Abstract: A principal seeks to contract with an agent but must do so through an informed delegate. Although the principal cannot directly mediate the interaction, she can constrain the menus of contracts the delegate may offer. We show that the principal can implement any outcome that is implementable through a direct mechanism satisfying dominant strategy incentive compatibility and ex-post participation for the agent. We apply this result to several settings. First, we show that a government that delegates procurement to a budget-indulgent agency should delegate an interval of screening contracts. Second, we show that a seller can delegate sales to an intermediary without revenue loss, provided that she can commit to a return policy. Third, in contrast to centralized mechanism design, we demonstrate that no partnership can be efficiently dissolved in the absence of a mediator. Finally, we discuss when delegated contracting obstructs efficiency, and when choosing the right delegate may help restore it.

Abstract: A monopolist offers a menu of quality-differentiated products. After observing the offer, a consumer can costly and flexibly learn which product is right for them. In the optimal menu, all types typically receive lower-than-efficient quality and distortions are, on average, more intense than under standard screening, even when no information is acquired. Profits are non-monotonic in the level of information costs, and the consumer may be better off when such costs are low than when information is free. We illustrate how an econometrician who ignores information acquisition might underestimate the level of inefficiency in the market.

Abstract: We study adverse selection markets where consumers can choose to learn how much they value a product. Information is acquired after observing prices, so it is endogenous. This presents a trade-off: information increases the quality of consumers’ choices but worsens selection. We characterize how this trade-off translates into distortions of consumers’ demand and producers’ cost. Then, we show that information decisions produce a negative externality, may decrease welfare, and may lead to new forms of market breakdown. Moreover, efficiency is typically non-monotone in information costs. Two implications are that (1) standard measures underestimate the welfare costs of adverse selection; and (2) information policies can help correct its inefficiencies. Finally, we propose an empirical test to detect endogenous information in the data, and develop a framework for counterfactual policy analysis.

(Online Appendix)

Abstract: We study a financial market with free entry of strategic traders and information production. Despite the market being large and competitive, microstructure frictions shape equilibrium outcomes: information acquisition is more attractive when liquidity is higher. Unlike conventional frameworks for competition, which abstract from this mechanism, our model features an increasing relationship between retail order flow volatility and price informativeness, with implications for market design. Equilibrium information aggregation is determined by a sufficient statistic, which depends on the information technology only through the marginal cost of information at the prior. In contrast to Grossman and Stiglitz (1980), equilibrium prices may successfully aggregate information, and we provide necessary and sufficient conditions for full revelation.

Abstract: A manufacturer seeks to license a product to downstream competitors with unknown productivities. She can design a mechanism to allocate licenses to one or multiple competitors. We identify the revenue-maximizing mechanism and show it can be implemented through an interval auction: the highest bidder is exclusively licensed if their bid is much higher than others, but multiple bidders are licensed otherwise. This mechanism does not allocate efficiently, and we characterize the distributions of buyer valuations that lead to over- or under-licensing. If buyers arrive over time, the seller may delay licensing, and we show that the seller only commits to exclusive contracts if she is less patient than the buyers. 

Abstract: We study asymptotic learning when the decision maker is ambiguous about the precision of her information sources. She aims to estimate a state and evaluates outcomes according to the worst-case scenario. Under prior-by-prior updating, we characterize the set of asymptotic posteriors the decision maker entertains, which consists of a continuum of degenerate distributions over an interval. Moreover, her asymptotic estimate of the state is generically incorrect. We show that even a small amount of ambiguity may lead to large estimation errors and illustrate how an econometrician who learns from observing others’ actions may over- or underreact to information.

(Previous Title: Information Aggregation under Ambiguity)

Abstract:  We study the interaction between insurance and financial markets. Individuals who differ only in risk have access to insurance contracts offered by a monopolist and can also save through a competitive market. We show that an equilibrium always exists in that economy and identify an externality imposed on the insurer’s decision by the endogeneity of prices in the financial market. We argue that, because of that externality and in contrast to the case of pure contract theory, equilibrium always exhibits under-insurance even for the riskiest agents in the economy and may even exhibit pooling. Importantly, the externality does not disrupt the single crossing property of the economy.