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on Microeconomics |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study mechanism design when agents hold private information about both their preferences and a common payoff-relevant state. We show that standard message-driven mechanisms cannot implement socially efficient allocations when agents have multidimensional types, even under favorable conditions. To overcome this limitation, we propose data-driven mechanisms that leverage additional post-allocation information, modeled as an estimator of the pay-off relevant state. Our data-driven mechanisms extend the classic Vickrey-Clarke-Groves class. We show that they achieve exact implementation in posterior equilibrium when the state is either fully revealed or the utility is linear in an unbiased estimator. We also show that they achieve approximate implementation with a consistent estimator, converging to exact implementation as the estimator converges, and present bounds on the convergence rate. We demonstrate applications to digital advertising auctions and large language model (llm) - based mechanisms, where user engagement naturally reveals relevant information. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2418 |
| By: | Vitali Gretschko; Jasmina Simon |
| Abstract: | We examine a setting of independent private value auctions where bidders can covertly acquire gradual information about their valuations. We demonstrate that a dynamic pivot mechanism implements the first-best information acquisition and allocation rule. We apply our results to a commonly used model of auctions with information acquisition. The bidders are symmetric and information acquisition costs are moderate. Our analysis shows that the Dutch auction achieves near‐efficiency. That is, the welfare loss is bounded by the information acquisition cost of a single bidder. In contrast, the English auction may result in greater welfare losses. |
| Keywords: | Information acquisition, dynamic auctions, dynamic pivot mechanism |
| JEL: | D44 D82 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_616 |
| By: | Maximilian Kasy; Jann Spiess |
| Abstract: | What is the purpose of pre-analysis plans, and how should they be designed? We model the interaction between an agent who analyzes data and a principal who makes a decision based on agent reports. The agent could be the manufacturer of a new drug, and the principal a regulator deciding whether the drug is approved. Or the agent could be a researcher submitting a research paper, and the principal an editor deciding whether it is published. The agent decides which statistics to report to the principal. The principal cannot verify whether the analyst reported selectively. Absent a pre-analysis message, if there are conflicts of interest, then many desirable decision rules cannot be implemented. Allowing the agent to send a message before seeing the data increases the set of decisions rules that can be implemented, and allows the principal to leverage agent expertise. The optimal mechanisms that we characterize require pre-analysis plans. Applying these results to hypothesis testing, we show that optimal rejection rules pre-register a valid test, and make worst-case assumptions about unreported statistics. Optimal tests can be found as a solution to a linear-programming problem. |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1058 |
| By: | Junichiro Ishida; Wing Suen |
| Abstract: | We study a signaling game where agents signal their type by choosing when to quit pursuing an uncertain project. High types observe news about project quality and quit when bad news arrives. This creates opportunities for low types who do not observe any news to mimic high types by quitting strategically. In equilibrium, there is a mimicking phase of time when low types quit continuously. The reputation dynamics may exhibit non-monotonicity, with agents who quit either very early or very late carrying a higher reputation than do agents who quit near the optimal time for low types. Our analysis offers a unifying explanation for how and when both early and late quitting can enhance reputation and suggests novel welfare and policy implications. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1270 |
| By: | Martin Peitz; Anton Sobolev |
| Abstract: | A seller can offer an experience good directly to consumers and indirectly through an intermediary. When selling indirectly, the intermediary provides recommendations based on the consumer’s match value and the prices at which the product is sold. The intermediary faces the trade-off between extracting rents from consumers who strongly care about the match value versus providing less informative recommendations but also serving consumers who do not. We analyze the allocative and welfare effects of prohibiting price parity clauses and/or regulating the intermediary’s recommender system. Prohibiting price parity clauses is always welfare decreasing in our model. |
| Keywords: | intermediation, digital platforms, price parity, recommender system, MFN clause, e-commerce |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_595v2 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | When faced with budget-constrained bidders, all-pay auctions revenue-dominate standard auctions (first and second-price), which, in a competitive market, gives an edge to the all-pay format. An equilibrium in which sellers compete with standard auctions fails to exist if the all-pay format is available. Assuming the budget is not severely limited, in the unique symmetric equilibrium sellers compete with all-pay auctions. |
| Keywords: | All-pay Auctions, Budget Constraints, Directed Search, Competing Auctions |
