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on Microeconomics |
| By: | Jonas Stein; Shannon Cruz; Davide Grossi; Martina Testori |
| Abstract: | A core tenet underpinning the conception of contemporary information networks, such as social media platforms, is that users should not be constrained in the amount of information they can freely and willingly exchange with one another about a given topic. By means of a computational agent-based model, we show how even in groups of truth-seeking and cooperative agents with perfect information-processing abilities, unconstrained information exchange may lead to detrimental effects on the correctness of the group's beliefs. If unconstrained information exchange can be detrimental even among such idealized agents, it is prudent to assume it can also be so in practice. We therefore argue that constraints on information flow should be carefully considered in the design of communication networks with substantial societal impact, such as social media platforms. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.01838 |
| By: | Thomas Groll; Sharyn O'Halloran |
| Abstract: | We develop a theory of distributive competition under redistricting that explains both electoral outcomes and the equilibrium allocation of policy benefits by endogenizing voter pivotality. In a multi-district model with primaries, general elections, and group-targeted transfers, districting shapes political influence through two channels: a selection channel for descriptive representation (who wins office) and a competition channel for substantive representation (who receives policy benefits). District composition alters candidate matchups, shifting voter responsiveness and political leverage, and each channel alone yields distinct predictions about whether packing or cracking voters is optimal. For minority voters, the welfare effects of districting depend on electoral leverage, preferences over descriptive versus partisan representation, primary rules, and competitiveness. The channels align on packing when minorities are electorally weak and value descriptive representation, and align on cracking when minorities are electorally pivotal and prioritize partisan outcomes. When the channels diverge, or when endogenous feedback reshapes electoral leverage, minority welfare can be nonmonotonic in voter concentration. Our results identify when majority-minority districts enhance minority welfare and when dispersion strengthens political influence. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.01340 |
| By: | Yassine Lefouili (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse); Leonardo Madio (University of Padova, Padova, Italy.) |
| Abstract: | In this paper, we review recent studies on the impact of mergers on investments. We begin by examining how mergers among competing incumbents inf luence firms' incentives to develop new products and undertake cost-reducing or quality-enhancing investment. We then analyze how an incumbent's acquisition of an innovative entrant affects the investment incentives of both parties. Next, we discuss the effects of vertical mergers on the investment decisions of both upstream and downstream firms. Finally, we highlight several policy-relevant insights from the literature and suggest directions for future research. |
| Keywords: | Entry, Mergers, Innovation, Investment, Competition |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05543677 |
| By: | Eric Yan |
| Abstract: | High-stakes auctions are often preceded by nonbinding communication between bidders and the seller. Motivated by these practices, this paper examines a two-period model in which two bidders send private cheap talk messages to the seller about their valuations, and the seller decides in the second period whether to run a mechanism or take an outside option that disappears if she chooses to run the auction. The seller has commitment within any mechanism she chooses to run, but no commitment over how she uses any information communicated. Despite having potentially asymmetric posteriors after the communication stage, the seller cannot run discriminatory auctions in equilibrium. Under some natural restrictions, any bidder-symmetric perfect Bayesian equilibrium of this model is a threshold equilibrium where the seller runs a second-price auction with a single reserve if and only if both bidders are above the threshold. The seller is better off being able to commit to the restricted class of mechanisms where she must choose a single reserve price. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17733 |
| By: | Nicholas Wu |
