Optimal Intermediary Rents

By Josef Schroth

American Economic Journal: Macroeconomics, January 2016

This paper studies a dynamic production economy with financial intermediation. It is assumed that claims held on intermediaries cannot be fully enforced such that intermediation is subject to intermediary equity requirements. It is shown that competitive ...

Real Rigidity, Nominal Rigidity, and the Social Value of Information

By George-Marios Angeletos, Luigi Iovino, and Jennifer La'O

American Economic Review, January 2016

Does welfare improve when firms are better informed about the state of the economy and can thus better coordinate their production and pricing decisions? We address this question in an elementary business-cycle model that highlights how the dispersion of ...

Dynamic Signaling with Dropout Risk

By Francesc Dilmé and Fei Li

American Economic Journal: Microeconomics, February 2016

We study the role of dropout risk in dynamic signaling. A seller privately knows the quality of an indivisible good and decides when to trade. In each period, he may draw a dropout shock that forces him to trade immediately. To avoid costly delay, the sel...

Don't Demotivate, Discriminate

By Jurjen J. A. Kamphorst and Otto H. Swank

American Economic Journal: Microeconomics, February 2016

This paper offers a new theory of discrimination in the workplace. We consider a manager who has to assign two tasks to two employees. The manager has superior information about the employees' abilities. We show that besides an equilibrium where the manag...

Anatomy of a Contract Change

By Rajshri Jayaraman, Debraj Ray, and Francis de Véricourt

American Economic Review, February 2016

We study a contract change for tea pluckers on an Indian plantation, with a higher government-stipulated baseline wage. Incentive piece rates were lowered or kept unchanged. Yet, in the following month, output increased by 20 to 80 percent. This response ...

Redistribution and Social Insurance

By Mikhail Golosov, Maxim Troshkin, and Aleh Tsyvinski

American Economic Review, February 2016

We study optimal redistribution and insurance in a life-cycle economy with private idiosyncratic shocks. We characterize Pareto optima, show the forces determining optimal labor distortions, and derive closed form expressions for their limiting behavior. ...

Search Design and Broad Matching

By Kfir Eliaz and Ran Spiegler

American Economic Review, March 2016

We study decentralized mechanisms for allocating firms into search pools. The pools are created in response to noisy preference signals provided by consumers, who then browse the pools via costly random sequential search. Surplus-maximizing search pool...

Why Organizations Fail: Models and Cases

By Luis Garicano and Luis Rayo

Journal of Economic Literature, March 2016

Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics...

Group Strategy-Proofness in Private Good Economies

By Salvador Barberà, Dolors Berga, and Bernardo Moreno

American Economic Review, April 2016

Many salient rules to allocate private goods are not only strategy-proof, but also group strategy-proof, in appropriate domains of definition, hence diminishing the traditional conflict between incentives and efficiency. That is so for solutions to matc...

Entry Deterrence in Dynamic Second-Price Auctions

By Xiaogang Che and Tilman Klumpp

American Economic Journal: Microeconomics, May 2016

We examine a dynamic second-price auction with independent private values and sequential costly entry. We show that delayed revelation equilibria exist in which some buyers place coordinated low early bids. These buyers revise their bids to reflect the...

Manipulability of Stable Mechanisms

By Peter Chen, Michael Egesdal, Marek Pycia, and M. Bumin Yenmez

American Economic Journal: Microeconomics, May 2016

We study the manipulability of stable matching mechanisms and show that manipulability comparisons are equivalent to preference comparisons: for any agent, a mechanism is more manipulable than another if and only if this agent prefers the latter to the...

Information Design, Bayesian Persuasion, and Bayes Correlated Equilibrium

By Dirk Bergemann and Stephen Morris

American Economic Review, May 2016

A set of players have preferences over a set of outcomes. We consider the problem of an "information designer" who can choose an information structure for the players to serve his ends, but has no ability to change the mechanism (or force the players to m...

Crowdsourcing City Government: Using Tournaments to Improve Inspection Accuracy

By Edward L. Glaeser, Andrew Hillis, Scott Duke Kominers, and Michael Luca

American Economic Review, May 2016

The proliferation of big data makes it possible to better target city services like hygiene inspections, but city governments rarely have the in-house talent needed for developing prediction algorithms. Cities could hire consultants, but a cheaper alterna...

The Economics of Privacy

By Alessandro Acquisti, Curtis Taylor, and Liad Wagman

Journal of Economic Literature, June 2016

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers' und...

Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D

By Maria Polyakova

American Economic Journal: Applied Economics, July 2016

I take advantage of regulatory and pricing dynamics in Medicare Part D to explore interactions among adverse selection, inertia, and regulation. I first document novel evidence of adverse selection and switching frictions within Part D using detailed admi...

Perceiving Prospects Properly

By Jakub Steiner and Colin Stewart

American Economic Review, July 2016

When an agent chooses between prospects, noise in information processing generates an effect akin to the winner's curse. Statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noi...

Inducing Leaders to Take Risky Decisions: Dismissal, Tenure, and Term Limits

By Philippe Aghion and Matthew O. Jackson

American Economic Journal: Microeconomics, August 2016

How can a principal (employer or voter) induce an agent (worker or politician) to choose the "right" actions if risky actions reveal the agent's decision making competence and only dismissal can be used as an incentive instrument? We first show that if th...

Keeping Secrets: The Economics of Access Deterrence

By Emeric Henry and Francisco Ruiz-Aliseda

American Economic Journal: Microeconomics, August 2016

Keeping valuable secrets requires costly protection efforts. Breaking them requires costly search efforts. In a dynamic model in which the value of the secret decreases with the number of those holding it, we examine the secret holders' protection decisio...

Strategic Information Acquisition and Transmission

By Rossella Argenziano, Sergei Severinov, and Francesco Squintani

American Economic Journal: Microeconomics, August 2016

This paper explores the implications of costly information acquisition in a strategic communication setting. We show that equilibrium decisions based on a biased expert's advice may be more precise than when information is directly acquired by the decisio...

Just Enough or All: Selling a Firm

By Mehmet Ekmekci, Nenad Kos, and Rakesh Vohra

American Economic Journal: Microeconomics, August 2016

We consider the problem of selling a firm to a single buyer. The buyer privately knows post-sale cash flows and the benefits of control. Unlike the case where buyer's private information is one-dimensional, the optimal mechanism is a menu of tuples of cas...