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on Microeconomics |
| By: | Joshua S. Gans; Scott Duke Kominers |
| Abstract: | When do university grades permit informative comparisons across courses, and how does transcript adjustment affect student and instructor incentives? A raw grade mixes student performance with course-specific conditions, so grade-only comparisons fail whenever course effects are large enough to reverse ability rankings at grade cutoffs. We show that full transcripts can recover comparable student signals through what we call eigengrades: course-adjusted reports that use common or externally anchored grading standards and enrollment overlap to identify centered student effects. In the scalar additive benchmark, row-mean, affinity-spectral, and graph-Laplacian methods recover the same object. Eigengrades are, therefore, not a separate source of identification; they are a representation of fixed-effect adjustment. The framework also clarifies limits: ordinary letter grades with unanchored course-specific cutoffs do not separate course difficulty from grading standards, and multidimensional transcripts identify a skill-match subspace rather than a unique universal ranking unless the institution specifies a benchmark. Finally, exact difficulty adjustment removes the direct report-mediated incentive to choose easier courses and eliminates a competitive enrollment channel behind grade inflation, while leaving other strategic and governance margins intact. |
| JEL: | D81 D82 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35183 |
| By: | Joseph Feffer; Filip Tokarski |
| Abstract: | This paper studies when strategic understanding acquired in one mechanism can be transferred to another. We introduce a framework in which agents' knowledge is represented as a set of payoff comparisons they can make, and use it to formalize what it means to understand that a strategy profile is an equilibrium. We first apply this framework to mechanisms that are strategically equivalent-that is, share the same game form up to relabeling of actions-and show that agents' understanding of equilibrium transfers across such mechanisms once the relevant action correspondences are explained to them. We then define strategic analogy, a weaker notion that allows not only actions but also types to be remapped, and show that understanding of equilibrium transfers across strategically analogous mechanisms once agents recognize how actions and types correspond. Applications include single-item auctions, scoring auctions, and nonlinear pricing with capacity constraints. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.12802 |
| By: | Madjid Eshaghi Gordji; Esmaiel Abounoori; Mohamadali Berahman |
| Abstract: | We extend the concept of meta-Nash equilibrium, introduced by Eshaghi Gordji and Bagha [2026] for complete-information games, to environments with incomplete information. We define a meta-Bayesian Nash equilibrium as a profile of type-dependent mixed meta-strategies together with an environmental move such that no player type can profitably deviate and the environment cannot improve its expected payoff. For each transformed game, meta-payoffs are determined by the unique Bayesian Nash equilibrium of that game. Using Kakutani's fixed point theorem, we establish existence under finiteness assumptions on type spaces, meta-actions, and transformations, together with the assumption that each transformed game admits a unique Bayesian Nash equilibrium. Several illustrative examples, including adaptive subsidy competition, cybersecurity protocol selection, and platform rule formation, demonstrate that private information at the meta-level plays an essential role in endogenous game transformation. The framework contains both classical Bayesian games and complete-information meta-games as special cases. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.16926 |
| By: | Robert D. Metcalfe; Alexandre B. Sollaci; Chad Syverson |
| Abstract: | Mergers are commonly evaluated by weighing their expected market power effects against any efficiency gains they create. The larger the market power effect of a proposed merger, the larger must be any efficiencies for it to raise social welfare. We show selection into merger proposal distorts the observed relationship between market power and efficiency effects. Even if market power and efficiency gains are independent (or even positively correlated) across all potential mergers, they will generally be negatively related among proposed mergers. This is because parties propose to merge only if the merger’s expected profitability exceeds a threshold, so the underlying components of profitability become substitutes in clearing that hurdle. It does not rely on managerial bias, behavioral frictions, or strategic misrepresentation. We demonstrate this negative correlation is present under very general conditions when the two effects are uncorrelated among all mergers. We also characterize conditions where this still holds even in the presence of positive underlying correlations and firms’ uncertainty about their own merger’s profitability. Policies that might raise the selection hurdle for proposed mergers do not alleviate the negative correlation; indeed, they would exacerbate it. Our analysis has direct implications for interpreting empirical merger retrospectives and for evaluating efficiency defenses in antitrust policy. |