| Abstract: | This paper studies how uncertainty about problem difficulty shapes problem-solving strategies. I develop a dynamic model where an agent solves a problem by brainstorming approaches of unknown quality and allocating a fixed effort budget among them. Success arrives from spending effort pursuing good approaches, at a rate determined by the unknown problem difficulty. The agent balances costly exploration (expanding the set of approaches) with exploitation (pursuing existing approaches). Failures could signal either a bad idea or a hard problem, and this uncertainty generates novel dynamics: optimal search alternates between trying new approaches and revisiting previously abandoned ones. I then examine a principal-agent environment, where moral hazard arises on the intensive margin: how the agent explores. Dynamic commitment leads contracts to frontload incentives, which can be counteracted by the presence of learning. The framework reflects scientific discovery, product development, and other creative work, providing insights into innovation and organizational design. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.00156 |
| By: | Parikshit De; Abinash Panda; Anup Pramanik |
| Abstract: | We study a public decision problem in which a finite society selects a public-good level from a closed interval. Agents either have single-peaked preferences or are completely indifferent over the interval; the latter capture abstention or a "none of the above" stance within the decision process. We study this augmented single-peaked domain. On this domain, we characterize the class of rules called target rules with a default. We show that onto-ness and pairwise strategy-proofness characterize this class of rules. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17772 |
| By: | Murat Erkurt; Emre Ozdenoren |
| Abstract: | We study contests in which players sequentially search for a high score at a cost per draw, with unlimited opportunities, no recall, and the best score wins a prize. In the unique symmetric equilibrium, the acceptance probability depends only on the number of players, the cost, and the prize, not on the distribution, and total expenditure equals the prize. These properties extend to multiple prizes and hierarchical team competition. Efficiency relative to a planner is determined by the hazard rate of the distribution. With a finite horizon, a selectivity effect can dominate the discouragement effect when search costs are low. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.20683 |
| By: | Sampat, Khushi (University of Warwick) |
| Abstract: | This paper studies how decentralised neural agents trained by regret minimisation learn equilibrium behaviour in static games and whether such learning can be extended beyond Nash equilibria. The analysis proceeds in two parts. The first chapter examines equilibrium selection in coordination games with multiple Nash equilibria. Building on recent evidence that neural agents trained across large distributions of games systematically favour risk-dominant equilibria, the chapter introduces a structured pre-training curriculum designed to instil a bias toward payoffdominant outcomes in Stag Hunt environments. While pre-training successfully induces effcient coordination in these games, the results show that this bias is rapidly eroded under subsequent adversarial training on heterogeneous games, where play reverts to mixed or risk-sensitive equilibria. The second chapter investigates whether decentralised learners can acquire correlated equilibrium behaviour when coordination requires conditioning on private signals. Initial experiments demonstrate that standard personal regret objectives lead agents to ignore mediator signals and converge to unconditional Nash strategies. This limitation is overcome by replacing personal regret with a squared obedience (swap) regret objective. Under this modified objective, neural agents successfully learn signal-contingent behaviour and generalise correlated equilibrium strategies to unseen coordination games. Together, the findings clarify the capabilities and limitations of regret-based learning as a mechanism for equilibrium formation in strategic environments. |
| Keywords: | Correlated Equilibrium ; Regret Minimisation ; Deep Reinforcement ; Learning ; Neural Networks ; Game Theory JEL classifications: C72 ; C63 ; C73 ; D83 ; C61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wrkesp:99 |
| By: | Francesc Dilmé (University of Bonn) |
| Abstract: | We study finite-player normal-form games with compact metric action spaces and bounded measurable payoffs. Our main theorem shows that every Nash equilibrium of such a game can be recovered as the limit, in the product weak topology, of Nash equilibria of finite games obtained by discretizing the action spaces and perturbing payoffs by a uniformly vanishing amount. The proof samples from the target equilibrium, uses concentration inequalities to control weak convergence and incentive constraints on a growing finite set, and then applies a payoff perturbation to convert the resulting approximate equilibrium into an exact one. We also provide an example of a continuous game with a Nash equilibrium that cannot be approximated through Nash equilibria of finite games without perturbing payoffs. |
| Keywords: | Nash equilibria, infinite games, finite approximations |
| JEL: | C72 C62 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:400 |
