nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒05‒22
seventeen papers chosen by
Jing-Yuan Chiou
National Taipei University

  1. Optimal Delegation and Information Transmission under Limited Awareness By Sarah Auster; Nicola Pavoni
  2. Covert learning and disclosure By Matteo Escud\'e
  3. Network Effects on Information Acquisition by DeGroot Updaters By Miguel Risco
  4. Pure-Strategy Equilibrium in the Generalized First-Price Auction By Ostrovsky, Michael; Skrzypacz, Andy
  5. Price Discrimination with Redistributive Concerns By Daniel M A Barreto; Alexis Ghersengorin; Victor Augias
  6. Data Tracking under Competition By Bimpikis, Kostas; Morgenstern, Ilan; Saban, Daniela
  7. Compatibility between stability and strategy-proofness with single-peaked preferences on trees By Pinaki Mandal
  8. Information Source's Reliability By Gérard Mondello
  9. On the Efficiency of Competitive Equilibria with Pandemics By V. V. Chari; Rishabh Kirpalani; Luis Perez
  10. Affective Interdependence and Welfare By Aviad Heifetz; Enrico Minelli; Herakles Polemarchakis
  11. Persuasive Lobbying and the Value of Connections By Awad, Emiel; Minaudier, Clement
  12. Persuading a Wishful Thinker By Victor Augias; Daniel M A Barreto
  13. The structure of strategy-proof rules By Jorge Alcalde-Unzu; Marc Vorsatz
  14. Preference Evolution under Stable Matching By Ziwei Wang; Jiabin Wu
  15. Market selection and learning under model misspecification By Giulio Bottazzi; Daniele Giachini; Matteo Ottaviani
  16. Coordination on networks with farsighted and myopic agents By Ana Mauleon; Simon Schopohl; Akylai Taalaibekova; Vincent Vannetelbosch
  17. Organizational Capacity and Project Dynamics By Foarta, Dana; Ting, Michael M.

  1. By: Sarah Auster; Nicola Pavoni
    Abstract: We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also superior awareness of the set of actions that are actually feasible. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal’s cost of distorting the agent’s choices and increases the principal’s willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. Due to her limited awareness, the principal makes a coarse inference from the agent’s recommendations and, as a result, accepts a large number of the agent’s proposals, which ultimately benefits both.
    Keywords: Unawareness, optimal delegation, strategic disclosure
    JEL: D82 D83 D86
    Date: 2023–04
  2. By: Matteo Escud\'e
    Abstract: I study a model of information acquisition and transmission in which the sender's ability to misreport her findings is limited. In equilibrium, the sender only influences the receiver by choosing to remain selectively ignorant, rather than by deceiving her about the discoveries. Although deception does not occur, I highlight how deception possibilities determine what information the sender chooses to acquire and transmit. I then turn to comparative statics, characterizing in which sense the sender benefits from her claims being more verifiable, showing this is akin to increasing her commitment power. Finally, I characterize sender- and receiver-optimal falsification environments.
    Date: 2023–04
  3. By: Miguel Risco
    Abstract: In today’s world, social networks have a significant impact on information processes, shaping individuals’ beliefs and influencing their decisions. This paper proposes a model to understand how boundedly rational (DeGroot) individuals behave when seeking information to make decisions in situations where both social communication and private learning take place. The model assumes that information is a local public good, and individuals must decide how much effort to invest in costly information sources to improve their knowledge of the state of the world. Depending on the network structure and agents’ positions, some individuals will invest in private learning, while others will free-ride on the social supply of information. The model shows that multiple equilibria can arise, and uniqueness is controlled by the lowest eigenvalue of a matrix determined by the network. The lowest eigenvalue roughly captures how two-sided a network is. Two-sided networks feature multiple equilibria. Under a utilitarian perspective, agents would be more informed than they are in equilibrium. Social welfare would be improved if influential agents increased their information acquisition levels.
    Keywords: Information Acquisition, Learning, Public Goods, Network Effects, Information Diffusion, Bounded Rationality
    JEL: C72 D61 D83 D85 H41
    Date: 2023–04
  4. By: Ostrovsky, Michael (Stanford U); Skrzypacz, Andy (Stanford U)
    Abstract: We revisit the classic result on the (non-)existence of pure-strategy Nash equilibria in the Generalized First-Price Auction for sponsored search advertising and show that the conclusion may be reversed when ads are ranked based on the product of stochastic quality scores and bid amounts, rather than solely on the latter. Moreover, the expected revenue in the pure strategy equilibrium of the Generalized First-Price Auction may substantially exceed that of the Generalized Second-Price Auction.