| JEL: | D4 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/26 |
| By: | Miguel Risco; Manuel Lleonart-Anguix |
| Abstract: | This paper builds a theoretical model of communication and learning on a social media platform, and describes the algorithm an engagement-maximizing platform implements in equilibrium. This algorithm overexploits similarities between users, locking them in echo chambers. Moreover, learning vanishes as platform size grows large. As this is far from ideal, we explore alternatives. The reverse-chronological algorithm that social platforms reincorporated after the DSA was enacted turns out to be insufficient, so we construct the "breaking-echo-chambers" algorithm, which improves learning by promoting opposite viewpoints. Finally, we advocate for horizontal interoperability as a regulatory measure to align platform incentives with social welfare. By eliminating platform-specific network effects, interoperability incentivizes platforms to adopt algorithms that maximize user well-being. |
| Keywords: | personalized feed, social learning, network effects, interoperability |
| JEL: | D43 D85 L15 L86 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_580v2 |
| By: | Charles F. Manski |
| Abstract: | The relationship of policy choice by majority voting and by maximization of utilitarian welfare has long been discussed. I consider choice between a status quo and a proposed policy when persons have interpersonally comparable cardinal utilities taking values in a bounded interval, voting is compulsory, and each person votes for a policy that maximizes utility. I show that knowledge of the attained status quo welfare and the voting outcome yields an informative bound on welfare with the proposed policy. The bound contains the value of status quo welfare, so the better utilitarian policy is not known. The minimax-regret decision and certain Bayes decisions choose the proposed policy if its vote share exceeds the known value of status quo welfare. This procedure differs from majority rule, which chooses the proposed policy if its vote share exceeds 1/2. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.18714 |
| By: | Elizabeth Baldwin; Paul Klemperer; Edwin Lock |
| Abstract: | Product-mix auctions are sealed-bid mechanisms for trading multiple divisible or indivisible units of multiple differentiated goods. They implement competitive-equilibrium allocations when these exist, based on the bids that participants make in a simple geometric language. All concave substitutes (respectively, strong-substitutes) valuations can be uniquely represented, and no other valuations can be represented, by bids in the corresponding version of this language. This provides new characterisations of ordinary substitutes, and of strong substitutes, when goods are indivisible. We discuss implementation of the auctions, and extensions and variants of the language, e.g., allowing for budget constraints. |
| Date: | 2024–12–10 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1060 |
| By: | Anja Prummer; Francesco Squintani |
| Abstract: | Motivated by the recent surge in union drives, we present a theoretical model of the factors that influence unionization. An employee seeking to unionize their workplace assembles organizers to persuade coworkers to vote in favor. If unionization benefits workers, it is more likely to succeed when the organizers are credible. Credibility depends on the organizers not being overly biased and/or bearing significant organizational costs. Our theory explains why grassroots movements, rather than established unions, often succeed in organizing workplaces. Interestingly, the likelihood of successful unionization, when it benefits workers, is non-monotonic with respect to organizational costs. When such costs are low, a firm that opposes unionization and targets organizers may paradoxically increase the chances of success. However, the unionization drive is ineffective if the firm’s opposition is sufficiently strong, as this makes organizational costs prohibitive. |
| Keywords: | Unions, Labor Organization, Campaigns |
| JEL: | D71 D83 D23 |
| Date: | 2024–12–18 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0056 |
| By: | Seiya Hirano |
| Abstract: | This paper studies the relationship between optimal dynamic pricing for network goods and the coordination of consumers' adoption decisions. We show that based on risk dominance criterion, consumers face the risk of coordination failure, and introductory pricing is optimal if the risk is higher in period~1 without network. We find that under threshold coordination, the impact of price on the network size varies according to consumer beliefs. In pessimistic (optimistic) threshold coordination, the network size expands (shrinks) as the price increases. Lowering (Raising) the price in period~2 implies a smaller network size, so introductory (skim) pricing is optimal. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1267 |
| By: | Bardey, David (Universidad de los Andes); De Donder , Philippe (University of Toulouse); Leroux, Marie-Louise (Université catholique de Louvain) |
