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on Microeconomics |
| By: | Cole Wittbrodt |
| Abstract: | Search and matching increasingly takes place on online platforms. These platforms have elements of centralized and decentralized matching; platforms can alter the search process for its users, but are unable to eliminate search frictions entirely. I study a model where platforms can change the distribution of potential partners that an agent searches over and characterize search equilibria on platforms. When agents possess private information about their match characteristics and the platform designer acts as a profit maximizing monopolist, I characterize the optimal platform. If match characteristics are complementary and utility is transferable, I show that the solution to this screening problem is efficient, despite the presence of hidden information and market power. Matching under the optimal platform is perfectly assortative -- there is no equilibrium mismatch. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.00205 |
| By: | Th\'eo Durandard; Udayan Vaidya; Boli Xu |
| Abstract: | A principal contracts with an agent who can sequentially search over projects to generate a prize. The principal knows only one of the agent's available projects and evaluates a contract by its worst-case performance. We characterize the set of robustly optimal contracts, all of which involve a minimum debt level, i.e., the agent only receives payment if the prize exceeds a certain threshold. This debt requirement is essential to prevent the agent from terminating the search too early. Our characterization encompasses several commonly observed contract formats, including pure debt, debt-plus-equity, and tranches. We also study situations where each of these contracts emerges as the unique prediction. In contrast to much of the existing robust contracting literature, linear contracts are strictly sub-optimal because they dampen the agent's search incentive. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.17948 |
| By: | Junjie Chen; Takuro Yamashita |
| Abstract: | An information broker incentivizes consumers to share their information, while designing an information structure to shape the market segmentation. The information broker is a metaphor for an Internet platform that matches consumers with retailers. We are interested in a market with heterogeneous retailers and heterogeneous consumers. The optimal broking mechanism consists of a simple threshold-based structure where consumers with strong preferences are assigned to the efficient retailer while consumers with weaker preferences are assigned to the inefficient retailer stochastically. Our analysis suggests that the privacy protection policy may have a stronger impact on less competitive retail markets. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.19539 |
| By: | Peter Achim; Kemal Ozbek |
| Abstract: | We develop a novel framework for costly information acquisition in which a decision-maker learns about an unobserved state by choosing a signal distribution, with the cost of information determined by the distribution of noise in the signal. We show that a natural set of axioms admits a unique integral representation of the cost function, and we establish the uniform dominance principle: there always exists an optimal experiment that generates signals with uniform noise. The uniform dominance principle allows us to reduce the infinite-dimensional optimization problem of finding an optimal information structure to finding a single parameter that measures the level of noise. We show that an optimal experiment exists under natural conditions, and we characterize it using generalized first-order conditions that accommodate non-smooth payoff functions and decision rules. Finally, we demonstrate the tractability of our framework in a bilateral trade setting in which a buyer learns about product quality. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.20741 |
| By: | Yuta Okamoto (Graduate School of Economics, Kyoto University); Yuuki Ozaki (Graduate School of Economics, Kyoto University) |
| Abstract: | This paper studies a root of asymmetric party polarization, where one party becomes more ideologically extreme and the other remains relatively moderate. In a modified two-party Hotelling-Downs model with heterogeneous electorates - which differ in incentives to vote - we show that when one party experiences a disproportionate decline in public appeal, the resulting equilibrium features asymmetric polarization and higher voter turnout, in line with recent elections. |
| Keywords: | abstention, Hotelling-Downs model, party's appeal, political polarization |
| JEL: | D72 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1116 |
| By: | Martino Banchio; Suraj Malladi |
