nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒10‒16
twelve papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Auctioning Long-Term Projects under Financial Constraints By Martimort, David; Arve, Malin
  2. Linking Mechanisms: Limits and Robustness By Ian Ball; Deniz Kattwinkel
  3. Rational Aversion to Information By Sven Neth
  4. Not obviously manipulable allotment rules By R. Pablo Arribillaga; Agustin G. Bonifacio
  5. A folk theorem for finitely repeated games with public monitoring By Hörner, Johannes; Renault, Jérôme
  6. Macro shocks cause equilibrium price dispersion By De Meza, David; Reito, Francesco
  7. A Reexamination of Proof Approaches for the Impossibility Theorem By Kazuya Yamamoto
  8. Fairness and inequality in institution formation By Detemple, Julian; Kosfeld, Michael
  9. Diagnostic Uncertainty and Insurance Coverage in Credence Goods Markets By Loukas Balafoutas; Helena Fornwagner; Rudolf Kerschbamer; Matthias Sutter; Maryna Tverdostup
  10. Contesting Fake News By Daniel Rehsmann; Béatrice Roussillon; Paul Schweinzer
  11. Congestion Games with Player-Specific Payoff Functions: The Case of Two Resources, Computation and Algorithms. First version By Fatima Khanchouche; Samir Sbabou; Hatem Smaoui; Ziad Abderrahmane
  12. Intuitive probability of non-intuitive events By Aase, Knut K.

  1. By: Martimort, David; Arve, Malin
    Abstract: We consider a procurement auction for the provision of a basic service to which an add-on must later be appended. Potential providers are symmetric, have private information on their cost for the basic service and the winning firm must also implement the add-on. To finance cost-reducing activities related to the add-on, this firm may need extra funding by outside financiers. Non-verifiable effort in reducing these costs creates a moral hazard problem which makes the firm’s payoff function for the second period concave in returns over the relevant range. This concavity has two effects: It makes it more attractive to backload payments to facilitate information revelation and uncertainty on the cost of the add-on introduces a background risk which requires a risk premium. In this context, we characterize the optimal intertemporal structure of payments to the winning firm, equilibrium bidding behavior and reserve prices in the first-price auction with bidders.
    Keywords: Auctions; procurement; financial constraints; dynamic mechanism design, asymmetric information; uncertainty; endogenous risk aversion.
    Date: 2023–09–18
  2. By: Ian Ball; Deniz Kattwinkel
    Abstract: Quota mechanisms are commonly used to elicit private information when agents face multiple decisions and monetary transfers are infeasible. As the number of decisions grows large, quotas asymptotically implement the same set of social choice functions as do separate mechanisms with transfers. We analyze the robustness of quota mechanisms. To set the correct quota, the designer must have precise knowledge of the environment. We show that, without transfers, only trivial social choice rules can be implemented in a prior-independent way. We obtain a tight bound on the decision error that results when the quota does not match the true type distribution. Finally, we show that in a multi-agent setting, quotas are robust to agents' beliefs about each other. Crucially, quotas make the distribution of reports common knowledge.
    Date: 2023–09
  3. By: Sven Neth
    Abstract: Is more information always better? Or are there some situations in which more information can make us worse off? Good (1966) argues that expected utility maximizers should always accept more information if the information is cost-free and relevant. But Good's argument presupposes that you are certain you will update by conditionalization. If we relax this assumption and allow agents to be uncertain about updating, these agents can be rationally required to reject free and relevant information. Since there are good reasons to be uncertain about updating, rationality can require you to prefer ignorance.
    Date: 2023–09
  4. By: R. Pablo Arribillaga; Agustin G. Bonifacio
    Abstract: In the problem of allocating a single non-disposable commodity among agents whose preferences are single-peaked, we study a weakening of strategy-proofness called not obvious manipulability (NOM). If agents are cognitively limited, then NOM is sufficient to describe their strategic behavior. We characterize a large family of own-peak-only rules that satisfy efficiency, NOM, and a minimal fairness condition. We call these rules "simple". In economies with excess demand, simple rules fully satiate agents whose peak amount is less than or equal to equal division and assign, to each remaining agent, an amount between equal division and his peak. In economies with excess supply, simple rules are defined symmetrically. We also show that the single-plateaued domain is maximal for the characterizing properties of simple rules. Therefore, even though replacing strategy-proofness with NOM greatly expands the family of admissible rules, the maximal domain of preferences involved remains basically unaltered.
    Date: 2023–09
  5. By: Hörner, Johannes; Renault, Jérôme
    Abstract: We adapt the methods from Abreu, Pearce and Stacchetti (1990) to finitely repeated games with imperfect public monitoring. Under a combination of (a slight strengthening of) the assumptions of Benoıˆt and Krishna (1985) and those of Fudenberg, Levine and Maskin (1994), a folk theorem follows. Three counterexamples show that our assumptions are tight.
    Keywords: Repeated games
    JEL: C72 C73
    Date: 2023–09
  6. By: De Meza, David; Reito, Francesco
    Abstract: Price dispersion is shown to arise when demand is stochastic, ex-ante identical competitive firms set price prior to the realization of uncertainty and ex-ante identical buyers cannot switch sellers if rationed.
