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on Microeconomics |
| By: | Karle, Heiko; Schumacher, Heiner; Volund, Rune |
| Abstract: | We study a simple bargaining model in which the sender can make an early offer to the receiver. Initially, the sender has private information about the value of the receiver's outside option. The receiver learns this value before she chooses between the sender's early offer and her outside option. Nevertheless, if the receiver is expectation-based loss averse, the sender can persuade her to accept an offer that is inferior to her outside option. This result is due to the interaction of two effects: the attachment effect that makes it costly for the receiver to reject an offer that she planned to accept, and the uncertainty effect which renders the acceptance of the sender's offer as the preferred plan since it creates peace of mind at an early stage. If the receiver faces uncertainty in multiple dimensions, the main result holds for all degrees of loss aversion. Thus, expectation-based loss-averse preferences imply that there is scope for persuasion through signaling even if the receiver has all payoff-relevant information at the decision stage. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19247 |
| By: | Federico INNOCENTI; Nicola DONI; Domenico MENICUCCI |
| Abstract: | This paper is about a two-bidder auction setting with endogenous and costly entry in which, before the bidders' entry decisions, the seller may release information about the object on sale. This information affects each bidder's belief about the own distribution of value for the object on sale, hence it affects the bidder's incentive to enter. The seller uses a second price auction and we consider the class of unrestricted information structures using the techniques of information design in which the seller sends private messages to the bidders. We characterize the optimal information structure, which optimally trades off providing rents to the bidders in favorable (to the bidders) states of the world against inducing entry of all bidders in other states of the world (in order to generate a positive auction revenue). We compare the optimal information structure with some specific information structures examined in the literature and then show that a restriction to public messages hurts the seller significantly. We also show that using a first price auction allows the seller to earn the same revenue as when a second price auction is used. We then allow the seller to use an entry fee and jointly optimize, under some restrictions, with respect to the entry fee and the information structure. In this case the seller does not need to induce entry of all bidders to earn a positive revenue, and indeed induces entry of a single bidder, who is required to pay a high entry fee, if the entry cost is not small. But if the seller can also use a reserve price, then it is optimal to (almost) fully subsidize the entry cost and use the reserve price to extract all the bidders' rents while inducing the socially optimal entry. |
| Keywords: | Procurement Auctions, First-Price Auction, Second-Price Auction, Pre-Auction Investment, Strategic Effect, Auction Ranking. |
| JEL: | D44 D82 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2026_09.rdf |
| By: | Frank Yang; Piotr Dworczak |
| Abstract: | Multidimensional screening is (in)famously intractable. In this paper, we study optimal screening mechanisms subject to a tractability constraint from the agent's perspective. Specifically, we require that the menu of options offered by the designer can be ordered so that, regardless of her preference type, the agent can find a utility-maximizing option via greedy search: any locally optimal choice must also be globally optimal. In one-dimensional screening with the single-crossing property, this requirement has no bite. In multidimensional environments, however, searchability restricts the set of implementable outcomes. In the multiproduct monopoly problem, the optimal searchable menu is a sparse upgrade menu: higher tiers offer higher allocation probabilities for every good, and the number of tiers is at most the number of goods. In a multidimensional screening problem with money and ordeals, the optimal searchable menu offers the agent a single way to obtain the good. In income taxation with rich multidimensional heterogeneity, a tax schedule is searchable if and only if it is progressive. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.17446 |
| By: | Sumana Kundu (Indira Gandhi Institute of Development Research) |
| Abstract: | We study firms' strategic choice between transparent and opaque personalized pricing in a duopoly with differentiated network goods with both within-firm and between-firm network effects. Under transparent pricing, consumers observe prices offered to others and internalize the resulting network benefits. In contrast, under opaque pricing, such information remains private, limiting consumers' ability to coordinate their purchasing decisions. Consumers are heterogeneous in baseline valuations and firm-specific preferences. We show that, unlike in monopoly settings, opaque pricing is more profitable than transparent pricing in competitive markets whenever firms' networks are not perfectly compatible. This is because transparency intensifies competition by allowing consumers to respond strategically to expected network participation, whereas opacity doesn't allow the same, enabling firms to sustain higher prices. Endogenizing firms' choice of pricing schemes, we show that when firms' network compatibility is relatively high, or consumers are sufficiently heterogeneous, or firms' marginal cost differences are high, (Opaque, Opaque) is the unique Nash equilibrium. In other cases, firms' pricing schemes become strategic complements, giving rise to both (Transparent, Transparent) and (Opaque, Opaque) as Nash equilibria; however, the latter is Pareto-dominant. We further show that transparent pricing can induce strategic subsidization, whereby a high-cost firm prices below cost for low-valuation consumers to signal stronger network benefits. In a sequential purchasing environment, we show that firms earn higher profits than under transparent pricing, but lower profits than under opaque pricing. Finally, we show that prohibiting personalized pricing always lowers firms' profits in a duopoly. |
| Keywords: | Personalized pricing, Transparent pricing, Opaque pricing, Network effects, Consumer heterogeneity, Nash equilibria |
