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on Microeconomics |
| By: | Anand Chopra; Malachy James Gavan; Antonio Penta |
| Abstract: | Safe Implementation (Gavan and Penta, 2025) combines standard implementation with the requirement that the implementing mechanism is such that, if up to k agents deviate from the relevant solution concept, the outcomes that are induced are still 'acceptable' at every state of the world. In this paper, we study Safe Implementation of social choice correspondences in mixed Nash Equilibrium. We identify a condition, Set-Comonotonicity, which is both necessary and (under mild domain restrictions) almost sufficient for this implementation notion. |
| Keywords: | implementation, mechanism design, robustness, safe implementation, mixed implementation, Set-Comonotonicity |
| JEL: | C72 D82 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1497 |
| By: | Steven Kivinen (University of Graz, Austria); Christoph Kuzmics (University of Graz, Austria) |
| Abstract: | An informed Advisor and an uninformed Decision-Maker, with conflicting interests, engage in repeated cheap talk communication in always new decision problems. While the Decision-Maker's optimal payoff is attainable in some subgame-perfect equilibrium, no payoff profile close to the Decision-Maker's optimal one is immune to renegotiation. Pareto efficient renegotiation-proof equilibria entail a compromise between the Advisor and the Decision-Maker. This could involve the Advisor being truthful and the Decision-Maker not fully utilizing this information to their advantage, or the Advisor exaggerating the truth and the Decision-Maker pretending to believe them. |
| Keywords: | cheap talk, renegotiation, information transmission, persuasion |
| JEL: | C72 C73 D83 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2025-11 |
| By: | Francesco Sobbrio; Vicenç Gómez; Fabrizio Germano |
| Abstract: | Social media are at the center of countless debates on polarization, misinformation, and even the state of democracy in various parts of the world. An essential feature of social media is their recommendation algorithm that determines the ranking of content presented to the users. This paper investigates the dynamic feedback loop between recommendation algorithm and user behavior, and develops a theoretical framework to assess the impact of popularity-based parameters on platform engagement, misinformation, and polarization. The model uncovers a fundamental trade-off: assigning greater weight to online social interactions—such as likes and shares—increases user engagement but also increases misinformation (crowding-out the truth ) and polarization. Building on this insight, the analysis considers how a simple "engagement tax" on social interactions can mitigate these negative externalities by altering platform incentives in the design of profit-maximizing algorithms. The framework is extended to include personalized rankings, demonstrating that personalization further amplifies polarization. Finally, empirical evidence from survey data in Italy and the United States indicates that Facebook's 2018 "Meaningful Social Interactions" update—which increased the emphasis on certain engagement metrics—contributed to increased ideological extremism and affective polarization. |
| Keywords: | algorithmic gatekeeper, engagement, feedback loop, misinformation, polarization, popularity ranking, ranking algorithm, social media |
| JEL: | D83 L82 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1501 |
| By: | Leandro Arozamena; Federico Weinschelbaum; Juan-José Ganuza |
| Abstract: | A sponsor –e.g. a government agency– uses a procurement auction to select a supplier who will be in charge of the execution of a contract. That contract is incomplete: it may be renegotiated once the auction's winner has been chosen. We examine a setting where one firm may bribe the agent in charge of monitoring contract execution so that the former is treated preferentially if renegotiation actually occurs. If a bribe is accepted, the corrupt firm will be more aggressive at the initial auction and thus win with a larger probability. We show that the equilibrium probability of corruption is larger when the initial contract is less complete, when the corrupt firm's cost is more likely to be similar to her rivals', and when it faces fewer competitors. |
| Keywords: | auctions, Procurement, corruption, renegotiation, cost overruns |
| JEL: | C72 D44 D82 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1492 |
| By: | Hammond, Peter J (University of Warwick) |
| Abstract: | In normative models a decision-maker is usually assumed to be Bayesian rational, and so to maximize subjective expected utility, within a complete and correctly specified decision model. Following the discussion in Hammond (2007) of Schumpeter's (1911, 1934) concept of entrepreneurship, as well as Shackle's (1953) concept of potential surprise, we consider enlivened decision trees whose growth over time cannot be accurately modelled in full detail. An enlivened decision tree involves more severe limitations than a mis-specified model, unforeseen contingencies, or unawareness, all of which are typically modelled with reference to a universal state space large enough to encompass any decision model that an agent may consider. We consider three motivating examples based on: (i) Homer's classic tale of Odysseus and the Sirens; (ii) a two-period linear-quadratic model of portfolio choice; (iii) the game of Chess. Though our novel framework transcends standard notions of risk or uncertainty, for finite decision trees that may be truncated because of bounded rationality, an extended form of Bayesian rationality is still possible, with real-valued subjective evaluations instead of consequences attached to some terminal nodes. Moreover, these subjective evaluations underlie, for example, the kind of Monte Carlo tree search algorithm used by recent chess-playing software packages. |
| Keywords: | Bounded Bayesian rationality ; consequentialist decision theory ; Schumpeterian entrepreneurship ; Shackle's potential surprise ; truncated decision trees ; enlivened decision trees ; subjective evaluation of continuation subtrees ; Monte Carlo tree search. JEL Codes: D11 ; D63 ; D81 ; D91 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1568 |
