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Learning in Relational Contracts American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Rumen Kostadinov, Aditya Kuvalekar
We study relational contracts between a firm and a worker with mutual uncertainty about match quality. The worker’s actions are publicly observed and generate both output and information about the match quality. We show that the relational contracts may be inefficient. We characterize the inefficiency through a holdup problem on the contemporaneous output. In the frequent action limit, these inefficiencies
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How Bayesian Persuasion Can Help Reduce Illegal Parking and Other Socially Undesirable Behavior American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Penélope Hernández, Zvika Neeman
We consider the question of how best to allocate enforcement resources across different locations with the goal of deterring unwanted behavior. We rely on “Bayesian persuasion” to improve deterrence. We focus on the case where agents care only about the expected amount of enforcement resources given messages received. Optimization in the space of induced mean posterior beliefs involves a partial convexification
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Negotiations with Limited Specifiability American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Satoshi Fukuda, Yuichiro Kamada
We study negotiations with limited specifiability—each party may not be able to fully specify a negotiation outcome. We construct a class of negotiation protocols to conduct comparative statics on specifiability as well as move structures. We find that asynchronicity of proposal announcements narrows down the equilibrium payoff set, in particular, leading to a unique prediction in negotiations with
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Optimal Arrangements for Distribution in Developing Markets: Theory and Evidence American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 William Fuchs, Brett Green, David Levine
A large literature examines demand-side barriers to product adoption. In this paper, we examine supply-side barriers in a setting with limited contract enforcement. We model the relationship between a distributor and its credit-constrained vendors. We show that the optimal self-enforcing arrangement can be implemented by providing vendors with a line of credit and the option to buy additional units
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Paths to the Frontier American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Avidit Acharya, Juan Ortner
We construct a model of collective search in which players gradually approach the Pareto frontier. The players have imperfect control over which improvements to the status quo will be considered. Inefficiency takes place due to the difficulty in finding improvements acceptable to both parties. The process is path dependent, with early agreements determining long-run outcomes. It may also be cyclical
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Stochastic Equilibria: Noise in Actions or Beliefs? American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Evan Friedman
We introduce noisy belief equilibrium (NBE) for normal-form games in which players best respond to noisy belief realizations. Axioms restrict belief distributions to be unbiased with respect to and responsive to changes in the opponents’ behavior. The axioms impose testable restrictions both within and across games, and we compare these restrictions to those of regular quantal response equilibrium
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Relationships on the Rocks: Contract Evolution in a Market for Ice American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Tarek Ghani, Tristan Reed
Firms use relational contracts to support repeated trade. Do these informal agreements evolve in response to market conditions? In a market for ice, firms reestablish relationships on new terms when a prior agreement breaks down. Using transaction data, we show that ice retailers prioritize deliveries to loyal buyers—fishing firms— when supply from the monopolistic manufacturer is scarce. After an
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On the Experimental Robustness of the Allais Paradox American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Pavlo Blavatskyy, Andreas Ortmann, Valentyn Panchenko
The Allais Paradox, or the common consequence effect, is a well-known behavioral regularity in individual decision-making under risk. Data from 81 experiments reported in 29 studies reveal that the Allais Paradox is a fragile empirical finding. The Allais Paradox is likely to be observed in experiments with high hypothetical payoffs, the medium outcome being close to the highest outcome and when lotteries
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Trust Building in Credence Goods Markets American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Yuk-fai Fong, Ting Liu, Xiaoxuan Meng
We study trust building in credence-goods markets in a dynamic setting. When consumers’ expected loss is low and it is efficient to fix only the more severe problem, there is no trade in the one-shot game. In the repeated game, an expert’s honesty is monitored through consumers’ rejection of his recommendations. The expert’s profit in the optimal equilibrium weakly increases in the discount factor
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Regulating Product Communication American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Maarten C.W. Janssen, Santanu Roy
Information regulation that penalizes deceptive communication by firms can have significant unintended consequences. We consider a market where competing firms communicate private information about product quality through a combination of pricing and direct communication (advertising or labeling) that may be false. A higher fine for lying reduces the reliance on price signaling, thereby lowering market
