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on Microeconomics |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | We consider a monopolist selling an experience good to differentially informed consumers: some consumers are uncertain about their tastes, whereas other consumers are perfectly informed. The fully informed monopolist sets a uniform price and can make personalized product recommendations. We characterize conditions under which the monopolist biases its recommendations – that is, some consumers with match values lower than the marginal cost follow the recommendation to buy the product or some consumers with match values higher than the marginal cost follow the recommendation not to buy the product. |
| Keywords: | information design, biased recommendations, recommender system |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_554&r= |
| By: | Yingkai Li; Argyris Oikonomou |
| Abstract: | We study a single-agent contracting environment where the agent has misspecified beliefs about the outcome distributions for each chosen action. First, we show that for a myopic Bayesian learning agent with only two possible actions, the empirical frequency of the chosen actions converges to a Berk-Nash equilibrium. However, through a constructed example, we illustrate that this convergence in action frequencies fails when the agent has three or more actions. Furthermore, with multiple actions, even computing an $\varepsilon$-Berk-Nash equilibrium requires at least quasi-polynomial time under the Exponential Time Hypothesis (ETH) for the PPAD-class. This finding poses a significant challenge to the existence of simple learning dynamics that converge in action frequencies. Motivated by this challenge, we focus on the contract design problems for an agent with misspecified beliefs and two possible actions. We show that the revenue-optimal contract, under a Berk-Nash equilibrium, can be computed in polynomial time. Perhaps surprisingly, we show that even a minor degree of misspecification can result in a significant reduction in optimal revenue. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20423&r= |
| By: | Avi Lichtig; Helene Mass |
| Abstract: | We extend the standard disclosure model between a sender and a receiver by allowing the receiver to independently gather partial information, by means of a test – a signal with at most k realizations. The receiver’s choice of test is observed by the sender and therefore influences his decision of whether to disclose. We characterize the optimal test for the receiver and show how it resolves the trade-off between informativeness and disclosure incentives. If the receiver were aiming at maximizing the informativeness, she would choose a deterministic test. In contrast, the optimal test involves randomization over signal realizations and maintains a simple structure. Such a structure allows us to interpret this randomization as the strategic use of uncertain evaluation standards for disclosure incentives. |
| Keywords: | Disclosure, Information Acquisition |
| JEL: | D82 D83 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_543&r= |
| By: | Banerjee, Swapnendu; Saha, Soumyarup |
| Abstract: | We explore a power relationship between a ‘corrupt’ politician and a political worker where the politician can order an illegal corrupt effort to be performed by the worker. Using a moral hazard structure we show that when the politician’s power is sufficiently high the politician optimally uses power and relies less on wage incentives. But when the power is low, the politician optimally shuns power and relies more on wage incentives. We also talk about optimal bolstering of power through threats depending on the level of power of the politician. This model has implications on the larger principal-agent structure, although we model it as a political corruption game. |
| Keywords: | Power, Corruption, Hidden Action, Perception, Bolstering |
| JEL: | D86 J47 K42 |
| Date: | 2024–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121109&r= |
| By: | Matthias Hunold; Vasilisa Petrishcheva |
| Abstract: | We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target. Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction. |
| Keywords: | Foreclosure, Minority shareholdings, Partial ownership, Profit shifting, Vertical integration |
| JEL: | G34 L22 L40 |
| Date: | 2024–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0041&r= |
| By: | Mario Gilli; Andrea Sorrentino |
| Abstract: | In this paper we consider a deterministic complete information two groups contest where the effort choices made by the teammates are aggregated into group performance by the weakest-link technology (perfect complementarity), that is a "max-min group contest", as defined by Chowdhury et al. (2016). However, instead of a continuum effort set, we employ a binary action set. Further, we consider private good prizes, so that there is a sharing issue within the winning group. Therefore, we include two stages: the first one about the setting of a sharing rule parameter and the second one about simultaneous and independent actions' choices. The binary action set allow us to innovate on the existing literature by (i) characterizing the full set of the second stage equilibrium actions; (ii) computationally characterizing in MATLAB the set of within-group symmetric subgame perfect Nash equilibria in pure strategies in the entire game. We find conditions such that the set of within-group symmetric subgame perfect Nash equilibria in pure strategies have the cardinality of the continuum. We also check whether this paper's results are due to discreteness or to binary choice, proving that in this case there are no subgame perfect Nash equilibria in pure strategies, as proved in the continuum case in Gilli and Sorrentino (2024). |
| Keywords: | Group contests, sharing rules, indeterminacy. |
| JEL: | D74 D71 C72 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:539&r= |
| By: | Aram Grigoryan (University of California); Markus Möller (University of Bonn) |
| Abstract: | In centralized mechanisms and platforms, participants do not fully observe each others' type reports. Hence, if there is a deviation from the promised mechanism, participants may be unable to detect it. We formalize a notion of auditabilty that captures how easy or hard it is to detect deviations from a mechanism. We find a stark contrast between the auditabilities of prominent mechanisms. We also provide tight characterizations of maximally auditable classes of allocation mechanisms. |
| Keywords: | Auditability, Allocation Mechanisms |
| JEL: | D47 D80 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:308&r= |
| By: | Prato, Carlo; Wolton, Stephane |