| Abstract: | We model search in settings where decision makers know what can be found but not where to find it. A searcher faces a set of choices arranged by an observable attribute. Each period, she either selects a choice and pays a cost to learn about its quality, or she concludes search to take her best discovery to date. She knows that similar choices have similar qualities and uses this to guide her search. We identify robustly optimal search policies with a simple structure. Search is directional, recall is never invoked, there is a threshold stopping rule, and the policy at each history depends only on a simple index. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.19761 |
| By: | Gadi Barlevy; Inês Xavier |
| Abstract: | We develop a model of Ponzi schemes with asymmetric information to study Ponzi frauds. A long-lived agent offers to save on behalf of short-lived agents at a higher rate than they can earn themselves. The long-lived agent may genuinely have a superior savings technology, but may be an imposter trying to steal from short-lived agents. The model identifies when a Ponzi fraud can occur and what interventions can prevent it. A key feature of Ponzi frauds is that the long-lived agent builds trust over time and improves their reputation by keeping the scheme going. |
| Keywords: | Ponzi scheme; asymmetric information; Reputation; Fraud |
| JEL: | C73 D82 G51 K42 L14 |
| Date: | 2025–03–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:99935 |
| By: | Arve, Malin (Dept. of Business and Management Science, Norwegian School of Economics); Dyskeland, Ole Kristian (Dept. of Business and Management Science, Norwegian School of Economics); Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We analyze competition between two digital platforms selling subscriptions for unlimited access to their content catalogs (e.g., streaming and TV broadcasting platforms). A content provider offers additional content to the platforms. The content provider chooses between offering a revenue sharing contract and a per-consumer wholesale pricing contract towards the platforms, thereby endogenously determining whether its content will be distributed non-exclusively (on both platforms) or exclusively (on one platform). Our model yields clear predictions: In markets with low initial exclusivity, the content provider and both platforms prefer per-consumer wholesale pricing to endogenously promote non-exclusive distribution. Platforms set subscription prices that lead to full consumer singlehoming. Conversely, in markets with high initial exclusivity, all market players prefer a revenue-sharing contract that induces exclusive distribution, with platforms setting prices that encourage some consumers to multihome. |
| Keywords: | Multihoming; incremental pricing; content provision |
| JEL: | L13 L14 L82 |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:nhhfms:2025_017 |
| By: | Pawel‚ Doligalski (Group for Research in Applied Economics (GRAPE); Bristol University); Piotr Dworczak (Northwestern University; Group for Research in Applied Economics (GRAPE)); Mohammad Akbarpour (Stanford University); Scott Duke Kominers (Harvard Business School Harvard University; Harvard Business Becker Friedman Institute for Research in Economics University of Chicago; Department of Economics Harvard University) |
| Abstract: | Policymakers often intervene in goods markets to effect redistribution---for example, via price controls, differential taxation, or in-kind transfers. We investigate the optimality of such policies alongside the (optimally-designed) income tax. In our framework, agents possess private information about their ability to generate income and consumption preferences, and a planner maximizes a social welfare function subject to resource constraints. We uncover a generalization of the Atkinson-Stiglitz theorem by showing that goods markets should be undistorted if (i) individual utility functions feature no income effects, (ii) redistributive preferences depend only on agents’ ability, and (iii) there is no statistical correlation between ability and taste for goods. We also show, however, that the conclusion of the Atkinson-Stiglitz theorem fails if any of the three assumptions is relaxed. In a special case of our model with linear utilities, binary ability, and continuous willingness to pay for a single good, we characterize the globally optimal mechanism and show that it may feature means-tested consumption subsidies, in-kind transfers, and differential commodity taxation. |
| Keywords: | membership, allocative externalities, pricing tiers, rationing |
| JEL: | D47 D82 H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:fme:wpaper:103 |
| By: | Cuong Le Van (CNRS, PSE, CES); Ngoc-Sang Pham (EM Normandie) |
| Abstract: | We study the existence of equilibrium when agents' preferences may not beconvex. For some specific utility functions, we provide a necessary and sufficientcondition under which there exists an equilibrium. The standard approach cannot be directly applied to our examples because the demand correspondence of some agents is neither single-valued nor convex-valued. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.16890 |
| By: | Endre Boros; Vladimir Gurvich; Kazuhisa Makino |
