Research

WORKING PAPERS

A quota contract is known to be susceptible to the timing games by the agent. We show that this seemingly undesirable feature is what makes the use of quota contracts profitable for the principal who lacks contractual commitment power. A quota contract, by encouraging the agent's gaming activities, endogenously creates information asymmetry between the principal and the agent at the renegotiation stage, thereby curtailing the principal's temptation to renegotiate away any inefficient contractual punishment on the agent. Consequently, a properly designed quota contract enables the principal to save the overall agency cost by partially recovering the ability to implement dynamic incentives effectively.


PUBLICATIONS

We analyze competition in Bayesian persuasion with two senders vying for a receiver’s patronage by disclosing information about their respective proposal qualities, which are positively correlated. Information externality — a sender’s signal is informative about his rival — affects disclosure through two channels. Receiver-treatment effect, which arises because the receiver is endogenously biased towards the stronger sender, encourages disclosure. Good-signal curse, which arises because a sender’s favorable signal implies higher probabilities of facing strong competing signals, reduces disclosure. Receiver-treatment effect dominates if senders’ ex-ante qualities are distinct and highly correlated. Full disclosure occurs in the limit with maximal correlation.

Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller may use a simple mechanism to best take advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed.

We analyze a model of competition in Bayesian persuasion in which multiple symmetric senders vie for the patronage of a receiver by disclosing information about their respective proposal qualities. We show that a symmetric equilibrium exists and is unique. We then show that as the number of senders increases, each sender discloses information more aggressively; and full disclosure by each sender arises in the limit of infinitely many senders.

This paper explores the origins of policy complexity. It studies a model where policy is difficult to undo because policy elements are entangled with each other. Policy complexity may accumulate as successive policymakers layer new rules upon existing policy. Complexity emerges and persists in balanced democratic polities, when policymakers are ideologically extreme, and when legislative frictions impede policy-making. Complexity begets complexity: simple policies remain simple, whereas complex policies grow more complex. Patience is not a virtue: farsighted policymakers engage in obstructionism, deliberately introducing complex policies to hinder future opponents.

In this note, we analyze a multidimensional cheap talk game where two senders sequentially submit messages. We provide a necessary and sufficient condition for the existence of a fully revealing equilibrium.

We analyze a dynamic market with a seller who can make a one-time investment that affects the returns of tradable assets. The potential buyers of the assets cannot observe the seller’s investment prior to the trade or verify it in any way after the trade. The market faces two types of inefficiency: the ex-ante inefficiency, i.e., the seller’s moral hazard problem, and the ex-post inefficiency, i.e., inefficient ex-post allocations due to the adverse selection problem. We analyze how the observability of information by future buyers, through which the seller builds a reputation, affects the two types of inefficiency as well as the interplay between them.

We analyze a dynamic market for lemons in which the quality of the good is endogenously determined by the seller. Potential buyers sequentially submit offers to one seller. The seller can make an investment that determines the quality of the item at the beginning of the game, which is unobservable to buyers. At the interim stage of the game, the information and payoff structures are the same as in the market for lemons. Our main result is that the possibility of trade does not create any efficiency gain if (i) the common discounting is low, and (ii) the static incentive constraints preclude the mutually agreeable ex-ante contract under which the trade happens with probability one. Our result does not depend on whether the offers by buyers are private or public.

We investigate the unique institution of the Japanese press industry called the kisha club system. By tracing through its history, we show how the kisha club system has developed as a result of the government's attempt to control the media, and the media's incentive to use the opportunity provided by the government to limit rivalry within the industry. By providing a simple model that links the distribution of political power and the media capture, we explain why this institutional arrangement has been so persistent in Japan.

In this note, we analyze a sequentially rationalizable choice model with a transitive rationale and a standard preference. The model in this note is more restrictive than the Rational Shortlist Method (RSM) model which is proposed in Manzini and Mariotti (2007) to capture cyclic behavior. Yet, a decision maker in our model exhibits cyclic behavior in general. We prove that the cyclicity of an indirectly revealed preference is exactly what distinguishes the RSM framework (a sequential choice model with a non-standard preference) from our transitive-RSM framework (a sequential choice model with a standard preference). We also provide a partial identification result on the representation.

This paper derives the sharp pointwise bounds of the distribution function of the difference of two treatments' outcomes. The asymptotic distributions of the consistent estimators are discontinuous at nuisance parameters due to two reasons, which make bootstrap estimations inconsistent.