nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒01‒29
fifteen papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Changing Simplistic Worldviews By Maxim Senkov; Toygar T. Kerman
  2. Monitoring with Rich Data By Mira Frick; Ryota Iijima; Yuhta Ishii
  3. Vertical Differentiation through Product Design By Riegel, Max
  4. Behavioral Implementation Without Unanimity By Ville Korpela; Michele Lombardi; Julius Zachariassen
  5. Synthesis of equilibrium By Zhukovskiy, Vladislav; Zhukovskaya, Lidia; Smirnova, Lidia
  6. Optimal Information Acquisition Under Intervention By Augusto Nieto-Barthaburu
  7. The role of endogenous payoff over public coordination equilibrium By Jara-Moroni, Pedro; Matta Serrano, Benjamín
  8. Interim Deadline for Procrastinators By Artem Razumovskii
  9. The Optimal Taxation of Network Goods By Enda Patrick Hargaden; Andrew Hanson; Matthew Harris
  10. The Market for Lemons and the Regulator's Signalling Problem By Roy Long
  11. Guaranteed Solution For Risk-Neutral Decision Maker: An Analog Of Maximin In Single-Criterion Choice Problem By Zhukovskiy, Vladislav; Zhukovskaya, Lidia; Mukhina, Yulia; Samsonov, Sergey
  12. Random Serial Dictatorship with Transfers By Sudharsan Sundar; Eric Gao; Trevor Chow; Matthew Ding
  13. A Simpler Proof of Gilboa and Schmeidler's (1989) Maxmin Expected Utility Representation By Ian Ball
  14. When Protection Becomes Exploitation: The Impact of Firing Costs on Present-Biased Employees By Florian Englmaier; Matthias Fahn; Ulrich Glogowsky; Marco A. Schwarz; Marco Alexander Schwarz
  15. Immigration, monopsony and the distribution of firm pay By Michael Amior; Jan Stuhler

  1. By: Maxim Senkov; Toygar T. Kerman
    Abstract: We study a Bayesian persuasion model with two-dimensional states of the world, in which the sender (she) and receiver (he) have heterogeneous prior beliefs and care about different dimensions. The receiver is a naive agent who has a simplistic worldview: he ignores the dependency between the two dimensions of the state. We provide a characterization for the sender's gain from persuasion both when the receiver is naive and when he is rational. We show that the receiver benefits from having a simplistic worldview if and only if it makes him perceive the states in which his interest is aligned with the sender as less likely.
    Date: 2024–01
  2. By: Mira Frick; Ryota Iijima; Yuhta Ishii
    Abstract: We consider moral hazard problems where a principal has access to rich monitoring data about an agent's action. Rather than focusing on optimal contracts (which are known to in general be complicated), we characterize the optimal rate at which the principal's payoffs can converge to the first-best payoff as the amount of data grows large. Our main result suggests a novel rationale for the widely observed binary wage schemes, by showing that such simple contracts achieve the optimal convergence rate. Notably, in order to attain the optimal convergence rate, the principal must set a lenient cutoff for when the agent receives a high vs. low wage. In contrast, we find that other common contracts where wages vary more finely with observed data (e.g., linear contracts) approximate the first-best at a highly suboptimal rate. Finally, we show that the optimal convergence rate depends only on a simple summary statistic of the monitoring technology. This yields a detail-free ranking over monitoring technologies that quantifies their value for incentive provision in data-rich settings and applies regardless of the agent's specific utility or cost functions.
    Date: 2023–12
  3. By: Riegel, Max
    Abstract: I study pricing and product design choices of multiproduct firms in a model of directed search. Product design introduces vertical differentiation à la Gabszewicz and Thisse (1979) as well as Shaked and Sutton (1982). While all consumers have a preference for a more niche product design, consumers with lower search costs benefit relatively more. Firms gain from dispersion in tastes through product design and choose maximum differentiation in equilibrium. The firm with the broader product design sets a lower price and attracts consumers with high search costs.
