nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒11‒20
twenty papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Reform for Sale : A Common Agency Model with Moral Hazard Frictions By Perrin Lefebvre; David Martimort
  2. Managing Persuasion Robustly: The Optimality of Quota Rules By Dirk Bergemann; Tan Gan; Yingkai Li
  3. Polarizing Persuasion By Axel Anderson; Nikoloz Pkhakadze
  4. From Doubt to Devotion: Trials and Learning-Based Pricing By Tan Gan; Nicholas Wu
  5. Persuasion in Veto Bargaining By Jenny S Kim; Kyungmin Kim; Richard Van Weelden
  6. Not Obviously Manipulable Allotment Rules By Pablo R. Arribillaga; Agustin G. Bonifacio
  7. Forecasts as Repeated Cheap Talk from an Expert of Unknown Statistical Bias By Irebe Valsecchi
  8. Equivalence between individual and group strategy-proofness under stability By Pinaki Mandal
  9. Spatial multiproduct competition. By Moez Kilani; André de Palma
  10. Assigning Default Position for Digital Goods: Competition, Regulation and Welfare By Marius Schwartz; Yongmin Chen
  11. Majority rule as a unique voting method in elections with multiple candidates By Mateusz Krukowski
  12. Asymmetric majority pillage games By Manfred Kerber; Colin Rowat; Naoki Yoshihara
  13. A sad lesson from the hammer-nail game: strength is better than dexterity. By Gisèle Umbhauer
  14. Is Arrow's Dictator a Drinker? By Jeffrey Uhlmann
  15. Optimal Taxation and Other-Regarding Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  16. Strategic Complementarities in a Model of Commercial Media Bias By Anna Kerkhof; Johannes Münster
  17. Coherent Distorted Beliefs By Christopher P. Chambers; Yusufcan Masatlioglu; Collin Raymond
  18. Platforms as arbitrageurs and facilitators of arbitrage- a simple analysis By Waterson, Michael
  19. Monotonicity Failure in Ranked Choice Voting -- Necessary and Sufficient Conditions for 3-Candidate Elections By Rylie Weaver
  20. Revenue sharing at music streaming platforms By Gustavo Berganti\~nos; Juan D. Moreno-Ternero

  1. By: Perrin Lefebvre (DeFiPP - Development Finance and Public Policies); David Martimort (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)
    Abstract: Lobbying competition is viewed as a delegated common agency game under moral hazard. Several interest groups try to influence a policy-maker who exerts effort to increase the probability that a reform be implemented. With no restriction on the space of contribution schedules, all equilibria perfectly reflect the principals' preferences over alternatives. As a result, lobbying competition reaches efficiency. Unfortunately, such equilibria require that the policy-maker pays an interest group when the latter is hurt by the reform. When payments remain non-negative, inducing effort requires leaving a moral hazard rent to the decision- maker. Contributions schedules no longer reflect the principals preferences, and the unique equilibrium is inefficient. Free-riding across congruent groups arises and the set of groups active at equilibrium is endogenously derived. Allocative efficiency and redistribution of the aggregate surplus are linked altogether and both depend on the set of active principals, as well as on the groups size.
    Keywords: Pluralistic Politics, Lobbying, Common Agency, Moral Hazard
    Date: 2023–02
  2. By: Dirk Bergemann; Tan Gan; Yingkai Li
    Abstract: We study a sender-receiver model where the receiver can commit to a decision rule before the sender determines the information policy. The decision rule can depend on the signal structure and the signal realization that the sender adopts. This framework captures applications where a decision-maker (the receiver) solicit advice from an interested party (sender). In these applications, the receiver faces uncertainty regarding the sender's preferences and the set of feasible signal structures. Consequently, we adopt a unified robust analysis framework that includes max-min utility, min-max regret, and min-max approximation ratio as special cases. We show that it is optimal for the receiver to sacrifice ex-post optimality to perfectly align the sender's incentive. The optimal decision rule is a quota rule, i.e., the decision rule maximizes the receiver's ex-ante payoff subject to the constraint that the marginal distribution over actions adheres to a consistent quota, regardless of the sender's chosen signal structure.
