Middlemen Margins and Globalization

By Pranab Bardhan, Dilip Mookherjee, and Masatoshi Tsumagari

American Economic Journal: Microeconomics, November 2013

We study a competitive theory of middlemen with brand-name reputations necessary to overcome product quality moral hazard problems. Agents with heterogeneous abilities sort into different sectors and occupations. Middleman margins do not equalize acros...

A Procurement Auction for Toxic Assets with Asymmetric Information

By Olivier Armantier, Charles A. Holt, and Charles R. Plott

American Economic Journal: Microeconomics, November 2013

The proposed 2008 TARP auction was intended to remove "toxic" assets from portfolios of financially stressed banks. The Treasury selected a design whereby bids to sell different securities would be normalized by "reference prices" that reflect relative...

Bargaining with Deadlines and Private Information

By William Fuchs and Andrzej Skrzypacz

American Economic Journal: Microeconomics, November 2013

We study dynamic bargaining with private information and a deadline. As commitment power disappears, there is a clear "deadline effect." That is, trade takes place smoothly before the deadline and with an atom right at the deadline. Prices, timing of t...

Corruption Dynamics: The Golden Goose Effect

By Paul Niehaus and Sandip Sukhtankar

American Economic Journal: Economic Policy, November 2013

Theoretical work on disciplining corrupt agents has emphasized the role of expected future rents -- for example, efficiency wages. Yet taken seriously this approach implies that illicit future rents should also deter corruption. We study this "golden g...

Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts

By Benjamin R. Handel

American Economic Review, December 2013

This paper investigates consumer inertia in health insurance markets, where adverse selection is a potential concern. We leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia, and develop and estim...

Dynamic Deception

By Axel Anderson and Lones Smith

American Economic Review, December 2013

We characterize the unique equilibrium of a competitive continuous time game between a resource-constrained informed player and a sequence of rivals who partially observe his action intensity. Our game adds noisy monitoring and impatient players to Aum...

Debt Contracts with Partial Commitment

By Natalia Kovrijnykh

American Economic Review, December 2013

This paper analyzes a dynamic lending relationship where the borrower cannot be forced to make repayments, and the lender offers long-term contracts that are imperfectly enforced and repeatedly renegotiated. No commitment and full commitment by the len...

Polarization and Ambiguity

By Sandeep Baliga, Eran Hanany, and Peter Klibanoff

American Economic Review, December 2013

We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B'...

Risk Shocks

By Lawrence J. Christiano, Roberto Motto, and Massimo Rostagno

American Economic Review, January 2014

We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate ove...

Estimating a Structural Model of Herd Behavior in Financial Markets

By Marco Cipriani and Antonio Guarino

American Economic Review, January 2014

We develop a new methodology to estimate herd behavior in financial markets. We build a model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty...

Partnerships versus Corporations: Moral Hazard, Sorting, and Ownership Structure

By Ayca Kaya and Galina Vereshchagina

American Economic Review, January 2014

Team production takes advantage of technological complementarities but comes with the cost of free-ridership. When workers differ in skills, the choice of sorting pattern may be associated with a nontrivial trade-off between exploiting the technologica...

At Least Do No Harm: The Use of Scarce Data

By Alvaro Sandroni

American Economic Journal: Microeconomics, February 2014

When data is scarce, it is difficult to screen the opinions of informed and uninformed experts. In spite of this difficulty it is possible to deliver incentives for informed experts to honestly reveal their views, and for uninformed experts to do no harm ...

Risk-Taking and Risk-Sharing Incentives under Moral Hazard

By Mohamed Belhaj, Renaud Bourlès, and Frédéric Deroïan

American Economic Journal: Microeconomics, February 2014

This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in...

Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment

By A. Banerji and Neha Gupta

American Economic Journal: Microeconomics, February 2014

We provide a novel experimental auction design, in which (i) an exogenous decrease in the probability of winning, conditional on the bid, reduces the optimal bid of a loss averse agent whose reference point is expectations based; (ii) observed bid distri...

Overconfidence and Diversification

By Yuval Heller

American Economic Journal: Microeconomics, February 2014

Experimental evidence suggests that people tend to be overconfident in the sense that they overestimate the accuracy of their private information. In this paper, we show that risk-averse principals might prefer overconfident agents in various strategic i...

Optimal Tax and Expenditure Policy with Aggregate Uncertainty

By Felix J. Bierbrauer

American Economic Journal: Microeconomics, February 2014

We study optimal income taxation and public-goods provision under the assumption that the cross-section distributions of productive abilities or public-goods preferences are not known a priori. A conventional Mirrleesian treatment is shown to provoke ma...

House Allocation with Overlapping Generations

By Morimitsu Kurino

American Economic Journal: Microeconomics, February 2014

Many real-life applications of house allocation problems are dynamic. For example, each year college freshmen move in and seniors move out of on-campus housing. Each student stays on campus for only a few years. A student is a "newcomer" in the beginning...

Financing Experimentation

By Mikhail Drugov and Rocco Macchiavello

American Economic Journal: Microeconomics, February 2014

Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is financed by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "noncompete" claus...

Paging Inspector Sands: The Costs of Public Information

By Sacha Kapoor and Arvind Magesan

American Economic Journal: Economic Policy, February 2014

We exploit the introduction of pedestrian countdown signals—timers that indicate when traffic lights will change—to evaluate a policy that improves the information of all market participants. We find that although countdown signals reduce the numbe...

Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs

By Patrick Bajari, Stephanie Houghton, and Steven Tadelis

American Economic Review, April 2014

Procurement contracts are often renegotiated because of changes that are required after their execution. Using highway paving contracts we show that renegotiation imposes significant adaptation costs. Reduced form regressions suggest that bidders respo...