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on Microeconomics |
| By: | Choi, Jay Pil; Jeon, Doh-Shin; Menicucci, Domenico |
| Abstract: | This paper examines how competition affects the timing of AI deployment under safety risk. We show that competition can generate two distortions relative to joint–profit maximization: a race to the bottom and insufficient entry. A race to the bottom arises when first-mover advantages induce premature deployment and is more likely as technological correlation (homogenization) increases. Conversely, firms may delay entry to free-ride on rivals’ experimentation, leading to insufficient entry. Even when private incentives under joint–profit maximization are aligned with social incentives, competition can still induce socially inefficient early deployment. We discuss policy implications for improving deployment timing. |
| Keywords: | AI, Competition, Optimal Deployment Time, Race to the Bottom. |
| JEL: | D4 L1 L5 |
| Date: | 2026–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131711 |
| By: | Atulya Jain |
| Abstract: | We study a dynamic sender-receiver game in which the sender observes a state evolving according to a Markov chain but does not observe the receiver's action. Despite the absence of feedback, dynamic interaction partially restores commitment. We show that any equilibrium payoff of a persuasion model with partial commitment, where the sender can deviate to signaling policies that preserve the marginal distribution over messages, can be achieved as a uniform equilibrium payoff in the dynamic game. Moreover, any convex combination of such payoffs across message distributions can also be sustained. When the sender's payoff is state-independent, she achieves the Bayesian persuasion payoff. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.26443 |
| By: | Pablo D. Azar |
| Abstract: | Bayesian Persuasion assumes that a sender can commit ex ante to an information structure and then release the realized signal ex post. This paper asks when that commitment technology can itself be implemented. After observing the state, a sender who also observes the realized signal can suppress unfavorable draws even if every disclosed signal is verifiably correct. We define Receiver-Private Certified Bayesian Persuasion, a benchmark in which the receiver obtains the signal and a certificate of correct generation while the sender does not learn the realized branch of the experiment. The main theorem shows that this benchmark is equivalent in cryptographic power to secure two-party computation. Thus cryptography is not merely an implementation device for persuasion; when the sender must be prevented from changing the signal sent to the receiver, hiding the signal from the sender is necessary. In stress-test applications, the primitive removes ex post discretion over which realized disclosure reaches depositors. |
| Keywords: | Bayesian persuasion; stress testing; central bank communications |
| JEL: | D82 D83 G28 |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103177 |
| By: | Harold Houba (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam) |
| Abstract: | Advances in data collection enable firms to use consumer information for personalized pricing. In Clavorà Braulin's (2023) symmetric two-dimensional model, this reduces prices and profits, while partial privacy yields the highest profits. Extending the model to asymmetric firms and vertically differentiated products, we show that these results are not robust under sizable asymmetries. Partial privacy may harm both firm and industry profits, while no privacy can outperform other regimes. Consumer welfare also depends on asymmetry: when large, partial privacy maximizes consumer surplus. These findings challenge prior literature and inform the design of privacy protection regulations. |
| Keywords: | Personalized Prices, Price Discrimination, Consumer Information, Privacy |
| JEL: | D4 D18 L13 |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250072 |
| By: | Zhiming Feng |
| Abstract: | This paper develops a decomposition methodology for common agency games in which each principal's payoff depends on her own outcome and the agent's type, but not on rivals' outcomes. The key step reduces each principal's best-response problem to a standard screening problem defined over the agent's indirect utility -- the upper envelope of her payoff over rivals' offerings. Individually best-responding mechanisms then assemble into a pure-menu perfect Bayesian equilibrium when a compatibility condition (utility-preserving recombination) ensures aligned tie-breaking across principals. Under a non-indifference condition, the decomposition recovers all equilibria except those sustained by menu items that no type of the agent actually selects but which nevertheless discipline the rival's screening problem. When principals' payoffs depend on the full allocation profile, the decomposition adapts only under substantive regularity conditions on the agent's off-path choice behavior, one of which coincides with Luce's choice axiom. I apply the methodology to two settings. In a quadratic-loss delegation model, equilibria feature one principal offering a finite menu of discrete ``regimes'' while the other receives piecewise full delegation within each regime. In a competitive bundling duopoly under intrinsic common agency, the decomposition yields equilibria exhibiting market splitting, in which firms specialize in complementary bundles, and asymmetric equilibria with a take-it-or-leave-it base contract paired with a nested or tree menu of upgrades. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.23971 |
| By: | Navin Kartik; Elliot Lipnowski; Harry Pei |
| Abstract: | Does electoral replacement ensure that officeholders eventually act in voters’ interests? We study a reputational model of accountability. Voters observe incumbents’ performance and decide whether to replace them. Politicians may be “good” types who always exert effort or opportunists who may shirk. We find that good long-run outcomes are always attainable, though the mechanism and its robustness depend on economic conditions. In environments conducive to incentive provision, some equilibria feature sustained effort, yet others exhibit some long-run shirking. In the complementary case, opportunists are never fully disciplined, but selection dominates: every equilibrium eventually settles on a good politician, yielding permanent effort. |
