While many theoretical works, particularly in family economics, rely on the transferable utility (TU) assumption, its exact implications in terms of individual preferences have never been fully worked out. In this paper, we provide a set of necessary and sufficient conditions for a group to satisfy the TU property. We express these conditions in terms of both individual indirect utilities and individual

We study the degree of falsifiability of theories of choice. A theory is easy to falsify if relatively small datasets are enough to guarantee that the theory can be falsified: the VC dimension of a theory is the largest sample size for which the theory is ``never falsifiable.'' VC dimension is motivated strategically. We consider a model with a strategic proponent of a theory, and a skeptical consumer

This paper explores the optimal design of biased contests. A designer imposes an identity-dependent treatment on contestants that varies the balance of the playing field. A generalized lottery contest typically yields no closed-form equilibrium solutions, which nullifies the usual implicit programming approach to optimal contest design and limits analysis to restricted settings. We propose an alternative

This study provides an explanation of the emergence of power laws in trading volume and asset returns. In the model, traders infer other traders' private signals regarding the value of an asset from their actions and adjust their own behavior accordingly. When the number of traders is large and the signals for asset value are noisy, this leads to power laws for equilibrium volume and returns. We also

We introduce a stochastic learning process called the dampened gradient approximation process. While learning models have almost exclusively focused on finite games, in this paper we design a learning process for games with continuous action sets. It is payoff-based and thus requires from players no sophistication and no knowledge of the game. We show that despite such limited information, players

The Wisdom of the Crowd applied to financial markets asserts that prices represent a consensus belief that is more accurate than individual beliefs. However, a market selection argument implies that prices eventually reflect only the beliefs of the most accurate agent. In this paper, we show how to reconcile these alternative points of view. In markets in which agents naively learn from equilibrium

In winner-take-all tournaments, agents’ performance is determined jointly by effort and luck, and the top performer is rewarded. We study the impact of the “shape of luck”—the details of the distribution of performance shocks—on incentives in such settings. We are concerned with the effects of increasing the number of competitors, which can be deterministic or stochastic, on individual and aggregate

This paper studies how information control affects incentives for collusion and optimal organizational structures in principal-supervisor-agent relationships. I consider a model in which the principal designs the supervisor's signal on the productive agent's private information and the supervisor and agent may collude. I show that the principal optimally delegates the interaction with the agent to

We study optimal incentive contracts with multiple agents when performance evaluation is delegated to a reviewer. The reviewer may be biased in favor of the agents, but the degree of bias is unknown to the principal. We show that a contest, which is a contract in which the principal determines a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to

Farsighted formulations of coalitional formation, for instance by Harsanyi (1974) and Ray and Vohra(2015), have typically been based on the von NeumannMorgenstern (1944) stable set. These farsighted stable sets use a notion of indirect dominance in which an outcome can be dominated by a chain of coalitional 'moves' in which each coalition that is involved in the sequence eventually stands to gain.

We define and explore no-upward-crossing (NUC), a condition satisfied by every parameterized family of distributions commonly used in economic applications. Under smoothness assumptions, NUC is equivalent to log-supermodularity of the negative of the derivative of the distribution with respect to the parameter. It is characterized by a natural monotone comparative static and is central in establishing

I develop a solution concept, equilibrium coalitional behavior (ECB), which captures foresight and imposes the requirement that each coalition in a sequence of coalitional moves chooses optimally among all its available options. The model does not require, but may use, the apparatus of a dynamic process or a protocol that species the negotiation procedure underlying coalition formation. Therefore,

Consider an agent who can costlessly add mean-preserving noise to his output. To deter such risk-taking, the principal optimally offers a contract that makes the agent’s utility concave in output. If the agent is risk-neutral and protected by limited liability, this concavity constraint binds and so linear contracts maximize profit. If the agent is risk averse, the concavity constraint might bind for

This paper studies a model of mechanism design with transfers where agents' preferences need not be quasilinear. In such a model, (1) we characterize dominant strategy incentive compatible mechanisms using a monotonicity property; (2) we establish a revenue uniqueness result: for every dominant strategy implementable allocation rule, there is a unique payment rule that can implement it; and (3) we

Predictions under common knowledge of payoffs may differ from those under arbitrarily, but finitely, many orders of mutual knowledge; Rubinstein's (1989) Email game is a seminal example. Weinstein and Yildiz (2007) showed that the discontinuity in the example generalizes: for all types with multiple rationalizable (ICR) actions, there exist similar types with unique rationalizable action. This paper

We study banks' incentive to pool assets of heterogeneous quality when investors evaluate pools by extrapolating from limited sampling. Pooling assets of heterogeneous quality induces dispersion in investors' valuations without affecting their average. Prices are determined by market clearing assuming that investors can neither borrow nor short-sell. A monopolistic bank has the incentive to create

We study repeated games in which players learn the unknown state of the world by observing a sequence of noisy private signals. We find that for generic signal distributions, the folk theorem obtains using ex-post equilibria. In our equilibria, players commonly learn the state, that is, the state becomes asymptotic common knowledge.