| By: | Zhonghong Kuang; Sanxi Li; Yi Liu; Yang Yu |
| Abstract: | In light of prevailing data regulations, consumer mobility across diverse markets inherently endogenizes market segmentation. Considering such strategic interactions, we define a market segmentation as strategy-proof when no consumer (with positive measure) has an incentive to deviate to another market. We show that in every strategy-proof market segmentation, the producer surplus remains at the uniform monopoly level, and the consumer surplus is bounded between the buyer-optimal level and the uniform monopoly level. Remarkably, no consumer is worse off than in the case of a uniform monopoly. We also construct a family of strategy-proof segmentations to realize every possible welfare outcome. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.20609 |
| By: | Khaw, Rachel (Monash University) |
| Abstract: | This thesis develops a theoretical model of digital platform competition in which moderation choices endogenously generate ideological differentiation. Competing platforms decide which content providers to host, trading off advertising revenues against moderation costs, while consumers sort by ideological proximity and content variety. In equilibrium, breadth competition cancels out, leaving ideological tilt as the key dimension of differentiation. Polarisation emerges as the most robust equilibrium, maximising platform profits but welfare-reducing for moderates, while generalism is socially optimal but privately fragile. By modelling ideology as the outcome of moderation intensity rather than an exogenous stance, the paper clarifies how moderation incentives shape polarisation, welfare, and regulatory trade-offs. |
| Keywords: | Digital platforms ; content moderation ; ideological differentiation ; polarisation ; welfare ; industrial organisation. JEL classifications: L13 ; L82 ; D43 ; D72 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:wrkesp:98 |
| By: | Zi Yang Kang |
| Abstract: | This paper revisits the classic instrument choice problem in a setting with consumption externalities, through the lens of robust mechanism design. A regulator can implement any incentive-compatible policy but is uncertain about how individual demand is correlated with marginal externalities, and evaluates policies by worst-case welfare. The optimal policy is a quantity control: a floor for positive externalities and a ceiling for negative externalities. If the sign of the correlation is known, a uniform tax or subsidy can be optimal. The framework also applies to regulatory uncertainty and costly screening, providing a welfare-based explanation for the prevalence of non-price policies. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15832 |
| By: | Elchin Suleymanov |
| Abstract: | Human decision makers increasingly delegate choices to AI agents, raising a natural question: does the AI implement the human principal's preferences or pursue its own? To study this question using revealed preference techniques, I introduce the Luce Alignment Model, where the AI's choices are a mixture of two Luce rules, one reflecting the human's preferences and the other the AI's. I show that the AI's alignment (similarity of human and AI preferences) can be generically identified in two settings: the laboratory setting, where both human and AI choices are observed, and the field setting, where only AI choices are observed. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.27868 |
| By: | Varun Bansal; Mihir Bhattacharya; Ojasvi Khare |
| Abstract: | We study the existence of stable matchings when agents have choice correspondences instead of preference relations. We extend the framework of Chambers and Yenmez (2017) by weakening the Path Independence assumption. For many-to-many markets, we show that stable matchings exist when choice correspondences satisfy Substitutability and a new General Acyclicity condition. We provide a constructive proof using a Grow or Discard Algorithm that iteratively expands or eliminates contracts until a strongly maximal Individually Rational set is reached. We provide an algorithm to obtain stable matchings in which rejected contracts are not permanently discarded, distinguishing our approach significantly from standard DAA-type algorithms. For one-to-one markets, we show that Path Independence alone does not guarantee stability. We introduce a replacement-based notion of stability and provide an algorithm that constructs stable matchings when choice correspondences satisfy Binary Acyclicity. JEL classification: C62, C78, D01, D47 Keywords: choice correspondences, substitutability, general acyclicity, many-to-many matching, matching with contracts, Grow or Discard algorithm, replacement stability, binary acyclicity. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.23038 |
| By: | Florian Spitzer; Steffen Huck; Jean-Robert Tyran |
