nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒10‒23
seventeen papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Platform-Enabled Information Disclosure By Jacopo Gambato; Martin Peitz
  2. Committee preferences and information acquisition By Arve, Malin; Desrieux, Claudine
  3. Optimal contracts when the players think different By Dumav, Martin; Khan, Urmee; Rigotti, Luca
  4. Buyer-Optimal Algorithmic Consumption By Shota Ichihashi; Alex Smolin
  5. Optimal Inspection of Rumors in Networks By Luca P. Merlino; Nicole Tabasso
  6. How Does Competition Affect Incentives for Market Research? By Ahmed, Rafayal; Shopp, Colin
  7. The Multiple-Volunteers Principle for Assigning Unpleasant and Pleasant Tasks By Susanne Goldluecke; Thomas Troeger
  8. Platform Competition and Information Sharing By Georgios Petropoulos; Bertin Martens; Geoffrey Parker; Marshall Van Alstyne
  9. The Bright Side of the GDPR: Welfare-improving Privacy Management By Chongwoo Choe; Noriaki Matsushima; Shiva Shekhar
  10. A Matter of Taste: The Negative Welfare Effect of Expert Judgments By Nicolas Lagios; Pierre-Guillaume Méon
  11. A Topological Proof of The Gibbard-Satterthwaite Theorem By Yuliy Baryshnikov; Joseph Root
  12. Adaptive Priority Mechanisms By Oguzhan Celebi; Joel Flynn
  13. Non-Stationary Search and Assortative Matching By Nicolas Bonneton; Christopher Sandmann
  14. Trade with Search Frictions: Identifying New Gains from Trade By Tomohiro Ara
  15. Human-AI Interactions and Societal Pitfalls By Francisco Castro; Jian Gao; S\'ebastien Martin
  16. Outsourcing without Cost Advantages By Chrysovalantou Milliou
  17. e-Commerce Platforms and Self-preferencing By Federico Etro

  1. By: Jacopo Gambato; Martin Peitz
    Abstract: We analyze consumers’ voluntary information disclosure in a platform setting. For given consumer participation, the platform and sellers tend to prefer limited disclosure of consumer valuations, in contrast to consumers. With endogenous consumer participation, seller and platform incentives may be misaligned, and sellers may be better off when consumers can disclose their valuations. A regulator acting in the best interest of consumers and/or sellers may want to intervene and force the platform to employ a disclosure technology that enables consumers to voluntarily disclose information from a richer message space.
    Keywords: Two-sided platform, platform governance, information disclosure, information design, privacy regulation, e-commerc
    JEL: L12 L15 D21 D42 M37
    Date: 2023–09
  2. By: Arve, Malin (Dept. of Business and Management Science, Norwegian School of Economics); Desrieux, Claudine (CRED (Centre de recherches en Economie et Droit), Université Paris-Panthéon-Assas)
    Abstract: We study committees whose task is to make a binary decision where the correct decision depends on the state of the world that is imperfectly known. Committee members can exert effort to learn about the true state of the world and their efforts are linked in a team production function. This allows to explore the externalities between the committee members’ efforts in the search for the truth and the different interactions between them. We compare committees made up of neutral members (neutral committees) to committees including biased members (polarized committees). We show that polarized committees may be more efficient than neutral committees when members’ efforts to acquire information are strategic substitutes, but not when efforts are strategic complements. Qualitatively, our results still hold when biased members have mixed preferences i.e., they have a bias for one decision outcome but also care about matching the decision to the true state of the world. Our results have implications for instance for the rules governing committees in international arbitration and allow us to better understand how the committee composition affects the committee’s efficiency.
