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on Microeconomics |
| By: | Francesc Dilmé |
| Abstract: | This paper studies repeated trade with noisy information about previous transactions. A buyer has private information about his willingness to pay, which is either low or high, and buys goods from different sellers over time. Each seller observes a noisy history of signals about the buyer’s previous purchases and sets a price. We compare the cases where previous prices are observable to sellers with the case where they are not. We show that more signal precision is counterbalanced by two equilibrium mechanisms that slow learning and keep incentives in balance: (1) sellers offer discounted prices more often, and (2) the buyer rejects high prices with a higher probability. The effect of making prices observable depends on the signal precision: When the signal is imprecise, making prices public strengthens the discounting mechanism, improving efficiency and buyer welfare; when the signal is precise, making prices public activates the rejection mechanism, and efficiency and buyer welfare may decrease. Independently of the price observability, the buyer tends to benefit from a more precise signal about previous purchases. |
| Keywords: | Repeated Trade, Asymmetric Information, Internet Cookies |
| JEL: | C73 C78 D82 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_538&r=mic |
| By: | Cemil Selcuk |
| Abstract: | This note pursues two primary objectives. First, we analyze the outcomes of an all-pay auction within a store where buyers with and without financial constraints arrive at varying rates, and where buyer types are private information. Second, we investigate the selection of an auction format (comprising first-price, second-price, and all-pay formats) in a competitive search setting, where sellers try to attract customers. Our results indicate that if the budget constraint is not too restrictive, the all-pay rule emerges as the preferred selling format in the unique symmetric equilibrium. This is thanks to its ability to prompt buyers to submit lower bids, thereby generally avoiding budget constraints, while allowing the seller to collect all bids. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.08762&r=mic |
| By: | Günnur Ege Bilgin |
| Abstract: | I analyze a canonical many-to-one matching market within a decentralized search model with frictions, where a finite number of firms and workers meet randomly until the market clears. I compare the stable matchings of the underlying market and equilibrium outcomes when time is nearly costless. In contrast to the case where each firm has just a single vacancy, I show that stable matchings are not obtained as easily. In particular, there may be no Markovian equilibrium that uniformly implements either the worker- or the firm-optimal stable matching in every subgame. The challenge results from the firms’ ability to withhold capacity strategically. Yet, this is not the case for markets with vertical preferences on one side, and I construct the equilibrium strategy profile that leads to the unique stable matching almost surely. Moreover, multiple vacancies enable firms to implicitly collude and achieve unstable but firm-preferred matchings, even under Markovian equilibria. Finally, I identify one sufficient condition on preferences to rule out such opportunities. |
| Keywords: | many-to-one matching, decentralized matching, stability |
| JEL: | C78 D83 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_541&r=mic |
| By: | Günnur Ege Bilgin; Cavit Görkem Destan |
| Abstract: | We present a model demonstrating politicians strategically adopt extreme positions even when the voters are homogeneous and moderate. We examine the behavior of voters and electoral candidates under the assumption that the salience of political issues affects voting decisions through voter preferences. Voters have limited attention, which is unintentionally captured by distinctive policies. We demonstrate that candidates who differ in their budget constraints and voters with such limited attention can account for extremist policies, even though voters are identical in their preferences. Subsequently, we examine the elections with decoy candidates unlikely to win. Even though these candidates do not attract the voters, they might still influence the election outcome by altering salience. Moreover, we provide experimental evidence that salience affects consumer preferences and election outcomes using a representative sample of Turkey's vote base. |
| Keywords: | salience bias, extremism |
| JEL: | D72 D91 C9 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_542&r=mic |
| By: | Debraj Ray; Rajiv Vohra |
| Abstract: | We axiomatically characterize bargaining outcomes in the presence of coalitional threats. As in Nash’s solution, these involve the product of payoffs net of disagreement points, but coalitional threats appear as conventional constraints, and are not netted out from payoffs as disagreement points are. This asymmetry is implied by a new “expansion axiom†(along with standard axioms), one that is automatically satisfied in the standard bargaining problem. We then endogenize coalitional threats using internal consistency, requiring coalitions to be constrained by their subcoalitions just as the grand coalition is. For games with convex payoff sets, this consistent solution coincides with one in which the only threat from each coalition is their “standard†Nash solution, unconstrained by subcoalitions. For transferable-utility games, this observation uncovers a connection between the coalitional solution and the egalitarian solution of Dutta and Ray (1989, 1991). |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:bro:econwp:2024-001&r=mic |
| By: | Gabriele Camera (Economic Science Institute, Chapman University); Alessandro Gioffré (University of Florence) |
| Abstract: | The literature on cooperation in infinitely repeated Prisoner’s Dilemmas covers the extreme opposites of the matching spectrum: partners, a player’s opponent never changes, and strangers, a player’s opponent randomly changes in every period. Here, we extend the analysis to settings where the opponent changes, but not in every period. In these temporary partnerships, players can deter some deviations by directly sanctioning their partner. Hence, relaxing the extreme assumption of one-period matchings can support some cooperation also off equilibrium because a class of strategies emerges that are less extreme than the typical “grim†strategy. We establish conditions supporting full cooperation as a subgame perfect equilibrium under a social norm that complements direct sanctions with a cyclical community sanction. Though this strategy less effectively incentivizes cooperation, it more effectively incentivizes punishment after a deviation, hence, can be preferable to the grim strategy under certain conditions. |