| JEL: | L0 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35221 |
| By: | Mehmet Mars Seven |
| Abstract: | We extend the optimin notion of Ismail (2025) from mixed strategy profiles to correlated distributions. A correlated distribution is evaluated by the worst expected payoff each player can receive when opponents may either obey their private recommendations or make unilateral recommendation-contingent deviations that are strictly profitable under the posterior induced by the distribution. Correlated optimins are Pareto optimal with respect to this vector of guaranteed payoffs. We show that a correlated optimin exists in every finite game. In addition, for every correlated equilibrium, there exists a correlated optimin such that every player's guaranteed payoff is weakly higher than his or her correlated equilibrium payoff. In two-player zero-sum games, correlated optimin coincides with correlated equilibrium and yields the maximin value. Outside zero-sum games, correlated optimin may strictly improve upon all correlated equilibria. We illustrate this with a simple 2x2 game with a unique correlated and coarse correlated equilibrium, in which there exists a correlated optimin that strictly Pareto dominates the equilibrium payoff. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.19129 |
| By: | Pan, Xiaojun |
| Abstract: | Can observable managerial incentive contracts substitute for price transparency as a commitment device in two-sided platforms? Extending the framework of Hagiu and Halaburda (2014), we show that under monopoly, two-dimensional public delegation precisely reproduces the transparent-equilibrium allocation. Under Hotelling competition, a network-effect symmetry threshold partitions the parameter space: in the tool region (approximately symmetric network effects), delegation Pareto-dominates no delegation; in the trap region (highly asymmetric), the classical Fershtman-Judd dilemma re-emerges. Total social welfare under delegation equals that under transparency in both regions. Policy implication: in asymmetric markets, restricting asymmetric incentive contracts can resolve the dilemma among platform owners, although the restriction lowers consumer and total welfare relative to the unrestricted equilibrium. |
| Keywords: | Two-sided platforms, strategic delegation, managerial incentive contracts, information transparency, platform regulation |
| JEL: | D43 D82 D86 L13 L86 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341118 |
| By: | Francesc Dilmé |
| Abstract: | This paperdevelopsasimplenotionofperfectBayesianequilibriumforarbitraryfiniteextensive form games with perfect recall. Its key ingredient is cross-pair independence from common actions, a belief restriction that compares the likelihoods of two pairs of histories, possibly in different information sets, after canceling actions common to both pairs. The condition extends Bayes’ rule whenever possible and no signaling what you don’t know beyond sequentially ordered information sets. In multi-stage games with observable actions and independent types, it implies the belief-reasonableness requirements of Fudenberg and Tirole (1991). Extending the same cancellation logic to arbitrary multisets is equivalent to consistency. The construction therefore provides a tractable, assessment-based notion of reasonableness without non standard probabilities, plausibility orders, or auxiliary belief-revision structures. |
| Keywords: | Perfect Bayesian equilibrium, extensive-form games, cross-pair independence from common actions, belief restrictions, sequential equilibrium, consistency, no signaling what you don't know |
| JEL: | C72 C73 D82 D83 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_748 |
| By: | Xiaoyu Cheng; Yonggyun Kim; Michael P. H. Tam |
| Abstract: | Communication is secret if a message is independent of the state; however, the receiver's subsequent action may still reveal that she has acted on hidden information. This paper studies when secret communication can also provide plausible deniability: under single-crossing preferences, every action induced by the sender's message must be rationalizable using the receiver's baseline information alone. We characterize joint information structures that satisfy both secrecy and plausible deniability. We show that plausible deniability restricts communication exactly when the baseline message is directional -- meaning its likelihood is monotone in the state. Combining this restriction with secrecy, we show that, for directional messages, frontier communication reveals at most whether the state lies above or below a cutoff. Finally, we identify conditions under which a greatest feasible communication structure exists and can be constructed explicitly in a simple way. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.09029 |
| By: | Yujing Chen |