    Keywords: Incentives; decision-making; committees; arbitration
    JEL: D82 K41
    Date: 2023–09–28
  3. By: Dumav, Martin; Khan, Urmee; Rigotti, Luca
    Abstract: In a moral hazard model with heterogeneous beliefs, we show that the efficient risksharing contract does not result in a constant wage and the optimal first-best contract may not be increasing in output. When actions are unobservable, heterogeneity in beliefs implies that the monotone likelihood ratio ranking does not ensure that the wage scheme in the optimal contract is non-decreasing in output. This is because differences in beliefs may affect the incentive provision in a non-monotone way. The standard monotonicity result with common beliefs extends to belief heterogeneity when the agent is more optimistic than the principal. Yet, in the reverse case, the optimal contract can be non-monotone.
    Keywords: Contracting; Heterogeneous Beliefs; Monotone Likelihood Ratio; Moral Hazard
    JEL: D82 D86 M52
    Date: 2023–10–03
  4. By: Shota Ichihashi (Queen's University, Department of Economics, 94 University Avenue, Kingston, Canada); Alex Smolin (Toulouse School of Economics, University of Toulouse Capitole and CEPR, 1 Esp. de l'Universite, 31000 Toulouse, France)
    Abstract: We analyze a bilateral trade model in which the buyer's value for the product and the seller's costs are uncertain, the seller chooses the product price, and the product is recommended by an algorithm based on its value and price. We characterize an algorithm that maximizes the buyer's expected payoff and show that the optimal algorithm under-recommends the product at high prices and over-recommends at low prices. Higher algorithm precision increases the maximal equilibrium price and may increase prices across all of the seller's costs, whereas informing the seller about the buyer's value results in a mean-preserving spread of equilibrium prices and a mean-preserving contraction of the buyer's payoff.
    Keywords: data, algorithm, pricing, recommendation, mechanism design, information design
    JEL: D42 D82 D83
    Date: 2023–09
  5. By: Luca P. Merlino (University of Antwerp and ECARES, Université libre de Bruxelles); Nicole Tabasso (Department of Economics, University Of Venice CÃ Foscari; University of Surrey, School of Economics)
    Abstract: We study the diffusion of a true and a false message when agents are (i) biased towards one of the messages and (ii) agents are able to inspect messages for veracity. Inspection of messages implies that a higher rumor prevalence may increase the prevalence of the truth. We employ this result to discuss how a planner may optimally choose information inspection rates of the population. We find that a planner who aims to maximize the prevalence of the truth may find it optimal to allow rumors to circulate.
    Keywords: Social Networks, Rumors, Scrutiny
    JEL: D83 D85
    Date: 2022
  6. By: Ahmed, Rafayal; Shopp, Colin
    Abstract: We analyze firms’ incentives to acquire information about market demand in a differentiated goods duopoly setting. We find two distinct benefits of having better information. Firstly, with better information, each firm can better match its price to demand. This benefit is decreasing in the level of market competition. Secondly, better information allows each firm to coordinate their prices with each other in different states, and each firm can make better use of its own information if the other firm acquires better information. This benefit is inverse u-shaped in the level of competition. Based on which effect dominates, each firm’s total benefit from information can either be decreasing, or inverse u-shaped in the level of competition. Given endogenous information acquisition decisions by firms, the effect of competition on consumer welfare is ambiguous.
    Keywords: Information acquisition, Bertrand duopoly, signals, competition.
    JEL: D43 D81 D84 L13
    Date: 2022–06
  7. By: Susanne Goldluecke; Thomas Troeger
    Abstract: We present a class of simple transfer-free rules that are very effective tools for assigning an unpleasant task among a group of agents: agents decide simultaneously whether or not to “volunteer”; if the number of volunteers exceeds a threshold number, the task is assigned to a volunteer; if the number is below the threshold, the task is assigned to a non-volunteer. In a setting in which agents have non-trivial preferences over who performs the task, such a threshold rule is utilitarian optimal across all binary-action rules. In a large group, the first best is reached approximately via a threshold rule with a large threshold. Threshold rules have a robust-improvement property: any rule with a non-extreme threshold always has an equilibrium that yields a strict interim Pareto improvement over a random task assignment. We show that assigning the task to a non-volunteer rather than randomly among all agents if the threshold is not reached is crucial for this result. Such a uniformly-random default, however, is utilitarian optimal if ex-post participation constraints are imposed, and is still good enough to approximate the first best in a large population. The results can be adapted to the problem of assigning a pleasant task.
