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on Microeconomics |
| By: | Roland Bénabou; Nikhil Vellodi |
| Abstract: | We study a sequential experimentation model with endogenous feedback. Agents choose between a safe and risky action, the latter generating stochastic rewards. When making this choice, each agent is selfishly motivated (myopic). However, agents can disclose their experiences to a public record, and when doing so are pro-socially motivated (forward-looking). When prior uncertainty is large, disclosure is both polarized (only extreme signals are disclosed) and positively biased (no feedback is bad news). When prior uncertainty is small, a novel form of unraveling occurs and disclosure is complete. Subsidizing disclosure costs can perversely lead to less disclosure but more experimentation. |
| JEL: | D82 D83 D91 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32483&r= |
| By: | Rochet, Jean-Charles; Carlier, Guillaume; Dupuis, Xavier; Thanassoulis, John |
| Abstract: | We provide an algorithm for solving multidimensional screening problems which are intractable analytically. The algorithm is a primal-dual algorithm which alternates between optimising the primal problem of the surplus extracted by the principal and the dual problem of the optimal assignment to deliver to the agents for a given surplus. We illustrate the algorithm by solving (i) the generic monopolist price discrimination problem and (ii) an optimal tax problem covering income and savings taxes when citizens differ in multiple dimensions. |
| Keywords: | Multidimensional screening; algorithm; numerical methods; price discrimination; optimal tax |
| JEL: | C02 H21 D42 |
| Date: | 2024–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129347&r= |
| By: | Markus Möller (University of Bonn) |
| Abstract: | I study a central authority’s ability to commit to a publicly announced mechanism in a one-to-one agent-object matching model. The authority announces a strategy-proof mechanism and then privately selects a mechanism to initiate a matching. An agent’s observation in form of the final matching has an innocent explanation (Akbarpour and Li, 2020), if given the agent’s reported preferences, there is a combination with other agents’ preferences leading to an identical observation under the announced mechanism. The authority can only commit up to safe deviations (Akbarpour and Li, 2020)—mechanisms that produce only observations with innocent explanations. For efficient or stable announcements, I show that no safe deviation exists if and only if the announced mechanism is dictatorial. I establish that the Deferred Acceptance (DA) Mechanism (Gale and Shapley, 1962) implies commitment to stability. Finally, I show that group strategy-proof and efficient announcements allow commitment to efficiency only if they are dictatorial. |
| Keywords: | Matching, Transparency, Partial Commitment, Strategy-Proof, Stability, Efficiency, DA, TTC |
| JEL: | C78 D47 D82 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:306&r= |
| By: | Kunimoto, Takashi (School of Economics, Singapore Management University); Zhang, Cuiling (School of Economics, Singapore Management University) |
| Abstract: | Crémer and McLean (1988) show that the seller can extract full surplus almost always by an incentive compatible, individually rational mechanism in a single-unit auction model with a finite type space in which agents' beliefs are correlated and their valuations can be interdependent. We first show that this paradoxically positive result can be extended to a model of bilateral trades. To make it more realistic, we investigate when ex-post efficiency and ex-post budget balance in bilateral trades can also be achieved by an incentive compatible, individually rational mechanism. We identify a necessary condition for the existence of such mechanisms and show that it is also sufficient for a two-type model. We next show that the identified condition is not sufficient in general. Through a series of examples, we show that the imposition of ex post budget balance in a bilateral trade model induces a delicate interaction between interdependent values and correlated beliefs, so that the existence of incentive compatible, individually rational mechanisms becomes a very subtle problem. Finally, focusing on a model with linear valuations, we give the precise sense in which a possibility result under interdependent values is more fragile than that under private values. |
| Keywords: | bilateral trade; interdependence; correlation |
| JEL: | C72 D78 D82 |
| Date: | 2024–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:0000_000&r= |
| By: | Ahmadzadeh, Amirreza; Waizmann, Stephan |
| Abstract: | This paper studies how to combine screening menus and inspection in mechanism design. A Principal procures a good from an Agent whose cost is his private information. The Principal has three instruments: screening menus —i.e., quantities and transfers — and (ex-ante) inspection. Inspection is costly but reveals the Agent’s cost. The combination of inspection and screening menus mitigates inefficiencies: the optimal mechanism procures an efficient quantity from all Agents whose cost of production is sufficiently low, regardless of whether inspection has taken place. However, quantity distortions still necessarily occur in optimal regulation; the quantity procured from Agents with higher production costs is inefficiently low. Both results are true regardless of the magnitude of inspection costs. In contrast to settings without inspection, incentive compatibility con-straints do not bind locally. This paper provides a method to address this challenge, characterizing which constraints bind. |
