nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒11‒06
thirteen papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Bayesian Doublespeak By Ing-Haw Cheng; Alice Hsiaw
  2. Do Larger Committees make Better Majority Decisions with Costly Expert By Newman, Jonathan
  3. Buyer-Optimal Algorithmic Consumption By Ichihashi Shota; Smolin Alex
  4. Complementarity Effect of Corporate Advertising in a Multimedia World: A Comparison of Online Advertising and Mass Media Advertising By Fujisawa, Chieko; Kasuga, Norihiro
  5. Fair cost sharing in telecommunication industry, a virtuous circle By Jeanjean, François
  6. Platform Price Parity Clauses and Consumer Obfuscation By José Ignacio Heresi
  7. Fairness and Inequality in Institution Formation By Detemple, Julian; Kosfeld, Michael
  8. A Model of Online Misinformation with Endogenous Reputation By Lau, Andy
  9. Choice-induced Sticky Learning By Hajdu, Gergely; Krusper, Balázs
  10. Degree Centrality, von Neumann-Morgenstern Expected Utility and Externalities in Networks By Rene’ van den Brink; Agnieszka Rusinowska
  11. Risk Aversion and Insurance Propensity By Fabio Maccheroni; Massimo Marinacci; Ruodu Wang; Qinyu Wu
  12. Mistrust, Misperception, and Misunderstanding: Imperfect Information and Conflict Dynamics By Daron Acemoglu; Alexander Wolitzky
  13. Optimal Taxation and Other-Regarding Preferences By Aronsson, Thomas; Johansson-Stenman, Olof

  1. By: Ing-Haw Cheng (University of Toronto); Alice Hsiaw (Brandeis University)
    Abstract: We show that misinformation distorts long-run beliefs in “doublespeak’’ equilibria of a cheap talk game where receivers are uncertain of a state and the sender’s type. A sender type who prefers receivers take wrong actions sends messages that plausibly come from a good type under a different state. Even after observing infinite messages, receivers disagree about the state and take different ex-post actions. A policymaker who believes that doublespeak would mislead receivers may restrict the sender to finite messages. An option for receivers to fact-check messages does not limit doublespeak, but sender concerns about reputation can.
    Date: 2023–07
  2. By: Newman, Jonathan (University of Warwick)
    Abstract: I present a two-stage model of committee voting with costly expert information. For every member of the committee to observe and synthesise independent testimony of some fixed and known quality, a majority of the agents must contribute to its acquisition. When testimony is observed with positive probability, I show that adding agents to the committee depresses the probability with which any single agent contributes - due to free-riding - and demonstrate how, with some careful assumptions, the probability of reaching the correct decision should correspondingly fall with the committee size. Moreover, I show individuals will make more accurate decisions than all groups whose aggregated signals are, collectively, inferior to the expert testimony. In keeping with Mukhopadhayas (2003) seminal work on the acquisition of private signals, these findings argue against arbitrarily enlarging committees to improve the quality of majority decisions but instead propose the dichotomous choice between individual decision-makers, and collectives whose aggregated signals are more accurate than the expert signal. Further research might permit agents to choose the amount of information they acquire, or model both private and expert information as costly
    Keywords: Information Aggregation ; Public Goods Game JEL classifications: C72 ; D72
    Date: 2023
  3. By: Ichihashi Shota; Smolin Alex
    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 underrecommends the product at high prices and overrecommends 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.
    Date: 2023–09
  4. By: Fujisawa, Chieko; Kasuga, Norihiro
    Abstract: This study analyzes the type of advertisements firms pursue when they engage in Cournot competition, especially when goods are complementary in a multimedia environment. Advertisements are classified into search-linked advertisements for online advertisements and TV commercials for mass media advertisements. Which one should the firm choose? This study also analyzes how corporate advertising strategies affect social welfare and provides insight into the role of advertising in multimedia. A firm's advertisement selection depends on the degree of complementarity and differentiation between advertisements. This analysis also focuses on the advertising strategies of duopoly firms in an extended model, such as hardware firms that are complementary to software products. In that case, both choose mass media advertising when the differentiation is moderate, and this choice raises both aggregate surplus and producer surplus. When advertising complementarity is high for both mass media and online advertising, firms choose different types of advertisements, but social welfare is low. This result is one of the considerations of a firm's sales strategy, how on using advertisements to increase demand and maximize profits.