| Abstract: | In markets for experience goods where sellers cannot build reputations, buyers may refrain from purchasing, leading to low efficiency. A product testing institution can mitigate this problem by offering buyers a noisy but informative signal about product quality for a fee before they decide whether to buy. Theory predicts that such testing improves efficiency only when the signal is inexpensive; if the cost is high, it should have no effect. Our experimental results confirm that low-cost signals increase efficiency, although the gains are smaller than expected. Surprisingly, high-cost signals also improve efficiency compared to a control treatment without signals. These findings suggest that institutions predicted to be ineffective by standard theory may nevertheless perform better in practice. |
| Keywords: | experience good, product testing, product quality, signal; experiment |
| JEL: | C73 C91 L15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12568 |
| By: | Noriaki Matsushima (Osaka School of International Public Policy, the University of Osaka); Kazuki Nishikawa (Graduate School of Economics, the University of Osaka); Jiaying Qiu (Graduate School of Economics, the University of Osaka) |
| Abstract: | A binding minimum wage can raise the regulated firm's profits when labor-market power interacts with product-market competition. We develop a duopoly model in which firms compete in the same product market but hire workers from distinct, geographically segmented labor markets. Because the minimum wage applies only to one firm's labor market, it does not directly raise its rival's costs. With monopsony power, the minimum wage reduces the regulated firm's marginal cost and induces it to expand output, forcing its rival to contract through strategic interaction. Under Cournot competition, this mechanism also increases total employment and consumer surplus. |
| Keywords: | Minimum wage, Monopsony power, Segmented labor markets, Product-market competition |
| JEL: | J38 J42 L13 J23 C72 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:osp:wpaper:26e003 |
| By: | Matthew Cashman |
| Abstract: | Societies and organizations often fail to surface latent consensus because individuals fear social censure. A manager might suspect a silent majority would offer a criticism, support a change, report a risk, or endorse a policy -- if only it were safe. Likewise, individuals with beliefs they think are rare and controversial might stay quiet for fear of consequences at work or an online mob. In both cases pluralistic ignorance produces a public discourse misaligned with privately-held beliefs. Social assurance contracts unlock latent consensus, making the public discussion more accurately reflect the underlying distribution of actual beliefs. They are akin to an open letter that publishes only when a stated threshold number of private signatures is reached. If it is not reached, nothing is revealed and no one is exposed. Whereas a single hand raised in dissent might get cut off, a thousand can be raised safely together. I build a formal model and derive rules for choosing the threshold. The mechanism (i) induces participation from those willing to speak if assured of company, resolving the core coordination problem in pluralistic ignorance; (ii) makes the threshold a transparent policy lever -- sponsors can maximize success, maximize public-coalition revelation, or hit a desired success probability; and (iii) turns success into information: meeting the threshold publicly reveals hidden agreement and can widen the range of views that can be expressed in public. I consider robustness to mistrust, organized opposition, and network structure, and outline low-trust implementations like cryptographic escrow. Applications include employee voice, safety and compliance, whistleblowing, and civic expression. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.00874 |
| By: | S. Viswanathan; Hao Xing |
| Abstract: | We study an information acquisition problem in which an informed trader acquires costly information prior to trading in the Kyle equilibrium. The cost of information acquisition is represented by an entropy cost. Regardless of the prior distribution of the asset payoff, continuous signals are optimal. Moreover, any continuously distributed signal, together with an associated logit type posterior distribution of the payoff, yields the same ex-ante value for the informed trader, the same distribution of posterior expected payoff, and the same unconditional distribution of the informed trader's trading strategy. Consequently, a normally distributed signal can be adopted without loss of generality. We further show that when the information acquisition cost increases or the volatility of noise trades decreases, the variance of the posterior expected payoff declines, the profit potential from trading diminishes, meanwhile the posterior expected payoff increasingly resembles a normal distribution, and the information leakage cost from trading decreases. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.21842 |
| By: | Hege, Ulrich; Baranes, Edmond; Kim, Jin-Hyuk |
