Models of Experimentation and Reputation
Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Simon Board, University of California-Los Angeles
Early-Career Discrimination: Spiraling or Self-Correcting?
AbstractDo workers from social groups with comparable productivity distributions obtain comparable lifetime earnings? We study how a small amount of early-career discrimination propagates over time when workers’ productivity is revealed through employment. Breakdown learning environments that track on-the-job failures grant a disproportionately large advantage to marginally more favored groups, whereas breakthrough learning environments that track successes guarantee comparable earnings to groups of comparable productivity. This discrepancy persists with large labor markets, flexible wages, inconclusive signals, and misspecified employer beliefs. Allowing for investment in productivity exacerbates inequality between groups under breakdown learning.
Incentives and Performance With Optimal Money Management Contracts
AbstractI characterize the dynamics of incentives in an optimal contract with investment delegation, moral hazard, and uncertainty about the agent's productivity. The principal increases the agent's incentives after good performance in order to delegate more capital to an agent with higher perceived productivity, thus implementing a convex pay-for-performance scheme. Moreover, the principal commits to reduce the agent's future incentives in order to mitigate ex-ante investment distortions. Methodologically, I provide a duality-based strategy to overcome technical challenges common to continuous-time contracting models with state variables. I also derive a sufficient condition to verify the validity of the first-order approach.
Searching for "Arms": Experimentation with Endogenous Consideration Sets
AbstractWe study the problem of a decision-maker sequentially choosing between exploring existing alternatives in her consideration set and searching for new ones. We characterize the optimal policy and identify implications for search and exploration dynamics. When the search technology is stationary or improves over time, search is equivalent to replacement. With deteriorating technologies, alternatives are revisited after search is launched and each expansion is treated as if it were the last one. We apply the model to the administration of medical treatments, clinical trials toward regulatory approval, Weitzman (1979)’s Pandora’s boxes problem, and online consumer search.
- D8 - Information, Knowledge, and Uncertainty
- L1 - Market Structure, Firm Strategy, and Market Performance