    Date: 2022–10
  5. By: Daniel M A Barreto (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alexis Ghersengorin (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, 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); Victor Augias (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Consumer data can be used to sort consumers into different market segments, allowing a monopolist to charge different prices at each segment. We study consumer-optimal segmentations with redistributive concerns, i.e., that prioritize poorer consumers. Such segmentations are efficient but may grant additional profits to the monopolist, compared to consumer-optimal segmentations with no redistributive concerns. We characterize the markets for which this is the case and provide a procedure for constructing optimal segmentations given a strong redistributive motive. For the remaining markets, we show that the optimal segmentation is surprisingly simple: it generates one segment with a discount price and one segment with the same price that would be charged if there were no segmentation.
    Keywords: Third-degree price discrimination, Information design, Redistribution, Inequality, Welfare
    Date: 2022–11–11
  6. By: Bimpikis, Kostas (Stanford U); Morgenstern, Ilan (Stanford U); Saban, Daniela (Stanford U)
    Abstract: We explore the welfare implications of data-tracking technologies that enable firms to collect consumer data and use it for price discrimination. The model we develop centers around two features: competition between firms and consumers' level of sophistication. Our baseline environment features a firm that can collect information about the consumers it transacts with in a duopoly market, which it can then use in a second, monopoly market. We characterize and compare the equilibrium outcomes in three settings: (i) an economy with myopic consumers, who, when making purchase decisions, do not internalize the fact that firms track their behavior and use this information in future transactions, (ii) an economy with forward-looking consumers, who take into account the implications of data tracking when determining their actions, and (iii) an economy where no data-tracking technologies are used due to technological or regulatory constraints. We find that the absence of data tracking may lead to a decrease in consumer surplus, even when consumers are myopic. Importantly, this result relies critically on competition: consumer surplus may be higher when data-tracking technologies are used only when multiple firms offer substitutable products.
    Date: 2022–11
  7. By: Pinaki Mandal
    Abstract: This paper studies the stability and strategy-proofness aspect of the two-sided one-to-one matching market. Agents have single-peaked preferences on trees. In this setting, we characterize all rich anonymous tree-single-peaked domains where a stable and (weakly group) strategy-proof matching rule exists. We also show that whenever there exists a stable and strategy-proof matching rule on a rich anonymous tree-single-peaked domain, one or both of the deferred acceptance rules (Gale and Shapley, 1962) satisfy stability and weak group strategy-proofness on that domain. Finally, we show that for markets with a size of at least five, there is no rich anonymous domain where a stable and non-bossy matching rule exists. As a corollary, we show incompatibility between stability and group strategy-proofness on rich anonymous tree-single-peaked domains for markets with a size of at least five.
    Date: 2023–04
  8. By: Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This paper studies the impact of unreliable information sources on the decision process under ambiguity. Using a modified Ellsberg framework, it compares two types of agents: one is a Savage expected utility maximizer and the other a Neo-Choquet-type expected utility maximizer. This comparison shows that while the former will always conform to the source of information regardless of its level of reliability, the latter will make its choice based on its levels of preference/aversion for ambiguity and its degree of optimism/pessimism. Therefore, this explains why decision-makers may choose randomly when the reliability of the information source is too low.
    Keywords: Uncertainty theory, decision theory, ambiguity aversion, Information
    JEL: I1 I18 I19 D80 D81 D83
    Date: 2022–06
  9. 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.
    Keywords: Lockdowns; Virus exposure; Local public goods
    JEL: H41 E60 D62
    Date: 2023–04–05
  10. By: Aviad Heifetz (The Open University of Israel); Enrico Minelli (University of Brescia); Herakles Polemarchakis (University of Warwick)
    Abstract: Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as Ònon- explosive mutual affection, Ó we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction induces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominant.
    Date: 2023–04
  11. By: Awad, Emiel; Minaudier, Clement
    Abstract: Interest groups are often highly selective regarding which policymakers to meet and when to meet them. How valuable are private meetings with policymakers as a function of their preferences and bargaining power, and when do interest group prefer access early or late in the legislative process? To answer these questions, we study a model of informational lobbying with a collective decision-making body and endogenous reforms. We show that the value of gaining private access to legislators depends not only on their ideological alignment with the interest group, but also on their ideological alignment with the median of the legislature and with the agenda setter. Moreover, the value of access to a particular legislator depends on the ideological alignment between the median and the agenda setter, even when that legislator is neither of them. Finally, we show that the agenda setter herself may not be a particularly valuable target and that she can be influenced by a simple cheap talk recommendation even though the interest group has transparent motives.
    Date: 2023–04–07
  12. By: Victor Augias (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Daniel M A Barreto (Département d'économie - UPP - Université Pascal Paoli)
    Abstract: We analyze a model of persuasion in which Receiver forms wishful non-Bayesian beliefs. The effectiveness of persuasion depends on Receiver's material stakes: it is more effective when intended to encourage risky behavior that potentially lead to a high payoff and less effective when intended to encourage more cautious behavior. We illustrate this insight with applications showing why informational interventions are often ineffective in inducing greater investment in preventive health treatments, how financial advisors might take advantage of their clients overoptimistic beliefs and why strategic information disclosure to voters with different partisan preferences can lead to belief polarization in an electorate.