| Abstract: | We study Bayesian persuasion when the receiver evaluates actions by reward-side Conditional Value-at-Risk (CVaR) rather than expected utility. CVaR preferences break the standard action-based direct-recommendation reduction: merging signals that recommend the same action can change the receiver's tail-risk ranking and destroy incentive compatibility. We show that this failure does not imply intractability in the explicit finite-state model. Each CVaR action value is max-affine in the posterior, and refining recommendations by the active affine piece yields an active-facet revelation principle and an exact polynomial-size linear program. We further identify a representation boundary: listed polyhedral risks remain tractable by the same LP, whereas succinctly represented facet families make exact persuasion NP-hard. Finally, we give a finite-precision approximation scheme for risk preferences determined by finitely many stable posterior statistics. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.12094 |
| By: | Bertomeu, Jeremy; Cheynel, Edwige; Hu, Peicong |
| Abstract: | We study voluntary disclosure when investors observe firm reports through noisy information intermediaries such as auditors, analysts, rating agencies, or data providers. Any processing noise overturns the standard prediction of a unique partial-disclosure equilibrium. With low disclosure costs, the model unravels to full disclosure despite positive costs. With higher costs, the game admits two threshold equilibria featuring different disclosure probabilities. We characterize how the cost threshold for unraveling and the equilibrium set respond to changes in noise and fundamental uncertainty. In settings with high disclosure, both uncertainty and processing noise reduce disclosure, while higher certification costs can counterintuitively increase it. Endogenizing disclosure costs as optimal fees shows how profit-maximizing intermediaries select among equilibria, potentially generating a high-fee, high-disclosure regime. Extensions with bounded support, uncertain information endowment, endogenous noise, and competing information sources apply the insights to general information environments. The results caution against interpreting greater frictions as necessarily reducing disclosure. |
| Keywords: | Voluntary Disclosure, Information Processing, Noisy Communication, Certification, Auditors, Information Intermediaries, Equilibrium Multiplicity, Unraveling |
| JEL: | D43 D82 D83 M41 |
| Date: | 2026–04–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128905 |
| By: | Akio Kawasaki (Faculty of Economics, Oita University); Noriaki Matsushima (Osaka School of International Public Policy, the University of Osaka) |
| Abstract: | Digital entrants in health care and health insurance often compete against public or mission-oriented organizations rather than only against private rivals. We develop a Hotelling model of mixed competition in which a private data-rich firm chooses the scope of consumer-data collection and then uses the acquired information to personalize offers. The rival supplies a standard service and is either a welfare-maximizing public firm or a profit-maximizing private firm. We characterize equilibrium data collection, prices, consumer surplus, profits, and social welfare. The private digital firm chooses a wider data-harvesting range when its rival is private than when its rival is public, because a public rival uses welfare-oriented pricing to discipline the induced market allocation rather than to maximize its own profit. The welfare ranking is non-monotonic in the value created by personalization. When the benefit from personalization is either small or large, competition against a public rival yields higher welfare; when the benefit is intermediate, competition against a private rival can dominate because it induces a broader rollout of personalized service. These results highlight that the welfare effects of digital entry depend jointly on data-driven personalization and the ownership objective of incumbent health-sector organizations. |
| Keywords: | digital services, personalized pricing, public entities, health services |
| JEL: | I13 L13 D43 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:osp:wpaper:26e005 |
| 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. |
| JEL: | C60 C72 D02 D60 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35170 |
| By: | Chengqing Li; Yves Zenou; Junjie Zhou |
| Abstract: | We study an Arrow-Debreu economy with externalities generated by multiplex networks. Market equilibrium prices reflect both the preferences and scarcity of goods, consumers' network centralities arising from goods' externalities, as well as linkages across goods (layers) through the budget constraint. Despite the presence of externalities, competitive markets can still be efficient: the First and Second Welfare Theorems hold if either all networks are regular or all layers share the same network structure. When markets allocate goods inefficiently, a Lindahl equilibrium-implemented through personalized prices-can restore efficiency, but may leave some consumers worse off. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.21117 |
| By: | Andreas Kleiner; Benny Moldovanu; Philipp Strack |
| Abstract: | A key insight is that many, seemingly different, economic problems share a com mon mathematical structure: they all involve the maximization of a functional over sets of monotonic functions that are either majorized by, or majorize, a given func tion. We first present new, simpler proofs for the main characterization results of the extreme points of sets defined by monotonicity and majorization constraints obtained by Kleiner, Moldovanu, and Strack (2021). We then demonstrate how the charac terization results can be fruitfully applied to a broad range of economic applications, from auction and information design to decision problems under risk such as optimal stopping. Finally, we conclude with an overview of recent, related work that extends these characterizations to settings with additional constraints, multidimensional state spaces, and alternative stochastic orders. |