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Showing Off or Laying Low? The Economics of Psych-outs American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Philipp Denter, John Morgan, Dana Sisak
We analyze the incentives for showing off, which we model as a costly signaling game, and study the consequences of norms against such behavior. Prior to competing in a contest, a newcomer can signal his talent to an incumbent. In equilibrium, costly signaling of ability occurs only when the newcomer is exceptionally talented. In such situations signaling benefits both contestants: the newcomer for
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Dynamic Regret Avoidance American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Michele Fioretti, Alexander Vostroknutov, Giorgio Coricelli
In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices, participants are affected only by regret about previously observed high prices (past regret), but when future prices are available, they
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Which Findings Should Be Published? American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Alexander Frankel, Maximilian Kasy
Given a scarcity of journal space, what is the optimal rule for whether an empirical finding should be published? Suppose publications inform the public about a policy-relevant state. Then journals should publish extreme results, meaning ones that move beliefs sufficiently. This optimal rule may take the form of a one- or two-sided test comparing a point estimate to the prior mean, with critical values
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The Anticompetitive Effect of Minority Share Acquisitions: Evidence from the Introduction of National Leniency Programs American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Sven Heim, Kai Hüschelrath, Ulrich Laitenberger, Yossi Spiegel
We address the growing concern that minority shareholding (MS) in rival firms may lessen competition, using the introduction of national leniency programs (LPs) as a shock that destabilizes collusive agreements. Based on data from 63 countries, we find a large and significant immediate increase in domestic horizontal MS acquisitions once an LP is introduced but only in countries where the LP is deemed
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Cultural Affinity, Regulation, and Market Structure: Evidence from the Canadian Retail Banking Industry American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2022-02-02 Hector Perez-Saiz, Hongyu Xiao
We estimate a perfect information static entry game to study the effect of cultural entry barriers on entry and competition in the retail banking industry. Canada provides a favorable setting for analysis due to its high linguistic diversity, concentrated market, and regulatory entry barriers. We find that cultural affinity between customers and financial institutions that share a common cultural origin
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Obsolescence of Capital and Investment Spikes American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Arthur Fishman, Boyan Jovanovic
The prospect of capital obsolescence inhibits investment. Investors thus become more optimistic when the obsolescence of their capital slows down. We propose a model with no fixed costs of investment, and random technological progress that induces obsolescence of capital in place. Spikes occur precisely when technological progress slows down. Moreover, the more variable the progress, the larger are
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A Delegation-Based Theory of Expertise American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Attila Ambrus, Volodymyr Baranovskyi, Aaron Kolb
We investigate information aggregation and competition in a delegation framework. An uninformed principal is unable to perform a task herself and must choose between one of two biased and imperfectly informed experts. In the focal equilibrium, experts exaggerate their biases, anticipating an ideological winner’s curse. We show that having a second expert can benefit the principal, even when equally
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Inequality, Bipolarization, and Tax Progressivity American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Oriol Carbonell-Nicolau, Humberto Llavador
The steady rise in income and wealth inequality in the last four decades, together with the evolution of a vanishing middle class, has raised concerns about potentially pernicious effects of these trends on social stability and economic growth. This paper evaluates the possibility of designing tax systems aimed at reducing income inequality and bipolarization. Using two fundamentally different metrics
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Effects of Copyrights on Science: Evidence from the WWII Book Republication Program American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Barbara Biasi, Petra Moser
Copyrights, which establish intellectual property in music, science, and other creative goods, are intended to encourage creativity. Yet, copyrights also raise the cost of accessing existing work—potentially discouraging future innovation. This paper uses an exogenous shift toward weak copyrights (and low access costs) during World War II to examine the potentially adverse effects of copyrights on
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Voter Turnout and Preference Aggregation American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Kei Kawai, Yuta Toyama, Yasutora Watanabe
