nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒03‒25
25 papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Coordination in the fight against collusion By Elisabetta Iossa; Simon Loertscher; Leslie M. Marx; Patrick Rey
  2. Dynamic Contracting with Many Agents By Villeneuve, Stéphane; Biais, Bruno; Gersbach, Hans; Rochet, Jean-Charles; von Thadden, Ernst-Ludwig
  3. Unanimity under Ambiguity By Simona Fabrizi; Steffen Lippert; Addison Pan; Matthew Ryan
  4. When and Where To Submit A Paper By Daniel Luo
  5. Veto Players and Policy Development By Shotts, Ken; Hirsch, Alex
  6. Harvesting Ratings By Johannes Johnen; Robin Ng
  7. Delegation with Endogenous States By Dino Gerardi; Lucas Maestri; Ignacio Monzon
  8. Designing Rotation Programs: Limits and Possibilities By Ville Korpela; Michele Lombardi; Riccardo Saulle
  9. Information Elicitation in Agency Games By Serena Wang; Michael I. Jordan; Katrina Ligett; R. Preston McAfee
  10. Multidimensional Signaling with a Resource Constraint By Seungjin Han; Alex Sam
  11. Continuous-Time Best-Response and Related Dynamics in Tullock Contests with Convex Costs By Edith Elkind; Abheek Ghosh; Paul W. Goldberg
  12. Shill-proof rules in object allocation problems with money By SHINOZAKI, Hiroki
  13. Shutting-out-proofness in object allocation problems with money By SHINOZAKI, Hiroki
  14. Dynamically Consistent Intergenerational Welfare By Mononen, Lasse
  15. Two-Player Rationalizable Implementation By R Jain; V Korpela; M Lombardi
  16. Hierarchies of Beliefs for Many Player Games By Kondiparthy, Venkata Tanay Kasyap
  17. Implementations of Cooperative Games Under Non-Cooperative Solution Concepts By Justin Chan
  18. The swing voter's curse revisited: Transparency's impact on committee voting By Siddhartha Bandyopadhyay; Moumita Deb; Johannes Lohse; Rebecca McDonald
  19. Persuasion, Delegation, and Private Information in Algorithm-Assisted Decisions By Ruqing Xu
  20. Implementation in vNM Stable Set By Ville Korpela; Michele Lombardi; Riccardo Saulle
  21. Predicting the Unpredictable under Subjective Expected Utility By Burkhard C. Schipper
  22. Dynamically Consistent Intertemporal Dual-Self Expected Utility By Mononen, Lasse
  23. Perfect Bayesian Persuasion By Elliot Lipnowski; Doron Ravid; Denis Shishkin
  24. Mechanism Design with Sequential-Move Games: Revelation Principle By Siyang Xiong
  25. Spreading Information via Social Networks: An Irrelevance Result By Yu Awaya; Vijay Krishna

  1. By: Elisabetta Iossa; Simon Loertscher; Leslie M. Marx; Patrick Rey (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: While antitrust authorities strive to detect, prosecute, and thereby deter collusive conduct, entities harmed by that conduct are also advised to pursue their own strategies to deter collusion. The implications of such delegation of deterrence have largely been ignored, however. In a procurement context, we find that buyers may prefer to accommodate rather than deter collusion among their suppliers. We also show that a multi-market buyer, such as a centralized procurement authority, may optimally deter collusion when multiple independent buyers would not, consistent with the view that "large" buyers are less susceptible to collusion.
    Keywords: Reserves, Sustainability and initiation of collusion, Coordinated effects
    Date: 2024–02
  2. By: Villeneuve, Stéphane; Biais, Bruno; Gersbach, Hans; Rochet, Jean-Charles; von Thadden, Ernst-Ludwig
    Abstract: We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial outside utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate money issuance and wealth taxation by the principal.
