Claim Validation

By Nabil Al-Najjar, Luciano Pomatto, and Alvaro Sandroni

American Economic Review, November 2014

Hume (1748) challenged the idea that a general claim (e.g. "all swans are white") can be validated by empirical evidence, no matter how compelling. We examine this issue from the perspective of a tester who must accept or reject the forecasts of a potent...

Strategic Private Experimentation

By Mike Felgenhauer and Elisabeth Schulte

American Economic Journal: Microeconomics, November 2014

We consider a model of persuasion in which an agent who tries to persuade a decision maker can sequentially acquire imperfect signals. The agent's information acquisition is unobservable and he has the option to hide unfavorable signals. Nevertheless, if ...

The Control Premium: A Preference for Payoff Autonomy

By David Owens, Zachary Grossman, and Ryan Fackler

American Economic Journal: Microeconomics, November 2014

We document individuals' willingness to pay to control their own payoff. Experiment participants choose whether to bet on themselves or on a partner answering a quiz question correctly. Given participants' beliefs, which we elicit separately, expected-mo...

Hypothetical Thinking and Information Extraction in the Laboratory

By Ignacio Esponda and Emanuel Vespa

American Economic Journal: Microeconomics, November 2014

In several common-value environments (e.g., auctions or elections), players should make informational inferences from opponents' strategies under certain hypothetical events (e.g., winning the auction or being pivotal). We design a voting experiment that ...

Competitive Altruism, Mentalizing, and Signaling

By Ed Hopkins

American Economic Journal: Microeconomics, November 2014

One explanation of altruism is that it arises from "mentalizing", the process of understanding the mental states of others. Another is based on sexual selection: altruism is a costly signal of good genes. This paper shows that these two arguments are s...

(Good and Bad) Reputation for a Servant of Two Masters

By Heski Bar-Isaac and Joyee Deb

American Economic Journal: Microeconomics, November 2014

We present a model in which an agent takes actions to affect her reputation with two audiences with diverse preferences. This contrasts with standard reputation models that consider a homogeneous audience. A new aspect that arises is that different audie...

Wasteful Sanctions, Underperformance, and Endogenous Supervision

By David A. Miller and Kareen Rozen

American Economic Journal: Microeconomics, November 2014

We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided ...

The Day Care Assignment: A Dynamic Matching Problem

By John Kennes, Daniel Monte, and Norovsambuu Tumennasan

American Economic Journal: Microeconomics, November 2014

We study the problem of centralized allocation of children to public daycare centers, illustrated by the case of Denmark. Our framework applies to problems of dynamic matching in which there is entry and exit of agents over time; for example, the schoo...

Optimal Allocation with Costly Verification

By Elchanan Ben-Porath, Eddie Dekel, and Barton L. Lipman

American Economic Review, December 2014

A principal allocates an object to one of I agents. Each agent values receiving the object and has private information regarding the value to the principal of giving it to him. There are no monetary transfers, but the principal can check an agent's inf...

Is It Whom You Know or What You Know? An Empirical Assessment of the Lobbying Process

By Marianne Bertrand, Matilde Bombardini, and Francesco Trebbi

American Economic Review, December 2014

Do lobbyists provide issue-specific information to members of Congress? Or do they provide special interests access to politicians? We present evidence to assess the role of issue expertise versus connections in the US Federal lobbying process and illus...

Reputation and Persistence of Adverse Selection in Secondary Loan Markets

By V. V. Chari, Ali Shourideh, and Ariel Zetlin-Jones

American Economic Review, December 2014

The volume of new issuances in secondary loan markets fluctuates over time and falls when collateral values fall. We develop a model with adverse selection and reputation that is consistent with such fluctuations. Adverse selection ensures that the vol...

Behavioral Contract Theory

By Botond Koszegi

Journal of Economic Literature, December 2014

This review provides a critical survey of psychology-and-economics ("behavioral-economics") research in contract theory. First, I introduce the theories of individual decision making most frequently used in behavioral contract theory, and formally illustr...

Expanding "Choice" in School Choice

By Atila Abdulkadiroğlu, Yeon-Koo Che, and Yosuke Yasuda

American Economic Journal: Microeconomics, February 2015

Gale-Shapley's deferred acceptance (henceforth DA) mechanism has emerged as a prominent candidate for placing students to public schools. While DA has desirable fairness and incentive properties, it limits the applicants' abilities to communicate their pr...

Subjective Evaluations: Discretionary Bonuses and Feedback Credibility

By William Fuchs

American Economic Journal: Microeconomics, February 2015

We provide a new rationale for the use of discretionary bonuses. In a setting with unknown match qualities between a worker and a firm and subjective evaluations by the principal, bonuses are useful in order to make the feedback from the firm to the worke...

Repeated Interaction and Rating Inflation: A Model of Double Reputation

By Sivan Frenkel

American Economic Journal: Microeconomics, February 2015

Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as marke...

Robustness and Linear Contracts

By Gabriel Carroll

American Economic Review, February 2015

We consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do: she knows some actions available to the agent, but other, unknown actions may also exist. The principal demands robustness, evaluating possible ...

Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial

By Jessica Cohen, Pascaline Dupas, and Simone Schaner

American Economic Review, February 2015

Both under- and over-treatment of communicable diseases are public bads. But efforts to decrease one run the risk of increasing the other. Using rich experimental data on household treatment- seeking behavior in Kenya, we study the implications of this...

Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment

By Steven Tadelis and Florian Zettelmeyer

American Economic Review, February 2015

Market outcomes depend on the quality of information available to its participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses quality information in wholesale automob...

Adverse Selection and an Individual Mandate: When Theory Meets Practice

By Martin B. Hackmann, Jonathan T. Kolstad, and Amanda E. Kowalski

American Economic Review, March 2015

We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. Using data from Massachusetts, we estimate the parameters of the model. In the individual market for health insurance, we find that premiums a...

The Virtues of Hesitation: Optimal Timing in a Non-stationary World

By Urmee Khan and Maxwell B. Stinchcombe

American Economic Review, March 2015

In many economic, political, and social situations, circumstances change at random points in time, reacting is costly, and reactions appropriate to present circumstances may become inappropriate upon future changes, requiring further costly reaction. Wait...