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on Microeconomics |
| By: | Riccardo Formenti |
| Abstract: | We study the steady states of games played recurrently within large anonymous populations of players who receive partial ex-post feedback about the play of their opponents. Departing from the classical Bayesian account, players do not trust their conjectures as a correct description of the strategic environment but consider them as approximations of a reality that is only partially modeled and partially observed. We introduce games with feedback and uncertainty attitudes, in which the normal-form structure is enriched with a profile of feedback functions and, for each player, a preference functional that encodes aversion to misspecification and to ambiguity. The induced misspecification sensitive criterion contains the variational, maxmin, and smooth-ambiguity evaluations as special cases and collapses to expected utility when beliefs are unambiguous and the player is neutral to misspecification. The appropriate steady-state notion for such games is the Self-Confirming Equilibrium under Model Misspecification (SCEM), which requires each player to best respond to a set of structured conjectures that the feedback generated by equilibrium play cannot falsify. In contrast with the classical theory and with its ambiguity-averse extensions, mixed-strategy Nash Equilibria need not be self-confirming. We therefore develop a companion notion of Robust Nash Equilibrium (R-NE), in which every supported action remains optimal under a variational evaluation. Robust Nash equilibria refine SCEM, exist whenever the statistical distances are continuous, thereby delivering existence of SCEM, and coincide with the latter under fully informative feedback. Under observationally consistent divergences and observable payoffs, R-NE and SCEM reduce, respectively, to Nash equilibrium and Self-Confirming Equilibrium under Ambiguity (SCEA), which generalizes smooth self-confirming equilibrium. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.35692 |
| By: | Emanuel Namaiwa Barke (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France) |
| Abstract: | This paper studies mutual outsourcing between competing firms in a differentiated network duopoly and examines how positive network externalities interact with the timing of quantity competition. Firms first choose the outsourcing prices charged to their rivals and then compete either simultaneously à la Cournot or sequentially à la Stackelberg. We show that stronger network effects increase equilibrium output and profits under both competitive regimes, but have non-monotonic effects on outsourcing prices. Under Cournot competition, the equilibrium outsourcing price increases with network intensity when network effects are weak and decreases once they become sufficiently strong. Under Stackelberg competition, outsourcing incentives become asymmetric: the leader’s outsourcing price is non-increasing in network intensity, while the follower’s price may exhibit a threshold effect. The comparison across market structures further reveals that network effects can reverse both outsourcing-price and profit rankings. In particular, the Stackelberg leader always earns more than under Cournot competition, whereas sufficiently strong network effects allow the follower first to outperform the Cournot benchmark and eventually to earn more than the leader. The analysis highlights a strategic trade-off specific to network industries: firms balance the incentive to raise a rival’s input cost against the need to preserve the common installed base that supports market demand. |
| Keywords: | Mutual outsourcing; positive network externalities; Cournot competition; Stackelberg competition; outsourcing prices; strategic input pricing |
| JEL: | D43 L13 L14 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2026-10 |
| By: | Wei He; Yeneng Sun; Hanping Xu |
| Abstract: | We study sharp bounds on equilibrium behavior in Bayesian games when players may make mistakes. Under strategic complementarities, the set of behavioral perfect equilibria has a largest and a smallest element, both in pure strategies. We ask when these bounds are monotone and how they depend on the way mistakes are made. For monotone supermodular games, we consider limits of equilibria under increasing perturbations, in the sense that conditional tremble distributions have full support and increase stochastically with type. We show that the largest and smallest perfect equilibria exist, which are pure and monotone. Under the general perfection notion, the extremal perfect equilibria continue to be monotone in the setting with finite actions. With infinite actions, the extremal perfect equilibria can be nonmonotone, and the set of perfect monotone equilibria can even lack extrema. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.35511 |
| By: | Kovalenko, Maria; Lukyanov, Georgy |