| Abstract: | We present a stylized model of three entrepreneurial financing methods based on two tradeoffs. First, token financing and crowdfunding reveal consumer-investors’ demand for the product prior to investment, but upfront purchase weakens the entrepreneur’s incentive to deliver. Second, token financing permits a bubble component in token value, but reduces consumer surplus because tokens are stored rather than consumed. We characterize the conditions under which entrepreneurs prefer each financing method. We show that token financing can fund socially efficient projects that cannot be funded through equity or crowdfunding, but leads to suboptimal consumption. Finally, we propose an implementable hurdle condition for regulators. |
| Keywords: | crowdfunding, entrepreneurial financing, initial coin offering, token regulation, ; utility token |
| JEL: | G32 G38 L26 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131654 |
| By: | Ginger Zhe Jin; D. Daniel Sokol; Liad Wagman |
| Abstract: | We study a novel dynamic inspection game in which a regulator commits to a detection technology, and a regulated firm chooses whether to engage in harmful conduct and, if detected and sanctioned, whether to incur a redesign cost that generates a modified violation requiring renewed detection. In this adaptive environment, bounded sanctions give rise to three Markov perfect equilibria: full compliance, harm until recognition, and persistent redesign. We show that AI-augmented monitoring can shift the equilibrium from persistent redesign to harm until recognition, but only when regulatory investment crosses a regime-shifting threshold. Below this threshold, greater monitoring intensity may increase enforcement workload without reducing aggregate harm, as the regulator repeatedly detects adaptive violations while the firm continues to redesign. Thus, partial investments in AI monitoring can generate congestion rather than deterrence. When the firm can also adopt AI to reduce its redesign cost, the regulator’s deterrence threshold rises, reinforcing the strategic interaction between enforcement and evasion technologies. Moreover, congestion becomes particularly salient when AI-flagged violations require human review and regulatory review capacity is binding. In this case, the precision of AI triage—especially its false positive rate—matters as much as detection intensity. Enforcement effectiveness therefore depends not only on expanding detection, but also on allocating scarce human review resources efficiently. |
| JEL: | D82 K21 K42 L40 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35010 |
| By: | Mark Braverman; Jingyi Liu; Eric Xue; Chenghan Zhou |
| Abstract: | We study one-sided matchings with endowments in the absence of money. It is well-known that a competitive equilibrium may not always exist and that the strong core may be empty in this setting [Hylland and Zeckhauser, 1979]. We propose a generalization of competitive equilibria that associates each item with a multi-dimensional price. We show that this solution concept always exists and resides within the rejective core [Konovalov, 2005]. Rejective core stability is strictly stronger than weak core stability: allocations in the rejective core are elements of the weak core, but the opposite is not true. Moreover, we show that the rejective core always converges to the set of competitive equilibria with multi-dimensional prices as the economy grows, demonstrating core convergence in a setting without non-satiation. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17862 |
| By: | T. Wienand; B. Magdalou; R. Nock; P. Hufe |
| Abstract: | We develop an axiomatic framework to evaluate income distributions from the perspective of an opportunity-egalitarian social planner. Building on a formal link with the literature on decision theory under ambiguity, we characterize a class of opportunity-sensitive social welfare functions based on a two-stage evaluation: the planner first computes the expected utility of income within each social type, where types consist of individuals sharing the same circumstances beyond their control, and then aggregates these type-specific welfare levels through a transformation reflecting aversion to inequality of opportunity. The evaluation is governed by a single parameter. We provide equivalent representations of the social welfare function, including a mean-divergence form that separates an efficiency term from an inequality term, and we establish an opportunity stochastic dominance criterion. Finally, we derive inequality measures that decompose overall inequality into within-group risk and between-group inequality of opportunity, providing a tractable basis for normative welfare analysis. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.26853 |
| By: | Charles Po-Cheng Huang |
