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on Microeconomics |
| By: | Allen Vong |
| Abstract: | I study a setting where a sender communicates her information about a hidden state with a receiver who wants to match his action with that state. The sender strives to appear informed at the receiver's expense. I characterize the receiver's tradeoff between relying on the sender or on prior information about the state when picking his action in all informative equilibria. I show that the receiver relies only on prior information, irrespective of how informed the sender may be, if and only if prior information is neither sufficiently noisy nor sufficiently informative. My results highlight a complementarity that informative prior information facilitates high-quality communication under reputation concern. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.11877 |
| By: | Peter Achim (University of York); Willy Lefez (HU Berlin) |
| Abstract: | We study a static bilateral trade setting with moral hazard, where a seller privately chooses quality and a buyer may pay to verify it. We show that buyer-side information acquisition can lead to informational hold-up through a mechanism wecall surplus squeezing: precise verification enables the seller to extract all buyer surplus, deterring inspection and causing trade to unravel. When verification is noisy, uncertainty preserves buyer surplus and sustains trade. Our framework highlights how strategic responses to learning can distort investment incentives, offering a new perspective on the limits of information precision in mitigating moral hazard. |
| Keywords: | surplus squeeze; informational hold-up; buyer learning; costly information; |
| JEL: | D82 D83 |
| Date: | 2025–07–22 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:538 |
| By: | James Best; Daniel Quigley; Maryam Saeedi; Ali Shourideh |
| Abstract: | We examine receiver-optimal mechanisms for aggregating information that is divided across many biased senders. Each sender privately observes an unconditionally independent signal about an unknown state, so no sender can verify another's report. A receiver has a binary accept/reject decision which determines players' payoffs via the state. When information is divided across a small population and bias is low, the receiver-optimal mechanism coincides with the sender-preferred allocation, and can be implemented by letting senders \emph{confer} privately before reporting. However, for larger populations, we can benefit from the informational divide. We introduce a novel \emph{incentive-compatibility-in-the-large (ICL)} approach to solve the high-dimensional mechanism design problem for the large-population limit. We use this to show that optimal mechanisms converge to one that depends only on the accept payoff and punishes excessive consensus in the direction of the common bias. These surplus burning punishments imply payoffs are bounded away from the first-best level. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.17609 |
| By: | Kailin Chen |
| Abstract: | This paper analyzes a cheap talk model with one receiver and multiple senders. Each sender observes a noisy signal regarding an unknown state of the world. Existing literature (e.g., Levit and Malenko, 2011; Battaglini, 2017) focuses on scenarios where the receiver and senders have aligned preferences in each state. We further explore situations with disagreement states in which the receiver and the senders have misaligned preferences. We first show that, when the number of senders grows large, each sender's message must convey almost no information to the receiver. Furthermore, we identify a discontinuity in information transmission: with moderate conflict between the receiver and the senders, introducing an arbitrarily small probability of disagreement states causes complete unraveling, contrary to full learning predicted by the literature. Finally, we demonstrate that the receiver cannot fully learn the state even when receiving messages from arbitrarily many senders. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.14639 |
| By: | Vincent Meisner (HU Berlin); Pascal Pillath (HU Berlin) |
| Abstract: | We design profit-maximizing mechanisms to sell an excludable and non-rival good with positive and/or negative network effects. Buyers have heterogeneous private values that depend on how many others also consume the good. In optimum, an endogenous number of the highest types consume the good, and we can implement this allocation in dominant strategies. We apply our insights to digital content creation, and we are able to rationalize features seen in monetization schemes in this industry such as voluntary contributions, community subsidies, and exclusivity bids. |
| Keywords: | mechanism design; non-rival goods; club goods; network effects; digital content; creator economy; |
| JEL: | D82 |
| Date: | 2025–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:541 |
| By: | Martin Obradovits; Markus Walzl |
| Abstract: | Consumers increasingly value the environmental and social responsibility of the production processes used by firms, yet these processes often remain unobservable, even after consumption. In this paper, we develop a simple model to examine firms’ technology choices and subsequent price competition in markets for such label credence goods with hidden process attributes. Using a multi-sender signaling framework, we show that in the payoff-dominant equilibrium, firms can partially signal their production choices and avoid Bertrand competition when at least one firm adopts a green technology. Surprisingly, increasing consumers’ environmental concern or eliminating the information asymmetry may reduce social welfare by discouraging green production. |
| Keywords: | label credence goods, technology choice, asymmetric information, price competition, signaling, green production |
| JEL: | D82 D83 L13 L15 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:jku:econwp:2025-11 |
