
on Microeconomics 
By:  Preker, Jurek (Center for Mathematical Economics, Bielefeld University); Karos, Dominik (Center for Mathematical Economics, Bielefeld University) 
Abstract:  Before choosing her action to match the state of the world, an agent observes a stream of messages generated by some unknown binary signal. The agent can either learn the underlying signal for free and update her belief accordingly or ignore the observed message and keep her prior belief. After each period the stream stops with positive probability and the final choice is made. We show that a Markovian agent with GilboaSchmeidler preferences learns and updates after confirming messages, but she ignores contradicting messages if her belief is sufficiently strong. Her threshold solely depends on the least precise signal. The agent has strictly higher anticipatory utility than an agent who uses every message to update. However, the latter has a higher chance to choose the correct outcome in the end. In a population of strategic agents, who only differ in their initial beliefs, polarization is inevitable. 
Keywords:  Dynamic Decision Problem, Ambiguity, GilboaSchmeidler Preferences, Confirmation Bias, Polarization 
Date:  2024–04–09 
URL:  http://d.repec.org/n?u=RePEc:bie:wpaper:689&r=mic 
By:  Daniel Krähmer; Roland Strausz 
Abstract:  We study unidirectional incentive compatibility which incentivizes an agent to report truthfully when she can misrepresent private information in one direction only. In the canonical setting with continuous, onedimensional private information, and quasilinear utility, unidirectional incentive compatibility imposes no restrictions on the allocation rule and holds if and only if the change of the agent’s information rent function respects a lower bound that is based on the allocation rule’s monotone envelope. In monopolistic screening models with strong interdependent values or with countervailing incentives, optimal contracts differ from optimal bidirectionally incentive compatible contracts, possibly displaying nonmonotone allocations. 
Keywords:  Screening, Verifiability, Implementability, Optimal Contracting 
JEL:  D82 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_524&r=mic 
By:  Masahiro KAWASAKI; Ryosuke SAKAI; Tomoya KAZUMURA 
Abstract:  We study consistency in multiunit object allocation problems with money. Objects are identical and each agent has a multidemand and quasilinear preferences. We consider the class of weak object monotonic preferences and that of singlepeaked preferences. We first show that on those domains, if a rule satisfies consistency, strategyproofness, individual rationality, no subsidy, nonwasteful tiebreaking, and minimal tradability, then it is a sequential dictatorship rule. Since not all sequential dictatorship rule are strategyproof and consistent, we then focus on a specific class of sequential dictatorship rules which we call sequential dictatorship rules with lowest tiebreaking. On the weakly object monotonic domain, when the reservation prices are increasing in the number of objects, sequential dictatorship rules with lowest tiebreaking 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 tiebreaking to satisfy consistency and independence of unallocated objects on the singlepeaked domain. Keywords. Consistency, Strategyproofness, sequential dictatorship rule, serial dictatorship rule, weakly object monotonic preferences, singlepeaked preferences, acyclicity. 
Keywords:  Consistency, Strategyproofness, sequential dictatorship rule, serial dictatorship rule, weakly object monotonic preferences, singlepeaked preferences, acyclicity. 
JEL:  D44 D71 D61 D82 
URL:  http://d.repec.org/n?u=RePEc:kue:epaper:e23007v2&r=mic 
By:  Daniel Krähmer 
Abstract:  The paper studies the canonical holdup problem with onesided investment by the buyer and full ex post bargaining power by the seller. The buyer can covertly choose any distribution of valuations at a cost and privately observes her valuation. The main result shows that in contrast to the wellunderstood case with linear costs, if investment costs are strictly convex in the buyer’s valuation distribution, the buyer’s equilibrium utility is strictly positive and to tal welfare is strictly higher than in the benchmark when valuations are public information, thus alleviating the holdup problem. In fact, when costs are meanbased or display decreas ing risk, the holdup problem may disappear completely. Moreover, the buyer’s equilibrium utility and total welfare might be nonmonotone in costs. The paper utilizes an equilibrium characterization in terms of the Gateaux derivative of the cost function. 
