Research

Accounting for Needs in Cost Sharing (with Étienne Billette de Villemeur)

We introduce basic needs in cost-sharing problems so that agents with higher needs are not penalized, all the while holding them responsible for their consumption. We characterize axiomatically two families of cost-sharing rules, each favoring one aspect—compensation or responsibility—over the other. We also identify specific variants of those rules that protect small users from the cost externality imposed by larger users. Lastly, we show how one can implement these schemes with realistic informational assumptions; i.e., without making explicit interpersonal comparisons of needs and consumption.

Tradable Climate Liability: A Thought Experiment (with Étienne Billette de Villemeur)

We envision the creation of a climate liability market to address climate change. Each period, countries would be made liable for their past responsibility in current climate damage. We show that this yields the same first-best incentives to reduce emissions as a Pigovian tax. Also, because liabilities are traded like financial debt, the mechanism decentralizes the choice a discount rate as well as beliefs about the severity of the climate problem, two highly contentious issues of climate negotiations. We discuss the differences with a Pigovian tax along the dimensions of information, participation, commitment, intergenerational fairness, and exposure to risk.

Collective Risk-Taking with Threshold Effects (with Olivier Bochet, Jérémy Laurent-Lucchetti, and Bernard Sinclair-Desgagné)

It is commonly found that the presence of uncertainty helps discipline economic agents in strategic contexts where incentives would otherwise induce inefficient behavior (Eso and White (2004), Bramoullé and Treich (2009)). We consider a variant of the celebrated Nash Demand Game (Nash, 1953) where two values of the resource (low and high) are possible. We show that the presence of uncertainty here may actually have an opposite effect: strategic interactions may lead groups of risk-averse agents to take inefficiently risky decisions. We then develop an experimental setting to assess the severity of the coordination problem in the lab. Our findings confirm our theoretical predictions that the (Pareto-dominant) cautious equilibria are predominantly played at the individual level. In the aggregate, however, coordination failures abound but are decreasing in the likelihood of the high value of the resource. It is only when this likelihood becomes low enough that cautious behavior translates in high rates of cautious equilibria.