22nd May 2024

14.00 - 15.00pm

Mill Hill Lane, Room 454

Further details to follow

15th May 2024

14.00 - 15.00pm

Mill Hill Lane, Room

Lecture Theatre 452 

Further details coming soon!

8th May 2024

14.00pm - 15.00pm

TBC

Climate Change and Political Participation: Evidence from India

We study the effects of temperature shocks on electoral outcomes in Indian elections. Taking advantage of localized, high-frequency data on temperatures, we find that exposure to extreme temperatures the year before an election increases voter turnout, changes the composition of the candidate pool, and leads to different electoral outcomes (e.g. winning candidates are more likely to have an agricultural background). The effects are driven by reductions in agricultural productivity and are strongest in rural areas. We also show that temperature shocks increase the value voters place on agricultural issues and on policies which mitigate the effects of extreme temperatures, such as irrigation.

1st May 2024

14.00 - 15.00pm

Mill Hill Lane, Room 240

Zero-Sum Thinking, the Evolution of Effort-Suppressing Beliefs, and Economic Development

We study the evolution of belief systems that suppress productive effort. These include concerns about the envy of others, beliefs in the importance of luck for success, disdain for competitive effort, and traditional beliefs in witchcraft. We show that such demotivating beliefs can evolve when interactions are zero-sum in nature, i.e., gains for one individual tend to come at the expense of others. Within a population, our model predicts a divergence between material and subjective payoffs, with material welfare being hump-shaped and subjective well-being being decreasing in demotivating beliefs. Across societies, our model predicts a positive relationship between zero-sum thinking and demotivating beliefs and a negative relationship between zero-sum thinking (or demotivating beliefs) and both material welfare and subjective well-being. We test the model's predictions using data from two samples in the Democratic Republic of Congo and from the World Values Survey. In the DRC, we find a positive relationship between zero-sum thinking and the presence of demotivating beliefs, such as concerns about envy and beliefs in witchcraft. Globally, zero-sum thinking is associated with skepticism about the importance of hard work for success, lower income, less educational attainment, less financial security, and lower life satisfaction. Comparing individuals in the same zero-sum environment, we observe the divergence between material outcomes and subjective well-being predicted by our model.

25th April 2024

Mill Hill Lane, Room 454

Foundations for Structural Preferences

The analysis of key game-theoretic concepts such as sequential rationality or backward- and forward-induction hinges on assumptions about players' actions and beliefs at information sets that are not actually reached during game play, and that players themselves do not expect to reach. However, it is not obvious how to elicit intended actions and conditional beliefs at such information sets. In Siniscalchi (2018), I address this concern by introducing a novel optimality criterion, structural rationality, which implies sequential rationality but allows for the incentive-compatible elicitation of beliefs and intended actions. The present paper complements the analysis by providing an axiomatic foundation for structural preferences.

6th March 2024

Mill Hill Lane, Room 224

Commodity Prices and Fiscal Pro-cyclicality?

21st February 2024

Mill Hill Lane, Room 454

"Split Personalities: The Changing Nature of Technology Shocks" with Christopher Gunn and Thomas Lubik

This paper documents new facts about the nature of technology shocks and changes in their propagation over time. We employ a vector-autoregression and identify a shock that explains the maximum variation in total factor productivity (TFP) at a long finite horizon. This agnostic identification suggests that the dominant shock driving TFP is not necessarily a surprise shock, but exhibits features consistent with a shock that is anticipated or diffuses over time: GDP and consumption rise prior to any significant increase in TFP. We further find that shock transmission has changed over time. In a sample that ends in the mid 1980s, the shock triggers a decline in hours-worked and inventories, and a rise in credit spreads. In a post-Great Inflation sample the response of these variables is reversed and the shock generates an outright expansion in hours, inventories, GDP and consumption that is accompanied by a decline in credit spreads. We find that the importance of technology shocks as a major driver of aggregate fluctuations has increased over time --- they play a dominant role in the second subsample, but much less so in the first. We then turn to a rich structural model to study potential causes of the changing impact of technology. Using an IRF-matching feature, we find that a change in the stance of monetary policy and the nature of intangible capital accumulation both played dominant roles in accounting for the changing impact of technology over time.

14th February 2024

Mill Hill Lane, Room 224

Strategic News Selection in Social Media” (joint work with Jurek Preker)

7th February 2024

Mill Hill Lane, Room 405

Intergeneration Insurance

How should successive generations insure each other when the enforcement of transfers between generations is limited? The paper studies intergenerational insurance when transfers maximize the expected discounted utility of all generations subject to a participation constraint for each generation. If complete insurance is not achievable, the optimal intergenerational insurance is history-dependent even when the environment is stationary. The risk from a generational shock is spread into the future, with periodic resetting. There are implications for asset pricing, pay-as-you-go pension systems and public debt.

