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on Microeconomics |
| By: | Marco Battaglini; Thomas R. Palfrey |
| Abstract: | We study the volunteer’s dilemma in environments with heterogeneous preferences and private information. We characterize the efficiency properties of equilibrium, which is a departure from all the previous literature that focuses only on the probability of group success. While the probability of success may be non-monotonic in the size of the group, we show that per-capita welfare is always increasing for all types, strictly for sufficiently high types. As group size increases, the expected utility of every type converges to the expected utility of the type with the lowest possible cost, which is the same expected utility when there is no free rider problem, i.e., when there is only a single player in the game and that player has the lowest possible cost. |
| JEL: | C78 D71 D72 H41 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32999 |
| By: | Evan Piermont; Marcus Pivato |
| Abstract: | We consider a model where an agent is must choose between alternatives that each provide only an imprecise description of the world (e.g. linguistic expressions). The set of alternatives is closed under logical conjunction and disjunction, but not necessarily negation. (Formally: it is a distributive lattice, but not necessarily a Boolean algebra). In our main result, each alternative is identified with a subset of an (endogenously defined) state space, and two axioms characterize maximin decision making. This means: from the agent's preferences over alternatives, we derive a preference order on the endogenous state space, such that alternatives are ranked in terms of their worst outcomes. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.06054 |
| By: | Martin J. Osborne |
| Abstract: | The members of a finite set of office-motivated politicians choose sequentially whether to become candidates in an electoral competition. Each candidate chooses a position from a set X that is a (possibly strict) subset of the set of all positions. I show that if X is a subset of a one-dimensional interval, a tie is possible only among candidates who choose the same position, and a candidate wins if her vote share exceeds 1/2 and only if it is at least as large as any other candidate's vote share, then in every subgame perfect equilibrium the first and last politicians to move enter at one of the members of X closest to the median of the citizens' favorite positions and the remaining politicians do not enter. The assumption about ties is satisfied if the winner of the election is chosen from among the candidates with the highest vote shares by a mediator with strict preferences over positions or if the set X does not admit ties at distinct positions. |
| Keywords: | Electoral competition, sequential entry |
| JEL: | P0 |
| Date: | 2024–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-786 |
| By: | Fujisawa, Chieko |
| Abstract: | When firms use advertising to differentiate their products and increase consumer appreciation of their products, the strategy, i.e., price or quantity, depends on the degree of product differentiation and the magnitude of advertising costs. If advertising costs in Bertrand competition are very much lower than advertising costs in Cournot competition, the firms will choose Bertrand competition. If advertising costs in Bertrand competition are comparable to advertising costs in Cournot competition, both firms will choose Cournot competition. If advertising costs in Bertrand competition are lower than those in Cournot competition, and differentiation is, to some extent greater, firms adopt different strategies each other. This is because firms take advantage of the different advertising effectiveness of competitors under the conditions of cost and differentiation increase profitability. There is also a mixed strategy option under these conditions. Furthermore, the differentiation strategy with advertising increases firms' profits and increases consumer surplus and total surplus compared to the case without advertising. |
| Keywords: | Online media advertising, Mass media advertising, differentiation strategy, Cournot competition, Bertrand competition, Duopoly model |
| JEL: | D43 L13 M37 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:itsb24:302462 |
| By: | Jean-Michel Benkert, Armin Schmutzler |
| Abstract: | This paper investigates the value of recommendations for disseminating economic information, with a focus on frictions resulting from preference heterogeneity. We consider Bayesian expected-payoff maximizers who receive non-strategic recommendations by other consumers. The paper provides conditions under which different consumer types accept these recommendations. Moreover, we assess the overall value of a recommendation system and the determinants of that value. Our analysis highlights the importance of disentangling objective information from subjective preferences when designing value-maximizing recommendation systems. |
| Keywords: | recommendations, preference heterogeneity, optimal design |
| JEL: | D02 D47 D83 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ube:dpvwib:dp2406 |
| By: | Luca Anderlini; GaOn Kim |
