Entire Surplus Research Articles

Ridge distributions and information design in simultaneous all-pay auction contests

Two privately informed contestants compete in a contest, and the organizer ex-ante designs a public anonymous disclosure policy to maximize the contestants' total effort. We fully characterize ridge distributions, under which the organizer achieves the first-best outcome in equilibrium: the allocation is efficient, and the entire surplus goes to the organizer. When the prior is a mixture of a ridge distribution and a perfectly correlated distribution, the first-best outcome is achievable by a signal that solely generates ridge distributions as posteriors.

Unrecognised COVID-19 deaths in central Europe: The importance of cause-of-death certification for the COVID-19 burden assessment.

In Central Europe, the increase in mortality during the COVID-19 pandemic exceeded the number of deaths registered due to coronavirus disease. Excess deaths reported to causes other than COVID-19 may have been due to unrecognised coronavirus disease, the interruptions in care in the overwhelmed health care facilities, or socioeconomic effects of the pandemic and lockdowns. Death certificates provide exhaustive medical information, allowing us to assess the extent of unrecognised COVID-19 deaths. Data from 187,300 death certificates with a COVID-19 mention from Austria, Bavaria (Germany), Czechia, Lithuania and Poland, 2020-2021, was used. The two step analysis uses Cause of Death Association Indicators (CDAIs) and Contributing CDAIs to identify and measure the statistical strength of associations between COVID-19 and all other medical mentions. 15,700 deaths were reported with COVID-19 only as a contributing condition (comorbidity). In three cases out of four, a typical, statistically significant coronavirus complication or pre-existing condition was registered as the underlying causes of death. In Austria, Bavaria, Czechia and Lithuania the scale of COVID-19 mortality would have been up to 18-27% higher had COVID-19 been coded as the underlying cause of death. Unrecognised coronavirus deaths were equivalent to the entire surplus of excess mortality beyond registered COVID-19 deaths in Austria and the Czech Republic, and its large proportion (25-31%) in Lithuania and Bavaria. Death certificates with typical coronavirus complications or comorbidities as the underlying causes of death and contributing COVID-19 mentions were plausibly unrecognized coronavirus deaths.

전자상거래 시장에서 구매자부담 인상 전략의 경제학적 분석

Purpose – Platforms have been enhancing delivery networks for faster and cheaper delivery, resulting in nationwide coverage. It has been observed recently that platforms raise buyer fees and the share of delivery cost, seemingly damaging the buyer group. This paper aims to analyze economic relationships between homing structure , pricing schedule, and delivery cost to understand unfavorable actions toward buyers. Design/Methodology/Approach – We set up a platform competition model based on the Hotelling location model, and characterize a symmetric Nash equilibrium. Two platforms intermediate two groups and charge fees, single-homing a buyer group and a multi-homing seller group in a one-unit-long city. Findings – A drop in delivery cost increases both the seller and buyer surpluses. Platforms with first degree price discriminatory fees can absorb the entire surplus from a multi-homing seller. By contrast, platforms need to lower the uniform fee on single-homing buyers in order to poach. A greater share of delivery cost on the buyer side increases both the seller and buyer fees, and thus increase the platform’s profit. Research Implications – A greater share of delivery cost on buyer's side yields two positive effects for platforms. Sellers with lower delivery cost burdens enjoy a greater surplus, but eventually see a higher fee by platforms. Buyers facing greater delivery costs realize platforms are more differentiated horizontally, which shows inelastic demand for the fee, which brings less competition between platforms.

The Limits of Multiproduct Price Discrimination

We consider a multiproduct seller who has access to information about consumer preferences that he can use for second- and third-degree price discrimination. We characterize markets for which such information can lead to the efficient allocation with consumers obtaining the entire surplus gain relative to the profit-maximizing allocation without the additional information. This benchmark is achievable for all markets with a given set of consumer types if and only if it is optimal for the seller to offer only the best product in each market. Analogous results characterize when the “surplus triangle” of Bergemann, Brooks, and Morris (2015) is achievable. (JEL D11, D21, D42, D83)

