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on Microeconomics |
| By: | Mark Whitmeyer |
| Abstract: | I conduct a robust comparative statics exercise for a risk-averse subjective expected utility (SEU) maximizer. Starting with a finite menu of actions totally ordered by sensitivity to risk, I study the transformations of the menu that lead the decision-maker to take a lower action, regardless of her particular utility function or belief. My main results reveal that a robust decrease in the action selected is guaranteed by an intuitive steepening of the actions' payoffs and necessitates a slightly weaker such steepening. I show that this basic pattern generalizes to a broad class of non-EU preferences. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12926 |
| By: | Takashi Kunimoto; Rene Saran; Roberto Serrano |
| Abstract: | When the normative goals for a set of agents can be summarized in a set-valued rule and agents take actions that are rationalizable, a new theory of incentives emerges in which standard Bayesian incentive compatibility (BIC) is relaxed significantly. The paper studies the interim rationalizable implementation of social choice sets with a Cartesian product structure, a leading example thereof being ex-post efficiency. Setwise incentive compatibility (setwise IC), much weaker than BIC, is shown to be necessary for implementation. Setwise IC enforces incentives flexibly within the entire correspondence, instead of the pointwise enforcement entailed by BIC. Sufficient conditions, while based on the existence of SCFs in the correspondence that make truthful revelation a dominant strategy, are shown to be permissive to allow the implementation of ex-post efficiency in many settings where equilibrium implementation fails (e.g., bilateral trading, multidimensional signals). Furthermore, this success comes at little cost: all our mechanisms are well behaved, in the sense that best responses always exist. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bro:econwp:2025-001 |
| By: | Deniz Kattwinkel; Justus Preusser |
| Abstract: | A surplus must be divided between a principal and an agent. Only the agent knows the surplus' true size and decides how much of it to reveal initially. Both parties can exert costly effort to conclusively prove the surplus' true size. The agent's liability is bounded by the revealed surplus. The principal is equipped with additional funds. The principal designs a mechanism that allocates the burden of proof and divides the surplus. In principal-optimal mechanisms, the principal's effort to acquire proof decreases in the revealed surplus. The agent's effort initially decreases, but then the sign of its slope alternates across five intervals. Applications include wealth taxation, corporate finance, and public procurements. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.14686 |
| By: | Joep van Sloun |
| Abstract: | This paper examines games with strategic complements or substitutes and incomplete information, where players are uncertain about the opponents' parameters. We assume that the players' beliefs about the opponent's parameters are selected from some given set of beliefs. One extreme is the case where these sets only contain a single belief, representing a scenario where the players' actual beliefs about the parameters are commonly known among the players. Another extreme is the situation where these sets contain all possible beliefs, representing a scenario where the players have no information about the opponents' beliefs about parameters. But we also allow for intermediate cases, where these sets contain some, but not all, possible beliefs about the parameters. We introduce an assumption of weakly increasing differences that takes both the choice belief and parameter belief of a player into account. Under this assumption, we demonstrate that greater choice-parameter beliefs leads to greater optimal choices. Moreover, we show that the greatest and least point rationalizable choice of a player is increasing in their parameter, and these can be determined through an iterative procedure. In each round of the iterative procedure, the lowest surviving choice is optimal for the lowest choice-parameter belief, while the greatest surviving choice is optimal for the highest choice-parameter belief. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.15548 |
| By: | Daniel Habermacher (Universidad de Los Andes); Nicolás Riquelme (Universidad de Los Andes) |