| Abstract: | We consider finite $n$-person deterministic graphical games and study the existence of pure stationary Nash-equilibrium in such games. We assume that all infinite plays are equivalent and form a unique outcome, while each terminal position is a separate outcome. It is known that for $n=2$ such a game always has a Nash equilibrium, while that may not be true for $n > 2$. A game is called {\em play-once} if each player controls a unique position and {\em terminal} if any terminal outcome is better than the infinite one for each player. We prove in this paper that play-once games have Nash equilibria. We also show that terminal games have Nash equilibria if they have at most three terminals. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.17387 |
| By: | Gisèle Umbhauer |
| Abstract: | This paper completes two previous papers on the hammer-nail game. The hammer-nail game goes as follows: two players are in front of a nail slightly driven into a wooden support. Both have a hammer and in turn hit the nail. The winner is the first player able to fully drive the nail into the support. A player is of strength f if he is able, with one swing of the hammer, to drive the nail at most f millimeters into the support. A player is of non dexterity e if he is unable to hammer smoothly, so that, with one swing of the hammer, he drives the nail at least e millimeters into the support, with e >= 1. The two players may be of different strength and dexterity. In the two previous papers we studied this Nim-game by assuming that if the remaining distance is lower than e, then lack of dexterity is not a problem because one swing of the hammer necessarily drives the nail into the support. It followed that strength was more useful than dexterity to win the game. In this paper we suppose that a player destroys the support and loses the game if the remaining distance is lower than e. This new assumption completely changes the results: we now observe that dexterity becomes more useful than strength to win this new hammer-nail game. |
| Keywords: | Nim game, crossed cycles, Fort Boyard, subgame perfect Nash equilibrium, strength, dexterity. |
| JEL: | C72 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2024-39 |
| By: | Sebastian Bervoets; Mathieu Faure; Ludovic Renou |
| Abstract: | Deviations from Bayesian updating are traditionally categorized as biases, errors, or fallacies, thus implying their inherent ``sub-optimality.'' We offer a more nuanced view. We demonstrate that, in learning problems with misspecified models, non-Bayesian updating can outperform Bayesian updating. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.18024 |
| By: | Nicholas H. Tenev |
| Abstract: | This paper studies a model of technology adoption: a principal tries to induce a group of agents to exert costly effort to vet a new production technology before they choose whether to use it. The principal finds it too costly to simultaneously punish large groups of unproductive agents, so they shirk when coordination is possible. Widely applicable technology expands productive possibilities but also provides an opportunity for coordinated shirking, and can thus lead to widespread production failure. Furthermore, even agents who learn that they are using flawed technology may continue to do so. Applications include mortgage securitization in the financial crisis of 2008, and the adoption of generative artificial intelligence. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.17613 |
| By: | Dominique Demougin; Benjamin Bental |
| Abstract: | In this study, we examine two adjudication methods designed to resolve disputes between principals and agents concerning bonus payments in relationships characterized by moral hazard and where the parties have been forced to use soft, imprecise, and subjective information to align incentives. The first method is a procedural approach where the court applies preponderance-of-the-evidence to determine whether the agent acted in accordance with the contract. In the second method, the court adopts a substantive approach, treating the original contract as incomplete, thus rendering a decision based on what it believes the parties would have agreed upon had they been able to complete the contract ahead of time. From an efficiency standpoint, we find that neither method consistently outperforms the other, although the procedural approach becomes more advantageous as the effort to be implemented becomes sufficiently large. |
| Keywords: | moral hazard, incentive contracting. |
| JEL: | D82 D86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11861 |
| By: | Po-Hsuan Lin; Yen Ling Tan |
| Abstract: | We study how cursedness, the tendency to neglect how other people's strategies depend on their private information, affects information transmission in Spence's job market signaling game. We characterize the Cursed Sequential Equilibrium and show that as players become more cursed, the worker obtains less education -- a costly signal that does not enhance productivity -- suggesting that cursedness improves the efficiency of information transmission. However, this efficiency improvement depends on the richness of the message space. Revisiting the job market signaling experiment by K\"ubler, M\"uller, and Normann (2008), we find supportive evidence for our theory. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.19089 |
