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on Microeconomics |
| By: | Dworczak, Piotr; Smolin, Alex |
| Abstract: | An agent chooses an action using her private information combined with recommendations from an informed but potentially misaligned adviser. With a known alignment probability, the adviser reports his signal truthfully; with remaining probability, the adviser can send an arbitrary message. We characterize the decision rule that maximizes the agent’s worst-case expected payoff. Every optimal rule admits a trust region representation in belief space: advice is taken at face value when it induces a posterior within the trust region; otherwise, the agent acts as if the posterior were on the trust region’s boundary. We derive thresholds on the alignment probability above which the adviser’s presence strictly benefits the agent and fully characterize the solution in binary-state as well as binary-action environments. |
| Keywords: | information design; misalignment; human-AI interactions |
| JEL: | C72 D81 D83 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131429 |
| By: | Itai Arieli (Technion: Israel Institute of Technology, University of Toronto); Yakov Babichenko (Technion: Israel Institute of Technology); Atulya Jain (ajain@uni-bonn.de); Rann Smorodinsky (Technion: Israel Institute of Technology) |
| Abstract: | We study games with incomplete information and characterize when a feasible outcome is Pareto efficient. Outcomes with excessive randomization are inefficient: generically, the total number of action profiles across states must be strictly less than the sum of the number of players and the number of states. We consider three applications. A cheap talk outcome is efficient only if pure; with state-independent sender payoffs, it is efficient if and only if the sender’s most preferred action is induced with certainty. In natural settings, Bayesian persuasion outcomes are inefficient across many priors. Finally, ranking-based allocation mechanisms are inefficient under mild conditions. |
| Keywords: | Pareto efficiency, Incomplete information, Cheap talk, Bayesian persuasion |
| JEL: | C72 D82 D83 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:390 |
| By: | Lukyanov, Georgy; Safaryan, Samuel |
| Abstract: | We study public persuasion when a sender communicates with a large audience that can fact-check at heterogeneous costs. The sender commits to a public information policy before the state is realized, but any verifiable claim she makes after observing the state must be truthful (an ex-post implementability constraint). Receivers observe the public message and then decide whether to verify; this selective verification feeds back into the sender’s objective and turns the design problem into a constrained version of Bayesian persuasion. Our main result is a reverse comparative static: when factchecking becomes cheaper in the population, the sender optimally supplies a strictly less informative public signal. Intuitively, cheaper verification makes bold claims invite scrutiny, so the sender coarsens information to dampen the incentive to verify. We also endogenize two ex-post instruments—continuous falsification and fixed-cost repression—and characterize threshold substitutions from persuasion to manipulation and, ultimately, to repression as monitoring improves. The framework provides testable predictions for how transparency, manipulation, and repression co-move with changes in verification technology. |
| Keywords: | Bayesian persuasion; information design; verifiable evidence; costly verification;; public signals; Blackwell informativeness; falsification; repression |
| JEL: | D72 D82 D84 L14 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131438 |
| By: | Lukyanov, Georgy; Vlasova, Anna |
| Abstract: | We develop a tractable career–concerns model of expert recommendations with a continuous private signal. In equilibrium, advice obeys a cutoff rule: the expert recommends the risky option if and only if the signal exceeds a threshold. Under a mild relative–diagnosticity condition, the threshold is (weakly) increasing in reputation, yielding reputational conservatism. Signal informativeness and success priors lower the cutoff, while stronger career concerns raise it. A success–contingent bonus implements any target experimentation rate via a one–to–one mapping, providing an implementable design lever. |
| JEL: | D82 D83 C72 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131439 |
| By: | Gyarmathy, Andrei; Lukyanov, Georgy |
| Abstract: | Costly pre-play messages can deter unnecessary wars—but the same messages can also entrench stalemates once violence begins. We develop an overlapping-generations model of a security dilemma with persistent group types (normal vs. bad), one-sided private signaling by the current old to the current young, and noisy private memory of the last encounter. We characterize a stationary equilibrium in which, for an intermediate band of signal costs, normal old agents mix on sending a costly reassurance only after an alarming private history; the signal is kept marginally persuasive by endogenous receiver cutoffs and strategic mimicking by bad types. Signaling strictly reduces the hazard of conflict onset; conditional on onset, duration is unchanged in the private model but increases once a small probability of publicity (leaks) creates a public record of failed reconciliation. With publicity, play generically absorbs in a peace trap or a conflict trap. We discuss welfare and policy: when to prefer back-channels versus public pledges. |
| JEL: | D74 D83 C73 C72 D82 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131434 |