| Abstract: | This paper studies social learning when buying access to previous decisions also determines whose decision enters the record. Individuals first receive private information and then decide whether to pay for access. A positive price selects relatively weak private beliefs. With one founding observation, every buyer copies it, and the record acquires no further information. With a richer initial history, buyers can disagree and the record can improve; nevertheless, a price bounded away from zero prevents complete learning, even with unbounded private beliefs. We then consider a rule under which a buyer makes a preliminary choice before access and a revised choice afterward. A positive probability of implementing the preliminary choice makes it follow the private signal. Retaining both choices restores complete learning under a fixed effective fee or pooled myopic pricing, including with bounded beliefs. The rule reduces willingness to pay and sacrifices some current decision accuracy. A worked example shows how the subsequent improvement in information can outweigh both initial losses. The results show why preserving a judgment made before exposure can change what later users learn from the same selected population. |
| Keywords: | social learning; costly observation; contributor selection; independent judgments; information cascades |
| JEL: | D82 D83 L86 |
| Date: | 2026–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:132322 |
| By: | Nima Haghpanah (Yale); Xiao Lin (University of Pennsylvania); Ron Siegel (Pennsylvania State University) |
| Abstract: | We study the sale of an asset to competitive buyers. Before the sale, the seller can buy hard information about the asset from an intermediary who designs and prices a test to maximize his revenue guarantee across equilibria. The test consists of one or more signals, and the seller privately chooses which subset of signals to buy and selectively discloses their realization to the buyers. We show that the intermediary benefits from splitting information into multiple signals and characterize his maximal revenue guarantee as the cumulative entropy of the asset value distribution. This guarantee is achieved by a sequence of “skim from the top” tests with binary, i.i.d. signals and additive pricing. Furthermore, any sequence of tests that achieves the maximal guarantee reveals the asset’s value in the limit. For binary values, we also characterize the revenue guarantee for any given number of signals, and show that it is achieved by a test that corresponds to a “Swiss cheese” model of failure with conclusive good news. |
| Date: | 2026–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:26-019 |
| By: | Emanuel Namaiwa Barke (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France) |
| Abstract: | This paper studies the R&D investment-decision game in a Cournot duopoly with ex ante asymmetric production costs. Firms first decide whether to participate in process R&D and, conditional on participation, subsequently choose their costreducing R&D efforts. Despite cost heterogeneity, investing is a strictly dominant strategy for both firms, so bilateral R&D is the unique participation equilibrium. Cost asymmetry nevertheless changes the nature of this outcome. When firms are sufficiently similar, bilateral R&D may constitute a prisoner’s dilemma; as the initial cost gap widens, the dilemma breaks down asymmetrically, with the initially efficient firm preferring bilateral investment while the inefficient firm continues to prefer mutual non-investment. Cost asymmetry also reallocates R&D effort toward the initially efficient firm. The welfare analysis reveals a further wedge between private and social incentives: although bilateral R&D maximizes aggregate R&D and consumer surplus, social surplus may be higher when innovation is concentrated in the initially efficient firm. Extending the model to technological spillovers leaves bilateral participation as the unique equilibrium but changes the private desirability of joint R&D. |
| Keywords: | Process R&D; R&D investment-decision game; Cost asymmetry; Cournot duopoly; Prisoner’s dilemma; Technological spillovers. |
| JEL: | C72 L13 O31 O32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2026-14 |
| By: | Andrew Sweeting; Xuezhen Tao; Qian Wang |
| Abstract: | We model a finite-horizon game of repeated oligopoly competition in which sellers choose quantities of a homogeneous product with linear demand and have private information about their own marginal costs, which are serially correlated over time. Focusing on fully separating equilibria, we provide conditions for existence and uniqueness. Relative to static complete- and incomplete-information benchmarks, sellers' incentives to signal low costs can substantially affect output, productive efficiency, and welfare, even when there are ten or more sellers. We apply the model to the global oil market, and compare predictions to a model where sellers can make quantity commitments. |
| JEL: | C73 D82 L13 L71 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35883 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper analyzes a three-stage Bertrand duopoly with partial cooperation and managerial delegation. In the first stage, each owner decides whether to hire a manager. In the second stage, owners who hire managers select their managers’ incentive parameters. In the third stage, managers—or owners if no delegation occurs—simultaneously and independently set the firms’ prices. The equilibrium is derived using backward induction under a subgame perfect equilibrium. As a result, the paper shows that managerial delegation does not increase payoffs for either firm. This finding contrasts sharply with the Cournot case, where delegation is profitable, and highlights that the strategic value of delegation depends critically on the mode of competition. |
| Keywords: | Bertrand model; Managerial delegation; Partially cooperating firm; Subgame perfection |
