Volume 25, Issue 2

This paper re-examines the Gibbard–Satterthwaite theorem when some anomalous choice functions are allowed. We show non-dictatorial social aggregators that limit manipulation and non-dictatorial social aggregators do not permit manipulation.

The Queen Elisabeth International Music Competition of Belgium founded in 1937, is among the world’s most prestigious and demanding music competitions. It alternates between cello, piano, violin, and voice and consists of three rounds in which each candidate gives a recital. Each round selects a subset of candidates. This paper presents and analyses the rule for the selection of candidates and its specificities. It shows that the rule does not satisfy many of the classical properties of the literature on the social choice.

Confidential contracts are signed to protect the identity of contracting parties from disclosure. However, such confidentiality is not credible if outsiders can perfectly infer the identity of the contracting parties in equilibrium. A confidential contract is credibly confidential when an inactive player uninvolved in the contract holds a non-degenerate Bayesian belief on the identity of the agent in the contractual relationship. The main research questions are whether and through what channel the preference for credible confidentiality influences incentive provision within a contract and how confidentiality concerns affect the endogenous formation of contractual relationships. With a preference for confidentiality, an agent’s participation is motivated by a confidentiality premium, which amplifies the conventional tradeoff between efficiency and risk premium. Confidentiality concerns thus distort incentives within a contractual relationship when the agent is risk-averse. Furthermore, the principal may deliberately contract with a less efficient agent with a higher equilibrium probability to reduce the confidentiality premium, leading to an inefficient match. Credible confidentiality provides an explanation for the distortion of incentive provision within a contractual relationship and an inefficient formation of contractual relationships even when the principal and the agents are rational and well-informed.

We consider a two-period signaling model in which an informed worker has to decide whether she invests in education or participates in the labor market in the first period. When the rate at which the cost of education decreases with the worker’s productivity is sufficiently high (low), the worker’s incentives to invest in education become stronger (weaker) when the worker is more patient, when future prospects in the labor market are better, or when the cost of education decreases. Those results are robust to the worker’s risk preferences and to the specification of the prior distribution function of worker’s productivities.

This paper studies a two-period model with a monopolist and a consumer. The firm makes two offers (product-price pairs) in the first period and makes one offer in the second period. The single consumer’s type is unknown to the firm, and she chooses at most one offer each period. Products are horizontally differentiated and the consumer prefers products closer to her type. Two privacy settings are considered. In one setting, the consumer cannot hide her purchase history (i.e., cannot opt out) whereas she can in the other setting. We characterize the firm-optimal equilibria in both settings and show that when the opt-out choice is added, the ex-ante producer surplus and social surplus increase while the ex-ante consumer surplus decreases. How the interim consumer surplus changes depends on her type. Our results suggest that, in some cases, privacy protection tools may inadvertently harm consumers while benefiting firms. Therefore, regulators should account for the dynamic and strategic interactions between these two sides when evaluating the implications of such tools.

In a duopoly model with network externalities, this paper studies Cournot and Bertrand firms’ optimal investments in network strength under passive and responsive consumer expectations, and considers the welfare implications. The results suggest some initial network strength thresholds above which responsive consumer expectations lead to greater firm investments in network strength, for a given mode of competition (Cournot or Bertrand). According to the results, Cournot firms invest in network strength more than Bertrand firms when facing responsive consumer expectations. In contrast, Bertrand firms invest in network strength more than Cournot firms when consumers have passive expectations over network sizes, insofar as the initial network is sufficiently strong, or competition is sufficiently weak.

We study a second-degree price discrimination problem in which a monopolist must design a menu of pricing options for high and low valuation consumers, whom he cannot directly distinguish. The firm chooses between two canonical nonlinear pricing strategies: a price-quantity menu and a two-part tariff menu . We argue that, when designing each menu, the monopolist optimally balances gains from production against information rent costs. Crucially, information rents translate into fully variable costs under a price-quantity menu, but they introduce fixed costs under a two-part tariff menu. As a result, the menu choice effectively reduces to selecting a revenue structure choice involving a trade off between fixed and variable costs. We find that the monopolist strictly prefers the price-quantity menu, which avoids fixed costs. However, the efficient menu is the one that induces greater consumption by the low-valuation type, and thus might be in conflict with the monopolist’s preferred option. We fully characterize the conditions under which each menu is efficient and identify which pricing strategy benefits the firm, consumers, or both.