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on Microeconomics |
| By: | Itai Arieli; Colin Stewart |
| Abstract: | We introduce a model of persuasion in which a sender without any commitment power privately gathers information about an unknown state of the world and then chooses what to verifiably disclose to a receiver. The receiver does not know how many experiments the sender is able to run, and may therefore be uncertain as to whether the sender disclosed all of her information. Despite this challenge, we show that, under general conditions, the sender is able to achieve the same payoff as in the full-commitment Bayesian persuasion case. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.18662 |
| By: | Maxwell Rosenthal |
| Abstract: | This paper introduces a prior-free framework for information design based on partial identification and applies it to robust causal inference. The decision maker observes the distribution of signals generated by an information structure and ranks alternatives by their worst-case payoff over the state distributions consistent with those signals. We characterize the set of robustly implementable actions and show that each can be implemented by an information structure that withholds at most one dimension of information from the decision maker. In the potential outcomes model, every treatment is implementable via an experiment that is almost fully informative. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.18647 |
| By: | Robin Ng |
| Abstract: | This paper examines how two-sided platforms develop their recommender systems to be precise about value-for-money. On each platform, more precise recommendations generate ranking and screening effects: they steer demand toward high value-for-money products, intensifying price competition among firms which drives out lower-quality firms. Thus, more precise recommendations benefit consumers but reduce platform’s per-transaction revenue. A monopolist platform still prefers precise recommendations, as this expands demand. Competing platforms choose even more precise recommendations. However, when consumers search across platforms or recommender systems are overly complex, recommendations become less precise. This shows that market power is only one potential explanation for 'ensh*ttification'. |
| Keywords: | Digital economy, Recommender systems, Two-sided platforms |
| JEL: | D21 L10 L86 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_718 |
| By: | Yijun Liu |
| Abstract: | This paper studies a dynamic screening model in which a principal hires an agent with limited liability. The agent's private cost of working is an i.i.d. draw from a continuous distribution. His working status is publicly observable. The limited liability constraint requires that payments remain nonnegative at all times. In this setting, despite costs being i.i.d. and the payoffs being additively separable across periods, the optimal mechanism does not treat each period independently. Instead, it features backloading payments and requires the agent to work in consecutive periods. Specifically, I characterize conditions under which the optimal mechanism either grants the agent flexibility to start working in any period or restricts the starting period to the first. In either case, once the agent begins working, he is incentivized to work consecutively until the end. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.19838 |
| By: | Zeyu He |
| Abstract: | We identify a distinct motive for search, termed catalytic exploration, where agents rationally explore alternatives they expect to reject to resolve uncertainty about the status quo. By decomposing option value into switching and catalytic components, we show that high exploration rates can coexist with bounded switching probabilities. This mechanism generates three insights. First, strong catalytic motives cause separating equilibria to collapse in signaling games as receivers explore indiscriminately. Second, agents optimally acquire more precise information about the status quo than about alternatives, reversing rational inattention intuitions. Third, catalytic exploration creates negative externalities: information technology improvements can paradoxically reduce welfare by encouraging excessive benchmarking. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.17981 |
| By: | Malachy James Gavan; Alexander Frug |
| Abstract: | This paper shows that stability-based equilibrium refinements may not be well defined when taken to the infinite horizon. To do so, we use a stable-set-style notion of the dynamically consistent partition, allowing for incomplete information. We provide a concrete example where, only via taking the game to the infinite horizon, the dynamically consistent partition of equilibria does not exist. |
| Keywords: | dynamic learning and communication, revision-proof equilibria |
| JEL: | D83 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1536 |
| By: | Hiroaki Chiba-Okabe; Joshua B. Plotkin |
| Abstract: | We study the behavior of for-profit institutions that broadcast reputations to foster trust among market participants. We develop a theoretical model in which buyers and sellers are matched on a platform to engage in transactions involving a moral hazard: sellers can either faithfully deliver goods after receiving payment, or not. Although the buyer does not know a seller's true type, the platform maintains a reputation system that probabilistically assigns binary reputation signals. Buyers make purchase decisions based on reputation signals, which influence the payoffs to sellers who then adapt their type over time. These market dynamics ultimately shape the platform's profit from commissions on sales. Our analysis reveals that platforms inherently have an incentive for rating inflation, driven by the desire to increase commission. This introduces a second layer of moral hazard: the platform's incentive to distort reputations for its own profit. Such distortion is self-limited by the platform's need to maintain enough accuracy that trustworthy sellers remain in the market, without which rational buyers would refrain from purchases altogether. Nonetheless, the optimal strategy for the platform can be to invest in order to reduce signal accuracy. When the platform can freely set commission fees, however, maximum profit may be achieved by costly investment in an accurate reputation system. These findings highlight the intricate tensions between platform incentives and resulting social utility for marketplace participants. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.21875 |
