Andy B. Choi

A principal chooses a policy at a future date, and wishes to match the policy to an uncertain state. An agent chooses when to make an irreversible investment, and wishes to invest only if he expects the policy will be favorable. Information about the state is publicly and gradually revealed over time. Moral hazard arises because the agent wishes to wait for more information. To incentivize the agent to invest early, it is optimal for the principal to provide certainty about her future policy. This is inefficient -- the agent's benefit from certainty is always outweighed by the principal's cost from reduced policy flexibility. The agent receives rent only if policy and early investment are complements. We provide conditions for moral hazard to delay investment. Our results apply to environmental subsidies and procurement of vaccines.

Abstract: Allocation of goods and services often involves both stochastic supply and stochastic demand. Motivated by applications such as cloud computing, gig platforms, and blockchain auctions, we study the design of optimal selling mechanisms in an environment where buyers with private valuations arrive stochastically and are assigned goods that also arrive stochastically, and either buyers or goods can be held in a queue at costs until allocation. The optimal mechanism dynamically leverages competitive pressure across time by managing the queue of buyers and inventory of goods, using reserve prices that increase with the number of buyers in the queue and decrease with the number of items in inventory, and an auction to allocate the goods. 

Abstract: How should an employer design its retention and promotion policy when personnel decisions reveal private information about its workers to the labour market? We show it is always optimal to over-retain workers---inefficiently retaining workers who would be more productive elsewhere---to dampen the signalling effect of retention. In contrast, the optimal policy may over- or under-promote workers depending on the production technologies of competing firms. Our results shed light on the role of job titles and the Peter Principle. To solve for the optimal policy, we develop an approach to characterise the sender's highest ex ante payoff when she can commit to signalling actions. Our approach applies to general signalling games.

Abstract:  This paper studies the tension between a principal who wishes to make an informed decision and an agent who wants to know what the principal will do. The principal wishes to promote the agent only if the state is good, and gradually receives private information about the state. The agent wants promotion but would rather leave than stay and fail promotion. To induce the agent to stay, the principal commits to commit; that is, she commits today to tell the agent tomorrow about his chances of promotion the day after. Because the principal cannot contract on her information, she may ignore it. We provide conditions under which the principal does not lead the agent on. Our results apply to worker retention, relationship-specific investment, and forward guidance.

Abstract:  We introduce search friction into the two-sided matching model with transfers by requiring that a worker-firm pair can match only if they are acquainted. Each worker may conduct a costly search to acquaint himself with new firms. A matching is stable if there are no blocking pairs among acquainted agents and no worker wishes to conduct a search. A matching is efficient if it maximizes total surplus given the acquaintance of agents, and no searching can increase total surplus net of search cost in expectation. All stable matchings are efficient, but not all efficient assignments can be made stable.

Presentations: Econometric Society Meeting (WUSTL, CUHK)