| JEL: | C72 D21 D43 L13 |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129402 |
| By: | Mark Whitmeyer; Kun Zhang |
| Abstract: | We introduce a mediator to a communication setting with verifiable (hard) evidence and characterize precisely when mediation can induce every obedient outcome--every type-contingent distribution of actions that the receiver is willing to follow--including the outcome that delivers the sender's commitment (Bayesian persuasion) payoff. For both type-independent and general preferences, it is necessary for each type to have a message he alone can send. This is also sufficient for type-independent preferences, whereas the general case also requires a particular alignment of the types' utilities. We also rank evidence structures by the distributions of actions conditional on the sender's type that they can induce at (mediated) equilibrium, through garbling conditions analogous to Blackwell's comparison of experiments. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36490 |
| By: | Ayush Gupta |
| Abstract: | This paper studies decision problems where the decision maker’s choice of action affects the probability distribution of a payoff relevant random variable. We establish sufficient conditions for the existence of an expected utility maximizing action in such settings. The main requirement is a mild continuity condition on the family of possible distributions. We also show that this condition is a minimal requirement. Our result does not require common assumptions such as the monotone likelihood ratio property (MLRP) or the convexity of distribution functions condition (CDFC). It can therefore be used to prove the existence of an optimal action in many settings where existing results do not apply, including an important class of problems where the support of the random variable depends on the decision maker’s choice and the density functions are not pointwise continuous. |
| Keywords: | Endogenous uncertainty; u lity maximiza on; existence theorem |
| JEL: | D8 C6 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_789 |
| By: | Roger D. Blair (University of Florida); Javier D. Donna (University of Miami) |
| Abstract: | We analyze vertical mergers when the upstream and downstream markets each have a dominant firm and a competitive fringe. Adding a fringe at each stage of the successive monopoly model of Spengler (1950) generates the anticompetitive mechanisms of the post-Chicago literature. The merger eliminates double marginalization but creates incentives for input foreclosure, customer foreclosure, and fringe exit. Our main result links customer foreclosure to input foreclosure. When the merged firm sources internally, independent suppliers with high operating costs can exit. Their exit reduces the supply available to downstream rivals and, relative to retaining that capacity, raises the input price rivals pay and the merged firm’s foreclosure wedge. In an equilibrium construction, consumer prices remain below the pre-merger level. With atomless participation, consumer harm is ruled out under stated conditions; with indivisible downstream participation, it can arise. We derive implications for merger review under Section 7 of the Clayton Act. |
| Keywords: | Vertical mergers, double marginalization, input foreclosure, dominant firm and competitive fringe, raising rivals’ costs, non-predatory exit, antitrust policy |
| JEL: | L42 L13 L41 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:410 |
| By: | Patrick Arnold; Marc Moller; Makoto Watanabe |
| Abstract: | This paper considers the effects of common ownership on advance purchase markets featuring intertemporal price discrimination (e.g. airline tickets). Common ownership increases advance prices, while spot prices can decrease. We show that common ownership is anticompetitive but the increase in average transacted prices is smaller than under uniform pricing, although consumers shift towards more informed, more expensive purchases. Common ownership is less detrimental for consumers than under uniform pricing and can even benefit consumers when consumers are sufficiently uninformed about their preferences in advance. |
| Keywords: | common ownership, intertemporal price discrimination, advance selling, consumer learning |
| JEL: | D43 D82 L13 L41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13095 |
| By: | Yang, Yunhao |
| Abstract: | This paper studies stochastic choice when both availability and presentation order may vary across choice problems. We characterize a fixed-list sequential attention model for menu choice and a sequential attention model with a common continuation profile for list choice. In the list domain, we further show that, holding preferences fixed, more persistent attention shifts choice probability toward more preferred alternatives. |
| Date: | 2026–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:dx6p5_v1 |
| By: | Watson, Joel |
| Abstract: | This article identifies sufficient conditions under which a partial construction of sequential equilibrium—characterizing beliefs and behavior for only a subset of the information sets—is sufficient for the existence of a sequential equilibrium that coincides with the partial construction in a suitable way. Illustrative applications are also presented. |
