Research

Publication:

Endogenous Monitoring in a Partnership Game,  American Economic Review, March 2020, 110(3): 776-796.  Full text

I consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to generating an imperfect private signal of firms’ actions and sends a public message. The monitor makes an offer specifying the precision of the signal generated and the amount to be paid in return. I show that with low monitoring cost, collusive equilibria exist. In the monitor’s favorite collusive equilibrium, firms’ payoffs are decreasing in the discount factor. My model helps explain the cartel agreements between the mafia and firms in legal industries in Italy and America.

Working papers:

Optimally Stubborn (2023) Revise and Resubmit, Theoretical Economics. Cowles Foundation Discussion Papers. 2255. Models on reputational bargaining have introduced a perturbation with simple behavioral types as a way of refining payoff predictions. I show that this outcome refinement is not robust to the specification of the behavioral type. More specifically, I propose a relaxation of the strategy restriction on behavioral types relative to the literature, allowing behavioral types to choose their initial demands. With this relaxation any feasible payoff can be achieved in equilibrium for the rational type when the probability of facing a behavioral type is small. My results highlight the implications of different perturbations for economic applications. 

On the Role of Outside Options in Buyer-Seller Relationships (2024) with Johannes Hörner (TSE, CNRS) (Submitted). Full text 

We consider a buyer-seller relationship, in which due to private information and a lack of flexible transfers, cooperation cannot be sustained efficiently. In each round, the buyer either purchases from the seller or takes an outside option. The fluctuating outside option may be public or private information. The seller chooses what quality to supply. We find that the buyer initially forgoes mutually beneficial trades before then visiting more often than he would like to, myopically. Under private information, the relationship recurrently undergoes gradual self-reinforcing downturns when trust is broken and instantaneous recoveries when loyalty is shown. Transparency regarding the outside option benefits both buyer and seller.

Dynamic Screening: Why Weight isn’t Volume (2024) with Johannes Hörner (TSE, CNRS) (Submitted). Full text Online Appendix   We consider a continuous-time game between a buyer and a seller. The buyer privately knows how often he needs to trade. When he does, he can choose to either engage with the seller, who chooses what utility to supply, or search for an alternative. Because time is informative, the seller learns and adjusts her behavior over time. Without commitment, in the Markov perfect equilibrium, the seller starts with a pooling offer, before experimenting with occasional separating offers. Her payoff is non-monotone –in fact, quasi-convex– in her belief about the buyer’s type. With commitment, the seller can take advantage of limited-time offers to extract all the buyer’s surplus. 

Work in Progress:

Competition, Price Discrimination and Consumer Search.  With Jim Dana (Northeastern) and Johannes Hörner (TSE, CNRS). We show that customer loyalty programs, and more specifically, discounts for frequent buyers, are an outcome of price discrimination by firms in imperfectly competitive markets with costly consumer search. We consider models of both search goods and experience goods when consumers differ only in their purchase frequency. Consumers’ valuations are drawn from the same distribution and consumers have identical costs of search. However, because frequent buyers have greater incentives to search, in equilibrium they have better outside options, search more often, and have higher ex post expected valuations. Competing firms offer lower prices to frequent buyers, and when consumers’ purchase frequency is private information, they do so using loyalty programs or frequent buyer discounts. These consumers receive lower prices even though in equilibrium they have greater gains from trade (higher valuations).

Multilateral Reputational Bargaining. With Aditya Kuvalekar (Essex). We analyze a model where a player who is concerned about his reputation bargains with multiple partners simultaneously over separate issues. The game is cast in continuous time. There are three players, each of whom is either behavioral or rational. The common player bargains over a unit surplus with each of the other players. After the demand stage, a concession game starts.

Bargaining with Multiple Partners. With Idione Meneghel (ANU). We analyze a model of bargaining with two sides, say buyers and sellers. Each agent wants to make exactly one deal. Each player can choose from multiple possible bargaining partners, and some may be a better match than others. We analyze how the presence of alternative bargaining partners affects the outcome of a bilateral bargaining agreement.

Necessary and Sufficient Conditions for Equilibrium Uniqueness in a Repeated Partnership Game. I consider a repeated partnership game with imperfect public monitoring, in which the standard sufficient conditions for the Folk Theorem fail. I provide necessary and sufficient conditions under which the only equilibrium in public strategies is perpetual defection, independent of the discount factor.

Archived:

The Incentive Effect of Prison on Criminal Asset Recovery (2016) Full text

This paper was previously circulated as "The Puzzle of Longer Prison Sentences."