| Keywords: | majorization, extreme points, economic design problems, survey |
| JEL: | C02 D82 D83 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_749 |
| By: | Zhang, Y. |
| Abstract: | Many products generate network spillovers: a user’s value of such a product is higher when her contacts also use it. This paper studies competition between an entrant and an incumbent selling such products. In the model, the firms set personalised prices (for example, via targeted discounts), and consumers embedded in a network choose which product to buy. The pattern of equilibrium consumption is shown to be the same as if firms were to charge a price of 0 to all consumers. The equilibrium prices reflect incumbent advantage and depend on the network structure in nuanced ways. The equilibrium characterisation provides the foundation for studying the profitability of entry and the effects of anti-trust tools in such markets. A key structural feature of the network is found to be cohesiveness – the extent to which consumers within a group are densely connected to one another. Firms are more likely to enter if they have a consumer base that is cohesive and influential. While regulators use interoperability as a tool to improve market contestability, I show that interoperability can actually discourage entry depending on the cohesiveness of consumer bases. |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2634 |
| By: | Shuhua Si; Yangfan Zhou |
| Abstract: | A principal decides whether to approve an agent based on a noisy signal (e.g., test scores) generated by the agent. High-quality agents can produce high signals on average at lower cost, but the realizations are subject to noise that depends on the screening technology's precision. We uncover a paradoxical "pitfall of precision": when precision is already high, further improvements reduce screening accuracy and lower the principal's welfare. This occurs because greater precision incentivizes strategic signaling from more low-quality agents, outweighing the direct benefit from improved precision. The pitfall of precision also has implications for statistical discrimination: groups with noisier technologies face lower approval rates yet may be favored ex ante -- a reversal of discrimination. We also examine how commitment power helps mitigate the pitfall. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.13039 |
| By: | Pan, Xiaojun |
| Abstract: | Industrial internet platforms reshape both the digital infrastructure and the internal governance of downstream firms. This paper shows that platform enablement can trap firms in a doubly-nested prisoner's dilemma: access decisions (whether to join the platform) and delegation decisions (whether to hire a manager) simultaneously yield Nash equilibria that are strictly Pareto-dominated by the joint non-access, non-delegation optimum, with joint profit losses of approximately 3.2 percent. Unlike single-decision platform traps (Hagiu and Wright, 2026), our dilemma arises from the interaction between two distinct firm-level decisions, each generating its own Pareto-suboptimal equilibrium. Within a three-tier platform-duopoly-consumers Bertrand game, we obtain three results. First, platform-enhanced network externalities shift the sales-oriented delegation threshold downward by an amount equal to the platform's network-enhancement parameter, pushing firms from defensive profit-oriented to offensive sales-oriented incentive contracts. Second, the dilemma is sustained by a division of roles within the platform's two-part tariff: the fixed fee absorbs network premia through a threat-point channel, while the usage fee distorts marginal incentives. Third, the dilemma forms a structural ridge along the Choi-Lee threshold, occupying approximately 18 percent of the relevant differentiation-network parameter space. Because the equilibrium violates neither per se collusion nor abuse-of-dominance prohibitions, conventional antitrust is structurally inadequate; mandatory data interoperability, by raising non-accessing firms' outside option, emerges as a targeted instrument. |
| Keywords: | Industrial Internet Platform, Strategic Delegation, Network Externalities, Two-Part Tariff, Prisoner's Dilemma, Platform Regulation |
| JEL: | D43 L13 L51 L86 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341117 |
| By: | Langtry, A.; Taylor, S.; Zhang, Y. |
| Abstract: | This paper proposes a new lens for studying threshold games played on networks when the thresholds are heterogeneous. These are games where agents have two possible actions, and prefer action 1 if and only if enough of their neighbours choose action 1. We propose a transformation of the network that 'absorbs' the heterogeneity in thresholds into the network. This allows us to characterise equilibria in terms of the k-core – a well-studied measure of network cohesiveness – of the transformed network. Our model is also the direct analogy to the workhorse model of Ballester et al. [2006] when actions are 0 or 1. Further, our binary action version exhibits a remarkable stability property. When agents have linear-quadratic preferences, the k-core of the transformed network characterises the unique subgame perfect equilibrium of a sequential move version of the game – no matter what order agents move in. |