| Keywords: | 38 Economics (for-2020), 3801 Applied Economics (for-2020), 3803 Economic Theory (for-2020), Sequential equilibrium applications, Full consistency for belief updating, Partial equilibrium, Appraisals, Contractual chains, Decentralized contracting, Multistage games with observed actions and, independent types, Sequential equilibrium applications, full consistency, belief updating, 1401 Economic Theory (for), 1499 Other Economics (for), Economic Theory (science-metrix), 3801 Applied economics (for-2020), 3803 Economic theory (for-2020) |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cdl:ucsdec:qt5nh3x3kf |
| By: | Yue Li |
| Abstract: | This paper revisits the consumer search and price competition model of Wolinsky (1986). Suppose that the market has a finite number of firms, and the match value distribution function and survival function are both log-concave. Then, there is a unique symmetric pure-strategy equilibrium price with active consumer search. Two applications are discussed. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.34578 |
| By: | Jean-Marc Zogheib (UPN SEGMI - Université Paris Nanterre - UFR Sciences économiques, gestion, mathématiques, informatique - UPN - Université Paris Nanterre) |
| Abstract: | Two platforms compete in prices and information disclosure levels. Platforms derive revenues from two possible channels, i.e., by supplying their service to consumers and by selling consumer data to a data intermediary. While a consumer signing up to one platform's service decides how much personal information to provide to improve service quality, the platform chooses how much such consumer data to share with the third-party data intermediary. We find that platforms essentially trade-off between consumer valuations and disclosure levels to determine their business strategies when consumers single-home. Under multi-homing, business strategies are more complex to assess and may completely shift compared to single-homing. The valuation of consumer data onto the data intermediary is a decisive component of platforms' choices. All things being equal, implementing a strict privacy regime with no data disclosure can be optimal under single-homing, while a soft privacy regime with data disclosure may be preferred under multi-homing. |
| Keywords: | Competition, Online privacy, Information disclosure, Multi-homing |
| Date: | 2026–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05834698 |
| By: | Xun Chen |
| Abstract: | I study the optimality of selling K heterogeneous objects to a buyer with private values through a quantity menu: the seller posts a price for each number of objects, and the buyer chooses a quantity, pays its price, and selects any objects up to that quantity. I propose a pricing method that aggregates critical values for second differences of quantity values (the highest values attainable at each quantity). Critical values can be determined separately when each second difference's conditional inverse-hazard ratio depends only on that difference. For additive values, I show that the resulting menu is optimal among all incentive-compatible and individually rational mechanisms under explicit distributional and support conditions, including ex ante symmetry across object labels. A separate result applies the same pricing method to obtain an optimal menu for nonadditive bundle values without ex ante symmetry, assuming free disposal, independence between the quantity-value vector and the vector of bundle shortfalls from their respective quantity values, and corresponding distributional and support conditions. For an arbitrary number of objects, applications yield explicit optimal menus that involve quantity discounts, sparse quantity options, or two-part tariffs. These results differ from those establishing the optimality of pure bundling in Haghpanah and Hartline (2021), nested bundling in Yang (2025), separate sales in Kwak (2026), and core-peripheral bundling in Zhong (2026). |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36244 |
| By: | Alessandro Fedele (Free University of Bozen-Bolzano, Italy) |
| Abstract: | We investigate how biased consumer reviews affect monopolistically competitive firms’ investment in the quality of experience goods. Review bias arises because consumer evaluations reflect not only true quality but also idiosyncratic taste, generating ratings that are inflated relative to underlying quality. We show that, compared to a benchmark with fully informative reviews, firms may either underinvest in quality despite the upward bias in ratings, or overinvest; similarly, quality provision may fall short of or exceed the level chosen by a welfare-maximizing planner. We also characterize conditions under which review bias induces firms that are less efficient in delivering quality to choose higher quality than more efficient competitors or to choose lower quality yet earn higher profits. Next, we examine improvements in review informativeness arising, e.g., from tools that systematically collect feedback from verified buyers or use AI to summarize product reviews. We show that unilateral adoption of these tools lowers the adopting firm’s profits, whereas market-wide adoption may raise industry profits without necessarily mitigating quality distortions. Finally, we derive conditions under which initiatives aimed at enhancing trust in the review system, e.g., regulation of review manipulation, further exacerbate underinvestment. |
| Keywords: | Biased consumer reviews, Monopolistic competition, Experience goods, Quality, Taste, Investment distortions. |
| JEL: | D11 D21 L13 L15 D9 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bzn:wpaper:bemps120 |