    Keywords: Non-Bayesian persuasion, Motivated thinking, Overoptimism, Optimal beliefs
    Date: 2022–02–15
  13. By: Jorge Alcalde-Unzu; Marc Vorsatz
    Abstract: We establish that all strategy-proof social choice rules in strict preference domains follow necessarily a two-step procedure. In the first step, agents are asked to reveal some specific information about their preferences. Afterwards, a subrule that is dictatorial or strategy-proof of range 2 must be applied, and the selected subrule may differ depending on the answers of the first step. As a consequence, the strategy-proof rules that have been identified in the literature for some domains can be reinterpreted in terms of our procedure and, more importantly, this procedure serves as a guide for determining the structure of the strategy-proof rules in domains that have not been explored yet.
    Date: 2023–04
  14. By: Ziwei Wang; Jiabin Wu
    Abstract: We present a model that investigates preference evolution with endogenous matching. In the short run, individuals' subjective preferences simultaneously determine who they are matched with and how they behave in the social interactions with their matched partners, which results in material payoffs for them. Material payoffs in turn affect how preferences evolve in the long run. To properly model the "match-to-interact" process, we combine stable matching and equilibrium concepts. Our findings emphasize the importance of parochialism, a preference for matching with one's own kind, in shaping our results. Under complete information, the parochial efficient preference type -- characterized by a weak form of parochialism and a preference for efficiency -- stands out in the evolutionary process, because it is able to force positive assortative matching and efficient play among individuals carrying this preference type. Under incomplete information, the exclusionary efficient preference type -- characterized by a stronger form of parochialism and a preference for efficiency -- prevails, as it provides individuals with an incentive to engage in self-sorting through rematching in any matching outcomes that involve incomplete information and inefficient play.
    Date: 2023–04
  15. By: Giulio Bottazzi; Daniele Giachini; Matteo Ottaviani
    Abstract: This paper studies market selection in an Arrow-Debreu economy with complete markets where agents learn over misspecified models. Under model misspecification, standard Bayesian learning loses its formal justification and biased learning processes may provide a selection advantage. However, considering two cases of model misspecification and four learning processes, our analysis reveals a general difficulty in ranking learning behaviors with respect to their long-run performances and, hence, their survival in the market. For instance, prediction averaging stops being an advantageous strategy when the truth does not belongs to the same family of models agents use to learn. In general, learning rules that generically guarantee survival require an unreasonable amount of knowledge about the whole market ecology. Thus, the goal of a parsimonious long-run asset valuation model robust to model misspecification appears out of reach.
    Keywords: Learning; Market Selection; Model Misspecification; Financial Markets.
    Date: 2023–05–04
  16. By: Ana Mauleon (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain); Simon Schopohl (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain); Akylai Taalaibekova (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent Vannetelbosch (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain)
    Abstract: We study a coordination game on a fixed connected network where players have to choose between two projects. Some players are moderate (i.e. they are ex-ante indifferent between both projects) while others are stubborn (i.e. they always choose the same project). Benefits for moderate players are increasing in the number of neighbors who choose the same project. In addition, players are either farsighted or myopic. Farsighted players anticipate the reactions of others while myopic players do not. We show that, when all players are farsighted, full coordination among the moderate players is reached except if there are stubborn players for both projects. When the population is mixed, the set of stable strategy profiles is a refinement of the set of Nash equilibrium strategy profiles. In fact, turning myopic players into farsighted ones eliminates gradually the inefficient Nash equilibria. Finally, we consider a social planner who can improve coordination by means of two policy instruments: adding links to the network (socialization) and/or turning myopic players into farsighted ones (education).
    Keywords: Networks, Coordination problems, Stubborn players, Farsighted players, Stability
    Date: 2022
  17. By: Foarta, Dana (Stanford U); Ting, Michael M. (Columbia U)
    Abstract: This paper provides a dynamic theory of the effects of organizational capacity on public policy. Consistent with prevailing accounts, a bureaucratic organization with higher capacity, i.e., a better ability to get things done, is more likely to deliver projects in a timely, predictable, or efficient fashion. However, capacity also interacts with po- litical institutions to produce far-reaching implications for the size and distribution of public projects. Capacity-induced delays and institutional porousness can allow future political opponents to revise projects in their favor. In response, politicians design projects to avoid revisions, for example by equalizing distributive benefits, or by over- scaling projects. We show that higher organizational capacity can increase project size, inequalities in the distribution of project benefits, and delays. The range of capacity levels that produce low social benefits increases with the extent of institutional con- straints. This suggests that political systems with high capacity and high institutional constraints are especially vulnerable to inefficient projects.
    JEL: D73 D82
    Date: 2023–01

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