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on Microeconomics |
| By: | Franz Ostrizek; Denis Shishkin |
| Abstract: | We study a decision-framing design problem: a principal faces an agent with frame-dependent preferences and designs an extensive form with a frame at each stage. This allows the principal to circumvent incentive compatibility constraints by inducing dynamically inconsistent choices of the sophisticated agent. We show that a vector of contracts can be implemented if and only if it can be implemented using a canonical extensive form, which has a simple high-low-high structure using only three stages and the two highest frames, and employs unchosen decoy contracts to deter deviations. We then turn to the study of optimal contracts in the context of the classic monopolistic screening problem and establish the existence of a canonical optimal mechanism, even though our implementability result does not directly apply. In the presence of naive types, the principal can perfectly screen by cognitive type and extract full surplus from naifs. |
| Keywords: | Implementation, Screening, Framing, Extensive-Form Decision Problems, Dynamic Inconsistency, Sophistication, Naivete |
| JEL: | D42 D82 D90 L12 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_364&r= |
| By: | Andreas Kleiner |
| Abstract: | We study a model of delegation in which a principal takes a multidimensional action and an agent has private information about a multidimensional state of the world. The principal can design any direct mechanism, including stochastic ones. We provide necessary and sufficient conditions for an arbitrary mechanism to maximize the principal's expected payoff. We also discuss simple conditions which ensure that some convex delegation set is optimal. A key step of our analysis shows that a mechanism is incentive compatible if and only if its induced indirect utility is convex and lies below the agent's first-best payoff. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.11835&r= |
| By: | Ernesto Savaglio; Stefano Vannucci |
| Abstract: | Two characterizations of the whole class of strategy-proof aggregation rules on rich domains of locally unimodal preorders in finite median join-semilattices are provided. In particular, it is shown that such a class consists precisely of generalized weak sponsorship rules induced by certain families of order filters of the coalition poset. It follows that the co-majority rule and many other inclusive aggregation rules belong to that class. The co-majority rule for an odd number of agents is characterized and shown to be equivalent to a Condorcet-Kemeny median rule. Applications to preference aggregation rules including Arrowian social welfare functions are also considered. The existence of strategy-proof anonymous, weakly neutral and unanimity-respecting social welfare functions which are defined on arbitrary profiles of total preorders and satisfy a suitably relaxed independence condition is shown to follow from our characterizations. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.12732&r= |
| By: | Sarah Auster; Piero Gottardi; Ronald Wolthoff |
| Abstract: | We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents' types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier. |
| Keywords: | Directed Search, Adverse Selection |
| JEL: | D82 D83 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_329v2&r= |
| By: | Dana Foarta; Massimo Morelli |
| Abstract: | Legislative and regulatory reforms often contain various forms of complexity – multiple contingencies, exemptions and alike. Complexity may be desirable if it better satisfies the needs of diverse political constituencies and if such a benefit is more important than the potential corresponding increase in implementation or administrative costs. Both benefits and costs are easier to evaluate for the reform drafter than for the other players involved in the reform process. This asymmetric information on the costs and benefits of complexity creates incentives for inefficient complexification of policies. We show that reform drafters use complexity to pander to persuade their political principals to adopt reforms, when the latter are less informed about the costs consequences of the proposed complexity. Nevertheless, institutional contexts where reform drafters are overseen by political principals are not always leading to greater complexity than in systems with a single decision maker who faces the same informational constraints regarding the costs and benefits of complexity. |
| Keywords: | Complex Reforms, Delegated Policymaking, Bureaucratic Implementation Costs, Political Pandering |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp22185&r= |
| By: | Broccardo, Eleonora; Hart, Oliver D.; Zingales, Luigi |
| Abstract: | We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies that generate externalities. We show that if the majority of investors are socially responsible, voice achieves the socially desirable outcome, while exit does not. If the majority of investors are purely selfish, exit is a more effective strategy, but neither strategy generally achieves the first best. We also show that individual incentives to join an exit strategy are not aligned with social incentives, and hence exit can lead to a worse outcome than if all individuals are purely selfish. |
