|
on Microeconomics |
| By: | Johannes Johnen; Robin Ng |
| Abstract: | Evidence suggests lower prices lead to better ratings, but better ratings induce firms to charge higher prices in the future. We model that consumers are only willing to make the effort to rate a seller if this seller provides a sufficient value-for-money. Using this model, we explore how firms use prices to impact their own ratings. We show that firms harvest ratings: they offer lower prices in early periods to trigger consumers to leave a good rating in order to earn larger profits in the future. Because especially low-quality firms harvest ratings, harvesting makes ratings less-informative about quality. Based on this mechanism, (i) we argue that rating harvesting causes rating inflation; (ii) we show that a marketplace that facilitates ratings (e.g. through reminders, one-click ratings etc.) may get more ratings, but also less-informative ratings; (iii) a marketplace that screens the quality of sellers makes ratings less-informative if the screening is insufficient. Counter to the conventional wisdom that consumers benefit from ratings via the information they transmit, we show that consumers prefer somewhat, but never fully informative ratings. Nonetheless consumers prefer more-informative ratings than average sellers. We apply these results to characterise when a two-sided platform wants to facilitate ratings. Our results suggest that efforts of major platforms to facilitate ratings may have lead to less-informative ratings, and possibly also shifted surplus from consumers to sellers. |
| Keywords: | Rating and reviews, digital economy, reputation |
| JEL: | D21 D83 L10 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_509v2&r= |
| By: | Luca Picariello (University of Naples "Federico II" and CSEF); Alexander Rodivilov (School of Business, Stevens Institute of Technology.) |
| Abstract: | We study a framework in which agents can generate signals to increase their expected productivity. Such signals can be generated in heterogeneous environments: a flexible system in which the agent can freely allocate effort across different tasks, and a rigid system in which the agent must devote effort to all tasks. We provide sufficient and necessary conditions for optimal experimentation in each system. Experimentation is less likely if the agent has high bargaining power. Competition within the Flexible system makes specialization more likely. When agents from different systems compete, there is a unique equilibrium where both agents experiment if the Rigid System is restrictive enough. |
| Keywords: | Career Concerns, Experimentation, Learning. |
| JEL: | D61 D83 I21 I23 I28 J63 J65 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:724&r= |
| By: | Marc Claveria-Mayol |
| Abstract: | I study a moral hazard problem between a principal and multiple agents who experience positive peer effects represented by a (weighted) network. Under the optimal linear contract, the principal provides high-powered incentives to central agents in the network in order to exploit the larger incentive spillovers such agents create. The analysis reveals a novel measure of network centrality that captures rich channels of direct and indirect incentive spillovers and characterizes the optimal contract and its induced equilibrium efforts. The notion of centrality relevant for incentive spillovers in the model emphasizes the role of pairs of agents who link to common neighbors in the network. This characterization leads to a measure of marginal network effects and identifies the agents whom the principal targets with stronger incentives in response to the addition (or strengthening) of a link. When the principal can position agents with heterogeneous costs of effort in the network, the principal prefers to place low-cost agents in central positions. The results shed light on how firms can increase productivity through corporate culture, office layout, and social interactions. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11660&r= |
| By: | Victor Augias; Alexis Ghersengorin; Daniel M. A. Barreto |
| Abstract: | Consumer data can be used to sort consumers into different market segments, allowing a monopolist to charge different prices at each segment. We study consumer-optimal segmentations with redistributive concerns, i.e., that prioritize poorer consumers. Such segmentations are efficient but may grant additional profits to the monopolist, compared to consumer-optimal segmentations with no redistributive concerns. We characterize the markets for which this is the case and provide a procedure for constructing optimal segmentations given a strong redistributive motive. For the remaining markets, we show that the optimal segmentation is surprisingly simple: it generates one segment with a discount price and one segment with the same price that would be charged if there were no segmentation. We also show that a regulator willing to implement the redistributive-optimal segmentation does not need to observe precisely the composition and the frequency of each market segment, the aggregate distribution over prices suffices. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.14174&r= |
| By: | Bo Peng; Zhihao Gavin Tang |