| By: | Attar, Andrea; Bozzoli, Lorenzo; Strausz, Roland |
| Abstract: | We revisit the tension between the legal doctrine of renegotiation and economic efficiency. We introduce self-revealing mechanisms that combine bidirectional communication (the agent sends and receives information) with conditional disclosure (communication remains private during renegotiation but becomes verifiable at contract execution). In the canonical Fudenberg and Tirole (1990) framework, we design a self-revealing mechanism that fully mitigates the renegotiation threat by uniquely implementing the second-best allocation. Thus, the construction achieves the full-commitment outcome while satisfying renegotiation-proofness. Our optimal mechanism is structurally simple, and exploits signal disclosures to the agent to construct incentive-compatible off-path punishments, which she activates after observing a renegotiation offer. It verifies standard commitment assumptions by only conditioning decisions on public information, without requiring any third-party enforcement. In practical terms, it can be implemented with existing smart-contract techniques. Our results extend to general settings of renegotiation. |
| JEL: | D43 D82 D86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131430 |
| By: | Federico Fioravanti; Zoi Terzopoulou |
| Abstract: | This work contributes to a foundational question in economic theory: how do individual-level cognitive biases interact with collective choice mechanisms? We study a setting where voters hold intrinsic preference rankings over a set of alternatives but cast approval ballots to determine the collective outcome. The ballots are shaped by an anchoring bias: alternatives are presented sequentially by a social planner, and a voter approves an alternative if and only if it is acceptable and strictly preferred to all alternatives previously encountered. We first analyze which approval-based voting rules are anchor-proof, in the sense that they always select the same winner regardless of the presentation order. We show that this requirement is extremely demanding: only very restrictive rules satisfy it. We then turn to the potential influence of the social planner. On the upside, when the planner has no information about the voters' intrinsic preferences, she cannot manipulate the outcome. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.04494 |
| By: | Afonso Rodrigues |
| Abstract: | This paper develops a linear-demand framework to investigate endogenous product design. The key assumption is that the same product characteristics which drive goods utility also (at least partially) shape competitive interactions across products. I model this relationship allowing for differences in each characteristic's relevance to competition, their absolute intensity per good, and correlations to other characteristics. The framework is novel in its broad applicability to settings with any finite number of goods, firms, and attributes, allowing for both vertical and horizontal differentiation, all in an empirically testable model. Under Bertrand price competition I show that across different market structures, a pattern emerges: product differentiation along product attributes that firms control is primarily vertical, with horizontal differentiation only in latent attributes. Counter to standard intuition, simulations show that allowing for endogenous design can imply higher consumer surplus under monopoly than under competition, as monopoly's stronger incentives for attribute investment translate into higher effective quality. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.02833 |
| By: | Lukyanov, Georgy; Makhmudova, Anastasia |
| Abstract: | We study a regime change game in which the state and an opposition leader both observe the regime’s true strength and may engage in costly communication by manipulating the mean of citizens’ private signals. Each citizen then decides whether to attack the regime. From the perspective of both the state and the opposition, the size of the attack is uncertain, as the number of committed partisans—those who always attack regardless of their signal—is not observed in advance. We show that a regime on the brink of collapse optimally refrains from propaganda, while the opposition engages in counter-propaganda. The equilibrium level of counter-propaganda increases with the opposition’s benefit-cost ratio and with the precision of citizens’ private signals, and decreases with the cost of attacking. |
| Keywords: | Global games, Signalling, Policymaker, Information asymmetry, Coordinated attack, Regime change |
| JEL: | D82 D84 E58 F31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131436 |
| By: | Krishna Dasaratha; Anant Shah |
| Abstract: | Consider a network game with linear best responses and spillovers between players, and let agents endogenously choose their links. A planner considers interventions to subsidize actions and/or links between players, aiming to maximize a welfare function depending on equilibrium actions. The structure of the optimal intervention depends on whether links provide non-negative intrinsic value to agents. When they do, it is optimal to focus only on subsidizing actions. When the intrinsic value of links is negative, we give conditions for including link subsidies to be optimal. This reverses the basic structure of the optimal intervention in settings with exogenous links. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12897 |
| By: | Yutong Zhang |