24th January 2024

Mill Hill Lane, Room 224

Monitoring, Performance Reviews, and Retaliation

We analyze the effects of retaliation on optimal contracts in a hierarchy consisting of a principal, a monitor, and an agent. With probability m the monitor observes a signal about the agent's effort and decides what to report to the principal. With probability (1-m), the monitor only observes an uninformative default signal. The agent retaliates against the monitor and the principal whenever the monitor's report reduces his payment from the default level. We show that the principal's optimal contracting problem can be divided into two steps: first, an information acquisition stage. The principal chooses how much retaliation to tolerate, and more retaliation generates more informative signals (in the Blackwell sense) about the agent's effort. Second, given the information acquired, the principal designs the optimal payment schemes, which pool moderately (potentially all) bad agent's performances with the uninformative signal realization. The empirical literature documents that supervisors are reluctant to provide poor ratings and that performance reports are often inflated and compressed. We show that such a pattern can stem from retaliation concerns.

17th January 2024

Mill Hill Lane, Room 223

Matroid Search Problems and Greedy Pandora’s Rule

We consider matroid search problems, in which a decision maker searches for a set of objects where the set of objects and the collection of admissible sets of objects form a matroid. The decision maker decides whether to inspect each object to learn its value at some cost or to stop searching. We characterize the optimal search value for matroid search problems and introduce “Greedy Pandora's rule” as an optimal search strategy generalizing Weitzman(1979). As applications, we examine various multi-unit search problems, such as searches for multiple alternatives, recruiting problems with capacity constraints, assignment problems, and minimum cost spanning tree problems where the values and costs are uncertain.

10th January 2024

Mill Hill Lane, Room 223

Imperfect Information and Hidden Dynamics

29th November 2023

Mill Hill Lane, Room 223

The Macroeconomics of Liquidity in Financial Intermediation

22nd November, 2023

Mill Hill Lane, Room 223

Manufacturer Certification in Second-Hand Markets

15th November 2023

Mill Hill Lane, Room 223

“Fair Hiring Procedures” (joint with Karl Schlag)

In hiring, fair treatment concerns not only the assessment of candidates, but also the process of interviewing and selecting candidates. The latter, so-called procedural fairness, is investigated in this paper using a model of sequential search. We postulate that a hiring procedure is fair if it does not discriminate interviewed candidates by the order in which they are interviewed. We show that procedurally fair hiring prescribes to accept the first candidate who belongs to a prespecified set. We also show for a special but relevant case that fairness comes at a relatively small cost: the optimal value of hiring without the fairness constraint is at most twice as large.

8th November 2023

Mill Hill Lane, Room 240

(In)efficiency in Information Acquisition and Aggregation through Prices

6 and 7 November 2023

Mill Hill Lane

CMA Durham Workshop

1st November 2023

Mill Hill Lane, Room 224

International Environmental Agreements: Preferences, Stability and Effectiveness

Since the seminal paper by Scott Barret in 1994 (Self-enforcing International Environmental Agreements, Oxford Economic Papers), a large community of researchers has been investigating the \textit{non-cooperative approach} to solve game-theoretic models of International Environmental Agreements, where it is assumed that players cannot make binding agreements, so that contracts must be self-enforcing.  This talk will discuss various modeling assumptions and solution concepts that have been proposed in the literature on the stability of International Environmental Agreements, including membership, contract features, nature of the agreement, players' preferences, and equilibrium concepts.

18 October 2023

Mill Hill Lane, Room 224

Strategic Observational Learning

We study strategic information exchange by privately informed forward-looking
agents in a simple repeated-action setting of social learning. Under a symmetric signal
structure, forward-looking agents behave myopically for any degrees of patience. Myopic
equilibrium is unique in the class of symmetric threshold strategies, and the simplest symmetric
non-monotonic strategies. If the signal structure is asymmetric and the game is
infinite, there is no equilibrium in myopic strategies, for any positive degree of patience.

11th October 2023

Mill Hill Lane, Room 240

Two-way dual communication in a social network

Communication most often involves two types of 'dual' activities. On social media for example, individuals provide contributions and pay attention to others' contributions. In research, academics write papers and read others’ works. These activities are dual in the sense that an agent is more inclined to provide high quality and numerous contributions the more people pay attention to them and is more inclined to read others' contributions the better their quality or the more numerous they are. This paper builds and analyzes a simple game with dual activities between agents interacting through a follower-influencer network (say, ex-Twitter). They react to their followers' attention and influencers' contributions. Contributions are posted, accessible to each follower without congestion effect and attention is dedicated, beneficial only to the receiver. Equilibria can be multiple. Each is characterized by a different pattern of attention, describing who pays attention to who. Some networks allow for a consensual pattern, where agents pay attention to all their influencers. At the other extreme, networks always allow for 'stars-equilibria', where each agents' attention is focused on a single influencer. These equilibria stand apart: Aggregate attention is high and some of them are stable to perturbations and deviations from coalitions (coalition-proof).

