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on Microeconomics |
| By: | Daske, Thomas |
| Abstract: | This study explores mechanism design for networks of interpersonal relationships. Agents' social (i.e., altruistic or spiteful) preferences and private payoffs are all subject to asymmetric information; utility is (quasi-)linear, types are independent. I show that any network of at least three agents can resolve any allocation problem with a mechanism that is Bayesian incentive-compatible, ex-interim individually rational, and ex-post Pareto-efficient (also ex-post budget-balanced). By contrast, a generalized Myerson-Satterthwaite theorem is established for two agents. The central tool to exploit the asymmetry of information about agents' social preferences is "gamification": Resolve the agents' allocation problem with an efficient social-preference robust mechanism; ensure agents' participation with the help of a mediator, some network member, who complements that mechanism with an unrelated hawk-dove like game between the others, a game that effectively rewards (sanctions) strong (poor) cooperation at the expense (to the benefit) of the mediator. Ex interim, agents (and the mediator) desire this game to be played, for it provides them with a platform to live out their propensities to cooperate or compete. - A figurative example is a fund-raiser, hosted by the "mediator", complemented with awarding the best-dressed guest. |
| Keywords: | networks,social preferences,mechanisms,gamification,Coase theorem |
| JEL: | C70 D62 D64 D82 D85 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193148&r=all |
| By: | Auster, Sarah; Kos, Nenad; Piccolo, Salvatore |
| Abstract: | We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We establish the existence of equilibrium and show that higher types get to propose a mechanism more often than lower types allowing the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where notably the seller's profit is shown to be non-monotonic in the share of high-value buyers. |
| Keywords: | bargaining power; mechanism design; Optimal Pricing |
| JEL: | C72 D82 D83 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13542&r=all |
| By: | Jeongwoo Lee (University of Florida); Jaeok Park (Yonsei University) |
| Abstract: | This paper analyzes a scenario in which two objects are sold in sequence at two second-price auctions. There are two bidders, and each bidder's valuations of the two objects are affiliated. Participating in each auction is costly. Bidders decide whether to enter each auction, observing their entry decisions in any previous auction. We study the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation, a bidder's entering the first auction may signal his strong interest in the second object. Hence, a bidder with a higher valuation of the second object tends to participate in the first auction more aggressively in order to preempt the opponent's entry into the second auction. Because of this signaling motive, the sequential auction format can generate higher revenue in the first auction and lower revenue in the second auction than those obtained by the simultaneous counterpart. |
| Keywords: | Sequential auctions; participation cost; preemptive entry; signaling; |
| JEL: | D44 D82 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2019rwp-141&r=all |
| By: | Eliaz, Kfir; Spiegler, Ran; Thysen, Heidi Christina |
| Abstract: | We study strategic communication when the sender can influence the receiver's understanding of messages' equilibrium meaning. We focus on a "pure persuasion" setting, in which the informed sender wants the uninformed receiver to always choose "accept". The sender's strategy maps each state of Nature to a distribution over pairs consisting of: (i) a multi-dimensional message, and (ii) a "dictionary" that credibly discloses the state-dependent distribution of some of the messsage's components. The receiver does not know the sender's strategy by default; he can only interpret message components that are covered by the dictionary he is provided with. We characterize the sender's optimal persuasion strategy and show that full persuasion is possible when the prior on the acceptance state exceeds a threshold that quickly decreases with message dimensionality. We extend our analysis to situations where interpretation of messages is done by a third party with uncertain preferences, and explore alternative notions of "dictionaries". |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13441&r=all |
| By: | Markos Epitropou (Department of Electrical and Systems Engineering, University of Pennsylvania); Rakesh Vohra (Department of Economics, University of Pennsylvania) |
| Abstract: | We consider a principal who allocates an indivisible object among a finite number of agents who arrive on-line, each of whom prefers to have the object than not. Each agent has access to private information about the principal's payoff if he receives the object. The decision to allocate the object to an agent must be made upon arrival of an agent and is irreversible. There are no monetary transfers but he principal can inspect agents' reports at a cost and punish them. A novelty of this paper is a reformulation of this dynamic problem as a compact linear program. Using the formulation we characterize the form of the optimal mechanism and reduce the dynamic version of the inspection problem with identical distributions to an instance of the secretary problem with one fewer secretary and a modified value distribution. This reduction also allows us to derive a prophet inequality for the dynamic version of the inspection problem. |
| Keywords: | Dynamic mechanism design, stopping problems, costly verification |
| JEL: | C61 D44 D82 |
| Date: | 2019–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:19-002&r=all |
| By: | Bassetto, Marco; Huo, Zhen; Ríos-Rull, José-Víctor |
| Abstract: | This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time-inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually. |
| Keywords: | Capital-Income Taxation; Quasi-Geometric Discounting; Renegotiation; reputation; Time Inconsistency |
| JEL: | C73 E61 E62 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13403&r=all |
| By: | Hoppe, Eva I; Schmitz, Patrick W. |
| Abstract: | The government wants an infrastructure-based public service to be provided. First the infrastructure has to be built, subsequently it has to be operated. Should the government bundle the building and operating tasks in a public-private partnership? Or should it choose traditional procurement, i.e. delegate the tasks to different firms? Each task entails unobservable investments to come up with innovations. It turns out that depending on the nature of the innovations, bundling may either stimulate or discourage investments. Moreover, we find that if renegotiation cannot be prevented, a public-private partnership may lead the government to deliberately opt for a technologically inferior project. |
