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on Microeconomics |
| By: | Philippe Choné; Laurent Linnemer |
| Abstract: | Sellers face a critical choice: run competitive auctions or strike exclusive deals with preferred buyers. Contrary to conventional wisdom that sellers should rely on open competition, we show that a powerful seller optimally commits to a sequential `flexclusivity' arrangement - a strategic mix of exclusivity and competitive bidding. Under broad conditions, the seller chooses with positive probability to disregard alternative buyers entirely. We demonstrate, in a parsimonious model, that simple option contracts implement flexclusivity efficiently, increasing the expected joint profit of the contracting parties. When a preferred buyer declines the option, this credibly signals his weakness, allowing the seller to extract more rent from stronger buyers in subsequent auctions. The joint gain from such arrangements can represent as much as 75% of what vertical integration would achieve, without requiring commitment beyond the initial contracting stage. |
| Keywords: | selling mechanism, exclusivity, revenue-maximizing auction, option contract, vertical integration |
| JEL: | D44 D82 D86 L22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12134 |
| By: | Kohei Daido (Kwansei Gakuin University); Tomoya Tajika (Nihon University) |
| Abstract: | We study mechanism design under auditable fairness mandates that constrain only the formal rule while allowing off-record private communication between the principal and agents. We model a two-layer environment: a formal rule that maps agents' reports to outcomes and must satisfy the mandate, and private advice in which the principal can provide type-contingent recommendations. We construct a format-preserving randomized encryption (FPRE): the principal randomizes over symmetry-constrained rules and pairs each realization with ''password''-like advice. Under FPRE, any Bayesian incentive-compatible social choice function (SCF) is implementable by symmetric formal rules; if the SCF is dominant-strategy incentive-compatible (DSIC), the resulting mechanism achieves DSIC. In contrast, constraints that embed predictable structures-such as strict monotonicity and continuity-cannot be neutralized. We also present an approximate version: continuity is compatible with it. Our results highlight a regulatory-scope insight: if auditors can verify only the format of the rule, format-type fairness does not bind, whereas structure-revealing mandates (i.e., strict monotonicity and continuity) hinder the ''encryption'' that sustains obedience to private advice. |
| Keywords: | mechanism design, symmetry, fairness, implementation, private communication, randomized encryption, dominant strategies, continuous rules |
| JEL: | C72 D82 D86 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:299 |
| By: | Siwen Liu |
| Abstract: | We study a moral hazard problem with adverse selection: a risk-neutral agent can directly control the output distribution and possess private information about the production environment. The principal designs a menu of contracts satisfying limited liability. Deviating from classical models, not only can the principal motivate the agent to exert certain levels of aggregate efforts by designing the "power" of the contracts, but she can also regulate the support of the chosen output distributions by designing the "range" of the contract. We show that it is either optimal for the principal to provide a single full-range contract, or the optimal low-type contract range excludes some high outputs, or the optimal high-type contract range excludes some low outputs. We provide sufficient and necessary conditions on when a single full-range contract is optimal under convex effort functions, and show that this condition is also sufficient with general effort functions. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.23954 |
| By: | Hongcheng Li |
| Abstract: | This paper studies contracting in the presence of externalities with a non-contractible outsider. Multiple equilibria arise from strategic symmetry between the insider agent and the outsider. To address strategic uncertainty, the principal guarantees their actions in a unique equilibrium. A novel duality approach reformulates her problem as a series of problems in which she selects agent expectations. The key constraint is that the principal cannot convince the agent to expect non-guaranteed response from the outsider. Due to strategic rents, the principal optimally induces attenuated agent incentives. With completely symmetric strategic dependence, her coordination and commitment power become perfect substitutes; in addition, public contracting can strictly decrease her surplus compared to private contracting, in sharp contrast with the case where she ignores robustness. Applications include regulating international competition, platform design, and labor union contracting. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.06267 |
| By: | Jacopo Bizzotto; Nathan Hancart |
| Abstract: | We study cheap talk with simple language, where the sender communicates using a score that aggregates a multidimensional state. Both the sender and the receiver share the same payoffs, given by a quadratic loss function. We show that the restriction to scores introduces strategic considerations. First, equilibrium payoffs can be strictly lower than those achievable under commitment to a scoring rule. Second, we prove that any equilibrium score must be either linear or discrete. Finally, assuming normally distributed states, we fully characterize the set of equilibrium linear scores, which includes both the ex-ante best and the worst linear scores. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.09621 |
