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on Microeconomics |
| By: | Teddy Mekonnen; Bobak Pakzad-Hurson |
| Abstract: | An agent engages in sequential search. He does not directly observe the quality of the goods he samples, but he can purchase signals designed by profit maximizing principal(s). We formulate the principal-agent relationship as a repeated contracting problem within a stopping game and characterize the set of equilibrium payoffs. We show that when the agent's search cost falls below a given threshold, competition does not impact how much surplus is generated in equilibrium nor how the surplus is divided. In contrast, competition benefits the agent at the expense of total surplus when the search cost exceeds that threshold. Our results challenge the view that monopoly decreases market efficiency, and moreover, suggest that it generates the highest value of information for the agent. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11183 |
| By: | Laura Doval; Ran Eilat; Tianhao Liu; Yangfan Zhou |
| Abstract: | An analyst observes the frequency with which a decision maker (DM) takes actions, but does not observe the frequency of actions conditional on the payoff-relevant state. We ask when can the analyst rationalize the DM's choices as if the DM first learns something about the state before taking action. We provide a support function characterization of the triples of utility functions, prior beliefs, and (marginal) distributions over actions such that the DM's action distribution is consistent with information given the agent's prior and utility function. Assumptions on the cardinality of the state space and the utility function allow us to refine this characterization, obtaining a sharp system of finitely many inequalities the utility function, prior, and action distribution must satisfy. We apply our characterization to study comparative statics and ring-network games, and to identify conditions under which a data set is consistent with a public information structure in first-order Bayesian persuasion games. We characterize the set of distributions over posterior beliefs that are consistent with the DM's choices. Assuming the first-order approach applies, we extend our results to settings with a continuum of actions and/or states.% |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.13293 |
| By: | Pasha Andreyanov; Ilia Krasikov; Alex Suzdaltsev |
| Abstract: | We study buyer-optimal procurement mechanisms when quality is contractible. When some costs are borne by every participant of a procurement auction regardless of winning, the classic analysis should be amended. We show that an optimal symmetric mechanism is a scoring auction with a score function that may be either flatter or steeper than classically. This depends on the relative degrees of information asymmetry over the all-pay and winner-pay costs. However, the symmetry of the optimal mechanism is not granted due to the presence of all-pay costs. When ex-post efficiency is less important than the duplication of costs, favoritism becomes optimal. We show that, depending on the degree of convexity of costs, the solution takes one of two novel formats with a partially asymmetric treatment of firms, which we call a score floor and a score ceiling auction. Interestingly, these auctions feature side payments from or to the buyer, which has nothing to do with corruption. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12714 |
| By: | Borgers, Timan (University of Michigan); Li, Jiangtao (Singapore Management University); Wang, Kexin (Singapore Management University) |
| Abstract: | We study the design of mechanisms when the designer faces multiple plausible scenarios and is uncertain about the true scenario. A mechanism is dominated by another if the latter performs at least as well in all plausible scenarios and strictly better in at least one. A mechanism is undominated if no other feasible mechanism dominates it. We show how analyzing undominated mechanisms could be useful and illustrate the tractability of characterizing such mechanisms. This approach provides an alternative criterion for mechanism design under non-Bayesian uncertainty, complementing existing methods. |
| Keywords: | Robust Mechanism Design; Undominated Mechanisms; Maxmin Approrach; Regret Minimization; Second-price Auction; Random Reserve Price |
| Date: | 2024–11–02 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:2024_012 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Introducing network externalities into a Hotelling linear market model, we consider the profit ranking of Bertrand and Cournot equilibria, the problem of endogenous choice of strategic variables, and welfare efficiency. In particular, focusing on network connectivity (horizontal interoperability) between network products, we demonstrate the following results: (i) firms earn higher (lower) profits under Bertrand competition rather than under Cournot competition if network connectivity is sufficiently large (small); (ii) firms choose price (quantity) contracts if network connectivity is sufficiently large (small); (iii) social efficiency is achieved under Bertrand competition if network connectivity is sufficiently large. |