| Keywords: | Mechanism Design; Verification; Principal-Agent; Inspection, Procurement |
| JEL: | D82 D86 L51 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129335&r= |
| By: | Klajdi Hoxha |
| Abstract: | How do consultants price expertise? This paper studies a problem of selling information products (expertise) to a buyer (client) who faces decision-making problem under uncertainty. The client is privately informed about the type of expertise she needs and her willingness to pay (WTP) for additional information. A monopolist seller (consultant) designs and sells information products as Blackwell experiments over the underlying states associated with each client-specific desired expertise. Because there is correlation across states, a client with high WTP may find it profitable to purchase information about a low type's state, whenever correlation is sufficiently high. I find that the consultant can extract full (socially efficient) surplus whenever such (marginal) gains do not exceed the (marginal) costs of buying cheaper, but noisier information. Otherwise, unlike typical results in mechanism design, I find that buyers with low and sufficiently high value for information get no information rents, and only the "middle" types enjoy positive surplus. Common pricing structures observed in practice, like flat/hourly rates or value-based fees, are obtained as optimal contracts if correlation across states is sufficiently high or low, respectively. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.11142&r= |
| By: | Kunimoto, Takashi (School of Economics, Singapore Management University); Saran, Rene (Department of Economics, University of Cincinnati) |
| Abstract: | A social choice function (SCF) is robustly implementable in rationalizable strate-gies if every rationalizable strategy profile on every type space results in outcomes consistent with it. First, we establish an equivalence between robust implementation in rationalizable strategies and “weak rationalizable implementation”. Second, using the equivalence result, we identify weak robust monotonicity as a necessary and al-most sufficient condition for robust implementation in rationalizable strategies. This exhibits a contrast with robust implementation in interim equilibria, i.e., every equilib-rium on every type space achieves outcomes consistent with the SCF. Bergemann and Morris (2011) show that strict robust monotonicity is a necessary and almost sufficient condition for robust implementation in interim equilibria. We argue that strict robust monotonicity is strictly stronger than weak robust monotonicity, which further implies that, within general mechanisms, robust implementation in rationalizable strategies is more permissive than robust implementation in interim equilibria. The gap between robust implementation in rationalizable strategies and that in interim equilibria stems from the strictly stronger nonemptiness requirement inherent in the latter concept. |
| Keywords: | Ex post incentive compatibility; rationalizability; interim equilibrium; robust implementation; weak rationalizable implementation; weak robust monotonicity |
| JEL: | C72 D78 D80 |
| Date: | 2024–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:2024_003&r= |
| By: | Aleksei Smirnov; Egor Starkov |
| Abstract: | This paper studies strategic communication in the context of social learning. Product reviews are used by consumers to learn product quality, but in order to write a review, a consumer must be convinced to purchase the item first. When reviewers care about welfare of future consumers, this leads to a conflict: a reviewer today wants the future consumers to purchase the item even when this comes at a loss to them, so that more information is revealed for the consumers that come after. We show that due to this conflict, communication via reviews is inevitably noisy, regardless of whether reviewers can commit to a communication strategy or have to resort to cheap talk. The optimal communication mechanism involves truthful communication of extreme experiences and pools the moderate experiences together. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.05744&r= |
| By: | Pham, Hien |
| Abstract: | A monopolistic seller jointly designs allocation rules and (new) information about a pay-off relevant state to a buyer with private types. When the new information flips the ranking of willingness to pay across types, a screening menu of prices and threshold disclosures is optimal. Conversely, when its impact is marginal, bunching via a single posted price and threshold disclosure is (approximately) optimal. While information design expands the scope for random mechanisms to outperform their deterministic counterparts, its presence leads to an equivalence result regarding sequential versus. static screening. |
| Keywords: | mechanism design, information design, sequential screening, random mechanisms, bunching. |
| JEL: | D42 D82 D86 L15 |
| Date: | 2023–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120989&r= |
| By: | Okuyama, Suzuka |
