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on Microeconomics |
| By: | Jamie Tucker-Foltz; Richard Zeckhauser |
| Abstract: | A single seller offers one or more goods to a single buyer. The buyer's values and the seller's costs are private information. Each player has a commonly known prior over the other player's value or cost, supported on a finite set. What is the optimal selling mechanism? We argue that, despite this question's importance and apparent simplicity, prior work offers no satisfactory answer. If the seller simply chooses an optimal menu given her realized costs, she fails to exploit her informational advantage. At the other extreme, the optimal trade mechanism that satisfies IC/IR constraints for both parties fails in practice, as it conditions prices on the seller's unknown costs in an unenforceable way. The seller's realistic capabilities lie somewhere in between: she may leverage private information but lacks unlimited commitment power. To bridge this gap, we consider a solution concept built on the realistic assumption that the seller can commit to prices but nothing more. Similar -- albeit technically distinct -- solution concepts have been studied in the context of auctions with multiple buyers. Our concept proves surprisingly rich even with a single buyer. In our model, the buyer and seller engage in multiple rounds of cheap talk before the seller posts a menu of priced bundles. The buyer then purchases. We measure value as profit for the seller and consumer surplus for the buyer. We prove that with a single good cheap talk cannot help either party, but show that it creates value in any extension of this canonical setting: multiple goods, multiple units, interdependent values, or repeated play. We also show that multiple rounds of communication can yield strictly higher expected profit than a single round. Finally, we discuss how realistic factors beyond our stripped-down model combine with cheap talk to enhance this value even further. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.01250 |
| By: | Nicolas Pasquier |
| Abstract: | Traditional firms competing in a primary market may expand into a secondary market that generates user data and enhances the quality of the primary product. This paper examines how competition between such rival ecosystems affects market outcomes and welfare. Using a Hotelling framework with two symmetric ecosystems that each offer a primary product and a secondary data-rich product, I show that the size of the secondary market is key. When the secondary market is small, ecosystems invest less in quality than in a benchmark with only a primary market and earn higher profits at the expense of consumers. As the secondary market grows, quality investment rises and the welfare ranking can reverse. I further show that expansion into a secondary market need not create a trade-off between profits and consumer surplus: when the ecosystems’ secondary products are sufficiently differentiated, both profits and consumer surplus can exceed their benchmark levels. These findings inform policy debates on digital adoption, market structure, and ecosystem regulation. |
| Keywords: | Competing Ecosystems, Quality Investment, Data-Driven Quality |
| JEL: | L13 L51 D43 O31 Q16 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:gbl:wpaper:2026-03 |
| By: | Kiho Yoon |
| Abstract: | We study optimal auction design when the direction of bidders' deviations is restricted. We show that the optimal revenue when bidders can only underbid their true values cannot exceed the optimal revenue when bidders may freely underbid or overbid. Thus, unidirectional incentive compatibility is sufficient for full incentive compatibility for revenue maximization. We prove this equivalence through linear programming duality in a discrete model, which makes it possible to analyze the feasibility of allocation rules in multi-agent environments. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.03051 |
| By: | Chang-Koo Chi (Yonsei University); Jay Pil Choi (Michigan State University); Jong-Hee Hahn (Yonsei University); Seongkyun Kim (Yonsei University) |
| Abstract: | This paper studies self-preferencing incentives by vertically integrated platforms that operate both marketplaces and affiliated retail businesses. We show that self-preferencing and transaction fees are substitute instruments for profit extraction, implying that restrictions on self-preferencing may induce offsetting increases in transaction fees and thereby generate unintended consequences for consumer welfare. We characterize the platform’s optimal choice of self-preferencing and transaction fees and evaluate the welfare effects of behavioral and structural remedies. We also extend the analysis to settings with platform competition and consumer search, examining how market forces shape self-preferencing incentives and evaluating the robustness of our main results. |
