nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒05‒15
eighteen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Data, Competition, and Digital Platforms By Dirk Bergemann; Alessandro Bonatti
  2. Regulating investments when both costs and need are private By Panova, Elena; Garrett, Daniel F.
  3. Managed Campaigns and Data-Augmented Auctions for Digital Advertising By Dirk Bergemann; Alessandro Bonatti; Nicholas Wu
  4. Social Welfare Functions with Voters Qualifications: Impossibility Results By Yasunori Okumura
  5. On the Efficiency of Competitive Equilibria with Pandemics By V. V. Chari; Rishabh Kirpalani; Luis Perez
  6. Welfare-increasing monopolization By Simon Cowan
  7. Recursive Preferences and Ambiguity Attitudes By Massimo Marinacci; Giulio Principi; Lorenzo Stanca
  8. Social media news: content bundling and news quality By Alexandre De Cornière; Miklos Sarvary
  9. Preference Purification in Behavioural Welfare Economics: an Impossibility Result By Guilhem Lecouteux; Ivan Mitrouchev
  10. Voting with Interdependent Values: The Condorcet Winner By Alex Gershkov; Andreas Kleiner; Benny Moldovanu; Xianwen Shi
  11. Democratic Policy Decisions with Decentralized Promises Contingent on Vote Outcome By Ali Lazrak; Jianfeng Zhang
  12. Share to Scare: Technology Sharing in the Absence of Strong Intellectual Property Rights By Jos Jansen
  13. Optimism and overconfidence By Ludvig Sinander
  14. Non-diversified portfolios with subjective expected utility By Christopher P. Chambers; Georgios Gerasimou
  15. Complexity of Equilibria in First-Price Auctions under General Tie-Breaking Rules By Xi Chen; Binghui Peng
  16. Completely Relationship-Specific Investments, Transaction Costs, and the Property Rights Theory By Schmitz, Patrick W.
  17. Should the Timing of Inspections be Predictable? By Ian Ball; Jan Knoepfle
  18. Distortion through modeling asymmetric bargaining power By Claus-Jochen Haake; Thomas Streck

  1. By: Dirk Bergemann; Alessandro Bonatti
    Abstract: We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenue-optimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers.
    Date: 2023–04
  2. By: Panova, Elena; Garrett, Daniel F.
    Abstract: Large-scale infrastructure investments are often carried out in set- tings where their eventual usefulness or importance is diffi cult to pre- dict. This paper studies optimal incentives for investment when the agent undertaking the investment has superior information on two dimensions: the cost of investment and the likelihood it is useful or beneficial to the principal. Usefulness eventually becomes public, but punishments are limited as the regulator aims at ensuring the agent earns non-negative profits in each period. We characterize the opti- mal incentive scheme and show it involves either: (i) investments by the agent even though he knows they are useless and rents to only cost-effi cient types, or (ii) rents to all types. The possibility that rent is left to all types contrasts with the usual prediction in static (and also dynamic) mechanism design and arises though the agent's preferences are stable over time.
    Keywords: Monopoly regulation; Real options; Multidimensionl asymmetric information
    JEL: D81 D82 L51
    Date: 2023–04–26
  3. By: Dirk Bergemann; Alessandro Bonatti; Nicholas Wu
    Abstract: We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in a socially efficient allocation on the platform, but the advertisers increase their product prices off the platform to be more competitive on the platform. In consequence, the allocation off the platform is inefficient due to excessively high product prices. The managed campaign mechanism allows advertisers to submit budgets that are then transformed into matches and prices through an autobidding algorithm. Compared to the data-augmented second-price auction, the optimal managed campaign mechanism increases the revenue of the digital platform. The product prices off the platform increase and the consumer surplus decreases.
    Date: 2023–04
  4. By: Yasunori Okumura
    Abstract: We consider the social welfare function a la Arrow, where some voters are not qualified to evaluate some alternatives. Thus, the inputs of the social welfare function are the preferences of voters on the alternatives that they are qualified to evaluate only. Our model is a generalization of the peer rating model, where each voter evaluates the other voters (except for himself/herself). We demonstrate the following three impossibility results. First, if a transitive valued social welfare function satisfies independence of irrelevant alternatives and the Pareto principle, then a dictator who is qualified to evaluate all alternatives exists. Second, a transitive valued function satisfying the Pareto principle exists if and only if at least one voter is qualified to evaluate all alternatives. Finally, if no voter is qualified to evaluate all alternatives, then under a transitive valued social welfare function satisfying the weak Pareto principle and independence of irrelevant alternatives, all alternatives are indifferent for any preference profile of voters.