| By: | Yutaro Akita; Kensei Nakamura |
| Abstract: | We provide a model of preferences over lotteries of acts in which a decision maker behaves as if optimally filtering her ambiguity perception. She has a set of plausible ambiguity perceptions and a cost function over them, and chooses multiple priors to maximize the minimum expected utility minus the cost. We characterize the model by axioms on attitude toward randomization and its timing, uniquely identify the filtering cost from observable data, and conduct several comparatives. Our model can explain Machina's (2009) two paradoxes, which are incompatible with many standard ambiguity models. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.05076 |
| By: | Kota Murayama |
| Abstract: | This paper studies how payoff heterogeneity affects the value of information in beauty contest games. I show that public information is detrimental to welfare if and only if agents' Katz-Bonacich centralities exhibit specific forms of heterogeneity, stemming from the network of coordination motives. A key insight is that agents may value the commonality of information so differently that some are harmed by their neighbors knowing what others know. Leveraging this insight, I also show that when the commonality of information is endogenously determined through information sharing, the equilibrium degree of information sharing can be inefficiently low, even without sharing costs. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.17660 |
| By: | Pau Balart (Universitat de les Illes Balears); Agustín Casas (Universidad CUNEF); Gerard Doménech-Gironell (University of Padova); Orestis Troumpounis (Ca Foscari University of Venice) |
| Abstract: | This paper develops a formal model of electoral competition in which parties first choose their platforms and then allocate campaign resources that serve both persuasive and mobilization purposes. Voters, in turn, endogenously sort into ideological and impressionable types. We characterize a unique subgame perfect equilibrium and derive comparative statics that illustrate how the returns to mobilization and persuasion shape equilibrium platforms, campaign spending, and turnout. Among other results, we show that while campaign spending and polarization do not necessarily move in the same direction, turnout consistently increases with polarization. |
| Keywords: | electoral competition, campaign spending, polarization, mobilization |
| JEL: | D72 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:371 |
| By: | H\'ector Hermida-Rivera |
| Abstract: | This note shows that under the unrestricted domain, there exists a choice liberal and Nash implementable social choice rule if and only if there are at least three players and the outcome set is at least twice as large as the player set. A social choice rule is choice liberal if and only if for every player, there exists at least one pair of outcomes such that if this player strictly prefers one over the other, the one he prefers is socially desirable and the other one is not. A social choice rule is Nash implementable if and only if there exists a mechanism such that at every preference profile, the set of Nash equilibrium outcomes coincides with the set of socially desirable ones. The proof constructs an intuitive Nash implementing mechanism. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.16059 |
| By: | Sebastian Schweighofer-Kodritsch; Steffen Huck; Macartan Humphreys |
| Abstract: | We introduce political salience into a canonical model of attacks against political regimes, as scaling agents’ expressive payoffs from taking sides. Equilibrium balances heterogeneous expressive concerns with material bandwagoning incentives. We examine comparative statics in salience that fully characterize the stability of equilibria. A main insight is that when regime sanctions are weak, increases from low to middling salience can pose the greatest threat to regimes – even very small shocks can suffice to drastically escalate attacks. Our results speak to the charged debates about democracy, by identifying conditions under which heightened interest in political decision-making can pose a threat to democracy in and of itself. |
| Keywords: | political conflict, salience, democracy, sanctions |
| JEL: | C72 D74 D91 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12116 |
| By: | Philipp Strack; Kai Hao Yang |
| Abstract: | A monopolist offers personalized prices to consumers with unit demand, heterogeneous values, and idiosyncratic costs, who differ in a protected characteristic, such as race or gender. The seller is subject to a non-discrimination constraint: consumers with the same cost, but different characteristics must face identical prices. Such constraints arise in regulated markets like credit or insurance. The setting reduces to an optimal transport, and we characterize the optimal pricing rule. Under this rule, consumers may retain surplus, and either group may benefit. Strengthening the constraint to cover transaction prices redistributes surplus, harming the low-value group and benefiting the high-value group. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.20925 |
| By: | Georgy Lukyanov; David Li |