We study how voter turnout affects the aggregation of preferences in elections. Under voluntary voting, election outcomes disproportionately aggregate the preferences of voters with low voting cost and high preference intensity. We show identification of the correlation structure among preferences, costs, and perceptions of voting efficacy, and explore how the correlation affects preference aggregation
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An Empirical Dynamic Model of Trade with Consumer Accumulation American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Paul Piveteau
This paper develops a dynamic structural model of trade in which firms slowly accumulate consumers in foreign markets. Estimating the model using export data from individual firms and a particle Markov chain Monte Carlo estimator, the model predicts lower survival rates for new exporters and estimates low entry costs of exporting—less than half of those estimated in the absence of consumer accumulation
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A Simple Method for Bounding the Elasticity of Growing Demand with Applications to the Analysis of Historic Antitrust Cases American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Wallace P. Mullin, Christopher M. Snyder
We propose a simple method, requiring only minimal data, for bounding demand elasticities in growing, homogeneous-product markets. Since growing demand curves cannot cross, shifts in market equilibrium over time can be used to “funnel” the demand curve into a narrow region, bounding its slope. Our featured application assesses the antitrust remedy in the 1952 DuPont decision, ordering incumbents to
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Prosecutor Quality, Witness Participation, Crime, and Reform American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Andrew F. Daughety, Jennifer F. Reinganum
We develop a model wherein concerns about prosecutor quality reduce the willingness of witnesses to cooperate with prosecutors. This causes an increase in the crime rate and in wrongly convicted innocent defendants. Because citizens are taxpayers and may be victims, perpetrators, witnesses, or falsely accused defendants, they care about the prosecutor’s quality. They update beliefs about this quality
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Orchestrating Information Acquisition American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Jingfeng Lu, Lixin Ye, Xin Feng
We study how to orchestrate information acquisition in an environment where bidders endowed with original estimates (“types”) about their private values can acquire further information by incurring a cost. We consider both single-round and fully sequential short-listing rules. The optimal single-round shortlisting rule admits the set of most efficient bidders that maximizes expected virtual surplus
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Dynamic Evaluation Design American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Alex Smolin
A principal owns a firm, hires an agent of uncertain productivity, and designs a dynamic policy for evaluating his performance. The agent observes ongoing evaluations and decides when to quit. When not quitting, the agent is paid a wage that is linear in his expected productivity; the principal claims the residual performance. After quitting, the players secure fixed outside options. I show that equilibrium
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The Times They Are A-Changing: Experimenting with Dynamic Adverse Selection American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Felipe A. Araujo, Stephanie W. Wang, Alistair J. Wilson
We examine a common value dynamic matching environment where adverse selection accrues slowly over time. Theoretical best responses are therefore time varying, and the prior experimental literature suggests that sequential environments might lead to greater understanding of adverse selection in this dynamic setting. However, while a sophisticated minority in our experiment do condition on time and
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Fair Social Ordering, Egalitarianism, and Animal Welfare American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Marc Fleurbaey, Martin Van der Linden
We study fairness in economies where humans consume one private good and one public good representing the welfare of other species. We show that a social evaluator cannot be egalitarian with respect to humans while always respecting humans’ unanimous preferences. One solution is to respect unanimous preferences only when doing so does not lead to a decrease in the welfare of other species. Social preferences
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Spillover Effects of Institutions on Cooperative Behavior, Preferences, and Beliefs American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Florian Engl, Arno Riedl, Roberto Weber
Most institutions are limited in scope. We study experimentally how enforcement institutions affect behavior, preferences, and beliefs beyond their direct influence over the behaviors they control. Groups play two identical public good games, with cooperation institutionally enforced in one game. Institutions generally have economically significant positive spillover effects to the unregulated game
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The Market for Online Influence American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Itay P. Fainmesser, Andrea Galeotti
Recent developments in social media have morphed the age-old practice of paying influential individuals for product endorsements into a multibillion dollar industry, extending well beyond celebrity sponsorships. We develop a parsimonious model in which influencers trade off the increased revenue they obtain from paid endorsements with the negative impact that these have on their followers’ engagement