    Keywords: volunteers’ dilemma, mechanism design without transfers, binary-action mechanism
    JEL: H41 D82
    Date: 2023–09
  8. By: Georgios Petropoulos; Bertin Martens; Geoffrey Parker; Marshall Van Alstyne
    Abstract: Digital platforms, empowered by artificial intelligence algorithms, facilitate efficient interactions between consumers and merchants that allow the collection of profiling information which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures. This paper develops a product differentiation model of competition between two platforms to study private and social incentives to share information. Sharing information can be welfare-enhancing because it solves the data bottleneck market failure. Our findings imply that there is scope for the introduction of a mandatory information sharing mechanism from big tech to their competitors that help the latter to improve their network value proposition and become more competitive in the market. The price of information in this sharing mechanism matters. We show that price regulation over information sharing like the one applied in the EU jurisdiction increases the incentives of big platforms to collect and analyze more data. It has ambiguous effects on their competitors that depend on the exact relationship between information and network value.
    Keywords: information sharing, digital platforms, data bottleneck, data portability
    JEL: D47 D82 K21 L21 L22 L40 L41 L43 L51 L86
    Date: 2023
  9. By: Chongwoo Choe (Department of Economics, Monash University); Noriaki Matsushima (Institute of Social and Economic Research, Osaka University); Shiva Shekhar (The corresponding author. Tilburg School of Economics and Management (TiSEM), CESifo Research affiliate)
    Abstract: We study the GDPR’s opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm’s service as well as the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm’s revenue is largely usage-based rather than data-based, then both the firm’s profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare-improving. But if the firm’s revenue is largely from data monetization, then the GDPR can reduce the firm’s profit and consumer surplus.
    Keywords: GDPR, opt-in, opt-out, privacy management, welfare
    JEL: D18 D61 K24
    Date: 2023–10
  10. By: Nicolas Lagios; Pierre-Guillaume Méon
    Abstract: Expert judgments may increase or decrease consumer welfare depending on experts’ ability to redirect consumers toward goods they enjoy. Leveraging the discontinuity created by the attribution of the Booker Prize, a leading literary award, we confirm that the prize attracts readers to consumption. We then investigate how it affects consumer surplus. We measure consumer ex post satisfaction from reading a book by the sentiment and the rating of the reviews posted on Amazon. We show that the Booker reduces satisfaction and that this negative effect is driven by a misalignment between the tastes of the jury and those of consumers. We quantify the associated loss in welfare by calibrating a structural model of demand. We find that the prize reduces consumer surplus by USD135, 000 annually, meaning that a consumer buying a Booker Prize-winning book experiences a loss in surplus of 4% of the average price of a book.
    Keywords: Awards; Prizes; Welfare; Sales; Experts; Books; Consumer Surplus
    JEL: D12 D83 L15 L82 Z11
    Date: 2023–09–30
  11. By: Yuliy Baryshnikov; Joseph Root
    Abstract: We give a new proof of the Gibbard-Satterthwaite Theorem. We construct two topological spaces: one for the space of preference profiles and another for the space of outcomes. We show that social choice functions induce continuous mappings between the two spaces. By studying the properties of this mapping, we prove the theorem.
    Date: 2023–09
  12. By: Oguzhan Celebi; Joel Flynn
    Abstract: How should authorities that care about match quality and diversity allocate resources when they are uncertain about the market? We introduce adaptive priority mechanisms (APM) that prioritize agents based on both their scores and characteristics. We derive an APM that is optimal and show that the ubiquitous priority and quota mechanisms are optimal if and only if the authority is risk-neutral or extremely risk-averse over diversity, respectively. With many authorities, each authority using the optimal APM is dominant and implements the unique stable matching. Using Chicago Public Schools data, we find that the gains from adopting APM may be considerable.
