyers share their evaluations anonymously through a rating system. When the buyers have diverse preferences, the value of a good rating depends endogenously on the seller's pricing strategy, which in turn creates complicated dynamic interactions and results in stochastic price fluctuations. Occasional flash sales induced by the rating system yield a non-trivial welfare effect that stands in sharp contrast to standard adverse selection models: all buyers are weakly better off with information asymmetry than without. Incentivizing buyers to leave ratings may backfire by exacerbating the seller's strategic pricing incentives. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1203&r=mic |
| By: | C.Y. Cyrus Chu (Institute of Economics, Academia Sinica, Taipei, Taiwan); Meng-Yu Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan) |
| Abstract: | In capturing the famous collapsing case of Easter Island, we set up a model where the society’s ruler has to allocate resources between consumption goods and statue construction. Since the incumbent rulers may be addicted to the glory or pleasure of statue erection, their utility function may be alienated from that of the citizens. We analyze how sustainability may differ under democracy and autocracy regimes. We prove that when the discount factor is small (large), the democracy regime is more sustainable (both regimes are equally sustainable). When the discount factor is somewhere in between, citizens’attitude toward state accountability plays a critical role. When citizens are “weak”, the threat of replacing a reckless ruler under democracy is not credible. We identify a narrow parameter range in which an autocrat has a strong self-discipline to prevent an environmental collapse, whereas the democracy regime performs worse. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:sin:wpaper:23-a001&r=mic |
| By: | Ghatak, Maitreesh; Verdier, Thierry |
| Abstract: | This paper provides a simple model of identity salience that is applied to the phenomenon of the recent rise in right-wing populism in the Western world. Trade and capital flows, skill-biased technological change, and migration have led to declining employment and wages in these economies and a parallel rise in economic and cultural populism, tapping into nativist sentiments. We argue that when long-term income stagnation for most of the population and decline for some go together with high rates of income growth at the very top, one has zero-sum economics and that naturally raises the possibility of using various kinds of social identities to claim a bigger share of a fixed sized pie. We show that in ethnically or racially polarized societies this naturally leads to the salience of social identities that enable majority ethnic groups to vote for policies that exclude minority groups so that they get a greater share of a dwindling surplus. In contrast, in more ethnically and racially homogeneous societies, this would instead lead to the demand for more pro-redistribution policies that involve greater provision of public goods. |
| Keywords: | inequality; identity; welfare state; bargaining; Springer deal |
| JEL: | D31 I38 P16 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:118360&r=mic |
| By: | Kazuya Kikuchi; Yukio Koriyama |
| Abstract: | This paper studies a general class of social choice problems in which agents' payoff functions (or types) are privately observable random variables, and monetary transfers are not available. We consider cardinal social choice functions which may respond to agents' preference intensities as well as preference rankings. We show that a social choice function is ex ante Pareto efficient and Bayesian incentive compatible if and only if it is dictatorial. The result holds for arbitrary numbers of agents and alternatives, and under a fairly weak assumption on the joint distribution of types, which allows for arbitrary correlations and asymmetries. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.05968&r=mic |
| By: | Seungjin Han; Alex Sam; Youngki Shin |
| Abstract: | This paper studies a delegation problem faced by the planner who wants to regulate receivers' reaction choices in markets for matching between receivers and senders with signaling. We provide a noble insight into the planner's willingness to delegate and the design of optimal (reaction) interval delegation as a solution to the planner's general mechanism design problem. The relative heterogeneity of receiver types and the productivity of the sender' signal are crucial in deriving optimal interval delegation in the presence of the trade-off between matching efficiency and signaling costs. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.09415&r=mic |
| By: | Christopher The; Chengsi Wang; Makoto Watanabe |
| Abstract: | This paper explores the relation ship between market accessibility and various participants welfare in an intermediated directed-search market. For a general class of meeting technologies, we provide a necessary and sufficient condition under which efficiency requires imperfect accessibility, such that each sellers listing is only observed by some but not all buyers. We show that the platform optimally implements the efficient out come, but fully extracts surplus from the transactions it intermediates. We also find that in general, buyers prefer to minimize market accessibility, while sellers prefer a weakly greater accessibility level than that which is socially efficient. The efficiency of imperfect accessibility is robust to the introduction of a second chance for unmatched buyers to search. |
| Keywords: | meeting technology, directed search, platform, intermediation, accessibility JEL Classification: D83, J64, M37 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:23-004e&r=mic |