Witkacy on Drugs

Witkacy on Drugs

Direct versus indirect penalties for supply contracts in high-tech industry

Unlike consumer goods industry, a high-tech manufacturer (OEM) often amortizes new product development costs over multiple generations, where demand for each generation is based on advance orders (i.e., known demand) and additional uncertain demand. Also, due to economic regulatory reasons, high-tech OEMs usually source from a single supplier. Relative to the high retail price, the costs for a supplier of producing high-tech components are low. Consequently, incentives are misaligned: the OEM faces relatively high under-stock costs and the supplier faces high over-stock costs.In this paper, we examine supply contracts that are intended to align the incentives between a high-tech OEM and a supplier so that the supplier will invest adequate and yet non-verifiable capacity to meet the OEM’s demand. When focusing on a single generation, the manufacturer can coordinate a decentralized supply chain and extract all surplus by augmenting a traditional wholesale price contract with a “contingent penalty” should the supplier fail to fulfill the OEM’s demand. When the resulting penalty is too high to be enforceable, we consider a new class of “contingent renewal” wholesale price contracts with a stipulation: the OEM will renew the contract with the incumbent supplier for the next generation only when the supplier can fulfill the demand for the current generation. By using non-renewal as an implicit penalty, we show that the contingent renewal contract can coordinate the supply chain. While the OEM can capture the bulk of the supply chain profit, this innovative contract cannot enable the OEM to extract the entire surplus.

Bargaining with costly competition for the right to propose

We study a bargaining model in which players compete for the right to propose in every period, hence the bargaining protocol is determined endogenously. This model admits multiple equilibria, including many with delayed agreements and costly competition. We develop a general self-generating technique to characterize the extreme equilibria, and hence, the entire set of equilibrium payoffs. Our technique resembles an optimal contract design problem with all the sequential rationality conditions being treated as the incentive constraints. By means of an example, we show that as the discount factor goes to one, a player could obtain almost the entire surplus in his best equilibrium, while players’ competition efforts diminish to zero. We also find that some asymmetric equilibria are more efficient than the stationary equilibrium.

Disclosure and Discovery with fairness

Two standard results in the litigation literature are that an informed party will not make a costly voluntary disclosure in a screening game and that the uninformed party will not engage in costly discovery in the signaling game. Both of these results rely on the assumption that the party making the offer can extract the entire surplus of settlement from the party receiving the offer. If the recipient of the offer has a demand for fairness, then the equilibrium offer will contain some monetary surplus. However, if utility is a continuous function of the surplus contained in the offer, the standard results from the literature are unchanged. Even though the equilibrium offer contains some surplus, it still pins the recipient of the offer to her dispute level of utility. As a result, the recipient of the offer will not engage in a costly transfer of information. The standard results can be overturned if the perceived fairness of the offer is a discontinuous function of the surplus it contains. In this model offers are coded as either fair or unfair, where all unfair offers impose a fixed utility penalty on the recipient if she accepts it. In such a model, the recipient of the offer will obtain a utility surplus (relative to her dispute level of utility) if the offer is perceived as fair. If this surplus is large enough, she will be willing to initiate a costly transfer of information.

Costly Voluntary Disclosure in a Signaling Game

Abstract We conduct an experimental analysis of pretrial bargaining, while allowing for the costly disclosure of private information in a signaling game. Under the theory, 100 % of plaintiffs with a weak case are predicted to remain silent, while 100 % of the plaintiffs with a strong case are predicted to voluntarily disclose their type. We find that 75 % of weak plaintiffs remain silent and 67 % of strong plaintiffs reveal their type. In line with theory, weak plaintiffs who reveal their type receive a lower payoff, while strong plaintiffs who reveal their type receive a higher payoff. Plaintiffs with a strong case who reveal their type have a dispute rate which is 50 % points lower than strong plaintiffs who remain silent. Because plaintiffs who reveal their type cannot extract the entire surplus from settlement from the defendant, the incentive to engage in voluntary disclosure is weaker empirically than it is in theory.

An empirical analysis of litigation with discovery: The role of fairness

We conduct an experimental analysis of discovery in both the signaling and screening games, where in both games an uninformed defendant may engage in costly discovery. Under the theory, the defendant should invoke the costly discovery procedure in the screening game, but not in the signaling game. In the later part of the screening game, discovery is invoked in 73% of all negotiations, which is strongly in the direction implied by theory. However, rather than lowering the defendant's expected cost, discovery is approximately a breakeven proposition. The reasons are that the defendant cannot, as implied by theory, extract the entire surplus from settlement with his offer and because there are excess disputes not predicted by the theory. In the signaling game we find, contra the theory, that discovery is invoked about 61% percent of the time, and this behavior persists into the later rounds of the experiment. While invoking discovery is predicted to reduce his payoff, the effect on the defendant's cost is not statistically different from zero. The offers the defendant receives after invoking discovery contain surplus not predicted under the theory. Thus, in both games, fairness appears to be important in explaining deviations from the theoretical predictions.