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Optimal Financial Exclusion American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Cyril Monnet, Erwan Quintin
We study efficient exclusion policies in a canonical credit model that features both exogenous and strategic default along the equilibrium path. Policies that maximize welfare in a stationary equilibrium implement exclusion for a finite and deterministic number of periods following default. Front-loading exclusion makes the mass of socially valuable transactions as high as it can be in steady state
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Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-10-28 Aaron Barkley
This paper investigates the how government outsourcing affects efficiency and expenditures by considering how outsourcing decisions are determined along two dimensions: (i) cost differences between private firms and government suppliers of public goods and (ii) dynamics arising from cost complementarities and capacity constraints. I formulate and estimate a dynamic model of government outsourcing using
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Vertical Agreements and User Access American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Germain Gaudin, Alexander White
Platforms acting as sales channels for producers often charge users for access via a subscription fee or a markup on hardware. We compare two common forms of vertical pricing agreement that platforms use with sellers: per unit and proportional fees. In particular, we analyze the critical role that user access plays on prices, profits, and welfare under both forms of agreement. We characterize this
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Government Financing of R&D: A Mechanism Design Approach American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Saul Lach, Zvika Neeman, Mark Schankerman
We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero cofinancing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard, allowing for two levels of effort by the entrepreneur, the optimal
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Inducing Cooperation through Weighted Voting and Veto Power American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Antonin Macé, Rafael Treibich
We study the design of voting rules for committees representing heterogeneous groups (countries, states, districts) when cooperation among groups is voluntary. While efficiency recommends weighting groups proportionally to their stakes, we show that accounting for participation constraints entails overweighting some groups, those for which the incentive to cooperate is the lowest. When collective decisions
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Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Joshua A. Jacobs, Aaron M. Kolb, Curtis R. Taylor
We study a continuous-time organization design problem. Each member’s output is an imperfect signal of his underlying effort, and each member’s utility from remaining in the organization is endogenous to other members’ efforts. Monetary transfers are assumed infeasible. Incentives can be provided only through two channels: expulsion following poor performance and respite following good performance
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Information Redundancy Neglect versus Overconfidence: A Social Learning Experiment American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Marco Angrisani, Antonio Guarino, Philippe Jehiel, Toru Kitagawa
We study social learning in a continuous action space experiment. Subjects, acting in sequence, state their beliefs about the value of a good after observing their predecessors’ statements and a private signal. We compare the behavior in the laboratory with the Perfect Bayesian Equilibrium prediction and the predictions of bounded rationality models of decision-making: the redundancy of information
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College Admission with Multidimensional Privileges: The Brazilian Affirmative Action Case American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Orhan Aygün, Inácio Bó
In 2012, Brazilian public universities were mandated to use affirmative action policies for candidates from racial and income minorities. We show that the policy makes the students’ affirmative action status a strategic choice and may reject high-achieving minority students while admitting low-achieving majority students. Empirical data shows evidence consistent with this type of unfairness in more
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Growing Oligopolies, Prices, Output, and Productivity American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Sharat Ganapati
American industries have grown more concentrated over the last 40 years. In the absence of productivity innovation, this should lead to price hikes and output reductions, decreasing consumer welfare. With US census data from 1972 to 2012, I use price data to disentangle revenue from output. Industry-level estimates show that concentration increases are positively correlated to productivity and real
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Experimentation with Self-Serving Attribution Biases American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Nina Hestermann, Yves Le Yaouanq
We study an experimentation problem in a situation where the outcomes depend on the decision-maker’s intrinsic ability and on an external variable. We analyze the mistakes made by individuals who hold inaccurate prior beliefs about their ability. Overconfident individuals take too much credit for their successes and excessively blame external factors if they fail. They are too easily dissatisfied with
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A Bargaining-Based Model of Security Design American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Matan Tsur
