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on Microeconomics |
| By: | Volker Nocke; Patrick Rey |
| Abstract: | We develop a model of within-firm sequential, directed search and study a firm’s ability and incentive to steer consumers. We find that the firm often benefits from adopting a noisy positioning strategy, which limits the information available to consumers. This induces consumers to keep searching but discourages some of them from visiting the firm. This occurs even though the firm and the consumers have in common the interest of maximizing the probability of trade. Because of such noisy positioning, an increase in the size of the product line further discourages consumers from visiting the firm—consistent with choice overload. |
| Keywords: | Consumer Search, Sequential Search, Directed Search, Product Variety, Coice Overload, Multiproduct Firm, Platform, Steering |
| JEL: | L12 L15 D42 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_42x&r=mic |
| By: | Raphael Boleslavsky; Mehdi Shadmehr |
| Abstract: | We study the canonical signaling game, endowing the sender with commitment power. We provide a geometric characterization of the sender's attainable payoffs, described by the topological join of the graphs of the sender's interim payoff functions associated with different sender actions. We compare the sender's payoffs in this setting with two benchmarks. In the first, in addition to committing to her actions, the sender can commit to provide the receiver with additional information. In the second, the sender can only commit to release information, but cannot commit to her actions. We illustrate our results with applications to job market signaling, communication with lying costs, and disclosure. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.00777&r=mic |
| By: | Paula Onuchic; Jo\~ao Ramos |
| Abstract: | We consider a team-production environment where all participants are motivated by career concerns, and where a team's joint productive outcome may have different reputational implications for different team members. In this context, we characterize equilibrium disclosure of team-outcomes when team-disclosure choices aggregate individual decisions through some deliberation protocol. In contrast with individual disclosure problems, we show that equilibria often involve partial disclosure. Furthermore, we study the effort-incentive properties of equilibrium disclosure strategies implied by different deliberation protocols; and show that the partial disclosure of team outcomes may improve individuals' incentives to contribute to the team. Finally, we study the design of deliberation protocols, and characterize productive environments where effort-incentives are maximized by unilateral decision protocols or more consensual deliberation procedures. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.03633&r=mic |
| By: | Sumit Goel; Amit Goyal |
| Abstract: | We consider two-player contests with the possibility of ties and study the effect of different tie-breaking rules on effort. For ratio-form and difference-form contests that admit pure-strategy Nash equilibrium, we find that the effort of both players is monotone decreasing in the probability that ties are broken in favor of the stronger player. Thus, the effort-maximizing tie-breaking rule commits to breaking ties in favor of the weaker agent. With symmetric agents, we find that the equilibrium is generally symmetric and independent of the tie-breaking rule. We also study the design of random tie-breaking rules that are unbiased ex-ante and identify sufficient conditions under which breaking ties before the contest actually leads to greater expected effort than the more commonly observed practice of breaking ties after the contest. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.13866&r=mic |
| By: | Promit K. Chaudhuri; Sudipta Sarangi; Hector Tzavellas |
| Abstract: | We consider an incomplete information network game in which agents' information is restricted only to the identity of their immediate neighbors. Agents form beliefs about the adjacency pattern of others and play a linear-quadratic effort game to maximize interim payoffs. We establish the existence and uniqueness of Bayesian-Nash equilibria in pure strategies. In this equilibrium agents use local information, i.e., knowledge of their direct connections to make inferences about the complementarity strength of their actions with those of other agents which is given by their updated beliefs regarding the number of walks they have in the network. Our model clearly demonstrates how asymmetric information based on network position and the identity of agents affect strategic behavior in such network games. We also characterize agent behavior in equilibria under different forms of ex-ante prior beliefs such as uniform priors over the set of all networks, Erdos-Reyni network generation, and homophilic linkage. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.03124&r=mic |
| By: | Tatiana Daddario; Richard P. McLean; Andrew Postlewaite |
| Abstract: | In this paper, we take a mechanism design approach to optimal assignment problems with asymmetrically informed buyers. In addition, the surplus generated by an assignment of a buyer to a seller may be adversely affected by externalities generated by other assignments. The problem is complicated by several factors. Buyers know their own valuations and externality costs but do not know this same information for other buyers. Buyers also receive private signals correlated with the state and, consequently, the implementation problem exhibits interdependent valuations. This precludes a naive application of the VCG mechanism and to overcome this interdependency problem, we construct a two-stage mechanism. In the first stage, we exploit correlation in the firms signals about the state to induce truthful reporting of observed signals. Given that buyers are honest in stage 1, we then use a VCG-like mechanism in stage 2 that induces honest reporting of valuation and externality functions. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.01477&r=mic |