| By: | Nadav Kunievsky |
| Abstract: | In democracies, major policy decisions typically require some form of majority or consensus, so elites must secure mass support to govern. Historically, elites could shape support only through limited instruments like schooling and mass media; advances in AI-driven persuasion sharply reduce the cost and increase the precision of shaping public opinion, making the distribution of preferences itself an object of deliberate design. We develop a dynamic model in which elites choose how much to reshape the distribution of policy preferences, subject to persuasion costs and a majority rule constraint. With a single elite, any optimal intervention tends to push society toward more polarized opinion profiles - a ``polarization pull'' - and improvements in persuasion technology accelerate this drift. When two opposed elites alternate in power, the same technology also creates incentives to park society in ``semi-lock'' regions where opinions are more cohesive and harder for a rival to overturn, so advances in persuasion can either heighten or dampen polarization depending on the environment. Taken together, cheaper persuasion technologies recast polarization as a strategic instrument of governance rather than a purely emergent social byproduct, with important implications for democratic stability as AI capabilities advance. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.04047 |
| By: | Michale R. Baye; Dan J. Kovenock; Casper G, de Vries |
| Abstract: | We show that MRPM can increase manufacturer profits and total output even in the absence of traditional justifications based on point-of-sale services, retailer effort, or free-riding. The key insight is that MRPM mitigates channel conflict by altering how retailers balance extracting surplus from loyal customers and competing for price-sensitive shoppers. When a manufacturer optimally chooses a wholesale price and MRPM policy, this can intensify competition and create systematic distributional effects: prices fall for loyal consumers but rise for shoppers, and the profits of smaller, shopper-dependent retailers decline. We characterize the conditions under which MRPM raises output, benefits a majority of consumers, and reallocates surplus among the manufacturer, retailers, and different consumer segments. The model helps explain why the political economy of MRPM varies across jurisdictions: even when it increases output, it creates predictable winners and losers, and there is no guarantee that the median consumer or retailer - or the median voter - benefits when minimum resale prices are imposed. These results suggest that the welfare and distributional effects of MRPM are inherently context-dependent and that its legal evaluation is best approached through a rule-of-reason framework that accounts for demand structure, retailer asymmetries, and the composition of consumer types. |
| Keywords: | resale price maintenance, vertical restraints, price competition |
| JEL: | D4 D8 M3 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12299 |
| By: | Zhang Xu; Wei Zhao |
| Abstract: | This paper provides a unified approach to characterize the set of all feasible signals subject to privacy constraints. The Blackwell frontier of feasible signals can be decomposed into minimum informative signals achieving the Blackwell frontier of privacy variables, and conditionally privacy-preserving signals. A complete characterization of the minimum informative signals is then provided. We apply the framework to ex-post privacy (including differential and inferential privacy) and to constraints on posterior means of arbitrary statistics. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.21196 |
| By: | Cheng Weilun; Liang Zongxia; Wang Sheng; Xia Jianming |
| Abstract: | This paper investigates infinite-dimensional portfolio selection problem under a general distribution of the risk aversion parameter. We provide a complete characterization of all deterministic equilibrium investment strategies. Our results reveal that the solution structure depends critically on the distribution of risk aversion: the equilibrium is unique whenever it exists in the case of finite expected risk aversion, whereas an infinite expectation can lead to infinitely many equilibria or to a unique trivial one (pi equals 0). To address this multiplicity, we introduce three optimality criteria-optimal, uniformly optimal, and uniformly strictly optimal-and explicitly characterize the existence and uniqueness of the corresponding equilibria. Under the same necessary and sufficient condition, the optimal and uniformly optimal equilibria exist uniquely and coincide. Furthermore, by additionally assuming that the market price of risk is non-zero near the terminal time, we show that the optimal (and hence uniformly optimal) equilibrium is also uniformly strictly optimal. Finally, we perform comparative statics to demonstrate that a risk aversion distribution dominating another in the reverse hazard rate order leads to a less aggressive equilibrium strategy. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.00830 |
| By: | Guillermo Alonso Alvarez; Ibrahim Ekren; Liwei Huang |