| By: | Jiajia Cong; Noriaki Matsushima |
| Abstract: | This study examines how consumers' personal data management affects firms' competition in the data collection and data application markets and welfare outcomes. Consumers purchase products from differentiated firms in two markets. Firms compete to collect consumer data first to predict their preferences in the data application market, where each firm offers personalized prices to its targeted consumers and a uniform price to untargeted consumers. Before firms offer prices, their targeted consumers can erase data to become untargeted for a fixed cost. We show that consumers' privacy management mitigates price competition, reduces firms' profits, and harms consumer surplus and social welfare in the data application market; privacy management intensifies competition and improves consumer surplus in the data collection market. Across these two markets, profits and social welfare decline. The change in consumers' two-market surplus depends on their foresight regarding the outcomes in the data application market, with only forward-looking consumers having a higher surplus. We extend the model in several directions, including data-enabled product personalization, privacy costs, data portability, and data ownership, and discuss the implications for privacy laws. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1201&r=mic |
| By: | Bertrand Chopard (LIRAES (URP_ 4470) - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UPCité - Université Paris Cité); Marie Obidzinski (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas) |
| Abstract: | In real life situations, potential offenders may only have a vague idea of their own probability of getting caught and possibly, convicted. As they have beliefs regarding this probability, they may exhibit optimism or pessimism. Thus there exists a discrepancy between the objective expected fine and the subjective expected fine. In this context, we investigate how the fact that the choice whether or not to commit an harmful act is framed as a decision under ambiguity can modify the standard Beckerian results regarding the optimal fine and the optimal resources that should be invested in detection and conviction. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04034950&r=mic |
| By: | Johannes Muthers; Sebastian Wismer |
| Abstract: | This paper deals with trade platforms whose operators not only allow third party sellers to offer their products to consumers, but also offer products themselves. In this context, the platform operator faces a hold-up problem if he uses classical twopart tariffs only as potential competition between the platform operator and sellers reduces platform attractiveness. Since some sellers refuse to join the platform, some products that are not known to the platform operator will not be offered at all. We find that revenue-based fees lower the platform operator’s incentives to compete with sellers, increasing platform attractiveness. Therefore, charging such proportional fees can be profitable, which may explain why several trade platforms indeed charge proportional fees. |
| Keywords: | Intermediation, Platform Tariff, Hold-Up Problem |
| JEL: | D40 L14 L81 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2023-03&r=mic |
| By: | Saglam, Ismail |
| Abstract: | This paper considers a duopoly with asymmetric costs and demand uncertainty to study the welfare effects of pretend-but-perform regulation (PPR) of Koray and Sertel (1988) under three modes of competition, involving the Cournot, conjectural variations, and supply function competitions. PPR induces a two-stage game where each firm declares in the first stage a cost report and produces in the second stage accordingly. Theoretically characterizing and numerically computing the equilibrium of this game, we show that the consumer surplus increases if PPR is applied under the Cournot competition and it decreases if PPR is applied under the other modes of competition. |
| Keywords: | Duopoly; regulation, Cournot, conjectural variations, supply function equilibrium. |
| JEL: | D43 L13 L51 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116767&r=mic |
| By: | Teddy Mekonnen; Zeky Murra-Anton; Bobak Pakzad-Hurson |
| Abstract: | We consider a sequential search environment in which the searching agent does not observe the quality of goods. The agent can contract with a profit-maximizing principal who sells a signal about a good's quality but cannot commit to future contracts. The agent is willing to pay a high price for a more informative signal today, but an agent who anticipates high prices in the future is less likely to continue searching due to a low continuation value, thereby reducing the principal's future profits. We show that there is an essentially unique stationary equilibrium in which the principal (i) induces the socially efficient stopping rule, (ii) fully extracts the surplus generated from search, and (iii) persuades the agent against settling for marginal quality goods, thus extending the duration of rent extraction. Our results demonstrate that the principal would not gain from long-term commitment power or considering complicated, non-stationary contracts. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.13409&r=mic |