| Abstract: | We consider the robust contract design problem when the principal only has limited information about the actions the agent can take. The principal evaluates a contract according to its worst-case performance caused by the uncertain action space. Carroll (AER 2015) showed that a linear contract is optimal among deterministic contracts. Recently, Kambhampati (JET 2023) showed that the principal's payoff can be strictly increased via randomization over linear contracts. In this paper, we characterize the optimal randomized contract, which remains linear and admits a closed form of its cumulative density function. The advantage of randomized contracts over deterministic contracts can be arbitrarily large even when the principal knows only one non-trivial action of the agent. Furthermore, our result generalizes to the model of contracting with teams, by Dai and Toikka (Econometrica 2022). |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11528&r= |
| By: | Jiadong Gu |
| Abstract: | This paper studies optimal mechanisms for collecting and trading data. Consumers benefit from revealing information about their tastes to a service provider because this improves the service. However, the information is also valuable to a third party as it may extract more revenue from the consumer in another market called the product market. The paper characterizes the constrained optimal mechanism for the service provider subject to incentive feasibility. It is shown that the service provider sometimes sells no information or only partial information in order to preserve profits in the service market. In a general setup, the service provision distortion and no-price discrimination in the product market are exclusive. Moreover, a ban on data trade may reduce social welfare because it makes it harder to price discriminate in the product market. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.12457&r= |
| By: | Chongwoo Choe; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | We study the GDPR's opt-in requirement in a model with a firm that provides a digital service and consumers who are heterogeneous in their valuations of the firm's service as well as the privacy costs incurred when sharing personal data with the firm. We show that the GDPR boosts demand for the service by allowing consumers with high privacy costs to buy the service without sharing data. The increased demand leads to a higher price but a smaller quantity of shared data. If the firm's revenue is largely usage-based rather than data-based, then both the firm's profit and consumer surplus increase after the GDPR, implying that the GDPR can be welfare-improving. But if the firm's revenue is largely from data monetization, then the GDPR can reduce the firm's profit and consumer surplus. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1246&r= |
| By: | Elia Sartori (CSEF) |
| Abstract: | We study the distribution of goods that are freely duplicated and damaged. The monopolist solves a screening problem that is not cost-separable and requires a concave-linear preference specification to generate nontrivial allocations, associated with two interdependent inefficiencies: underacquisition and damaging. In a game where firms acquire market power through an irreversible investment, both monopoly and active competition emerge as equilibria. Despite worsening underacquisition and inducing double-spending, competition may increase welfare because it mitigates the damaging inefficiency by distributing a version for free. We discuss an application to information markets, where experts produce a signal and sell Blackwell-garbled versions of it. |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:719&r= |
| By: | Schmitz, Patrick W. |
| Abstract: | Consider a government and a non-governmental organization (NGO) who can collaborate to provide a public good using physical assets. Who should be the owner of the assets if the NGO can make non-contractible investments? In the literature it has been argued that whoever has a larger valuation of the public good should be the owner. Yet, this result was derived under the assumption of symmetric information. We study the case in which the NGO gets privately informed about the quality of the public good. It turns out that public ownership becomes more attractive if the probability of a high quality is relatively small, whereas ownership by the NGO becomes more attractive otherwise. |
| Keywords: | public goods; property rights; investment incentives; asset ownership; incomplete contracts |
| JEL: | C78 D23 D86 H41 L31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121333&r= |
| By: | Marc Claveria-Mayol; Pau Mil\'an; Nicol\'as Oviedo-D\'avila |
| Abstract: | Risk-averse workers in a team exert effort to produce joint output. Workers' incentives are connected via chains of productivity spillovers, represented by a network of peer-effects. We study the problem of a principal offering wage contracts that simultaneously incentivize and insure agents. We solve for the optimal linear contract for any network and show that optimal incentives are loaded more heavily on workers that are more central in a specific way. We conveniently link firm profits to network structure via the networks spectral properties. When firms can't personalize contracts, better connected workers extract rents. In this case, a group composition result follows: large within-group differences in centrality can decrease firm's profits. Finally, we find that modular production has important implications for how peer structures distribute incentives. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11712&r= |