| By: | Alessandro Spiganti (University of Genoa); Francesco Trevisan (Ca' Foscari University of Venice) |
| Abstract: | We provide a micro-founded dynamic framework to analyse the effects of inequality on social competition, mobility, and welfare. We consider an infinitely repeated Tullock contest in which players with concave utility allocate resources between consumption and costly effort, and the prizes from the current competition determine the players' endowments in the subsequent period. We characterize the unique pure-strategy Markov Perfect Equilibrium, proving that the highly endowed player exerts more effort and has a higher probability of winning. Social competition is maximized at an intermediate level of inequality, whereas utilitarian social welfare is maximized under full equality. Assuming non-increasing absolute risk aversion preferences, we find that greater inequality monotonically reduces social mobility (a pattern consistent with the Great Gatsby curve) and lowers the welfare of the lowly endowed player. By contrast, the welfare of the highly endowed player is non-monotonic when the discount factor is sufficiently high. Thus, being richer in a more unequal society does not necessarily imply higher individual welfare. For example, under logarithmic utility and beta = 2/3, an individual must control over 88% of total resources to strictly prefer inequality over full equality. |
| Keywords: | Contests, Social Competition, Social Mobility, Great Gatsby curve |
| JEL: | D63 D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:09 |
| By: | Zhicheng Du; Wei Tang; Zihe Wang; Shuo Zhang |
| Abstract: | In digital advertising, online platforms allocate ad impressions through real-time auctions, where advertisers typically rely on autobidding agents to optimize bids on their behalf. Unlike traditional auctions for physical goods, the value of an ad impression is uncertain and depends on the unknown click-through rate (CTR). While platforms can estimate CTRs more accurately using proprietary machine learning algorithms, these estimates/algorithms remain opaque to advertisers. This information asymmetry naturally raises the following questions: how can platforms disclose information in a way that is both credible and revenue-optimal? We address these questions through calibrated signaling, where each prior-free bidder receives a private signal that truthfully reflects the conditional expected CTR of the ad impression. Such signals are trustworthy and allow bidders to form unbiased value estimates, even without access to the platform's internal algorithms. We study the design of platform-optimal calibrated signaling in the context of second-price auction. Our first main result fully characterizes the structure of the optimal calibrated signaling, which can also be computed efficiently. We show that this signaling can extract the full surplus -- or even exceed it -- depending on a specific market condition. Our second main result is an FPTAS for computing an approximately optimal calibrated signaling that satisfies an IR condition. Our main technical contributions are: a reformulation of the platform's problem as a two-stage optimization problem that involves optimal transport subject to calibration feasibility constraints on the bidders' marginal bid distributions; and a novel correlation plan that constructs the optimal distribution over second-highest bids. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.17187 |
| By: | David Lagziel; Ehud Lehrer; Tao Wang |
| Abstract: | We analyze incomplete-information games where an oracle publicly shares information with players. One oracle dominates another if, in every game, it can match the set of equilibrium outcomes induced by the latter. Distinct characterizations are provided for deterministic and stochastic signaling functions, based on simultaneous posterior matching, partition refinements, and common knowledge components. This study extends the work of Blackwell (1951) to games, and expands the study of Aumann (1976) on common knowledge by developing a theory of information loops. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.15955 |
| By: | Joaquín Coleff (CEFIP/CEDLAS); Juan Sebastián Ivars (Sciences Po) |
| Abstract: | We consider an organization with two projects which have productive spillovers. Three individuals are active in this organization: two agents, each specialized in one project, and the CEO, who is a generalist. The owner of the organization allocates authority over each project to these three individuals. This allocation determines the organizational design and aims to maximize profits subject to incentive constraints. The main constraints arise from non-contractible choices: in decision-making, to exploit the gains from spillovers, and in providing incentives to address moral hazard in effort. We show that the optimal organizational design can take one of the following forms: centralization, decentralization, hierarchical delegation, or cross-authority. Two forces drive the optimal organizational design: (i) the CEO’s productivity relative to the agents’ in exerting effort, and (ii) the value of spillovers relative to profits in the project over which an individual has authority. We illustrate the practical relevance of our model by analyzing the emergence of hierarchical delegation in Facebook’s major 2018 reorganization. |
| Keywords: | decision rights, authority, moral hazard, hierarchies, incentives |
| JEL: | C70 D23 L22 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:367 |
| By: | Alonso, Ricardo; Padró i Miquel, Gerard |