| Keywords: | Networks, Threshold Games, Strategic Complements, Contagion, Diffusion, Coordination |
| JEL: | D85 O33 |
| Date: | 2026–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2633 |
| By: | Madjid Eshaghi Gordji; Mohammadali Berahman; Hasti Eshaghi |
| Abstract: | Why do societies remain stuck in inferior institutions even when superior al ternatives are widely recognized? This paper develops a model in which agents choose not only actions within a game but also transformations of the game it self. Transformations may be soft, changing payoffs through taxes or subsidies, or hard, changing feasibility through deletion or replacement of actions. Within a coordination model with status-quo bias (switching cost) and boundedly rational play (logit quantal response), we show that these interventions are qualitatively different: finite taxes shift behavior continuously but cannot eliminate residual use of the inherited action, whereas deletion bypasses inertia by removing the action from the feasible set. We further characterize how antagonistic social preferences at the meta level can block reforms that are individually beneficial for every player. The framework provides a formal rationale for why hard feasibility restrictions of ten dominate soft price incentives under inertia, with direct applications to climate transition (carbon tax vs. fossil-fuel phase-out) and platform regulation (fines vs. deletion of addictive features). |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.21656 |
| By: | Mattthijs Breugem |
| Abstract: | Noise traders can be dispensed with entirely. Partial revelation of information through prices arises under any non-exponential expected utility preference, including CRRA, without noise traders, random endowments, supply shocks, hedging motives, or behavioral biases. The model contains zero exogenous noise. The mechanism is a mismatch between the space in which market clearing aggregates signals and the Bayesian sufficient statistic. CARA demand is linear in log-odds, so prices aggregate in log-odds space and reveal the statistic exactly. Every other preference aggregates differently; the resulting Jensen gap makes revelation partial. I prove that CARA is the unique fully revealing preference class, characterize the rational expectations equilibrium via a contour integration fixed point, and verify that partial revelation survives learning from prices. The Grossman-Stiglitz paradox is resolved: information acquisition has positive value within the rational class. Numerical solution of the rational expectations fixed point at K = 3 confirms partial revelation, positive trade volume, and positive value of information across the full range of CRRA risk aversion, vanishing only in the CARA limit. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.09136 |
| By: | Haris Aziz; Patrick Lederer; Jeremy Vollen |
| Abstract: | In approval-based budget division, the task is to allocate a divisible resource to the candidates based on the voters' approval preferences over the candidates. For this setting, Brandl et al. [2021] have shown that no distribution rule can be strategyproof, efficient, and fair at the same time. In this paper, we aim to circumvent this impossibility theorem by focusing on approximate strategyproofness. To this end, we analyze the incentive ratio of distribution rules, which quantifies the maximum multiplicative utility gain of a voter by manipulating. While it turns out that several classical rules have a large incentive ratio, we prove that the Nash product rule ($\mathsf{NASH}$) has an incentive ratio of $2$, thereby demonstrating that we can bypass the impossibility of Brandl et al. by relaxing strategyproofness. Moreover, we show that an incentive ratio of $2$ is optimal subject to some of the fairness and efficiency properties of $\mathsf{NASH}$, and that the positive result for the Nash product rule even holds when voters may report arbitrary concave utility functions. Finally, we complement our results with an experimental analysis. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.11736 |
| By: | Sirui Li; Jing Su |
| Abstract: | This paper studies how consumers’ concerns about fairness interact with third-degreeprice discrimination of a two-sided monopoly platform. We show that the presenceof fairness concerns creates a negative demand externality from low-willingness-to-payto high-willingness-to-pay consumers, that is, charging less to the former reduces thelatter’s demand. With this novel externality, price-discriminating among consumerstriggers fairness concerns, which lowers consumer-side demand and ultimately restrictsthe platform’s profit exploitation from the seller side. Hence, a platform whose profitpotential from sellers is larger would take consumers’ fairness concerns more seriouslyand price-discriminate less. The results can explain why some major online platforms—despite the huge profit potential of targeting prices—shy away from price discriminationin response to consumers’ fairness concerns, while others care little about unfairnesscomplaints when price-discriminating among consumers. |
| Keywords: | fairness concerns; price descrimination; two-sided markets |
| JEL: | D42 D91 L11 L86 |