| Keywords: | self-preferencing, vertically integrated platforms, transaction fees, regulation, hierarchical Hotelling model, search |
| JEL: | L2 L5 D2 D8 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-294 |
| By: | Joshua S. Gans |
| Abstract: | Rules against persuasion often focus on beliefs: an institution should not manipulate the information on which a decision rests. We show that such rules can miss a distinct source of directional influence. An institution can steer an outcome without changing beliefs by selecting among authorised procedures that translate the same belief into different actions. Jury instructions provide the leading example: a judge may alter no juror’s assessment of the facts yet still affect the verdict through the permissible formulation of the law. The gap is sharpest near a decision threshold. There, the scope for belief movement that preserves the default action vanishes, while procedural steering can remain maximal whenever authorised procedures disagree near the boundary, even with genuinely informative communication. In general, exposure to procedural steering is the concavification of a local steering score. The geometry of Bayesian persuasion thus reappears in reverse: it measures not the value of manipulating beliefs, but the directional discretion left open by institutional rules. |
| JEL: | D82 D83 K40 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35312 |
| By: | Joshua S. Gans |
| Abstract: | Workers sometimes enjoy productive tasks and voluntarily devote unpaid time to them. We study O-ring jobs in which firms can either price a complete task bundle or specify paid task floors while workers remain free to add time. For any allocation supported by both hourly contracts, the wage bill is identical: voluntary top-up is not a discount. The contracts differ because paid floors cannot cap attractive tasks below the worker's voluntary supply. This implementability constraint adds a containment motive for automation alongside replacement and scale effects. It also makes payroll measures incomplete: conditional on a common automated set and a common AI technology, jobs with the same payroll footprint can differ in worked time and task mix. Rich salaried bundle pricing removes the hourly-contract distortion. |
| JEL: | J22 J24 J31 J33 O33 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35309 |
| By: | Zhicheng Du; Hu Fu; Ying Qin; Zihe Wang |
| Abstract: | Advertisements often strategically disclose information to consumers who make decisions on further information acquisition and eventual purchase. Anderson and Renault (2006) model this problem using an information design framework, where the advertiser acts as a sender and the consumer as a receiver. We extend this model to a competitive setting with horizontally differentiated senders competing for a unit-demand receiver. Under costly inspection, the receiver's optimal sequential search action is given by Weitzman's Index Algorithm. We give a method, based on duality arguments, to verify whether a sender's given information strategy constitutes a best response against his competitors (other senders). We establish the existence of an equilibrium in the game among senders when the prior distributions have no mass; we also illustrate that such equilibria may exhibit intricate behaviors. Finally, we meticulously characterize symmetric equilibria played by the senders for cases when the prior distributions have monotone increasing densities, while offering economic intuitions behind the insightful equilibrium structure. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.03527 |
| By: | Ronen Gradwohl; Fengming Hu; Rann Smorodinsky |
| Abstract: | We study the robustness of Bayesian persuasion to uncertainty about the receiver's preferences. We analyze two conceptually distinct notions: continuity, in which only the modeler lacks precise knowledge, but where the model's predictions are nonetheless accurate; and robustness, in which the sender also lacks precise knowledge, but where the outcome is insensitive to this ignorance. We model preference uncertainty as infinitesimally small, non-probabilistic (Knightian) uncertainty, and the sender's behavior as either minimizing the regret or maximizing the minimum utility. We show that continuity holds if and only if robustness holds, and that both notions are generic. Thus, while some instances of Bayesian persuasion are fragile, typical instances are both continuous and robust with respect to a small amount of ignorance. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.28265 |
| By: | Irene Aldridge |