29 and 30 June 2023

Mill Hill Lane

Organized by DREAM, the Conference has the following keynote Speakers: Faruk Gül (Princeton), Paola Manzini (Bristol) and Hervé Moulin (Glasgow). For more details and to submit a paper, click here.

21st June 2023

Mill Hill Lane, Boardroom 427

Voluntary participation in a terror group and counterterrorism policy

A three-stage game investigates how a government’s counterterrorism measures affect potential terrorists interface.  In stage 1, the government chooses both proactive and defensive countermeasures, while anticipating the size and attacks of a terrorist group.  After radicalized individuals choose whether to join a terrorist group in stage 2, group members then allocate their time between work and terrorism in stage 3.  Based on wages and government counterterrorism, the game characterizes the extensive and intensive margins for the terrorist group’s size and attacks, respectively.  Comparative statics show how changes in wages or population radicalization impact the optimal mix between defensive and proactive countermeasures.  Higher (lower) wages favor a larger (smaller) mix of proactive measures over defensive actions.  
Enhanced radicalization of potential terrorists calls for a greater reliance on defensive actions.  Backlash terror attacks stemming from proactive-induced radicalization also affect the mix of counterterrorism actions.

20th June 2023

Mill Hill Lane, Lecture Theatre 452

The Trust Game: Salience, Beliefs, and Social History

The trust game is the standard experimental measure of trust and reciprocity in the social sciences. However, trust game experiments typically do not satisfy the salience precept, which is required to instantiate a microeconomic system in the lab. In three experiments, we find that when subjects are given all relevant information about the mapping between their actions and the earnings of both players, there is a dramatic increase in amounts returned. Beliefs about amounts returned, though, are pessimistic relative to the actual return behaviour we observe. After providing information on these returns in a graphical, easily intelligible manner, there is a marked increase in amounts sent, suggesting that the provision of social history information can be welfare enhancing for both players. Our results challenge the stylised facts of the trust game, and demonstrate that institutions matter.

20 June 2023

Mill Hill Lane, Room 405

Further details coming soon!

15 June 2023

Mill Hill Lane, Room 223

Do the Poor Benefit from an Uncertain Tax Base?

Suppose that for both taxpayers and the tax authorities there is uncertainty about the tax base. This may stem from the widely recognised difficulty of defining variables such as income or wealth for tax purposes. Furthermore, to add to the authorities’ difficulties, assume that individuals can practise tax avoidance and/or tax evasion. Under such circumstances we assume a simple economy in which a utilitarian government chooses tax rates on two fixed sources of income: one whose tax status is certain; and the other where this is not so. The latter is exclusive to the rich. In this world risk aversion plays a key role.  This has to be quite low for the tax system not to tax the rich heavily.  With this qualification we find a parallel with Edgeworth’s old proposition on equal marginal sacrifice. Our analysis also suggests that government uncertainty about the tax base will in many cases actually benefit the poor.

14th June 2023

Mill Hill Lane, Room 240

Breaking Drug Trafficking Chains: The Real Name Mailing Regulation and the Decline of Drug Use

Postal service has become an important channel for drug trafficking worldwide. This paper examines the impact of the real-name mailing regulation on drug use in a Chinese province. Based on the universe of drug arrest, the difference-in-differences analysis shows that after the implementation of this regulation, on average, a town with 10 percent more courier services penetration exhibits a 0.78 percent reduction in drug arrest. This effect persists for at least a year. We exploit the early development of the courier service industry and use the early mulberry tree planting status as the Instrumental Variable for the courier service penetration today. We find no evidence that police activities change or drug users substitute alternative substances. Further analysis shows that the number of new drug users diminishes, while the number of addicted users remains. We suggest that this regulation on courier service companies is likely to be a cost-effective method to decrease the supply of drugs.

8 June 2023

16:00 - 17:15

This event will take place online, to register, click here.

"Auctions with Withdrawal Rights"  with Alexander Haberman.

When bidders in an auction have correlated private information, it is known that, generically, there are auction mechanisms that extract the full surplus for the seller by screening bidders based on their beliefs.  This paper shows that when bidders can withdraw from an auction ex post, dominant strategy mechanisms—namely uniform price auctions—are exactly optimal in a large-market limit, and approximately optimal in finite markets.  These results illustrate that withdrawal rights provides a realistic framework for studying auction design with correlated information.

7th June 2023

Mill Hill Lane, Room 240

"On the benefits of robo advice in financial markets" (with Marco Lambrecht and Simon Weidenholzer)

Robo-advisors are a novel tool in financial markets that provide traders with financial advice and offer asset management based on algorithms. Such algorithms consider individual characteristics of traders when assisting in financial decision making. While there is some work examining regulation of robo-advisors, relatively little is known of the consequences they may have on the behavior of investors. In this study, we focus on i) the characteristics of robo-advisors that lead to adaptation, ii) characteristics of participants who take up these new financial tools and iii) how robo-advisors influence behavior of individual traders and shape financial markets in general. To this end, we elicit characteristics of subjects and invite them to join an experimental financial market running over 10 weeks. In each week, subjects choose how to invest into different assets which vary with respect to their relative risk and return. Subjects either have access to robo advice, may delegate all decision to the algorithm, or trade on their own. Decisions of the algorithm and the nature of advice depend on the characteristics we previously elicited. We find no effect on market participation. But robo advisors help investors to avoid mistakes, make rebalancing more frequent, and overall yield portfolios closer to the utility maximizing ones.