    Date: 2023–04
  5. By: V. V. Chari; Rishabh Kirpalani; Luis Perez
    Abstract: The epidemiological literature suggests that virus transmission occurs only when individuals are in relatively close contact. We show that if society can control the extent to which economic agents are exposed to the virus and agents can commit to contracts, virus externalities are local, and competitive equilibria are efficient. The Second Welfare Theorem also holds. These results still apply when infection status is imperfectly observed and when agents are privately informed about their infection status. If society cannot control virus exposure, then virus externalities are global and competitive equilibria are inefficient, but the policy implications are very different from those in the literature. Economic activity in this version of our model can be inefficiently low, in contrast to the conventional wisdom that viruses create global externalities and result in inefficiently high economic activity. If agents cannot commit, competitive equilibria are inefficient because of a novel pecuniary externality.
    JEL: D62 E60 H41
    Date: 2023–04
  6. By: Simon Cowan
    Abstract: The conditions for monopolization to be good for social welfare are examined. Social welfare can be higher when a monopoly sells to a monopoly, with double margins, than when a competitive industry sells to a downstream Cournot oligopoly with differing efficiency levels. This requires inverse demand to be sufficiently concave, and cannot hold when demand is convex. When there are no vertical issues an efficient monopoly can yield higher social welfare than an asymmetric Cournot duopoly as long as demand is logconcave. In general greater demand concavity increases the relative importance of the benefit of redistributing output to the efficient firm.
    Date: 2023–03–31
  7. By: Massimo Marinacci; Giulio Principi; Lorenzo Stanca
    Abstract: We illustrate the strong implications of recursivity, a standard assumption in dynamic environments, on attitudes toward uncertainty. In intertemporal consumption choice problems, recursivity always implies constant absolute ambiguity aversion (CAAA) when applying the standard dynamic extension of monotonicity. Our analysis also yields a functional equation called "generalized rectangularity", as it generalizes the standard notion of rectangularity for recursive maxmin preferences to general certainty equivalents. Our results highlight that if uncertainty aversion is modeled as a form of convexity of preferences, recursivity limits us to only recursive variational preferences.
    Date: 2023–04
  8. By: Alexandre De Cornière (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - 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); Miklos Sarvary (Columbia Business School - Columbia University [New York])
    Abstract: The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper's website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets, with initially high-quality outlets investing more and low-quality ones investing less. With many heterogenous newspapers, the result is robust even if each newspaper can prevent the platform from using its content. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers' profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform's ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content.
    Date: 2023
  9. By: Guilhem Lecouteux (Université Côte d'Azur; GREDEG, CNRS, France); Ivan Mitrouchev (IESEG School of Management, iRisk, France)
    Abstract: We propose a precise definition of the notion of 'context' in behavioural economics, and identify four axioms characterising the strategies implemented in standard and behavioural welfare economics to define welfare: (1) normative individualism, (2) behavioural context-independence, (3) normative contextindependence, and (4) consumer sovereignty. We then review the different approaches in behavioural normative economics in the light of those axioms. We highlight that the key distinction between those approaches is the axiom which is chosen as a way to infer normative preferences from behavioural preferences, with either normative context-independence or consumer sovereignty. We argue that preference purification requires the axiom of normative context-independence, whose justification is however limited when individual behaviour is contextdependent. This suggests that it might be impossible to offer a general strategy to infer true/normative preferences from possibly incoherent behavioural preferences.
    Keywords: normative economics, behavioural economics, behavioural welfare economics, behavioural public policy
    JEL: B41 D63 D90 I31
    Date: 2022–09
  10. By: Alex Gershkov; Andreas Kleiner; Benny Moldovanu; Xianwen Shi
    Abstract: We generalize the standard, private values voting model with single-peaked preferences and incomplete information by introducing interdependent preferences. Our main results show how standard mechanisms that are outcome-equivalent and implement the Con- dorcet winner under complete information or under private values yield starkly di¤erent outcomes if values are interdependent. We also propose a new notion of Condorcet winner under incomplete information and interdependent preferences, and discuss its implemen- tation. The new phenomena in this paper arise because di¤erent voting rules (including dynamic ones) induce di¤erent processes of information aggregation and learning.
    Keywords: Voting, interdependent values, Condorcet winner
    JEL: D72
    Date: 2023–04
  11. By: Ali Lazrak; Jianfeng Zhang
    Abstract: We study how decentralized utility transfer promises affect collective decision-making by voting. Committee members with varying levels of support and opposition for an efficient reform can make enforceable promises before voting. An equilibrium requires stability and minimal promises. Equilibrium promises exist and are indeterminate, but do share several key characteristics. Equilibria require transfer promises from high to low intensity members and result in enacting the reform. When reform supporters lack sufficient voting power, promises must reach across the aisle. Even if the coalition of reform supporters is decisive, promises must preclude the least enthusiastic supporters of the reform from being enticed to overturn the decision. In that case, equilibrium promises do not need to reach across the aisle. We also discuss a finite sequence of promises that achieve an equilibrium.
    Date: 2023–04
  12. By: Jos Jansen (Department of Economics and Business Economics, Aarhus University)
    Abstract: I study the incentives of Cournot duopolists to share their technologies with their competitor in markets where intellectual property rights are absent and imitation is costless. The trade-off between a signaling effect and an expropriation effect determines the technology-sharing incentives. In equilibrium, there tends to be at most one firm that shares technologies. For similar technology distributions, there exists an equilibrium in which nobody shares. If the technology distributions are skewed towards efficient technologies, then there may exist equilibria in which one firm shares all technologies, only the best technologies, or only intermediate technologies. Further, I consider several extensions.