    Date: 2023–09
  13. By: Nicolas Bonneton; Christopher Sandmann
    Abstract: This paper studies assortative matching in a non-stationary search-and-matching model with non-transferable payoffs. Non-stationarity entails that the number and characteristics of agents searching evolve endogenously over time. Assortative matching can fail in non-stationary environments under conditions for which Morgan (1994) and Smith (2006) show that it occurs in the steady state. This is due to the risk of worsening match prospects inherent to non-stationary environments. The main contribution of this paper is to derive the weakest sufficient conditions on payoffs for which matching is assortative. In addition to known steady state conditions, more desirable individuals must be less risk-averse in the sense of Arrow-Pratt.
    Keywords: non-stationary, assortative matching, random search, risk preferences, NTU
    JEL: C73 C78 D81 E32
    Date: 2023–09
  14. By: Tomohiro Ara
    Abstract: This paper develops a dynamic industry model to study the effect of search frictions on industry structure and aggregate welfare. We consider a search-theoretic setting with two types of agents, firms and suppliers. To customize inputs, each firm needs to find a supplier but search is costly and does not always end in success. Matched firms use customized inputs obtained from matched suppliers to enhance production efficiency, while unmatched firms use generic inputs obtained from a competitive input market. In equilibrium the number of unmatched and matched firms is endogenous. We use this model to contrast the implications of two forms of economic integration: integration of final-good markets allowing firms to export varieties to another market, and integration of matching markets allowing firms to seek suppliers from another market. We show that the former form of integration can amplify the welfare gains from trade by improving firms’ matching frequency associated with resource reallocations from unmatched firms to matched firms. In contrast, the latter might cause welfare losses by hindering the resource-reallocation process of firms.
    Date: 2023–08
  15. By: Francisco Castro; Jian Gao; S\'ebastien Martin
    Abstract: When working with generative artificial intelligence (AI), users may see productivity gains, but the AI-generated content may not match their preferences exactly. To study this effect, we introduce a Bayesian framework in which heterogeneous users choose how much information to share with the AI, facing a trade-off between output fidelity and communication cost. We show that the interplay between these individual-level decisions and AI training may lead to societal challenges. Outputs may become more homogenized, especially when the AI is trained on AI-generated content. And any AI bias may become societal bias. A solution to the homogenization and bias issues is to improve human-AI interactions, enabling personalized outputs without sacrificing productivity.
    Date: 2023–09
  16. By: Chrysovalantou Milliou
    Abstract: This paper explores why competing firms can choose to outsource to an external common supplier that does not have a cost advantage in input production. The supplier, through its contract offers, manages to generate asymmetry, to alter product market competition, and to extract profits from the competing .rms. Two-part tariffs and sequential contracting are both crucial for the emergence of outsourcing. The supplier purposefully avoids industry pro.t maximization to enlarge its profits share. Both consumer and total welfare benefit from the presence of an otherwise redundant supplier in the market.
    Keywords: outsourcing, strategic outsourcing, make-or-buy, two-part tariffs, common supplier, sequential contracting
    JEL: D43 L11 L22 L23 L24
    Date: 2023
  17. By: Federico Etro
    Abstract: I survey the literature on eCommerce platforms with particular emphasis on the antitrust debate on self-preferencing by Amazon. The business model of hybrid marketplaces is based on monetization through commissions on third party sellers hosted on the platform and direct margins on own products. Recent theoretical and empirical work on endogenous marketplace structures has analyzed the welfare impact of the dual mode and of recommendation algorithms that have been associated with self-preferencing strategies. The trade offs are complex and one cannot easily conclude that Amazon entry is biased to expropriate third party sellers or that a ban on dual mode, self-preferencing or copycatting would benefit consumers.
    Keywords: eCommerce, Endogenous marketplace structures, Business models, Self-preferencing.
    JEL: L1 L4
    Date: 2023

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