| Keywords: | innovations; moral hazard; Procurement; public-private partnerships; Renegotiation |
| JEL: | D86 H11 H54 H57 L33 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13406&r=all |
| By: | Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme |
| Abstract: | A monopoly seller advises buyers about which of two goods best fits their needs but may be tempted to steer buyers towards the higher margin good. For the seller to collect information about a buyer's needs and provide truthful advice, the profits from selling both goods must lie within an implementability cone. In the optimal regulation, pricing distortions and information-collection incentives are controlled separately by price regulation and fixed rewards respectively. This no longer holds when the seller has private information about costs as both problems interact. We study the extent to which competition and the threat by buyers to switch sellers can substitute for regulation. |
| Keywords: | asymmetric information; Expertise; Mis-Selling; regulation |
| JEL: | D82 G24 I11 L13 L15 L51 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13543&r=all |
| By: | Beissner, Patrick (ANU); Riedel, Frank (IMW Bielefeld University) |
| Abstract: | We study economies in which agents face Knightian uncertainty about state prices. Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and prove that equilibria exist under weak conditions. In general, such equilibria lead to Pareto inefficient allocations; the equilibria coincide with Arrow-Debreu equilibria only if the values of net trades are ambiguity-free in the mean. In economies without aggregate uncertainty, inefficiencies are generic. We introduce a constrained efficiency concept, uncertainty-neutral efficiency, equilibrium allocations under price uncertainty are efficient in this constrained sense. Arrow-Debreu equilibria turn out to be non-robust with respect to the introduction of Knightian uncertainty. |
| Keywords: | ; |
| Date: | 2019–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:142&r=all |
| By: | Abadi, Joseph; Brunnermeier, Markus K |
| Abstract: | When is record-keeping better arranged through a blockchain than through a traditional centralized intermediary? The ideal qualities of any record-keeping system are (i) correctness, (ii) decentralization, and (iii) cost efficiency. We point out a \textit{blockchain trilemma}: no ledger can satisfy all three properties simultaneously. A centralized record-keeper extracts rents due to its monopoly on the ledger. Its franchise value dynamically incentivizes correct reporting. Blockchains drive down rents by allowing for free entry of record-keepers and portability of information to competing "forks.'' Blockchains must therefore provide static incentives for correctness through computationally expensive proof-of-work algorithms and permit record-keepers to roll back history in order to undo fraudulent reports. While blockchains can keep track of ownership transfers, enforcement of possession rights is often better complemented by centralized record-keeping. |
| Keywords: | Blockchain Economics; cryptocurrencies; Digital Currencies; distributed ledger technology; Fintech |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13420&r=all |
| By: | Shino Takayama (School of Economics, The University of Queensland) |
| Abstract: | This paper studies the manipulation of prices by using a dynamic version of the Glosten and Milgrom (1985) model with a long-lived informed trader. We make a fundamental contribution by clarifying the conditions under which a unique equilibrium exists, and in what situations this equilibrium involves manipulation of prices by the informed trader. Furthermore, within the unique equilibrium, we characterize bid–ask spreads and show that bid and ask prices are monotonically increasing in the market maker’s prior belief. Finally, we propose a computational method to find equilibria in the model. Our simulation results confirm our theoretical findings and find multiple equilibria in some cases. |
| Keywords: | Market microstructure; Glosten–Milgrom; Insider trading; Dynamic trading; Price formation; Sequential trade; Asymmetric information; Bid–ask spreads. |
| JEL: | D82 G12 |
| Date: | 2018–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:603&r=all |
| By: | Buccella, Domenico; Fanti, Luciano |
| Abstract: | In a vertically related duopoly with input price bargaining, this paper re-examines the downstream firms’ profitability under different market competition degrees. Downstream firms earn highest profits with semi-collusion whose level depends on product differentiation and relative parties’ bargaining power. Holding fixed the upstream suppliers’ bargaining power, the more the products are differentiated, the higher the downstream firms’ collusive level that maximize profits, regardless of the negotiations’ structure. On the other hand, holding fixed the product differentiation degree: 1) with uncoordinated bargaining, the higher the upstream suppliers’ bargaining power is, the lower the downstream firms’ collusive level is; 2) with upstream firms’ bargaining coordination, a U-shaped relation exists between the upstream firms’ power and the downstream firms’ collusive level that maximizes their profits. |
| Keywords: | Decentralized/semi-coordinated bargaining; Right-to-Manage; Conjectural Variation model |
| JEL: | D43 J51 L13 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92266&r=all |
| By: | Cespa, Giovanni; Vives, Xavier |
| Abstract: | We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies in a context of limited market participation. To this end we integrate a two-period market microstructure model with an exchange competition model with entry in which exchanges supply technological services, and have market power. We find that technological services can be strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better typically, platform fees may further increase welfare. The market may deliver excessive or insufficient entry. However, if the regulator is constrained to not making transfers to platforms then there is never insufficient entry. |
| Keywords: | Cournot with free entry; Endogenous Market Structure; Industrial Organization of Exchanges; market fragmentation; platform competition; welfare |
| JEL: | G10 G12 G14 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13415&r=all |