| Abstract: | This paper examines the optimal contracts in a two-dimensional screening model where one dimension(group identity) is verifiable by agents but not falsifiable. A principal offers contracts to agents who differ in cost types and group membership. Motivated by the United States Federal policy, Work Opportunity Tax Credit, the principal receives tax benefits for hiring agents from protected groups. Under the assumption that the protected agents tend to have higher cost types, the optimal contract induces full separation across both dimensions: agents reveal the cost type and the group identity through contract choice. Furthermore, the principal is willing to hire the trait agents with a higher cost threshold than the non-trait agents, and this threshold increases with the tax credit. Conversely, when the protected agents tend to have lower cost types, the optimal design without tax credits pools groups while separating by cost type. These results demonstrate that both affirmative action and non-discrimination can be optimal depending on the cost distribution ordering across groups. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.00615 |
| By: | Emanuele Bazzichi; Massimo Riccaboni; Fulvio Castellacci |
| Abstract: | We study how artificial intelligence (AI) affects firms' incentives to pursue incremental versus radical knowledge recombinations. We develop a model of recombinant innovation embedded in a Schumpeterian quality-ladder framework, in which innovation arises from recombining ideas across varying distances in a knowledge space. R&D consists of multiple tasks, a fraction of which can be performed by AI. AI facilitates access to distant knowledge domains, but at the same time it also increases the aggregate rate of creative destruction, shortening the monopoly duration that rewards radical innovations. Moreover, excessive reliance on AI may reduce the originality of research and lead to duplication of research efforts. We obtain three main results. First, higher AI productivity encourages more distant recombinations, if the direct facilitation effect is stronger than the indirect effect due to intensified competition from rivals. Second, the effect of increasing the share of AI-automated R&D tasks is non-monotonic: firms initially target more radical innovations, but beyond a threshold of human-AI complementarity, they shift the focus toward incremental innovations. Third, in the limiting case of full automation, the model predicts that optimal recombination distance collapses to zero, suggesting that fully AI-driven research would undermine the very knowledge creation that it seeks to accelerate. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.02189 |
| By: | Brandon Tam; Mario Ghossoub; Silvana M. Pesenti |
| Abstract: | We study a problem of optimal allocation in a discrete-time multi-period pure-exchange economy, where agents have preferences over stochastic endowment processes that are represented by strongly time-consistent dynamic risk measures. We introduce the notion of dynamic Pareto-optimal allocation processes and show that such processes can be constructed recursively starting with the allocation at the terminal time. We further derive a comonotone improvement theorem for allocation processes, and we provide a recursive approach to constructing comonotone dynamic Pareto optima when the agents' preferences are coherent and satisfy a property that we call equidistribution-preserving. In the special case where each agent's dynamic risk measure is of the distortion type, we provide a closed-form characterization of comonotone dynamic Pareto optima. We illustrate our results in a two-period setting. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.19414 |
| By: | Deepal Basak; Joyee Deb; Aditya Kuvalekar |
| Abstract: | Algorithmic content targeting homogenizes information, with implications for strategic interactions. For example, this increased homogenization was arguably responsible for the run on the Silicon Valley Bank. We argue that existing measures of similarity are inappropriate for studying games -- especially coordination games -- because they do not discipline agents' conditional beliefs. We propose a class of stochastic orders, Concentration Along the Diagonal (CAD), built on agents' conditional beliefs. In canonical binary-action coordination games, greater CAD-similarity is both necessary and sufficient for strategic similarity -- agents adopt the same strategy. We further demonstrate CAD's applicability in congestion games, collective action, and second-price auctions. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.28190 |
| By: | Keh-Kuan Sun |