    Date: 2024–02–22
  3. By: Simona Fabrizi (Department of Economics and Centre for Mathematical Social Science, University of Auckland, New Zealand); Steffen Lippert (Department of Economics and Centre for Mathematical Social Science, University of Auckland, New Zealand.); Addison Pan (International Office and Centre for Mathematical Social Science, University of Auckland, New Zealand.); Matthew Ryan (School of Economics and Finance, Auckland University of Technology, New Zealand, and Centre for Mathematical Social Science, University of Auckland, New Zealand.)
    Abstract: This paper considers a binary decision to be made by a committee- canonically, a jury- through a voting procedure. Each juror must vote on whether a defendant is guilty or not guilty. The voting rule aggregates the votes to determine whether the defendant is convicted or acquitted. We focus on the unanimity rule (convict if and only if all vote guilty), and we consider jurors who share ambiguous prior beliefs as in Ellis (2016). Our contribution is twofold. First, we identify all symmetric equilibria of these voting games. Second, we show that ambiguity may drastically undermine McLennan's (1998) results on decision quality: unlike in the absence of ambiguity, the ex ante optimal symmetric strategy profile need not be an equilibrium; indeed, there are games for which it is possible to reduce both types of error starting from any (non-trivial) equilibrium.
    Keywords: : ambiguous priors, voting problems, decision quality
    JEL: C02 D71 D81
    Date: 2024–03
  4. By: Daniel Luo
    Abstract: What is the optimal order in which a researcher should submit their papers to journals of differing quality? I analyze a sequential search model without recall where the researcher's expected value from journal submission depends on the history of past submissions. Acceptances immediately terminate the search process and deliver some payoff, while rejections carry information about the paper's quality, affecting the researcher's belief in acceptance probability over future journals. When journal feedback does not change the paper's quality, the researcher's optimal strategy is monotone in their acceptance payoff. Submission costs distort the researcher's effective acceptance payoff, but maintain monotone optimality. If journals give feedback which can affect the paper's quality, such as through \textit{referee reports}, the search order can change drastically depending on the agent's prior belief about their paper's quality. However, I identify a set of \textit{assortative matched} conditions on feedback such that monotone strategies remain optimal whenever the agent's prior is sufficiently optimistic.
    Date: 2024–01
  5. By: Shotts, Ken (California Institute of Technology); Hirsch, Alex (Stanford U)
    Abstract: We analyze the effects of veto players when the set of available policies isn't exogenously fixed, but rather is determined by policy developers who work to craft new high-quality proposals. If veto players are moderate then there is active competition between policy developers on both sides of the political spectrum. However, more extreme veto players induce asymmetric activity, as one side disengages from policy development. With highly-extreme veto players, policy development ceases and gridlock results. We also analyze effects on centrists' utility. Moderate veto players dampen productive policy development and extreme ones eliminate it entirely, either of which is bad for centrists. But some effects are surprisingly positive. In particular, somewhat-extreme veto players can induce policy developers who dislike the status quo to craft moderate, high-quality proposals. Our model accounts for changing patterns of policymaking in the U.S. Senate and predicts that if polarization continues centrists will become increasingly inclined to eliminate the filibuster.
    Date: 2023–11
  6. By: Johannes Johnen; Robin Ng
    Abstract: Evidence suggests lower prices lead to better ratings, but better ratings induce firms to charge higher prices in the future. We model that consumers are only willing to make the effort to rate a seller if this seller provides a sufficient value-for-money. Using this model, we explore how firms use prices to impact their own ratings. We show that firms harvest ratings: they offer lower prices in early periods to trigger consumers to leave a good rating in order to earn larger profits in the future. Because especially low-quality firms harvest ratings, harvesting makes ratings less-informative about quality. Based on this mechanism, (i) we argue that rating harvesting causes rating inflation; (ii) we show that a marketplace that facilitates ratings (e.g. through reminders, one-click ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace that screens the quality of sellers makes ratings less-informative if the screening is insufficient. Counter to the conventional wisdom that consumers benefit from ratings via the information they transmit, we show that consumers prefer somewhat, but never fully informative ratings. Nonetheless consumers prefer more-informative ratings than average sellers. We apply these results to characterise when a two-sided platform wants to facilitate ratings, and argue that efforts of major platforms to facilitate ratings did not just lead to less-informative ratings, but also shifted surplus from consumers to sellers.
