2025-09-10
by Navin Kartik and Weijie Zhong To be published in Theoretical Economics. First available as a "Paper to appear" on September 10, 2025 Abstract: A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, non-informational mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases-in particular, when there is complete breakdown in a "lemons market" with an uninformed seller and fully-informed buyer.
2025-08-21
by Royi Jacobovic, Yehuda John Levy, and Eilon Solan To be published in Theoretical Economics. First available as a "Paper to appear" on August 21, 2025 Abstract: A Bayesian game is said to have nested information if the players are ordered, and each player knows the types of all players that follow her in that order. We prove that all multiplayer Bayesian games with finite actions spaces, bounded payoffs, Polish type spaces, and nested information admit a Bayesian equilibrium.
2025-08-21
by Ehud Lehrer and Dimitry Shaiderman To be published in Theoretical Economics. First available as a "Paper to appear" on August 21, 2025 Abstract: In the classical Bayesian persuasion model, an informed player and an uninformed one engage in a static interaction. This work extends this classical model to a dynamic setting where the state of nature evolves according to a Markovian law, allowing for a more realistic representation of real-world situations where the state of nature evolves over time. In this repeated persuasion model, an optimal disclosure strategy of the sender must balance between obtaining a high-stage payoff and disclosing information that may have negative implications on future payoffs. We discuss optimal strategies under different discount factors and characterize when the asymptotic value achieves the maximal possible value.
2025-08-11
by Yair Antler and Benjamin Bachi To be published in Theoretical Economics. First available as a "Paper to appear" on August 11, 2025 Abstract: We develop a model of non-Bayesian decision-making in which an agent obtains an estimate of the state of a relevant economic fundamental but does not know the joint distribution of the two. To make use of the estimate, she relies on an endogenously generated dataset that consists of previous estimates and state realizations. She attributes a systematic difference between the estimates and state realizations in her dataset to a systematic bias in the estimate and naively calibrates it. Her subsequent action affects the probability with which the estimate and the corresponding state realization will be recorded in the dataset that will be used in future decisions. We investigate the steady state of the naive calibration procedure and show that it results in a seemingly pessimistic behavior that is exacerbated by feedback loops. We apply our model to project selection problems and second-price IPV auctions.
2025-07-22
by Boli Xu To be published in Theoretical Economics. First available as a "Paper to appear" on July 22, 2025 Abstract: We study dynamic partnerships where the output evolves stochastically, each player can exit at any time, and players who have exited continue to accrue some benefits if the remaining players keep contributing to the partnership. Players can strategically exit to free-ride on their partners' contributions, knowing that it may trigger subsequent exits of their partners. We characterize the unique Pareto-optimal equilibrium. When players have sufficiently large free-riding incentives and a medium level of mutual reliance, this equilibrium exhibits a curse of profitability: An increase in the partnership's output may strictly harm all the players. Another main finding is that Pareto-improvement can be achieved if any player commits not to exit first.
2025-07-22
by Xiaoye Liao and Michal Szkup To be published in Theoretical Economics. First available as a "Paper to appear" on July 22, 2025 Abstract: We investigate how differences in initial beliefs and sequential information choices affect the likelihood of coordination failure. To do so, we embed interim information acquisition (i.e., information acquisition after observing initial private information) into a standard global game mode with a normal information structure and improper prior. We find that the likelihood of coordination on welfare-inferior equilibrium is invariant to precision, cost, and availability of information. We show that agents’ information choices feature two-sided inefficiency where too many agents with high posteriors and too few agents with low posteriors acquire information. Instead, under efficient information choices, the likelihood of coordination failure vanishes as the number of signals that agents can acquire tends to infinity. Unfortunately, efficient information choices are not implementable unless policymakers can observe agents’ private information.
2025-07-21
by Alfred Galichon, Larry Samuelson, and Lucas Vernet Published in Theoretical Economics 20 (3), 941–971 (July 21, 2025) Abstract: We introduce a notion of substitutability for correspondences and establish a monotone comparative static result. More precisely, we introduce the notions of unified gross substitutes and nonreversingness and show that if Q : P ⇒ Q is a supply correspondence defined on a set of prices P which is a sublattice of RN , and Q satisfies these two properties, then the set of equilibrium prices Q−1(q) associated with a vector of quantities q ∈ Q is a sublattice of P and is increasing (in the strong set order) in q. We establish connections between our notion of substitutes and existing notions, and examine applications such as the structure of inverse demand, profit maximization, the structure of competitive equilibria, matching games, hedonic pricing, and routing problems.
2025-07-21
by David R. Agrawal, Adib Bagh, and Mohammed Mardan Published in Theoretical Economics 20 (3), 1007–1041 (July 21, 2025) Abstract: The conventional wisdom is that a big jurisdiction sets a higher tax rate than a small jurisdiction. We show this result arises due to simplifying assumptions that imply tax-base sensitivities are equal across jurisdictions. When more than two jurisdictions compete in commodity taxes, tax-base sensitivities need not be equal across jurisdictions and a small jurisdiction can set a higher tax rate than a big jurisdiction. Our analysis extends to capital and profit taxes, and, more generally, to various types of multi-player asymmetric competition.
2025-07-21
by Yu Fu Wong Published in Theoretical Economics 20 (3), 883–909 (July 21, 2025) Abstract: This paper studies how a forward-looking decision maker experiments on unknown alternatives of correlated utilities. The utilities are modeled by a Brownian motion such that similar alternatives yield similar utilities. Experimentation trades off between the continuation value of exploration and the opportunity cost of exploitation. The optimal strategy is to continuously explore unknown alternatives, and then exploit the best known alternative when the one being explored is found to be sufficiently worse than the best one. The decision maker explores unknown alternatives more quickly as they prove to be worse than the best known one. Applied to firm experimentation, my model predicts a conditional version of Gibrat's law and a linear relation between firm size and profitability.
2025-07-21
by Jaehong Kim, Mengling Li, and Menghan Xu Published in Theoretical Economics 20 (3), 1081–1134 (July 21, 2025) Abstract: This paper examines the welfare implications of priority service in a frictional search environment with heterogeneous outside options. Priority search facilitates expedited matching with public options in the market by charging a service premium. Our main analysis demonstrates that a profit-maximizing priority search program always induces the efficient level of market participation. The key insight underpinning our results is the nonmonotonic relationship between the priority service premium and market participation, which is driven by the nonexclusivity of priority search. This finding extends to several market design details and elucidates how to simultaneously generate revenue and regulate congestion in the presence of matching frictions.
2025-07-21
by Lester T. Chan Published in Theoretical Economics 20 (3), 857–882 (July 21, 2025) Abstract: This paper studies a large class of multi-agent contracting models with the property that agents' payoffs constitute a weighted potential game. Multiple equilibria arise due to agents' strategic interactions. I fully characterize a contracting scheme that is optimal for the principal for all equilibrium selection criteria that are more pessimistic than potential maximization. This scheme ranks agents in ascending order of their weights in the weighted potential game and then induces them to accept their offers in a dominance-solvable way, starting from the first agent. I apply the general results to networks, public goods/bads, and a class of binary-action applications.
2025-07-21
by David Dillenberger, Daniel Gottlieb, and Pietro Ortoleva Published in Theoretical Economics 20 (3), 1043–1080 (July 21, 2025) Abstract: We study how the separation of time and risk preferences relates to a property called Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion and the inverse elasticity of intertemporal substitution are sufficiently close. In the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for commonly used parameters. Our result also provides a simple, one-question test for the separation of time and risk preferences.