Keywords:  Information Design, HoldUp Problem, Unobservable Information 
JEL:  C61 D42 D82 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_523&r=mic 
By:  Rhodes, Andrew; Zhou, Jidong 
Abstract:  This paper studies consumers’ privacy choices when firms can use their data to make personalized offers. We first introduce a general framework of personalization and privacy choice, and then apply it to personalized recommendations, personalized prices, and personalized product design. We argue that due to firms’ reaction in the product market, consumers who share their data often impose a negative externality on other consumers. Due to this privacychoice externality, too many consumers share their data relative to the consumer optimum; moreover, more competition, or improvements in data security, can lower consumer surplus by encouraging more data sharing. 
Keywords:  personalization; consumer data; privacy; personalized pricing; personalized recommendations; personalized product design 
JEL:  D43 D82 L13 
Date:  2024–04–16 
URL:  http://d.repec.org/n?u=RePEc:tse:wpaper:129289&r=mic 
By:  AshkenaziGolan, Galit; Tsodikovich, Yevgeny; Viossat, Yannick 
Abstract:  A common practice in many auctions is to offer bidders an opportunity to improve their bids, known as a best and final offer stage. This improved bid can depend on new information either about the asset or about the competitors. This paper examines the effects of new information regarding competitors, seeking to determine what information the auctioneer should provide assuming the set of allowable bids is discrete. The rational strategy profile that maximizes the revenue of the auctioneer is the one where each bidder makes the highest possible bid that is lower than his valuation of the item. This strategy profile is an equilibrium for a large enough number of bidders, regardless of the information released. We compare the number of bidders needed for this profile to be an equilibrium under different information structures. We find that it becomes an equilibrium with fewer bidders when less additional information is made available to the bidders regarding the competition. It follows that when the number of bidders is a priori unknown, there are some advantages to the auctioneer not revealing information and conducting a onestage auction instead. 
Keywords:  auctions; BAFO; information utilization; multistage auctions; NSFCISF; China Grant #2510/17. Y 
JEL:  D44 D82 
Date:  2023–11–01 
URL:  http://d.repec.org/n?u=RePEc:ehl:lserod:118706&r=mic 
By:  Herold, Florian; Kuzmics, Christoph 
Abstract:  In a finite two player game consider the matrix of one player's payoff difference between any two consecutive pure strategies. Define the half space induced by a column vector of this matrix as the set of vectors that form an obtuse angle with this column vector. We use Farkas' lemma to show that this player can be made indifferent between all pure strategies if and only if the union of all these half spaces covers the whole vector space. This result leads to a necessary (and almost sufficient) condition for a game to have a completely mixed Nash equilibrium. We demonstrate its usefulness by providing the class of all symmetric two player three strategy games that have a unique and completely mixed symmetric Nash equilibrium. 
Keywords:  completely mixed strategies, mixed Nash equilibria, Farkas’, lemma 
JEL:  C72 
Date:  2024 
URL:  http://d.repec.org/n?u=RePEc:zbw:bamber:289614&r=mic 
By:  Daniel Krähmer; Roland Strausz 
Abstract:  We consider a dynamic screening model, where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truthtelling constraints than those considered in the existing literature. We show that, for serially independent types, the weaker constraints do not affect optimal contracting, however. Moreover, we develop a novel method to study private values settings with continuous types and show that a regularity condition that has analogues in the literature on multidimensional screening ensures that the optimal contract is deterministic. 