| Abstract: | We consider auctions with N+1 bidders. Of these, N are symmetric and N+1 is "sufficiently strong" relative to the others. The auction is a "tournament" in which the first N players bid to win the right to compete with N+1. The bids of the first N players are binding and the highest bidder proceeds to a second-price competition with N+1. When N+1's values converge in distribution to an atom above the upper end of the distribution of the N bidders and the rest of the distribution is drained away from low values sufficiently slowly, the auction's expected revenue is arbitrarily close to the one obtained in a Myerson (1981) optimal auction. The tournament design is "detail free" in the sense that no specific knowledge of the distributions is needed in addition to the fact that bidder N+1 is stronger than the others as required. In particular, no additional information about the value of the atom is needed. This is important since mis-calibrating by a small amount an attempt to implement the optimal auction can lead to large losses in revenue. We provide an interpretation of these results as possibly providing guidelines to a seller on how to strategically "populate" auctions with a single bidder even when only weaker bidders are available. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.11048 |
| By: | R. Pablo Arribillaga; Jordi Massó; Alejandro Neme |
| Abstract: | We define and study obvious strategy-proofness with respect to a partition of the set of agents. It encompasses strategy-proofness as a special case when the partition is the coarsest one and obvious strategy-proofness when the partition is the finest. For any partition, it falls between these two extremes. We establish two general properties of this new notion and apply it to the simple anonymous voting problem with two alternatives and strict preferences. |
| Keywords: | obvious strategy-proofness, extended majority voting |
| JEL: | D71 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1456 |
| By: | Marc Claveria-Mayol; Pau Milán; Nicolás Oviedo Dávila |
| Abstract: | We study the problem of a principal designing wage contracts that simultaneously incentivize and insure workers. Workers’ incentives are connected through chains of productivity spillovers, represented by a network of peer-effects. We solve for the optimal linear contract for any network and show that optimal incentives are steeper for more central workers. We link firm profits to organizations’ structure via the spectral properties of the co-worker network. When production is modular, the incentive allocation rule is sensitive to the link structure across and within modules. When firms can’t write personalized con- tracts, better connected workers extract rents and total surplus is reduced. In this case, unemployment emerges endogenously because large within-group differences in centrality can decrease firm’s profits. |
| Keywords: | Incentives, Organizations, contracts, Networks, moral hazard |
| JEL: | D21 D23 D85 D86 L14 L22 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1457 |
| By: | Penghuan Yan |
| Abstract: | Selective contests can impair participants' overall welfare in overcompetitive environments, such as school admissions. This paper models the situation as an optimal contest design problem with binary actions, treating effort costs as societal costs incurred to achieve a desired level of selectivity. We provide a characterization for the feasible set of selection efficiency and societal cost in selective contests by establishing their relationship with feasible equilibrium strategies. We find that selection efficiency and contestants' welfare are complementary, i.e. it is almost impossible to improve one without sacrificing the other. We derive the optimal equilibrium outcome given the feasible set and characterize the corresponding optimal contest design. Our analysis demonstrates that it is always optimal for a contest designer who is sufficiently concerned with societal cost to intentionally introduce randomness into the contest. Furthermore, we show that the designer can optimize any linear payoff function by adjusting a single parameter related to the intensity of randomness, without altering the specific structure of the contest. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.09768 |
| By: | Andrew Koh; Ricky Li; Kei Uzui |
| Abstract: | We analyze inertial coordination games: dynamic coordination games with an endogenously changing state that depends on (i) a persistent fundamental that players privately learn about; and (ii) past play. We give a tight characterization of how the speed of learning shapes equilibrium dynamics: the risk-dominant action is selected in the limit if and only if learning is slow such that posterior precisions grow sub-quadratically. This generalizes results from static global games and endows them with an alternate learning foundation. Conversely, when learning is fast, equilibrium dynamics exhibit persistence and limit play is shaped by initial play. Whenever the risk dominant equilibrium is selected, the path of play undergoes a sudden transition when signals are precise, and a gradual transition when signals are noisy. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.08145 |
| By: | de Cornière, Alexandre; Taylor, Greg |