| Abstract: | Existing studies on Behaviour-based price discrimination (BBPD) typically show that firms offer discounts to encourage consumers located middle of the line segment to switch in a duopoly model. However, in practice, some firms offer both this discount and a discount to encourage consumers with lower preferences for the product itself to buy at the same time. I introduce heterogeneity of consumer willingness to pay and relax the assumption that the market is fully covered. Then, there are three purchase histories: bought from a firm, bought from another firm, and bought nothing. I assume that the two firms offer three different prices according to the purchase histories under BBPD. In the second period, firms offer discounts not only for rival customers but also for customers who bought nothing. On the other hand, firms offer higher prices for consumers who purchase the same goods over two periods in the second period than in the first period. This paper shows that BBPD does not lower all prices in the second period and does not increase consumer surplus. |
| Keywords: | Behavior-based price discrimination, Hotelling model. |
| JEL: | D43 L13 |
| Date: | 2024–03–16 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:120949&r= |
| By: | Ludovic A. Julien; Gagnie Pascal Yebarth |
| Abstract: | This paper explores the possibility that a taxation mechanism always implements a Pareto-optimal allocation in bilateral exchange when the market participants behave strategically and noncooperatively. To this end, we reconsider the taxation mechanism, namely the endowment taxation with transfers, implemented in the strategic bilateral exchange models by Gabszewicz and Grazzini (JPET, 1999). In this framework of strategic bilateral exchange, we consider a general class of smooth utility functions, and we determine the conditions under which the taxation mechanism is Pareto-optimal, i.e., whether there exists an equilibrium tax such that endowment taxation with transfers always implements a Pareto-optimal allocation. Furthermore, we explain why this taxation mechanism could implement a Pareto-optimal allocation. |
| Keywords: | Cournot-Nash equilibrium, Pareto-optimality, taxation |
| JEL: | C72 D41 H21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-19&r= |
| By: | Qiufu Chen; Yuanmei Li; Xiaopeng Yin; Luosai Zhang; Siyi Zhou |
| Abstract: | Market design in one-to-one matching problems aims to establish an ideal mechanism ensuring stability with both stated and true preferences. However, the impossibility theorem in Roth (1982) reveals that no stable mechanism can satisfy strategy-proofness1. This paper focuses on exploring the Machiavellian frontier of stable mechanisms by weakening strategy-proofness. We aim to examine the extent to which we can relax strategy-proofness while either preserving or overturning Roth (1982)'s impossibility result. Three main results are demonstrated. Firstly, unless only one stable matching exists, no stable mechanism satisfies truncation-invariance, an axiom much weaker than strategy-proofness. Secondly, the M-optimal and W-optimal stable mechanisms satisfy truncation-proofness, an axiom weaker than truncation-invariance (and strategy-proofness). Lastly, truncation-proofness and stability are not logically interdependent; some stable mechanisms lack truncation-proofness, and some truncation-proof mechanisms are not stable. In addition, truncation-proofness and stability cannot characterize M-optimal and W-optimal stable mechanisms. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.12804&r= |
| By: | Donna, Javier |
| Abstract: | The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfac- tual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income in- equality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire). |
| Keywords: | Redistributive Politics, Taxes, Ambiguity, Beliefs, Effort, Luck, Multiple Equi- libria. |
| JEL: | D80 H10 H30 P16 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121046&r= |
| By: | Donna, Javier; Pereira, Pedro |
| Abstract: | We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might re- duce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers. |
| Keywords: | Antitrust, Vertical Mergers, Rivals’ Exit, Double Marginalization, Merger Evalu- ation, Competition Policy. |
| JEL: | K21 K41 L42 L44 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121045&r= |
| By: | Banerjee, Swapnendu; Chakraborty, Somenath |
| Abstract: | This paper examines the impact of social preferences on the choice between individual production and team production. An inequity-averse principal can hire a single or a team of two agents to work on a single project. The agents are inequity-averse with respect to the principal. In this framework we show that even without ‘team synergy’ a moderately inequity-averse principal can opt for team production. Thus we provide an additional rationale for the empirically observed prevalence of team based production in terms of the possible existence of social preferences. Keeping social preferences fixed, we show that team production is likely in long-term employment relationships compared to short-run relationships when the principal is moderately inequity-averse. For sufficiently inequity-averse principal the incentive for team production remains the same across short-term and long-term relationships. |
| Keywords: | Other regarding preferences, inequity aversion, team contracts, Synergy |
| JEL: | D21 D86 M52 |
| Date: | 2022–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120996&r= |
| By: | Moshe Babaioff; Uriel Feige |