| Abstract: | We develop a game-theoretic framework that compares welfare efficiency across three market mechanisms: continuous double auctions with transparent order books (lit exchanges), opaque order books (dark pools), and periodic batch auctions. Each mechanism is modeled as a queuing system where heterogeneous traders face trade-offs between the execution price, waiting costs, and transaction costs. Our main result establishes that under moderate arrival rates and bounded adverse selection, dark pools dominate both alternatives in aggregate ex-ante welfare. Observable order books create costly strategic timing games in which traders delay or rush submissions to optimize their position in the queue, generating wasteful social waiting costs. Opaque order books eliminate these timing games through information design. We formally characterize the equilibrium strategies in each mechanism and prove the welfare ranking $W^{DARK} > W^{LIT} > W^{BATCH}$. Extensions incorporate asymmetric information and endogenous venue choice. The results demonstrate how the information structure and the discipline of the service jointly determine efficiency in strategic matching environments. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.31072 |
| By: | Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Hanssen, Pauline (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Tamura, Yuki |
| Abstract: | This paper studies reallocation problems where preferences are single-peaked and one agent is endowed with one unit of an infinitely divisible and non-disposable commodity. We characterize all allocations that belong to the core, i.e. no group of agents is better off by reallocating among themselves. Under excess supply, we show that all rules satisfying Pareto optimality and individual rationality select from the strong core. Under excess demand, we show that all rules satisfying Pareto optimality, individual rationality, and strategy-proofness select from the weak core, but there is no strategy-proof rule that selects from the strong core. |
| Keywords: | resource reallocation, single-peaked preferences, weak core, strong core |
| JEL: | D63 D71 D74 |
| Date: | 2026–06–08 |
| URL: | https://d.repec.org/n?u=RePEc:unm:umagsb:2026005 |
| By: | Saha, Soumyarup; Banerjee, Swapnendu; Paul, Arindam |
| Abstract: | We explore the optimal choice of a low-ability principal while recruiting between high-ability and low-ability agents for a particular position in an organization. The organization is naïve in the sense that it fails to shut the door to malpractice possibilities in recruitment. The agents engage in a tournament of appeasing the principal in order to get favoured prior to the recruitment process. The principal being low-ability suffers from inferiority complex vis-à-vis the high-ability (identifies with the low-ability agent) and enjoys the appeasement of the low-ability agent more vis-à-vis the high-ability. We find conditions under which the low-ability will appease more compared to the high ability. We also explore conditions under which the principal will recruit the low-ability agent, thus jeopardizing the organizational welfare. |
| Keywords: | Appeasement, Recruitment, Hidden Action, High-ability, Low-ability |
| JEL: | D82 D86 J41 |
| Date: | 2026–04–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129214 |
| By: | Hongcheng Li |
| Abstract: | A principal who offers a contract may renege when her default option is sufficiently attractive. The size of this temptation, which measures her commitment power, is often her private information. This paper asks how contracting outcomes change under this information asymmetry. Disciplining off-path beliefs with the Intuitive Criterion, I find that every type of principal behaves and earns payoffs exactly as if she were commonly known to have the least commitment power. Hidden commitment power is therefore powerless. The result delivers an unambiguous policy lesson on how to mitigate this information asymmetry prior to contracting: only measures that improve the worst case have value. Applied to credit rating, it rationalizes the monotone-partitional structure widely used in practice. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.02769 |
| By: | Andrea Loi; Stefano Matta |
| Abstract: | We study global uniqueness of competitive equilibrium in two-good pure-exchange economies with heterogeneous impatience types and a common HARA Bernoulli utility. The paper connects the CRRA sorting result of \citet{GeanakoplosWalsh2018} with the line of HARA uniqueness results developed in \citet{LoiMatta2022, LoiMatta2024}. In the CRRA case, ordered endowments provide a sorting mechanism for uniqueness. In the HARA case, uniqueness is known to hold for arbitrary endowments under the curvature bound $\gamma\le I/(I-1)$, where $I$ is the number of impatience types. For two types, the curvature restriction can be removed under a monotone sorting condition linking patience and endowment composition. The present paper shows that this high-curvature HARA sorting mechanism is not specific to the two-type case. Our main result proves global uniqueness for any finite number of impatience