1 June 2023

16:00 - 17:15

This event will take place online, to register, click here.

"Neutral Mechanisms: On the Feasibility of Information Sharing". Guest panelist: Jacopo Perego and Ian Ball

The paper analyzes information sharing in neutral mechanisms when an informed party will face future interactions with an uninformed party. Neutral mechanisms are mechanisms that do not rely on (1) the provision of evidence, (2) conducting experiments, (3) verifying the state, or (4) changing the after-game (i.e., the available choices and payoffs of future interactions). They include cheap talk, long cheap talk, noisy communication, mediation, money burning, and transfer schemes, among other mechanisms. To address this question, the paper develops a reduced-form approach that characterizes the agents’ payoffs in terms of belief-based utilities. This effectively induces a psychological game, where the psychological preferences summarize information-sharing incentives. The first main result states that if an expert’s reduced form (i.e., belief-based utility) satisfies a weak supermodularity condition between the state and hierarchies of beliefs, then there is a neutral mechanism that induces complete revelation of the state. Moreover, it identifies a mechanism that is easy to implement. The second main result states that if the expert’s reduced-form representation (i.e., set of belief-based utilities) satisfies a strict submodularity condition between the state and the hierarchies of beliefs, neutral mechanisms are futile for any (relevant) information sharing. This implies a limit in the ability to use neutral mechanisms for information sharing. The paper goes on to show how the approach is useful in applications related to political economy and industrial organization.

1 June 2023

13:30 - 15:00

Mill Hill Lane, Room 224

(In)efficiency in Information Acquisition and Aggregation through Prices

We study the interaction between the inefficiency in the acquisition of private information and trading in financial markets.
We show that, as the cost of information declines, traders over-invest in information acquisition and trade too much on their private information. We also show that, generically, there exists no policy based on the price of the financial asset and the volume of individual trades that implements efficiency in both information acquisition and trading. Such an impossibility result, however, turns into a possibility result when information acquisition is verifiable, or when taxes can be made contingent on the aggregate volume of trade.

31st May 2023

13.30 - 15.00

Mill Hill Lane, Lecture Theatre 454

Reproducibility and Household Panel Studies: Insights from the SOEP Innovation Sample

The ongoing replicability and reproducibility crisis in the social sciences has revealed the importance of transparency, replications, and good scientific practice in the field of economics. But replication studies are scarce, innovations in these areas have not been sufficiently tested and scientific practices vary among researchers. Household panel studies offer a lot to behavioral economists who wish to run external validity tests and replication studies. This presentation will provide examples and procedural information from Germany’s Socio-Economic Panel (SOEP).

25 May 2023

16:00 - 17:15

This event will take place online, to register, click here.

The Core of Bayesian Persuasion

Joint with Ran Eilat.

An analyst observes the frequency with which an agent takes actions, but not the frequency with which she takes actions conditional on a payoff relevant state. In this setting, we ask when the analyst can rationalize the agent’s choices as the outcome of the agent learning something about the state before taking action. Our characterization marries information design (Bergemann and Morris, 2016) and Bayesian persuasion (Kamenica and Gentzkow, 2011) relying on Hall’s marriage theorem and a network flows theorem (Gale, 1957). We apply our result to identify conditions under which a data set is consistent with a public information structure in a multi-agent setting, where players’ payoffs depend on their own actions and the state of the world. 

25 May 2023

15:00 - 17:00

Mill Hill Lane, Room 454

The Need For Fees at a DEX: How Increases in DEX Fees Can Increase DEX Trading Volume

We demonstrate that increasing fees at a DEX can increase DEX trading volume. This result arises because a DEX fee increase can endogenously reduce the price impact of trading at the DEX, thereby reducing the overall DEX trading cost and driving trading activity to the DEX from competing trading exchanges. The referenced relationship between fees and price impacts arises because DEXs employ a mechanical pricing rule whereby price impacts reduce with the DEX inventory level, and DEXs acquire inventory by offering DEX fee revenue in exchange for investors to finance the DEX inventory. When fees are sufficiently low, increases in the DEX fee level generate increases in overall DEX fee revenue and also in DEX investment returns, thereby increasing DEX inventory; in turn, price impacts decline and so too do overall trading costs, resulting in an increase in DEX trading volume.