| Keywords: | Exit,Voice,Social Responsibility,Divestment,Boycott,Engagement |
| JEL: | D02 D21 D23 D62 D64 H41 L21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cbscwp:302&r= |
| By: | Yasushi Kawase; Hanna Sumita; Yu Yokoi |
| Abstract: | We consider the problem of random assignment of indivisible goods, in which each agent has an ordinal preference and a constraint. Our goal is to characterize the conditions under which there exists a random assignment that simultaneously achieves efficiency and envy-freeness. The probabilistic serial mechanism ensures the existence of such an assignment for the unconstrained setting. In this paper, we consider a more general setting in which each agent can consume a set of items only if the set satisfies her feasibility constraint. Such constraints must be taken into account in student course placements, employee shift assignments, and so on. We demonstrate that an efficient and envy-free assignment may not exist even for the simple case of partition matroid constraints, where the items are categorized and each agent demands one item from each category. We then identify special cases in which an efficient and envy-free assignment always exists. For these cases, the probabilistic serial cannot be naturally extended; therefore, we provide mechanisms to find the desired assignment using various approaches. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.07666&r= |
| By: | Youngsoo Kim; H. Dharma Kwon |
| Abstract: | In the game of investment in the common good, the free rider problem can delay the stakeholders' actions in the form of a mixed strategy equilibrium. However, it has been recently shown that the mixed strategy equilibria of the stochastic war of attrition are destabilized by even the slightest degree of asymmetry between the players. Such extreme instability is contrary to the widely accepted notion that a mixed strategy equilibrium is the hallmark of the war of attrition. Motivated by this quandary, we search for a mixed strategy equilibrium in a stochastic game of investment in the common good. Our results show that, despite asymmetry, a mixed strategy equilibrium exists if the model takes into account the repeated investment opportunities. The mixed strategy equilibrium disappears only if the asymmetry is sufficiently high. Since the mixed strategy equilibrium is less efficient than pure strategy equilibria, it behooves policymakers to prevent it by promoting a sufficiently high degree of asymmetry between the stakeholders through, for example, asymmetric subsidy. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.11217&r= |
| By: | Ville Korpela (Turku School of Economics, University of Turku); Michele Lombardi (University of Liverpool Management School, Liverpool, UK and Department of Economics and Statistics, University of Napoli Federico II); Riccardo D. Saulle (Department of Economics and Management, University of Padova) |
| Abstract: | We fully identify the class of social choice functions that are implementable in von Neumann Morgenstern (vNM) stable set (von Neumann and Morgenstern, 1944) by a rights structure. A rights structure formalizes the idea of power distribution in a society. Following Harsanyi’critique (Harsanyi, 1974), we also study implementation problems in vNM stable set that are robust to farsighted reasoning. |
| Keywords: | stable set, implementation, rights structure, farsightedness |
| JEL: | C71 D02 D71 D82 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0283&r= |
| By: | Masaki Aoyagi |
| Abstract: | Each agent in a market needs to supplement his skill with a particular skill of another agent to complete his project. A platform matches the agents and allows members of the same match to share their skills. A match is valuable to an agent if he is matched with any agent who possesses a skill complementary to his own skill. When the platform uses the divide-and-conquer pricing strategy, we study the properties of incentive compatible mechanisms in relation to the reciprocal property of the complementary relationships among different skills, and when the market expands in its size. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1186&r= |
| By: | Victor H. Aguiar (University of Western Ontario); Roberto Serrano (Brown University) |
| Abstract: | The Slutsky matrix function encodes all the information about local variations in demand with respect to small (Slutsky) compensated price changes. When the demand function is the result of utility maximization the Slutsky matrix is symmetric. However, symmetry does not imply rationality. Here, we provide a necessary and sufficient condition for Slutsky symmetry. The new condition requires symmetric attention to compensated price-paths. |
| Keywords: | Utility Maximization, Slutsky Matrix |
| JEL: | C50 C51 C52 C91 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:uwowop:20228&r= |
| By: | Kazuya Kikuchi |
| Abstract: | This paper studies the allocation of voting weights in a committee representing groups of different sizes. We introduce a partial ordering of weight allocations based on stochastic comparison of social welfare. We show that when the number of groups is sufficiently large, this ordering asymptotically coincides with the total ordering induced by the cosine proportionality between the weights and the group sizes. A corollary is that a class of expectation-form objective functions, including expected welfare, the mean majority deficit and the probability of inversions, are asymptotically monotone in the cosine proportionality. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.05316&r= |
