If Many Seek, Ye Shall Find: Search Externalities and New Goods

By Maciej H. Kotowski and Richard J. Zeckhauser

American Economic Journal: Microeconomics, November 2017

Consumer search serves productive roles in an economy with multiple goods. In equilibrium, search promotes the sorting of consumers among producers, thereby enabling the market for new goods, and potentially increasing welfare and profits above the benchm...

Ideology as Opinion: A Spatial Model of Common-Value Elections

By Joseph McMurray

American Economic Journal: Microeconomics, November 2017

Spatial election literature attributes voters' political differences to irreconcilable conflicts of interest. Alternatively, voters may merely hold differing beliefs regarding which policies best promote the public interest, as in the classic common-value...

The Coevolution of Segregation, Polarized Beliefs, and Discrimination: The Case of Private versus State Education

By Gilat Levy and Ronny Razin

American Economic Journal: Microeconomics, November 2017

In this paper we analyze the coevolution of segregation into private and state schools, beliefs about the educational merits of different schools, and labor market discrimination. In a dynamic model, we characterize a necessary and sufficient condition on...

Welfare Consequences of Information Aggregation and Optimal Market Size

By Kei Kawakami

American Economic Journal: Microeconomics, November 2017

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing rol...

Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market

By Ali Hortaçsu, Seyed Ali Madanizadeh, and Steven L. Puller

American Economic Journal: Economic Policy, November 2017

Many jurisdictions around the world have deregulated utilities and opened retail markets to competition. However, inertial decision making can diminish consumer benefits of retail competition. Using household-level data from the Texas residential electric...

Discriminatory Information Disclosure

By Hao Li and Xianwen Shi

American Economic Review, November 2017

A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realiza...

Gresham's Law of Model Averaging

By In-Koo Cho and Kenneth Kasa

American Economic Review, November 2017

A decision maker doubts the stationarity of his environment. In response, he uses two models, one with time-varying parameters, and another with constant parameters. Forecasts are then based on a Bayesian model averaging strategy, which mixes forecasts ...

Announcements of Support and Public Good Provision

By Judd B. Kessler

American Economic Review, December 2017

Providing information about contributions to public goods is known to generate further contributions. However, it is often impossible to provide verifiable information on contributions. Through a large-scale field experiment and a series of laboratory exp...

The Design and Price of Information

By Dirk Bergemann, Alessandro Bonatti, and Alex Smolin

American Economic Review, January 2018

A data buyer faces a decision problem under uncertainty. He can augment his initial private information with supplemental data from a data seller. His willingness to pay for supplemental data is determined by the quality of his initial private information...

How Transparency Kills Information Aggregation: Theory and Experiment

By Sebastian Fehrler and Niall Hughes

American Economic Journal: Microeconomics, February 2018

We investigate the potential of transparency to influence committee decision-making. We present a model in which career concerned committee members receive private information of different type-dependent accuracy, deliberate, and vote. We study three leve...

Coarse Grades: Informing the Public by Withholding Information

By Rick Harbaugh and Eric Rasmusen

American Economic Journal: Microeconomics, February 2018

Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "Pass" or "Certified" instead of "73 out of 100." Why? We show that coarse grades result in more information being provided to the publi...

Honest Equilibria in Reputation Games: The Role of Time Preferences

By Melis Kartal

American Economic Journal: Microeconomics, February 2018

New relationships are often plagued with uncertainty because one of the players has some private information about her "type." The reputation literature has shown that equilibria that reveal this private information typically involve breach of trust and c...

Reverse Bayesianism: A Comment

By Christopher P. Chambers and Takashi Hayashi

American Economic Journal: Microeconomics, February 2018

Karni and Vierø (2013) present an interesting theory of decisions in the presence of new actions and consequences. We establish results on the observable implications of the model. When introducing new consequences, arbitrary preference reversals over fe...

Frictions or Mental Gaps: What's Behind the Information We (Don't) Use and When Do We Care?

By Benjamin Handel and Joshua Schwartzstein

Journal of Economic Perspectives, Winter 2018

Consumers suffer significant losses from not acting on available information. These losses stem from frictions such as search costs, switching costs, and rational inattention, as well as what we call mental gaps resulting from wrong priors/worldviews, o...

Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand

By Koichiro Ito, Takanori Ida, and Makoto Tanaka

American Economic Journal: Economic Policy, February 2018

Firms and governments often use moral suasion and economic incentives to influence intrinsic and extrinsic motivations for economic activities. To investigate persistence of such interventions, we randomly assign households to moral suasion and dynamic pr...

Cheating and Incentives: Learning from a Policy Experiment

By César Martinelli, Susan W. Parker, Ana Cristina Pérez-Gea, and Rodimiro Rodrigo

American Economic Journal: Economic Policy, February 2018

We use a database generated by a policy intervention that incentivized learning as measured by standardized exams to investigate empirically the relationship between cheating by students and cash incentives to students and teachers. We adapt methods from ...

Just Starting Out: Learning and Equilibrium in a New Market

By Ulrich Doraszelski, Gregory Lewis, and Ariel Pakes

American Economic Review, March 2018

We document the evolution of the new market for frequency response within the UK electricity system over a six-year period. Firms competed in price while facing considerable initial uncertainty about demand and rival behavior. We show that prices stabiliz...

Real Effects of Information Frictions: When the States and the Kingdom Became United

By Claudia Steinwender

American Economic Review, March 2018

This paper exploits a unique historical experiment to estimate how information frictions distort international trade: the establishment of the transatlantic telegraph in 1866. I use newly collected data on cotton prices, trade, and information flows from ...

On the Determinants of Cooperation in Infinitely Repeated Games: A Survey

By Pedro Dal Bó and Guillaume R. Fréchette

Journal of Economic Literature, March 2018

A growing experimental literature studies the determinants of cooperation in infinitely repeated games, tests different predictions of the theory, and suggests an empirical solution to the problem of multiple equilibria. To provide a robust description of...

A Quantitative Theory of Information, Worker Flows, and Wage Dispersion

By Amanda M. Michaud

American Economic Journal: Macroeconomics, April 2018

Employer learning provides a link between wage and employment dynamics. Workers who are selectively terminated when their low productivity is revealed subsequently earn lower wages. If learning is asymmetric across employers, randomly separated high-produ...