24 May 2023 - 13:30 - 15:00

Mill Hill Lane, Room 403

Repugnant transactions: The role of agency and severe consequences

Some transactions are restricted or prohibited, although people may want to engage in them (e.g., the sale of human organs, surrogacy, and prostitution). It is not well understood what causes judgments of repugnance. We study two potential reasons: lack of agency of the parties and severe consequences of the transaction. Limited agency arises, e.g., when one party cannot decide freely because she is not able to reject the transaction offered, or a third person takes the decision on her behalf. In a laboratory experiment, we ask spectators whether they want to prohibit a transaction or not. We find that transactions with severe outcomes (listening to a painful tone) are more frequently prohibited than those with mild outcomes (waiting in the laboratory). We also show that lack of agency and severe outcomes reinforce each other, where the combination of both properties leads to prohibition rates of up to 80 percent.

18 May 2023

16:00 - 17:15

This event will take place online, to register, click here.

Further details coming soon!

17th May 2023

1.30pm - 3pm

Mill Hill Lane, Room 224

Renegotiation Discrimination and Favoritism in Symmetric Procurement Auctions

In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favored supplier
can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in
which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the
probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favored supplier than for its rivals. Given this comparative advantage,
the favored firm bids more aggressively and wins more often than standard firms.
Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing
a comparative advantage to the favored firm.

11 May 2023

Mill Hill Lane

Organized by DREAM, this is a one-day workshop. For more information, click here.

11th May 2023

Mill Hill Lane

"Growth and Likelihood". Guest panelists: Yuhta Ishii and Colin Stewart 

We study economic growth, using methods that apply tools from information theory outside their usual domain. We find that the growth-maximizing policy satisfies a meritocracy principle: it minimizes the wedge between the endowments and merits of economic agents. An analogous consistency principle arises in the statistical literature on predictive processing. There, an artificial or biological system chooses a statistical model that minimizes the discrepancy between the predicted and observed distributions of signals. We show that, in fact, the models of economic growth and predictive coding are equivalent, as are the two principles.

4 May 2023

16:00 - 17:15

This event will take place online, to register, click here.

Bayesian Doublespeak

with Ing-Haw Cheng.

Why does misinformation persist, and how does it distort the long-run beliefs and actions of rational agents? Suppose receivers see an infinite stream of messages from a sender of unknown type who observes private signals about an unknown state of the world. We characterize the conditions for "doublespeak" equilibria where one sender type repeatedly reveals each private signal truthfully but another sender type repeatedly fabricates false values of her private signals. Receivers only partially learn the true state in the long run irrespective of the true sender type, resulting in long-run disagreement and ex post incorrect actions by some receivers. Equilibrium fact-checking by receivers does not induce more truth-telling among sender types but reputational concerns can. Our results cast doubt on the presumption that rational agents can pierce through persistent extreme lies in the long run and highlight the deleterious effects of such lies for receiver welfare.

4th May 2023

Mill Hill Lane, Room TBC

Optimal Inference for Spot Regressions

Abstract will be available closer to the date.  Please check back for further details.

3th May 2023 13:30 - 15:00

Mill Hill Lane, Room 453

Credit Market Tightness and the Zombie Firm Share

This paper finds that times of higher credit availability often result in a smaller share of zombie firms. We then present a tractable model linking aggregate bank lending and heterogeneous production lines of non-financial firms explaining this relation and describing the conditions under which it holds. Our model builds on the dynamic stochastic general equilibrium product variety models in Bilbiie et al. (2012), Hamano and Zanetti (2017), and Hamano and Zanetti (2022). We extend these with a frictional financial market supplying non-financial firms with credit is integrated into the frame- work. This extension renders credit market tightness, on which the probability of a firm successfully entering and producing positively depends, a non-trivial function of interest rates, productivity, competition, love for varieties, and the current states of active and inactive production lines producing varieties. Credit market tightness, as well as the costs of entering and exiting productive activities, are in turn shown to determine the general equilibrium share of zombie firms in an economy. Intuitively, higher credit market tightness will reduce the value of obtaining external financing and increase com- petition, meaning that more credit availability will lead to a higher productivity cutoff and fewer zombie firms. The tractable model explains the dynamics of credit market tightness and the share of zombie firms in the United Kingdom and European Union Member States.

27 April 2023

16:00 - 17:15

This event will take place online, to register, click here.

Screening with Persuasion

joint with Dirk Bergemann and Tibor Heumann. Guest panelists: Ellen Muir and Andreas Kleiner

We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller’s profits. The optimal screening mechanism has finitely many items even with a continuum of values. We identify sufficient conditions under which the optimal mechanism has a single item. Thus the seller decreases the variety of items below the efficient level as a by-product of reducing the information rents of the buyer.

20 April 2023

16:00 - 17:15

This event will take place online, to register, click here.

Strategic Foundations of Rational Expectations

joint with Srihari Govindan and Robert Wilson.