| By: | Lukyanov, Georgy; Pototskiy, Ilya |
| Abstract: | Consumers learn how to interpret an information source through repeated exposure. We study how this understanding is priced and how access to historical reports changes competition. In a Gaussian model with inherited customer histories and terminal pricing, the familiar source charges a renewal premium. Better outcome feedback widens the premium when rival reports are inaccessible, but can narrow it once some rival records are available. For independent historical dates, we derive the exact threshold for this reversal. Within the covered interior market, archive opening narrows the premium and raises consumer surplus. Its effect on aggregate forecasting quality and total surplus is less direct: a partial opening can reduce both by reallocating consumers toward a source that remains less informative. Complete access nevertheless improves both outcomes relative to any incomplete archive. The results distinguish the quality of feedback from access to the evidence with which consumers combine it. |
| Keywords: | information markets; source familiarity; archive access; feedback; Bayesian learning |
| JEL: | D83 L13 D61 |
| Date: | 2026–10–21 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:132309 |
| By: | David Bardey; Philippe De Donder |
| Abstract: | We study how behavioral heterogeneity in preferences for information acquisition affects equilibrium outcomes in health insurance markets. Individuals differ in the psychological utility they derive from learning information about their health risks, generating heterogeneous demand for genetic testing even when tests are inexpensive. The value of becoming informed depends on the insurance contracts available, while these contracts themselves depend on the fraction of individuals who acquire information. Information acquisition and insurance-market outcomes are therefore jointly determined. We show that these behavioral differences shape both the extent of adverse selection and whether the equilibrium is pooling or separating. Within a given contractual regime, stronger attraction to chance reduces information acquisition and mitigates adverse selection; in turn, it expands the range of testing costs for which the Wilson-type criterion selects pooling. Moreover, cheaper access to genetic information need not be associated with greater equilibrium information acquisition. At the testing-cost threshold at which the equilibrium switches from pooling to separation, the separating equilibrium prevailing at lower testing costs can exhibit a lower testing rate than the pooling equilibrium prevailing at slightly higher costs. Thus, the effect of technological progress on information acquisition depends on its endogenous impact on insurance contracts and equilibrium selection. |
| Keywords: | genetic testing, information acquisition, information avoidance, adverse selection, pooling and separating equilibria, attraction to/repulsion from chance, Wilson-type regime selection |
| JEL: | D81 D82 I13 I18 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13088 |
| By: | Yuhang Ji; Fasheng Xu; Tianjun Feng |
| Abstract: | Large language model (LLM) platforms introducing advertising must decide how much capability ad revenue should fund and what consumers should pay to avoid ads. We study a monopolistic platform that jointly chooses costly response quality, advertising intensity, and subscription prices when advertising reduces user value but better service raises advertising returns. Three findings follow. First, when partly ad-supported and ad-free plans coexist, advertising can finance useful service for consumers who receive none under pure subscription. Lower effective quality in middle plans weakens the alternatives available to premium users, allowing higher prices for unchanged ad-free service. Some fully ad-supported users gain utility, while partly ad-supported and ad-free users lose: broader access can coexist with utility polarization. Second, an intermediate advertising cap can maximize consumer surplus by preserving some revenue that finances service while limiting degradation. Third, cheaper compute can raise quality and reduce ad intensity, yet sufficiently large cost reductions can increase aggregate advertising revenue above its initial level because better service raises the value of the remaining advertised interactions. An extension shows how advertising-funded upgrades can bring plans to the same maximum capability and advertising exposure, eliminating the basis for different prices. These results make menu design central to evaluating LLM advertising: the consequences extend beyond users who see ads to the alternatives and prices faced by those who do not. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.32945 |
| By: | Cai, Xiaoming (Peking University HSBC Business School); Gautier, Pieter (Vrije Universiteit Amsterdam) |
| Abstract: | Search frictions normally raise the bar for sorting: both random and directed search require complementarities strictly stronger than the supermodularity that suffices in Becker's (1973) frictionless model. We introduce private information into this setting: firms post wages without observing worker productivity, while better workers have better outside options, creating a market for lemons (Akerlof 1970). We show that this information friction pushes sorting the other way: attracting high-productivity workers without attracting low-productivity ones requires a higher wage paired with a lower job-finding probability, so vacancies fill faster. This strict ranking of vacancy-filling rates sorts the market positively whenever output is complementary in worker and firm quality. Becker's condition therefore suffices once more, and private information makes positive sorting easier to sustain than complete information does. |