| JEL: | C73 D72 D78 D82 D83 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35154 |
| By: | Ian Fligler |
| Abstract: | In strategic games such as the prisoner's dilemma, allowing players to make binding offers of utility transfers before play has been shown to alter incentives and potentially support cooperative outcomes. These preplay exchange mechanisms reshape payoffs by transferring utility while being contingent on actions; however, they typically require side payments that can reduce individual benefits relative to joint cooperation. In this paper, we extend the analysis to a finite $n$-player prisoner's dilemma with ordered strategy sets, defined such that any restriction of strategies by any subset of players still yields a prisoner's dilemma. To achieve a robust cooperative outcome that resists group deviations, we introduce a novel class of mechanisms: $\textit{losing contracts}$. Unlike transfer-based preplay mechanisms, losing contracts require players to irrevocably reduce their own utility if they defect, thereby aligning individual incentives with cooperation without inter-player payments. With appropriately chosen loss amounts, losing contracts induce joint cooperation as the unique strong Nash equilibrium in the modified game and in every restricted game within it, ensuring that cooperative incentives persist even under possible external constraints on strategy sets. We show that our contracts can be constructively defined, reducing the preplay stage to a simple and binary decision for each player: whether to sign the contract or not. Furthermore, if the losing contract is only executed when all players sign, signing is a strictly dominant strategy for all. Finally, we extend these results to certain public goods games. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.22563 |
| By: | Fahn, Matthias (University of Hong Kong); Li, Jin (University of Hong Kong); Sun, Chang (University of Hong Kong) |
| Abstract: | We study how AI affects compensation and job design when performance depends on workers’ non-contractible effort. In a principal–agent model with limited liability, AI reduces effort costs but disproportionately lowers the cost of achieving satisfactory performance. This raises the incentive cost of sustaining high effort and can induce firms to replace high-wage, high-effort good jobs with low-wage, low-effort bad jobs, even when good jobs create more total surplus. As a result, AI can lower wages, reduce worker welfare, and even depress profits. If workers can adopt AI unilaterally, adoption occurs even when the resulting equilibrium harms both parties; when adoption requires worker cooperation, resistance is strongest where AI erodes rents embodied in good jobs. In a search-and-matching extension, endogenous outside options amplify these forces, reinforcing a bad-job economy and potentially reducing employment. |
| Keywords: | artificial intelligence, agency costs, job design, labor contracts, limited liability, incentives, search and matching |
| JEL: | D86 J41 O33 L23 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18574 |
| By: | Michael Greinecker; Martin Meier; Konrad Podczeck |
| Abstract: | Sequential equilibrium is one of the most fundamental refinements of Nash equilibrium for games in extensive form. However, it is not defined for extensive-form games in which a player can choose among a continuum of actions. We define a class of infinite extensive form games in which information behaves continuously as a function of past actions and define a natural notion of sequential equilibrium for this class. Sequential equilibria exist in this class and refine Nash equilibria. In standard finite extensive-form games, our definition selects the same strategy profiles as the traditional notion of sequential equilibrium. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.25784 |
| By: | Kirill Rudov; Fedor Sandomirskiy; Leeat Yariv |
| Abstract: | Correlated equilibria arise naturally when agents communicate or rely on intermediaries such as recommendation systems. We study when a given Nash equilibrium can be improved within the set of correlated equilibria for general objectives. Our key insight is a detail-free criterion: any Nash equilibrium with three or more randomizing agents is generically improvable. We refine this insight to specific classes of games and objectives, including Pareto and utilitarian welfare, and provide constructive methods to obtain improvements. Our findings underscore the ubiquity of improvable Nash equilibria and the crucial role of correlation in enhancing strategic outcomes. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.27258 |
| By: | Jonathan Shaki; Eden Hartman; Sarit Kraus; Yonatan Aumann |
| Abstract: | Large language models (LLMs) are increasingly used to provide instructions to many agents who interact with one another. Such shared reliance couples agents who appear to act independently: they may in fact be guided by a common model. This coupling can change the prospects for cooperation among agents with misaligned incentives. We study settings in which multiple LLMs each advise a population of clients who participate in instances of an underlying game, creating strategic interaction at the level of the LLMs themselves. This induces a meta-game among the LLMs, mediated through clients. We first analyze the one-shot setting, where shared instructions can change equilibrium behavior only when an LLM may influence more than one role in the same interaction; in such cases, cooperation may emerge, and the effect of client share can be beneficial, harmful, or non-monotone, depending on the base game. Our main result concerns the repeated setting. We prove a folk theorem for LLMs: despite indirect observation and the clients' inability to identify which LLM advised their opponents, all feasible and individually rational outcomes can be sustained as $\varepsilon$-equilibria. The result does not follow from the standard folk theorem and requires new proof techniques. Together, these results show that shared LLM guidance can sustain cooperation among populations of agents even when the underlying incentives are misaligned. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.06525 |