We study an economy with traders whose payoffs are quasilinear and their  private signals are informative about an unobserved state parameter. The limit economy  has infinitely many traders partitioned into a finite set of symmetry classes called types.  It has a unique rational expectations Walrasian equilibrium (REE) whose price reveals  the state. Total monotonicity, a property that limits heterogeneity across types, determines whether an efficient social choice function (SCF) is attainable using mechanisms    in a class that includes auctions. An average crossing property on the primitives is a  sufficient condition for total monotonicity. The REE is an efficient SCF so it is attainable  by an auction if and only if it satisfies total monotonicity. REE with total monotonicity  is not only attainable, but also implementable: it is approximated by the equilibrium  outcomes of auctions with finitely many traders of each type and fine grids of the state,  signals and bids.

30 March 2023

16:00 - 17:15

This event will take place online, to register, click here.

Test-Optional Admissions

Joint with Alex Frankel and Navin Kartik. Guest panelists: Christopher Avery and Annie Liang

23 March 2023

16:00 - 17:15

This event will take place online, to register, click here.

Who Controls the Agenda Controls the Polity

Joint with Nageeb Ali, Alex Bloedel and Silvia Console Battilana. Guest panelist: Vincent Anesi and Debraj Ray.

This paper models legislative decision-making with an agenda setter who can propose policies sequentially, tailoring each proposal to the status quo that prevails after prior votes. Voters are sophisticated and the agenda setter cannot commit to her future proposals. Nevertheless, the agenda setter obtains her favorite outcome in every equilibrium regardless of the initial default policy. Central to our results is a new condition on preferences, manipulability, that holds in rich policy spaces, including spatial settings and distribution problems. Our results overturn the conventional wisdom that voter sophistication alone constrains an agenda setter’s power. 

15 March 2023

13:30 - 15:00

Mill Hill Lane, room TBC

Multinational Ownership and Trade Participation

(with Glenn Magerman, Fabrizio Leone, and Catherine Thomas).

In this paper, we show that multinational corporations (MNCs) boost affiliates’ trade participation by alleviating country-specific trade frictions in and around their networks. We first show that, even after accounting for selection effects, multinational ownership increases overall trade participation: new multinational affiliates are more likely to export and import, trade with more countries, and increase the total value of their exports and imports. We develop a model in which multinational ownership can affect export and import decisions of new affiliates through different channels. To isolate network-specific channels, we estimate firm-level gravity regressions with three-way fixed effects, exploiting variation in the network structure of the parents. We show that new affiliates are more likely to start exporting to/importing from countries in which their parent operates. This MNC network effect increases with (geographical and cultural) distance from the affiliates. We also find evidence of an extended MNC network effect: new affiliates are more likely to start trading with countries that are close (but do not belong) to their parents’ network.

15 March 2023 12:15 - 13:15

Mill Hill Lane 

Room240

Information Disclosure to Bidders with Heterogenous Preferences (with Ian Jewitt, Oxford)

How should a seller disclose product information to bidders with horizontally differentiated preferences over a product attribute?  We show that the expected auction revenue is a function of the posterior mean of the product attribute, and the seller’s problem can be solved by a duality approach.  Under reasonable assumptions, we show that the expected revenue assumes a single-crossing property, and the optimal disclosure policy must be in the form of monotone partitions.  In the case of uniform distributions, we fully solve the optimal disclosure policy, which is characterized by full disclosure in the centre and no information revealed towards the ends of the Hotelling line.  Moreover, when the number of bidders increases, the full-disclosure region expands, and hence the seller reveals more product information.  We also show that full information disclosure maximizes the expected social welfare.

14 March 2023 

15:00 - 16:00

Mill Hill Lane, room 427

Kantian Morality and Optimal Second-Best Commodity Taxation

We build upon the Ramsey optimal commodity taxation structure (Ramsey 1927) to investigate how moral green preferences influence optimal taxation for goods with environmental externalities. When investigating optimal taxation in the presence of green consumerism, economists largely focus on corrective Pigouvian taxation within partial equilibrium models in a first-best world. Depending upon the operationalisation of green preferences, studies find that optimal corrective Pigouvian taxes reduce or stay constant. We employ Roemer’s (2010) formalisation of Kantian moral preferences to model how green consumers optimise their consumption of dirty goods; this states that consumers would choose the consumption level at which they would not wish for all agents to deviate from their current consumption level by any common amount. We incorporate these enriched consumer preferences within the Ramsey model in a second-best world, introducing both dirty and clean goods. Our results show that in the absence of Kantian preferences, when consumers optimise in a neo-classical fashion, the Ramsey Rule does not hold. Henceforth, in addition to a revenue-raising Ramsey tax, a corrective Pigouvian tax must be charged on the dirty good. On the other hand, when endowed with Kantian moral preferences, consumers voluntarily internalise environmental externalities, removing the requirement for corrective taxation, and resulting in the Ramsey Rule holding. Furthermore, moral preferences reduce the responsiveness of demand to market forces, increasing the inelasticity of demand for dirty goods, and hence increasing the level of optimal Ramsey taxation which should be charged on dirty goods relative to clean goods.

