Theoretical Economics: Recent Articles
http://econtheory.org
Articles recently published or accepted for publicationSat, 12 Oct 2024 00:05:00 EDTen-usQueueing to learn
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/4814/40440/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/4814/40440/1Thu, 10 Oct 2024 00:00:00 EDTby <b>Chiara Margaria</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on October 10, 2024<p>Abstract: I study the efficient design of a queue to dynamically allocate a scarce resource to long-lived agents. Agents can be served multiple times, and their valuations fluctuate over time with some persistence. Each agent privately learns whether his prevailing valuation is high or low only when served. An agent can decide anytime whether to either join a queue of his choice or renege. I show that it is efficient to elicit agents' private information by offering a simple binary menu (i.e., two customer classes): a first-come, first-served queue, to attract low-value agents, and one in random order, to attract high-value agents. When queueing is costly, offering a single queue may be optimal because of the tradeoff between allocative efficiency and the cost of screening.An analytical model of search and bargaining with divisible money
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/6001/40427/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/6001/40427/1Wed, 09 Oct 2024 00:00:00 EDTby <b>Kazuya Kamiya and So Kubota</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on October 9, 2024<p>Abstract: We propose a standard search and bargaining model with divisible money, in which only the random matching market opens and the generalized Nash bargaining settles each trade. Assuming fixed production costs, we analytically characterize a tractable equilibrium, called a {\it pay-all equilibrium}, and prove its existence. Each buyer pays all the money holding as a corner solution to the bargaining problem and each seller produces a positive amount of goods as an interior solution. The bargaining power parameter affects the distribution of the money holdings and possibly induces economic inefficiency. We propose a redistributional monetary transfer that adjusts the bargaining outcome and improves the allocation efficiency. Moreover, we analyze a temporary expansion of the money supply that increases social welfare through a redistribution.Random utility coordination games on networks
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5653/40358/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5653/40358/1Tue, 01 Oct 2024 00:00:00 EDTby <b>Marcin Pęski</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on October 1, 2024<p>Abstract: Abstract. We study static binary coordination games with random utility played on networks. In equilibrium, each agent chooses an action only if a fraction of her neighbors choosing the same action is higher than an agent-specific i.i.d. threshold. A fuzzy convention x is a profile where (almost) all agents choose the high action if their threshold is smaller than x and the low action otherwise. The random-utility (RU) dominant outcome x^{*} is a maximizer of an integral of the distribution of thresholds. The definition generalizes Harsanyi-Selten's risk dominance to coordination games with random utility. We show that, on each sufficiently large and fine network, there is an equilibrium that is a fuzzy convention x^{*}. On some networks, including a city network, all equilibria are fuzzy conventions x^{*}. Finally, fuzzy conventions x^{*} are the only behavior that is robust to misspecification of the network structure.Efficient and strategy-proof mechanism under general constraints
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/6039/40298/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/6039/40298/1Tue, 24 Sep 2024 00:00:00 EDTby <b>Kenzo Imamura and Yasushi Kawase</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 24, 2024<p>Abstract: This study investigates efficient and strategy-proof mechanisms for allocating indivisible goods under constraints. First, we examine a setting without endowments. In this setting, we introduce a class of constraints, ordered accessibility, for which the serial dictatorship mechanism is Pareto-efficient (PE), individually rational (IR), and group strategy-proof (GSP). Then, we prove that accessibility is a necessary condition for the existence of PE, IR, and GSP mechanisms. Moreover, we show that the SD mechanism with a dynamically constructed order satisfies PE, IR, and GSP if one school has an arbitrary accessible constraint and each of the other schools has a capacity constraint. Second, we examine a setting with endowments. We find that the \emph{generalized matroid} is a necessary and sufficient condition on the constraint structure for the existence of a mechanism that is PE, IR, and strategy-proof (SP). We also demonstrate that a top trading cycles mechanism satisfies PE, IR, and GSP under any generalized matroid constraint. Finally, we observe that any two out of the three properties---PE, IR, and GSP---can be achieved under general constraints.Private sunspots in games of coordinated attack
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5927/40221/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5927/40221/1Tue, 17 Sep 2024 00:00:00 EDTby <b>Yuliyan Mitkov</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 17, 2024<p>Abstract: I endogenize the probability of self-fulfilling outcomes in a game where the only uncertainty comes from extrinsic sunspots. There is a group of players wishing to coordinate on the same action and another player, the regime defender, whose action affects the payoff from coordination. The coordinating players’ actions can be based on a sunspot state, which, unlike in the classic sunspot approach, is observed with a small, idiosyncratic noise (a private sunspot). I show how private sunspots, combined with the action of the regime defender, can be used to derive a unique coordination probability in any equilibrium where sunspots influence actions. I show how this approach can be used to determine the probability of a sunspot-driven bank run.Games with information constraints: seeds and spillovers