| By: | Siddharth Prasad; Maria-Florina Balcan; Tuomas Sandholm |
| Abstract: | We derive the revenue-optimal efficient (welfare-maximizing) mechanism in a general multidimensional mechanism design setting when type spaces -- that is, the underlying domains from which agents' values come from -- can capture arbitrarily complex informational constraints about the agents. Type spaces can encode information about agents representing, for example, machine learning predictions of agent behavior, institutional knowledge about feasible market outcomes (such as item substitutability or complementarity in auctions), and correlations between multiple agents. Prior work has only dealt with connected type spaces, which are not expressive enough to capture many natural kinds of constraints such as disjunctive constraints. We provide two characterizations of the optimal mechanism based on allocations and connected components; both make use of an underlying network flow structure to the mechanism design. Our results significantly generalize and improve the prior state of the art in revenue-optimal efficient mechanism design. They also considerably expand the scope of what forms of agent information can be expressed and used to improve revenue. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13687 |
| By: | Barigozzi, Francesca; Cremer, Helmuth; Canta, Chiara |
| Abstract: | This paper studies how firms’ ownership choices and workers’ intrinsic motivation jointly shape service quality and market outcomes in labor-intensive, mission-driven sectors. Two organizations first choose whether to operate as standard for-profit or as mission-oriented firms, and then compete in both the labor and the user markets. Mission-oriented firms have higher unit costs but attract better-motivated workers. Service quality is endogenously determined through the sorting of intrinsically motivated workers and depends on the firm’s ownership type. We show that all market structures—standard, mission-oriented, or mixed— can arise in equilibrium, and that mixed structures can be Pareto superior by efficiently allocating the most motivated workers to the mission-oriented firm while preserving the cost advantage of the other firm. While equilibrium outcomes generally diverge from the social optimum due to externalities and lack of coordination, they are both driven by the trade-off between cost-efficiency and motivation. The model helps explain the coexistence of heterogeneous ownership structures observed in some sectors—such as the nursing homes sector—and identifies conditions under which such diversity is welfare-enhancing. |
| Keywords: | mission-driven sectors; mission-oriented firms; workers’ motivation; endogenous; market structure; welfare. |
| JEL: | J21 L13 L31 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130749 |
| By: | Éric Darmon (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Thomas Le Texier (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Zhiwen Li (Southeast University [Jiangsu]); Thierry Pénard (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Antitrust authorities are concerned with the dominant market position of Tech Giants such as Google, Meta, or Amazon. These digital conglomerates are characterized by platform-based business models and multimarket contact (MMC). In traditional one-sided markets, theory and empirical evidence show that MMC tends to relax competition. In this paper, we revisit this result in the context of platform competition with competitive bottleneck and cross-market externalities, and provide new insights into the impact of MMC on platform competition. In this context, when platforms charge the two groups of users (bilateral pricing), we find that MMC always decreases the profitability of platforms regardless of the nature and magnitude of cross-market externalities. Then we consider the case in which platforms can only charge one group of users (unilateral pricing). When platforms charge the side on which they are not directly competing for users (i.e. the side that is not the competitive bottleneck), MMC may relax competition only if cross-group externalities and cross-market externalities are both sufficiently small. From a competition policy perspective, our paper provides insights into how antitrust authorities should review conglomerate mergers in digital markets and assesses the effects of the diversification strategies of digital platforms in the context of cross-market externalities and competitive bottleneck. |
| Keywords: | Two-sided markets, Platform competition, Digital markets, Multimarket contact, Cross-market externalities, Competitive bottleneck, Competition policy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05107385 |
| By: | Siddharth Prasad; Maria-Florina Balcan; Tuomas Sandholm |
| Abstract: | Core-selecting combinatorial auctions are popular auction designs that constrain prices to eliminate the incentive for any group of bidders -- with the seller -- to renegotiate for a better deal. They help overcome the low-revenue issues of classical combinatorial auctions. We introduce a new class of core-selecting combinatorial auctions that leverage bidder information available to the auction designer. We model such information through constraints on the joint type space of the bidders -- these are constraints on bidders' private valuations that are known to hold by the auction designer before bids are elicited. First, we show that type space information can overcome the well-known impossibility of incentive-compatible core-selecting combinatorial auctions. We present a revised and generalized version of that impossibility result that depends on how much information is conveyed by the type spaces. We then devise a new family of core-selecting combinatorial auctions and show that they minimize the sum of bidders' incentives to deviate from truthful bidding. We develop new constraint generation techniques -- and build upon existing quadratic programming techniques -- to compute core prices, and conduct experiments to evaluate the incentive, revenue, fairness, and computational merits of our new auctions. Our new core-selecting auctions directly improve upon existing designs that have been used in many high-stakes auctions around the world. We envision that they will be a useful addition to any auction designer's toolkit. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13680 |