| By: | Anton Kolotilin; Alexander Wolitzky |
| Abstract: | We study the problem of a partisan gerrymanderer who assigns voters to equipopulous districts so as to maximize his party's expected seat share. The designer faces both aggregate uncertainty (how many votes his party will receive) and idiosyncratic, voter-level uncertainty (which voters will vote for his party). We argue that pack-and-pair districting, where weaker districts are ``packed'' with a single type of voter, while stronger districts contain two voter types, is typically optimal for the gerrymanderer. The optimal form of pack-and-pair districting depends on the relative amounts of aggregate and idiosyncratic uncertainty. When idiosyncratic uncertainty dominates, it is optimal to pack opposing voters and pair more favorable voters; this plan resembles traditional ``packing-and-cracking.'' When aggregate uncertainty dominates, it is optimal to pack moderate voters and pair extreme voters; this ``matching slices'' plan has received some attention in the literature. Estimating the model using precinct-level returns from recent US House elections indicates that, in practice, idiosyncratic uncertainty dominates and packing opponents is optimal; moreover, traditional pack-and-crack districting is approximately optimal. We discuss implications for redistricting reform and political polarization. Methodologically, we exploit a formal connection between gerrymandering -- partitioning voters into districts -- and information design -- partitioning states of the world into signals. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.09381&r=mic |
| By: | MohammadTaghi Hajiaghayi; Keivan Rezaei; Suho Shin |
| Abstract: | We consider a multi-agent delegated search without money, which is the first to study the multi-agent extension of Kleinberg and Kleinberg (EC'18). In our model, given a set of agents, each agent samples a fixed number of solutions, and privately sends a signal, e.g., a subset of solutions, to the principal. Then, the principal selects a final solution based on the agents' signals. Our model captures a variety of real-world scenarios, spanning classical economical applications to modern intelligent system. In stark contrast to single-agent setting by Kleinberg and Kleinberg (EC'18) with an approximate Bayesian mechanism, we show that there exist efficient approximate prior-independent mechanisms with both information and performance gain, thanks to the competitive tension between the agents. Interestingly, however, the amount of such a compelling power significantly varies with respect to the information available to the agents, and the degree of correlation between the principal's and the agent's utility. Technically, we conduct a comprehensive study on the multi-agent delegated search problem and derive several results on the approximation factors of Bayesian/prior-independent mechanisms in complete/incomplete information settings. As a special case of independent interest, we obtain comparative statics regarding the number of agents which implies the dominance of the multi-agent setting ($n \ge 2$) over the single-agent setting ($n=1$) in terms of the principal's utility. We further extend our problem by considering an examination cost of the mechanism and derive some analogous results in the complete information setting. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.03203&r=mic |
| By: | Guido Menzio |
| Abstract: | I study a version of the search-theoretic model of imperfect competition by Burdett and Judd (1983) in which sellers face a strictly increasing rather than a constant marginal cost of production. The equilibrium exists and is unique, and its structure depends on the extent of search frictions. If search frictions are large enough, the price distribution is non-degenerate and atomless. If search frictions are neither too large nor too small, the price distribution is non-degenerate with an atom at the lowest price. If search frictions are small enough, the price distribution is degenerate. The equilibrium is efficient if and only if the price distribution is degenerate and, hence, if and only if search frictions are small enough. In contrast, in Burdett and Judd (1983), the equilibrium price distribution is always non-degenerate and atomless and the equilibrium is always efficient. As in Burdett and Judd (1983), the equilibrium goes from monopolistic to competitive as search frictions decline. |
| JEL: | D43 D83 J31 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31174&r=mic |
| By: | Foarta, Dana (Stanford U); Morelli, Massimo (Bocconi U and IGIER, Bocconi) |
| 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 political constituencies, and if these benefits are higher than the potential increase in administrative costs. Both benefits and costs are better understood by a reform drafter than by the other players involved in the reform process. This asymmetric information on the costs and benefits of complexity creates incentives for inefficiently complex 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 without overseers, as long as the drafters face informational constraints regarding the costs and benefits of complexity. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:4068&r=mic |