| Abstract: | Two opposed interested parties (IPs) compete to influence citizens with heterogeneous priors which receive news items produced by a variety of sources. The IPs fight to capture the coverage conveyed in these items. We characterize the equilibrium level of capture of item as well as the equilibrium level of information transmission. Capture increases the prevalence of the ex ante most informative messages and can explain the empirical distribution of slant at the news‐item level. Opposite capturing efforts do not cancel each other and instead undermine social learning as rational citizens discount informative messages. Citizen skepticism makes efforts to capture the news strategic substitutes. Because of strategic substitution, competition for influence is compatible with horizontal differentiation between successful media. In equilibrium, rational citizens choose to consume messages from aligned sources despite knowledge of the bias in a manner consistent with recent empirical evidence. |
| Keywords: | collective action; communication technology;; media bias; lobbying; public opinion |
| JEL: | D72 |
| Date: | 2025–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127777 |
| By: | Puppe, Clemens; Tasnádi, Attila |
| Abstract: | We study the aggregation of partial orders into a complete ordering, and prove both possibility and impossibility results in this context. First, we show that the standard independence of irrelevant alternatives condition is stronger here since even dictatorial aggregation rules may fail to satisfy it. On the other hand, domain restrictions enable non-dictatorial aggregation rules satisfying a number of attractive properties. In particular, we show that anonymous aggregation satisfying a weak form of independence of irrelevant alternatives is possible on a large class of 'extended' Condorcet domains. |
| Keywords: | multi-criteria decision making, aggregation of partial orders and incomplete lists, Arrow’s theorem |
| JEL: | D71 |
| Date: | 2025–07–22 |
| URL: | https://d.repec.org/n?u=RePEc:cvh:coecwp:2025/02 |
| By: | Subhasish M. Chowdhury (School of Economics, University of Sheffield, Sheffield S10 2TU, UK); Chen Cohen (Department of Public Policy and Management, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel); Roy Darioshi (Department of Public Policy and Management, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel); Shmuel Nitzan (Department of Economics, Bar-Ilan University, Ramat Gan, Israel) |
| Abstract: | Many contests, such as innovation races or sport competitions, often involve reimbursement of expenses. This study examines optimal reimbursement schemes in two-player Tullock contests, analyzing six reimbursement structures: external versus internal funding source each targeting the contest winner, the loser, or both of them. We assess the implications on effort, winning probabilities, and designer payoff under three key conditions: full-reimbursement, neutrality (preserving initial win chances) and viability (positive efforts from players). We find that all the schemes can satisfy viability; and all the schemes except for external reimbursement to the winner can satisfy neutrality. Additionally, all the schemes except internal reimbursement to the winner, and internal or external reimbursement to both players can satisfy full-reimbursement. These findings indicate that optimal reimbursement structures and rates vary depending on the contest structure, and the designer’s objectives, such as maximizing effort or maximizing personal payoff. |
| Keywords: | contest; reimbursement scheme; R&D; Tullock |
| JEL: | C72 K41 O31 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:shf:wpaper:2025007 |
| By: | Philippe Jehiel; Giacomo Weber |
| Abstract: | Normal-form two-player games are categorized by players into K analogy classes so as to minimize the prediction error about the behavior of the opponent. This results in Clustered Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions minimize the prediction errors given the strategies. We distinguish between environments with self-repelling analogy partitions in which some mixing over partitions is required and environments with self-attractive partitions in which several analogy partitions can arise, thereby suggesting new channels of belief heterogeneity and equilibrium multiplicity. Various economic applications are discussed. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13022 |
| By: | Maria Titova; Emily Hencken Ritter; Mehdi Shadmehr |
| Abstract: | Regimes routinely conceal acts of repression. We show that observed repression may be negatively correlated with total repression -- which includes both revealed and concealed acts -- across time and space. This distortion implies that policy interventions aimed at reducing repression by incentivizing regimes can produce perverse effects. It also poses challenges for research evaluating the efficacy of repression -- its deterrent and backlash effects. To address this, we develop a model in which regimes choose both whether to repress and whether to conceal repression. We leverage equilibrium relationships to propose a method for recovering concealed repression using observable data. We then provide an informational theory of deterrence and backlash effects, identifying the conditions under which each arises and intensifies. Finally, we show that comparing protest probabilities in the presence and absence of repression provides an upper bound on the size of the backlash effect, overstating its magnitude and thereby underestimating the efficacy of repression. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.16997 |
| By: | Zijian Zark Wang |
| Abstract: | When decision makers evaluate a sequence of rewards, they may pay more attention to larger rewards and, given attention is limited, less attention to smaller rewards. They may also become less attentive to each reward when attention is spread over a longer period of time. Such reductions in attention could lead to greater discounting of the rewards' values. This paper introduces a novel theory of time discounting based on these assumptions. The resulting discount factors in the theory follow a distribution similar to the multinomial logit function. We characterize such discount factors using two approaches: one based on information maximizing exploration and the other based on the optimal discounting framework. The theory can explain a wide range of anomalies, including the hidden-zero effect, S-shaped value function, and intertemporal correlation aversion. Also, it specifies new mediators for some well-known psychological effects, such as the common difference effect, risk aversion over time lotteries, and the present bias. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13016 |