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5805/40220/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5805/40220/1Tue, 17 Sep 2024 00:00:00 EDTby <b>Simone Galperti and Jacopo Perego</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 17, 2024<p>Abstract: We study equilibrium behavior in incomplete-information games under two information constraints: seeds and spillovers. The former restricts which agents can initially receive information. The latter specifies how this information spills over to other agents. Our main result characterizes the equilibrium outcomes under these constraints, without making additional assumptions about the agents' initial information. This involves deriving a “revelation-principle” result for settings in which a mediator cannot communicate directly or privately with the agents. Our model identifies which spillovers are more restrictive and which seeds are more influential. We apply our results to a problem of optimal organization design.Adoption epidemics and viral marketing
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5886/40138/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5886/40138/1Mon, 09 Sep 2024 00:00:00 EDTby <b>David McAdams and Yangbo Song</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 9, 2024<p>Abstract: An innovation (e.g., new product or idea) spreads like a virus, transmitted by those who have previously adopted it. Agents update their beliefs about innovation quality based on private signals and when they hear about the innovation. We characterize equilibrium adoption dynamics and the resulting lifecycle of virally-spread innovations. Herding on adoption can occur but only early in the innovation lifecycle, and adoption eventually ceases for all virally-spread innovations. A producer capable of advertising directly to consumers finds it optimal to wait and allow awareness to grow virally initially after launch.Adversarial coordination and public information design
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5768/40137/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5768/40137/1Mon, 09 Sep 2024 00:00:00 EDTby <b>Nicolas A. Inostroza and Alessandro Pavan</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on September 9, 2024<p>Abstract: We study flexible public information design in global games. In addition to receiving public information from the designer, agents are endowed with exogenous private information and must decide between two actions (invest and not invest), the profitability of which depends on unknown fundamentals and the agents’ aggregate action. The designer does not trust the agents to play favorably to her and evaluates any policy under the “worst-case scenario.” First, we show that the optimal policy removes any strategic uncertainty by inducing all agents to take the same action, but without permitting them to perfectly learn the fundamentals and/or the beliefs that rationalize other agents’ actions. Second, we identify conditions under which the optimal policy is a simple “pass/fail” test. Finally, we show that when the designer cares only about the probability the aggregate investment is successful, the optimal policy need not be monotone in fundamentals but then identify conditions on payoffs and exogenous beliefs under which the optimal policy is monotone.Expected balanced uncertain utility
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5404/40039/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5404/40039/1Fri, 23 Aug 2024 00:00:00 EDTby <b>Simon Grant, Berend Roorda, and Jingni Yang</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 23, 2024<p>Abstract: We introduce and analyze expected balanced uncertain utility (EBUU) theory. A prior and a balanced outcome-set utility characterize an EBUU decision maker. Conditional on a reference or ``balancing value'', the latter assigns a utility to each outcome-set. The decision maker associates with each act, its envelope, the minimal measurable mapping from states to outcome-sets that contains the act. She then (implicitly) ranks an act according to the balancing value at which the expected balanced utility of its associated envelope is zero. As a consequence her risk preferences need only exhibit betweenness allowing or behavior that can accommodate Allais-type paradoxes.Dynamic economics with quantile preferences
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5454/40031/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5454/40031/1Thu, 22 Aug 2024 00:00:00 EDTby <b>Luciano I. de Castro, Antonio F. Galvao, and Daniel da Siva Nunes</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 22, 2024<p>Abstract: This paper studies a dynamic quantile model for intertemporal decisions under uncertainty, in which the decision maker maximizes the $\tau$-quantile of the stream of future utilities, for $\tau\in (0,1)$.
We present two sets of contributions.
First, we generalize existing results in directions that are important for applications.
In particular, the sets of choices and random shocks are general metric spaces, either connected or finite.
Moreover, the future state is not exclusively determined by agent's choice, but can also be influenced by shocks.