| JEL: | D43 D82 L10 L13 L21 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2026-013 |
| By: | R. Emilio Muniz-Langle |
| Abstract: | This paper provides an axiomatic foundation for catastrophic thinking, a form of pessimism in which an agent evaluates uncertain alternatives by attending only to a subset of adverse outcomes. We introduce Catastrophic Attention Preferences (CAP), under which an act is evaluated by its subjective expected utility conditional on the worst outcomes, up to a subjectively determined probability threshold $q$. The resulting functional is a subjective counterpart of Expected Shortfall: both the agent's belief $\mu$ and her threshold $q$ are derived from preferences rather than assumed, without a probability distribution given as a primitive. Our main result is a complete behavioral characterization: six axioms, one of which, Catastrophic Complementarity, carries the behavioral content of catastrophic thinking, together with two standard richness conditions, are equivalent to the existence of a CAP representation, and the parameters $(\mu, q)$ are unique. The parameters are fully identified from probability equivalents of events, simple binary bets that can be elicited experimentally. We characterize comparative ambiguity aversion within the class: with common beliefs, ambiguity aversion is completely ordered by $q$; with different beliefs, we provide a necessary and sufficient condition on the two belief-threshold pairs. The model admits an equivalent multiple priors representation with a closed-form set of priors, nests subjective expected utility at $q = 1$, and converges to maxmin expected utility as $q \rightarrow 0$. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.05379 |
| By: | Thirumulanathan D |
| Abstract: | Consider the problem of designing a revenue-optimal auction mechanism when two heterogeneous items are sold to a single buyer having independent valuations over the items. The distributions of the buyer's valuation for the items are assumed to have densities that are positive, nondecreasing, and continuously differentiable on their support sets $[c_i, c_i+b_i]$ in the positive axis. I prove that the optimal mechanism is deterministic if at least one of the minimum valuations (i.e., either $c_1$ or $c_2$) is sufficiently high. I provide a method to calculate the threshold of $(c_1, c_2)$ beyond which the optimal mechanism is deterministic. I also provide a sufficient condition on the distributions of buyer's valuations for which the individual sale mechanism is optimal. I show that when $c_1$ is low and $c_2$ is high, it is optimal for the seller to sell item $2$ at the minimum valuation $c_2$, thus effectively reducing the problem to finding the optimal mechanism in the one-dimensional setting only for item $1$. I conjecture with promising preliminary results that this result can be extended to the three-item setting. Specifically, I conjecture that when $c_1$ and $c_2$ are low but $c_3$ is high, it is optimal for the seller to sell item $3$ at the minimum valuation $c_3$, thus effectively reducing the problem to finding the optimal mechanism in the two-dimensional setting for items $1$ and $2$. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.22371 |
| By: | Michael Ostrovsky; Andrzej Skrzypacz |
| Abstract: | We revisit the classic result on the (non-)existence of pure-strategy Nash equilibria in the Generalized First-Price Auction for sponsored search advertising and show that the conclusion may be reversed when ads are ranked based on the product of stochastic quality scores and bid amounts, rather than solely on the bids or on the product of bids and deterministic quality scores. Moreover, the expected revenue in the pure strategy equilibrium of the Generalized First-Price Auction may substantially exceed that of the Generalized Second-Price Auction, although under some conditions the relation may also be reversed. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.00334 |
| By: | Zhiyuan Jia |
| Abstract: | Are simple delegation rules optimal under ambiguity? We study delegation when the principal knows the mean, but not the distribution, of the agent's private information. In a quadratic constant-bias environment, the robustly optimal randomized mechanism is a random cap: the principal draws and reveals an upper bound below which the agent chooses freely. Randomization strictly outperforms every deterministic cap by hedging against cap-specific worst-case distributions. We characterize random caps through nondecreasing and concave expected-action rules and construct the solution using a saddle-point approach. The worst-case distribution features an exponential survival function over its continuous region and an atom at the upper endpoint. Under regularity conditions, the result extends to convex-order ambiguity. When the mean is below the agent's bias, the optimal mechanism additionally requires an incentive-neutral outcome lottery. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.19846 |
| By: | Olga Rospuskova; Omer Tamuz; Jake Zhang |
| Abstract: | We study global games in which agents coordinate locally, with their social network neighbors, contingent on a favorable state. Before acting, agents learn the private signals of all agents within network distance $r$. As $r$ grows, every agent learns the state, but efficient coordination depends on higher-order beliefs, which are shaped by the geometry of the network. We introduce network common learning, a network analogue of common learning, and show that it is attained when neighboring agents' observations differ by many signals, as on the two-dimensional grid, but fails on networks with informational bottlenecks, such as the line, where only the safe action survives in equilibrium. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.28821 |
| By: | Aman Ray; Srikanth Pai |