| By: | Ravi Jagadeesan; Davide Viviano |
| Abstract: | The publication process both determines which research receives the most attention, and influences the supply of research through its impact on the researcher's private incentives. We introduce a framework to study optimal publication decisions when researchers can choose (i) whether or how to conduct a study and (ii) whether or how to manipulate the research findings (e.g., via selective reporting or data manipulation). When manipulation is not possible, but research entails substantial private costs for the researchers, it may be optimal to incentivize cheaper research designs even if they are less accurate. When manipulation is possible, it is optimal to publish some manipulated results, as well as results that would have not received attention in the absence of manipulability. Even if it is possible to deter manipulation, such as by requiring pre-registered experiments instead of (potentially manipulable) observational studies, it is suboptimal to do so when experiments entail high research costs. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.21156 |
| By: | Scott Duke Kominers (Harvard Business School Harvard University; Harvard Business Becker Friedman Institute for Research in Economics University of Chicago; Department of Economics Harvard University); Piotr Dworczak (Northwestern University; Group for Research in Applied Economics (GRAPE)) |
| Abstract: | We propose an economic definition of price gouging: Price gouging occurs in a competitive market when lowering the price from the market-clearing level would increase total Utilitarian welfare. We then use price-theoretic tools to characterize determinants of price gouging in a setting with income heterogeneity and non-quasi-linear preferences that induce a motive to redistribute across agents. The circumstances under which price gouging occurs in our framework align with the contexts covered by existing anti‒price gouging laws. By proposing a definition of price gouging that does not appeal to any non-economic notions of (un)fairness or excess, we hope to provide a pathway for follow-up theoretical and empirical research. |
| Keywords: | price gouging, price control, market design |
| JEL: | D47 D63 D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:fme:wpaper:104 |
| By: | Beomjun Kim |
| Abstract: | This paper considers the optimal management structure about hiring a manager and providing the manager with a separate salary and bonus using a relational contract among an owner, a manager, and workers, assuming that the manager can observe individual worker performances while the owner can observe only overall team performance. I derive optimal contracts for the two cases in which the manage's salary and bonus are integrated into total team bonus or provided separately. I compare situations of having the manager distribute bonuses based on individual worker performance to the situation of equal bonus distribution based on overall team performance without a manager. Only a contract with a manager who receives a separate bonus is feasible for low discount factor. Making the manager to distribute the salary and bonus including himself is best with intermediate discount factor. Providing an equal bonus without a manager is optimal with high discount factor. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.21264 |
| By: | Enrico De Monte; Bertrand Koebel |
| Abstract: | This paper characterizes the short- and long-run Cournot equilibrium with heterogeneous firms and stochastic technological change. In our model, firms have different technologies with heterogeneous fixed and variable costs and various degrees of markups. In a framework with homogeneous firms, Mankiw and Whinston (1986) show that the long-run Cournot equilibrium may be inefficient due to too many entries. We extend their result to the case of heterogeneous firms and show that higher industrial concentration of production is welfare improving. Using administrative data for French manufacturing firms, we estimate a wide degree of unobserved heterogeneity in both fixed and variable costs, and find a negative correlation between both. Our simulation results show that markups surprisingly only induce slight inefficiencies in the allocation of output, implying that it is almost compatible with welfare maximisation. Instead, firms’ choice to employ heterogeneous and often inefficient technologies turns out to harm more substantially welfare and aggregate output. |
| Keywords: | cost function, fixed cost, marginal cost, returns to scale, technological change, misallocation, markups, nonlinear least squares, panel data. |
| JEL: | L11 L60 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2025-01 |