8 March 2023 

13:30 - 15:00

Mill Hill Lane 

Room 240

Gain-Loss Utility for Prospect Theory

An extension to original prospect theory is provided in which the gain-loss utility is formally identified. To this aim, we demand some standard properties, including monotonicity with respect to first order stochastic dominance, and combine them with a new property called gain-loss consistency. For simple prospects that give a gain and a loss (and else the reference point), these properties characterize an extension of original prospect theory with probability weighting that depends on whether probabilities are attached to gains or to losses. For general prospects with multiple gains and multiple losses, the probability weighting functions apply to the overall probability of gaining and of losing. Further, the gain-loss utility function determines the value of a prospect by transforming the expected utility of the gain part and the expected utility of the loss part of that prospect before those components are aggregated to obtain that prospect’s value. This way, the gain-loss utility can be decomposed into a basic utility for outcomes and a transformation thereof that captures loss aversion

01 March 2023

This event will take place online via ZOOM

Tying as an Instrument of Vertical Integration

This paper examines the relationship between tying and vertical integration when an input monopolist can require its downstream buyer to purchase a competitively supplied input from it, or integrate forward in the downstream market. We show tying is an imperfect substitute for vertical integration, and provide the necessary and sufficient condition when the two practices are equivalent. When they are not equivalent, the total welfare under tying is higher than that under vertical integration. This raises the question whether a harsher treatment of tying than vertical integration in our current antitrust enforcement is economically sound. More interestingly, compared with the non-tying case, tying can be Pareto improving: Both the input monopolist and consumers are strictly better off when no other firms are worse off. Further, we offer the necessary and sufficient condition for Pareto improvement. Finally, we argue that, considering the welfare effects of tying, more cautions need to be taken in treating Apple's payment restriction in the ongoing antitrust case Epic Games v. Apple.

2 March 2023

15:30 - 17:00

Profits, Firm Ownership and Aggregate Demand Externalities

Our work makes three main contributions to the macroeconomics literature. First, within a monopolistic-competition model we explore alternative ownership arrangements. We show in a highly sylised environment  how the feedback impact of profit under specific sharing rules can deliver aggregate improvements. Our results shows that profit sharing arrangements can internalize aggregate externalities and therefore improve overall efficiency. In an environment with high and rising profits, this underlines the crucial incentive roles that the organization of the firm can play. Second, our results clarify that under imperfect competition, profit-sharing rules can be used as a tool for design of incentives where promoting internal competition for profit shares is important. If such competition extends only to capital, investment decisions improve, raising output and wages, while maintaining  the labor wedge. However, if this extends to both factors through an appropriate institutional arrangement, further improvements on the labor wedge can be attained. Finally, the institutional structure that allows both factor wedges to be improved upon bears striking resemblance to certain worker cooperatives, such as the NYC drivers' cooperative pointing to the potential benefits of alternative decision making and ownership structures.

17 January 2023 

13:00 - 14:30

This talk will introduce the hardware and software facilities, subject pool, and workflow of the Behavioral and Experimental Laboratory of Wuhan University. The talk also includes (1) how to use the laboratory's WeChat platform to conduct offline/online economic experiments and use the third-party service (millions of people subject pool) to conduct online surveys and experiments. (2) Eye tracking and EEG equipment and their applications. (3) The current situation and prospects in our international cooperation.

18 January 2023

13:30 - 15:00

Dynamic Contracting with Flexible Monitoring

We study a principal's joint design of optimal monitoring and compensation schemes to incentivize an agent by incorporating information design into a dynamic contracting framework. The principal can flexibly allocate her limited monitoring capacity between seeking evidence that confirms or contradicts the agent's effort, as the basis for reward or punishment. When the agent's continuation value is low, the principal seeks only confirmatory evidence. When it exceeds a threshold, the principal seeks mainly contradictory evidence. Importantly, the agent's effort is perpetuated if and only if he is sufficiently productive.

11 January 2023

13:30 - 15:00

Skill-Substitutability, Wage Inequality, and Productivity Growth

We present a model of capital-labor substitution, where capital is produced by higher-skilled labor (i.e., engineers, scientists) and it substitutes for lower-skilled labor in final good production (e.g., assembly line workers, cashiers, clerks). We call this process “skill-substitutability.” An increase in the productivity of capital (e.g., more functional machinery, computer hardware) decreases its relative price; however, the rising share of higher-skilled labor in its production increases its relative price, which counteracts the productivity rise and slows down the capital-labor substitution. Furthermore, dropping wages of substitutable workers (i.e., lower-skilled labor) in the overall economy for other (i.e., non-substitution related) reasons contributes to the slow-down in capital-labor substitution. We calibrate our model by using the US data for 1987-2017 and show that these counteracting forces provide a novel explanation for the relatively stable share of equipment capital in value added.

7 December 2022

13:30 - 15:00

Escaping the First Order Approach to Principal Agent Problems

The standard Moral Hazard Principal Agent Problem has been one of the cornerstones of Information Economics for half a century - but arguably it has remained rather inscrutable.