We study a dynamic matching environment where individuals arrive sequentially. There is a tradeoff between waiting for a thicker market, allowing for higher quality matches, and minimizing agents' waiting costs. The optimal mechanism cumulates a stock of incongruent pairs up to a threshold and matches all others in an assortative fashion instantaneously. In discretionary settings, a similar protocol

Many sales, sports, and research contests are put in place to maximize contestants’ performance. We investigate and provide a complete characterization of the prize structures that achieve this objective in settings with many contestants. The contestants may be ex ante asymmetric in their abilities and prize valuations, and there may be complete or incomplete information about these parameters. The

I study efficient multi-unit auction design when bidders have private values, multi-unit demands, and non-quasilinear preferences. Without quasilinearity, the Vickrey auction loses its desired incentive and efficiency properties. Instead of assuming that bidders have quasilinear preferences, I assume that bidders have positive wealth effects. This nests cases where bidders are risk averse, face financial

We study a sequential learning model featuring naive agents on a network. Agents wrongly believe their predecessors act solely on private information, so they neglect redundancies among observed actions. We provide a simple linear formula expressing agents' actions in terms of network paths and use this formula to completely characterize the set of networks guaranteeing eventual correct learning. This

We develop a theory of endogenous and stochastic fluctuations in economic activity. Individual firms choose to randomize over firing or keeping workers who performed poorly in the past to give them an ex-ante incentive to exert effort. Different firms choose to correlate the outcome of their randomization to reduce the probability with which they fire non-performing workers. Correlated randomization

Agents in a network want to learn the true state of the world from their own signals and their neighbors' reports. Agents know only their local networks, consisting of their neighbors and the links among them. Every agent is Bayesian with the (possibly misspecified) prior belief that her local network is the entire network. We present a tractable learning rule to implement such locally Bayesian learning:

Recent technology advances have enabled firms to flexibly process and analyze sophisticated employee performance data at a reduced and yet significant cost. We develop a theory of optimal incentive contracting where the monitoring technology that governs the above procedure is part of the designer's strategic planning. In otherwise standard principal-agent models with moral hazard, we allow the principal

We study how a principal should optimally choose between implementing a new policy and maintaining the status quo when information relevant for the decision is privately held by agents. Agents are strategic in revealing their information; the principal cannot use monetary transfers to elicit this information, but can verify an agent's claim at a cost. We characterize the mechanism that maximizes the

This paper studies a stability notion and matching processes in the job market with incomplete information on the workers' side. Each worker is associated with a type, and each firm cares about the type of her employee under a match. Moreover, firms' information structure is described by partitions over possible worker type profiles. With this firm-specific information, we propose a stability notion

This paper provides a behavioral foundation for the willpower as limited cognitive resource model which bridges the standard utility maximization and the Strotz models. Using the agent's ex ante preferences and ex post choices, we derive a representation that captures key behavioral traits of willpower constrained decision making. We use the model to study the pricing problem of a profit maximizing

This paper provides a general analysis of comparative statics results in global games. I show that the effect of a change in any parameter of the global game model can be decomposed into the direct effect, which captures the effect of a change in parameters when agents' beliefs are held constant, and the multiplier effect, which captures the role of adjustments in agents' beliefs. I characterize conditions

This paper explores the dynamics of nation-building policies and the conditions under which a state can promote a shared national identity on its territory. A forward-looking central government that internalizes identity dynamics shapes them by choosing the level of political centralization. Homogenization attempts are constrained by political unrest and by the intergenerational transmission of identities

We characterize optimal contracts in a dynamic principal–agent model of joint production in which project opportunities are heterogenous, utility from these projects is nontransferable, and the agent has the option to quit the relationship at any time. To demand the production of projects that benefit her but not the agent, the principal must commit to produce projects that benefit the agent in the

We present a model of a discriminatory price auction in which a large bidder competes against many small bidders, followed by a post-auction resale stage in which the large bidder is endogenously determined to be a buyer or a seller. We extend results on first-price auctions with resale to this setting and use these results to give a tractable characterization of equilibrium behavior. We use this characterization