| Abstract: | This paper studies a two-player game in which the players face uncertainty regarding the nature of their partner. In this variation of the standard Prisoner's Dilemma, players may encounter an 'honest' type who always cooperates. Mistreating such a player imposes a moral cost on the defector. This situation creates a trade-off, resolved in favor of cooperation if the player's trust level, or belief in their partner's honesty, is sufficiently high. We investigate whether an environment where players have explicit beliefs about each other's honesty is more or less conducive to cooperation, compared to a scenario where players are entirely uncertain about their partner's beliefs. We establish that belief diversity hampers cooperation in environments where the level of trust is relatively low and boosts cooperation in environments with a high level of trust. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.08851 |
| By: | Christian Basteck |
| Abstract: | We study the problem of assigning indivisible objects to agents where each is to receive at most one. To ensure fairness in the absence of monetary compensation, we consider random assignments. Random Priority, also known as Random Serial Dictatorship, is characterized by equal-treatment-of-equals, ex-post efficiency and probabilistic (Maskin) monotonicity -- whenever preferences change so that a given deterministic assignment is ranked weakly higher by all agents, the probability of that assignment arising should be weakly larger. Probabilistic monotonicity implies strategy-proofness (in a stochastic dominance sense) for random assignment problems and is equivalent to it on the universal domain of strict preferences; for deterministic rules it coincides with Maskin monotonicity. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.17997 |
| By: | Nikhil Kumar |
| Abstract: | This paper presents a social learning model where the network structure is endogenously determined by signal precision and dimension choices. Agents not only choose the precision of their signals and what dimension of the state to learn about, but these decisions directly determine the underlying network structure on which social learning occurs. We show that under a fixed network structure, the optimal precision choice is sublinear in the agent's stationary influence in the network, and this individually optimal choice is worse than the socially optimal choice by a factor of $n^{1/3}$. Under a dynamic network structure, we specify the network by defining a kernel distance between agents, which then determines how much weight agents place on one another. Agents choose dimensions to learn about such that their choice minimizes the squared sum of influences of all agents: a network with equally distributed influence across agents is ideal. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.00249 |
| By: | Cole Wittbrodt |
| Abstract: | In finite-horizon bargaining, deals are often made "on the courthouse steps", just before the deadline. Most classic finite-horizon bargaining models fail to generate deadline effects, or even delay, in equilibrium. Players foresee the future path of play, and come to a deal immediately to circumvent bargaining frictions. We propose a novel source of bargaining delay: absentmindedness. A bargainer who does not know the calendar time may rationally reject an "ultimatum offer" as the trade deadline looms. Rational confusion is a source of bargaining power for the absentminded player, as it induces the other party to make fair offers near the trade deadline to prevent negotiations from breaking down. The absentminded party may reject greedier offers in hope of receiving a fair offer closer to the deadline. If any offer is feasible, there are equilibria which feature delay if and only if players are patient. Such equilibria always involve history-dependent strategies. I provide a necessary and sufficient condition for there to exist a Markov perfect equilibrium with delay: the space of feasible offers must be sufficiently disconnected. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.05828 |
| By: | Pierfrancesco Guarino; Gabriel Ziegler |
| Abstract: | We introduce and formalize misalignment, a phenomenon of interactive environments perceived from an analyst's perspective where an agent holds beliefs about another agent's beliefs that do not correspond to the actual beliefs of the latter. We demonstrate that standard frameworks, such as type structures, fail to capture misalignment, necessitating new tools to analyze this phenomenon. To this end, we characterize misalignment through non-belief-closed state spaces and introduce agent-dependent type structures, which provide a flexible tool to understand the varying degrees of misalignment. Furthermore, we establish that appropriately adapted modal operators on agent-dependent type structures behave consistently with standard properties, enabling us to explore the implications of misalignment for interactive reasoning. Finally, we show how speculative trade can arise under misalignment, even when imposing the corresponding assumptions that rule out such trades in standard environments. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.17176 |
| By: | Pietro Salmanso; Bernardo Moreno; Dolors Berga |