| By: | Wanying Huang |
| Abstract: | We study whether individuals can learn the informativeness of their information technology through social learning. As in the classic sequential social learning model, rational agents arrive in order and make decisions based on the past actions of others and their private signals. There is uncertainty regarding the informativeness of the common signal-generating process. We show that learning in this setting is not guaranteed, and depends crucially on the relative tail distributions of private beliefs induced by uninformative and informative signals. We identify the phenomenon of perpetual disagreement as the cause of learning and characterize learning in the canonical Gaussian environment. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.05299&r= |
| By: | Federica Carannante (Princeton University); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Elia Sartori (CSEF) |
| Abstract: | We analyze how the seller adjusts the reserve price in infinitely repeated auctions using the information conveyed by past bids. Bidders are myopic and have constant valuations; losers are replaced by new bidders, and winners leave with an exogenous probability. Our model is a stylized description of the market for online display advertisements, where publishers sell impressions through real-time first- or second-price auctions. The optimal reserve price is either equal to the value of the last winner, or lower than it when the winner’s value is sufficiently high. In this second case, the reserve price decreases in the winner’s value in a first-price auction, while it is independent of it in a second-price auction. Because past winners who are outbid substitute for the reserve price in a second-price auction, the seller often sets a lower reserve price and obtains a higher revenue than in a first-price auction. Long-run trade may be non-monotonic in the probability that winners leave. |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:720&r= |
| By: | Pierre Bardier; Bach Dong-Xuan; Van-Quy Nguyen |
| Abstract: | We propose a new model of incomplete preferences under uncertainty, which we call unanimous dual-self preferences. Act f is considered more desirable than act g when, and only when, both the evaluation of an optimistic self, computed as the welfare level attained in a best-case scenario, and that of a pessimistic self, computed as the welfare level attained in a worst-case scenario, rank f above g. Our comparison criterion involves multiple priors, as best and worst cases are determined among sets of probability distributions, and is, generically, less conservative than Bewley preferences and twofold multi-prior preferences, the two ambiguity models that are closest to ours |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11166&r= |
| By: | Bosco, Davide; Gilli, Mario |
| Abstract: | We study effort provision and incentivisation in a Tullock group-contest with m ≥ 2 groups that differ in size. A novel algorithmic procedure is presented that, under a symmetry assumption, explicitly characterises the equilibrium. Endogenous, optimal incentivisation schemes are then determined. Four results ensue. First, strategic interactions endogenously come in mean-field form: individual effort provision responds to the aggregate effort and average egalitarianism across groups. Therefore, the game is aggregative. Second, individuals endlessly cycle between zero and positive effort provision at some incentivisation schemes: no pure-strategy equilibria exist in these cases. Third, group size determines whether the egalitarianism of endogenous schemes increases or decreases in the average egalitarianism across groups. Fourth, all groups provide effort at the endogenous schemes if incentivisation is properly restricted. |
| Keywords: | Public Economics |
| Date: | 2024–06–18 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:343508&r= |
| By: | Christian Ghiglino; Nicole Tabasso |
| Abstract: | Interaction with individuals from other socioeconomic classes has been shown to be a main driver for social mobility. We employ tools of social identity theory and network analysis to show how exposure to individuals of different social identities can lead to interactions with them, and an adoption of their identity, creating social mobility. We find that even if all individuals have the same ability, they may endogenously choose different identities, leading to different classes and actions. In particular, we derive a sufficient condition for such an equilibrium to exist, which equates to a novel measure of cohesion. Furthermore, we show that the most socially mobile individuals (changing their identity) are those who either have few connections or a more heterogeneous mix of identities in their connections. Finally, we show that upward social mobility increases action levels in society, but not necessarily welfare. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.10972&r= |
| By: | Mridu Prabal Goswami |
