Published papers
“An incentive efficient market for mechanisms in large Akerlof economies”, with P. Siconolfi, Economic Theory, 2021
Abstract
We study ‘Akerlof economies’, that is, economies where goods come in qualities unknown to buyers, and sellers’ quality can be ranked. Cross-subsidies at the constrained efficient allocation arise, even when there are few high-quality types in the economy. Thus, Akerlof’s markets are poorly suited to deliver constrained efficient outcomes. We then design a competitive market for mechanisms. Agents buy lottery tickets to enter mechanisms, and the price system clears the markets. Firms offer tickets to mechanisms on the basis of ‘input’ prices which, unlike in Akerlof’s competitive markets, are quality dependent. Under standard sorting conditions, we show that a ‘no-price-cut’ competitive equilibrium exists and is incentive efficient.
“Constrained efficient markets for manipulation economies”, with P. Siconolfi, International Economic Review, 2020, vol. 61, 1531-1567.
Abstract
We design a competitive market for exclusive contracts in large economies with observable types where trades are subject to postcontractual manipulations. We do not impose quantity restrictions at the trading stage—for example, incentive constraints on the consumption or production sets. We establish existence and constrained optimality of equilibrium. Our design can accommodate manipulations stemming from private information as well as from behavioral biases—for example, time inconsistency and false beliefs. We discuss the needed size and complexity of the commodity set.
“Asset shortages, liquidity and speculative bubbles”, with G. Bloise, Journal of Economic Theory, 2019, vol. 183, 952-990.
Abstract
We study the effect of asset shortages on liquidity in economies with limited enforcement of debt contracts. We establish that, under a suitable assumption in terms of gains from trade, liquidity does not dry up and trading volumes do not disappear as credit conditions worsen. The equilibrium outcome becomes arbitrarily close to a purely speculative equilibrium, and bubbles occur in the limit. The result applies to incomplete markets and, more generally, to equilibria where collateral constraints interfere with the additivity of the payoff pricing functional.
“Designing competitive markets in large moral hazard economies with nonexclusive contracts”, with P. Siconolfi, Economic Theory, 2016, vol. 62, 325-360.
Abstract
We design competitive markets in large insurance economies with moral hazard, under the additional constraint that contracts may not be exclusive. In particular, we consider the situation where contracts are verifiable and enforceable within a local market, but globally, i.e., across markets, they are not. Agents can buy (or sell) insurance contracts in multiple markets subject to a (global) budget constraint. Because of local exclusivity, at equilibrium firms make zero profits. Equilibria are indeterminate, but the incentive efficient contract may not be an equilibrium with nonexclusivity. However, with a Wilsonian or a forward induction refinement, we show that equilibrium is always ‘third best’. efficient With exclusivity, our market design bypasses some of the drawbacks present in the related GE literature.
“Incentive efficient price systems in adverse selection economies”, with P. Siconolfi, International Economic Review, 2016, vol. 57, 1027-1056.
Abstract
We decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, whereas firms sell tickets and supply slots at mechanisms at given prices. Beyond optimization, market clearing, and rational expectations, an equilibrium requires that firms cannot favorably change, or cut, prices. An equilibrium exists and is incentive efficient. An equilibrium can be computed as the solution to a
programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set. For two-types economies, this is the only equilibrium outcome.