    Date: 2023–10
  3. By: Axel Anderson (Department of Economics, Georgetown University); Nikoloz Pkhakadze (ISET-Tbilisi State University)
    Abstract: This paper considers Bayesian persuasion between a sender and two receivers. The sender's payoff is a function of the receivers' beliefs on the binary payoff relevant state. All agents share a common prior about this state. But, we assume disagreement about a payoff irrelevant state, a binary variable that enters no utility functions. If the sender's payoff is differentiable and strictly monotone, then the sender never fully conceals. A convex payoff is insufficient for full revelation, but guarantees that every signal rules out two of the four states. We measure polarization by the sender's expectation of the absolute difference between the receivers posterior beliefs on the payoff relevant state, and solve for the maximum polarization across all message services. With linear payoff functions, the sender chooses a message service that achieves a significant fraction of this maximum. The sender's payoff is strictly increasing in the prior disagreement between the receivers. Given extreme prior disagreement between the receivers, we explicitly solve for the optimal message service when the sender has monotone payoffs in two general cases: bi-concave and bi-convex preferences. In both cases, the optimal message services induce polarization equal to the common prior on the sender's least preferred payoff relevant state.
    Keywords: Polarization, Endogenous Polarization, Communication Games, Bayesian Persuasion
    JEL: C72
    Date: 2023–07–17
  4. By: Tan Gan; Nicholas Wu
    Abstract: An informed seller designs a dynamic mechanism to sell an experience good. The seller has partial information about the product match, which affects the buyer's private consumption experience. We characterize equilibrium mechanisms of this dynamic informed principal problem. The belief gap between the informed seller and the uninformed buyer, coupled with the buyer's learning, gives rise to mechanisms that provide the skeptical buyer with limited access to the product and an option to upgrade if the buyer is swayed by a good experience. Depending on the seller's screening technology, this takes the form of free/discounted trials or tiered pricing, which are prevalent in digital markets. In contrast to static environments, having consumer data can reduce sellers' revenue in equilibrium, as they fine-tune the dynamic design with their data forecasting the buyer's learning process.
    Date: 2023–11
  5. By: Jenny S Kim; Kyungmin Kim; Richard Van Weelden
    Abstract: We consider the classic veto bargaining model but allow the agenda setter to engage in persuasion to convince the veto player to approve her proposal. We fully characterize the optimal proposal and experiment when Vetoer has quadratic loss, and show that the proposer-optimal can be achieved either by providing no information or with a simple binary experiment. Proposer chooses to reveal partial information when there is sufficient expected misalignment with Vetoer. In this case the opportunity to engage in persuasion strictly benefits Proposer and increases the scope to exercise agenda power.
    Date: 2023–10
  6. By: Pablo R. Arribillaga (UNSL-CONICET); Agustin G. Bonifacio (UNSL-CONICET)
    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 ownpeak-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.
    Keywords: obvious manipulations, allotment rules, maximal domain, single-peaked preferences, single-plateaued preferences
    JEL: D71 D72
    Date: 2023–11
  7. By: Irebe Valsecchi (University of Milano-Bicocca)
    Abstract: For two periods an expert E announces his forecast of the state to a decision-maker D who chooses action. They disagree about the precision of the probability assessments. At the end of period 1 the state is observed. In the last period E makes announcements more extreme than his forecasts. Despite countable equilibria, full revelation is never realised. When in period 1 E is interested in reputation only, the initial equilibrium partition is finite; E makes announcements of greater uncertainty with respect to his forecasts. When E is interested in action too, reputational concerns mitigate exaggerated reports.
    Keywords: Cheap-talk, expert, statistical bias
    JEL: D81 D84
    Date: 2023–10
  8. By: Pinaki Mandal
    Abstract: This paper studies the (group) strategy-proofness aspect of two-sided matching markets under stability. For a one-to-one matching market, we show an equivalence between individual and group strategy-proofness under stability. We obtain this equivalence assuming the domain satisfies a richness condition. However, the result cannot be extended to the many-to-one matching markets. We further consider a setting with single-peaked preferences and characterize all domains compatible for stability and (group) strategy-proofness.