| Abstract: | In the standard Downsian model, two office-seeking parties converge to the median voter. However alienated voters may abstain and turn out only for a party within their tolerance radius. For single-peaked voter distributions, convergence survives but relocates to a central voter, the median of the electorate that participates at the convergent platform. However single-peakedness of the voter distribution is an empirically contested assumption. So we first characterize pure-strategy equilibrium for any continuous voter distribution. For general distributions, pure-strategy equilibrium can fail to exist or be non-unique, and existence of equilibrium need not persist as the tolerance radius of the voters increases. In order to resolve these issues, we propose a fundamental object: \emph{centripetal} structure for which there is a single anchor platform toward which competition always pulls. We show this structure produces convergence at equilibrium under alienation based abstention. Our main result concerns the emergence and persistence of this new structure as the tolerance radius increases. Even though equilibria for office-seeking parties themselves can vanish and reappear as the radius grows, once centripetal structure emerges, it persists as long as the midpoint voter is not alienated. Moreover, the centripetal structure always emerges, and this structure classifies equilibrium completely when parties are policy motivated. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.03788 |
| By: | Nandish Patel (Indira Gandhi Institute of Development Research) |
| Abstract: | We study entry in a differentiated-product Bertrand industry in which firms are privately informed about their marginal costs. We show that policies that facilitate entry, such as per-unit subsidies to entrants increase expected output and total welfare. Under Bayes-Bertrand competition, firms condition their pricing decisions on the expected costs of their rivals rather than on realized costs. In this environment, facilitating entry for relatively inefficient types raises the expected output of inframarginal firms and incumbents, owing to the strategic complementarity of prices. When all firms simultaneously decide whether to enter, it is optimal to allow all potential entrants to participate. |
| Keywords: | Bayes-Bertrand oligopoly, Differentiated products, Market entry, Welfare maximization |
| JEL: | D43 D82 L13 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2026-011 |
| By: | Foivos Savva; Michele Lombardi; Ritesh Jain |
| Abstract: | Can altruism serve as the behavioral foundation for efficient institutional design? We study full implementation in Berge equilibrium, the solution concept that formalizes strategic altruism: each agent's opponents collectively maximize her payoff. While Berge equilibrium resolves the Prisoner's Dilemma and can eliminate cooperation failures in social dilemmas, we show that this optimism does not survive the move from individual behavior to institutional design. First, we show that the weak Pareto optimal rule is not implementable in Berge equilibrium. Second, on the unrestricted domain of strict preferences, any social choice rule that is both weakly Pareto efficient and implementable in Berge equilibrium must be dictatorial. Finally, we show that Berge implementability is strictly more demanding than Nash implementability: every social goal achievable under strategic altruism is also achievable under self-interest, but not vice versa. The very feature that makes Berge equilibrium appealing at the behavioral level, that is, opponents protecting each agent's payoff, is precisely what forecloses efficient, non-dictatorial institutions at the design level. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.24774 |
| By: | Paolo Bertoletti; Federico Etro |
| Abstract: | We study entry in markets with monopolistic competition under quasi-linear preferences, with homogeneous and heterogeneous firms. For common demand systems with a price aggregator which works through a demand shifter, entry tends to be insufficient: given market pricing, the business stealing effect of entry cannot dominate the consumer surplus effect. We identify preferences that deliver efficient production and firm selection (including the isoelastic demand case), confirming the insufficient entry result also compared to first-best allocations, and discuss a specification (including the Logit case) that delivers efficient entry. Under more general preferences competitive effects of entry strengthen the case for insufficient entry. |
| Keywords: | Entry, Monopolistic competition, Business stealing, Heterogeneous firms |
| JEL: | D11 D43 L11 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2026_15.rdf |
| By: | Giulio Salizzoni; Domenico Mergoni Cecchelli; Edward Plumb; Maryam Kamgarpour; Galit Ashkenazi-Golan |
| Abstract: | While infinitely repeated games admit a rich set of Nash equilibria, finitely repeated games typically have a much smaller and often inefficient one. We show how to enlarge this set using deposits: in each period a player may place a refundable sum with a neutral intermediary, returned when the game ends and forfeited following a deviation. Paying these deposits is voluntary and incentive compatible at every stage, so no commitment by the players is assumed, the only commitment required being that of the intermediary to a refund rule fixed before play begins. The mechanism sustains payoff profiles more efficient than those of the standard equilibria, without altering the underlying game and without transfers between players. We demonstrate it on the prisoner's dilemma, a congestion game, and a public goods game, all settings where cooperation cannot emerge in the standard finitely repeated version. We also apply it to a dynamic common-pool resource, suggesting that the construction extends beyond repeated stage-games. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.27536 |
| By: | Eliaz, Kfir; Fershtman, Daniel; FRUG, ALEXANDER |
| Abstract: | We study the optimal dynamic scheduling of workers to tasks when task-completion is privately observed (hence, workers can delay the release of completed tasks), and when idle time is the only means of providing incentives. Our main result characterizes a scheduling rule, and the equilibrium it induces, maximizing the expected discounted output subject to workers' incentive constraints. When workers are inherently slow, a simple rotation scheme suffices to attain first-best output, but when they are more productive, optimal scheduling alternates between phases with and without delay. Our analysis highlights a trade-off between the quality and size of workforce. |
| JEL: | D02 D23 D73 D82 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19307 |
| By: | Invernizzi, Giovanna M.; Trombetta, Federico |