| Abstract: | I introduce and study a nested search problem modeled as a tree structure that generalizes Weitzman (1979) in two ways: (1) search progresses incrementally, reflecting real-life scenarios where agents gradually acquire information about the prizes; and (2) the realization of prizes can be correlated, capturing similarities among them. I derive the optimal policy, which takes the form of an index solution. I apply this result to study monopolistic competition in a market with two stages of product inspection. My application illustrates that regulations on drip pricing lower equilibrium price and raise consumer surplus. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.03720 |
| By: | Christopher Stapenhurst (Brandenburg University of Technology); Andrew Clausen (School of Economics, University of Edinburgh) |
| Abstract: | Corruption requires a coalition to form and reach an agreement. Is there a cheap way to stop any agreement from being reached? We find an optimal mechanism that resembles Poker. The players’ hands are synthetic asymmetric information, and they create a lemons problem in the market for bribes. Our Poker mechanism is robust: it thwarts bribes regardless of the negotiation procedure, including alternating offers bargaining, Dutch auctions and arbitration. In compliance settings, there is a trade-off between rewarding the agent for honesty and punishing him for non-compliance. This trade-off is resolved by rigging the Poker hand distribution against the agent and in favour of the monitor. Finally, the cost of deterring bribes is inversely proportional to the number of monitors. |
| Keywords: | Corruption, adverse selection, screening, mechanism design, information design. |
| JEL: | D73 D82 D86 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:edn:esedps:326 |
| By: | Clara Ponsati; Jan Zapal |
| Abstract: | A finite group of voters must elect the pope from a finite set of candidates. They repeatedly cast ballots (possibly for ever) until one candidate attains at least Q votes. A candidate is electable—if enough voters prefer him to a continuous disagreement—as well as stable—if no other candidate is preferred to him by a sufficient number of voters. We provide a necessary and sufficient condition for the existence of a candidate that is both electable and stable. When there are three candidates and voters are willing to compromise somewhat, the condition requires choice by two-thirds supermajority, which coincides with the procedure that the Catholic Church has used to appoint the pope for almost a millennium. |
| Keywords: | repeated ballots, conclave, pope, electable, stable, supermajority |
| JEL: | D71 D72 Z12 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cer:papers:wp815 |
| By: | Christopher Kops; Elias Tsakas |
| Abstract: | This paper proposes a model of choice via agentic artificial intelligence (AI). A key feature is that the AI may misinterpret a menu before recommending what to choose. A single acyclicity condition guarantees that there is a monotonic interpretation and a strict preference relation that together rationalize the AI's recommendations. Since this preference is in general not unique, there is no safeguard against it misaligning with that of a decision maker. What enables the verification of such AI alignment is interpretations satisfying double monotonicity. Indeed, double monotonicity ensures full identifiability and internal consistency. But, an additional idempotence property is required to guarantee that recommendations are fully rational and remain grounded within the original feasible set. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.04526 |
| By: | Pietro Dall'Ara; Elia Sartori |
| Abstract: | A defining feature of digital goods is that replication and degradation are costless: once a high-quality good is produced, low-quality versions can be created and distributed at no additional cost. This paper studies quality-based screening in markets for digital goods, exploring how the insights of the canonical model of Mussa and Rosen (1978) change when production costs are nonseparable and, instead, depend only on the highest quality developed. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency arises: the monopolist underinvests in the highest quality relative to the efficiency benchmark. Second, due to a distributional inefficiency, certain buyers receive degraded versions of the produced good. Competition exacerbates productive inefficiency, but improves distributional efficiency relative to monopoly. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.13014 |
| By: | Tom Hutchcroft; Olga Rospuskova; Omer Tamuz |
| Abstract: | We study agents playing a pure coordination game on a large social network. Agents are restricted to coordinate locally, without access to a global communication device, and so different regions of the network will converge to different actions, precluding perfect coordination. We show that the extent of this inefficiency depends on the network geometry: on some networks, near-perfect efficiency is achievable, while on others welfare is strictly bounded away from the optimum. We provide a geometric condition on the network structure that characterizes when near-efficiency is attainable. On networks in which it is unattainable, our results more generally preclude high correlations between outcomes in a large spectrum of dynamic games. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12571 |
| By: | Daeyoung Jeong (Yonsei University); Jeong Yeol Kim (KDI School of Public Policy and Management) |