Keywords:  Dynamic Screening, Bankruptcy, Verifiability, Mean Preserving Spread 
JEL:  D82 H57 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_525&r=mic 
By:  Zhuo Chen; Yun Liu 
Abstract:  This paper proposes a dynamic research contest, namely the chasing contest, in which two asymmetric contestants exert costly effort to accomplish two breakthroughs in a continuoustime framework. The contestants are asymmetric in that one of them is presentbiased and has already achieved one breakthrough (the leader), while the other is timeconsistent and needs to achieve two breakthroughs to win (the chaser). The principal can choose between two disclosure policies, which either immediately announces the first breakthrough of the chaser (public chasing contest), or only announces the contest results until its terminus (hidden chasing contest). We fully characterize the unique xstart and ystop equilibrium of the chasing contest with the two disclosure policies, in which the leader starts working from an instant x to the end while the chaser stops exerting effort by the instant y. We further compare the asymmetric incentives of the two disclosure policies. Our results imply that the chaser will never stop earlier in the hidden chasing contest compared to its public chasing counterpart, whereas the leader works longer in the public chasing contest only if the contest permits a late deadline. 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2404.02756&r=mic 
By:  Georgiadis, George; Ravid, Doron; Szentes, Balázs 
Abstract:  This paper considers a moral hazard problem where the agent can choose any output distribution with a support in a given compact set. The agent's effortcost is smooth and increasing in firstorder stochastic dominance. To analyze this model, we develop a generalized notion of the firstorder approach applicable to optimization problems over measures. We demonstrate each output distribution can be implemented and identify those contracts that implement that distribution. These contracts are characterized by a simple firstorder condition for each output that equates the agent's marginal cost of changing the implemented distribution around that output with its marginal benefit. Furthermore, the agent's wage is shown to be increasing in output. Finally, we consider the problem of a profitmaximizing principal and provide a firstorder characterization of principaloptimal distributions. 
Keywords:  principleagent; moral hazard; contract theory 
JEL:  J1 
Date:  2024–03–19 
URL:  http://d.repec.org/n?u=RePEc:ehl:lserod:122548&r=mic 
By:  Simon Cowan 
Abstract:  General conditions that are sufficient for mergers in symmetric Cournot industries to be profitable or unprofitable are found and applied. If inverse demand curvature is weakly higher than the number of firms then all mergers are profitable. The same condition implies that outputs are strategic complements locally. If demand is logconcave, so inverse demand curvature is at most 1, twofirm mergers are unprofitable. Logconcavity of demand implies that outputs are strategic substitutes. The issue of the profitability of mergers in Cournot was first addressed by Salant, Switzer, and Reynolds (1983) in a model with linear demand. 
Date:  2024–02–28 
URL:  http://d.repec.org/n?u=RePEc:oxf:wpaper:1041&r=mic 
By:  Lorenzo Bastianello; Vassili Vergopoulos 
Abstract:  By embedding uncertainty into time, we obtain a conjoint axiomatic characterization of both Exponential Discounting and Subjective Expected Utility that accommodates arbitrary state and outcome spaces. In doing so, we provide a novel and simple timeinterpretation of subjective probability. The subjective probability of an event is calibrated using time discounting. 
Date:  2024–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2403.15319&r=mic 
By:  Franz Dietrich (CNRS  Centre National de la Recherche Scientifique, PSE  Paris School of Economics  UP1  Université Paris 1 PanthéonSorbonne  ENSPSL  École normale supérieure  Paris  PSL  Université Paris sciences et lettres  EHESS  École des hautes études en sciences sociales  ENPC  École des Ponts ParisTech  CNRS  Centre National de la Recherche Scientifique  INRAE  Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES  Centre d'économie de la Sorbonne  UP1  Université Paris 1 PanthéonSorbonne  CNRS  Centre National de la Recherche Scientifique); Christian List (LMU  Fakultät für Physik  LudwigMaximiliansUniversität [München/Munich]  LMU  LudwigMaximilians University [Munich]) 
Abstract:  A probability aggregation rule assigns to each profile of probability functions across a group of individuals (representing their individual probability assignments to some propositions) a collective probability function (representing the group's probability assignment). The rule is "nonmanipulable" if no group member can manipulate the collective probability for any proposition in the direction of his or her own probability by misrepresenting his or her probability function ("strategic voting"). We show that, except in trivial cases, no probability aggregation rule satisfying two mild conditions (nondictatorship and consensus preservation) is nonmanipulable. 
