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on Microeconomics |
| By: | Costas Cavounidis; Sambuddha Ghosh; Johannes H\"orner; Eilon Solan; Satoru Takahashi |
| Abstract: | We apply Blackwell optimality to repeated games. An equilibrium whose strategy profile is sequentially rational for all high enough discount factors simultaneously is a Blackwell (subgame-perfect, perfect public, etc.) equilibrium. The bite of this requirement depends on the monitoring structure. Under perfect monitoring, a ``folk'' theorem holds relative to an appropriate notion of minmax. Under imperfect public monitoring, absent a public randomization device, any perfect public equilibrium generically involves pure action profiles or stage-game Nash equilibria only. Under private conditionally independent monitoring, in a class of games that includes the prisoner's dilemma, the stage-game Nash equilibrium is played in every round. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.05481 |
| By: | Mark Whitmeyer |
| Abstract: | I conduct a version of Rabin's (2000) calibration exercise in the subjective expected utility realm. I show that the rejection of some risky bet by a risk-averse agent only implies the rejection of more extreme and less desirable bets and nothing more. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.18486 |
| By: | Amedeo Piolatto; Florian Schuett |
| Abstract: | We study the design of online platforms that aggregate information and facilitate trans actions. Leading players in the industry (e.g. the Booking Group) hold two types of platforms in their portfolio: revealing platforms that disclose the identity of transaction partners (like Booking.com) and anonymous platforms that do not (like Hotwire.com). Anonymous plat forms offer discounts but lead to inefficient matching between consumers and firms. We develop a model in which horizontally differentiated firms sell to heterogeneous consumers both directly and via a platform that enlarges the pool of consumers they can attract. The platform charges firms for transactions it intermediates and can choose to offer an anonym ous sales channel in addition to a revealing one. We show that offering both sales channels is profitable not only because it allows the platform to implement price discrimination, as suggested by the literature on opaque selling, but also because it improves rent extraction. The anonymous channel breaks the link between the price on the revealing channel and the firms’ outside option; moreover, it can reduce double marginalisation. The welfare impact of the anonymous channel is ambiguous: while it sometimes leads to market expansion, it also causes inefficiently high transport costs. |
| Date: | 2023–11 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746858 |
| By: | Xiaoming Wang |
| Abstract: | In many non-cooperative settings, agents often possess useful information that provide an advantage over their opponent(s), but acting on such information too frequently can lead to detection. I develop a simple framework to analyze such a trade-off and characterize the optimal way in which to act on information. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.10564 |
| By: | Aggey Simons (Department of Economics, University of Ottawa, Canada) |
| Abstract: | This paper examines the stationarity of optimal contracts in infinitely repeated principal–agent relationships under complete information and enforcement constraints. We demonstrate that stationarity emerges as a robust feature of optimal contracts when agent types and actions are fully observable, and contract enforcement is supported by both public remedies and private termination threats. Under complete information, the trade-offs between enforcement costs and relational value become significantly simplified, resulting in stationary outcomes even when enforcement constraints are binding. These findings offer insights into contract design in environments where non-stationary profiles are either impractical or prohibitively costly. |
| Keywords: | dynamic contracts, contract enforcement, stationarity, complete information. |
| JEL: | D82 D86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ott:wpaper:2501e |
| By: | Mridu Prabal Goswami |
| Abstract: | We consider an economic environment where a seller wants to sell an indivisible unit of good to a buyer. We show that revenue from any strategy-proof and individually rational mechanism defined on closed intervals of rich single crossing domains considered in \citep{Goswami1}, can be approximated by the revenue from a sequence of strategy-proof and individually rational mechanisms with finite range. Thus while studying optimal mechanisms without loss of generality we can study mechanisms with finite range. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.08342 |
| 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. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.03227 |
| By: | Yi Liu; Yang Yu |
| Abstract: | This paper explores the problem of mediated communication enhanced by money-burning tactics for commitment power. In our model, the sender has state-independent preferences and can design a communication mechanism that both transmits messages and burns money. We characterize the sender's maximum equilibrium payoff, which has clear geometric interpretations and is linked to two types of robust Bayesian persuasion. We demonstrate that, generically, the money-burning tactic \emph{strictly} improves the sender's payoff for almost all prior beliefs where commitment is valuable for the sender. Furthermore, our communication model directly applies to Web 3.0 communities, clarifying the commitment value within these contexts. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.19431 |
| By: | Federico Vaccari |
| Abstract: | This paper presents a model of costly information acquisition where decision-makers can choose whether to elaborate information superficially or precisely. The former action is costless, while the latter entails a processing cost. Within this framework, decision-makers' beliefs may polarize even after they have access to the same evidence. From the perspective of a Bayesian observer who neglects information processing constraints, the decision-makers' optimal behavior and belief updating may appear consistent with biases such as disconfirmation, underreaction to information, and confirmation bias. However, these phenomena emerge naturally within the model and are fully compatible with standard Bayesian inference and rational decision-making when accounting for the costs of information acquisition. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.17597 |