| Abstract: | We study how diversity and participatory decision-making affect organizational performance. Our model involves a manager who can acquire costly information to guide project selection, and a worker responsible for its implementation. We model diversity as heterogeneous beliefs between the organization’s members and participatory decision-making as how much the worker’s perspective influences project choice—related to notions of empowerment and inclusion. Our findings show that higher diversity enhances decision-making and implementation outcomes when the manager can access high-quality information and the worker is sufficiently empowered. When information acquisition is covert, the manager cannot signal her commitment to reducing disagreement, thus eliminating any benefits of increasing diversity. When communication is strategic, the associated credibility loss dilutes the manager’s benefits from acquiring information, but the conflict of interest decreases with information quality. Our results imply that the ‘business case for diversity’ requires complementary organizational processes that foster informational transparency and trust among members. |
| Keywords: | Diversity, Worker Empowerment, Information Acquisition, Moral Hazard, Firm Performance. |
| JEL: | D82 D83 L25 M54 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:352 |
| By: | Isabel Melguizo (Department of Economics, CIDE); Sergio Tovar (Department of Economics, CIDE) |
| Abstract: | We study a model in which individuals, that are heterogeneous along a single dimension capturing productivity, choose which of two available groups to join and how much costly effort to exert within their chosen group. On the one hand, individuals like to be in groups in which others' average performance is high (global quality). On the other hand, individuals are concerned with their ranking with respect to their peers' average performance (local standing). Nash equilibrium efforts are such that the higher the individual's productivity the higher her private outcome. In contrast, it is not necessarily the case that highly productive individuals exert more effort. Nash equilibrium efforts are never efficient and whether they are higher or lower than efficient efforts, depends on the strength of global quality versus local standing concerns. Stable partitions of the society into groups may either resemble grouping by productivity or productivity mixing. In contrast, efficient partitions must always exhibit grouping by productivity. |
| Keywords: | peer groups, segregation, mixing, effort choices, welfare |
| JEL: | D61 D60 Z13 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:emc:wpaper:dte646 |
| By: | Seiya Hirano |
| Abstract: | In the adoption decisions of network goods, coordination problems lead to multiple equilibria. While consumers coordination significantly impacts the firm's pricing strategies, the precise relationship between coordination behavior and optimal pricing has received little attention. This paper analyzes optimal pricing strategies for network goods under different forms of consumer coordination in a two-period model with strategic consumers. We introduce two novel coordination criteria: risk dominance and threshold coordination. Risk dominance coordination accounts for the risk premium of no-adoption and threshold coordination accounts for consumer heterogeneity in the adoption of the good. We show that under the risk dominance criterion, the firm sets a lower price in period 1 when the risk of the coordination failure is high, but sets a higher price in period 1 when the risk is low. Under threshold coordination, the firm sets a lower price in period 1 when consumers hold pessimistic beliefs about the network size and sets a higher price in period 1 when beliefs are optimistic. Our findings highlight the critical implications of consumer coordination for firms' pricing strategies. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1267r |
| By: | A.C. Campbell; Filipp Ushchev; Yves Zenou |
| Abstract: | We develop a model of the process of entry under social learning via word-of-mouth (WOM). An incumbent’s product is known to the consumers, while the success of a potential entrant hinges on generating consumer awareness of the entrant’s product through WOM. We model WOM as a percolation process on a random graph. We show that whether an entrant can gain a non-negligible level of awareness depends on the social network structure via two sufficient statistics, which are functions of the first three factorial moments of the degree distribution. We categorize the different pricing equilibria into the classical blockaded, deterred, and accom- modated entry taxonomy. Under deterred entry, our model produces a model of limit pricing by an incumbent to prevent an entrant gaining a non-negligible level of awareness. By focus- ing on multinomial logit demand and on a mixed-Poisson degree distribution, we show that increasing the network density shifts the pricing equilibrium from blockaded to deterred and, finally, to accommodated entry. Using numerical simulations, we also show that the aggregate consumer surplus may be non-monotonic with respect to network density. Finally, if the in- cumbent has knowledge about the consumer’s number of friends and can charge personalized prices, we find that it is optimal for the incumbent to charge lower prices to more-connected consumers. |
| Keywords: | word of mouth, social learning, random network, limit pricing, entry |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/387717 |
| By: | Ian Ball; Xin Gao |