Date:  2024–01 
URL:  http://d.repec.org/n?u=RePEc:hal:cesptp:halshs04405495&r=mic 
By:  JeanPierre Drugeon (Paris School of Economics and Centre National de la Recherche Scientifique); Thai HaHui (Université ParisSaclay, Univ Evry, EPEE) 
Abstract:  This paper provides a framework for understanding preferences over utility streams across different time periods. We analyze preferences for the close future, for the distant future, and a synthesis of both, establishing a representation involving weights over time periods. Examining scenarios where two utility streams cannot be robustly compared to each other, we introduce notions in which one has more "potential" to be preferred over another, which lead to MaxMin, MaxMax, and αMaxMin representations. Finally, we consider temporal bias in the form of violations of stationarity. For close future preferences, we obtain a generalization of quasihyperbolic discounting. For distant future preferences, we obtain Banach limits and discuss the relationship with exponential discounting. 
Keywords:  Axiomatisation, Myopia, Multiple Discounts, αMaxMin Citeria, Temporal Biases, Banach Limits, Infinite Dimensional Topologies 
JEL:  D11 D15 D90 
Date:  2023 
URL:  http://d.repec.org/n?u=RePEc:eve:wpaper:2308&r=mic 
By:  Pau Milán; Nicolás Oviedo Dávila 
Abstract:  Riskaverse workers in a team exert effort to produce joint output. Workers’ incentives are connected via chains of productivity spillovers, represented by a network of peereffects. We study the problem of a principal offering wage contracts that simultaneously incentivize and insure agents. We solve for the optimal linear contract for any network and show that optimal incentives are loaded more heavily on workers that are more central in a specific way. We conveniently link firm profits to network structure via the networks spectral properties. When firms can’t personalize contracts, better connected workers ex tract rents. In this case, a group composition result follows: large withingroup differences in centrality can decrease firm’s profits. Finally, we find that modular production has important implications for how peer structures distribute incentives. 
Keywords:  moral hazard, Networks, Incentives, Organizations, contracts 
JEL:  D11 D52 D53 G52 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:bge:wpaper:1439&r=mic 
By:  Mark Whitmeyer 
Abstract:  A natural way of quantifying the ``amount of information'' in decision problems yields a globally concave value for information. Another (in contrast, adversarial) way almost never does. 
Date:  2024–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2404.01190&r=mic 
By:  Christian Basteck (WZB Berlin) 
Abstract:  We study the problem of assigning indivisible objects to agents where each is to receive one object. To ensure fairness in the absence of monetary compensation, we consider random assignments. Random Priority, also known as Random Serial Dictatorship, is characterized by symmetry, expost efficiency and probabilistic (Maskin) monotonicity  whenever preferences change so that a given deterministic assignment is ranked weakly higher by all agents, the probability of that assignment being chosen should be weakly larger. Probabilistic monotonicity implies strategyproofness for random assignment problems and is equivalent on a general social choice domain; for deterministic rules it coincides with Maskin monotonicity. 
Keywords:  random assignment; random priority; random serial dictatorship; expost efficiency ; probabilistic monotonicity; maskin monotonity ; 
JEL:  C70 C78 D63 
Date:  2024–04–09 
URL:  http://d.repec.org/n?u=RePEc:rco:dpaper:502&r=mic 
By:  François Pannequin (CEPS, ENS ParisSaclay, Université ParisSaclay); Anne Corcos (CURAPPESS UMR 7319, CNRS, Université de Picardie Jules Verne) 
Abstract:  Using a principalagent framework, we extend the insurance monopoly model (Stiglitz, 1977) to selfinsurance opportunities. Relying on a twopart tariff contract as an analytical tool, we show that an insurance monopoly can achieve the same equilibrium as a competitive insurer. However, in the monopoly situation, the insurer captures all the insurance market surplus. Yet, compared to a monopoly market with insurance only, selfinsurance opportunities act as a threat to the insurer, resulting in a cut of the insurer's market power and an increase in the policyholders' welfare. Moreover, within our principalagent framework, we show that while insurance and selfinsurance are substitutes, compulsory selfinsurance, and compulsory insurance have nonequivalent effects. Although compulsory selfinsurance reduces the market size of the insurer, it has no impact on the policyholder's wellbeing. On the other hand, mandatory insurance favors the insurer and makes policyholders worse off. The implications of these public policies are discussed. 