| Abstract: | Generative AI helps users solve problems more efficiently, but without leaving a public trace. Fewer discussions and solutions reach public platforms, and the archives that future problem-solvers depend on can shrink. We build a dynamic model of public good provision where agents contribute by solving problems that other agents posted on a public platform, and the accumulated solutions form a depreciating public archive. AI reduces archive creation through two margins that require different instruments. The flow margin: the posted volume of knowledge-enhancing queries declines as AI resolves more problems privately before they reach the platform. The resolution margin: the probability that posted queries are resolved declines as AI raises contributors' outside options, thinning the contributor pool and creating congestion on the platform. The two margins interact through a self-undermining feedback that can generate low-archive traps. The decomposition yields a diagnostic prediction: in the congested regime, a joint decline in posted volume and conditional resolution requires that supply-side pool thinning is quantitatively present, whereas volume decline with stable or rising resolution indicates that private diversion alone is the dominant force. Encouraging public sharing of AI-assisted solutions offsets the decline associated with private diversion but cannot repair participation-driven deterioration in conditional resolution, which requires maintaining contributor engagement directly. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.00468 |
| By: | Nidhish Shah; Shaurjya Mandal; Asfandyar Azhar |
| Abstract: | When does consulting one information source raise the value of another, and when does it diminish it? We study this question for Bayesian decision-makers facing finite actions. The interaction decomposes into two opposing forces: a complement force, measuring how one source moves beliefs to where the other becomes more useful, and a substitute force, measuring how much the current decision is resolved. Their balance obeys a localization principle: substitution requires an observation to cross a decision boundary, though crossing alone does not guarantee it. Whenever posteriors remain inside the current decision region, the substitute force vanishes, and sources are guaranteed to complement each other, even when one source cannot, on its own, change the decision. The results hold for arbitrarily correlated sources and are formalized in Lean 4. Substitution is confined to the thin boundaries where decisions change. Everywhere else, information cooperates. Code and proofs: https://github.com/nidhishs/all-substitu tion-is-local. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.01443 |
| By: | Takashi Kamihigashi (Center for Computational Social Science (CCSS) and Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN); John Stachurski (National Graduate Institute for Policy Studies, JAPAN) |
| Abstract: | Many economic models feature monotone Markov dynamics on state spaces that may be noncompact. Establishing existence, uniqueness, and stability of stationary distributions in such settings has required a patchwork of sufficient conditions, each tailored to specific applications. We provide a single necessary and sufficient condition:a monotone Markov process has a globally stable stationary distribution if and only if it is asymptotically contractive and has a tight rajectory. This characterization covers both compact and noncompact state spaces, discrete and continuous time, and extends to nonlinear Markov operators that depend on aggregate state. We demonstrate the result through applications to wage dynamics, Bayesian learning with belief shocks, and income processes that generate Pareto tails. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-09 |
| By: | Tomasz Sulka (HU Berlin) |
| Abstract: | This paper develops a dynamic search model in which certain ``hidden attributes" are revealed only after acceptance of an offer and may trigger continued search in the following period. The model is applied to study how workers' imperfect information about pecuniary workplace benefits (such as employer-sponsored pension and health insurance plans) during job search, and the subsequent realization of these benefits on the job, affect the multidimensional compensation packages offered in equilibrium by profit-maximizing firms. I find that unobservability of benefits prior to acceptance distorts firms' incentives toward providing inefficiently low benefits, despite the fact that lower benefits induce higher worker turnover. Furthermore, when workers differ in strategic sophistication, and therefore hold different beliefs about unobservable benefits, there exist equilibria with spurious differentiation in compensation packages. In these equilibria, the wage differential is bounded from above by the benefit differential. The model demonstrates how imperfect information about workplace benefits can explain several empirical puzzles, including inefficiently low benefit provision and large between-firm dispersion in benefits. |
| Keywords: | exploitative contracting; hidden attributes; job search; workplace benefits; compensating differentials; |
| JEL: | D83 D91 J31 J32 J33 |
| Date: | 2026–03–23 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:566 |
| By: | Bill Wang |