| Abstract: | We consider a sender--receiver game in which the state is multidimensional and the receiver's action is binary. The sender always prefers the same action. The receiver can select one dimension of the state to verify. Despite the extreme conflict of interest, costless communication can be influential. We identify a class of symmetric equilibria in which the sender's message reveals which dimensions of the state are highest, and the receiver selects one of these dimensions to check. Using this construction, we characterize whether the sender benefits from communication. Similar equilibria exist when the receiver can check multiple dimensions. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.09875 |
| By: | Pierre Bernhard (MACBES Team, INRIA Center of Université Côte d'Azur, Sophia Antipolis, France); Romain Biard (Université Marie et Louis Pasteur, CNRS, LmB, F-25000 Besançon, France); Marc Deschamps (Université Marie et Louis Pasteur, CRESE, UR3190, F-25000 Besançon, France) |
| Abstract: | There exist situations where firms (identical or not) are in a state of renewed interaction and where, at each period, in addition to exits, new firms (identical or not) may arrive. In such cases, no one is able to know ex ante exactly how many firms there will be in each period. One of the questions an incumbent firm might therefore ask itself, in this context, is what expected payoff it can expect. Our paper aims to provide an answer to this question, in finite and infinite horizons, using a discrete-time dynamic game with random arrival(s) and exit(s) of different types of firm(s). We first propose a general model, which we then particularize by considering the types as composed of identical players. Within this framework, we address the case of a dynamic Cournot oligopoly with sticky prices, and provide numerical illustrations to underline the interest of this approach and demonstrate its operational character. |
| Keywords: | Oligopoly, Random entries and exits, Types, Dynamic equilibirum, Cournot, sticky prices. |
| JEL: | C73 D43 L13 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2025-01 |
| By: | Jean-Pierre Drugeon (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thai Ha-Huy (Université Paris-Saclay, EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay) |
| Abstract: | This paper provides a framework for understanding preferences over utility streams across different time periods. We analyze preferences for the close future, for the distant future, and a synthesis of both, establishing a representation involving weights over time periods. Examining scenarios where two utility streams cannot be robustly compared to each other, we introduce notions in which one has more "potential" to be preferred over another, which lead to MaxMin, MaxMax, and -MaxMin representations. Finally, we consider temporal bias in the form of violations of stationarity. For close future preferences, we obtain a generalization of quasi-hyperbolic discounting. For distant future preferences, we obtain Banach limits and discuss the relationship with exponential discounting. |
| Keywords: | Axiomatization, Myopia, Multiple discounts, Alpha-MaxMin criteria, Temporal biases, Banach limits |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:pseptp:halshs-04331306 |
| By: | Joep van Sloun |
| Abstract: | This paper revisits the Hotelling model with waiting costs Kohlberg (1983), focusing on two specific settings where pure Nash equilibria do not exist: the asymmetric model with two firms and the symmetric model with three firms. In the asymmetric two-firm model, we show that the weaker concept of point rationalizability has strong predictive power, as it selects exactly two locations for both firms. As the two firms become more similar in their efficiency in handling queues of consumers, the two point rationalizable locations converge towards the center of the line. In the symmetric three-firm model, the set of point rationalizable choices forms an interval. This interval is shrinking in the inefficiency levels of the firms in handling queues of consumers. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.15545 |
| By: | Maxwell Allman; Itai Ashlagi; Amin Saberi; Sophie H. Yu |
| Abstract: | In many two-sided labor markets, interviews are conducted before matches are formed. An increase in the number of interviews in the market for medical residencies raised the demand for signaling mechanisms, in which applicants can send a limited number of signals to communicate interest. We study the role of signaling mechanisms in reducing the number of interviews in centralized random matching markets with post-interview shocks. For the market to clear we focus on interim stability, which extends the notion of stability to ensure that agents do not regret not interviewing with each other. A matching is almost interim stable if it is interim stable after removing a vanishingly small fraction of agents. We first study signaling mechanisms in random matching markets when agents on