| Keywords: | competitive search, adverse selection, screening, sorting, positive assortative matching |
| JEL: | C78 D82 D83 J64 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18985 |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | Recommendation systems create value by reducing search and information costs, but they also give platforms control over visibility and effective access to users. Recommendation power can weaken competitive constraints by distorting competition among offers or by protecting the platform’s gateway position against rival gateways and direct routes to users. It can also be used to extract surplus from end users or business users. We present specific theories of harm for these uses of recommendation power and illustrate them with competition cases. We then discuss how these theories of harm can be assessed empirically, accounting for how market participants respond to recommendation design. |
| Keywords: | recommender system, recommendation bias, platform design, foreclosure, exploitation, self preferencing, steering. |
| JEL: | L12 L13 L41 L42 L86 D83 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_786 |
| By: | Wienand, Tim (Erasmus University); Magdalou, Brice (University of Montpellier); Nock, Richard (Google Research); Hufe, Paul (University of Bristol) |
| Abstract: | We develop a framework to evaluate income distributions from the perspective of an opportunity-egalitarian social planner. Through an original axiomatic route that bridges normative economics and decision theory under ambiguity, we characterize a class of social welfare functions governed by a single parameter capturing the planner's aversion to inequality of opportunity. We obtain a 'mean-divergence' representation that separates economic efficiency from a penalty for inequality of opportunity, as well as a stochastic dominance criterion for robust welfare comparisons. We apply these theoretical results to analyze opportunity-sensitive social welfare in the United States across birth cohorts and regions. Mapping standard estimates of intergenerational mobility into our framework, we show that welfare rankings vary substantially with the assumed degree of inequality-of-opportunity aversion. We transparently gauge the extent of this normative ambiguity by providing bounds on the ranking of birth cohorts and regions, respectively. |
| Keywords: | inequality of opportunity, intergenerational mobility, welfarism, utilitarianism, social welfare measurement |
| JEL: | D31 D63 I31 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18986 |
| By: | Prummer, Anja; Squintani, Francesco |
| Abstract: | Motivated by union endeavors in the United States, we present a first theoretical model of unionization, succinctly capturing the regulations governing the unionization process. We argue that unionization in the U.S. is essentially an informational problem: workers must vote on whether to unionize without knowing the benefits and costs ex ante. If unionization benefits workers, we show that campaigns are more likely to succeed when organizers are credible. Credibility depends on organizers not being excessively pro-union and on their bearing organizational costs. Hence, we explain why grassroots action is often more effective at unionizing workplaces than professional campaigning. We find that the likelihood of unionization is non-monotonic in organizational costs: when such costs are low, firms that target organizers may unintentionally increase the likelihood of unionization. More broadly, our paper contributes to the underdeveloped study of political organization design by showing how organizer selection and incentives shape unionization outcomes. |
| Keywords: | Unions, Labor Organization, Campaigns |
| JEL: | D71 D83 D23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:344212 |
| By: | Fernando E. Alvarez; David Argente |
| Abstract: | We study the relation between strategic complementarities and aggregate persistence in linear-quadratic mean field games with interactions in states and actions. The framework provides local approximations to common macroeconomic problems, including capital accumulation and multiproduct pricing. We show that the equilibrium aggregate dynamics coincide with those of a single-agent linear-quadratic control problem in which state and action curvatures are adjusted for strategic interactions. This result gives conditions for equilibrium existence, establishes uniqueness, and links strategic interactions to aggregate adjustment. We establish conditions under which stronger state complementarities increase persistence, while stronger action complementarities reduce it, even in multidimensional problems whose underlying matrices are not simultaneously diagonalizable. Under these conditions, internalizing state complementarities makes the utilitarian planner’s allocation more persistent, while internalizing action complementarities makes it less persistent. Aggregate-only payoff terms can reinforce or offset these effects. With common shocks, we give conditions under which individual and aggregate dynamics can be combined to identify strategic interactions and model parameters. Finally, we extend the analysis to interactions through higher moments of the state distribution. |