| Abstract: | We consider the problem of fair allocation of indivisible items to agents that have arbitrary entitlements to the items. Every agent $i$ has a valuation function $v_i$ and an entitlement $b_i$, where entitlements sum up to~1. Which allocation should one choose in situations in which agents fail to agree on one acceptable fairness notion? We study this problem in the case in which each agent focuses on the value she gets, and fairness notions are restricted to be {\em share based}. A {\em share} $s$ is an function that maps every $(v_i, b_i)$ to a value $s(v_i, b_i)$, representing the minimal value $i$ should get, and $s$ is {\em feasible} if it is always possible to give every agent $i$ value of at least $s(v_i, b_i)$. Our main result is that for additive valuations over goods there is an allocation that gives every agent at least half her share value, regardless of which feasible share-based fairness notion the agent wishes to use. Moreover, the ratio of half is best possible. More generally, we provide tight characterizations of what can be achieved, both ex-post (as single allocations) and ex-ante (as expected values of distributions of allocations), both for goods and for chores. We also show that for chores one can achieve the ex-ante and ex-post guarantees simultaneously (a ``best of both world" result), whereas for goods one cannot. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.14575&r= |
| By: | Fedor Sandomirskiy; Philip Ushchev |
| Abstract: | We revisit a classical question of how individual consumer preferences and incomes shape aggregate behavior. We develop a method that applies to populations with homothetic preferences and reduces the hard problem of aggregation to simply computing a weighted average in the space of logarithmic expenditure functions. We apply the method to identify aggregation-invariant preference domains, characterize aggregate preferences from common domains like linear or Leontief, and describe indecomposable preferences that do not correspond to the aggregate behavior of any non-trivial population. Applications include robust welfare analysis, information design, discrete choice models, pseudo-market mechanisms, and preference identification. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.06108&r= |
| By: | Alessandro Lizzeri; Eran Shmaya; Leeat Yariv |
| Abstract: | Starting from Robbins (1952), the literature on experimentation via multi-armed bandits has wed exploration and exploitation. Nonetheless, in many applications, agents' exploration and exploitation need not be intertwined: a policymaker may assess new policies different than the status quo; an investor may evaluate projects outside her portfolio. We characterize the optimal experimentation policy when exploration and exploitation are disentangled in the case of Poisson bandits, allowing for general news structures. The optimal policy features complete learning asymptotically, exhibits lots of persistence, but cannot be identified by an index à la Gittins. Disentanglement is particularly valuable for intermediate parameter values. |
| JEL: | C73 D81 D83 O35 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32424&r= |
| By: | Beltrametti, Luca (University of Genova); Cardullo, Gabriele (University of Genova) |
| Abstract: | We study the impact of monitoring in a workplace context where both firms and employees are unable to perfectly observe the individual worker contribution to total output. Therefore, in our setting monitoring is not aimed at reducing information asymmetries but still affects effort and output. We show that if individuals are prudent, firms call for less monitoring. Workers' stance towards monitoring is ambiguous and depends on risk aversion and the disutility of effort. Our "prudence effect" offers some clues for a more nuanced interpretation of the attitudes towards monitoring by firms and workers. |
| Keywords: | monitoring, prudence, workers' effort |
| JEL: | D81 J24 M52 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp17000&r= |
| By: | Sánchez, Mariola; Nerja, Adrian |
| Abstract: | In this paper, we compare the scenarios of exclusive licenses and cross-licenses under the existence of partial vertical integration. To do this, a successive duopoly model is proposed, with two owners and two firms competing in a differentiated product market. Each technology owner has a share in one of the competing firms, so that competition is also extended to the upstream R&D sector. We propose a novel analysis where differences in the size of their innovation process are allowed, extending the results in Sánchez et al. (2021). We find that the cross-licensing scenario is preferred when the size of the innovation is small; this occurs regardless of the participation in the competing companies and how many innovate. If the innovation is very large, the owners may be better off with exclusive licenses. |
| Keywords: | Patent Licensing; Exclusive licenses; Market for technology; Asymmetric innovation |
| JEL: | L13 L24 O33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120829&r= |
| By: | Yutaro Akita |
| Abstract: | This document presents a simple proof of Dekel (1986)'s representation theorem for betweenness preferences. The proof is based on the separation theorem. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.11371&r= |
| By: | Rochet, Jean-Charles |
| Abstract: | This expository article surveys the literature that has followed my paper"A Necessary and Sufficient Condition for Rationalizability in a Quasi-linear Context" that was published in the Journal of Mathematical Economics in 1987. |
| Keywords: | multidimensional screening; rationalizability; bunching; mechanism design |
| Date: | 2024–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129345&r= |