| Abstract: | We study cartel detection when two public authorities operate separate leniency programs within the same jurisdiction, as in Korea. We develop a simple repeated-game model to compare single-agency enforcement with dual-agency enforcement, to distinguish independent operation from cooperation, and to examine how the structure of leniency relief affects reporting incentives. When the two programs operate independently and do not recognize each other's leniency status, firms may have weaker incentives to self-report, and reporting can become concentrated in only one program. Cooperation that recognizes leniency rank across authorities restores a race to report and can make self-reporting attractive under a broader range of enforcement environments. The analysis also shows that cooperation is most reliable when early applicants receive comparable treatment across authorities: when second-in-line relief is available only in the administrative program, stronger criminal exposure can reduce the effectiveness of cooperation by raising the residual risk borne by non-first applicants. The policy implication is that effective dual-agency leniency can be achieved through a narrow form of coordination that verifies marker status and aligns the relief structure across authorities while preserving confidentiality. |
| Keywords: | Antitrust, Cartel Detection, Collusion, Dual-agency Enforcement, Leniency Program |
| JEL: | K21 K42 L41 L44 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-276 |
| By: | Alexandre Chirat (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]); Cyril Hédoin (REGARDS - Recherches en Économie Gestion AgroRessources Durabilité Santé- EA 6292 - URCA - Université de Reims Champagne-Ardenne - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne, CRIEG - Centre de Recherche Interdisciplinaire Economie Gestion - MSH-URCA - Maison des Sciences Humaines de Champagne-Ardenne - URCA - Université de Reims Champagne-Ardenne) |
| Abstract: | This paper deduces conditions under which populism successfully emerges in democratic contexts. Building on Downs's economic theory of democracy, it hinges on three assumptions: uncertainty, rationality, and democratic stability. This theory considers three main types of agents: citizens, political parties, and information providers. We demonstrate that the necessary and sufficient conditions for a populist party to emerge and gain significant electoral support are 1) a political disequilibrium between demand (citizens' preferences) and supply (parties' platforms) combined with 2) democratic instability due to ideological polarization. Such conditions provide the rationale behind populist anti-elitism and its thin nature as an ideology. Since this paper provides a theoretical account of populism that, while sharing Downsian roots, differs from main political economy models of populism, we provide a systematic comparison. In particular, we show that the conditions under which the Median Voter Theorem is relevant are at odds with the conditions required to account for populism. |
| Keywords: | Populism -Uncertainty -Rationality -Public interest -democratic stability |
| Date: | 2025–11–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05414427 |
| By: | Johannes Loh (VU - Vrije Universiteit Amsterdam [Amsterdam]); Ambre Elsas-Nicolle (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique, Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres) |
| Abstract: | We study how the entry of a rival platform affects the strategies of the incumbent's complementors. The latter face a trade-off: While the entry threatens their benefits from indirect network effects, it also allows them to escape intense within-platform competition. Studying Epic Games' entry into the PC video game market - until then dominated by Steam - we show that this trade-off does not resolve uniformly, driving heterogeneity in strategic reactions. Complementors with weaker strategic resources (independent developers) were more likely to multihome and became less responsive to the incumbent's attempts to orchestrate collective action through platform-wide sales promotions. In contrast, complementors more reliant on indirect network effects (multiplayer developers) were less likely to multihome and became more responsive to orchestration attempts. |
| Keywords: | Platform competition, Complementors, Multihoming, Ecosystem orchestration, Market entry |
| Date: | 2026–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05358065 |
| By: | Eric Rémila (UJM - Université Jean Monnet (EPSCPE)); Philippe Solal (UJM - Université Jean Monnet (EPSCPE)); Zoi Terzopoulou (UJM - Université Jean Monnet (EPSCPE)) |
| Abstract: | Various occasions require that an individual ranks others in her environment based on how these others rank her; consider a company that seeks an employee who values her back, and a student that works better with a professor who also appreciates her strengths. We introduce a formal framework for the ranking of rankings. A set of objects are weakly ranked by a set of items, and a given object (e.g., the company or the student) must obtain a weak ranking of the items (e.g., all employees or all professors) that depends on their provided rankings of the objects. To conduct an axiomatic analysis of this setting, we propose several normative properties that apply to solutions for the ranking of rankings. Our axioms are inspired by analogous properties in the fields of decision and social choice theory, such as anonymity, monotonicity, and independence. By considering combinations of different axioms, we characterise natural families of solutions, as well as unique solutions therein: lexicographic solutions, and a scoring one. |
| Date: | 2025–05–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05395399 |