| By: | Jiarui Gan; Minbiao Han; Jibang Wu; Haifeng Xu |
| Abstract: | In the principal-agent problem formulated in [Myerson 1982], agents have private information (type) and make private decisions (action), both of which are unobservable to the principal. Myerson pointed out an elegant solution that relies on the revelation principle, which states that without loss of generality optimal coordination mechanisms of this problem can be assumed to be truthful and direct. Consequently, the problem can be solved by a linear program when the support sets of the action and type spaces are finite. In this paper, we extend Myerson's results to the setting where the principal's action space might be infinite and subject to additional design constraints. This generalized principal-agent model unifies several important design problems -- including contract design, information design, and Bayesian Stackelberg games -- and encompasses them as special cases. We present a revelation principle for this general model, based on which a polynomial-time algorithm is derived for computing the optimal coordination mechanism. This algorithm not only implies new efficient algorithms simultaneously for all the aforementioned special cases but also significantly simplifies previous approaches in the literature. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.01146&r= |
| By: | Hiroki Shinozaki |
| Abstract: | We consider the problem of allocating a single object to the agents with payments. Agents have preferences that are not necessarily quasi-linear. We characterize the class of rules satisfying pairwise strategy-proofness and non-imposition by the priority rule. Our characterization result remains valid even if we replace pairwise strategy-proofness by either weaker effectively pairwise strategy-proofness or stronger group strategy-proofness. By exploiting our characterization, we identify the class of rules satisfying both the properties that are in addition (i) onto, (ii) welfare continuous, (iii) minimally fair, (iv) constrained efficient within the class of rules satisfying both the properties, or (v) revenue undominated within the class of rules satisfying the properties, and find the tension between minimal properties of efficiency, fairness, and revenue maximization under pairwise strategy-proofness. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1187&r= |
| By: | Po-Hsuan Lin |
| Abstract: | We explore the dynamic cognitive hierarchy (CH) theory proposed by Lin and Palfrey (2022) in the setting of multi-stage games of incomplete information. In such an environment, players will learn other players' payoff-relevant types and levels of sophistication at the same time as the history unfolds. For a class of two-person dirty faces games, we fully characterize the dynamic CH solution, predicting that lower-level players will figure out their face types in later periods than higher-level players. Finally, we re-analyze the dirty faces game experimental data from Bayer and Chan (2007) and find the dynamic CH solution can better explain the data than the static CH solution. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.11190&r= |
| By: | Hideaki Goto (IUJ Research Institutey, International University of Japan) |
| Abstract: | Why do people often distribute joint surplus in an egalitarian way even when the payoffs for more productive people are lower than those distributed in a meritocratic way? In particular, does a stationary state exist in which more productive people believe in egalitarianism even when distaste for meritocracy decreases as meritocratic payoffs increase? We extend the Bisin–Verdier model of cultural transmission to address these questions and demonstrate that such a stationary state exists, but is stable only under certain conditions. Therefore, the fractions of people believing in egalitarianism and meritocracy may continue to fluctuate. |
| Keywords: | Belief in distributive principles; Egalitarianism; Meritocracy; Cultural transmission |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2022_05&r= |
| By: | Mikhail Freer; Hassan Nosratabadi |
| Abstract: | An observer wants to understand a decision-maker's preferences from her choice. She believes that decision-maker takes decisions under limited attention; i.e., does not consider all alternatives. In this paper, we make the point that given the nature of established experimental evidence, the existing models of limited attention are not quite helpful in fulfilling the observer's goal. Addressing this challenge, we propose a ``minimal'' adjustment to the theory of choice under limited attention by assuming that decision-maker makes at least one comparison in her decision-process. We illustrate that, as minimal as this adjustment is, it enriches the model with significant welfare relevance. We further apply our model to experimental data and establish that this significant increase in welfare-relevance comes with negligible costs in explanatory power. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.07659&r= |