    Keywords: Online media advertising, Mass media advertising, Complementary relationship, Advertising Strategy, Duopoly model
    Date: 2023
  5. By: Jeanjean, François
    Abstract: This article studies the impact of the sharing of traffic costs between an Internet access provider and a content provider, both of which have a monopoly on their market. It shows that when the content provider charges consumers for content, cost sharing triggers a virtuous circle that incentivizes the content provider to reduce its traffic, which lowers prices for the end consumer and thus increases, not only the consumers surplus but also the profits of the ISP as well as to some extent, those of the content provider. When the content provider chooses an ad-business model, if it charges at ad-level, the cost sharing also favors consumers surplus and in a wide range of cases, the total surplus. If it charges at content level, the result is always favorable to consumers provided, however, that content provider is able to sufficiently monetize ads. The results are robust to different billing modes for traffic, pay-per-use or flat rate.
    Keywords: Telecommunication, fair share, cost sharing
    JEL: D61 L11 L86
    Date: 2023
  6. By: José Ignacio Heresi
    Abstract: Several antitrust authorities have investigated platform price parity clauses around the world. I analyze the impact of these clauses when platforms design a search environment for sellers and buyers to interact. In a model where platforms choose the unitary search cost faced by consumers, I show when it is profitable for platforms to obfuscate consumers through high search costs. Then, I show that price parity clauses, when exogenously given, can increase or reduce obfuscation, prices, and consumer surplus. Finally, when price parity clauses are endogenous, they are only observed in equilibrium if they hurt consumers. JEL Classifications: D83, L42, L81. Key words: consumer search, obfuscation, platforms, price parity clauses.
    Date: 2022
  7. By: Detemple, Julian (Goethe University Frankfurt); Kosfeld, Michael (Goethe University Frankfurt)
    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: 2023–09
  8. By: Lau, Andy (University of Warwick)
    Abstract: Misinformation dissemination in social media has emerged as a critical contemporary issue. This paper augments existing models of online misinformation by incorporating endogenous reputation dynamics. In contrast to prior research, reputation plays a pivotal role in shaping agents Bayesian-Nash equilibrium strategy through two key avenues : (i) the sharer’s reputation positively impacts the likelihood of sharing, and (ii) agents with higher initial reputations are less willing to share compared to their counterparts with lower initial reputations. Furthermore, this paper provides insights into the formation of individuals’ networks on social media. Surprisingly, individuals with high reputations are not universally favoured as network connections. Additionally, the paper examines relevant comparative statics, including the importance of interactions, and the implications of homophily. This research establishes a foundation for understanding the dynamics of reputation-based information sharing and network structure.
    Keywords: Information sharing ; misinformation ; reputation ; network ; social media JEL classifications: C72 ; D83 ; D85
    Date: 2023
  9. By: Hajdu, Gergely; Krusper, Balázs
    Abstract: Consumers are constantly exposed to new information that compels them to update their beliefs about products, thereby influencing future buying and selling decisions. This process does not simply stop with a product choice. We study how choosing a product affects learning about products in the choice set after the choice has been made. We design an experiment, where we have control over the objective ranking of the options in the choice set. Specifically, participants learn about the fundamental quality of financial investments by observing price changes in multiple rounds. Participants either choose some of the investments themselves (Choice condition) or have some of the investments assigned to them (Allocation condition). We find that learning is stickier after making a choice: participants respond less to price changes in the Choice condition than in the Allocation condition. This result holds for both own and non-owned investments and for both good news and bad news. The effect is unlikely to be driven by attention: we find no difference between the conditions in the amount of attention paid to the investments. We estimate a structural model and show that learning aligns closely with the Bayesian benchmark after exogenous product allocation, while it is too sticky after making a choice. Our model characterizes sticky learning in a tractable way that is easily portable, making it simple to analyze its consequences in other contexts.
