Juan Carlos Carbajal

Associate Professor

Post-Graduate Coordinator (PhD program)

School of Economics, UNSW Sydney

Contact Information

Office:    407 BUS Building, UNSW - Sydney

Email:    jc.carbajal[at]unsw.edu.au

CV:        October 2023

Economic Theory Festival 2023

In November 2023, Antonio Rosato (UQ) and I organized the third iteration of the Economic Theory Festival at the University of Queensland,  in beautiful Brisbane. This version of the Festival featured a two-day course on endogenous depth of reasoning and reference dependence by Antonio Penta, Professor of Economics at Universitat Pompeu Fabra and Research Professor at ICREA. 

The second iteration of the Economic Theory Festival, held at UNSW in 2022, featured Ran Spiegler (UCL - Tel Aviv University). Ran delivered an amazing 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, the School of Economics at UQ and the ARC is, as always, gratefully acknowledged. 

The 2024 version of the Economic Theory Festival should be held at UNSW in Sydney. Stay tune and drop me a line if you want us to keep you updated. 

AMETS 2020 - 2021

Alex Nichifor (UniMelb) and I started the Australasian Micro Economic Theory Seminars (AMETS) during the times of COVID. These virtual seminars for the region were held every other week for most of 2020. In 2021 AMETS' organizing committee included, in addition, Antonio Rosato (then at UTS, now at UQ) and Anton Kolotilin (UNSW). Links to the papers and recorded talks can be found here

Working Papers and Work in Progress

Download:  Robust-PE

Abstract   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 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 conditional independence assertions of the DM’s misspecified DAG. Examples demonstrate how sensitive robust PE effects are to the structural details of the subjective DAG which, in most cases, are the DM’s private information. We consider detecting robust personal equilibrium effects under partial knowledge of the DM’s misspecified causal model.

Download: Mind-Revenue-Gap

Abstract  We consider a buyer–seller interaction, where the seller has one object to allocate and the buyer has private valuations and private budgets, to study the revenue performance of approximation mechanisms. Approximation mechanisms are obtained from the set of incentive compatible, individually rational, and budget feasible mechanisms, denoted M, in two different ways: (i) by imposing additional constraints, thus restricting M to a subclass N; or (ii) by relaxing some of the original constraints, thus expanding M to a superclass N'. We measure the performance of a restricted class N using the guaranteed fraction of optimal revenue ratio introduced by Hart and Nisan (2017). To evaluate the performance of a relaxation class N' we introduce a related ratio, which we call the maximal value of relaxation. We focus on a restricted class of simple mechanisms, consisting of those whose associated menus have a small number of entries. We also pay attention to a restricted class of mechanisms that involves stronger incentive constraints and that has received attention in the literature for its computational tractability. Finally, we consider a class of relaxed mechanisms where the seller can costlessly prevent the buyer from over-reporting the budget. In one case, we obtain arbitrarily good approximation results. In others, the revenue gap between optimal mechanisms and optimal approximation mechanisms is exceedingly large. Overall, our research highlights the limitations of using approximation mechanisms in settings with private values and private budgets.

Download: Optimal-Mech-Budgets

Abstract   We study revenue maximizing mechanisms where the seller has one or two objects to sell and the buyer has public valuations and private budgets. We consider ex-post participation and ex-post budget feasibility constraints to analyze the impact of financial restrictions on the formulation and properties of revenue maximizing mechanisms. 

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. 

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.

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.