the short side, long side, or both sides signal their top~$d$ preferred partners. Interviews graphs are formed by including all pairs where at least one party has signaled the other. We show that when $d = \omega(1)$, short-side signaling leads to almost interim stable matchings. Long-side signaling is only effective when the market is almost balanced. Conversely, when the interview shocks are negligible and $d = o(\log n)$, both-side signaling fails to achieve almost interim stability. For larger $d \ge \Omega(\log^2 n)$, short-side signaling achieves perfect interim stability, while long-side signaling fails in imbalanced markets. We build on our findings to propose a signaling mechanism for multi-tiered random markets. Our analysis identifies conditions under which signaling mechanisms are incentive compatible. A technical contribution is the analysis of a message-passing algorithm that efficiently determines interim stability and matching outcomes by leveraging local neighborhood structures. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.14159 |
| By: | Michele Crescenzi |
| Abstract: | We compare two procedures for the iterated removal of strictly dominated strategies. In the nested procedure, a strategy of a player is removed only if it is dominated by an unremoved strategy. The universal procedure is more comprehensive for it allows the removal of strategies that are dominated by previously removed ones. Outside the class of finite games, the two procedures may lead to different outcomes in that the universal one is always order independent while the other is not. Here we provide necessary and sufficient conditions for the equivalence of the two procedures. The conditions we give are variations of the bounded mechanisms from the literature on full implementation. The two elimination procedures are shown to be equivalent in quasisupermodular games as well as in games with compact strategy spaces and upper semicontinuous payoff functions. We show by example that order independence of the nested procedure is not sufficient for its being equivalent to the universal one. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.17685 |
| By: | Eric Bahel (Department of Economics, Virginia Polytechnic Institute and State University); Christian Trudeau (Department of Economics, University of Windsor); Haoyu Wang (Department of Economics, Virginia Polytechnic Institute and State University) |
| Abstract: | We introduce the notion of preconvexity, which extends the familiar concept of convexity found in cooperative games with transferable utility. In a convex game, the larger the group joined by an agent, the larger the marginal value brought to the group by that agent. By contrast, in strictly preconvex games, an agent's marginal contribution is initially decreasing (when joining small groups), and it eventually becomes increasing at (and above) some critical group size. As a consequence, the core of a preconvex game may be empty. Defining the property of semicohesiveness (related to marginal contributions at this critical group size), we prove that it is sufficient to guarantee a nonempty core. We also propose a new solution for the set of preconvex games; and we characterize this solution by combining three axioms which are natural in our framework. A stronger cohesiveness property (guaranteeing that our solution falls in the core) is also studied. Some additional results are provided for the special case of anticonvex games, for which marginal contributions are always non-increasing. |
| Keywords: | cooperation; allocation; core; preconvexity; cohesiveness. |
| JEL: | C71 D63 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2501 |
| By: | Annie Liang |
| Abstract: | Large language models, trained on personal data, may soon be able to mimic individual personalities. This would potentially transform search across human candidates, including for marriage and jobs -- indeed, several dating platforms have already begun experimenting with training "AI clones" to represent users. This paper presents a theoretical framework to study the tradeoff between the substantially expanded search capacity of AI clones and their imperfect representation of humans. Individuals are modeled as points in $k$-dimensional Euclidean space, and their AI clones are modeled as noisy approximations. I compare two search regimes: an "in-person regime" -- where each person randomly meets some number of individuals and matches to the most compatible among them -- against an "AI representation regime" -- in which individuals match to the person whose AI clone is most compatible with their AI clone. I show that a finite number of in-person encounters exceeds the expected payoff from search over infinite AI clones. Moreover, when the dimensionality of personality is large, simply meeting two people in person produces a higher expected match quality than entrusting the process to an AI platform, regardless of the size of its candidate pool. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.16996 |