| By: | Pietro Dall'Ara |
| Abstract: | Coordination is an important aspect of innovative contexts, where: the more innovative a course of action, the more uncertain its outcome. To study the interplay of coordination and informational ``complexity'', I embed a beauty-contest game into a complex environment. I identify a new conformity phenomenon. This effect may push towards the exploration of unknown alternatives or constitute a status-quo bias, depending on the network structure of players' interactions. In an application, I show that an organization with decentralized authority can implement profit maximization in a sufficiently complex environment. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.24757 |
| By: | Andre, Peter; Heidhues, Paul; Kőszegi, Botond; Murooka, Takeshi |
| Abstract: | We develop a model of price competition with procrastinating consumers in which market discipline is supposed to arise from both the initial selection of providers and the possibility of switching providers. As in other theories, consumers may forego large gains by sticking with their initially chosen offer, so competition at the switching stage is weak. Unlike in other theories, consumers - who falsely expect to switch soon - may also fail to select the best starting offer, so competition at the initial stage is weak as well. This mechanism can translate temporary product differentiation into permanently high prices, greatly enhance the price effect of persistent differentiation, or generate high markups even with perfect substitutes. Reflecting the same mechanism, sign-up deals do not serve their classically hypothesized role of returning ex-post profits to consumers, but instead often exacerbate the failure of price competition. We complement our analysis with a tailored survey of consumers, confirming the logic of procrastination underlying our model. Consumer procrastination thus emerges as a novel source of competition failure that applies where other theories do not, helping to explain high average prices in many markets with switching costs. |
| Keywords: | procrastination, price competition, competition failure, switching, subscription markets, present bias |
| JEL: | L11 L13 D11 D41 D43 D91 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:340830 |
| By: | Hanming Fang; Soo Jin Kim |
| Abstract: | We analyze the effects of data neutrality regulations on downstream market competition, the incentive of the platform to produce data, and consumer welfare. In our framework, data neutrality requires that firms seeking access to the platform’s data be treated equally, irrespective of whether they are affiliated with the platform. We consider two forms of regulation. Under weak data neutrality, the platform must provide the same amount of data to affiliated and unaffiliated sellers; under strong data neutrality, it must also charge the same price. We show that weak data neutrality can be largely ineffective, as the platform may restore exclusion through discriminatory pricing. Strong data neutrality is more consequential, but it does not necessarily raise welfare. Although it broadens access and intensifies downstream competition, it also reduces the incentive of the platform to refine and produce data. Consequently, data neutrality can reduce the equilibrium amount of data available in the market, and this data-reduction effect can dominate its benefits, which enhance competition. These findings suggest that regulating access to platform data requires balancing fair competition against the incentive to generate valuable data inputs. |
| JEL: | D4 L1 L4 L5 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35159 |
| By: | Mihir Bhattacharya; Anup Pramanik |
| Abstract: | This paper characterizes the single-peaked domain on a tree via the strategy-proofness of extreme rules defined on that tree. For any tree, these rules are unanimous and anonymous on any preference domain. In particular, we show that they are strategy-proof only on the single-peaked domain associated with that tree. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.26563 |
| By: | Igor Sloev; Gerasimos Lianos |
| Abstract: | This study investigates the properties and stability of the Multiplicative Kantian Equilibrium (MKE) in symmetric games. We first demonstrate that MKE lacks strategic equivalence: the Kantian best-response function is not invariant under monotonic strategy rescaling. This strategic non-equivalence implies that the choice of measurement scale - a subjective interpretation of the game - materially impacts equilibrium outcomes. Exploiting this non-equivalence, in a game where players may be Kantian or Nasher, we propose an efficient strategy rescaling that allows Kantians to neutralize the free-rider advantage of Nashers, while preserving Pareto-efficient outcomes among themselves. In a dynamic framework, we show that the subgame-perfect Nash equilibrium with endogenous choice of optimization type leads all players to prefer Kantian optimization over Nash optimization. In an evolutionary setup, we show that Kantian optimization is an evolutionarily stable strategy (ESS). Our results suggest that the inherent strategic non-equivalence of Kantian optimization provides a robust pathway to stable cooperation. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.00692 |
| By: | Dana Sisak (Erasmus University Rotterdam); Otto Swank (Erasmus University Rotterdam) |
| Abstract: | We investigate the determinants of states' policy capacity, defined as the ability of states to craft effective policies. Our model shows that the interaction between politicians' implementation decisions and bureaucrats' motivation to design effective policies can lead to the coexistence of high-trust and low-trust equilibria. Without electoral concerns, politicians favor high-trust equilibria and hire capable bureaucrats. In a polarized society, electoral concerns may prompt more policy-skeptical politicians to appoint less capable bureaucrats to diminish policy capacity and ensure low-trust equilibria. This strategy shifts future implementation decisions in favor of interventionist politicians. Moreover, it reduces voters' demand for interventionist decision-making. |
| Keywords: | infinite horizon optimal control, monotone trajectories |
| JEL: | D72 D73 D78 |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250062 |