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on Microeconomics |
| By: | Juan Dubra; Rob Waiser; Jean-Pierre Benoit |
| Abstract: | Employee burnout has long plagued firms. The prevalence of burnout shows that work-related effort is not only costly in the present but has carryover effects into the future. We incorporate this ‘effort cost spillover’ into a dynamic, two- period principal-agent model, where the worker’s effort cost in the second period increases in both their second-period and first-period efforts. We use this model to explore optimal compensation design and the connection between incentives, burnout, and turnover. Naturally, turnover may occur if it is easy to replace workers, or if firms fail to account for burnout when designing contracts. However, we show that even when turnover is very costly, and firms and workers properly understand effort cost spillover, the firm’s equilibrium strategy may be to offer high-powered incentives that induce workers to work so hard that they exit (i.e. reject any contract that the firm would offer) in the next period. Workplace measures that reduce spillover, such as flexible work arrangements, can limit turnover and improve profits dramatically. Committing to contracts for both periods in advance can also limit turnover (at the cost of reduced flexibility). |
| Keywords: | compensation, incentives, dynamic games, burnout, agency theory |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mnt:wpaper:2512 |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We study a market in which firms each might supply a number of variants, or "brands", of fundamentally the same product. Consumers differ in the sets of brands they consider, and firms compete using (multi-dimensional) mixed pricing strategies. We show when firms apply uniform pricing across their brands, and when they use segmented pricing so that one "discount" brand is priced below another "premium" brand. We study the case of symmetric brands in particular, and discuss the impact of a firm introducing a new brand, of imposing a requirement to set uniform prices across brands, and of mergers between firms. |
| Keywords: | Price dispersion, price discrimination, multiproduct firms, mixed strategies, oligopoly, multibranding, multi-channel selling. |
| JEL: | C72 D43 D83 L13 M31 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127017 |
| By: | I. Sebastian Buhai |
| Abstract: | We develop a continuous-time model of reputational disclosure in directed networks of biased intermediaries with career concerns. A payoff-relevant fundamental follows a diffusion and a decision maker chooses actions to track it. Experts obtain verifiable signals that reach the decision maker only if relayed by intermediaries. Intermediaries choose whether to forward evidence and an observable disclosure clock that controls the arrival rate of disclosure opportunities. Because clocks are public, silence is state dependent: when the clock is on, delay is informative and reputationally costly; when it is off, silence is mechanically uninformative. Disclosure becomes a real option on reputational capital. Along any expert-decision maker path, Markov perfect Bayesian equilibria are ladder policies with finitely many posterior cutoffs, and clock-off windows eliminate knife-edge mixing. With sufficiently high reputational stakes and low discounting, dynamic incentives rule out persistent suppression and guarantee eventual transmission of all verifiable evidence along the path, even when bias reversals block static unraveling. We then study network design and formation. Absent the high-reputation regime, among trees exactly the bias-monotone ones sustain disclosure. Under homogeneous reputational intensities the bias-ordered line is dynamically optimal; with heterogeneous intensities, optimal design screens by topology, placing high-reputation intermediaries on direct parallel routes rather than in series. In an endogenous link-formation game, pairwise stable networks can be inefficiently sparse or redundantly dense because agents ignore the option-value externalities their links create or destroy for others' reputational assets. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.22987 |
| By: | Yun Gao (Hong Kong Monetary Authority); Kenichi Ueda (The University of Tokyo) |
| Abstract: | We propose a canonical model of loan screening under symmetrically imperfect information. The project quality is unknown to both a lender and a borrower, but it is revealed with noise to the lender with cost. We show that, under meaningful parameter values, there are three types of equilibria: (i) screening and separating equilibrium, (ii) non-screening and pooling equilibrium, and (iii) non-screening and cheap-information-based separating equilibrium. They are all constrained socially optimal. In particular, the screening and separating equilibrium emerges when the average project quality is low or when the interest rate is high. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf614 |
| By: | Phoebe Koundouri; Nikitas Pittis (University of Piraeus, Greece); Panagiotis Samartzis; Konstantinos Georgalos |