| Abstract: | We study a situation where physicians differing in their degree of altruism exert a diagnostic effort before deciding whether to test patients to determine the most appropriate treatment. The diagnostic effort generates an imperfect private signal of the patient’s type, while the test is perfect. At the laissez-faire, physicians exert insufficient diagnostic effort and rely excessively on testing. We show that the first-best allocation (where the degree of altruism is observable) can be decentralized by a payment scheme composed of i) a payfor- performance (P4P) part based on the number of correctly treated patients to ensure the provision of the optimal diagnostic effort, and of ii) a capitation part to ensure both the optimal testing decision and the participation of physicians. When physicians differ in their (non-observable) degree of altruism, the optimal contract is pooling rather than separating, an instance of non-responsiveness. Its uniform P4P component induces more altruistic physicians to exert a larger diagnostic effort while, to incentivize the second-best optimal testing decision, its capitation component must be contingent on the test cost. |
| Keywords: | diagnostic risk; personalized medicine; non-responsiveness; capitation payment; pay-for-performance; hidden action and hidden information. |
| JEL: | D82 D86 I18 |
| Date: | 2024–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021269 |
| By: | Alger, Ingela; Bayer, Péter |
| Abstract: | Norms indicate which behaviors are commonly expected and/or considered to be morally right. We examine how such norms come about and change by modeling a population of individuals with preferences – found elsewhere to be evolutionarily founded – combining ma-terial self-interest, Kantian moral concerns, and attitudes towards being materially ahead and behind others. The individuals interact in a public goods game. We identify conditions on preferences and beliefs which promote, respectively hamper, spontaneous norm change. Cru-cially, an individual’s preferences and beliefs about the material benefits uniquely determines her threshold for collective behavior: s/he contributes if and only if sufficiently many others do so. However, those with sufficiently strong Kantian concerns contribute regardless. |
| Keywords: | moral norms; descriptive norms; social norms; social-Kantian preferences |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130038 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | This paper presents a competitive search model focusing on the impact of asymmetric information on credit markets. We show that limited entry by lenders results in endogenous credit rationing, which, in turn, plays a key role in managing adverse selection and prevents the credit market from collapsing. |
| Keywords: | Asymmetric Information, Credit Rationing, Directed Search |
| JEL: | D82 D43 G20 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/25 |
| By: | Panova, Elena |
| Abstract: | This paper extends reputational cheap-talk model to study the effect of competition in the media on quality of news. We find that competition helps sustaining informative reporting when it covers is-sues on which the follow-up quality assessment is likely to be possible, such as various forecasts. However, it increases the elasticity of demand and thereby creates the incentives to confirm the common priors on controversial issues, such as politics. |
| Keywords: | quality of news; competition; reputational cheap-talk |
| JEL: | L82 L10 D82 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129948 |
| By: | Hikmet Gunay; Xin Meng; Victor Perez |
| Abstract: | In a second-price sequential auction with both global and local bidders, we explore the optimal order for selling heterogeneous goods to maximize efficiency or revenue. Our findings indicate that selling the good with very small variance (almost-zero variance) first yields higher revenue, while selling it second results in an efficient outcome with probability almost 1. We link the optimal selling order to the likelihood of various inefficient outcomes. Specifically, selling the good with small variance first increases the probability of ex-post loss for the global bidder, boosting the seller’s revenue at the expense of overall social welfare. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1271 |
| By: | Daeyoung Jeong; Tongseok Lim; Euncheol Shin |
| Abstract: | In various contexts, such as learning, social distancing behavior, and financial contagion, economic agents' decisions are interdependent and can be represented as a network. This paper investigates how a decision maker (DM) can design an optimal intervention while addressing uncertainty in the network structure. The DM's problem is modeled as a zero-sum game against an adversarial player, referred to as "Nature, " whose objective is to disrupt the DM's goals by reconfiguring the network into its most disadvantageous state. Using the principle of duality, we derive the DM's unique robust intervention strategy and identify the corresponding unique worst-case network structure determined by Nature. This framework provides insights into robust decision-making under network uncertainty, balancing the DM's objectives with Nature's adversarial actions. Moreover, we explore the costs of robustness and highlight the significance of higher-order uncertainties. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.00235 |
| By: | Matheus V. X. Ferreira; Yotam Gafni; Max Resnick |
| Abstract: | We consider a refinement to the notions of collusion-resistance in transaction fee mechanisms. In particular, we require that the collusion is by itself incentive-compatible and individually rational to all of its participants. We then study the structural properties of these notions, and importantly, characterize the class of collusion-resistant and incentive-compatible transaction fee mechanisms in the single bidder case, and show that this is exactly the class of posted-price where the price is not too prohibitive. We analyze welfare and revenue implications, as well as the shape of the solution space, for both regular and non-regular distributions. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.20853 |