The First Order approach is still the main tool of analysis but typically it is not fit for purpose and fails for very natural cases, such as normal measurement error. The paper goes beyond the FOA to solve the PA problem for a wide class of specifications including all exponential families. Interesting phenomena arise: monotone likelihood ratio but non monotonic wages, second best effort level higher than first best in the presence of moral hazard.

30 November 2022

Institution Formation in Coordination Games 
with Fixed Neighborhoods

We study the role of endogenous formation of institutions in overcoming coordination failures in weakest-link games in fixed neighborhoods, aiming at higher public good provision levels. Institutions are weak in that they only form and take decisions by unanimity and have no enforcement power. Our experimental results show that such institutions are formed and that they facilitate overcoming the coordination problem, raising equilibrium provision levels. However, institutions do not trivially solve the coordination problem. As the data shows, also institutions fall short of providing Pareto-optimal contributions. Given the multiplicity of Nash equilibria in weakest-link games, we provide a Quantal Response Equilibrium (QRE) and an Agent QRE analysis to rationalize our experimental results. We demonstrate that institutions would solve the coordination problem with (almost) perfectly rational agents, and that our experimental results are consistent with (A)QRE models with bounded rationality.

30 November 2022 

13:30 - 15:00

Dynamic Incentives Behind Online Reviews: Theory and Evidence

Authors: 
Hisayuki YOSHIMOTO and Andy ZAPECHELNYUK

We study the dynamic incentives behind the practice of firms writing potentially manipulated online reviews. First, we propose a stylized model with a Bellman equation, which characterizes marginal costs and gains for a firm to write inflated reviews. The model shows that, under some review score aggregation rules, the incentive to write manipulated reviews diminishes as the number of reviews increases. Second, to test the theoretical predictions, we investigate online reviews among high-end restaurants. Specifically, we compare (1) online reviews, which anyone can write and are subject to manipulation, and (2) professional restaurant guidebook reviews, which are written by professional reviewers and less subject to manipulation. Notably, we exploit a discontinuity in the review score aggregation rule. We empirically find that restaurant review dynamics are heterogeneous, but some of them fall into the theoretically predictable behaviour of review manipulation.

23 November 2022

13:30 - 15:00

Expenditure Consolidation and Sovereign Debt Restructurings: Front- or Back-loaded" co-authored with Tamon Asonuma (IMF)

Sovereigns implement expenditure consolidation prior to debt crisis-``front-loaded". We compile data on strategies of expenditure consolidation and restructurings in 1975-2020. We find that (i) expenditure consolidation precedes—front-loaded—preemptive restructuring, while occurs upon post-default restructurings—back-loaded—; and (ii) public investment and restructuring duration differ between preemptive and post-default restructurings. We construct a theoretical sovereign debt model that embeds endogenous choice of preemptive and post-default renegotiations, public capital accumulation, and expenditure composition. The model quantitatively shows the sovereign's choice of front-loaded expenditure consolidation and preemptive restructuring results in quick debt settlement and public investment recovery. Data support theoretical predictions.

19 October 2022

12:15 - 13:15

Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events

19 October 2022

13:30 - 15:00

Modelling optimal lockdowns with waning immunity

This paper studies continuing optimal lockdowns (can also be interpreted as quarantines or self-isolation) in the long run if a disease (Covid-19) is endemic and immunity

can fail, that is, the disease has SIRS dynamics. We model how disease related mortality affects the optimal choices in a dynamic general equilibrium neoclassical growth

framework. An extended welfare function that incorporates loss from mortality is used. In a disease endemic steady state, without this welfare loss even if there is continuing mortality, it is not optimal to impose even a partial lockdown. We characterize how the optimal restriction and equilibrium outcomes vary with the effectiveness of the lockdown, the productivity of working from home, the rate of mortality from the disease, and failure of immunity. We provide the sufficiency conditions for economic models with SIRS dynamics with disease related mortality – a class of models which are non-convex and have endogenous discounting so that no existing results are applicable.

12 October 2022

13:30-15:00

A Signalling Approach to Reputation

( joint work with Chiara Margaria)

We develop a model of dynamic predatory behavior à la Milgrom and Roberts (1982). An incumbent who is privately informed about whether the demand is strong or weak faces a potential entrant who decides when, if ever, to pay an entry cost to become an incumbent’s competitor or take an outside option. The incumbent chooses its output so to affect the market price, which is a noisy signal of the market demand. Leveraging continuous-time method, we provide a tractable attraction of Markov equilibria and show that they always feature overproduction. We show that the equilibrium predictions are consistent with the observed pattern (Goolsbee and Syverson, 2008; Sweeting et al., 2020): price is lowest right before the entrance of the rival. While the equilibrium cannot be described in closed form, we show that because of its numerical tractability, the model is amenable to further empirical investigation to quantify, for example, the welfare effects of predation.