    Keywords: product design; vertical differentiation; consumer search; directed search; search cost heterogeneity
    JEL: D43 D83 L15
    Date: 2023–12–06
  4. By: Ville Korpela (Turku School of Economics, University of Turku, Finland); Michele Lombardi (University of Liverpool Management School, Liverpool, UK); Julius Zachariassen (Turku School of Economics, University of Turku, Finland)
    Abstract: Behavioral implementation studies implementation when agentsâ choices need not be rational. All existing papers of this literature, however, fail to handle a large class of choice behaviors because they rely on a well-known condition called Unanimity. This condition says, roughly speaking, that if all agents would select the same outcome form the set of all feasible outcomes, then this outcome should be deemed socially optimal. While Unanimity is both sensible as a property of a goal and necessary for implementation under rational behavior, with nonrational behavior it is neither. In this paper we investigate behavioral implementation under complete information without assuming Unanimity. Moreover, we give a full characterization of behaviorally implementable SCRs when the designer can use individually based rights structure.
    Keywords: Behavioral economics, Implementation theory, Rights structure, Unanimity
    JEL: C72 D11 D71 D82
    Date: 2024–01
  5. By: Zhukovskiy, Vladislav; Zhukovskaya, Lidia; Smirnova, Lidia
    Abstract: For a noncooperative N-player normal-form game, we introduce the concept of hybrid equilibrium (HE) by combining the concepts of Nash and Berge equilibria and Pareto maximum. Some properties of hybrid equilibria are explored and their existence in mixed strategies is established under standard assumptions of mathematical game theory (convex and compact strategy sets and continuous payoff functions). Similar results are obtained for noncooperative N-player normal-form games under uncertainty.
    Keywords: uncertainty, mixed strategies, equilibrium, saddle point, Pareto optimality
    JEL: C00 C02
    Date: 2023–10–10
  6. By: Augusto Nieto-Barthaburu
    Abstract: We present a model of a forecaster who must predict the future value of a variable that depends on an exogenous state and on the intervention of a policymaker. Our focus is on the incentives of the forecaster to acquire costly private information to use in his forecasting exercise. We show that the policy-making environment plays a crucial role in determining the incentives of the forecaster to acquire information. Key parameters are the expected strength of policy intervention, the precision of the policymaker's private information, and the precision of public information. We identify conditions, which are plausible in applications, under which the forecaster optimally acquires little or no private information, and instead bases his forecast exclusively on information publicly known at the time the forecast is made. Furthermore we show that, also under plausible conditions, stronger policy intervention and more precise policymaker's information crowd-out forecaster's information acquisition.
    Date: 2023–12
  7. By: Jara-Moroni, Pedro; Matta Serrano, Benjamín (Facultad de Administración y Economía.Universidad de Santiago de Chile)
    Abstract: This paper studies how the threat of a protest influences government spending. The government has to choose a policy to maximize its payoff, which depends on (1) the policy itself and (2) the protest’s outcome. Citizens observe the policy choice and a private signal before deciding simultaneously whether to protest. We provide an equilibrium in which citizens coordinate only in public information, and show that if, in addition to the protest’s outcome, the payoff of the government depends on its size, the set of equilibrium strategies is a proper subset. Classification-JEL D7, D83, C72
    Keywords: Protest game, Global game, Public information, Social Movements
    Date: 2023–12–12
  8. By: Artem Razumovskii
    Abstract: People are partially time inconsistent and many have difficulties committing to a detailed schedule for a project. I study optimal interim deadlines and how they affect the behavior and resulting welfare of the present-biased agent. I consider a model in which there are three types of agent in terms of how the agent understands her present bias: na¨ive, sophisticated, and partially-sophisticated. For each type, there is a unique design for an exogenous interim deadline that maximizes the agent’s welfare. However, only the sophisticated agent would self-impose an optimal interim deadline, while the na¨ive agent would not apply a self-imposed deadline at all. The partially-sophisticated agent sets a nonoptimal self-imposed deadline and can even decrease her own welfare by imposing it. The main result is that the partiallysophisticated agent who is relatively less present-biased would decrease her own welfare by using a self-imposed deadline, and the partially-sophisticated agent who is relatively more present-biased would increase her welfare.