| By: | Olivier Compte (Paris School of Economics) |
| Abstract: | In dynamic environments, Q-learning is an adaptative rule that provides an estimate (a Q-value) of the continuation value associated with each alternative. A naive policy consists in always choosing the alternative with highest Q-value. We consider a family of Q-based policy rules that may systematically favor some alternatives over others, for example rules that incorporate a leniency bias that favors cooperation. In the spirit of Compte and Postlewaite [2018], we look for equilibrium biases (or Qb-equilibria) within this family of Q-based rules. We examine classic games under various monitoring technologies. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.12647&r=mic |
| By: | Yichuan Lou |
| Abstract: | A sender seeks to persuade a receiver by presenting evidence obtained through a sequence of private experiments. The sender has complete flexibility in his choice of experiments, contingent on the private experimentation history. The sender can disclose each experiment outcome credibly, but cannot prove whether he has disclosed everything. By requiring `continuous disclosure', I first show that the private sequential experimentation problem can be reformulated into a static one, in which the sender chooses a single signal to learn about the state. Using this observation, I derive necessary conditions for a signal to be chosen in equilibrium, and then identify the set of beliefs induced by such signals. Finally, I characterize sender-optimal signals from the concavification of his value function constrained to this set. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.04231&r=mic |
| By: | Gilles Saint-Paul (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Economists recommend to partly redistribute gains to losers from a structural reform, which in many cases may be required for making the reform politically viable. However, taxation is distortionary. Then, it is unclear that compensatory transfers can support a Pareto-improving reform. This paper provides sufficient conditions for this to occur, despite tax distortions. In a setting where preferences are isoelastic, deregulation is implementable in a Pareto-improving way through compensatory lump-sum transfers, despite that these are financed by distortionary taxes. In a more general setting, there always exist Pareto-improving reforms but they may involve tightening regulation for some goods. I show that if demand cross-price elasticities are not be too large and that the reform is not too unbalanced, deregulation is again implementable in a Pareto-improving way. Finally, I consider counter-examples where some people earn rents associated with informational or institutional frictions, or where non homothetic preferences may make the schemes considered here not viable. |
| Keywords: | Structural reform, Deregulation, Price controls, Pareto optimality, Taxation, Compensatory transfers |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:halshs-03238866&r=mic |
| By: | Yasunori Okumura |
| Abstract: | We consider linear orders of finite alternatives that are constructed by aggregating the preferences of individuals. We focus on a linear order that is consistent with the collective preference relation, which is constructed by one of the supermajority rules and modified using two procedures if there exist some cycles. One modification procedure uses the transitive closure, and the other uses the Suzumura consistent closure. We derive two sets of linear orders that are consistent with the (modified) collective preference relations formed by any of the supermajority rules. These sets of linear orders are closely related to those obtained through Tideman's ranked pairs method and the Schulze method. Finally, we consider two social choice correspondences whose output is one of the sets introduced above, and show that the correspondences satisfy the four properties: the extended Condorcet principle, the Pareto principle, the independence of clones, and the reversal symmetry. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.09419&r=mic |
| By: | John Geanakoplos (Cowles Foundation, Yale University); Herakles Polemarchakis (University of Warwick) |
| Abstract: | Any finite conversation can be rationalized. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2362&r=mic |
| By: | Taipov Mikhail (Department of Economics, Lomonosov Moscow State University) |
| Abstract: | Net Neutrality imposes many restrictions on the work of Internet service providers, which can significantly affect their profits and the welfare of other economic agents in the ISP market. This article analyzes the following rules established by the Net Neutrality: “zero price” rule and the prohibition of exclusive deals between ISPs and content providers. To study the implications of Net Neutrality, a game-theoretic model of the ISP market is being created, the unique feature of which is that content providers are divided into two following types: one large content provider that creates a large cross-network effect for consumers and is able to strike exclusive deals with ISPs in the absence of Net Neutrality; and many small content providers that create a small crossnetwork effect and aren’t able to influence the prices set by ISPs. This model allowed me to draw the following conclusions about the effects of Net Neutrality: Net Neutrality increases the profits of Internet service providers and reduces the profits of a large content provider; increases the total social welfare if a large content provider joins both ISPs in the absence of Net Neutrality. The impact of net neutrality on consumer surplus and profits of small content providers depends on the exclusivity of a large content provider in the absence of net neutrality. |