Collusion in a buyer–seller network formation game

We study collusive behavior in a simple finitely repeated buyer–seller network formation game. There is one seller and two potential buyers who simultaneously decide on which link(s) to form. A link represents a trading opportunity between a seller and a buyer and is formed if both offer it. If the seller is linked to both buyers, the seller gets the entire surplus. If the seller is linked to only one buyer, the linked buyer gets a small share of the surplus and the seller has the larger share. Link costs are incurred when the link is established. We study two levels of link costs: zero and positive. The competitive network is the outcome of undominated strategy play only with zero link costs. In both link cost levels, the only way both buyers can earn strictly positive payoffs is by turn taking. We find evidence that both the buyers and the seller facilitate tacit collusion, regardless of the payoff structure. The proportions of groups that engage in collusion and turn taking do not seem to depend on the payoff structure.

Ownership, punishment, and norms in a real-effort bargaining experiment

This paper examines the importance of prior ownership and punishment in bargaining over a jointly produced surplus. Using a laboratory experiment, participants jointly produce a surplus using a real effort task with the entire surplus given to the person who put in higher effort. Participants then bargain over the surplus in a series of ultimatum games. Treatments varied whether the proposer or responder received the surplus prior to bargaining and the threat point of the responder. The results suggest that proposers respect prior ownership when the responder has a strong ability to punish, but not when punishment is weak. Responders respect prior ownership when their ability to punish is weak, but reject at high rates when they have strong punishment. An independent measure of individual sensitivity to rule following can explain some of the results, adding support to the theory that individual behavior in bargaining is driven in part by adherence to social norms.

COALITION BARGAINING IN REPEATED GAMES

We consider an intertemporal game-theoretic framework in which different coalitions interact repeatedly over time. Both the terms of trade and the endogenous cooperation structure arising in this setup are characterized, in a protocol-free manner, provided that just three natural conditions on the outcome are satisfied: (C1) A coalition is formed with positive probability if, and only if, the shares obtained in this case by its members weakly exceed their respective share expectations. (C2) Each matched coalition distributes the entire surplus among its members. (C3) Members of any coalition are treated symmetrically with respect to their share expectations when the surplus of this coalition is distributed. Our analysis primarily focuses on the limit scenario where the game ends each date with vanishing probability. We show that, in this case, the cooperation structure and the shares are unique. In an application to trade networks, we show that, in a complete network, a unique price arises and agents specialize in either buying or selling. In an incomplete network, on the other hand, transactions occur, generally, at multiple prices and some agents become arbitrageurs that buy and sell at different prices.

A multi-objective optimization problem for using poultry litter in electricity production

We use a location allocation model to solve multi-objective functions where poultry litter is used to produce electricity, and the objectives are to maximize the profit and minimize the total CO2 equivalent emission. A three-stage heuristic algorithm consisting of location initialization, second order conic programming, and linear programming models is used to find the Pareto optimal solution for the multi-objective problem. Constant initial location, random updating, and k-means clustering strategies are applied for updating the initial locations of the reactor(s). Practical findings, including the location and allocation strategies, are developed for poultry litter use in electricity production in the state of Louisiana, USA. Results show that building a reactor without capacity limit capable of utilizing the entire surplus poultry litter from the surrounding farms is not only economically inefficient, but is also environmentally detrimental. The emission preference coefficient in the multi-objective problem with capacity constraint is found to dramatically affect the allocation strategy when the coefficient exceeds a certain threshold. In general, location-allocation solutions for multiple reactors with capacity constraint are found to be economically and environmentally superior. Different initiating and updating strategies for the reactor’s location(s) significantly affect the solution values, especially when more than one objective is considered.

No compromise: Uncertain costs in reputational bargaining

I show how uncertainty about agents' future costs of delay can lead to substantial bargaining delays when agents have reputational concerns. Reputational concerns arise because with positive probability agents are behavioral types, committed to demanding a fixed share of the surplus. In equilibrium, rational agents may demand almost the entire surplus and then wait, with the deadlock only broken by the arrival of news about future costs, even as the probability of behavioral types vanishes. Although both agents would benefit from a compromise reached immediately, they do not propose such agreements, because doing so would increase an opponent's option value of waiting.