| Abstract: | We develop a model of partisan factions within an accountability framework. The incumbent leader can implement reforms but faces an internal faction that may undermine reform effectiveness through dissent. Unlike the faction, the leader's preferences align with those of the voter. Dissent reveals information to the voter about the leader's strength, sometimes inducing over-reform-strong leaders reform even when they should not. Moderate factional strength enhances voter welfare by balancing reform effectiveness and policy accuracy. Active dissent can improve welfare relative to strategic silence, and strong leaders may benefit more from dissent than from silence. |
| Keywords: | factions, accountability, reforms |
| JEL: | D72 D78 H11 P00 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:342526 |
| By: | Federico Etro |
| Abstract: | We study moral hazard by managers engaged in cost-reducing activities under incentive contracts à la Holmstrom-Milgrom and monopolistic competition. Moral hazard affects both managerial incentives and market structure, generating potential paradoxes. The main one is that moral hazard can increase equilibrium effort and reduce prices by discouraging entry and expanding firm scale. Alternatively, it can foster entry by relaxing incentive contracts and reducing fixed costs of managerial compensation. We analyze equilibria under general cost and demand functions, and compare equilibrium and optimal effort and entry for CES, Logit and Linear demand systems. |
| Keywords: | Managerial compensation, moral hazard, incentive mechanisms, Holmstrom-Milgrom model |
| JEL: | L1 L4 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2026_16.rdf |
| By: | Sinan Ertemel |
| Abstract: | We study deterministic choice when the same decision maker is observed before and after a deliberative intervention that makes one of two fixed ordinal consequence dimensions more salient. Both choice modes are path independent. Ordinary choice respects two-dimensional dominance, while any binary reversal under fuller deliberation must favor the alternative that is strictly better on the emphasized dimension. We characterize exactly the admissible ordinary and full-horizon rankings. The characterization yields a protected partial order, sharp pairwise and menu-level identification, a signed restriction on menu-level choice changes, and an acyclicity test for incomplete observations. With an ordered sequence of deliberative modes, choices from any fixed menu form a monotone tradeoff path: every switch improves the emphasized dimension, worsens the other dimension, and an abandoned alternative cannot reappear. When the emphasized consequence order is strict, the admissible rankings have an equivalent Kemeny-Kendall representation. The framework is ordinal: it requires neither a cardinal tradeoff nor lexicographic priority, and it applies whenever deliberation gives greater emphasis to one of two fixed consequence dimensions. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.23781 |
| By: | Rui Mao; Tingliang Huang; Houcai Shen |
| Abstract: | Artificial intelligence (AI) is increasingly integrated into medical decision-making, yet its liability implications remain complex, particularly when physicians differ in diagnostic skills and their quality is unobservable. This paper develops a principal-agent model in which a social planner designs medical liability to regulate a physician with private quality information who chooses between a standard treatment, a personalized judgment-based treatment, or following an imperfect AI recommendation. Our analysis yields several novel insights. First, we show that the optimal mechanism under asymmetric information is surprisingly simple: a uniform, one-size-fits-all liability level for all physician types who deviate from the standard of care. Despite physician heterogeneity, this simple policy often achieves the full-information first-best outcome, particularly when standard care is reliable or AI is highly accurate. Second, the relationship between AI accuracy and optimal liability is non-monotonic. Contrary to common intuition, better AI does not always imply more relaxed liability. As AI accuracy increases, the optimal liability either decreases monotonically or follows an inverted-U pattern, depending on the uncertainty of the standard treatment. Third, asymmetric information does not universally reduce social welfare. Welfare loss arises only when standard care is unreliable and AI accuracy is too low; even then, its magnitude follows an inverted U-shape, initially increasing as AI complicates the regulatory problem, but declining as more accurate AI helps mitigate it. Finally, we find that information asymmetry is a double-edged sword in the presence of AI, and greater transparency does not benefit all stakeholders equally. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.03114 |
| By: | Aloisio Araujo; Carolina Parra; Sergei Vieira |
| Abstract: | A principal screens an agent whose technology has a minimum efficient scale, so the Spence-Mirrlees condition fails along a monotone dividing curve: the locus at which every type values marginal output equally. For the class in which this curve and the relaxed solution are both strictly monotone, the optimal contract obeys a trichotomy, governed by how the two meet: a jump is impossible when they never meet, unavoidable across a flat dividing curve, a choice across a strictly increasing one. The optimum is found, not conjectured: each solution is certified as globally optimal among all implementable allocations, deterministic or random, by dualizing the family of binding constraints through an explicit weight; the certificates require neither linear primitives nor any restriction on the shape of the contract. Under mild regularity the class comprises exactly forty configurations; each is mapped to its forced shape, solved in closed form, and certified. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.19474 |
| By: | Federico Vaccari |
| Abstract: | This paper studies optimal auctions in which the allocation creates a moral hazard problem for a third-party executor. The executor chooses effort before the winner is known. In regular independent-private-values environments, the optimal mechanism is a shadow-score auction. Each bidder's virtual value is adjusted by the shadow value of relaxing the executor's incentive constraint using that bidder's allocation state. Unlike standard scoring auctions, the score is derived from a non-bidder's moral hazard constraint rather than from a preference for quality. Reserve formats miss this ranking channel, as they can adjust whether the object is sold, but cannot favor allocation states that are more useful for motivating execution effort. The paper also studies cases in which this scoring representation breaks down and the optimal mechanism becomes a constrained shadow allocation. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.29420 |