| Keywords: | net Neutrality, content providers, exclusivity, platforms, social welfare |
| JEL: | C65 C79 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:upa:wpaper:0054&r=mic |
| By: | Dorje C. Brody; Tomooki Yuasa |
| Abstract: | The probability of a given candidate winning a future election is worked out in closed form as a function of (i) the current support rates for each candidate, (ii) the relative positioning of the candidates within the political spectrum, (iii) the time left to the election, and (iv) the rate at which noisy information is revealed to the electorate from now to the election day, when there are three or more candidates. It is shown, in particular, that the optimal strategy for controlling information can be intricate and nontrivial, in contrast to a two-candidate race. A surprising finding is that for a candidate taking the centre ground in an electoral competition among a polarised electorate, certain strategies are fatal in that the resulting winning probability for that candidate vanishes identically. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.00693&r=mic |
| By: | Georgy Egorov; Konstantin Sonin |
| Abstract: | Many, if not most, personalistic dictatorships end up with a disastrous decision such as Hitler’s attack on the Soviet Union, Hirohito’s government launching a war against the United States, or Putin’s invasion of Ukraine in February 2022. Even if the decision is not ultimately fatal for the regime, such as Mao’s Big Leap Forward or the Pol Pot’s collectivization drive, they typically involve both a monumental miscalculation and an institutional environment in which better-informed subordinates have no chance to prevent the decision from being implemented. We offer a dynamic model of non-democratic politics, in which repression and bad decision-making are self-reinforcing. Repressions reduce the threat, yet raise the stakes for the incumbent; with higher stakes, the incumbent puts more emphasis on loyalty than competence. Our theory sheds light on the mechanism of disastrous individual decisions in highly institutionalized authoritarian regimes. |
| JEL: | C73 D72 D83 P16 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31187&r=mic |
| By: | Jonathan Libgober; Beatrice Michaeli; Elyashiv Wiedman |
| Abstract: | This paper examines how uncertainty about the relevance of external signals (such as news about a competitor or about changes in macroeconomic factors) influences investor beliefs, market prices and voluntary disclosures by companies. Despite assuming independence between the signal relevance and the endowment with information of a firm manager, our results show that: (i) favorable external signals are perceived to be less relevant; (ii) because such signals are taken ``with a grain of salt, " the investor beliefs that the manager is endowed with unfavorable information are reinforced. As a consequence, a discontinuity in investor beliefs and non-monotonicity in stock prices may occur, such that more favorable external signals could paradoxically lead to a decrease in market valuation. In line with the growing empirical evidence in this area, our model predicts asymmetric price reactions to favorable and unfavorable news as well as potential price declines following firm disclosures. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.09262&r=mic |
| By: | Paolo Galeazzi; Johannes Marti |
| Abstract: | Following the decision-theoretic approach to game theory, we extend the analysis of Epstein & Wang and of Di Tillio from hierarchies of preference relations to hierarchies of choice functions. We then construct the universal choice structure containing all these choice hierarchies, and show how the universal preference structure of Di Tillio is embedded in it. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.11575&r=mic |
| By: | Mogens Fosgerau; John Rehbeck |
| Abstract: | Nontransitive choices have long been an area of curiosity within economics. However, determining whether nontransitive choices represent an individual's preference is a difficult task since choice data is inherently stochastic. This paper shows that behavior from nontransitive preferences under a monotonicity assumption is equivalent to a transitive stochastic choice model. In particular, nontransitive preferences are regularly interpreted as a strength of preference, so we assume alternatives are chosen proportionally to the nontransitive preference. One implication of this result is that one cannot distinguish ``complementarity in attention" and ``complementarity in demand." |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.14631&r=mic |
| By: | Edoardo Gallo; Joseph Lee; Yohanes Eko Riyanto; Erwin Wong |
| Abstract: | Social networks can sustain cooperation by amplifying the consequences of a single defection through a cascade of relationship losses. Building on Jackson et al. (2012), we introduce a novel robustness notion to characterize low cognitive complexity (LCC) networks - a subset of equilibrium networks that imposes a minimal cognitive burden to calculate and comprehend the consequences of defection. We test our theory in a laboratory experiment and find that cooperation is higher in equilibrium than in non-equilibrium networks. Within equilibrium networks, LCC networks exhibit higher levels of cooperation than non-LCC networks. Learning is essential for the emergence of equilibrium play. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.01209&r=mic |