Theoretical Economics

doi: 10.3982/te191bmpmid: N/A

doi: 10.3982/te191fmpmid: N/A

Nora, Vladyslav; Winter, Eyal

doi: 10.3982/te5068pmid: N/A

We study binary action network games with strategic complementarities. An agent acts if the aggregate social influence of her friends exceeds a transfer levied on the agent by a principal. The principal seeks to maximize her revenue while inducing everyone to act in a unique equilibrium. We characterize optimal transfers showing that agents who are more popular than their friends receive preferential treatment. Our main result is that under mild conditions complete core‐periphery networks deliver the highest revenue to the principal. Furthermore, we show that the revenue is higher in networks where links are allocated unequally across agents. Hence, the principal benefits from creating “influentials” by linking well‐connected hubs to less popular periphery.

Sun, Yiman

doi: 10.3982/te4639pmid: N/A

We study the interaction between an agent of uncertain type, whose project gives rise to both good and bad news, and an evaluator who must decide if and when to fire the agent. The agent can hide bad news from the evaluator at some cost, and will do so if this secures her a significant increase in tenure. When bad news is conclusive, censorship hurts the evaluator, the good agent, and possibly the bad agent. However, when bad news is inconclusive, censorship may benefit all those players. This is because the good agent censors bad news more aggressively than the bad agent, which improves the quality of information.

Gretschko, Vitali; Mass, Helene

doi: 10.3982/te4555pmid: N/A

The usual analysis of bidding in first‐price auctions assumes that bidders know the distribution of valuations. We analyze first‐price auctions in which bidders do not know the precise distribution of their competitors' valuations, but only the mean of the distribution. We propose a novel equilibrium solution concept based on worst‐case reasoning. We find an essentially unique and efficient worst‐case equilibrium of the first‐price auction that has appealing properties from both the bidders' and the seller's point of view.

Zhang, Mengxi

doi: 10.3982/te4259pmid: N/A

I investigate the design of effort‐maximizing mechanisms when agents have both private information and convex effort costs, and the designer has a fixed prize budget. I first demonstrate that it is always optimal for the designer to utilize a contest with as many participants as possible. Further, I identify a necessary and sufficient condition for the winner‐takes‐all prize structure to be optimal. When this condition fails, the designer may prefer to award multiple prizes of descending sizes. I also provide a characterization of the optimal prize allocation rule for this case. Finally, I illustrate how the optimal prize distribution evolves as the contest size grows.

Kang, Kee‐Youn

doi: 10.3982/te5081pmid: N/A

We develop a monetary model in which a private company issues digital currency and uses payment data to estimate consumers' preferences. Sellers purchase preference information to produce goods that better match consumers' preferences. A monopoly arises in the digital currency industry, and digital currency is not issued if the inflation rate is sufficiently high. Due to reinforcing interactions between the value of preference information and trade volume, multiple equilibria (with and without digital currency) can exist, depending on market structures for monetary exchanges. When left to market forces alone, socially efficient uses of payment data may not occur.

Betto, Maria; Thomas, Matthew W.

doi: 10.3982/te5108pmid: N/A

When opposing parties compete for a prize, the sunk effort players exert during the conflict can affect the value of the winner's reward. These spillovers can have substantial influence on the equilibrium behavior of participants in applications such as lobbying, warfare, labor tournaments, marketing, and R&D races. To understand this influence, we study a general class of asymmetric, two‐player all‐pay auctions where we allow for spillovers in each player's reward. The link between participants' efforts and rewards yields novel effects; in particular, players with higher costs and lower values than their opponents sometimes extract larger payoffs.

Hinnosaar, Toomas

doi: 10.3982/te5536pmid: N/A

I study sequential contests where the efforts of earlier players may be disclosed to later players by nature or by design. The model has many applications, including rent seeking, R&D, oligopoly, public goods provision, and tragedy of the commons. I show that information about other players' efforts increases the total effort. Thus, the total effort is maximized with full transparency and minimized with no transparency. I also show that in addition to the first‐mover advantage, there is an earlier‐mover advantage. Finally, I derive the limits for large contests and discuss the limit to perfectly competitive outcomes under different disclosure rules.

Auster, Sarah; Pavoni, Nicola

doi: 10.3982/te5117pmid: N/A

We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also superior awareness of the set of actions that are actually feasible. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal's cost of distorting the agent's choices and increases the principal's willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. Due to her limited awareness, the principal makes a coarse inference from the agent's recommendations and, as a result, accepts a large number of the agent's proposals, which ultimately benefits both.