| By: | Uriel Feige; Yotam Gafni |
| Abstract: | We consider fair allocation of indivisible goods in a setting in which agents have subjective valuation functions over the set of goods, and in addition, goods may be sold at given market prices. In this setting, a fair allocation involves {deciding which goods to sell, how to allocate the unsold goods, and how to divide the money received from the sold goods.} We adapt to this setting the definitions of share-based fairness notions, such as the maximin share (MMS) and the truncated proportional share (TPS), and comparison-based fairness notions such as EF1 and EFX (which we adapt to SEF1 and SEFX). We show the following results when the utility of each agent is additive both over goods and over money. With two agents, there are allocations that are simultaneously MMS and SEFX. With three agents, there are instances in which no allocation gives every agent more than $\frac{11}{12}$-MMS. With any number of agents, there are $\frac{2}{3}$-MMS allocations. There also are allocations that are simultaneously SEFX and $\frac{n}{2n-1}$-TPS. This latter ratio is best possible, even without the SEFX requirement. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.24600 |
| By: | Denicolo, Vincenzo; Panunzi, Fausto |
| Abstract: | This paper examines the problem of a blockholder who controls a firm and seeks to acquire a noncontrolling stake in a rival company. The blockholder can either purchase the stake directly using personal funds or indirectly, through the firm he controls. The first option results in a pattern of common ownership, while the second leads to cross-ownership. We show that common ownership reduces competition intensity more effectively than cross-ownership and allows the blockholder to retain the benefits of the acquisition without sharing them with minority shareholders. However, this may create conflicts of interest with those shareholders, whereas cross-ownership always maintains an alignment of interests. Consequently, the blockholder may prefer cross-ownership if control over his company is not secure and could be challenged by minority shareholders. |
| Keywords: | Competition |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19204 |
| By: | Yuta Kido; Yohsuke Ohtsubo |
| Abstract: | Reputation and institutional certification are the two main trust mechanisms under information asymmetry, yet their interaction remains poorly understood. We analyze nearly one million fixed-price eBay listings of Pokemon cards, where sellers choose among three signals: third-party grading (institutional certification), self-grading (a self-claimed condition description), or no signal. We show that self-grading and third-party grading dominate distinct regions of the reputation-value space, with the self-grading region widening as reputation rises. Reputation also amplifies the price premium of self-grading but not that of third-party grading. We develop a signaling game in which a false self-claim carries an ex-post cost proportional to reputation, whereas certification carries an ex-ante cost independent of reputation. These costs split the reputation-value space into equilibrium regimes that explain both patterns. The two mechanisms are therefore substitutes within a transaction yet complements across the market, replacing the reputation-versus-institution dichotomy with a regime structure set by reputation and value. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.17312 |
| By: | Hector Galindo-Silva |
| Abstract: | I study why some groups---polities and organizations alike---sustain independent judgment while others fall into conformity traps. Social approval can suppress not only the expression of independent judgment but also the upstream practice that keeps such judgment available: maintaining judgment generates visible questioning, and observers cannot distinguish diligence from opposition. Because suspicion falls when questioning is common, the same desire for approval can sustain a questioning culture or a conformity trap. The model separates maintaining judgment from acting on it when novelty arrives. When the decision to act is uniquely determined, I give primitive conditions for coexistence; in a logit--proportional benchmark, a single inequality is necessary and sufficient. The principal contribution is dynamic. Under staggered revision the stock of judgment is inherited: protecting dissent releases existing judgment at once---with negative expected adaptive value on impact in a stationary culture below a break-even competence threshold---whereas rebuilding the stock is constrained by turnover. A monotone operator constructs the extremal perfect-foresight paths from every inherited state. When recovery under every admissible continuation is attainable, two cutoffs classify inherited states---recovery impossible, expectation-dependent, or assured---and a focus condition at the unstable culture strictly separates them, opening a band of states where expectations select the long-run culture. Turnover then yields sharp physical duration bounds, within temporary direct formation support, for making recovery possible or robust. A fully coupled interval-certified example verifies coexistence, the band, and the distinct output and welfare implications. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.18981 |
| By: | Daisuke Hirata; Yusuke Kasuya |
| Abstract: | We study the properties of the cumulative offer mechanism (COM) when institutions' choice functions satisfy strong observable substitutability (strong OS). First, we show that each of the following properties of the COM characterizes strong OS: IR monotonicity, weak Maskin monotonicity, and dropping monotonicity. Dropping monotonicity is a new condition weaker than weak Maskin monotonicity, and it is interpretable as a weakening of strategy-proofness and non-bossiness. Second, we show that when choice functions are strongly OS, weak group strategy-proofness of the COM reduces to individual strategy-proofness. However, strong OS is neither necessary nor "almost necessary" for this reduction. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.27784 |