| Keywords: | Hotelling linear market model, Bertrand competition, Cournot competition, network connectivity, fulfilled expectations, rational expectations |
| JEL: | D43 L13 L15 L22 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:283 |
| By: | Moshe Babaioff; Noam Manaker Morag |
| Abstract: | We consider the problem of allocating heterogeneous and indivisible goods among strategic agents, with preferences over subsets of goods, when there is no medium of exchange. This model captures the well studied problem of fair allocation of indivisible goods. Serial-quota mechanisms are allocation mechanisms where there is a predefined order over agents, and each agent in her turn picks a predefined number of goods from the remaining goods. These mechanisms are clearly strategy-proof, non-bossy, and neutral. Are there other mechanisms with these properties? We show that for important classes of strict ordinal preferences (as lexicographic preferences, and as the class of all strict preferences), these are the only mechanisms with these properties. Importantly, unlike previous work, we can prove the claim even for mechanisms that are not Pareto-efficient. Moreover, we generalize these results to preferences that are cardinal, including any valuation class that contains additive valuations. We then derive strong negative implications of this result on truthful mechanisms for fair allocation of indivisible goods to agents with additive valuations. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11131 |
| By: | Steven Callander (Stanford University, Stanford Graduate School of Business); Hongyi Li (University of New South Wales, School of Economics) |
| Abstract: | Innovations bring many benefits to society, but they can also bring harm. We study the problem of a regulator deciding whether to approve an innovation where information about the impact of the innovation is held within the firms that are developing it. We show that competition for the innovation undermines the regulator’s ability to extract the information she needs to make good policy. As the number of firms increases and the expected benefit of the innovation grows, the probability that the regulator is persuaded to approve an innovation decreases. This tension between competition and communication reverses Arrow’s famous “replacement effect.” Thus, in regulated markets, more competition can lead to fewer innovations making it to market. We explore how this tension can be mitigated, but not eliminated, by political and market design. |
| Keywords: | Innovation, regulation, competition |
| JEL: | L51 O31 D82 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:swe:wpaper:2024-07 |
| By: | Armin Schmutzler |
| Abstract: | This paper provides a simple unified discrete-choice framework for analyzing differentiated duopolies. This framework nests models of horizontal and vertical differentiation, including standard textbook models (Hotelling and Shaked-Sutton). Contrary to these models, it also applies to economic environments where horizontal differentiation coincides with positive correlation of product valuations across consumers, and environments where vertical differentiation coincides with negative correlation. The paper provides an equilibrium characterization that is applicable independently of the type of differentiation and the sign of the valuation correlation. |
| Keywords: | Duopoly, differentiated products, price competition |
| JEL: | D43 L13 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:461 |
| By: | Jean-Michel Benkert, Igor Letina |
| Abstract: | We provide a model of investment in innovation that is dynamic, features multiple heterogeneous research projects of which only one potentially leads to success, and in each period, the researcher chooses the set of projects to invest in. We show that if a search for innovation starts, it optimally does not end until the innovation is found—which will be never with a strictly positive probability. |
| Keywords: | Innovation, Optimal Search, Infinite Horizon |
| JEL: | D83 O31 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ube:dpvwib:dp2410 |
| By: | Yohan Pelosse (Humanities and Social Sciences, Swansea University) |
| Abstract: | This paper explores some sufficient conditions for the existence and uniqueness of a pure-strategy Nash equilibrium (PSNE) in a class of finite dimensional convex games which do not admit a global strictly concave potential function a la Neyman (1997) and fails the global ’diagonal strict concavity’ conditions of Rosen (1965). We show that applying a ’mixture’ of these well-known regularity conditions inside and across the ’local games’ played within and between some (disjoint) subsets of players (’coalitions) guarantee the existence and uniqueness of a PSNEwhen the game is linearly aggregative inside the coalitions. This PSNE is also the unique correlated equilibriumof the ’partitioned’ strategic game played across the coalitions. When the partitioned game is quasi-aggregative and exhibits ’strategic complementarities’, we obtain the existence of a unique PSNE which has the additional property to be coalition-proof across the coalitions of players. This result suggests the existence of a rich class of games which may admit these ’decentralized coalition-proof ’Nash equilibria as a weakened version of the coalition-proof Nash equilibriumof Bernheim et al. (1987). |