    Date: 2023–10
  9. By: Moez Kilani; André de Palma
    Abstract: We analyze spatial competition on a circle between firms that have multiple outlets and face quadratic transport costs. The equilibrium is a two-stage Nash game: first, firms decide on their locations and then set their prices. We are able to solve analytically simple multi-outlet cases, but for the general case, we require an algorithm to enumerate all non-isomorphic configurations. While price equilibria are explicit and unique, solving the full two-stage game requires numerical methods. In the location game, we consider two scenarios: either firms cannot jump one outlet over a competitors’ outlet, or firms have the flexibility to locate outlets anywhere on the circle. The solution involves a balance between cannibalization, market protection, and spatial monopoly power. We compare prices, profits, and transport costs for all possible configurations. With flexible locations, the firms’ market areas are contiguous. In this case, surprisingly, each firm acts as a spatial monopoly. If regulations enforce that each firm must set the same price for its outlets, head-to-head competition prevails, leading to decreased profits for the firms but to a better-off situation for consumers.
    Keywords: Spatial competition, circle, multi-product oligopoly, price-location equilibria, coin change problem.
    JEL: L13 R32 R53
    Date: 2023
  10. By: Marius Schwartz (Department of Economics, Georgetown University); Yongmin Chen (Department of Economics, University of Colorado Boulder)
    Abstract: We analyze alternative ways to assign the default position for competing digital goods such as search engines. When two firms vie for the position through bidding, the higher-quality firm typically wins but delivers lower utility than the rival due to heightened monetization (e.g., unwanted ads), exploiting consumers' switching costs. Paradoxically, increasing via regulation the rival's default share tends to raise profit and harm consumers, at least in the short run. Delegating the default choice to consumers benefits them but harms the weaker firm. Our findings highlight the subtle welfare tradeoffs in default assignment, an important and controversial policy issue.
    Keywords: Default Position, Digital Goods, Competition, Regulation
    JEL: L1 L4
    Date: 2023–09–27
  11. By: Mateusz Krukowski
    Abstract: May's classical theorem states that in a single-winner choose-one voting system with just two candidates, majority rule is the only social choice function satisfying anonimity, neutrality and positive responsiveness axiom. Anonimity and neutrality are usually regarded as very natural constraints on the social choice function. Positive responsiveness, on the other hand, is sometimes deemed too strong of an axiom, which stimulates further search for less stringent conditions. One viable substitute is Gerhard J. Woeginger's "reducibility to subsocieties". We demonstrate that the condition generalizes to more than two candidates and, consequently, characterizes majority rule for elections with multiple candidates.
    Date: 2023–08
  12. By: Manfred Kerber (University of Birmingham); Colin Rowat (University of Birmingham); Naoki Yoshihara (University of Massachusetts Amherst)
    Abstract: We study pillage games (Jordan in J Econ Theory 131.1:26–44, 2006, “Pillage and property†), which model unstructured power contests. To enable empirical tests of pillage game theory, we relax a symmetry assumption that agents’ intrinsic contributions to a coalition’s power is identical. We characterise the core for all n. In the three-agent game: (i) only eight configurations are possible for the core, which contains at most six allocations; (ii) for each core configuration, the stable set is either unique or fails to exist; (iii) the linear power function creates a tension between a stable set’s existence and the interiority of its allocations, so that only special cases contain strictly interior allocations. Our analysis suggests that non-linear power functions may offer better empirical tests of pillage game theory.
    Keywords: power contests, core, stable sets
    JEL: C71 D51 P14
    Date: 2023–05
  13. By: Gisèle Umbhauer
    Abstract: In this second paper on the hammer-nail game, we confront strength with dexterity. The hammer-nail game, a game played in the French TV show “Fort Boyard”, goes as follows: two players are in front of a nail slightly driven into a wooden support. Both have a hammer and in turn hit the nail. The winner is the first player able to fully drive the nail into the support. A player is of strength f if he is able, with one swing of the hammer, to drive the nail at most f millimeters into the support. A player is of non dexterity e if he is unable to hammer smoothly, so that, with one swing of the hammer, he drives the nail at least e millimeters into the support, with \uD835\uDC52 > 1. In a previous paper, we mainly studied the impact of strength, both players being of high dexterity (\uD835\uDC52 = 1), and we transformed the hammer-nail game into a Nim game with incomplete information on strength. In this paper we study the impact of both strength and dexterity. We confront two players of different strength and dexterity and namely show a sad result: strength is more useful than dexterity to win the game. We also study the behavior in front of incomplete information, either on strength or on dexterity.