    Keywords: Cournot duopoly, strategic disclosure, indivisibility, innovation, trade secret, open source, skewed distribution
    JEL: D82 L13 L17 O32 O34
    Date: 2023–05–03
  13. By: Ludvig Sinander
    Abstract: I revisit the standard moral-hazard model, in which an agent's preference over contracts is rooted in costly effort choice. I characterise the behavioural content of the model in terms of empirically testable axioms, and show that the model's parameters are identified. I propose general behavioural definitions of relative (over)confidence and optimism, and characterise these in terms of the parameters of the moral-hazard model. My formal results are rooted in a simple but powerful insight: that the moral-hazard model is closely related to the well-known 'variational' model of choice under uncertainty.
    Date: 2023–04
  14. By: Christopher P. Chambers; Georgios Gerasimou
    Abstract: Although portfolio diversification is the typical strategy followed by risk-averse investors, extreme portfolios that allocate all funds to a single asset/state of the world are common too. Such asset-demand behavior is compatible with risk-averse subjective expected utility maximization under beliefs that assign a strictly positive probability to every state. We show that whenever finitely many extreme asset demands are rationalizable in this way under such beliefs, they are simultaneously rationalizable under the same beliefs by: (i) constant absolute risk aversion; decreasing absolute risk aversion/increasing relative risk aversion (DARA/IRRA); risk-neutral; and ris-kseeking utility indices at all wealth levels; (ii) a distinct class of DARA/IRRA utility indices at some strictly positive fixed initial wealth; and (iii) decreasing relative risk aversion utility indices under bounded wealth. We also show that, in such situations, the observable data allow for sharp bounds to be given for the relevant parameters in each of the above classes of risk-averse preferences.
    Date: 2023–04
  15. By: Xi Chen; Binghui Peng
    Abstract: We study the complexity of finding an approximate (pure) Bayesian Nash equilibrium in a first-price auction with common priors when the tie-breaking rule is part of the input. We show that the problem is PPAD-complete even when the tie-breaking rule is trilateral (i.e., it specifies item allocations when no more than three bidders are in tie, and adopts the uniform tie-breaking rule otherwise). This is the first hardness result for equilibrium computation in first-price auctions with common priors. On the positive side, we give a PTAS for the problem under the uniform tie-breaking rule.
    Date: 2023–03
  16. By: Schmitz, Patrick W.
    Abstract: In the property rights approach to the theory of the firm, ownership matters if parties have to make partly relationship-specific investments, but ownership would be irrelevant if the investments were completely relationship-specific. We show that if negotiations after the investment stage require transaction costs to be paid, then ownership matters even when investments are completely relationship-specific. While in the standard model without transaction costs there are underinvestments compared to the first-best benchmark, in our setting a party may overinvest in order to induce the other party to incur the transaction costs that are necessary to enter the negotiation stage.
    Keywords: incomplete contracts; investment incentives; ownership rights; relationship specificity; transaction costs
    JEL: D23 D86
    Date: 2023
  17. By: Ian Ball; Jan Knoepfle
    Abstract: A principal hires an agent to work on a long-term project that culminates in a breakthrough or a breakdown. At each time, the agent privately chooses to work or shirk. Working increases the arrival rate of breakthroughs and decreases the arrival rate of breakdowns. To motivate the agent to work, the principal conducts costly inspections. She fires the agent if shirking is detected. We characterize the principal's optimal inspection policy. Periodic inspections are optimal if work primarily speeds up breakthroughs. Random inspections are optimal if work primarily delays breakdowns. Crucially, the agent's actions determine his risk-attitude over the timing of punishments.
    Date: 2023–04
  18. By: Claus-Jochen Haake (Paderborn University); Thomas Streck (Paderborn University)
    Abstract: We study the consequences of modeling asymmetric bargaining power in two- person bargaining problems. Comparing the application of an asymmetric version of a bargaining solution to an upfront modification of the disagreement point, the resulting distortion crucially depends on the bargaining solution concept. While for the Kalai-Smorodinsky solution a weak player benefits from modifying the disagreement point, the situation is reversed for the Nash bargaining solution. There, weaker players are better o in the asymmetric bargaining solution. When comparing the application of the asymmetric versions of the Nash and the Kalai-Smorodinsky solutions, we demonstrate that there is an upper bound for the weight of a player, so that she is better o with the Nash bargaining solution. This threshold is ultimately determined by the relative utilitarian bargaining solution. From a mechanism design perspective, our results provide valuable information for a social planner, when implementing a bargaining solution for unequally powerful players.
    Keywords: Asymmetric bargaining power, Nash bargaining solution, Kalai-Smorodinsky bargaining solution
    JEL: C78 D63
    Date: 2023–04

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.