New Working Papers
"Dynamic Mechanism Design for a Global Commons," with R. Harrison, November 2014.
Abstract: We model dynamic mechanisms for a global commons. Countries benefit from both consumption and aggregate conservation of an open access resource. A country's relative value of consumption-to-conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being implementable by Perfect Bayesian equilibria. With complete information, the optimal quota is first best; it allocates more of the resource each period to countries with high consumption value. Under incomplete information, the optimal quota is fully compressed --- initially identical countries always receive the same quota even as environmental costs and resource needs differ later on. We show that this is true even when private information is negligible.
"Do Actions Speak Louder Than Words? Auditing, Disclosure, and Verification in Organizations" with L. Anderlini and D. Gerardi, June, 2015.
Abstract: We study the relative performance of disclosure and auditing in organizations. An informed player chooses an action and sends a message to an uninformed player, who then chooses an action. We ask whether the uniformed player wants to commit to only observing the message (disclosure), or to keep the ability to observe the action of the informed player (auditing).
The answer depends on the nature of the misalignment in the players' preferences. If the misalignment is large enough and systematic, disclosure will emerge in equilibrium. When the players' preferences make them akin to being each other's agent, auditing will prevail.
"Tipping Points and Business-as-Usual in a Global Carbon Commons," with R. Harrison, January, 2015.
Abstract: This paper formulates a dynamic model of global carbon consumption in the absence of an effective international agreement. Each period, countries extract carbon from the global ecosystem. A country's output depends both on its carbon usage and on "stored carbon" in the ecosystem. We characterize Business-as-usual (BAU) equilibria as smooth, Markov Perfect equilibrium profiles of carbon usage across countries. In any BAU equilibrium, the desired mix of extracted versus stored carbon by each country is determined by its stochastically evolving output elasticities with respect carbon input.
A non-concavity in the carbon dynamic creates the possibility that global system reaches a tipping point, a threshold level of stored carbon stock below which the global commons collapses, spiraling downward toward a steady state of marginal sustainability. We show that if, in any BAU equilibrium, the profile of carbon factor elasticities reaches a high enough threshold, a tipping point will be breached. Ironically, the countries actually accelerate their rates of carbon usage the closer the carbon commons comes to tipping. Even so, there remains a time span (a "negotiation window") in which a collapse may be averted if the countries agree to implement the socially efficient profile of carbon usage.
"Revealed Political Power," with J. Bai, International Economic Review, 54: 1085–1115 (2013).
"Communication and Learning," with L. Anderlini and D. Gerardi, Review of Economic Studies, 79(2): 419-450 (2012).
"On the Faustian Dynamics of Policy and Political Power, with J. Bai, Review of Economic Studies, 78: 17-48 (2011).
"Social Memory, Evidence, and Conflict," with L. Anderlini and D. Gerardi, Review of Economic Dynamics, 13: 559-574 (2010).
"Markov Perfect Equilibria in Repeated Asynchronous Choice Games" with H. Haller, Journal of Mathematical Economics, 46: 1103-1114 (2010).
"The Dynamic Stability and Reform of Political Institutions , Games and Economic Behavior, 67: 569-583 (2009).