nep-mic New Economics Papers
on Microeconomics
Issue of 2023‒12‒11
twelve papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Optimal Scoring for Dynamic Information Acquisition By Yingkai Li; Jonathan Libgober
  2. Sequential dictatorship rules in multi-unit objectassignment problems with money By Masahiro KAWASAKI; Ryosuke SAKAI; Tomoya KAZUMURA
  3. Information asymmetry and search intensity By Atayev, Atabek
  4. Safety, in Numbers By Marilyn Pease; Mark Whitmeyer
  5. Unraveling Coordination Problems By Heijmans, Roweno J.R.K.
  6. A Model of Behavioral Manipulation By Daron Acemoglu; Ali Makhdoumi; Azarakhsh Malekian; Asuman Ozdaglar
  7. Lexicographic agreeing to disagree and perfect equilibrium By Christian W. Bach; Jérémie Cabessa
  8. Institutional Screening and the Sustainability of Conditional Cooperation By Ethan Holdahl; Jiabin Wu
  9. Platform lending and innovation By Leonardo Gambacorta; Leonardo Madio; Bruno Maria Parigi
  10. Ramsey Pricing Revisited: Natural Monopoly Regulation with Evaders By Martin Besfamille; Nicolás Figueroa; Léon Guzmán
  11. Resilience in Vertical Supply Chains By Gene M. Grossman; Elhanan Helpman; Alejandro Sabal
  12. Universal Theory of Equilibrium in Models with Complementarities By Tarun Sabarwal

  1. By: Yingkai Li; Jonathan Libgober
    Abstract: A principal seeks to learn about a binary state and can do so by enlisting an agent to acquire information over time using a Poisson information arrival technology. The agent learns about this state privately, and his effort choices are unobserved by the principal. The principal can reward the agent with a prize of fixed value as a function of the agent's sequence of reports and the realized state. We identify conditions that each individually ensure that the principal cannot do better than by eliciting a single report from the agent after all information has been acquired. We also show that such a static contract is suboptimal under sufficiently strong violations of these conditions. We contrast our solution to the case where the agent acquires information "all at once;" notably, the optimal contract in the dynamic environment may provide strictly positive base rewards to the agent even if his prediction about the state is incorrect.
    Date: 2023–10
  2. By: Masahiro KAWASAKI; Ryosuke SAKAI; Tomoya KAZUMURA
    Abstract: We study consistency in multi-unit object allocation problems with money. Objects are identical and each agent has a multi-demand and quasi-linear preferences. We consider the class of weak object monotonic preferences and that of single-peaked preferences. We first show that on those domains, if a rule satisfies consistency, strategyproofness, individual rationality, no subsidy, non-wasteful tie-breaking, and minimal tradability, then it is a sequential dictatorship rule. Since not all sequential dictatorship rule are strategy-proof and consistent, we then focus on a specific class of sequential dictatorship rules which we call sequential dictatorship rules with lowest tie-breaking. On the weakly object monotonic domain, when the reservation prices are increasing in the number of objects, sequential dictatorship rules with lowest tie-breaking satisfy consistency and independence of unallocated objects if and only if there is a common priority ordering for more than one object and this is an acyclic ordering of the priority ordering for one object. We also show that this condition is a necessary and sufficient condition for a sequential dictatorship rule with lowest tie-breaking to satisfy consistency and independence of unallocated objects on the single-peaked domain.
    Keywords: Consistency, Strategy-proofness, sequential dictatorship rule, serial dictatorship rule, weakly object monotonic preferences, single-peaked preferences, acyclicity.
    JEL: D44 D71 D61 D82
    Date: 2023–12
  3. By: Atayev, Atabek
    Abstract: In markets where sellers' marginal costs of production have a common component, they have informational advantage over buyers regarding those costs. This information asymmetry between sellers and buyers is especially relevant in markets where buyers have to uncover prices through costly search. We propose a theoretical model of simultaneous search that accounts for such information asymmetry. Our main finding is that informing buyers about marginal costs may harm them by deterring search and, hence, softening competition. This result has important implications on policy regulations and voluntary information sharing.
    Keywords: Information Asymmetry, Consumer Search, Price Competition
    JEL: D43 D83 L13
    Date: 2023
  4. By: Marilyn Pease; Mark Whitmeyer
    Abstract: We introduce a way to compare actions in decision problems. An action is safer than another if the set of beliefs at which the decision-maker prefers the safer action increases in size (in the set inclusion sense) as the decision-maker becomes more risk averse. We provide a full characterization of this relation and discuss applications to robust belief elicitation, contracting, Bayesian persuasion, game theory, and investment hedging.
    Date: 2023–10
  5. By: Heijmans, Roweno J.R.K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: The interplay between strategic beliefs and policy complicates policy design in coordination games. To untangle this relationship, we study policy design in the context of equilibrium selection. We characterize the unique subsidy scheme that selects a targeted strategy vector as the unique equilibrium of a coordination game. These subsidies are continuous in model parameters and do not make the targeted strategies strictly dominant. While discrimination is optimal in games with multiple equilibria (Segal, 2003; Winter, 2004), we construct a non-discriminatory subsidy scheme the cost of which converges to that of a least-cost discriminatory policy when agents are symmetric.