This paper studies how security design affects project outcomes. Consider a firm that raises capital for multiple projects by offering investors a share of the revenues. The revenue of each project is determined ex post through bargaining with a buyer of the output. Thus, the choice of security affects the feasible payoffs of the bargaining game. We characterize the securities that achieve the firm’s
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Utilitarian Aggregation with Heterogeneous Beliefs American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Antoine Billot, Xiangyu Qu
The utilitarian aggregation rule requires social utility and beliefs to be a convex combination of individual utilities and beliefs, respectively. Since, in the case of belief heterogeneity, the standard Pareto condition is incompatible with such a separate aggregation, a new condition, called the belief-proof Pareto condition, is proposed to alleviate occurrences of spurious agreement by restricting
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Product Recalls and Firm Reputation American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Boyan Jovanovic
Product recall data and information on stock price reactions to recalls are used to estimate the value of reputation in a model in which product quality is not contractible. A recall is the result of a product defect that signals low effort. The recall triggers a reduction in the firm’s product price and value, which then both rise steadily until its next defect occurs. We estimate that reputation
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Managerial Style and Attention American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Wouter Dessein, Tano Santos
Is firm behavior mainly driven by its environment or rather by the characteristics of its managers? We develop a cognitive theory of manager fixed effects, where the allocation of managerial attention determines firm behavior. We show that in complex environments, the endogenous allocation of attention exacerbates manager fixed effects. Small differences in managerial expertise then may result in dramatically
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Policy Experimentation in Committees: A Case against Veto Rights under Redistributive Constraints American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-07-26 Vincent Anesi, T. Renee Bowen
We study optimal policy experimentation by a committee. We consider a dynamic bargaining game in which committee members choose either a risky reform or a safe alternative each period. When no redistribution is allowed, the unique equilibrium outcome is generically inefficient. When redistribution is allowed (even small amounts), there always exists an equilibrium that supports optimal experimentation
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The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Nicholas Ryan
The integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power
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Competition and Price Transparency in the Market for Lemons: Experimental Evidence American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Olivier Bochet, Simon Siegenthaler
In markets with asymmetric information, where equilibria are often inefficient, bargaining can help promote welfare. We design an experiment to examine the impact of competition and price transparency in such settings. Consistent with the theoretical predictions, we find that competition promotes efficiency if bargainers cannot observe each other’s price offers. Contrary to the predictions, however
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Exit, Tweets, and Loyalty American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Joshua S. Gans, Avi Goldfarb, Mara Lederman
Hirschman’s Exit, Voice, and Loyalty highlights the role of “voice” when individuals confront an unexpected deterioration in quality. Yet, voice has received little attention. To motivate our empirical analysis, we develop a simple model of voice as the equilibrium of a relational contract between customers and firms. We use data on 4 million tweets to or about US airlines to study the relationship
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Is No News (Perceived As) Bad News? An Experimental Investigation of Information Disclosure American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Ginger Zhe Jin, Michael Luca, Daniel Martin
This paper uses laboratory experiments to directly test a central prediction of disclosure theory: that strategic forces can lead those who possess private information to voluntarily provide it. In a simple sender-receiver game, we find that senders disclose favorable information, but withhold unfavorable information. The degree to which senders withhold information is strongly related to their stated
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Fair Utilitarianism American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Marc Fleurbaey, Stéphane Zuber
Utilitarianism plays a central role in economics, but there is a gap between theory, where utilitarianism is dominant, and applications, where monetary criteria are often used. For applications, a key difficulty is to define how utilities should be measured and compared. Drawing on Harsanyi’s (1955) approach, we introduce a new normalization of utilities ensuring that: (i) a transfer from a rich population
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Common-Value Public Goods and Informational Social Dilemmas American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Caleb A. Cox, Brock Stoddard
We experimentally examine private information and communication in a public goods environment with uncertain returns. We consider a common-value public goods game in which the return to contribution is either high or low. Before contributing, three players observe private signals correlated with the return and send cheap talk messages to one another. There are social gains from truthfulness, but a