    Keywords: Rating and reviews, digital economy, reputation
    JEL: D21 D83 L10
    Date: 2024–02
  7. By: Dino Gerardi; Lucas Maestri; Ignacio Monzon
    Abstract: We present a model of delegation with moral hazard. A principal delegates a decision to an agent, who affects the distribution of the state of the world by exerting costly and unobservable effort. The principal faces a trade-off between (i) granting the agent discretion, so he can adapt the decision to the state and (ii) limiting the agent’s discretion, to induce him to exert effort. Our model is flexible on how effort affects the state distribution, thus capturing several distinct economic environments. Optimal delegation takes one of four simple forms, all commonly used in practice: floors, ceilings, floor-ceilings or gaps.
    Keywords: delegation, moral hazard, endogenous state, floors, ceilings, caps, gaps
    Date: 2023
  8. By: Ville Korpela; Michele Lombardi; Riccardo Saulle
    Abstract: otation programs are widely used in our society. For instance, a job rotation program is an HR strategy where employees rotate between two or more jobs in the same business. We study rotation programs within the standard implementation framework under complete information. When the designer would like to attain a Pareto efficient goal, we provide sufficient conditions for its implementation in a rotation program. However, when, for instance, every employee transitions through all different lateral jobs before rotating back to his original one, the conditions fully characterize the class of Pareto efficient goals that are implementable in rotation programs.
    Keywords: Rotation Programs; Job Rotation; Assignment Problems; Implementation; Rights Structures; Stability
    JEL: C71 D71 D82
    Date: 2022–07
  9. By: Serena Wang; Michael I. Jordan; Katrina Ligett; R. Preston McAfee
    Abstract: Rapid progress in scalable, commoditized tools for data collection and data processing has made it possible for firms and policymakers to employ ever more complex metrics as guides for decision-making. These developments have highlighted a prevailing challenge -- deciding *which* metrics to compute. In particular, a firm's ability to compute a wider range of existing metrics does not address the problem of *unknown unknowns*, which reflects informational limitations on the part of the firm. To guide the choice of metrics in the face of this informational problem, we turn to the evaluated agents themselves, who may have more information than a principal about how to measure outcomes effectively. We model this interaction as a simple agency game, where we ask: *When does an agent have an incentive to reveal the observability of a cost-correlated variable to the principal?* There are two effects: better information reduces the agent's information rents but also makes some projects go forward that otherwise would fail. We show that the agent prefers to reveal information that exposes a strong enough differentiation between high and low costs. Expanding the agent's action space to include the ability to *garble* their information, we show that the agent often prefers to garble over full revelation. Still, giving the agent the ability to garble can lead to higher total welfare. Our model has analogies with price discrimination, and we leverage some of these synergies to analyze total welfare.
    Date: 2024–02
  10. By: Seungjin Han; Alex Sam
    Abstract: We study multidimensional signaling (cognitive/non-cognitive) as a sender's portfolio choice with a resource constraint. We establish the existence of a unique monotone D1 equilibrium where the cognitive (non-cognitive) signal increases (decreases) in sender type and the sum of the two increases in sender type. The equilibrium is characterized by two threshold sender types. The low threshold is one where a kink occurs in signaling. The constraint is binding only for sender types above it. The high threshold is the other one, above which all types spend all the resources in cognitive signal with pooling and discontinuity on the top.
    Date: 2024–02
  11. By: Edith Elkind; Abheek Ghosh; Paul W. Goldberg
    Abstract: Tullock contests model real-life scenarios that range from competition among proof-of-work blockchain miners to rent-seeking and lobbying activities. We show that continuous-time best-response dynamics in Tullock contests with convex costs converges to the unique equilibrium using Lyapunov-style arguments. We then use this result to provide an algorithm for computing an approximate equilibrium. We also establish convergence of related discrete-time dynamics, e.g., when the agents best-respond to the empirical average action of other agents. These results indicate that the equilibrium is a reliable predictor of the agents' behavior in these games.
