|
on Microeconomics |
| By: | Massimo Marinacci; Giulio Principi; Lorenzo Stanca |
| Abstract: | We illustrate the strong implications of recursivity, a standard assumption in dynamic environments, on attitudes toward uncertainty. In intertemporal consumption choice problems, recursivity always implies constant absolute ambiguity aversion (CAAA) when applying the standard dynamic extension of monotonicity. Our analysis also yields a functional equation called “generalized rectangularity†, as it generalizes the standard notion of rectangularity for recursive maxmin preferences to general certainty equivalents. Our results highlight that if uncertainty aversion is modeled as a form of convexity of preferences, recursivity limits us to only recursive variational preferences. |
| Keywords: | Dynamic choice, recursive utility, uncertainty aversion, absolute attitudes, generalized rectangularity. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:695&r=mic |
| By: | Pablo R. Arribillaga (UNSL/CONICET); Eliana Pepa Risma (UNSL/CONICET) |
| Abstract: | In a many-to-one matching model, with or without contracts, where doctors’ preferences are private information and hospitals’ preferences are substitutable and public information, any stable matching rule could be manipulated for doctors. Since manipulations can not be completely avoided, we consider the concept of obvious manipulations and look for stable matching rules that prevent at least such manipulations (for doctors). For the model with contracts, we prove that: (i) the doctor-optimal matching rule is non-obviously manipulable and (ii) the hospital-optimal matching rule is obviously manipulable, even in the one-to-one model. In contrast to (ii), for a many-to-one model without contracts, we prove that the hospital-optimal matching rule is not obviously manipulable.Furthermore, if we focus on quantile stable rules, then we prove that the doctor-optimal matching rule is the only non-obviously manipulable quantile stable rule |
| Keywords: | obvious manipulations, matching, contracts |
| JEL: | D71 D72 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:257&r=mic |
| By: | Guru Guruganesh; Jon Schneider; Joshua Wang; Junyao Zhao |
| Abstract: | We study the power of menus of contracts in principal-agent problems with adverse selection (agents can be one of several types) and moral hazard (we cannot observe agent actions directly). For principal-agent problems with $T$ types and $n$ actions, we show that the best menu of contracts can obtain a factor $\Omega(\max(n, \log T))$ more utility for the principal than the best individual contract, partially resolving an open question of Guruganesh et al. (2021). We then turn our attention to randomized menus of linear contracts, where we likewise show that randomized linear menus can be $\Omega(T)$ better than the best single linear contract. As a corollary, we show this implies an analogous gap between deterministic menus of (general) contracts and randomized menus of contracts (as introduced by Castiglioni et al. (2022)). |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.12667&r=mic |
| By: | Daron Acemoglu; Alireza Fallah; Ali Makhdoumi; Azarakhsh Malekian; Asuman Ozdaglar |
| Abstract: | Many platforms deploy data collected from users for a multitude of purposes. While some are beneficial to users, others are costly to their privacy. The presence of these privacy costs means that platforms may need to provide guarantees about how and to what extent user data will be harvested for activities such as targeted ads, individualized pricing, and sales to third parties. In this paper, we build a multi-stage model in which users decide whether to share their data based on privacy guarantees. We first introduce a novel mask-shuffle mechanism and prove it is Pareto optimal—meaning that it leaks the least about the users’ data for any given leakage about the underlying common parameter. We then show that under any mask-shuffle mechanism, there exists a unique equilibrium in which privacy guarantees balance privacy costs and utility gains from the pooling of user data for purposes such as assessment of health risks or product development. Paradoxically, we show that as users’ value of pooled data increases, the equilibrium of the game leads to lower user welfare. This is because platforms take advantage of this change to reduce privacy guarantees so much that user utility declines (whereas it would have increased with a given mechanism). Even more strikingly, we show that platforms have incentives to choose data architectures that systematically differ from those that are optimal from the user’s point of view. In particular, we identify a class of pivot mechanisms, linking individual privacy to choices by others, which platforms prefer to implement and which make users significantly worse off. |
| JEL: | D62 D83 L86 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31413&r=mic |
| By: | Mella-Barral, P.; Sabourian, H. |
| Abstract: | Firms can voluntarily create independent firms to implement their technologically distant innovations and capture their value through capital markets. We argue that when firms repeatedly compete to make innovations, there is inefficient external implementation of innovations and “excessive†creation of such firms. This inefficiency is most exacerbated in the early stages of an industry, when the number of firms is still limited. |
| Keywords: | Repeated Innovations, Spin-Offs, Voluntary Firm Creation |
| JEL: | M13 O31 O33 |
| Date: | 2023–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2347&r=mic |
| By: | Dean Corbae; Andrew Glover; Michael Nattinger |