| JEL: | C61 C73 E31 E32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35892 |
| By: | Joshua S. Gans; Peter Landry |
| Abstract: | Firms ask workers to train AI systems that will replace them. We model this with a worker who can shirk, cooperate with training, or obstruct training while maintaining productivity. Because training ends the job but only cooperation completes training, dismissal becomes a weaker penalty for shirking. The firm must raise the worker’s rent, and the worker gains from their replacement. AI can create jobs paying more than they produce and eliminate jobs it never automates. Firms paying only wages may slow training. A credible completion bonus equal to the worker’s rent without AI removes both the gain and the slowdown. |
| JEL: | D86 J24 J41 M52 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35950 |
| By: | Adam N. Elmachtoub; Yash Kanoria; Jonathan Y. Tan |
| Abstract: | In AI-assisted service systems, the server can choose how much processing effort to spend on each job, which we call the service depth. Deeper reasoning improves output quality but occupies the server longer and increases congestion, and the realized processing time remains random because AI models are probabilistic and tasks vary in complexity. We study the joint design of service depth and priority in a single-server queue whose customers differ in delay sensitivity, with the goal of maximizing social welfare. For each customer type, the decision maker chooses a priority level and a service depth, and service times are exponential with mean equal to the chosen depth. With two customer types and linear service values, we characterize the centralized optimum. Counterintuitively, it prioritizes the patient type and gives it a smaller service depth when patient customers are sufficiently prevalent. When delay sensitivity is private, however, incentive compatibility requires the impatient type to receive a weakly shorter sojourn time, so the optimal price menu never prioritizes the patient type. Consequently, there can be a welfare gap between the centralized decision maker's optimal control policy and the optimal decentralized pricing mechanism. With a continuum of types, the centralized optimum is monotone: more delay-sensitive customers receive weakly smaller depth and higher priority, so the optimum can be implemented by a price menu with no welfare loss. Allowing randomized depths similarly closes the gap in the two-type model. Finally, we calibrate an agentic AI service system using published coding-agent trials from DeepSWE and numerically examine priority inversion, the value of joint design, and the welfare gain from personalization. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.33334 |
| By: | John K. -H. Quah; Rui Tang |
| Abstract: | Convexity of preferences is a pervasive assumption in economic analysis, so it is important to understand how this property is revealed in data. In this paper, we develop a method to test for convexity given partial preference information in the form of weak and strict incomplete orders. We characterize the pairs that can be extended to convex preferences and provide an efficient algorithm to verify this property. Requiring the convex preference to align with an order that satisfies independence, such as the Euclidean order or stochastic dominance, does not complicate the test. We apply our results to consumer demand, choice under risk and uncertainty, and preferences over information, and establish conditions under which upper semicontinuity or continuity can also be obtained. We identify environments in which convexity imposes no additional restrictions beyond rationality, extending Afriat-type results to infinite data and co-convex budgets and establishing a convex version of exact rationalization. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.34771 |
| By: | Karen Frilya Celine; Warut Suksompong; Nicholas Teh |
| Abstract: | When allocating indivisible goods, the maximum Nash welfare rule is known to be the unique welfarist rule satisfying envy-freeness up to one good. We strengthen this characterization by showing that envy-freeness up to one good can be replaced by substantially weaker fairness requirements: envy-freeness up to $k$ goods or proportionality up to $k$ goods, for any fixed $k$. Our characterization holds even for profiles with identical goods. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36712 |
| By: | Thayer Morrill |
| Abstract: | Variation in grading standards across instructors who teach the same students is evidence of a moral hazard problem, whether or not grades are inflated. The optimal standard is the same for every section of a course, yet grades vary widely across sections. We present a principal-agent model in which instructors who know the optimal standard still depart from it, leniently or harshly, depending on their incentives. Penalizing deviations from the department average leaves the average unchanged but compresses grading variance, which raises student welfare. Disclosing the same information to students instead increases grading variance. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36112 |
| By: | Christopher Clayton; Matteo Maggiori; Jesse Schreger |