| By: | Mustapha Nyenye Issah; Paramahansa Pramanik |
| Abstract: | We develop a continuous-time entry-deterrence game in which market demand evolves according to the Chan-Karolyi-Longstaff-Sanders (CKLS) stochastic differential equation, allowing mean reversion and state-dependent volatility. An incumbent with privately known strength strategically chooses advertising and promotional expenditures to influence a potential entrant's beliefs, while the entrant faces a costly, irreversible entry decision and optimally waits until market conditions justify participation. Within a dynamic Stackelberg setting, Bayesian learning, asymmetric information, stochastic demand, and strategic controls jointly determine entry and signaling behavior. Using a Feynman-type path-integral control formulation, we characterize a Markovian Nash feedback equilibrium for the firms' expenditure strategies. Our contribution is to integrate CKLS demand uncertainty, private information, irreversible entry, Bayesian belief updating, and path-integral feedback control within a unified continuous-time entry-deterrence framework, while providing a computational alternative to direct Hamilton-Jacobi-Bellman (HJB) approach. We illustrate the framework empirically using 2010-2024 revenue data for Enterprise Products Partners and Targa Resources. The resulting trajectories are qualitatively consistent with the model's predictions, exhibiting persistence, recovery after adverse shocks, and distinct responses associated with different competitive positions, while supporting the model's strategic mechanisms under uncertainty. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.17273 |
| By: | \"Ozg\"un Ekici; Sinan Ertemel; M. Bumin Yenmez |
| Abstract: | We introduce Rawlsian equity, a notion of fairness for allocating indivisible objects among agents without object-specific entitlements. Rawlsian equity requires that an object not be assigned to an agent who ranks it more highly than another agent unless the latter receives a more preferred object. We show that the set of Rawlsian equitable allocations coincides with the set of stable allocations in an auxiliary market where object priorities depend on agents' preference reports. The agent-proposing deferred acceptance algorithm computes the agent-optimal element of this set, but no Rawlsian equitable rule is strategy-proof in general. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.29080 |
| By: | Jobst Heitzig |
| Abstract: | We study a dynamic coalition-formation process in the tradition of Konishi and Ray (2003): players repeatedly form and dissolve binding agreements, evaluate states by discounted long-term expected payoffs, and hold self-confirming beliefs about the process. States and payoff sharing follow Heitzig and Kornek (2018): a state is a hierarchy of nested agreements; agreements are formed by merging existing top-level coalitions, and are terminated together with all agreements containing them; and the members of a new agreement share the surplus it generates, measured against the state without that agreement. All payoff assumptions are structural. We prove that every grand state ever reached is absorbing, and that every absorbing state is grand, for every discount factor. A grand state is actually reached, almost surely, in three cases: small discount factors; three players; and, for any number of players and all discount factors, whenever every player prefers every grand state to every non-grand state in static payoffs, as when distributional stakes are smaller than each player's share of the efficiency gain. Otherwise the process can fail only by cycling for ever among non-grand states. We give exact necessary conditions on such a cycle, and show that for a fixed candidate cycle they reduce to a finite system of linear inequalities in the static payoffs, so the question is decidable. Solving it yields a counterexample: with four players and discount factor one half, under either termination rule, there is an equilibrium that cycles for ever, so the grand coalition need not form. The example survives a far-sighted variant of the sharing rule under which merging raises every player's discounted long-term payoff, not only the static one; there the merge is blocked purely by a better move available to a subgroup. Whether arrival can fail as the discount factor tends to one remains open. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.17766 |
| By: | Harry Kleyer |
| Abstract: | This paper studies imperfect competition in general equilibrium when households and firms choose price-contingent schedules. Market clearing selects the price generated by those schedules, and each agent accounts for how its own behavior changes equilibrium prices. We derive household and firm optimality conditions, establish existence and a trembling-hand refinement, and apply the framework to monopoly, vertical market power, entry, ownership, and technological change. The results show that endogenous price responses can change standard conclusions about markups, deadweight loss, firm creation, and investment. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.12818 |
| By: | Grigoriadis, Theocharis; Veselov, Dmitriy |
| Abstract: | This paper develops a political-economy game of skilled exit, redistribution, repression, and regime survival. Skilled workers are economically valuable because they become entrepreneurs, pay taxes, and generate productive externalities for low-skilled workers. They are also politically dangerous because they can enter political competition in democracy, participate in revolution- ary collective action in autocracy, or leave the country altogether. Governments therefore face a strategic tradeoff. Retaining skilled citizens raises output and fiscal capacity, but it can also increase electoral or revolutionary pressure. Allowing skilled citizens to leave weakens development, but it may relax the incumbent's political constraint. In democracy, redistribution toward the low-skilled majority lowers the return to skilled entrepreneurship and can induce exit. In autocracy, exit barriers and repression are alternative technologies of political survival: hard dictatorships can restrict exit and extract from skilled workers, while soft dictatorships may tolerate emigration because it reduces the pool of potential protesters. We characterize this logic in a one-shot benchmark and a dynamic extension with persistent brain drain and absorbing political turnover. We also allow repression costs to rise with the human-capital intensity of the economy, so that repression becomes more destructive precisely when skilled labor is more productive. The model yields a comparative regime logic of skilled exit: emigration is highest where exit directly relaxes the incumbent's political constraint, as in soft dictatorship, or where redistribution lowers the domestic return to skilled entrepreneurship, as in redistributive democracy; it is lower in elitist democracy and lowest in hard dictatorship. |