| Abstract: | We study a continuous time contracting model in which a principal hires a risk averse agent to manage a project over a finite horizon and provides sequential payments whose timing is endogenously determined. The resulting nonzero-sum interaction between the principal and the agent is reformulated as a mixed control and stopping problem. Using numerical simulations, we investigate how factors such as the relative impatience of the parties and the number of bonus payments influence the principal's value and the structure of the optimal bonus payment scheme. A notable finding is that, in some contractual environments, the principal optimally offers a sign-on bonus to front-load incentives. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.23424 |
| By: | Xiaopeng Zeng; Erbao Cao; Xiangqian Yang |
| Abstract: | When are dynamics valuable? In Bayesian environments with public signals and no intertemporal commitment, we study a seller who allocates an economically single-shot resource over time. We provide necessary and sufficient conditions under which the optimal dynamic mechanism collapses to a simple terminal design: a single public experiment at date 0 followed by a posterior-dependent static mechanism executed at a deterministic date, with no further disclosure. The key condition is the existence of a global affine shadow value that supports the posterior-based revenue frontier and uniformly bounds all history-dependent revenues. When this condition fails, a collapse statistic pinpoints the dates and public state variables that generate genuine dynamic value. The characterization combines martingale concavification on the belief space with an affine-support duality for concave envelopes. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.19781 |
| By: | Daniel Bird; Alexander Frug |
| Abstract: | Mid- and low-level managers play a significant role within the organizational hierarchy, far beyond monitoring. It is often their responsibility to respond to opportunities and threats within their units by adjusting their subordinates' assignments. Most such managers, however, lack the authority to adapt their subordinates' wages. In- stead, they rely on other, more restrictive incentive schemes. We study the interaction between a front-line manager and worker, and characterize the "managerial style" as a function of the players' relative patience and information. |
| Keywords: | asymmetric discounting, front-line management, perishable incentives |
| JEL: | D21 D82 D86 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1537 |
| By: | Zachary Van Oosten; Ruodu Wang |
| Abstract: | We distinguish two frameworks for decisions under ambiguity: evaluate-then-aggregate (ETA) and aggregate-then-evaluate (ATE). Given a statistic that represents the decision maker's pure-risk preferences (such as expected utility) and an ambiguous act, an ETA model first evaluates the act under each plausible probabilistic model using this statistic and then aggregates the resulting evaluations according to ambiguity attitudes. In contrast, an ATE model first aggregates ambiguity by assigning the act a single representative distribution and then evaluates that distribution using the statistic. These frameworks differ in the order in which risk and ambiguity are processed, and they coincide when there is no ambiguity. While most existing ambiguity models fall within the ETA framework, our study focuses on the ATE framework, which is conceptually just as compelling and has been relatively neglected in the literature. We develop a Choquet ATE model, which generalizes the Choquet expected utility model by allowing arbitrary pure-risk preferences. We provide an axiomatization of this model in a Savage setting with an exogenous source of unambiguous events. The Choquet ATE framework allows us to analyze a wide range of ambiguity attitudes and their interplay with risk attitudes. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.03396 |
| By: | Albina Danilova; Valentin Lizhdvoy |
| Abstract: | This paper studies a Kyle-Back model with a risk-averse insider possessing exponential utility and a dynamic stochastic signal about the asset's terminal fundamental value. While the existing literature considers either risk-neutral insiders with dynamic signals or risk-averse insiders with static signals, we establish equilibrium when both features are present. Our approach imposes no restrictions on the magnitude of the risk aversion parameter, extending beyond previous work that requires sufficiently small risk aversion. We employ a weak conditioning methodology to construct a Schr\"{o}dinger bridge between the insider's signal and the asset price process, an approach that naturally accommodates stochastic signal evolution and removes risk aversion constraints. We derive necessary conditions for equilibrium, showing that the optimal insider strategy must be continuous with bounded variation. Under these conditions, we characterize the market-maker pricing rule and insider strategy that achieve equilibrium. We obtain explicit closed-form solutions for important cases including deterministic and quadratic signal volatilities, demonstrating the tractability of our framework. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.05011 |
| By: | Tri Phu Vu |
| Abstract: | This paper studies choice situations in which a decision maker can choose multiple alternatives. Given a menu of available options, the decision maker selects a subset of the menu with certain probabilities. We employ an axiomatic approach to characterize various parametric models in the literature. Our results elucidate the implications of the functional form assumptions and shed light on the distinctions between models. The behavioral postulates offer simple tools for testing and falsifying the choice procedures used by the decision maker and reveal a close connection between models that are seemingly unrelated. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.18476 |
| By: | Jordana Blazek; Frederick C. Harris Jr |
