nep-mic New Economics Papers
on Microeconomics
Issue of 2024‒05‒13
twelve papers chosen by
Jing-Yuan Chiou, National Taipei University

  1. Optimal Information Design of Online Marketplaces with Return Rights By Jonas von Wangenheim
  2. Shill-Proof Auctions By Andrew Komo; Scott Duke Kominers; Tim Roughgarden
  3. Robust Advertisement Pricing By Tan Gan; Hongcheng Li
  4. Contracts with interdependent preferences By Debraj Ray; Marek Weretka
  5. Personalization and Privacy Choice By Andrew Rhodes; Jidong Zhou
  6. On Incentives in Three-Sided Markets By Jorge Arenas; Juan Pablo Torres-Martinez
  7. An axiomatization of the random priority rule By Basteck, Christian
  8. Policy Rules and Political Polarization By Carsten Hefeker; Michael Neugart
  9. Red Herrings : A Model of Attention-Hijacking by Politicians By Belguise, Margot
  10. Event Valence and Subjective Probability By Adam Brandenburger; Paolo Ghirardato; Daniele Pennesi; Lorenzo Stanca
  11. Drain the Swamp: A Theory of Anti-Elite Populism By Gabriele Gratton; Barton E. Lee
  12. Informational Lobbying and Implementation Standards By Blumenthal, Benjamin