Under these generalizations, we establish the Principle of Optimality, show that the corresponding dynamic problem yields a value function and, under suitable assumptions, this value function is concave and differentiable.
Additionally, we derive the corresponding Euler equation.
Second, we illustrate the usefulness of this approach by studying two prominent dynamic economics models.
The first deals with intertemporal consumption with one asset.
We obtain closed form expressions for the value function, the optimal asset allocation and consumption, as well as for the consumption path.
These closed form solutions allow us to obtain useful comparative statics that shed light on how consumption and savings respond to increase in risk aversion, impatience and interest rates.
For the second model, we discuss a quantile-based version of the job-search model with uncertainty.Gradual learning from incremental actions
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5452/39960/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5452/39960/1Thu, 15 Aug 2024 00:00:00 EDTby <b>Tuomas Laiho, Pauli Murto, and Julia Salmi</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 15, 2024<p>Abstract: We introduce a collective experimentation problem where a continuum of agents choose the timing of irreversible actions under uncertainty and where public feedback from the actions arrives gradually over time. The leading application is the adoption of new technologies. The socially optimal expansion path entails an informational trade-off where acting today speeds up learning but postponing capitalizes on the option value of waiting. We contrast the social optimum to the decentralized equilibrium where agents ignore the social value of information they generate. We show that the equilibrium can be obtained by assuming that agents ignore the future actions of other agents, which lets us recast the complicated two-dimensional problem as a series of one-dimensional problems.Repeated trade with imperfect information about previous transactions
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5694/39945/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5694/39945/1Wed, 14 Aug 2024 00:00:00 EDTby <b>Francesc Dilme</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 14, 2024<p>Abstract: This paper studies repeated bargaining 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.To infinity and beyond: a general framework for scaling economic theories
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5878/39867/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5878/39867/1Wed, 07 Aug 2024 00:00:00 EDTby <b>Yannai A. Gonczarowski, Scott Duke Kominers, and Ran I. Shorrer</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 7, 2024<p>Abstract: Many economic models incorporate finiteness assumptions that, while introduced for simplicity, play a real role in the analysis. We provide a principled framework for scaling results from such models by removing these finiteness assumptions. Our sufficient conditions are on the theorem statement only, and not on its proof. This results in short proofs, and even allows us to use the same argument to scale similar theorems that were proven using distinctly different tools. We demonstrate the versatility of our approach via an array of examples from revealed-preference theory.Randomized collective choices based on a fractional tournament
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5589/39854/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5589/39854/1Mon, 05 Aug 2024 00:00:00 EDTby <b>Yves Sprumont</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on August 5, 2024<p>Abstract: An extension rule assigns to each fractional tournament x (specifying, for every pair of social alternatives a and b, the proportion x_{ab} of voters who prefer a to b) a random choice function y (specifying a collective choice probability distribution for each subset of alternatives) which chooses a from {a,b} with probability x_{ab}.
There exist multiple neutral and stochastically rationalizable extension rules. Both Linearity (requiring that y be an affine function of x) and Independence of Irrelevant Comparisons (asking that the probability distribution on a subset of alternatives depend only on the restriction of the fractional tournament to that subset) are incompatible with very weak properties implied by Stochastic Rationalizability.
We identify a class of maximal domains, which we call sequentially binary, guaranteeing that every fractional tournament arising from a population of voters with preferences in such a domain has a unique admissible stochastically rationalizable extension.On the limitations of data-based price discrimination
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5916/39806/1
http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5916/39806/1Tue, 30 Jul 2024 00:00:00 EDTby <b>Haitian Xie, Ying Zhu, and Denis Shishkin</b><p>To be published in Theoretical Economics. First available as a "Paper to appear" on July 30, 2024<p>Abstract: The classic third degree price discrimination (3PD) model requires the knowledge of the distribution of buyer valuations and the covariate to set the price conditioned on the covariate.
In terms of generating revenue, the classic result shows that 3PD is at least as good as uniform pricing. What if the seller has to set a price based only on a sample of observations from the underlying distribution? Is it still obvious that the seller should engage in 3PD? This paper sheds light on these fundamental questions. In particular, the comparison of the revenue performance between 3PD and uniform pricing is ambiguous overall when prices are set based on samples.
This finding is in the nature of statistical learning under uncertainty: a curse of dimensionality, but also other small sample complications.