| Abstract: | Ellsberg-type choices challenge the Bayesian theory of Subjective Expected Utility Maximization (SEUM) and reveal a key behavioural trait: Ambiguity Aversion (AA). Two main interpretations of AA exist. One treats AA as rational; the other sees it as a psychological bias. This paper adopts the latter view and focuses on the leading psychological account of AA, Fox and Tversky's (1995) Comparative Ignorance Hypothesis (CIH). CIH argues that AA arises as a "comparative effect" when a decision maker (DM) feels epistemically inferior for some events relative to others. In such cases, the DM becomes averse to betting on the epistemically weaker events. The paper has three goals. First, it surveys the literature on CIH. Second, it introduces a new "Bayesian Training" (BT) procedure grounded in counter factual thinking. A DM who engages in BT may escape comparative ignorance, reduce AA, and align more closely with Bayesian behaviour. Finally, we present the results of an economic experiment where we aim to test the impact of Bayesian training on behaviour. |
| Keywords: | counterfactual priors, ambiguity, Ellsberg paradox |
| JEL: | C44 D81 D83 D89 |
| Date: | 2025–12–14 |
| URL: | https://d.repec.org/n?u=RePEc:aue:wpaper:2572 |
| By: | Kai A. Konrad; Marcel Thum |
| Abstract: | The enforcement of international sanctions is frequently undermined by multiple third-party sanction-breaking countries. This paper examines how a sanctioning country can optimally negotiate with several such loophole countries to close the enforcement gaps. We compare several sequential and simultaneous bargaining strategies. Suitably chosen sequencing, but also simultaneous negotiations under the Single-Undertaking Principle can minimize the cost to the sanctioning country by creating competitive pressure among the loophole countries. We find that, if the desire to make the sanctioning regime effective is sufficiently high, the ultimate goal of closing the sanction loopholes is achieved for all sequencing rules of ultimatum bargaining we consider. However, the equilibrium size and distribution of compensation among loophole countries differ. We characterize the optimal sequential strategy and the optimal simultaneous-offer strategy. Furthermore, for well-chosen negotiation strategies the sum of compensations paid to multiple loophole countries is lower than if there is only one loophole country. |
| Keywords: | Sanctions, Negotiations, Geoeconomics, Conflict, Trade |
| JEL: | F13 F51 C78 H56 |
| Date: | 2025–12–02 |
| URL: | https://d.repec.org/n?u=RePEc:mpi:wpaper:tax-mpg-rps-2025-07 |
| By: | Afiq bin Oslan; Yixuan Shi |
| Abstract: | Political parties often appear united despite containing factions with divergent preferences. We study why party defections are rare by opening the intra-party 'black box' through a set of game-theoretical models. In the model, the leadership sets the party's policy platform anticipating exit threats from co-partisan rival factions. Rivals weigh policy proximity against the benefits of belonging to a larger party: smaller factions lack credible exit threat and remain loyal, while larger factions may require policy compromises. We emphasise the role of party size and show that unity can be sustained through a snowballing mechanism: once the leadership compromises and secures the loyalty of some factions, other factions become more willing to remain — even with no political concessions — because doing so places them with a larger and more powerful party. Leaders need only win part of the party to induce broader unity, implying that even internally diverse parties can remain stable. |
| JEL: | C72 D72 |
| Date: | 2025–12–11 |
| URL: | https://d.repec.org/n?u=RePEc:mpi:wpaper:tax-mpg-rps-2025-09 |
| By: | Thomas Demuynck; Clément Staner |
| Abstract: | We develop a revealed preference test for the Choquet expected utility model with ambiguity aversion, which does not rely on specific functional form assumptions on the utility index. It is computationally efficient if the number of states is not too large, even for a large number of observations. This is a nice feature compared to other existing revealed preference tests for decision models with ambiguity. We illustrate the usefulness of our results by implementing our test on two experimental datasets from the literature, and we compare the empirical fit of this model to the subjective expected utility model. (JEL C91, D81, D91, G41) |
| Date: | 2024–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/390822 |
| By: | Federico Bobbio; Randall A. Berry; Michael L. Honig; Thanh Nguyen; Vijay G. Subramanian; Rakesh V. Vohra |
| Abstract: | The radio spectrum suitable for commercial wireless services is limited. A portion of the radio spectrum has been reserved for institutions using it for non-commercial purposes such as federal agencies, defense, public safety bodies and scientific institutions. In order to operate efficiently, these incumbents need clean spectrum access. However, commercial users also want access, and granting them access may materially interfere with the existing activity of the incumbents. Conventional market based mechanisms for allocating scarce resources in this context are problematic. Allowing direct monetary transfers to and from public or scientific institutions risks distorting their non-commercial mission. Moreover, often only the incumbent knows the exact value of the interference it experiences, and, likewise, only commercial users can predict accurately the expected monetary outcome from sharing the resource. Thus, our problem is to determine the efficient allocation of resources in the presence of private information without the use of direct monetary transfers. The problem is not unique to spectrum. Other resources that governments hold in trust share the same feature. We propose a novel mechanism design formulation of the problem, characterize the optimal mechanism and describe some of its qualitative properties. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.21793 |