| By: | Mostapha Diss (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE], AIRESS - Africa Institute for Research in Economics and Social Sciences); Clinton Gubong Gassi (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE], department of mathematics University of yaounde 1); Eric Kamwa (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We consider a model of multi-winner elections, where each voter expresses a linear preference over a finite set of alternatives. Based on voters' preferences, the primary goal is to select a subset of admissible alternatives, forming what is referred to as a committee. We explore (weakly) separable committee scoring rules, the voting mechanisms that assess each alternative individually using a scoring vector and select the top k alternatives, where k represents the committee's size. Furthermore, we operate under the assumption that alternatives are categorized based on specific attributes. Within each attribute category, there exists a targeted minimum number of alternatives that the selected committee should encompass, emphasizing the necessity for diversity. In this context, we assess the cost associated with imposing such a diversity constraint on the voting process. This assessment is conducted through two methodologies, referred to as the "price of diversity" and the "individual price of diversity". We set the upper bounds for both prices across all (weakly) separable committee scoring rules. Additionally, we show how the maximum price of diver- sity can be used to discriminate between different voting rules in this context. Ultimately, we illustrate that concentrating on the candidates' performance yields a more accurate estimation of the price of diversity compared to a focus on the enforced diversity constraint. |
| Keywords: | Group decisions and negotiations, Voting, Multiwinner elections, Scoring rules, Price of diversity |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04390700 |
| By: | Kitamura, Shuhei; Takahashi, Ryo; Yamada, Katsunori |
| Abstract: | Elections are a primary mechanism through which citizens can hold politicians accountable for misconduct. However, whether voters actually punish corruption at the ballot box remains an open question, as electoral decisions often involve strategic considerations, including beliefs about how others think and behave. To better understand how such strategic considerations operate in this context, we conducted a pre-registered information intervention during a major political corruption scandal in Japan. The treatment provided information about the prevailing social norm—specifically, the perceived social intolerance of the scandal. The treatment increased turnout and support for a challenger, particularly among swing voters who initially believed that others were intolerant of corruption. Among party loyalists with more lenient prior beliefs, the same information backfired, increasing support for the incumbent. The turnout effect among swing voters was sizable—approximately six percentage points—comparable in magnitude to benchmark mobilization interventions involving personalized contact or social pressure. To account for these patterns, we develop a simple model that incorporates mechanisms—notably *moral reinforcement* and *identity reinforcement*—that generate predictions consistent with the observed heterogeneity in responses. By highlighting how perceptions of prevailing norms shape voter behavior in the presence of strategic considerations, this study contributes to a broader understanding of how democratic institutions can remain resilient in the face of political misconduct. |
| Date: | 2025–06–22 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:296zd_v1 |
| By: | Antonio Penta; Larbi Alaoui |
| Abstract: | We revisit the long-lasting debate about the meaning of the utility function used in the standard Expected Utility (EU) model. Despite the common view that EU forces risk aversion and diminishing marginal utility of wealth to be pegged to one another, here we show that this is not the case. Marginal utility for money is an input into risk attitude, but it is not its sole determinant. The attitude towards 'pure risk' is also a contributing factor, and it is independent from the former. We discuss several theoretical implications of this result, for the following topics: (i) non-neutral risk attitudes for profit maximizing firms; (ii) risk-aversion over time lotteries in the presence of discounting; (iii) the equity premium puzzle. We also discuss matters of identification: (i) for firms; (ii) via proxies ; (iii) via standard MLE-methods under parametric restrictions; and (iv) cross-context elicitation in multi-dimensional settings, and its relationship with the methods and results from the psychology literature. |
| Keywords: | Risk Aversion, utility function, marginal utility |
| JEL: | C72 C91 C92 D80 D91 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1494 |
| By: | San Román, Diego |
| Abstract: | Research in anthropology and neuroscience has shown that people have a cognitive limit on the number of stable relationships they can maintain. In this spirit, we consider a network formation game in which the cost of link formation is increasing in the agent's degree. In this class of games, as opposed to commonly studied games with a fixed cost of link formation, the order in which agents form the network (order of play) determines its final structure. In particular, we find that only certain orders of play can explain the formation of circle and complete bipartite networks. We also find that there is multiplicity of equilibria only when marginal costs of link formation are intermediate. Our results show as well that some orders of play are better than others for predicting the equilibrium structure when it is not unique, and that playing last is usually harmful. |
| Keywords: | sequential network formation, pairwise stability, order of play, costs of link formation increasing in degree |
| JEL: | C72 D85 |
| Date: | 2025–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125309 |