| By: | Patrick Lahr; Axel Niemeyer |
| Abstract: | This paper characterizes extreme points of the set of incentive-compatible mechanisms for screening problems with linear utility. Extreme points are exhaustive mechanisms, meaning their menus cannot be scaled and translated to make additional feasibility constraints binding. In problems with one-dimensional types, extreme points admit a tractable description with a tight upper bound on their menu size. In problems with multi-dimensional types, every exhaustive mechanism can be transformed into an extreme point by applying an arbitrarily small perturbation. For mechanisms with a finite menu, this perturbation displaces the menu items into general position. Generic exhaustive mechanisms are extreme points with an uncountable menu. Similar results hold in applications to delegation, veto bargaining, and monopoly problems, where we consider mechanisms that are unique maximizers for specific classes of objective functionals. The proofs involve a novel connection between menus of extreme points and indecomposable convex bodies, first studied by Gale (1954). |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.00649 |
| By: | Nadia Gui\~naz\'u; Pablo Neme; Jorge Oviedo |
| Abstract: | This paper examines equilibria in dynamic two-sided matching games, extending Gale and Shapley's foundational model to a non-cooperative, decentralized, and dynamic framework. We focus on markets where agents have utility functions and commitments vary. Specifically, we analyze a dynamic matching game in which firms make offers to workers in each period, considering three types of commitment: (i) no commitment from either side, (ii) firms' commitment, and (iii) workers' commitment. Our results demonstrate that stable matchings can be supported as stationary equilibria under different commitment scenarios, depending on the strategies adopted by firms and workers. Furthermore, we identify key conditions, such as discount factors, that influence agents' decisions to switch partners, thereby shaping equilibrium outcomes. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.19372 |
| By: | Aubrey Clark |
| Abstract: | Adding a capacity constraint to a hidden-action principal-agent problem results in the same set of Pareto optimal contracts as the unconstrained problem where output is scaled down by a constant factor. This scaling factor is increasing in the agent's capacity to exert effort. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.01760 |
| By: | Gerrit Bauch |
| Abstract: | The expected utility theorem of von Neumann and Morgenstern (1947) has been a milestone in economics, describing rational behavior by two axioms on a weak preference on lotteries on a finite set of outcomes: the Independence Axiom and the Continuity Axiom. For a weak preference fulfilling the Independence Axiom, I prove that continuity is equivalent to the existence of a set indifferent lotteries spanning a hyperplane. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.17883 |
| By: | R. Pablo Arribillaga; Agustin G. Bonifacio |
| Abstract: | In the problem of fully allocating an infinitely divisible commodity among agents whose preferences are single-peaked, we show that the uniform rule is the only allocation rule that satisfies efficiency, the equal division guarantee, consistency, and non-obvious manipulability. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.12495 |
| By: | Antony Millner |
| Abstract: | This paper investigates a duality between ambiguity averse preferences and the valuation of long run risky assets or public projects. The variational ambiguity model represents preferences over ambiguous acts via a minimization problem, and is fundamentally nonprobabilistic. In contrast, long run risky assets are ranked via a large maturity limit of expected discounted returns. Despite their apparent differences, we show that each variational ambiguity preference is a long run risk preference, and (under natural conditions) vice versa. We explore three implications: a notion of long run stochastic dominance that resolves differences between stochastic processes considered identical by standard risk measures, a typology of stochastic processes that pinpoints when a non-probabilistic description of long run risk is required, and an evolutionary foundation for variational ambiguity preferences that offers a novel explanation for ambiguity aversion. |
| JEL: | C73 D81 G12 H43 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33291 |
| By: | Felix Brandt; Chris Dong; Dominik Peters |
| Abstract: | A voting rule is a Condorcet extension if it returns a candidate that beats every other candidate in pairwise majority comparisons whenever one exists. Condorcet extensions have faced criticism due to their susceptibility to variable-electorate paradoxes, especially the reinforcement paradox (Young and Levenglick, 1978) and the no-show paradox (Moulin, 1988). In this paper, we investigate the susceptibility of Condorcet extensions to these paradoxes for the case of exactly three candidates. For the reinforcement paradox, we establish that it must occur for every Condorcet extension when there are at least eight voters and demonstrate that certain refinements of maximin, a voting rule originally proposed by Condorcet (1785), are immune to this paradox when there are at most seven voters. For the no-show paradox, we prove that the only homogeneous Condorcet extensions immune to it are refinements of maximin. We also provide axiomatic characterizations of maximin and two of its refinements, Nanson's rule and leximin, highlighting their suitability for three-candidate elections. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.19857 |
| By: | Florian Schuett; Chayanin Mipusanawan |
| Abstract: | There is widespread concern about the lack of transparency regard ing standard essential patents (SEPs). This paper examines the pro posal to introduce essentiality checks, a certification scheme for de clared SEPs. We develop a framework that allows us to evaluate how essentiality checks would impact licensing, litigation, and incentives to innovate. In our model, an upstream innovator invests in R&D and privately learns about the likely essentiality of its patents for a standard. The innovator then licenses the patents to a downstream implementer who can contest the essentiality of the patent in court. We identify a tradeoff whereby essentiality checks can reduce litiga tion but also provide excessive incentives for R&D investment. Their overall welfare effect depends on the level of the “fair, reasonable, and non-discriminatory” (FRAND) royalty rate. |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746861 |