types and any $\gamma>1$. If types can be ordered so that more patient agents hold weakly more of the first good and weakly less of the second, then the equilibrium price is globally unique. Thus the paper extends the two-type high-curvature HARA result to a genuinely multi-type setting and complements the arbitrary-endowment low-curvature result by replacing the low-curvature restriction with an economically interpretable sorting restriction. In the CRRA subcase ($b=0$), the ordered-endowment condition coincides with that of \citet{GeanakoplosWalsh2018}, and our corollary recovers their uniqueness result. The contribution of the present paper is therefore not the sorting condition itself but its reach: the same ordered heterogeneity in patience and endowment composition rules out multiplicity throughout the shifted HARA case ($b>0$), for any finite number of types and any $\gamma>1$, through a global coefficient-ratio argument. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.11377 |
| By: | Appelbaum, Elie |
| Abstract: | This paper develops a theoretical model of decision-making under risk in which the agent is a union of individuals with heterogeneous attitudes toward risk. The risk attitude governing the joint decision is endogenously determined as a compromise between individuals' innate preferences, with deviations generating costs. The chosen risk attitude affects the optimal portfolio and, therefore, the risk premium associated with exposure to uncertainty. The analysis shows that the optimal compromise equates the marginal increase in the risk premium with the marginal reduction in deviation costs. Because risk attitudes and portfolio choices are jointly determined, parameter changes affect both sides of this condition, generating feedback effects that may lead to ambiguous or non-monotone comparative statics. The framework provides a tractable approach to modelling endogenous risk attitudes in collective decision-making under uncertainty. |
| Keywords: | household portfolio choice; heterogeneous risk preferences; Endogenous risk attitudes; collective decision making; preference aggregation. |
| JEL: | C18 C44 D80 D81 I10 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129118 |
| By: | Ruhi Sonal; Saptarshi Mukherjee; Abhinaba Lahiri; Aniruddha Ghosh |
| Abstract: | Sequential development of a new product or technology, or natural resource exploration, often progresses through ordered stages with uncertain rewards and requires costly (ex ante) planning to make future stages accessible. We model this process as an ordered Pandora's box problem where a decision-maker first chooses an initial scope, paying a cost that rises with the number of stages made accessible, and may later expand the scope at a marginal adjustment cost. Since the paid planning costs are sunk, the continuation values depend on the state variable ``paid scope''. We prove existence and uniqueness of scope-dependent reservation values, characterize the optimal search strategy as a threshold rule indexed by paid scope, and derive comparative statics. Interactions among three economic forces shape the optimal behavior -- a guarantee effect (a higher current best offer reduces the expected improvement from the next stage and induces earlier stopping), a paid-scope effect (a larger prepaid scope lowers the marginal cost of future access, raises the continuation value, and supports continuation at higher guarantees), and a remaining-horizon effect (fewer stages remaining shrink the option value of continuing). Two examples illustrate how these forces generate distinct planning and search patterns under normal and fat-tailed rewards. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.10438 |
| By: | Yoshio Kamijo (Faculty of Political Science and Economics, Waseda University); Daiki Kishishita (Graduate School of Economics, Hitotsubashi University); Satoru Shimokawa (Faculty of Political Science and Economics, Waseda University) |
| Abstract: | This paper identifies a fundamental expert communication dilemma: citizens distrust consistent advice as a signal of bias, yet distrust revision as indicating limited knowledge. We formalize this in a repeated cheap-talk model with bias uncertainty and gradually accumulating evidence. Theoretically, perfect compliance obtains without private information but collapses otherwise. Experiments reveal the dilemma is more severe than predicted, emerging even without private information. Importantly, private signals do not reduce welfare but instead filter incorrect advice. Finally, compliance substantially recovers with algorithmic advisors, suggesting automated advice mitigates communication failures in controversial policy environments. |
| Keywords: | Reputational cheap talk; Expert advice; Informed receiver; Algorithmic advice; Experiment |
| JEL: | D83 C92 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2532 |