| By: | Xinyu Dai |
| Abstract: | In this study, I investigate the dynamic decision problem with a finite parameter space when the functional form of conditional expected rewards is misspecified. Traditional algorithms, such as Thompson Sampling, guarantee neither an $O(e^{-T})$ rate of posterior parameter concentration nor an $O(T^{-1})$ rate of average regret. However, under mild conditions, we can still achieve an exponential convergence rate of the parameter to a pseudo truth set, an extension of the pseudo truth parameter concept introduced by White (1982). I further characterize the necessary conditions for the convergence of the expected posterior within this pseudo-truth set. Simulations demonstrate that while the maximum a posteriori (MAP) estimate of the parameters fails to converge under misspecification, the algorithm's average regret remains relatively robust compared to the correctly specified case. These findings suggest opportunities to design simple yet robust algorithms that achieve desirable outcomes even in the presence of model misspecifications. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.14913 |
| By: | Heng-fu Zou |
| Abstract: | We develop a dynamic differential game model of strategic arms accumulation between two rival states, reflecting the security dilemma of major geopolitical adversaries such as the United States and China or the United States and the former Soviet Union. The model features both determinis tic and stochastic formulations, where each country maximizes intertem poral utility over its own military stock while negatively internalizing the rival's arms buildup. We derive Markov-Perfect Nash equilibrium strate gies in both open-loop and feedback forms, with special emphasis on the characterization and solution of the coupled Hamilton-Jacobi-Bellman (HJB) and Fokker-Planck-Kolmogorov (FPK) partial diferential equa tions. In the linear-quadratic case, we solve the time-consistent Riccati equations and analyze the elasticity of optimal strategies with respect to changes in strategic preferences, investment costs, and external threats. The model is extended to include regime shocks-discontinuous jumps in threat perception or strategic aggressiveness-which may destabilize de terrence and trigger explosive arms escalation. Comparative statics from Riccati dynamics reveal thresholds beyond which deterrence collapses and feedback control solutions blow up in finite time. We also explore welfare trade-offs, deterrence sustainability, and policy implications of dynamic treaties. The mathematical framework developed here provides a foun dation for modeling arms races as nonlinear stochastic systems under en- dogenous expectations, belief dynamics, and political instability. |
| Keywords: | Strategic arms race, differential games, Nash equilibrium, feedback strategy, Riccati equation, Fokker–Planck equation, HJB equation, stochastic dynamics, regime shocks, deterrence collapse, Markov–Perfect equilibrium, dynamic stability, military investment, geopolitical competition, arms control treaties |
| Date: | 2025–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:773 |
| By: | Payne Hennigan |
| Abstract: | I develop a dynamic model of how internal capital markets in conglomerates respond to liquidity shocks when affiliated firms vary in innovation potential. A two-stage framework defines cutoff rules for when the conglomerate should liquidate low-productivity firms, coerce intermediate types into short-termist strategies, or preserve high-potential firms for long-horizon R&D. Embedding these margins into an endogenous growth model, I show how the optimal policy evolves: early in development, coercion preserves liquidity while sustaining broad innovation; as the economy nears the frontier and short-term returns decline, the optimal strategy shifts toward binary reallocation between liquidation and long-termism. I characterize two policy failures: a "coercion trap, " where short-termism persists too long, and a "liquidation fallacy, " where viable firms are discarded prematurely. The framework provides microfoundations for dynamic reallocation in conglomerate systems and offers policy insights for crisis-era restructuring. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13993 |
| By: | Ajay K. Agrawal; Joshua S. Gans; Avi Goldfarb |
| Abstract: | Steve Jobs described computers as “bicycles for the mind, ” a tool that allowed people to dramatically leverage their capabilities. This paper presents a formal model of cognitive tools and technologies that enhance mental capabilities. We consider agents engaged in iterative task improvement, where cognitive tools are assumed to be substitutes for implementation skills and may or may not be complements to judgment, depending on their type. The ability to recognise opportunities to start or improve a process, which we term opportunity judgment, is shown to always complement cognitive tools. The ability to know which action to take in a given state, which we term payoff judgment, is not necessarily a complement to cognitive tools. Using these concepts, we can synthesise the empirical literature on the impact of computers and artificial intelligence (AI) on productivity and inequality. Specifically, while both computers and AI appear to increase productivity, computers have also contributed to increased inequality. Empirical work on the impact of AI on inequality has shown both increases and decreases, depending on the context. We also apply the model to understand how cognitive tools might influence incentives to automate processes and allocate decision-making authority within teams. |
| JEL: | D83 J24 L23 O33 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34034 |