| JEL: | C72 C92 D83 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:swn:wpaper:2024-09 |
| By: | Conrad Kosowsky |
| Abstract: | I model a rational agent who spends resources between the current time and some fixed future deadline. Opportunities to spend resources arise randomly according to a Poisson process, and the quality of each opportunity follows a uniform distribution. The agent values their current resource stock at exactly the sum of expected utility from all future spending opportunities. Unlike in traditional discounted expected utility models, the agent exhibits correlation aversion, static (but not dynamic) preference reversals, and monotonicity with respect to payment timing. Connecting the agent's risk and time preference is intuitive, and doing so leads to a new model of procrastination where the agent misperceives their general attitude toward spending resources. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11828 |
| By: | Ying Xue Li; Burkhard C. Schipper (Department of Economics, University of California Davis) |
| Abstract: | When bidders bid on complex objects, they might be unaware of characteristics effecting their valuations. We assume that each buyer's valuation is a sum of independent random variables, one for each characteristic. When a bidder is unaware of a characteristic, he omits the random variable from the sum. We study the seller's decision to raise bidders' awareness of characteristics before a second-price auction with entry fees. Optimal entry fees capture an additional unawareness rent due to unaware bidders misperceiving their probability of winning and the price to be paid upon winning. When raising a bidder's individual awareness of a characteristic with positive expected value, the seller faces a trade-off between positive effects on the expected first order statistic and unawareness rents of remaining unaware bidders on one hand and the loss of the unawareness rent from the newly aware bidder on the other. We present characterization results on raising public awareness together with no versus full information. We discuss the winner's curse due to unawareness of characteristics. |
| Keywords: | Unawareness, disclosure, optimal second-price auctions with independent private values, winner's curse, entry fees |
| JEL: | C72 D44 D83 |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:365 |
| By: | Galit Askenazi-Golan; Domenico Mergoni Cecchelli; Edward Plumb |
| Abstract: | We explore the behaviour emerging from learning agents repeatedly interacting strategically for a wide range of learning dynamics that includes projected gradient, replicator and log-barrier dynamics. Going beyond the better-understood classes of potential games and zero-sum games, we consider the setting of a general repeated game with finite recall, for different forms of monitoring. We obtain a Folk Theorem-like result and characterise the set of payoff vectors that can be obtained by these dynamics, discovering a wide range of possibilities for the emergence of algorithmic collusion. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12725 |
| By: | Makoto WATANABE; Yu Awaya; Hiroki Fukai |
| Abstract: | We compare Transparency and Privacy in credit markets. A long-lived borrower, who has a risky investment opportunity, seeks loans from a sequence of short-lived lenders. Under Transparency, all the information about the past investment outcomes is shared among the future lenders, which helps the lenders learn the borrowers type. In contrast, no information is shared under Privacy. We first show that under both Transparency and Privacy, the iterated elimination of dominated strategies leaves unique outcomes. We then show that trade stops earlier under Transparency than under Privacy. A higher social welfare is achieved under Privacy than under Transparency. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:24-022e |
| By: | Bennardo, Alberrto (Department of Economics and Statistics - University of Salerno); Abatemarco, Antonio (CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy) |
| Abstract: | Managers perform two heterogenous set of tasks: coordination of production and information gathering activities; moreover, their monetary incentives commonly use few contractible signals. Why are these patterns so common ? Is the development of information markets going to generate Smithian specialization and promote decentralization of information gathering ? How is this going to affect managerial incentive schemes ? Our paper aims at making an initial step toward addressing all these issues within a simple multiple task set-up. We identify an informational complementarity, shaping all the main trade-offs of our analysis, which leads to the following results. First, monetary incentives for information gathering activities are optimally muted under mild conditions on actions' disutility, if the operational value of information is not "very large", or the implementation activity is very productive and very costly to incentivize. Second, public contractible information crowds-in information gathering within firms. Third, specialization by project, instead of by function, turns out to always be second best optimal in the absence of strong substitution e§ects across activities. Even in the presence of sizeable substitution e§ects, tasks' integration is still preferred, provided that the cost of incentivizing information gathering and/or the productivity of both activities are large enough. |