| Abstract: | We study mergers between firms operating in data-connected markets: the data generated as a byproduct of the activity on market A can be used by firms operating on market B. The effects of such a merger depend on whether data trade among independent firms is possible, and on whether data use benefits consumers or leads to more surplus extraction. When data increases product B’s quality, the merger benefits consumers on both markets if data cannot be traded absent the merger, and harms them otherwise. When data is used to extract consumer surplus on market B the merger increases consumer surplus on market A and reduces it on market B. |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129733 |
| By: | Klaus M. Schmidt; Jonas von Wangenheim |
| Abstract: | Reference-dependent preferences can explain several puzzling observations about organizational change. We introduce a dynamic model in which a loss-neutral firm bargains with loss-averse workers over organizational change and wages. We show that change is often stagnant or slow for long periods followed by a sudden boost in productivity during a crisis. Moreover, it accounts for the fact that different firms in the same industry often have significant productivity differences. The model also demonstrates the importance of expectation management even if all parties have rational expectations. Social preferences explain why it may be optimal to divide a firm into separate entities. |
| Keywords: | Organizational Change, Productivity, Reference Points, Loss Aversion, Social Preferences |
| JEL: | D23 D91 L2 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_599 |
| By: | Matthew T. Cole (Department of Economics, California Polytechnic State University) |
| Abstract: | A tip is a voluntary payment above the sticker price to a service provider. Tipping is inherently price discrimination as different customers pay different effective prices. In this paper, I ask, what are the welfare effects from a model with price discrimination in which consumers subsidize labor costs to one in which all consumers pay the same price but workers are paid a higher wage. Holding firm profits fixed across the two regimes and assuming consumers whose willingness to pay is higher also tip more, I find that the consumer that has the highest (lowest) willingness to pay unambiguously gains (loses) from moving to a fair wage regime. Furthermore, if the wage rate increases such that firm profits remain the same, total social surplus increases but workers are worse off relative to the tipping regime. Finally, if the two groups of consumers are sufficiently different in their willingness to pay and the wage rate increases such that the worker is indifferent, total social surplus would be higher in the tipping regime. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:cpl:wpaper:2401 |
| By: | Zi Yang Kang; Mitchell Watt |
| Abstract: | This paper develops a model of in-kind redistribution where consumers participate in either a private market or a government-designed program, but not both. We characterize when a social planner, seeking to maximize weighted total surplus, can strictly improve upon the laissez-faire outcome. We show that the optimal mechanism consists of three components: a public option, nonlinear subsidies, and laissez-faire consumption. We quantify the resulting distortions and relate them to the correlation between consumer demand and welfare weights. Our findings reveal that while private market access constrains the social planner's ability to redistribute, it also strengthens the rationale for non-market allocations. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.06112 |
| By: | Squintani, Francesco (University of Warwick) |
| Abstract: | This paper brings together two major research streams in economic theory : information transmission in networks and strategic communication. The model embeds persuasion games of strategic disclosure by Milgrom (1981) into the communication network framework by Jackson and Wolinsky (1996). I find that the unique optimal network is a line in which players are ordered according to their bliss points. This ordered line is also pairwise-stable. This …nding stands in sharp contrast to previous results in network studies, that identify stars as the optimal and pairwise-stable networks when communication is non-strategic and subject to technological constraints. While stars are the most centralized minimally-connected networks, the line is the most decentralized one. These results may be especially relevant to political economy applications, such as networks of policymakers, interest groups, or judges |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wcreta:88 |
| By: | Gregory Z. Gutin; Daniel Karapetyan; Philip R. Neary; Alexander Vicker; Anders Yeo |
| Abstract: | A run of the deferred acceptance (DA) algorithm may contain proposals that are sure to be rejected. We introduce the accelerated deferred acceptance algorithm that proceeds in a similar manner to DA but with sure-to-be rejected proposals ruled out. Accelerated deferred acceptance outputs the same stable matching as DA but does so more efficiently: it terminates in weakly fewer rounds, requires weakly fewer proposals, and final pairs match no later. Computational experiments show that these efficiency savings can be strict. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.06865 |