| Abstract: | The Condorcet Jury Theorem and subsequent literature establish the feasibility of information aggregation in a common-value environment with exogenous policy options: a large electorate of imperfectly informed voters almost always selects the correct policy option. Rather than directly voting for policies, citizens in modern representative democracies elect candidates who make strategic policy commitments. We show that intermediation by candidates sometimes improves policy choices and sometimes impedes information aggregation. Somewhat paradoxically, the possibility of information aggregation by voters encourages strategic conformism by candidates. Correlated information or partisan biases among voters can mitigate the political failure we un- cover. We also discuss possible institutional solutions. |
| Keywords: | information aggregation; elections; representative democracy; Elections; Information aggregation; Representative democracy |
| JEL: | D72 |
| Date: | 2022–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:115180&r= |
| By: | Yoav Kolumbus; Joe Halpern; \'Eva Tardos |
| Abstract: | In repeated games, such as auctions, players typically use learning algorithms to choose their actions. The use of such autonomous learning agents has become widespread on online platforms. In this paper, we explore the impact of players incorporating monetary transfers into their agents' algorithms, aiming to incentivize behavior in their favor. Our focus is on understanding when players have incentives to make use of monetary transfers, how these payments affect learning dynamics, and what the implications are for welfare and its distribution among the players. We propose a simple game-theoretic model to capture such scenarios. Our results on general games show that in a broad class of games, players benefit from letting their learning agents make payments to other learners during the game dynamics, and that in many cases, this kind of behavior improves welfare for all players. Our results on first- and second-price auctions show that in equilibria of the ``payment policy game, '' the agents' dynamics can reach strong collusive outcomes with low revenue for the auctioneer. These results highlight a challenge for mechanism design in systems where automated learning agents can benefit from interacting with their peers outside the boundaries of the mechanism. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20880&r= |
| By: | Maideu-Morera, Gerard |
| Abstract: | I study a dynamic cash flow diversion model between a risk neutral lender and a risk averse entrepreneur who has persistent private information about the firm’s productivity. In the optimal contract, the firm’s size is always distorted downwards and its distortions inherit the autoregressive properties of the type process. The entrepreneur’s compensation is smoothed and decoupled from the firm size dynamics. These results contrast those of equivalent models with risk neutrality. I use numerical simulations to study a quasi-implementation with simpler contracts, which highlights that this class of models is unable to generate realistic firm size and equity share dynamics simultaneously. |
| Keywords: | Firm dynamics; financing constraints; recursive contracts;persistent private information |
| JEL: | D82 G32 L14 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129337&r= |
| By: | Marco Bornstein; Amrit Singh Bedi; Abdirisak Mohamed; Furong Huang |
| Abstract: | Standard federated learning (FL) approaches are vulnerable to the free-rider dilemma: participating agents can contribute little to nothing yet receive a well-trained aggregated model. While prior mechanisms attempt to solve the free-rider dilemma, none have addressed the issue of truthfulness. In practice, adversarial agents can provide false information to the server in order to cheat its way out of contributing to federated training. In an effort to make free-riding-averse federated mechanisms truthful, and consequently less prone to breaking down in practice, we propose FACT. FACT is the first federated mechanism that: (1) eliminates federated free riding by using a penalty system, (2) ensures agents provide truthful information by creating a competitive environment, and (3) encourages agent participation by offering better performance than training alone. Empirically, FACT avoids free-riding when agents are untruthful, and reduces agent loss by over 4x. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.13879&r= |
| By: | Marit Hinnosaar; Toomas Hinnosaar |
| Abstract: | Social media influencers account for a growing share of marketing worldwide. We demonstrate the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement. Our theoretical model shows that influencer cartels can improve consumer welfare if they expand social media engagement to the target audience, or reduce welfare if they divert engagement to less relevant audiences. We validate the model empirically using novel data on influencer cartels combined with machine learning tools, and derive policy implications for how to maximize consumer welfare. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.10231&r= |
| By: | Giampaolo Bonomi |
| Abstract: | We study polarization in a probabilistic voting model with aggregate shocks and a decreasing marginal utility from office rents. In equilibrium, parties offer different policies, despite being rent-motivated and ex-ante identical from the point of view of voters. When candidates compete on a single policy issue, parties' equilibrium payoffs increase in voter polarization, even when the change is driven by the supporters of the opposite party becoming more extreme. With multiple policy issues, parties benefit if the society is split into two factions and the ideological cohesion within such factions increases. We connect our results to empirical evidence on polarizing political communication, party identity, and zero-sum thinking, and find that polarization could be reduced by intervening on the electoral rule. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20564&r= |
| By: | Larry G Epstein; Kaushil Patel |
| Abstract: | Given only aggregate choice data and limited information about how menus are distributed across the population, we describe what can be inferred robustly about the distribution of preferences (or more general decision rules). We strengthen and generalize existing results on such identification and provide an alternative analytical approach to study the problem. We show further that our model and results are applicable, after suitable reinterpretation, to other contexts. One application is to the robust identification of the distribution of updating rules given only the population distribution of beliefs and limited information about heterogeneous information sources. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.09500&r= |
| By: | Mark Whitmeyer; Cole Williams |
| Abstract: | For three natural classes of dynamic decision problems; 1. additively separable problems, 2. discounted problems, and 3. discounted problems for a fixed discount factor; we provide necessary and sufficient conditions for one sequential experiment to dominate another in the sense that the dominant experiment is preferred to the other for any decision problem in the specified class. We use these results to study the timing of information arrival in additively separable problems. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.13709&r= |