| Keywords: | Information gathering; multiple tasks; incentives; value of information |
| JEL: | D80 D86 |
| Date: | 2024–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:sal:celpdp:0170 |
| By: | Tetsutaro Hatakeyama (Graduate School of Economics, Keio University); Onur Kesten (School of Economics, University of Sydney); Morimitsu Kurino (Faculty of Economics, Keio University) |
| Abstract: | Priorities over agents are crucial primitives in assignment problems of indivisible objects without monetary transfers. Motivated by the student assignment problem to exchange programs in Japan, we introduce the so-called prioritization problem: how does one go about allocating overdemanded goods when each agent possesses one of several attributes while priority orders are established only among agents sharing the same attribute? Other applications include rationing of medical supplies, elective surgery scheduling, visa assignment and affirmative action. We show that two types of assignment protocols stand out when basic fairness and efficiency requirements are pursued in a consistent manner when randomization is used only as a last resort. |
| Keywords: | Priority-based assignment, Equity in attributes, Market design |
| JEL: | C78 D47 D78 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:2024-023 |
| By: | Bruckner, Dominik; Sahm, Marco |
| Abstract: | Intra-party contests, such as the US primaries, are often used to select a candidate for a subsequent cross-party election. A more accurate selection may improve the quality of the candidate but detract more resources from the subsequent campaign. We model this trade-off as a problem of contest design and show that extreme accuracy levels are optimal: maximum accuracy if the potential candidates are sufficiently heterogeneous, and a highly random selection otherwise. In an extension of our model, the heterogeneity between potential candidates reflects the degree of political polarization within a party. Our results explain varying primary designs within and between countries and shed light upon the paradox of limited competition within democratic parties. |
| Keywords: | Contest Design, Accuracy, Elections, Intra-Party Competition, Political Polarization |
| JEL: | C72 D72 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bamber:306853 |
| By: | Fernando Payr\'o; Evan Piermont |
| Abstract: | We consider an analyst whose goal is to identify a subject's utility function through revealed preference analysis. We argue the analyst's preference about which experiments to run should adhere to three normative principles: The first, Structural Invariance, requires that the value of a choice experiment only depends on what the experiment may potentially reveal. The second, Identification Separability, demands that the value of identification is independent of what would have been counterfactually identified had the subject had a different utility. Finally, Information Monotonicity asks that more informative experiments are preferred. We provide a representation theorem, showing that these three principles characterize Expected Identification Value maximization, a functional form that unifies several theories of experimental design. We also study several special cases and discuss potential applications. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11625 |
| By: | Konuray Mutluer |
| Abstract: | I examine the factors that determine whether a grassroots social movement reaches the necessary size to achieve its goal. I study a collective action problem where identical individuals who value the common goal sequentially decide whether to join the movement. The model has two key ingredients: (i) The movement is facing a freeriding problem (i.e., while individuals want the movement to succeed, they would rather have others bear the cost of participation) and (ii) The necessary number of members to achieve success is ex-ante unknown but it can be revealed as the movement grows in size. The central insight is that an increase in cost of participation, such as harsher and more likely punishment for members of the movement, can lead to a drastic surge in membership. |
| Keywords: | Social movements, repression, free-riding, threshold uncertainty, dynamic games |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cer:papers:wp791 |
| By: | Richard Vale |
| Abstract: | This note observes that the Cobb-Douglas function is uniquely characterized by the property that, if the labour share of cost for a constant-returns-to-scale firm remains constant when the firm minimizes its cost for any given output level, then the firm's production function must be Cobb-Douglas. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.08067 |