| Abstract: | We develop a simple equilibrium model of rental markets for housing in which eviction occurs endogenously. Both landlords and renters lack commitment; a landlord evicts a delinquent tenant if they do not expect total future rent payments to cover costs, while tenants cannot commit to paying more rent than they would be able or willing to pay given their outside option of searching for a new house. Renters who are persistently delinquent are more likely to be evicted and pay more per quality-adjusted unit of housing than renters who are less likely to be delinquent. Evictions are never socially optimal, and lead to lower quality investment in housing and too few vacancies relative to the socially optimal allocation. In our calibrated model, housing externalities widen the gap in housing access and quality between relatively high- and low-earning renters. Finally, government policies that restrict landlords’ ability to evict can improve welfare, though a full moratorium on evictions should be reserved for crises; rent support is generally a better policy than restricting evictions. |
| Keywords: | eviction; rental burden; housing externalities; housing supply |
| JEL: | R31 R21 R38 |
| Date: | 2023–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:96414&r=mic |
| By: | Tetsutaro Hatakeyama (Graduate School of Economics, Keio University) |
| Abstract: | We study sequential assignment systems in which objects are assigned to agents in multiple stages. While such systems are prevalent in real-life school choice and college admissions, Dur and Kesten (2019) show that these systems are neither non-wasteful nor straightforward in general. To overcome this negative observation, we consider a model in which the mechanism designer chooses an allocation schedule, i.e., in which stage to allocate each object, as well as the allocation mechanisms it uses within a system. Our analysis newly reveals that (i) in general, no allocation schedules avoid wastefulness/non-straightforwardness and (ii) a nonwasteful/straightforward allocation schedule exists if and only if the preference domain is "tiered." This result supports practices in which the tiered domain naturally arises (e.g., Chinese college admissions practice). However, this also highlights the difficulty of sequential assignments in more diverse preference domains. |
| Keywords: | sequential assignment system, non-wastefulness, straightforwardness, tiered domain |
| JEL: | C78 D47 D61 D78 |
| Date: | 2023–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2023-012&r=mic |
| By: | Philippe Jehiel (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, UCL - University College of London [London]); Giacomo Weber (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: | Families of normal-form two-player games are categorized by players into K analogy classes applying the K-means clustering technique to the data generated by the distributions of opponent's behavior. This results in Calibrated Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions are derived from the strategies by the K-means clustering algorithm. We discuss various concepts formalizing this, and observe that distributions over analogy partitions are sometimes required to guarantee existence. Applications to games with linear best-responses are discussed highlighting the differences between strategic complements and strategic substitutes. |
| Keywords: | K-mean clustering, Analogy-based Expectation Equilibrium K-mean clustering |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04154234&r=mic |
| By: | Luca Colombo (Rennes School of Business, Rennes); Paola Labrecciosa (ESSCA School of Management (Paris Campus)); Agnieszka Rusinowska (CNRS, Paris School of Economics, Centre d'Economie de la Sorbonne) |
| Abstract: | We take a novel approach based on differential games to the study of criminal networks. We extend the static crime network game (Ballester et al., 2006, 2010) to a dynamic setting where criminal activities negatively impact the accumulation of total wealth in the economy. We derive a Markov Perfect Equilibrium (MPE), which is unique within the class of strategies considered, and show that, unlike in the static crime network game, the vector of equilibrium crime efforts is not necessarily proportional to the vector of Bonacich centralities. Next, we conduct a comparative dynamic analysis with respect to the network size, the network density, and the marginal expected punishment, finding results in contrast with those arising in the static crime network game. We also shed light on a novel issue in the network theory literature, i.e., the existence of a voracity effect. Finally, we study the problem of identifying the optimal target in the population of criminals when the planner's objective is to minimize aggregate crime at each point in time. Our analysis shows that the key player in the dynamic and the static setting may differ, and that the key player in the dynamic setting may change over time |
| Keywords: | differential games; Markov Perfect Equilibrium; criminal networks; Bonacich centrality; key player |
| JEL: | C73 D85 K42 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:22006r&r=mic |
| By: | Lorenzo Stanca |
| Abstract: | Models of recursive utility are of central importance in many economic applications. This paper investigates a new behavioral feature exhibited by these models: aversion to risks that exhibit persistence (positive autocorrelation) through time, referred to as correlation aversion. I introduce a formal notion of such a property and provide a characterization based on risk attitudes, and show that correlation averse preferences admit a specific variational representation. I discuss how these findings imply that attitudes toward correlation are a crucial behavioral aspect driving the applications of recursive utility in fields such as asset pricing, climate policy, and optimal fiscal policy. |
| Keywords: | Intertemporal substitution, risk aversion, correlation aversion, recursive utility, preference for early resolution of uncertainty, information. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:693&r=mic |