    Date: 2024–02
  12. By: SHINOZAKI, Hiroki
    Abstract: We consider the object allocation problem with money. The seller owns multiple units of an object, and is only interested in her revenue from an allocation. Each buyer receives at most one unit of the object, and has a quasi-linear utility function with private valuations. We study incentives of the seller to increase her revenue by introducing false-name buyers, i.e., shill bidding. An (allocation) rule is shill-proof if the seller never benefits from introducing false-name buyers. A rule is a binary posted prices rule if there is a profile of posted prices such that whenever a buyer receives the object, she pays either her posted price or zero, and her payment is equal to zero when she does not receive the object. We show that if a rule satisfies shillproofness, strategy-proofness, and non-imposition, then it is a binary posted prices rule. This result shows that the cost of preventing the seller from shill bidding is equivalent to the rigidity of the payment of each buyer, which highlights the difficulty in preventing the seller from shill bidding. It extends to a model of non-quasi-linear utility functions with interdependent valuations.
    Keywords: Shill-proofness, Shill bidding, Strategy-proofness, Posted prices rule, Binary posted prices rule, Multi-unit auctions
    JEL: D44 D47 D71 D82
    Date: 2024–02–13
  13. By: SHINOZAKI, Hiroki
    Abstract: We study the problem of allocating heterogeneous objects to agents with money. Each agent can receive several objects and has a quasi-linear utility function. The owner of the objects is only interested in his revenue from an allocation. An (allocation) rule is shutting-out-proof if no group of agents together with the owner ever benefits from shutting out other groups of agents and arranging payments among themselves. We show that on any domain that includes all the additive valuation functions, a Vickrey rule satisfies shutting-out-proofness if and only if all the valuation functions in the domain satisfy the substitutes condition (Kelso and Crawford, 1982). Our result sheds a new light on the relationship between the desirable properties of a Vickrey rule and the substitutes condition (Ausubel and Milgrom, 2002; Milgrom, 2004).
    Keywords: Shutting-out-proofness, Collusion, Vickrey rules, Substitutes condition, Combinatorial auctions
    JEL: D44 D47 D71 D82
    Date: 2024–02–13
  14. By: Mononen, Lasse (Center for Mathematical Economics, Bielefeld University)
    Abstract: Dynamic consistency is crucial for credible evaluation of intergenerational choice plans that inherently lack commitment. We offer a general characterization for dynamically consistent intergenerational welfare aggregation. The aggregation is characterized by envy-guilt asymmetry in discounting with respect to future generations’ utility: Higher utility than future generations’ utility is discounted differently than lower utility than future generations’ utility. This offers a simple and tractable characterization for the dynamically consistent choice rules.
    Keywords: Dynamic consistency, discounting, social discount factor, preference aggregation
    Date: 2024–02–21
  15. By: R Jain; V Korpela; M Lombardi
    Abstract: The paper characterizes the class of two-player social choice functions implementable in rationalizable strategies. We offer two equivalent conditions, TwoPlayer Generalized Strict Maskin Monotonicity** and Partition Monotonicity. Similar to Bergemann et al. (2011) and Xiong (2022), Two-Player Generalized Strict Maskin Monotonicity** relies on the existence of a partition of the set of states. However, Partition Monotonicity provides a construction for the partition.