| By: | M. Sadra Heydari; Zafer Kanik; Santiago Montoya-Bland\'on |
| Abstract: | We introduce heterogeneous R&D productivities into an endogenous R&D network formation model, generalizing the framework in Goyal and Moraga-Gonzalez (2001). Heterogeneous productivities endogenously create asymmetric gains for connecting firms: the less productive firm benefits disproportionately, while the more productive firm exerts greater R&D effort and incurs higher costs. For sufficiently large productivity gaps between two firms, the more productive firm experiences reduced profits from being connected to the less productive one. This overturns the benchmark results on pairwise stable networks: for sufficiently large productivity gaps, the complete network becomes unstable, whereas the Positive Assortative (PA) network -- where firms cluster by productivity levels -- emerges as stable. Simulations show that the PA structure delivers higher welfare than the complete network; nevertheless, welfare under PA formation follows an inverted U-shape in the fraction of high-productivity firms, reflecting crowding-out effects at high fractions. Altogether, a counterintuitive finding emerges: economies with higher average R&D productivity may exhibit lower welfare through (i) the formation of alternative stable R&D network structures or (ii) a crowding-out effect of high-productivity firms. Our findings highlight that productivity-enhancing policies should account for their impact on endogenous R&D alliances and effort, as such endogenous responses may offset or even reverse the intended welfare gains. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.23337 |
| By: | Susanne Keller; Sebastian Krautheim |
| Abstract: | Massive protests against - and spectacular failures of - international trade negotiations are an important element of the globalization backlash developed economies have experienced over the last two decades. We analyze a model of endogenous social identity where the government chooses between accepting or rejecting a trade agreement involving the recognition of a lower precautionary standard. We show that protests by an NGO against the trade agreement can alter the social identity equilibrium, feeding back into the political process and possibly resulting in a polarization of society. We focus on two possible outcomes: the trade agreement may either be maintained, but at lower welfare gains than initially expected (the "CETA-case"), or it may be abolished altogether (the "TTIP-case). |
| Keywords: | trade negotiations, standards, social identity, NGOs, globalization backlash, TTIP, CETA |
| JEL: | F13 F68 L31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12337 |
| By: | Yixuan Shi |
| Abstract: | In mixed electoral systems, candidates can win parliamentary seats either by securing the most votes in local districts or through party lists. Candidates’ successes of district elections often hinge on personal charisma, whereas the total number of party seats depends on the overall party vote share. With limited campaign budget, candidates face a trade-off between allocating resources towards their individual or team battles: more individualised campaigning boosts individual appeal and attract voters at local districts, while more party-centric campaigning increases the party’s seat share. We examine how candidates allocate resources in mixed electoral systems using a contest-theoretical model. Under a closed-list system, where party-level prizes are distributed according to a predetermined ranking, lower-ranked candidates concentrate their efforts on their individual battles, while higher-ranked candidates balance resources in both battles. Their exact allocation also depends on the rank of their district-level opponents. In contrast, in an open-list system, where party-level prizes are tied to candidates' vote shares, all candidates are incentivised to contribute to party-centric campaigning. |
| JEL: | C72 D72 |
| Date: | 2025–12–08 |
| URL: | https://d.repec.org/n?u=RePEc:mpi:wpaper:tax-mpg-rps-2025-08 |
| By: | Hiroaki Sakamoto; Christian Traeger; Christian P. Traeger |
| Abstract: | We study coalition formation with externalities under voluntary, non-binding participation. Motivated by climate agreements, where standard modeling predicts small, inefficient coalitions, we propose a new solution concept—the self-enforcing stable set. It synthesizes the self-enforcing logic of non-cooperative approaches with the consistency requirement of cooperative forward-looking stability. By endogenizing players' beliefs about the eventual outcomes of negotiations, we show that rational foresight disciplines strategic free-riding and selects constrained Pareto efficient outcomes. In canonical climate-agreement models, this yields sharp predictions: stable coalitions must be large and only mildly fragmented, aligning closely with observed participation patterns. |
