Department of Economics
|Google Scholar Profile|
Microeconomic Theory, Industrial Organization, Bounded Rationality
|Department of Economics
2001 Sheridan Rd
Evanston, IL 60208-2001
My office is Room 3232 in Arthur Andersen Hall
1. “Reallocation Costs and Efficiency,” with Yuval Salant. Revise & Resubmit at the American Economic Review.
We study the efficient allocation of a divisible asset when reallocation is costly. Each of two players is initially allocated a share of the asset. At the time of this initial division the players' valuations for the asset are uncertain. After the uncertainty resolves, costly reallocation may take place. Reallocation costs may depend on the amount reallocated and on players' valuations. We first observe that contracting on the initial division and the reallocation enables the players to attain the highest possible expected surplus for the specified initial division. Our main result then establishes that this maximal expected surplus either monotonically increases or monotonically decreases in the concentration of the initial division for a wide range of reallocation cost specifications.
2. “Large Contests,” with Wojciech Olszewski. Revise & Resubmit at Econometrica.
We consider contests with many, possibly heterogeneous, players and prizes that include many existing contest models as special cases. We show that the equilibria of such contests are approximated by an appropriately defined set of incentive-compatible individually-rational single-agent mechanisms. This approach makes it possible to approximate the equilibria of contests whose exact equilibrium characterization is complicated, as well as the equilibria of contests for which there is no existing equilibrium characterization. This facilitates contest design, welfare analysis, and comparative statics.
3. “Contracts with Framing,” with Yuval Salant.
We develop a theory of contracts with frames. Frames are used by a contract designer to affect how an agent evaluates various options in the contract. The effect of the frame is not persistent, and the agent can renege on the contract after the effect wears off. We observe that framing does not increase the designer's profit when the agent does not have private information or when framing decreases the agent's willingness to pay. Framing increases profit when it increases willingness to pay in a way that does not distort incentives too much. We characterize the profit-maximizing contract in specific environments, and study applications to price discrimination, insurance, and auctions.
|Published and Forthcoming Papers|
4. “All-Pay Contests.” Econometrica, January 2009, 77(1), 71-92.
This paper studies a class of games, “all-pay contests,” which capture general asymmetries and sunk investments inherent in scenarios such as lobbying, competition for market power, labor-market tournaments, and R&D races. Players compete for one of several identical prizes by choosing a score. Conditional on winning or losing, it is weakly better to do so with a lower score. This formulation allows for differing production technologies, costs of capital, prior investments, attitudes toward risk, and conditional and unconditional investments, among others. I provide a closed-form formula for players’ equilibrium payoffs and analyze player participation. A special case of contests is multiprize, complete-information all-pay auctions.
5. “Asymmetric Contests with Conditional Investments.”, American Economic Review, December 2010, 100(5), 2230-2260.
This paper studies equilibrium behavior in a class of games that models asymmetric competitions with unconditional and conditional investments. Such competitions include lobbying settings, labor-market tournaments, and R&D races, among others. I provide an algorithm that constructsthe unique equilibrium in these games and apply it to study competitions in which a fraction of each competitor’s investment is sunk and the rest is paid only by the winners. Complete-information all-pay auctions are a special case.
6. “Participation in Deterministic Contests.” Economics Letters, September 2012, 116(3), 588-592.
This paper considers participation in deterministic contests for multiple identical prizes, which employ an auction-like rule to determine the winners. In most papers that investigate such models, participation by precisely m+1 players is associated with players having complete information about their opponents’ characteristics, and participation by more than m+1 players is associated with players having incomplete information about their opponents’ characteristics. I show that incomplete information is in fact neither sufficient nor necessary for participation by more than m+1 players.
7. “Adverse Selection and Unraveling in Common-Value Labor Markets,” with Jeffrey Ely. Theoretical Economics, September 2013, 8(3), 801–827.
We investigate a common-value labor setting in which firms interview a worker prior to hiring. When firms have private information about the worker’s value and interview decisions are kept private, many firms may enter the market, interview, and hire with positive probability. When firms’ interview decisions are revealed, severe adverse selection arises. As a result, all firms except for the highest-ranked firm are excluded from the hiring process.
8. “Matching and Price Competition: Beyond Symmetric Linear Costs,” with Julio Gonzalez-Diaz. International Journal of Game Theory, November 2013, 42(4), 835–844.
Bulow and Levin’s (2006) “Matching and Price Competition” studies a matching model in which hospitals compete for interns by offering wages. We relax the assumption of symmetric linear costs and compare the pricing equilibrium that results to the firm-optimal competitive equilibrium. With linear and asymmetric costs, competition in the pricing equilibrium may not be localized, but all other qualitative comparisons of Bulow and Levin (2006) hold. With non-linear and symmetric costs workers’ average utility in the pricing equilibrium may be higher than in the firm-optimal competitive equilibrium. With asymmetric and non-linear costs, firms need not choose scores from an interval in a pricing equilibrium, which may make competition even less localized..
9. “Contests with Productive Effort.” International Journal of Game Theory, August 2014, 43(3), 515-523.
I consider competitions in which, conditional on winning or losing, the effort exerted by a competitor does not necessarily decrease his payoff. This happens, for example, in competitions for promotions in which workers are intrinsically motivated, and in research and development races in which better performance implies a higher payoff from winning. I characterize players’ equilibrium payoffs in closed form, thereby generalizing Siegel’s (2009) payoff result to contests in which players’ payoff functions are non-monotonic.
10. “Asymmetric Contests with Head Starts and Non-Monotonic Costs.” American Economic Journal: Microeconomics, August 2014, 6(3), 59-105.
|Online Appendix, Matlab implementation of all-pay auctions with head starts, Matlab examples.|
This paper studies equilibrium behavior in a class of games that models asymmetric multiprize competitions in which players’ costs need not be strictly increasing in their performance. Such costs accommodate various types of asymmetries, including head starts. Head starts capture incumbency advantages, prior investments, and technological differences. I provide an algorithm that constructs the unique equilibrium in which players do not choose weakly-dominated strategies, and apply it to study multiprize all-pay auctionswith head starts. A comparison to the standard all-pay auction shows that the strategic effects of head starts differ substantially from those of differing valuations.
11. “Asymmetric All-Pay Auctions with Interdependent Valuations.”Journal of Economic Theory, September 2014, 153, 684-702.
|Online Appendix, Matlab implementation for general distributions, Matlab implementation for independent distributions, Matlab examples with independent distributions.|
I show that a unique equilibrium exists in an asymmetric two-player all-pay auction with a discrete signal structure, correlated signals, and interdependent valuations. The proof is constructive, and the construction can be implemented as a computer program and be used to derive comparative statics. I also characterize the set of equilibria when a reserve price is introduced.