| Abstract: | We build a model of two hegemons that have valuable trading relationships with each other and at the same time compete in exerting geoeconomic power over countries in the rest of the world. When the hegemons trade with each other, their optimal policy is shaped both by classic economic considerations - the profitability of that specific trade - and by geoeconomic competition - how the trade affects the power of each hegemon vis-a-vis the rest of the world. We show that containment, a policy mix in which a hegemon limits sales of its inputs to the rival hegemon and uses its power to demand that the rest of the world shift away from sourcing from the rival, arises when the two hegemons offer relatively substitutable exports, are less interdependent with each other, and have more direct geopolitical rivalry. Countries in the rest of the world benefit, all else equal, from hegemons containing each other since they partially squander their power with offsetting demands. However, containment policy can also worsen the efficiency of global production, leaving the rest of the world worse off. |
| JEL: | E0 F0 L0 N0 P0 F10 F30 F40 F50 N40 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35952 |
| By: | Marcelo Veracierto |
| Abstract: | This paper analyzes the cyclical properties of the optimal labor wedges in a Mirrleesean business cycle model. Agents value consumption and leisure and receive persistent idiosyncratic shocks to their value of leisure, which are private information. The production structure is identical to a standard real business cycle model with aggregate productivity shocks. Solving the mechanism design problem for a version of this economy calibrated under logarithmic preferences, I find that the optimal labor wedges are approximately constant over the business cycle. |
| Keywords: | Optimal taxation; business cycles; Private information; Social insurance |
| JEL: | D39 D82 E32 H21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103967 |
| By: | Ernest Liu; Stephen J. Redding; Bennett Smith-Worthington; David Y. Yang |
| Abstract: | We develop a tractable framework for analyzing geopolitics as a network of coordination and strategic influence. Countries choose geopolitical actions that trade off domestic interests against incentives to align with connected countries. They can exert costly bilateral influence to affect one another’s actions. We characterize equilibrium actions and bilateral influence in closed form. Cross-country differences in domestic interests decompose into latent geopolitical cleavages, each of which the network transmits into geopolitical actions independently of the others. The cross-country covariance matrices of domestic interests and of geopolitical actions identify the cleavages and their importance, from which we recover the network. We implement the framework using data on United Nations voting and democratic orientation. The inferred network is well approximated by a few dimensions, aligns with external measures of geopolitical ties, and recovers well-known historical cleavages. We undertake counterfactuals for domestic interests and network connections and quantify three notions of geopolitical power |
| JEL: | C72 D85 F15 F52 F68 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35951 |
| By: | Matthew J. Higgins; Peter G. Klein; Anita McGahan; Rob Wuebker |
| Abstract: | Stakeholder theory asks who is in, who is out, and who gets what. Existing work illuminates important dimensions of firm–stakeholder relationships but does not supply a common, transaction-level rule connecting these questions. We use the Coase theorem to develop such a rule. A Coasian stakeholder is an actor with shutdown power, defined as the de facto capacity, within the relevant time horizon, to prevent, materially delay, or substantially reduce the expected joint value of a focal value-creating transaction. If all such actors are identified and bargaining and enforcement are costless, value-maximizing transactions proceed, although rights and bargaining positions may affect who captures value. When transaction costs are positive, however, identification, bargaining, coalition formation, and enforcement can delay, distort, or suppress those transactions. Across six propositions, we explain how shutdown power is identified and acquired, how complementarity and bargaining conditions shape value capture, how firms reshape stakeholder sets through coalition costs and governance design, and why consolidated opposition can sometimes preserve transactions that fragmented claims would suppress. |
| JEL: | D23 D86 L14 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35960 |
| By: | Joshua S. Gans; Richard T. Holden |
| Abstract: | Oversight changes the evidence it relies on. We ask when randomized audits and scoring align AI agents that can conceal misconduct and alter records. Stronger auditing makes undeterred violations better hidden. Because the provider writes the agent’s objective, sanctions need not stop at forfeiture, and rare audits deter every type of agent if evidence survives concealment and audit draws cannot be learned in advance. When evidence can be erased, deterrence must come from lower gains from violation, such as credit for stopping, or from costlier or fewer ways to conceal. These conditions identify what failed when agents in OpenAI’s cybersecurity evaluations compromised parts of Hugging Face’s infrastructure in July 2026. |
| JEL: | D82 D86 K42 M42 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35878 |