| Abstract: | We consider a bipartite network of buyers and sellers, where the sellers run locally independent Progressive Second-Price (PSP) auctions, and buyers may participate in multiple auctions, forming a multi-auction market with perfect substitute. The paper develops a projection-based influence framework for decentralized PSP auctions. We formalize primary and expanded influence sets using projections on the active bid index set and show how partial orders on bid prices govern allocation, market shifts, and the emergence of saturated one-hop shells. Our results highlight the robustness of PSP auctions in decentralized environments by introducing saturated components and a structured framework for phase transitions in multi-auction dynamics. This structure ensures deterministic coverage of the strategy space, enabling stable and truthful embedding in the larger game. We further model intra-round dynamics using an index to capture coordinated asynchronous seller updates coupled through buyers' joint constraints. Together, these constructions explain how local interactions propagate across auctions and gives premise for coherent equilibria--without requiring global information or centralized control. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.19225 |
| By: | Sriram Tolety |
| Abstract: | We study whether large language models acting as autonomous bidders can tacitly collude by coordinating when to accept platform posted payouts in repeated Dutch auctions, without any communication. We present a minimal repeated auction model that yields a simple incentive compatibility condition and a closed form threshold for sustainable collusion for subgame-perfect Nash equilibria. In controlled simulations with multiple language models, we observe systematic supra-competitive prices in small auction settings and a return to competitive behavior as the number of bidders in the market increases, consistent with the theoretical model. We also find LLMs use various mechanisms to facilitate tacit coordination, such as focal point acceptance timing versus patient strategies that track the theoretical incentives. The results provide, to our knowledge, the first evidence of bidder side tacit collusion by LLMs and show that market structure levers can be more effective than capability limits for mitigation. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.21802 |
| By: | Peter Shum |
| Abstract: | Classical spatial models predict platform convergence, yet empirical polarization persists. This paper proposes a non-electoral mechanism: lobbying as a monopsonistic market for legislative support. Here, extreme benefactors must pay more to attract distant politicians, creating a rent gradient that rewards platform differentiation. We find that the unique equilibrium places politicians at $(\frac{1}{4}, \frac{3}{4})$ for any monotone policy-production cost. Thus, polarization can arise solely from lobbying-market structure, independent of electoral incentives. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.01796 |
| By: | Jeff Murugan |
| Abstract: | Information transmitted across modern communication platforms is degraded not only by intentional manipulation (disinformation) but also by intrinsic cognitive decay and topology-dependent social averaging (misinformation). We develop a continuous-fidelity field theory on multiplex networks with distinct layers representing private chats, group interactions, and broadcast channels. Our analytic solutions reveal three universal mechanisms controlling information quality: (i) groupthink blending, where dense group coupling drives fidelity to the initial group mean; (ii) bridge-node bottlenecks, where cross-community flow produces irreversible dilution; and (iii) a network-wide fidelity landscape set by a competition between broadcast truth-injection and structural degradation pathways. These results demonstrate that connectivity can reduce information integrity and establish quantitative control strategies to enhance fidelity in large-scale communication systems. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.18733 |
| By: | Kai A. Konrad; Marcel Thum |
| Abstract: | The enforcement of international sanctions is frequently undermined by multiple third-party sanction-breaking countries. This paper examines how a sanctioning country can optimally negotiate with several such loophole countries to close the enforcement gaps. We compare several sequential and simultaneous bargaining strategies. Suitably chosen sequencing, but also simultaneous negotiations under the Single-Undertaking Principle can minimize the cost to the sanctioning country by creating competitive pressure among the loophole countries. We find that, if the desire to make the sanctioning regime effective is sufficiently high, the ultimate goal of closing the sanction loopholes is achieved for all sequencing rules of ultimatum bargaining we consider. However, the equilibrium size and distribution of compensation among loophole countries differ. We characterize the optimal sequential strategy and the optimal simultaneous-offer strategy. Furthermore, for well-chosen negotiation strategies, the sum of compensations paid to multiple loophole countries is lower than if there is only one loophole country. |
| Keywords: | sanctions, negotiations, geoeconomics, conflict, trade |
| JEL: | F13 F51 C78 H56 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12308 |
| By: | Chengfeng Shen; Felix K\"ubler; Zhennan Zhou |
| Abstract: | In this paper we examine non-convex dynamic optimization problems with forward looking constraints. We prove that the recursive multiplier formulation in \cite{marcet2019recursive} gives the optimal value if one assumes that the planner has access to a public randomization device and forward looking constraints only have to hold in expectations. Whether one formulates the functional equation as a sup-inf problem or as an inf-sup problem is essential for the timing of the optimal lottery and for determining which constraints have to hold in expectations. We discuss for which economic problems the use of lotteries can be considered a reasonable assumption. We provide a general method to recover the optimal policy from a solution of the functional equation. As an application of our results, we consider the Ramsey problem of optimal government policy and give examples where lotteries are essential for the optimal solution. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.20303 |