| Keywords: | brain drain, migration, democracy, dictatorship, redistribution, repression, political competition, revolution, institutions |
| JEL: | D72 D73 D78 F22 J24 O15 P16 P26 P48 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:342530 |
| By: | Hanssen, Pauline (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory) |
| Abstract: | This paper studies reallocation problems where preferences are single-dipped and each agent is endowed with a share of one unit of an infinitely divisible and non-disposable commodity. We focus on several envy-freeness requirements: standard envy-freeness, restricted envy-freeness, net trade envy-freeness, and proportional envy-freeness. It turns out that none of these envy freeness requirements is compatible with Pareto optimality for each reallocation problem. However, for standard envy-freeness, net trade envy-freeness, and proportional envy-freeness, at most one allocation is Pareto optimal. For restricted envy-freeness, at most one allocation is Pareto optimal and individually rational. For each of the four envy-freeness requirements, we characterize this unique allocation for each reallocation problem where it exists. |
| Keywords: | resource reallocation, single-dipped preferences, Envy-freeness |
| JEL: | D63 D71 |
| Date: | 2026–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:unm:umagsb:2026007 |
| By: | Qian Cao; Yifei Sun |
| Abstract: | Opposing advocates may be unable to fabricate evidence but can choose which true observations to present. We study how a court, editor, or platform should divide potential exposure between an advocate who prefers a higher decision and one who prefers a lower decision. Each advocate controls a separate evidence pool, exposure is committed before the state and evidence are known, and a selection-naive receiver averages displayed observations. Under baseline linear preferences and common knowledge of the realized pools, all Nash equilibria in every finite pool induce the same action and common disclosure bar: the upward advocate reveals observations above it and the downward advocate those below it. Attention therefore changes selection as well as weight. Under a common evidence law, more exposure makes an advocate speak less often and more extremely while moving the decision in its preferred direction. In large pools, the unique state-contingent exposure share that reproduces the complete-evidence decision balances the advocates' directional tail moments, not their observed speech. Because this share generally depends on the unknown state, we characterize the optimal ex ante compromise and solve a primitive two-state economy with a unique second-best policy. For finite pools, we derive the exact risk-minimizing adjustment, separating selection-induced cutoff bias, the receiver's fixed benchmark, and sampling variance. The attention-to-cutoff feedback survives partial weighting of empty slots and vanishes at full imputation. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.27903 |
| By: | Van-Quy Nguyen |
| Abstract: | Online ratings turn a long review history into one public number. This makes sellers easier to compare, but it also gives them a single clear target to manipulate. We study a low-quality seller who can add fake reviews carrying different scores, buyers who infer quality from the displayed average, and a platform that can target particular scores for enforcement. The model separates the rating buyers see from the hidden mix of reviews used to produce it, and the two need not move together. An almost-perfect rating can be less credible than a slightly lower one when low-quality sellers are especially likely to manufacture the top of the scale, so a seller whose buyers become more valuable may display less and sell more. At a fixed displayed rating, targeted enforcement can redirect fake reviews toward other scores rather than eliminate manipulation; buyers do not see this substitution because the displayed average is unchanged. Raw ratings therefore provide only a partial picture of credibility and enforcement, and buyer-oriented ranking should account for what a rating conveys, not only its numerical level. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.24062 |
| By: | Bo Chen; Rui Gao; Jingfeng Lu; Zhewei Wang |
| Abstract: | A team-contest designer values output rather than expenditure; nonlinear conversion makes the distinction consequential. We study two non-pecuniary instruments in majority-rule contests decided by pairwise all-pay battles with private abilities: disclosing resolved outcomes and splitting the battle schedule into finer blocks. Neither changes a battle's average pivotality; each only redistributes it across histories. Under nested information structures, this redistribution makes equilibrium ability-scaled expenditure weakly more dispersed player by player without changing its mean; expected aggregate expenditure is invariant across all designs considered. The resulting convex-order comparison ranks expected total output: convex output costs favor no disclosure and coarser temporal structures, concave costs favor full disclosure and finer ones, and linear costs make both comparisons neutral. The rankings hold for finite-support and smooth continuous-type ability distributions. The mechanism extends to degree-zero component contest technologies with a unique equilibrium outcome distribution. No and full disclosure bound every admissible public garbling. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.22694 |
| By: | Zihao Li |