| Date: | 2026–05–11 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/406859 |
| By: | Igor Sloev; Gerasimos Lianos |
| Abstract: | Multiplicative Kantian equilibrium explains cooperative behavior in social dilemmas without abandoning methodological individualism. However, its outcomes depend critically on the parametrization of the strategy space - the property of strategic non-equivalence. We investigate what fraction of the Pareto frontier can be attained by varying the strategy space. We show that the set of achievable Kantian equilibria is the entire Pareto frontier: for any interior Pareto-efficient point there exists a shift of coordinates - imposing lower bounds on actions - that makes it a Multiplicative Kantian equilibrium. The proof is constructive and relies on a intuitive geometric property: moving the origin to a point on the common tangent to players' indifference curves. This result separates the problem of efficiency from the problem of fairness, allowing any normative criterion to be implemented without loss of Pareto optimality. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.19548 |
| By: | Madjid Eshaghi Gordji; Mohammadali Berahman; Hasti Eshaghi |
| Abstract: | Why do inefficient practices, technologies, or institutions persist even when su perior alternatives are available? This paper introduces a quantal response equilib rium with status-quo bias (QRE-SB) in which each player incurs a fixed switching cost when deviating from an inherited default action. In a binary coordination game, we compare two policy interventions: a tax on the default action (price-only reform) versus deleting the default action entirely (ban). We prove that there exists a threshold tax below which the status quo persists and above which a transition occurs; notably, this threshold does not depend on the degree of bounded ratio nality. Deleting the default action always forces play to the superior equilibrium, irrespective of switching costs or rationality. Moreover, when the superior equilib rium is Pareto-dominant, deletion yields strictly higher expected welfare than any finite tax that leaves the old action feasible. Numerical simulations illustrate the theoretical predictions. The framework provides a formal foundation for the policy principle that sometimes you must ban, not just tax, with direct applications to climate policy, social media regulation, and international sanctions. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.21647 |
| By: | Ali Aouad; Thodoris Lykouris; Huiying Zhong |
| Abstract: | Generative Artificial Intelligence (AI) tools are rapidly adopted in the workplace and in education, yet the empirical evidence on AI's impact remains mixed. We propose a model of human-AI interaction to better understand and analyze several mechanisms by which AI affects productivity. In our setup, human agents with varying skill levels exert utility-maximizing effort to produce certain task outcomes with AI assistance. We find that incorporating either endogeneity in skill development or in AI unreliability can induce a productivity paradox: increased levels of AI assistance may degrade productivity, leading to potentially significant shortfalls. Moreover, we examine the long-term distributional effect of AI on skill, and demonstrate that skill polarization can emerge in steady state when accounting for heterogeneity in AI literacy -- the agent's capability to identify and adapt to inaccurate AI outputs. Our results elucidate several mechanisms that may explain the emergence of human-AI productivity paradoxes and skill polarization, and identify simple measures that characterize when they arise. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.11350 |
| By: | Finn Christensen (Department of Economics, Towson University) |
| Abstract: | Comparative statics in smooth equilibrium models is typically characterized using the implicit function theorem, which yields local predictions based on derivatives of the equilibrium system. This paper develops a general framework for extending such local results to finite parameter changes. The analysis proceeds in two steps. First, we establish conditions under which the equilibrium system admits a globally defined, continuously differentiable selection, using either a properness-based global inversion argument or injectivity conditions applied slice-by-slice. Second, we show that global comparative statics can be obtained by integrating local responses along parameter paths. The key requirement is a cone invariance condition: parameter changes must generate shocks to the equilibrium system that lie in an admissible shock cone, and the propagation operator must map those shocks into an admissible cone of outcome changes. Under this condition, finite equilibrium changes inherit the qualitative properties of local comparative statics. A complementary result establishes that, under a strengthened finite-change hypothesis, such global behavior implies corresponding pointwise restrictions on the Jacobian. Together, these results provide a general link between local derivative-based comparative statics and global predictions in smooth equilibrium systems. |
| Keywords: | Comparative statics, Implicit function theorem, Global analysis, Equilibrium, Monotonicity. |
| JEL: | C61 C62 D50 L13 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:tow:wpaper:2026-08 |