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UNSW - UQ Economic Theory Festival 2022

Antonio Rosato (UQ) and I are organizing a workshop on Bounded Rationality, Information, and Markets to be held at UNSW earlier December. As part of the workshop, Ran Spiegler (UCL - Tel Aviv University) is giving a mini-course on causal reasoning and economic behavior. More information can be found on the Festival's website. Support from the School of Economics at UNSW and the ARC is, as always, gratefully acknowledged. 

This is a continuation of the Sydney Economic Design Festival that I started a few years ago. Antonio and I hope to keep this version of the Festival running next year. 

Update: the2022 Festival was a great success, so much so that Antonio and I are planning to run it again in 2023. This time, in beautiful Brisbane. 

AMETS 2020 - 2021

Alex Nichifor (UniMelb) and I organized the Australasian Micro Economic Theory Seminars (AMETS) during the times of COVID. These virtual seminars for the region were held every other Wednesday. In 2021 AMETS' organizing committee included, in addition, Antonio Rosato (UTS) and Anton Kolotilin (UNSW). More information about AMETS, and links to the papers and recorded talks, can be found here. 

Working Papers and Work in Progress

• "Information and Causal Misperceptions: Robust Personal Equilibrium Effects", with John Nachbar.  March 2023. 

Download: Robuts-PE

Abstract   Following the work of Spiegler (2016), we use directed acyclical graphs (DAGs) to model a decision maker (DM) who is boundedly rational in the sense of having a misspecified causal model. Spiegler (2016) shows that certain misspecifications can lead to personal equilibrium effects: the DM may calculate conditional probabilities of the relevant state variables incorrectly, and the DM’s action may influence her interpretation of the underlying data in ways that exacerbate this issue. We introduce the stronger notion of robust personal equilibrium effects, which does not depend on the details of the underlying distribution. We provide an exact characterization of when robust personal equilibrium effects do, in fact, arise. This characterization is formulated in terms of structural independence asser- tions of the DM’s misspecified DAG. We then investigate whether robust personal equilibrium effects can be mitigated by providing the DM with additional information. Finally, we consider detecting and mitigating robust personal equilibrium effects under partial knowledge of the DM’s misspecified causal model.

• "On Simple Near-Optimal Mechanisms for Budget Constrained Bidders", with Ahuva Mu'alem. New version coming soon.

Abstract  We consider a canonical model of buyer-seller interaction with private values and private budgets -- e.g., Che and Gale (2000). We consider the menu complexity of selling mechanisms and provide several striking observations about revenue comparisons between the optimal mechanism and optimal mechanisms of fixed menu complexity. We also show the impact of limiting under- and over-reporting in these revenue comparisons. 

• "Demand Landscaping: Dynamic Monopoly with Malleable Preferences", with Steve Callander and Arghya Ghosh. New version coming soon.

Abstract  Traditional IO models take consumer demand as given and explore ways in which firms exploit non-competitive market features to increase profits. Recently, research in psychology, marketing and behavioral economics points to a causal loop between preferences and behavior: consumer preferences influence current choices, which in turn feedbacks into future preferences.  The malleability of consumer preferences raises the possibility that a firm engages in demand landscaping, taking product positioning and pricing decisions today to influence the shape of its future demand. We incorporate this feature into an otherwise canonical spatial product differentiation model. In our model, a firm operates through time in a Hotelling market where consumers update their ideal points based on past behavior. This simple mechanism provides the firm with additional market power. Depending on the initial configuration, the firm either starts as a dominant presence, capturing a large segment of the market, or goes from a niche to a mass market through time. In both scenarios, the firm is able to accumulate market power over time. These two predictions are consistent with stylized facts: sometimes a firm establishes a dominant presence early on and maintains it through the years; other times, a firm starts with a niche market and grows its market share steadily. Our model further suggests that firms can increase market power over time and amass supra normal profits without necessarily increasing market penetration. 

• "Policy Persistence and Economic Reform".  April 2018. 

Download: Persistence-Reform

Abstract  This paper examines the impact of adjustment costs (e.g., frictions on labor markets) on the implementation of market-oriented reform programs. A policy-maker can introduce efficiency enhancing policy changes to increase the rate of economic growth by inducing, via monetary compensations, reassignments of a scarce resource from low to high productivity agents. Without adjustment costs, productivity gains are sufficiently large to permit the implementation of pure market mechanisms. With adjustment costs, the government is required to increase compensation to all productivity agents to induce them to adopt any policy change. Since adjustment costs interact with incentives, introducing a full market mechanism creates too onerous financial burden in the economy. I show that, under some mild assumptions, the trade-offs between short-term efficiency gains and long term welfare maximization are resolved by a transition program that exhibits some policy persistence. In a transition policy, persistence is concentrated on intermediate productivity agents for whom the interaction of adjustment costs and individual incentives is most perverse. I characterize the optimal dynamic policy changes and show that persistence is "a feature, not a bug" of the optimal economic reform program.

• "Inconspicuous Conspicuous Consumption", with Hongyi Li and Jonathan Hall. May 2016. 

Download: Bling

Abstract    A puzzling feature of conspicuous consumption, given its signaling role, is that it is not more conspicuous. For example, luxury goods often feature subtle, difficult-to-recognize branding. We analyze a model where consumers care about their reputation for wealth and social capital. In equilibrium, wealthy but poorly-connected consumers choose loud status goods, while wealthy, well-connected consumers choose subtle status goods to separate from poorly-connected consumers. The model thus explains why “old-money” types consume subtly, whereas “nouveau-riche” types consume loudly. It also addresses the stylized fact that subtly-branded status goods tend to be pricier than their loudly-branded equivalents.