    Keywords: Time-Inconsistent Preferences, Present Bias, Deadlines, Procrastination, SelfControl
    Date: 2023–11
  9. By: Enda Patrick Hargaden (University College of Dublin School of Economics); Andrew Hanson (Department of Economics, University of Tennessee); Matthew Harris (Department of Economics, University of Tennessee)
    Abstract: We derive optimal tax formulas for network goods. The solution trades-off contemporaneous revenue collection against the discounted future flows of reduced network growth. We provide conditions under which the optimal tax sequence is time-invariant, and show that the rates should in general change over time. A quantitative model with consumer heterogeneity highlights patterns in these optimal sequences, and underscores the equity trade-offs.
    Keywords: Optimal taxation, network goods, consumption externalities, atmospheric externalities
    JEL: H21 H23
    Date: 2023–09
  10. By: Roy Long
    Abstract: The Market for Lemons is a classic model of asymmetric information first studied by Nobel Prize economist George Akerlof. It shows that information asymmetry between the seller and buyer may result in market collapse or some sellers leaving the market. "Lemons" in the used car market are cars of poor quality. The information asymmetry present is that the buyer is uncertain of the cars' true quality. I first offer a simple baseline model that illustrates the market collapse, and then examine what happens when regulation, ie. a DMV is introduced to reveal (signal) the true car quality to the buyer. The effect on the market varies based on the assumptions about the regulator. The central focus is on the DMV's signal structure, which can have interesting effects on the market and the information asymmetry. I show that surprisingly, when the DMV actually decreases the quality of their signal in a well constructed way, it can substantially increase their profit. On the other hand, this negatively effects overall welfare.
    Date: 2023–12
  11. By: Zhukovskiy, Vladislav; Zhukovskaya, Lidia; Mukhina, Yulia; Samsonov, Sergey
    Abstract: In this article single-criterion choice problems under uncertainty (SCPUs) are considered. The principle of minimax regret and the Savage–Niehans risk function are introduced. A possible approach to solving an SCPU for a decision-maker who simultaneously seeks to increase his outcome and reduce his risk ("to kill two birds with one stone") is proposed. The explicit form of such a solution for the linear-quadratic setup of the SCPU is obtained.
    Keywords: guaranteed solution, single-criterion choice, Savage–Niehans risk, minimax regret, uncertainties
    JEL: C0 C00 C02
    Date: 2023–10–10
  12. By: Sudharsan Sundar; Eric Gao; Trevor Chow; Matthew Ding
    Abstract: It is well known that Random Serial Dictatorship is strategy-proof and leads to a Pareto-Efficient outcome. We show that this result breaks down when individuals are allowed to make transfers, and adapt Random Serial Dictatorship to encompass trades between individuals. Strategic analysis of play under the new mechanisms we define is given, accompanied by simulations to quantify the gains from trade.
    Date: 2023–12
  13. By: Ian Ball
    Abstract: This note gives a simpler proof of the main representation theorem in Gilboa and Schmeidler (1989).
    Date: 2023–12
  14. By: Florian Englmaier; Matthias Fahn; Ulrich Glogowsky; Marco A. Schwarz; Marco Alexander Schwarz
    Abstract: Employment protection harms early-career employees without benefitting them in later career stages (Leonardi and Pica, 2013). We demonstrate that this pattern can result from employers exploiting naïve present-biased employees. Employers offer a dynamic contract with low early-career wages, an unattractive intermediate qualification stage, and high end-of-career wages. Upon reaching the qualification stage, present-biased employees exchange future wages for immediate rewards on an alternative career path – a choice unanticipated by their previous, naïve, self. Thus, employers never pay high future wages. Firing costs help employers indicate that they will not oust employees instead of making promised payments, enabling early-career wage cuts.
    Keywords: employment protection laws, present bias, dynamic contracting
    JEL: D21 D90 J33 K31 M52
    Date: 2023
  15. By: Michael Amior; Jan Stuhler
    Abstract: We argue that the arrival of immigrants with low reservation wages can strengthen the monopsony power of firms. Firms can exploit "cheap" migrant labor by offering lower wages, though at the cost of forgoing potential native hires who demand higher wages. This monopsonistic trade-off can lead to large negative effects on native employment, which exceed those in competitive models, and which are concentrated among low-paying firms. To validate these predictions, we study changes in wage premia and employment across the firm pay distribution, during a large immigration wave in Germany. These adverse effects are not inevitable and may be ameliorated through policies which constrain firms' monopsony power over migrants.
    Keywords: immigration, monopsony, firms
    Date: 2024–01–04

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