    Keywords: biased beliefs; attention; sticky learning; choice effect
    Date: 2023–09
  10. By: Rene’ van den Brink (Vrije Universiteit Amsterdam); Agnieszka Rusinowska (University Paris 1 Pantheon-Sorbonne)
    Abstract: This paper aims to connect the social network literature on centrality measures with the economic literature on von Neumann-Morgenstern expected utility functions using cooperative game theory. The social network literature studies various concepts of network centrality, such as degree, betweenness, connectedness, and so on. This resulted in a great number of network centrality measures, each measuring centrality in a different way. In this paper, we aim to explore which centrality measures can be supported as von Neumann-Morgenstern expected utility functions, reflecting preferences over different network positions in different networks. Besides standard axioms on lotteries and preference relations, we consider neutrality to ordinary risk. We show that this leads to a class of centrality measures that is fully determined by the degrees (i.e. the numbers of neighbours) of the positions in a network. Although this allows for externalities, in the sense that the preferences of a position might depend on the way how other positions are connected, these externalities can be taken into account only by considering the degrees of the network positions. Besides bilateral networks, we extend our result to general cooperative TU-games to give a utility foundation of a class of TU-game solutions containing the Shapley value.
    Keywords: weighted network, degree, centrality measure, externalities, neutrality to ordinary risk, expected utility function
    JEL: D85 D81 C02
    Date: 2023–10–12
  11. By: Fabio Maccheroni; Massimo Marinacci; Ruodu Wang; Qinyu Wu
    Abstract: We provide a new foundation of risk aversion by showing that the propension to exploit insurance opportunities fully describes this attitude. Our foundation, which applies to any probabilistically sophisticated preference, well accords with the commonly held prudential interpretation of risk aversion that dates back to the seminal works of Arrow (1963) and Pratt (1964). In our main results, we first characterize the Arrow-Pratt risk aversion in terms of propension to full insurance and the stronger notion of risk aversion of Rothschild and Stiglitz (1970) in terms of propension to partial insurance. We then extend the analysis to comparative risk aversion by showing that the notion of Yaari (1969) corresponds to comparative propension to full insurance, while the stronger notion of Ross (1981) corresponds to comparative propension to partial insurance.
    Date: 2023–10
  12. By: Daron Acemoglu; Alexander Wolitzky
    Abstract: Building on theories of international relations, we analyze how mistrust (uncertainty about an adversary's preferences or capabilities), misperception (imperfect observation of an adversary's actions), and misunderstanding (non-degenerate higher-order beliefs) can lead to conflict and drive its dynamics. We develop our analysis in the context of three classic models: a one-shot security dilemma or spiral model; a repeated version of the security dilemma that allows for gradual learning about the opponent's type, as well as the possibility of conflict spirals, traps, and cycles; and a deterrence model. We relate these models to the empirical literature and to current and historical episodes of conflict.
    JEL: C73 D74 P00
    Date: 2023–09
  13. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: The present paper analyzes optimal redistributive income taxation in a Mirrleesian framework extended with other-regarding preferences at the individual level. We start by developing a general model where the other-regarding preference component of the utility functions is formulated to encompass almost any form of preferences for other people’s disposable income, and then continue with four prominent special cases. Two of these reflect self-centered inequality aversion, based on Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), whereas the other two reflect non-self-centered inequality aversion, where people have preferences for a low Gini coefficient and a high minimum income level in society, respectively. We find that other-regarding preferences may substantially increase the marginal tax rates, including the top rates, and that different types of other-regarding preferences have very different implications for optimal taxation.
    Keywords: Optimal Taxation; Redistribution; Social Preferences; Inequality Aversion
    JEL: D62 D90 H21 H23
    Date: 2023–10–19

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