Disclosure and Discovery with Fairness

Two standard results in the litigation literature are that an informed party will not make a costly voluntary disclosure in a screening game and that the uninformed party will not engage in costly discovery in the signaling game. Both of these results rely on the assumption that the party making the offer can extract the entire surplus of settlement from the party receiving the offer. If the recipient of the offer has a demand for fairness, then the equilibrium offer will contain some monetary surplus. However, if utility is a continuous function of the surplus contained in the offer, the standard results from the literature are unchanged. Even though the equilibrium offer contains some surplus, it still pins the recipient of the offer to her dispute level of utility. As a result, the recipient of the offer will not engage in a costly transfer of information. The standard results can be overturned if the perceived fairness of the offer is a discontinuous function of the surplus it contains. In this model offers are coded as either fair or unfair, where all unfair offers impose a fixed utility penalty on the recipient if she accepts it. In such a model, the recipient of the offer will obtain a utility surplus (relative to her dispute level of utility) if the offer is perceived as fair. If this surplus is large enough, she will be willing to initiate a costly transfer of information.

Coalition Formation and Surplus Sharing in Repeated Multi-Coalitional Games

We consider an intertemporal game-theoretic framework in which different coalitions interact repeatedly over time. Both the terms of trade and the endogenous cooperation structure arising in this setup are characterized, in a protocol-free manner, when just three natural conditions are satisfied:(C1) A coalition is formed with positive probability if, and only if, the shares obtained in this case by its members weakly exceed their respective share expectations.(C2) Each matched coalition distributes the entire surplus among its members.(C3) Members of any coalition are treated symmetrically with respect to their share expectations when the surplus of this coalition is distributed.Our analysis primarily focuses on the limit scenario where the game ends each date with a vanishing probability. We show that, in this case, the cooperation structure and the shares are unique and display a number of interesting properties. In an application to trade networks, we show that, in a complete network, a unique price arises and agents specialize in either buying or selling. In an incomplete network, on the other hand, transactions occur, generally, at multiple prices and some agents become arbitrageurs that buy and sell at different prices.

No Compromise: Uncertain Costs in Reputational Bargaining

I show how uncertainty about agents’ future costs of delay, can lead to substantial bargaining delays when agents have reputational concerns. Reputational concerns arise because with positive probability agents are behavioral types, committed to demanding a fixed share of the surplus. In the unique equilibrium, rational agents may demand almost the entire surplus and then wait, with the deadlock only broken by the arrival of news about future costs, even as the probability of behavioral types vanishes. Although each agent would benefit from a compromise reached immediately, they do not propose such agreements because doing so increases an opponent’s option value of waiting.

Supplier Encroachment Under a Two-Part Tariff Contract and Unobservable Multilateral Contracting

We revisit supplier encroachment under the framework of a two-part tariff contract. Early literature largely concludes that an upstream manufacturer offering a two-part tariff contract never sells directly to the resale market because it can always extract the downstream retailer’s entire surplus through the fixed fee. However, in our study, when a monopoly manufacturer supplies competing retailers and contract outcomes are observable only to the contracting partners, the manufacturer with a two-part tariff contract encroaches upon the resale market and enhances profits. We further show that this encroachment aggravates double marginalization and reduces consumer welfare and the total surplus.

The dynamics of coalition formation – A multilateral bargaining experiment with free timing of moves

We experimentally investigate behavior in a finitely repeated coalition formation game played in continuous time. Subjects interact in groups of three, bargaining over the distribution of payments which occur at regular time intervals. During a given interval, payments occur if and only if a majority is in agreement about their allocation. Aside from these rules, we purposefully impose little structure on the bargaining process. We investigate the frequency and stability of different types of agreements, as well as transitions between them. Two-thirds of payments involve divisions where one player receives nothing, almost half of which are equal splits of the entire surplus between two players. The most stable division is the three-way equal split. Transitions between agreements are frequent and are generally consistent with myopic payoff maximization, in the sense that subjects do not accept short-term losses. We also find that transitions between coalitions are not Markovian. In particular, players more often forgo short-term gains in order to remain in a coalition if it has proven stable in the past.