    Keywords: Implementation, Two Players, Rationalizability, Complete Information
    JEL: C79 D82
    Date: 2022–12
  16. By: Kondiparthy, Venkata Tanay Kasyap (Warwick University)
    Abstract: Mertens and Zamir (1985) first provided the universal type space construction for finite player games of incomplete information with a compact state space. Brandenburger and Dekel (1993) complemented it for a Polish state space. This paper extends the construction of Brandenburger and Dekel (1993) to games with infinitely many players for Harsanyi’s notion of a type. The extension is formulated by randomly drawing a countably infinite set of actual players from a continuum of potential players, represented by their labels in [0, 1]. The random distribution of the countably infinite set of actual players almost surely converges to Lebesgue due to the Glivenko–Cantelli theorem. A coherent type is shown to induce beliefs over other player’s types and common knowledge of coherency closes the model of beliefs. Implications of dropping the Polish space assumption are discussed and an informal extension to measurable spaces is provided for future work. The formalisation provided here allows Harsanyi’s notion of type to be applied in classes of games with many players such as Morris and Shin (2001)
    Keywords: Higher Order Beliefs ; Universal Type Space ; Many Player Games JEL classifications: C70 ; D83
    Date: 2024
  17. By: Justin Chan
    Abstract: Cooperative games can be distinguished as non-cooperative games in which players can freely sign binding agreements to form coalitions. These coalitions inherit a joint strategy set and seek to maximize collective payoffs. When the payoffs to each coalition under some non-cooperative solution concept coincide with their value in the cooperative game, the cooperative game is said to be implementable and the non-cooperative game its implementation. This paper proves that all strictly superadditive partition function form games are implementable under Nash equilibrium and rationalizability; that all weakly superadditive characteristic function form games are implementable under Nash equilibrium; and that all weakly superadditive partition function form games are implementable under trembling hand perfect equilibrium. Discussion then proceeds on the appropriate choice of non-cooperative solution concept for the implementation.
    Date: 2024–02
  18. By: Siddhartha Bandyopadhyay (University of Birmingham); Moumita Deb (University of Heidelberg); Johannes Lohse (University of Birmingham); Rebecca McDonald (University of Birmingham)
    Abstract: Majority voting is considered an efficient information aggregation mechanism in committee decision-making. We examine if this holds in environments where voters first need to acquire information from sources of varied quality and cost. In such environments, efficiency may depend on free-riding incentives and the 'transparency' regime - the knowledge voters have about other voters' acquired information. Intuitively, more transparent regimes should improve efficiency. Our theoretical model instead demonstrates that under some conditions, less transparent regimes can match the rate of efficient information aggregation in more transparent regimes if all members cast a vote based on the information they hold. However, a Pareto inferior swing voter's curse (SVC) equilibrium arises in less transparent regimes if less informed members abstain. We test this proposition in a lab experiment, randomly assigning participants to different transparency regimes. Results in less transparent regimes are consistent with the SVC equilibrium, leading to less favourable outcomes than in more transparent regimes. We thus offer the first experimental evidence on the effects of different transparency regimes on information acquisition, voting, and overall efficiency
    Keywords: Information acquisition, Voting, Transparency, Swing voter's curse
    JEL: C92 D71 D83
    Date: 2024–01
  19. By: Ruqing Xu
    Abstract: A principal designs an algorithm that generates a publicly observable prediction of a binary state. She must decide whether to act directly based on the prediction or to delegate the decision to an agent with private information but potential misalignment. We study the optimal design of the prediction algorithm and the delegation rule in such environments. Three key findings emerge: (1) Delegation is optimal if and only if the principal would make the same binary decision as the agent had she observed the agent's information. (2) Providing the most informative algorithm may be suboptimal even if the principal can act on the algorithm's prediction. Instead, the optimal algorithm may provide more information about one state and restrict information about the other. (3) Common restrictions on algorithms, such as keeping a "human-in-the-loop" or requiring maximal prediction accuracy, strictly worsen decision quality in the absence of perfectly aligned agents and state-revealing signals. These findings predict the underperformance of human-machine collaborations if no measures are taken to mitigate common preference misalignment between algorithms and human decision-makers.
    Date: 2024–02
  20. By: Ville Korpela; Michele Lombardi; Riccardo Saulle
    Abstract: We fully identify the class of social choice functions that are implementable in von Neumann Morgenstern (vNM) stable set (von Neumann and Morgenstern, 1944) by a rights structure. A rights structure formalizes the idea of power distribution in a society. Following Harsanyi’critique (Harsanyi, 1974), we also study implementation problems in vNM stable set that are robust to farsighted reasoning.