    Keywords: Nim game, crossed cycles, Fort Boyard, subgame perfect Nash equilibrium, strength, dexterity, incomplete information, heuristics of behavior.
    JEL: C72
    Date: 2023
  14. By: Jeffrey Uhlmann
    Abstract: We critique the formulation of Arrow's no-dictator condition to show that it does not correspond to the accepted informal/intuitive interpretation. This has implications for the theorem's scope of applicability.
    Date: 2023–10
  15. By: Aronsson, Thomas (Umeå University, Umeå School of Business); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    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
  16. By: Anna Kerkhof (LMU Munich and ifo Institute for Economic Research); Johannes Münster (University of Cologne
    Abstract: Media content is an important privately supplied public good. While it has been shown that contributions to a public good crowd out other contributions in many cases, the issue has not been thoroughly studied for media markets yet. We show that in a standard model of commercial media bias, qualities of media content are strategic complements, whereby investments into quality crowd in further investments and engage competitors in a race to the top. Therefore, financially strong public service media can mitigate commercial media bias: the content of commercial media can be more in line with the preferences of the audience and less advertiser-friendly in a dual (mixed public and commercial) media system than in a purely commercial media market.
    Keywords: commercial media bias, public service media, advertising, two-sided markets, supermodular games, strategic complements, public goods
    JEL: C70 H41 L13 L51 L82
    Date: 2023–10
  17. By: Christopher P. Chambers; Yusufcan Masatlioglu; Collin Raymond
    Abstract: Many models of economics assume that individuals distort objective probabilities. We propose a simple consistency condition on distortion functions, which we term distortion coherence, that ensures that the function commutes with conditioning on an event. We show that distortion coherence restricts belief distortions to have a particular function form: power-weighted distortions, where distorted beliefs are proportional to the original beliefs raised to a power and weighted by a state-specific value. We generalize our findings to allow for distortions of the probabilities assigned to both states and signals, which nests the functional forms widely used in studying probabilistic biases (e.g., Grether, 1980 and Benjamin, 2019). We show how coherent distorted beliefs are tightly related to several extant models of motivated beliefs: they are the outcome of maximizing anticipated expected utility subject to a generalized Kullback-Liebler cost of distortion. Moreover, in the domain of lottery choice, we link coherent distortions to explanations of non-expected utility like the Allais paradox: individuals who maximize subjective expected utility maximizers conditional on coherent distorted beliefs are equivalent to the weighted utility maximizers studied by Chew [1983].
    Date: 2023–10
  18. By: Waterson, Michael (University of Warwick)
    Abstract: This paper analyses the consumer impacts of arbitrage focusing on the significant role of internet platforms as monopolistic arbitrageurs between essentially competitive sub-markets that have not been previously linked. As arbitrageurs, there is the potential for them to create consumer benefit, but for a series of reasons, we show that consumer welfare may not be enhanced and that particular sections of the community may be disadvantaged by their actions.
    Keywords: Arbitrage ; Consumer welfare ; Platforms ; Two-sided markets JEL Codes: D51 ; L81 ; L86 ; D47 ; F11
    Date: 2023
  19. By: Rylie Weaver
    Abstract: Ranked choice voting is vulnerable to monotonicity failure - a voting failure where a candidate is cost an election due to losing voter preference or granted an election due to gaining voter preference. Despite increasing use of ranked choice voting at the time of writing of this paper, the frequency of monotonicity failure is still a very open question. This paper builds on previous work to develop conditions which can be used to test if it's possible that monotonicity failure has happened in a 3-candidate ranked choice voting election.
    Date: 2023–09
  20. By: Gustavo Berganti\~nos; Juan D. Moreno-Ternero
    Abstract: We study the problem of sharing the revenues raised from subscriptions to music streaming platforms among content providers. We provide direct, axiomatic and game-theoretical foundations for two focal (and somewhat polar) methods widely used in practice: pro-rata and user-centric. The former rewards artists proportionally to their number of total streams. With the latter, each user's subscription fee is proportionally divided among the artists streamed by that user. We also provide foundations for a family of methods compromising among the previous two, which addresses the rising concern in the music industry to explore new streaming models that better align the interests of artists, fans and streaming services.
    Date: 2023–10

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