Keywords:  selfinsurance, insurance, monopoly, compulsory insurance, public regulation 
JEL:  D86 D42 G22 
Date:  2023 
URL:  http://d.repec.org/n?u=RePEc:eve:wpaper:2302&r=mic 
By:  Daniele Caliari; Henrik Petri 
Abstract:  We show that the set of aggregate choices of a population of rational decisionmakers  random utility models (RUMs)  can be represented by a population of irrational ones if, and only if, their preferences are sufficiently uncorrelated. We call this representation: Irrational RUM. We then show that almost all RUMs can be represented by a population in which at least some decisionmakers are irrational and that under specific conditions their irrational behavior is unconstrained. 
Date:  2024–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2403.10208&r=mic 
By:  Margot Belguise 
Abstract:  Politicians often use “red herrings” to distract voters from scandals. When do such red herrings succeed? I develop a model in which an incumbent runs for reelection and potentially faces a scandal. Some incumbents enjoy telling “tales” (attentiongrabbing stories) while others use tales to distract voters from the scandal. Multiple equilibria can arise: one with a norm of taletelling in which red herrings succeed and another with a norm against taletelling in which they fail. Increased media attention to tales has a nonmonotonic effect, facilitating red herrings at low attention levels, but serving a disciplinary function at high levels. 
Date:  2024 
URL:  http://d.repec.org/n?u=RePEc:not:notnic:202401&r=mic 
By:  Tatkei Lai (IESEG School of Management, Univ. Lille, CNRS, UMR 9221  LEM  Lille Economie Management, France); Travis Ng (The Chinese University of Hong Kong, Hong Kong) 
Abstract:  In MilgromRoberts (1986)’s model, introducing the possibility to die before customers’ repurchase alters the firm’s advertising incentive to signal hidden product quality. Two opposing forces result, one mechanical and the other strategic. Depending on their relative strengths, the equilibrium advertising can either rise or fall. To the extent that competition threatens firms’ survival, our result explains the mixed findings on the causal effects of competition on advertising. Introducing firm deaths in their model offers a new test of whether advertising signals quality, still an unsettled empirical question since Nelson (1974) first articulates advertising as a signal. 
Keywords:  Advertising; Signaling; Competition; Product Quality; Introductory pricing 
Date:  2023–11 
URL:  http://d.repec.org/n?u=RePEc:ies:wpaper:e202405&r=mic 
By:  Bora Yongacoglu; G\"urdal Arslan; Lacra Pavel; Serdar Y\"uksel 
Abstract:  Weakly acyclic games generalize potential games and are fundamental to the study of game theoretic control. In this paper, we present a generalization of weakly acyclic games, and we observe its importance in multiagent learning when agents employ experimental strategy updates in periods where they fail to best respond. While weak acyclicity is defined in terms of path connectivity properties of a game's better response graph, our generalization is defined using a generalized better response graph. We provide sufficient conditions for this notion of generalized weak acyclicity in both twoplayer games and $n$player games. To demonstrate that our generalization is not trivial, we provide examples of games admitting a pure Nash equilibrium that are not generalized weakly acyclic. The generalization presented in this work is closely related to the recent theory of satisficing paths, and the counterexamples presented here constitute the first negative results in that theory. 
Date:  2024–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2403.18086&r=mic 
By:  Cosmin Ilut; Rosen Valchev 
Abstract:  We develop a novel framework of bounded rationality under cognitive frictions that studies learning over optimal behavior through both deliberative reasoning and accumulated experiences. Using both types of information, agents engage in Bayesian nonparametric estimation of the unknown action value function. Reasoning signals are produced internally through mental deliberation, subject to a cognitive cost. Experience signals are the observed utility outcomes at previous actions. Agents' subjective estimation uncertainty, which evolves through information accumulation, modulates the two modes of learning in a state and historydependent way. We discuss how the model draws on and bridges conceptual, methodological and empirical insights from both economics and the cognitive sciences literature on reinforcement learning. 
Date:  2024–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2403.18185&r=mic 
By:  Shengwu Li 
Abstract:  Which mechanisms are simple to play? When is it easy for participants to see that a mechanism is incentivecompatible? I will start by explaining how and why economists came to ask these questions. Then I will discuss three recent answers, that capture different aspects of what makes a mechanism simple. 
Date:  2024–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2403.18694&r=mic 