    Keywords: Stable Set, Implementation, Rights Structure, Farsightedness
    JEL: C71 D02 D71 D82
    Date: 2022–09
  21. By: Burkhard C. Schipper (Department of Economics, University of California Davis)
    Abstract: We consider a decision maker who is unaware of objects to be sampled and thus cannot form beliefs about the occurrence of particular objects. Ex ante she can form beliefs about the occurrence of novelty and the frequencies of yet to be known objects. Conditional on any sampled objects, she can also form beliefs about the next object being novel or being one of the previously sampled objects. We characterize behaviorally such beliefs under subjective expected utility. In doing so, we relate "reverse" Bayesianism, a central property in the literature on decision making under growing awareness, with exchangeable random partitions, the central property in the literature on the discovery of species problem and mutations in statistics, combinatorial probability theory, and population genetics. Partition exchangeable beliefs do not necessarily satisfy "reverse" Bayesianism. Yet, the most prominent models of exchangeable random partitions, the model by De Morgan (1838), the one parameter model of Ewens (1972), and the two parameter model of Pitman (1995) and Zabell (1997), do satisfy "reverse" Bayesianism.
    Keywords: Awareness of unawareness, unknown unknowns, exchangeable random partitions, "reverse" Bayesianism, discovery of species problem, discovery, novelty, inductive reasoning
    JEL: D83
    Date: 2024–03–02
  22. By: Mononen, Lasse (Center for Mathematical Economics, Bielefeld University)
    Abstract: Experimental evidence on intertemporal choice has documented a preference for consumption smoothing that cannot be explained by discounted utility. We study a general class of dynamically consistent intertemporal dual-self preferences that accommodate a preference for consumption smoothing. We show that these general preferences have a simple and tractable structure. They are characterized by a gain-loss asymmetry where gains with respect to future utility are discounted differently than losses. As applications, first, we show that under the stationarity axiom, these preferences are convex or concave. Second, we show that dynamically consistent intertemporal Choquet expected utility coincides with discounted expected utility.
    Date: 2024–02–21
  23. By: Elliot Lipnowski; Doron Ravid; Denis Shishkin
    Abstract: A sender commits to an experiment to persuade a receiver. Accounting for the sender's experiment-choice incentives, and not presupposing a receiver tie-breaking rule when indifferent, we characterize when the sender's equilibrium payoff is unique and so coincides with her "Bayesian persuasion" value. A sufficient condition in finite models is that every action which is receiver-optimal at some belief is uniquely optimal at some other belief -- a generic property. We similarly show the equilibrium sender payoff is typically unique in ordered models. In an extension, we show uniqueness generates robustness to imperfect sender commitment.
    Date: 2024–02
  24. By: Siyang Xiong
    Abstract: Traditionally, mechanism design focuses on simultaneous-move games (e.g., Myerson (1981)). In this paper, we study mechanism design with sequential-move games, and provide two results on revelation principles for general solution concepts (e.g., perfect Bayesian equilibrium, obvious dominance, strong-obvious dominance). First, if a solution concept is additive, implementation in sequential-move games is equivalent to implementation in simultaneous-move games. Second, for any solution concept \r{ho} and any social choice function f, we identify a canonical operator {\gamma}^{(\r{ho}, f)}, which is defined on primitives. We prove that, if \r{ho} is monotonic, f can be implemented by a sequential-move game if and only if {\gamma}^{(\r{ho}, f)} is achievable, which translates a complicated mechanism design problem into checking some conditions defined on primitives. Most of the existing solution concepts are either additive or monotonic.
    Date: 2024–02
  25. By: Yu Awaya; Vijay Krishna
    Abstract: An informed planner wishes to spread information among a group of agents in order to induce efficient coordination -- say the adoption of a new technology with positive externalities. The agents are connected via a social network. The planner informs a seed and then the information spreads via the network. While the structure of the network affects the rate of diffusion, we show that the rate of adoption is the same for all acyclic networks.
    Date: 2024–02

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