| Abstract: | We consider a society composed of a finite set of agents with preferences over a finite set of alternatives. We focus on collective choice correspondences which are rules assigning to each pair formed by agents' preferences and a subset of alternatives (an agenda), a chosen subset of the agenda. Our analysis centers on three properties: neutrality, strong pairwise justifiability, and strong decisiveness. Neutrality requires that no alternative is intrinsically favored over another. Strong pairwise justifiability demands that if an alternative x is selected in one situation but not in another, there must exist some other alternative z , present in both agendas, whose relative ranking with respect to x has improved for at least one agent. Strong decisiveness is a property that can be viewed as a particular type of resoluteness. Our main result establishes that serial dictatorships are the only collective choice correspondences defined on the universal domain and across all agendas satisfying neutrality, strong pairwise justifiability, and strong decisiveness. |
| Keywords: | collective choice correspondences, neutrality, serial dictators |
| JEL: | D70 D71 D78 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1508 |
| By: | Eduardo Azevedo; Ilan Wolff |
| Abstract: | The first-order approach (FOA) is the main tool for the moral hazard principal-agent problem. Although many existing results rely on the FOA, its validity has been established only under relatively restrictive assumptions. We demonstrate in examples that the FOA frequently fails when the agent's reservation utility is low (such as in principal-optimal contracts). However, the FOA broadly holds when the agent's reservation utility is at least moderately high (such as in competitive settings where agents receive high rents). Our main theorem formalizes this point. The theorem shows that the FOA is valid in a standard limited liability model when the agent's reservation utility is sufficiently high. The theorem also establishes existence and uniqueness of the optimal contract. We use the theorem to derive tractable optimal contracts across several settings. Under log utility, option contracts are optimal for numerous common output distributions (including Gaussian, exponential, binomial, Gamma, and Laplace). |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.18873 |
| By: | Georgy Lukyanov; Anastasia Makhmudova |
| 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. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.04749 |
| By: | Georgy Lukyanov; David Li |
| Abstract: | This paper studies an infinite-horizon framework in which two large populations of players are randomly matched to play a Prisoner's Dilemma. Each player lives for two consecutive periods: as a young player from one group, and then as an old player in the other group. Each population has a known fraction of honest types - individuals who always cooperate unless paired with a player who has been observed to defect against a cooperating partner in the past. Because such defections (i.e., breakdowns of trust) are publicly observed, any defector risks carrying a stigma into future interactions. We show that when the benefits from defection are sufficiently large, there exists an equilibrium in which an increase in the fraction of honest types can reduce the likelihood of cooperation. Moreover, we demonstrate that introducing imperfect public memory - allowing past misdeeds to be probabilistically "cleared" - does not enhance cooperation. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.04748 |
| By: | Toygar T. Kerman; Anastas P. Tenev; Konstantin Zabarnyi |
| Abstract: | We study a Bayesian persuasion setting in which a sender wants to persuade a critical mass of receivers by revealing partial information about the state to them. The homogeneous binary-action receivers are located on a communication network, and each observes the private messages sent to them and their immediate neighbors. We examine how the sender's expected utility varies with increased communication among receivers. We show that for general families of networks, extending the network can strictly benefit the sender. Thus, the sender's gain from persuasion is not monotonic in network density. Moreover, many network extensions can achieve the upper bound on the sender's expected utility among all networks, which corresponds to the payoff in an empty network. This is the case in networks reflecting a clear informational hierarchy (e.g., in global corporations), as well as in decentralized networks in which information originates from multiple sources (e.g., influencers in social media). Finally, we show that a slight modification to the structure of some of these networks precludes the possibility of such beneficial extensions. Overall, our results caution against presuming that more communication necessarily leads to better collective outcomes. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.09099 |
| By: | In\'acio B\'o; Gian Caspari; Manshu Khanna |
| Abstract: | Priority-based allocation of individuals to positions are pervasive, and elimination of justified envy is often, an absolute requirement. This leaves serial dictatorship (SD) as the only rule that avoids justified envy under standard direct mechanisms. What if SD outcomes are undesirable from a designer's perspective? We propose visible fairness, which demands fairness relative to the (potentially purposefully incomplete) preference information the mechanism elicits. Visibly fair mechanisms generalize SD; we fully characterize them and provide necessary and sufficient conditions for strategy-proofness. We show how to apply these results to design strategy-proof visibly fair rules that satisfy a broad class of distributional objectives. Visible fairness, however, results in a new information-efficiency trade-off: meeting distributional goals leads to the avoidance of eliciation of information about preferences that could prevent inefficiencies. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.19176 |