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Learning from Unrealized versus Realized Prices American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 M. Kathleen Ngangoué, Georg Weizsäcker
Our experiments investigate the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. In simultaneous markets with bids that are conditional on the price, traders neglect the information conveyed by the hypothetical value of the price. In sequential markets where the price is known prior to the bid submission
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Revealing Naïveté and Sophistication from Procrastination and Preproperation American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 David J. Freeman
This paper proposes a novel way of distinguishing whether a person is naïve or sophisticated about her own dynamic inconsistency using only her task-completion behavior. It shows that adding an unused extra opportunity to complete a task can lead a naïve (but not a sophisticated) person to complete it later and can lead a sophisticated (but not a naïve) person to complete the task earlier. These results
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Fees, Reputation, and Information Production in the Credit Rating Industry American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Jacopo Bizzotto, Adrien Vigier
We compare a credit rating agency’s incentives to acquire costly information when it is only paid for giving favorable ratings to the corresponding incentives when the agency is paid up-front, i.e., irrespective of the ratings assigned. We show that, in the presence of moral hazard, contingent fees provide stronger dynamic incentives to acquire information than up-front fees and may induce higher social
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Well-Being, Poverty, and Labor Income Taxation: Theory and Application to Europe and the United States American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 François Maniquet, Dirk Neumann
In a model where agents differ in wages and preferences over labor time–consumption bundles, we study labor income tax schemes that alleviate poverty. To avoid conflict with individual well-being, we require redistribution to take place between agents on both sides of the poverty line provided they have the same labor time. This requirement is combined with efficiency and robustness properties. Maximizing
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Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Jason Allen, Ali Hortaçsu, Jakub Kastl
Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks’ willingness to pay for liquidity during the 2008–2009 financial crisis was short-lived. Our study suggests that high-frequency distress indicators based on demand for liquidity offered by central banks can
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Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Minjae Song
In two-sided markets, two groups of agents interact through platforms. Because agents’ decision to join a platform is affected by the presence of agents on the other side, their interactions create indirect network externalities and make platforms’ strategies different from those of firms in one-sided markets. In this paper, I use a structural model to show that platforms may take a loss on one side
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Coordinating Public Good Provision by Mediated Communication American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Maija Halonen-Akatwijuka, In-Uck Park
We examine a setup where two agents allocate a fixed budget between public goods in two areas. The agents may be biased to one area, which is their private information. Without communication, the funds are allocated inefficiently, resulting in gaps and duplication in public good provision. Direct communication between the agents is ineffective and cannot resolve the coordination failure even when the
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Exponential Satisficing American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-04-27 Christopher J. Tyson
We propose the exponential satisficing model of boundedly rational decision-making, a general-purpose tool designed for use in typical microeconomic applications. The model posits that the preferences perceived and acted upon by the agent are a stochastic coarsening of his or her true, welfare-significant preferences. The decision-maker’s perceptual capabilities are controlled by a preference resolution
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Connecting Disconnected Financial Markets? American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-01-29 Milena Wittwer
In most financial markets, securities are traded in isolation. Such a disconnected market design can be inefficient if agents trade more than one security. I assess welfare effects of connecting markets by allowing orders for one security to depend on prices of other securities. I show that everyone trades identical amounts under both market structures if and only if the clearing prices are perfectly
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Social Clubs and Social Networks American Economic Journal: Microeconomics (IF 2.458) Pub Date : 2021-01-29 Chaim Fershtman, Dotan Persitz
We present a strategic network formation model based on membership in clubs. Individuals choose affiliations. The set of all memberships induces a weighted network where two individuals are directly connected if they share a club. Two individuals may also be indirectly connected using multiple memberships of third parties. Individuals gain from their position in the induced network and pay membership