| Abstract: | We consider one buyer and one seller. For a bundle $(t, q)\in [0, \infty[\times [0, 1]=\mathbb{Z}$, $q$ either refers to the wining probability of an object or a share of a good, and $t$ denotes the payment that the buyer makes. We define classical and restricted classical preferences of the buyer on $\mathbb{Z}$; they incorporate quasilinear, non-quasilinear, risk averse preferences with multidimensional pay-off relevant parameters. We define rich single-crossing subsets of the two classes, and characterize strategy-proof mechanisms by using monotonicity of the mechanisms and continuity of the indirect preference correspondences. We also provide a computationally tractable optimization program to compute the optimal mechanism. We do not use revenue equivalence and virtual valuations as tools in our proofs. Our proof techniques bring out the geometric interaction between the single-crossing property and the positions of bundles $(t, q)$s. Our proofs are simple and provide computationally tractable optimization program to compute the optimal mechanism. The extension of the optimization program to the $n-$ buyer environment is immediate. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.12279&r= |
| By: | Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Marialaura Pesce (Università di Napoli Federico II and CSEF); Vincenzo Platino (University of Naples Federico II and CSEF.) |
| Abstract: | The goal of this paper is to provide some new cooperative characterizations of competitive equilibria in pure exchange economies with consumption externalities. In this framework, several notions of equilibrium supported by prices are possible. The central notion analyzed in the paper is the one of A-equilibrium in which individual preferences are affected by consumption externalities in a very broad sense. Indeed, each individual i takes into account in her preferences the consumption of a group of agents Ai exogenously given. Following Hervés-Beloso and Moreno-García (2008), Hervés-Beloso et al. (2005), Hervés-Beloso and Moreno-García (2009), we show that the veto power of the grand coalition is enough to characterize A-equilibria despite the presence of externalities and provide applications in connection with strategic market games. Our results, for suitable choices of the sets Ai, imply characterizations of Walras-Nash, Berge, total and family equilibria of pure exchange economies with externalities. |
| Keywords: | Exchange economy, consumption externalities, Aubin core, Edgeworth equilibria, robust efficiency, two-player games. |
| JEL: | C71 D51 D62 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:726&r= |
| By: | Tuval Danenberg; Drew Fudenberg |
| Abstract: | We study the impact of endogenous attention in a dynamic model of social media sharing. Each period, a distinct user randomly draws a story from the pool of stories on the platform and decides whether or not to share it. Users want to share stories that are true and interesting, but differentiating true stories from false ones requires attention. Before deciding whether to share a story, users choose their level of attention based on how interesting the story is and the platform's current proportions of true and false stories. We characterize the limit behavior of the share of true stories using stochastic approximation techniques. For some parameter specifications, the system has a unique limit. For others, the limit is random -- starting from the same initial conditions, the platform may end up with very different proportions of true and false stories and different user sharing behavior. We present various comparative statics for the limit. Endogenous attention leads to a counterbalancing force to changes in the credibility of false stories but can intensify the effects of changes in false stories' production rate. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11024&r= |
| By: | Jose Apesteguia; Miguel A. Ballester; Ángelo Gutiérrez-Daza |
| Abstract: | This paper introduces the random discounted expected utility (RDEU) model, which we have developed as a means to deal with heterogeneous risk and time preferences. The RDEU model provides an explicit linkage between preference and choice heterogeneity. We prove it has solid comparative statics, discuss its identification, and demonstrate its computational convenience. Finally, we use two distinct experimental datasets to illustrate the advantages of the RDEU model over common alternatives for estimating heterogeneity in preferences across individuals. |
| Keywords: | Heterogeneity;Risk Preferences;Time Preferences;Comparative Statics;Random Utility Models |
| JEL: | C01 D01 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bdm:wpaper:2024-03&r= |
| By: | Anna Bogomolnaia; Herv\'e Moulin |
| Abstract: | In a general fair division model with transferable utilities we discuss endogenous lower and upper guarantees on individual shares of benefits or costs. Like the more familiar exogenous bounds on individual shares described by an outside option or a stand alone utility, these guarantees depend on my type but not on others' types, only on their number and the range of types. Keeping the range from worst share to best share as narrow as permitted by the physical constraints of the model still leaves a large menu of tight guarantee functions. We describe in detail these design options in several iconic problems where each tight pair of guarantees has a clear normative meaning: the allocation of indivisible goods or costly chores, cost sharing of a public facility and the exploitation of a commons with substitute or complementary inputs. The corresponding benefit or cost functions are all sub- or super-modular, and for this class we characterise the set of minimal upper and maximal lower guarantees in all two agent problems. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.14198&r= |