| By: | Fabien Gensbittel (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); Marcin Peski (University of Toronto); Jérôme Renault (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 define the distance between two information structures as the largest possible difference in value across all zero-sum games. We provide a tractable characterization of distance and use it to discuss the relation between the value of information in games versus single-agent problems, the value of additional information, informational substitutes, complements, or joint information. The convergence to a countable information structure under value-based distance is equivalent to the weak convergence of belief hierarchies, implying, among other things, that for zero-sum games, approximate knowledge is equivalent to common knowledge. At the same time, the space of information structures under the value-based distance is large: there exists a sequence of information structures where players acquire increasingly more information, and ε > 0 such that any two elements of the sequence have distance of at least ε. This result answers by the negative the second (and last unsolved) of the three problems posed by J.F. Mertens in his paper Repeated Games , ICM 1986. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01869139&r=mic |
| By: | Siyu Chen; Jibang Wu; Yifan Wu; Zhuoran Yang |
| Abstract: | We study the incentivized information acquisition problem, where a principal hires an agent to gather information on her behalf. Such a problem is modeled as a Stackelberg game between the principal and the agent, where the principal announces a scoring rule that specifies the payment, and then the agent then chooses an effort level that maximizes her own profit and reports the information. We study the online setting of such a problem from the principal's perspective, i.e., designing the optimal scoring rule by repeatedly interacting with the strategic agent. We design a provably sample efficient algorithm that tailors the UCB algorithm (Auer et al., 2002) to our model, which achieves a sublinear $T^{2/3}$-regret after $T$ iterations. Our algorithm features a delicate estimation procedure for the optimal profit of the principal, and a conservative correction scheme that ensures the desired agent's actions are incentivized. Furthermore, a key feature of our regret bound is that it is independent of the number of states of the environment. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.08613&r=mic |
| 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); Joana Resende (Cef.up, Economics Department, University of Porto) |
| Abstract: | This paper investigates duopoly competition when horizontally differentiated firms are able to make personalized product-price offers to returning customers, within a behavior-based discrimination model. In the second period, firms can profile old customers according to their preferences, selling them targeted products at personalized prices. Product-price personalization (PP) allows firms to retain all old customers, eliminating second-period customer poaching. The overall profit effects of PP are shown to be ambiguous. In the second period, PP improves the matching between customers' preferences and firms' offers, but firms do not make any revenues in the rival's turf. In the Bertrand outcome, second-period profits only increase for both firms if the size of their old turfs are not too different or initial products are not too differentiated. However, the additional second-period profits may be offset by lower first-period profits. PP is likely to increase firms' overall discounted profits when consumers' (firms') discount factor is low (high) and firms' initial products are exogenous and sufficiently different. When the location of initial products is endogenous, profits are hurt because of an additional location (strategic) effect aggravating head-to-head competition in the first period. Likewise, when a fraction of active consumers conceals their identity, PP increases second-period profits at the cost of aggressive first-period price competition. Finally, we show that the room for profitable PP enlarges considerably if firms rely on PP as an effective device to sustain tacit collusive outcomes, with firms credibly threatening to respond to first-period price deviations with second-period aggressive relocations of their standard products. This paper was accepted by Matthew Shum, marketing. |
| Keywords: | behavior-based discrimination, price and product targeting, consumer poaching, consumer retention, segmentation, tacit collusion |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03740642&r=mic |
| By: | Xiaoxiao Hu; Haoran Lei |
| Abstract: | We study a general credence goods model with $N$ problem types and $N$ treatments. Communication between the expert seller and the client is modeled as cheap talk. We find that the expert's equilibrium payoffs admit a geometric characterization, described by the quasiconcave envelope of his belief-based profits function under discriminatory pricing. We establish the existence of client-worst equilibria, apply the geometric characterization to previous research on credence goods, and provide a necessary and sufficient condition for when communication benefits the expert. For the binary case, we solve for all equilibria and analyze their welfare properties. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.13295&r=mic |
| By: | Vincent Anesi; Peter Buisseret |
| Abstract: | We study a dynamic principal-agent model in which the principal is a group whose members hold heterogeneous and evolving values from an agreement with the agent. Learning about the agent’s private information reduces the principals’ conflicts over their joint offer, mitigating a principal’s losses if she is not decisive over future offers. As a consequence, a principal in a group prefers to screen the agent more aggressively than a single principal. We study the dynamics of the principals’ collective choice, and obtain conditions under which decisive members of the group successively trade away their decision-making authority, leading inexorably to the concentration of negotiation power in the hands of a single principal. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:not:notnic:2023-01&r=mic |