| Keywords: | prisoner’s dilemma, random matching, social norms |
| JEL: | E4 E5 C7 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:24-07&r=mic |
| By: | Alkis Georgiadis-Harris; Maxi Guennewig; Yuliyan Mitkov |
| Abstract: | Since Diamond and Dybvig (1983), banks have been viewed as inherently fragile. We challenge this view in a general mechanism design framework, where we allow for flexibility in the design of banking mechanisms while maintaining limited commitment of the intermediary to future mechanisms. We őnd that the unique equilibrium outcome is efficient. Consequently, runs cannot occur in equilibrium. Our analysis points to the ultimate source of fragility: banks are fragile if they cannot collect and optimally respond to useful information during a run and not because they engage in maturity transformation. We link our banking mechanisms to recent technological advances surrounding ‘smart contracts, ’ which enrich the practical possibilities for banking arrangements. |
| Keywords: | Bank runs, financial fragility, mechanism design, limited commitment, smart contracts |
| JEL: | D82 G2 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_540&r=mic |
| By: | Yuhki Hosoya |
| Abstract: | To study the assumption that the utility maximization hypothesis implicitly adds to consumer theory, we consider a mathematical representation of pre-marginal revolution consumer theory based on subjective exchange ratios. We introduce two axioms on subjective exchange ratio, and show that both axioms hold if and only if consumer behavior is consistent with the utility maximization hypothesis. Moreover, we express the process for a consumer to find the transaction stopping point in terms of differential equations, and prove that the conditions for its stability are equal to the two axioms introduced in the above argument. Therefore, the consumer can find his/her transaction stopping point if and only if his/her behavior is consistent with the utility maximization hypothesis. In addition to these results, we discuss equivalence conditions for axioms to evaluate their mathematical strength, and methods for expressing the theory of subjective exchange ratios in terms of binary relations. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.10931&r=mic |
| By: | Derek Neal; Joseph Root |
| Abstract: | Research on centralized school assignment mechanisms often focuses on whether parents who participate in specific mechanisms are likely to truthfully report their preferences or engage in various costly strategic behaviors. However, a growing literature suggests that parents may not know enough about the school options available to them to form complete preference rankings. We develop a simple model that explains why it is not surprising that many participants in school assignment mechanisms possess limited information about the schools available to them. We then discuss policies that could improve both the information that participants bring to school assignment mechanisms and the quality of the schools in their choice sets. |
| JEL: | I20 I28 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32378&r=mic |
| By: | Miller, David A; Watson, Joel |
| Keywords: | Economics, Applied Economics, Economic Theory, equilibrium selection, active contracting, bargaining power, relationships, Applied economics, Economic theory |
| Date: | 2023–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:qt2dg817mv&r=mic |
| By: | Ponthiere, Gregory; Stevens, Nicolas |
| Abstract: | Dewatripont and Tirole (2024) defend the morality of markets on the ground of an irrelevance result: the social production of moral actions is independent from competitive pressure on markets. No matter how strong competitive pressure is, markets perform well in diffusing signals about moral values and in coordinating suppliers of moral actions. In this comment, we argue, on the contrary, that markets lead to a double crowding out of moral values: first, imperfect transmission of moral values on markets leads to an underproduction of moral actions despite the presence of highly ethical suppliers; second, competitive pressure on markets favors the eviction of highly ethical suppliers by less ethical suppliers. |
| Keywords: | competition, markets, morality, crowding out |
| JEL: | D21 D6 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1433&r=mic |
| By: | Federico Fioravanti; Ulle Endriss |
| Abstract: | The Plurality rule for linear orders selects the alternatives most frequently appearing in the first position of those orders, while the Anti-Plurality rule selects the alternatives least often occurring in the final position. We explore extensions of these rules to partial orders, offering axiomatic characterizations for these extensions. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.17413&r=mic |
| By: | E. Emanuel Rapsch |
| Abstract: | A general theory of stochastic decision forests reconciling two concepts of information flow -- decision trees and refined partitions on the one hand, filtrations from probability theory on the other -- is constructed. The traditional "nature" agent is replaced with a one-shot lottery draw that determines a tree of a given decision forest, while each "personal" agent is equipped with an oracle providing updates on the draw's result and makes partition refining choices adapted to this information. This theory overcomes the incapacity of existing approaches to extensive form theory to capture continuous time stochastic processes like Brownian motion as outcomes of "nature" decision making in particular. Moreover, a class of stochastic decision forests based on paths of action indexed by time is constructed, covering a large fraction of models from the literature and constituting a first step towards an approximation theory for stochastic differential games in extensive form. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.12332&r=mic |
| By: | Pedro Teles; João Guerreiro; Sérgio Rebelo |
| Abstract: | We consider an environment in which there is substantial uncertainty about the potential adverse external effects of AI algorithms. We find that subjecting algorithm implementation to regulatory approval or mandating testing is insufficient to implement the social optimum. When testing costs are low, a combination of mandatory testing for external effects and making developers liable for the adverse external effects of their algorithms comes close to implementing the social optimum even when developers have limited liability. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202319&r=mic |