    Keywords: Coordination; global games; contracting with externalities; incentives in teams; networks; unique implementation
    JEL: D81 D82 D83 D86 H20
    Date: 2023–11–09
  6. By: Daron Acemoglu; Ali Makhdoumi; Azarakhsh Malekian; Asuman Ozdaglar
    Abstract: We build a model of online behavioral manipulation driven by AI advances. A platform dynamically offers one of n products to a user who slowly learns product quality. User learning depends on a product’s “glossiness, ’ which captures attributes that make products appear more attractive than they are. AI tools enable platforms to learn glossiness and engage in behavioral manipulation. We establish that AI benefits consumers when glossiness is short-lived. In contrast, when glossiness is long-lived, users suffer because of behavioral manipulation. Finally, as the number of products increases, the platform can intensify behavioral manipulation by presenting more low-quality, glossy products.
    JEL: D83 D90 D91 L86
    Date: 2023–11
  7. By: Christian W. Bach; Jérémie Cabessa (DAVID - Données et algorithmes pour une ville intelligente et durable - DAVID - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines)
    Abstract: Aumann's seminal agreement theorem deals with the impossibility for agents to acknowledge their distinct posterior beliefs. We consider agreeing to disagree in an extended framework with lexicographic probability systems. A weak agreement theorem in the sense of identical posteriors only at the first lexicographic level obtains. Somewhat surprisingly, a possibility result does emerge for the deeper levels. Agents can agree to disagree on their posteriors beyond the first lexicographic level. By means of mutual absolute continuity as an additional assumption, a strong agreement theorem with equal posteriors at every lexicographic level ensues. Subsequently, we turn to games and provide epistemic conditions for the classical solution concept of perfect equilibrium. Our lexicographic agreement theorems turn out to be pivotal in this endeavour. The hypotheses of mutual primary belief in caution, mutual primary belief in rationality, and common knowledge of conjectures characterize perfect equilibrium epistemically in our lexicographic framework.
    Keywords: Agreeing to disagree; Epistemic game theory; Lexicographic probability systems; Mutual absolute continuity; Perfect equilibrium; Static games
    Date: 2023
  8. By: Ethan Holdahl; Jiabin Wu
    Abstract: This paper studies a preference evolution model in which a population of agents are matched to play a sequential prisoner's dilemma in an incomplete information environment. An institution can design an incentive-compatible screening scheme, such as a special zone that requires an entry fee, or a costly label for purchase, to segregate the conditional cooperators from the non-cooperators. We show that institutional intervention of this sort can help the conditional cooperators to prevail when the psychological benefit of cooperating for them is sufficiently strong and the membership of the special zone or the label is inheritable with a sufficiently high probability.
    Date: 2023–11
  9. By: Leonardo Gambacorta; Leonardo Madio; Bruno Maria Parigi
    Abstract: We analyse the impact of platform lending on innovation and e-commerce vendors' surplus. The platform generates revenues from both lending and marketplace fees, and can use lending to price discriminate vendors, thereby leading to higher marketplace fees and below-market interest rates. While platform lending can encourage innovation by providing access to subsidised credit, it can harm vendors who do not have financial needs. A sufficient condition for platform lending to be welfare-enhancing is that innovators would not receive funding from banks otherwise. However, if innovators would receive funding from banks, platform lending may reduce the overall vendor surplus. Cream skimming arises when the platform has better information than the bank about the prospects of the innovators' projects. To address the potential negative effects of platform lending on vendors' surplus, we also explore the impact of different regulatory instruments.
    Keywords: platform lending, big tech, online platforms, credit, innovation
    JEL: G20 L86 O31
    Date: 2023–11
  10. By: Martin Besfamille; Nicolás Figueroa; Léon Guzmán
    Abstract: We consider a model featuring a single-product natural monopoly, which faces evaders, i.e., individuals that may not pay the price. By exerting a costly effort, the firm can deter evasion. To maximize the total surplus, a regulator sets the price, the level of deterrence effort, and socially costly transfers to ensure the monopoly’s participation. We obtain a modified Ramsey formula, which clearly shows that the mere existence of evaders dampens the use of the price as a mean to finance the firm’s deficit. The regulated price is always below the monopoly price and, under sufficient conditions, also below marginal cost. Then, we generalize the model to incorporate moral hazard. Finally, we undertake an empirical application of our results, which shows quantitatively that the downward tendency of regulated prices in a context of high evasion is significant.
    Keywords: regulation, natural monopoly, evasion and marginal cost of public funds
    JEL: D42 H20 L43 L51
    Date: 2023
  11. By: Gene M. Grossman (Princeton University); Elhanan Helpman (Harvard University); Alejandro Sabal (Princeton University)
    Abstract: Forward-looking investments determine the resilience of firms' supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in resilience, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in resilience. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience and network formation depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are non-increasing along the chain.
    Keywords: Firms, Resilience, Vertical Supply Chains
    JEL: D21 D62
    Date: 2023–09
  12. By: Tarun Sabarwal (Department of Economics, University of Kansas, Lawrence, KS 66045, USA)
    Abstract: We develop a universal theory of equilibrium for models with complementarities on partially ordered sets (posets), unifying lattice-based theories used widely in economics and other disciplines and poset-based theories useful to study stochastic systems in many settings. Our theorems for extremal equilibria, structure of equilibrium set, and monotone comparative statics (MCS) of equilibrium generalize both types of theories in a unified manner. This extends to new theorems for MCS of the infimum equilibrium set, supremum equilibrium set, full equilibrium set, and isotone equilibrium set, and to a universal theory of order approximation of equilibria as well. As an application, we show new, deeper structural features of equilibrium in the canonical isotone stochastic dynamic economy with correlated shocks due to Hopenhayn and Prescott (1992).
    Keywords: complementarities; Equilibrium; Fixed Point; Poset; Monotone Comparative Statics; Stochastic System.
    JEL: C02 C60 C62 C70 D70
    Date: 2023–11

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