| Keywords: | coalition formation, self-enforcing agreements, international agreements, public goods, climate change |
| JEL: | C71 F53 H41 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12360 |
| By: | Pierre Pestieau; Maria Racionero |
| Abstract: | We consider a society where social mobility is influenced by parental wealth transfers and education investments. Specifically, the educational investments capture the time parents devote to the education of their children. We show that, in the absence of government intervention, the market equilibrium results in a level of upward social mobility lower than that in an ideal first-best scenario. Given the challenge of observing individual characteristics, we characterize the second-best solution achievable through the implementation of non-linear taxation. We consider two alternative government objectives: a weighted utilitarian criterion and a Rawlsian criterion. Additionally, we explore the implications of two alternative informational assumptions: whether educational investments are observable or non-observable. |
| Keywords: | H21, H31, H52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:acb:cbeeco:2025-706 |
| By: | Nicholas Economides (Stern School of Business, New York University, New York, NY, USA); Ioannis Lianos (Faculty of Laws, University College London, London, United Kingdom); Christos Makridis (Arizona State University) |
| Abstract: | We examine when interoperability should serve as a structural response to market concentration produced by scaling laws, network effects, and data driven complementarities and capabilities in the digital economy. Digital infrastructures such as operating systems, cloud platforms, payments, and AI systems exhibit superlinear returns to scale that interact with multi-sided feedback loops to generate dominant positions and persistent bottlenecks. However, interoperability can also dilute beneficial complementarities, create security and privacy risks, and in some cases weaken incentives to invest. The paper makes two contributions. First, we develop a conceptual framework that treats digital ecosystems as lattices of complementarities linking users, developers, data, and infrastructure. Scaling laws are empirical signatures of supermodular relationships. Interoperability becomes a lattice restructuring tool that selectively weakens complementarities that entrench market (economic) power while preserving those that support quality, safety, and innovation. Second, we pair this economic account with a comparative analysis of legal and institutional approaches to interoperability. Examples include telecom interconnection, the Microsoft antitrust cases, the EU Digital Markets Act and Data Act, digital health regulation in the EU and the US, and emerging sector specific regimes in blockchain and AI. This comparison clarifies how horizontal and vertical interoperability obligations distribute network (complex systems) complementarities across layers and how ex ante and ex post tools differ in their ability to reshape digital ecosystems. We also argue that interoperability has emerged in the EU as a broader legal principle enshrined across multiple areas of law, including competition law and digital regulation. In sum, we provide a unified view of interoperability as a family of interventions that determine which complementarities are internalized by a single platform and which are shared across rivals and customers. Effective policy requires aligning the locus of interoperability with the structure of complementarities and the risks of fragmentation. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2511 |
| By: | J. Atsu Amegashie |
| Abstract: | Much of academic research has been criticized for not being socially useful. Governments sometimes only fund research on particular social issues (e.g., vaccines, renewable energy, electric vehicles). In other cases, they fund research on topics that are independently chosen by scholars. I consider a model in which the value of current research depends on random states in the future. Scientists and a government are uncertain about the future state and thus the future value of current research. The government and scientists get independent and imperfect but informative signals about the future value of research. The government can direct the research of scientists or give them the freedom to choose their research projects (i.e., non-directed research). Even if the government maximizes the social welfare of directed research, scientists do not have better information, and scientists do not maximize the social welfare of their (non-directed) research projects, I show that non-directed research results in a bigger social welfare than directed research. If the accuracy of the signal of the social value of research is high or the two future states are sufficiently different, non-directed research gives a higher social welfare than directed research. |
| Keywords: | directed research, non-directed research, scientists, signals, social value |
| JEL: | H52 I23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12304 |