  1. By: Jonas von Wangenheim
    Abstract: Consumer data increasingly enable online marketplaces to identify buyers’ preferences and provide individualized product information. Buyers, however, fully learn their product value only after contracting, when the product is delivered. I characterize the impact of such ex-ante information on buyer surplus and seller surplus, when the seller sets prices and refund conditions in response to the ex-ante information. I show that efficient trade and an arbitrary split of the surplus can be achieved. For the buyer- optimal signal low-valuation buyers remain partially uninformed. Such a signal induces the seller to sell at low prices without refund options.
    Keywords: information disclosure, sequential screening, information design, strategic learning, Bayesian persuasion, mechanism design, platform economics, consumer protection
    JEL: D82 D47 D18
    Date: 2022–05
  2. By: Andrew Komo; Scott Duke Kominers; Tim Roughgarden
    Abstract: In a single-item auction, a duplicitous seller may masquerade as one or more bidders in order to manipulate the clearing price. This paper characterizes auction formats that are shill-proof: a profit-maximizing seller has no incentive to submit any shill bids. We distinguish between strong shill-proofness, in which a seller with full knowledge of bidders' valuations can never profit from shilling, and weak shill-proofness, which requires only that the expected equilibrium profit from shilling is nonpositive. The Dutch auction (with suitable reserve) is the unique optimal and strongly shill-proof auction. Moreover, the Dutch auction (with no reserve) is the unique prior-independent auction that is both efficient and weakly shill-proof. While there are a multiplicity of strategy-proof, weakly shill-proof, and optimal auctions; any optimal auction can satisfy only two properties in the set {static, strategy-proof, weakly shill-proof}.
    Date: 2024–03
  3. By: Tan Gan; Hongcheng Li
    Abstract: We consider the robust pricing problem of an advertising platform that charges a producer for disclosing hard evidence of product quality to a consumer before trading. Multiple equilibria arise since consumer beliefs and producer's contingent advertisement purchases are interdependent. To tackle strategic uncertainty, the platform offers each producer's quality type a menu of disclosure-probability-and-price plans to maximize its revenue guaranteed across all equilibria. The optimal menus offer a continuum of plans with strictly increasing marginal prices for higher disclosure probabilities. Full disclosure is implemented in the unique equilibrium. All partial-disclosure plans, though off-path, preclude bad equilibrium play. This solution admits a tractable price function that suggests volume-based pricing can outperform click-based pricing when strategic uncertainty is accounted for. Moreover, the platform prioritizes attracting higher types into service and offers them higher rents despite symmetric information between the platform and the producer.
    Date: 2024–04
  4. By: Debraj Ray (New York University (NYU)); Marek Weretka (Group for Research in Applied Economics (GRAPE); University of Wisconsin-Madison)
    Abstract: This paper studies contracting between a principal and multiple agents, as in Lazear and Rosen (1981) and Green and Stokey (1983). The setup is classical except for the assumption that agents have interdependent preferences. We characterize cost effective contracts, and relate the direction of co-movement in rewards- "joint liability" (positive) or "tournaments" (negative) – to the assumed structure of preference interdependence. WE also study the implications of preference interdependence for the principal's playoffs. We identify two asymmetries. First, the optimal contract leans towards joint liability rather than tournaments, especially in larger teams, in a sense made precise in the paper. Second, when the mechanism-design problem is augmented by robustness constraints designed to eliminate multiple equilibria, the principal may prefer teas linked via adversarial rather than altruistic preferences.
    Keywords: interdependent payoffs, joint liability, tournaments
    JEL: C72 D64
    Date: 2023
  5. By: Andrew Rhodes (Toulouse School of Economics); Jidong Zhou (Yale University)
    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 privacy-choice 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.
    Date: 2024–04
  6. By: Jorge Arenas; Juan Pablo Torres-Martinez
    Abstract: In a class of three-sided matching problems that always have stable solutions, we show that no stable mechanism is strategy-proof for those who internalize the trilateral structure in their preferences. Furthermore, strong restrictions on preferences are needed to ensure that stability and one-sided strategy-proofness are compatible for all sides of the market. These results are related to the incompatibility between stability and one-sided group strategy-proofness in two-sided markets.
    Date: 2024–04
  7. By: Basteck, Christian
    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, ex-post 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 strategy-proofness 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, Ex-Post Efficiency, Probabilistic Monotonicity, Maskin Monotonicity
    JEL: C70 C78 D63
    Date: 2024
  8. By: Carsten Hefeker; Michael Neugart
    Abstract: We develop a model to analyze policymakers’ incentives to install policy rules, comparing the case of no rule with a binding and a contingent policy rule that allows policymakers to suspend the rule in response to a sufficiently large shock. First, abstracting from political polarization, we show that the choice of the policy rule depends on policymakers’ policy targets. Depending on the policy target, there is an unambiguous ranking going from a no-rule regime to a contingent rule to a binding rule. Next, allowing for political polarization, the incentive to install the different types of rules changes with political polarization between different policymakers and their probability of being elected into office. Increasing political polarization when there is a sufficiently high election probability for policymakers with a high policy target increases the preference for more binding policy rules. It also leads to stricter rules in a contingent rule regime.
    Keywords: contingent policy rules, political polarization, time inconsistency, electoral uncertainty
    JEL: D78 E60
    Date: 2024
  9. By: Belguise, Margot (University of Warwick)
    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 re-election and potentially faces a scandal. Some incumbents enjoy telling “tales” (attention-grabbing stories) while others use tales to distract voters from the scandal. Multiple equilibria can arise: one with a norm of tale-telling in which red herrings succeed and another with a norm against tale-telling 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. JEL Codes: C72 ; D72 ; D83 ; D91 ; L82
    Date: 2024
  10. By: Adam Brandenburger; Paolo Ghirardato; Daniele Pennesi; Lorenzo Stanca
    Abstract: In the world of subjective probability, there is no a priori reason why probabilities — interpreted as a willingness-to-bet—should necessarily lie in the interval [0, 1]. We weaken the Monotonicity axiom in classical subjective expected utility (Anscombe and Aumann, 1963) to obtain a representation of preferences in terms of an affine utility function and a signed (subjective) probability measure on states. We decompose this probability measure into a non-negative probability measure (“probability†) and an additive set function on states which sums to zero (“valence†). States with positive (resp. negative) valence are attractive (resp. aversive) for the decision maker. We show how our decision theory can resolve several paradoxes in decision theory, including “hedging aversion†(Morewedge et al., 2018), the conjunction effect (Tversky and Kahneman, 1982, 1983), the co-existence of insurance and betting (Friedman and Savage, 1948), and the choice of dominated strategies in strategyproof mechanisms (Hassidim et al., 2016). We extend our theory to allow for a non-additive willingness-to-bet, which also relaxes our earlier constraints on how valence can behave.
    Keywords: Signed probabilities, non-monotonicity, indifference substitution, valence, attractive and aversive states
    Date: 2024
  11. By: Gabriele Gratton (UNSW Business School); Barton E. Lee (ETH Zurich)
    Abstract: We study a model of popular demand for anti-elite populist reforms that drain the swamp: replace experienced public servants with novices that will only acquire experience with time. Voters benefit from experienced public servants because they are more effective at delivering public goods and more competent at detecting emergency threats. However, public servants’ policy preferences do not always align with those of voters. This tradeoff produces two key forces in our model: public servants’ incompetence spurs disagreement between them and voters, and their effectiveness grants them more power to dictate policy. Both of these effects fuel mistrust between voters and public servants, sometimes inducing voters to drain the swamp in cycles of anti-elite populism. We study which factors can sustain a responsive democracy or induce a technocracy. When instead populism arises, we discuss which reforms may reduce the frequency of populist cycles, including recruiting of public servants and isolating them from politics. Our results support the view that a more inclusive and representative bureaucracy protects against anti-elite populism. We provide empirical evidence that lack of trust in public servants is a key force behind support for anti-elite populist parties and argue that our model helps explain the rise of anti-elite populism in large robust democracies.
    Date: 2024–04
  12. By: Blumenthal, Benjamin
    Abstract: Policymakers are often uncertain about the right course of action. To inform their decisions, policymakers might rely on information provided by interest groups (IGs). Given that their interests are often misaligned, IGs might under-provide information to policymakers. This paper explores the possibility for policymakers of committing to implementation standards prior to IGs’ lobbying, to induce more information transmission. I show that setting implementation standards ex-ante can benefit policymakers, despite possible ex-post inefficiencies, by inducing informational lobbying in cases in which IGs would not have lobbied with implementation standards set ex-post. I discuss implications of these results for constitutional design, legislative politics, and bureaucratic politics.
    Date: 2024–04–05

This nep-mic issue is ©2024 by Jing-Yuan Chiou. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.