| Abstract: | We study the comparison of binary statistical experiments in large samples where information is acquired sequentially and the number of observations can depend on realized evidence. We introduce two orders. Stopping dominance compares experiments by their ability to reproduce the outcomes of arbitrary stopping policies, while decision dominance compares their value in finite decision problems with costly observations. Our main result shows that the two orders coincide and are characterized by coordinatewise dominance of the two directed Kullback--Leibler divergences. Moreover, strict dominance implies eventual strict value dominance in every decision problem in which learning the state can change the optimal action. The key result behind this characterization is an exact simulation theorem: any binary target experiment can be generated from repeated observations of a source experiment with expected sample sizes attaining the two KL lower bounds up to an additive constant that depends only on the source. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.19897 |
| By: | Joshua S. Gans |
| Abstract: | How should regulators combine staged access to a dual-use AI model with developer liability? I model a defender and an adversary searching for the same software flaws. After release, liability induces more defensive search but also makes the adversary search harder, limiting its effect on harm. Exclusive access removes this strategic response, so staged access and liability are complements in protection. Defensive effort rises towards the release date, making additional delay progressively less productive. Optimal evaluation windows are therefore bounded, and their response to greater harm saturates. Because defensive search uses real resources, the efficient liability rate can be below full internalisation of harm. That rate generally cannot induce the developer to choose the regulator's preferred release date, leaving a distinct role for a timing mandate. |
| JEL: | D74 K13 L51 O33 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35586 |
| By: | Joshua S. Gans |
| Abstract: | AI-generated assessments of manuscripts could improve the quality of peer review, but sharing them with reviewers might decrease the information that editors possess about the manuscript. Human peer reviews add value because reviewers add what the AI assessment reveals. When both reviewers see the same assessment and make similar errors, they can replicate each other’s mistakes, coincidentally investigate related areas, and share the same blind spots. If AI assessment improves the quality of reviewers’ work while they investigate the manuscript, giving the report to only one reviewer can better combine AI assistance with independent, human investigation. If some reviewers already use AI-generated assessments on their own, changing the journal policy to allow sharing the assessment can improve peer review if the change takes some of the burden of investigation off private tools that make similar errors, though giving the assessment to only one reviewer may still outperform giving it to both or neither. Even a report delivered after the reviews are submitted can still shift what reviewers investigate if they know in advance which issues it will check. Journal policy will depend on the AI’s effects on reviewer effort and the questions they investigate, whether reviewers are willing and able to comply with the policy, the monitoring costs, and the journal’s ability to protect the confidentiality of reviewer identities and emails. Journals can evaluate competing policies without knowing the true quality of the manuscripts they review by randomly varying who receives the assessment and then comparing reviewer disagreement across different levels of report sharing. |
| JEL: | D82 D83 L86 O33 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35688 |
| By: | Lapo FILISTRUCCHI,; Alessandro GUAZZINI; Samuele SCARPELLI |
| Abstract: | We build a stylized model of the value chain of an industry in which component suppliers sell their products to manufacturers and the licensor chooses the level of the value chain at which it licenses. We then study whether the licensing level chosen by the licensor affects profits of the firms in different competitive environment of both the component and the product markets. We first show that, contrary to common expectations, in our model the level of the value chain at which the licensee operates does not affect the profits of the firms, the level of the royalty and the price of the final product, irrespective of the degree of competition in the component and product markets. Our results shed some light on the debate, brought to public attention by Daimler v. Nokia and Continental v. Avanci, on the level of the value chain at which licensors of standard essential patents should license. Our findings may also be of guidance for an evaluation of the withdrawn proposal of a Standard Essential Patents Regulation and the recently revised Technology Transfer Block Exemption Regulation in the EU. |
| Keywords: | Standard Essential Patents, Licensing Level, Automotive Industry, SEP regulation, TTBER |
| JEL: | L24 L41 L43 L62 K21 L12 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2026_13.rdf |
| By: | Vravosinos, Orestis; Vives, Xavier |
| Abstract: | The lattice-theoretic approach has had a significant impact in all fields of economics, being progressively incorporated into the standard toolbox. This paper presents a selective survey with an emphasis on basic tools, some important results, and applications in industrial organization, dynamic games, games of incomplete information, and mechanism design. Frontier theoretical research employing lattice-theoretic methods continues to be developed in areas such as mean-field games and information design. |
| JEL: | C62 C72 D01 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19214 |
| By: | Kevin A. Bryan; Joshua S. Gans |
| Abstract: | AI predicts; humans use its predictions to make decisions. These predictions are combined with human verification and analysis, queries to other statistical models, and so on. The economic value of an AI, therefore, depends on how it interacts with the surrounding decision environment. We describe the value of AI as part of this ``composite experiment'' where AI makes a coarse prediction of the state of the world, show what this means for optimal model training via a geometric argument, explain why optimal training can be discontinuous in economic variables, and study how heterogeneous users or monopoly model trainers affect these results. In particular, maximizing the unconditional accuracy of AI predictions is generally suboptimal. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.12538 |