    Keywords: stochastic demand; price dispersion; rationing; waster
    JEL: D61 D81 H23
    Date: 2021–11–01
  7. By: Kazuya Yamamoto
    Abstract: The decisive-set and pivotal-voter approaches have been used for proving Arrow's impossibility theorem. Proofs by these approaches consider only subsets of all possible social welfare functions and examine parts of the domain of these functions. Hence, both ideas are not effective to prove the theorem. This study presents a proof using a proof calculus in logic. A valid deductive inference between the premises, the axioms and conditions of the theorem, and the conclusion, dictatorship, guarantees that every profile of all possible social welfare functions is examined, thereby the theorem is established.
    Date: 2023–09
  8. By: Detemple, Julian; Kosfeld, Michael
    Abstract: A key solution for public good provision is the voluntary formation of institutions that commit players to cooperate. Such institutions generate inequality if some players decide not to participate but cannot be excluded from cooperation benefits. Prior research with small groups emphasizes the role of fairness concerns with positive effects on cooperation. We show that effects do not generalize to larger groups: if group size increases, groups are less willing to form institutions generating inequality. In contrast to smaller groups, however, this does not increase the number of participating players, thereby limiting the positive impact of institution formation on cooperation.
    Keywords: Institution formation, group size, social dilemma, social preferences
    JEL: C92 D02 D63 H41
    Date: 2023
  9. By: Loukas Balafoutas; Helena Fornwagner; Rudolf Kerschbamer; Matthias Sutter; Maryna Tverdostup
    Abstract: In markets for credence goods – such as health care or repair services – fraudulent behavior by better informed experts is a common problem. Our model studies how four common features shape experts’ provision behavior in credence goods markets: (i) diagnostic uncertainty of experts; (ii) insurance coverage of consumers; (iii) malpractice payments for treatment failure; and (vi) consumer-regarding preferences of experts. Diagnostic imprecision unambiguously leads to less efficient provision. Insurance coverage and malpractice payments have an ambiguous effect on efficient provision. The impact of consumer-regarding preferences on efficiency is positive without insurance but ambiguous in the presence of insurance.
    Keywords: Credence goods, diagnostic uncertainty, insurance coverage, social preferences
    JEL: D82 G22
    Date: 2023
  10. By: Daniel Rehsmann; Béatrice Roussillon; Paul Schweinzer
    Abstract: We model competition on a credence market governed by an imperfect label, signaling high quality, as a rank-order tournament between firms. In this market interaction, asymmetric firms jointly and competitively control the underlying quality ranking’s precision by releasing individual information. While the labels and the information they are based on can be seen as a public good guiding the consumers’ purchasing decisions, individual firms have incentives to strategically amplify or counteract the competitors’ information emission, thereby manipulating the label’s (or ranking’s) discriminatory power. Elements of the introduced theory are applicable to several (credence-good) industries which employ labels or rankings, including academic departments, books, music, and investment opportunities.
    Keywords: labelling, credence goods, contests, product differentiation
    JEL: C70 D70 H40 M30
    Date: 2023
  11. By: Fatima Khanchouche (Department of Mathematics, Laboratory of Fundamental and Numerical Mathematics, Faculty of Sciences, University of Ferhat Abbas, Setif-1, Algeria); Samir Sbabou (CNRS, CREM - UNICAEN - University of Caen Normandy - NU - Normandy University, France); Hatem Smaoui (Center of Economics and Management of the Indian Ocean, University of La Réunion); Ziad Abderrahmane (CNRS, CREM - UNICAEN - University of Caen Normandy - NU - Normandy University, France and Laboratory of Computer Science and Mathematics, Ferhat Abbas University of Setif 1, Setif, Algeria)
    Abstract: We study the class of congestion games with player-specic payoff functions Milchtaich (1996). Focusing on a case where the number of resources is equal to two, we give a short and simple method for identifying the exact number of Nash equilibria in pure strategies. We propose an algorithmic method, first to find one or more Nash equilibria; second, to compare the optimal Nash equilibrium, in which the social cost is minimized, with the worst Nash equilibrium, in which the converse is true; third, to identify the time associated to the computations when the number of players increases.
    Keywords: Congestions games, Nash equilibria computations, price of anarchy, price of stability.
    Date: 2023–07
  12. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Quantitative probability in the subjective theory is assumed to be finitely additive and defined on all the subsets of an underlying state space. Functions from this space into an Euclidian n-space create a new probability space for each such function. We point out that the associated probability measures, induced by the subjective probability, on these new spaces can not be finitely additive and defined on all the subsets of Euclidian n-space, for n ≥ 3. This is a consequence of the Banach-Tarski paradox. In the paper we show that subjective probability theory, including Savage’s theory of choice, can be reformulated to take this, and similar objections into account. We suggest such a reformulation which, among other things, amounts to adding an axiom to Savage’s seven postulates, and then use a version of Carathéodory’s extension theorem.
    Keywords: The Banach-Tarski paradox; the axiom of choice; Savage’s theory of choice; monotone continuity; countable additivity; Carathéodory’s extension theorem; syndicates; contingent claims
    JEL: C00 C10 C25 G10 G12 G13
    Date: 2023–09–29

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