| Abstract: | In the Gale-Shapley model of two-sided matching, it is well known that for generic preferences, the outcomes for each side can vary dramatically in the male-optimal vs. female-optimal stable matchings. In this paper, we show that under a widely used characterization of similarity in rankings, even a weak correlation in preferences guarantees assortative matching with high probability as the market size tends to infinity. It follows that the men's average ranking of women and the women's average ranking of men are asymptotically equivalent in all stable matchings with high probability, as long as the market imbalance is not too extreme. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.24526 |
| By: | Clayton, Christopher; Maggiori, Matteo (Stanford University); Schreger, Jesse |
| Abstract: | We build a model of two hegemons that have valuable trading relationships with each other and at the same time compete in exerting geoeconomic power over countries in the rest of the world. When the hegemons trade with each other their optimal policy is shaped both by classic economic considerations - the profitability of that specific trade - and by geoeconomic competition - how the trade affects the power of each hegemon vis-a-vis the rest of the world. We show that containment, a policy mix in which an hegemon attempts to limits sales of its inputs to the rival hegemon and uses its power to demand that the rest of the world shifts away from sourcing from the rival hegemon, arises when the two hegemons offer relatively substitutable exports since a stronger rival would offer a better outside option to the targeted countries. Accommodation between the hegemons, instead, occurs when power motives are small and the two hegemons focus on purely economic profit motives. We characterize how the rest of the countries welfare depends on the contain/accommodate regime of the hegemons. |
| Date: | 2026–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:4sy2k_v1 |
| By: | Etsusaku Shimada (Faculty of Policy Studies, Iwate Prefectural University) |
| Abstract: | Dynamic welfare theory typically relies on two background premises: losses are compensable, and continuation values can be summarized by a state variable sufficient for recursive evaluation. This paper identifies a structural boundary of both premises. When irreversible time loss strictly contracts feasible continuation sets, no finite transfer can restore welfare equivalence, and no state variable that omits feasibility structure remains preference-sufficient. Under opportunity monotonicity and transfer neutrality, strict opportunity contraction therefore yields a joint failure of compensability and state-sufficient representation. The opportunity correspondence emerges as the minimal welfare-sufficient state. The paper further shows that strict opportunity contraction arises generically in dynamically productive environments and that the same mechanism extends to Bellman recursion, social evaluation, and regulated market settings. The contribution is diagnostic rather than revisionist: it isolates a feasibility-based limit of dynamic welfare representation that is logically prior to discounting, aggregation, or curvature assumptions. |
| Keywords: | Dynamic Welfare Representation, Irreversibility, Opportunity Contraction, Feasibility Correspondence, Compensability, Recursive Representation |
| JEL: | C62 D60 D71 D90 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1127 |
| By: | Bingzheng Chen; Jan Dhaene; Chun Liu; Shunzhi Pang |
| Abstract: | This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive insurers maximize shareholder value under a subjective worst-case probability measure, giving rise to liquidity-driven underwriting cycles and flight-to-quality behavior. While an equilibrium typically fails to exist in such dynamic liquidity management framework with external financial investment, we show that incorporating model uncertainty restores equilibrium existence under plausible parameter conditions. Moreover, the model uncovers a novel relationship between the correlation of insurance and financial market risks and the equilibrium insurance price: negative loadings may emerge when insurance gains and financial returns are positively correlated, contrary to conventional intuition. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.18962 |
| By: | Hattori, Keisuke |
| Abstract: | This paper shows that entry can raise each individual firm's profit---not merely industry profits---when Cournot oligopolists finance working capital through a contestable banking sector. Under average-cost pricing of loans, entry dilutes fixed banking costs across greater lending volume, lowering loan rates. Entry raises per-firm profits if and only if equilibrium output lies in an intermediate range where financing relief dominates intensified competition. Bank-side and firm-side frictions play opposing roles: firm-side frictions facilitate profit-increasing entry by amplifying cost relief as firms shrink, while bank-side frictions suppress it by raising funding costs as aggregate lending expands. |
| Keywords: | Profit-increasing entry, Cournot oligopoly, Contestable banking, Financial frictions |
| JEL: | D43 G21 G32 L13 |
| Date: | 2026–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127926 |