| By: | Georgy Lukyanov; Konstantin Shamruk; Tong Su; Ahmed Wakrim |
| Abstract: | This paper develops a model in which a sender strategically communicates with a group of receivers whose payoffs depend on the sender's information. It is shown that aggregate payoff externalities create an endogenous conflict of interests between the sender and the receivers, rendering full information revelation, in general infeasible. We demonstrate that an exogenous bias in the sender's preferences can improve public information provision and raise welfare. Two applications of the setup are discussed. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.08850 |
| By: | Kohei Daido (Kwansei Gakuin University); Keizo Mizuno (Kwansei Gakuin University) |
| Abstract: | We examine duopolistic competition within a real options framework, where two firms provide horizontally differentiated core goods along with vertically differentiated add-on services. Focusing on consumer savviness regarding the quality of add-on services, we analyze its impact on prices, investment timing, and social welfare. Our analysis yields three main findings. First, the price of a core good with high-quality add-on services is lower (resp. higher) than that of a core good with low-quality add-on services when the proportion of non-savvy consumers in the population is high (resp. low). Second, both firms are incentivized to invest preemptively when the proportion of non-savvy consumers is high or the quality difference in add-on services is small; however, when the proportion of non-savvy consumers is low or the quality gap is significant, only the firm offering high-quality add-on services retains this incentive. Third, as the proportion of non-savvy consumers decreases, the flow of social surplus increases; nonetheless, the overall expected social welfare may decline due to a delay in the follower's investment and a prolonged monopoly duration. This suggests a need for a policy mix that combines consumer protection with the encouragement of market entry. |
| Keywords: | add-on service, consumer savviness, real options, investment timing, delay. |
| JEL: | D90 L22 L24 M21 O31 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:298 |
| By: | Th\`anh Nguyen; Alexander Teytelboym; Shai Vardi |
| Abstract: | Ensuring efficiency and envy-freeness in allocating indivisible goods without money often requires randomization. However, existing combinatorial assignment mechanisms (for applications such as course allocation, food banks, and refugee resettlement) guarantee these properties either ex ante or ex post, but not both. We propose a new class of mechanisms based on Competitive Equilibrium from Random Incomes (CERI): Agents receive random token budgets and select optimal lotteries at competitive prices that clear markets in expectation. Our main insight is to let the CERI price vector guide all ex-post allocations. We show that all ordinally efficient allocations are CERI allocations, which can be implemented as lotteries over near-feasible Pareto-efficient outcomes. With identical budget distributions, CERI allocations are ordinally envy-free; with budget distributions on small supports, ex-post allocations are envy-free up to one good. Moreover, we design an asymptotically efficient implementation of CERI that satisfies a strong new non-manipulability property in large markets. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.13198 |
| By: | Patrick Lederer |
| Abstract: | In this paper, we study voting rules on the interval domain, where the alternatives are arranged according to an externally given strict total order and voters report intervals of this order to indicate the alternatives they support. For this setting, we introduce and characterize the class of position-threshold rules, which compute a collective position of the voters with respect to every alternative and choose the left-most alternative whose collective position exceeds its threshold value. Our characterization of these rules mainly relies on reinforcement, a well-known population consistency condition, and robustness, a new axiom that restricts how the outcome is allowed to change when a voter removes the left-most or right-most alternative from his interval. Moreover, we characterize a generalization of the median rule to the interval domain, which selects the median of the endpoints of the voters' intervals. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.04874 |
| By: | Qing Hu (Kansai University); Tomomichi Mizuno (Kobe University) |
| Abstract: | Even though the welfare-reducing effects of common ownership have been emphasized in the established researches, we challenge this well-known result by considering a model of two symmetric supply chains, each composed of a manufacturer and its firm-specific input supplier. The common ownership exists in the downstream market. We find that if the degree of common ownership is high, the demand for input becomes elastic, intensifying input price competition. Therefore, the consumer and total surpluses will increase with the degree of common ownership. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2521 |