Work in progress

Working papers:

"Communication through biased intermediators", with Rubén Jara and Francisco Silva

Abstract: We study biased intermediated communication between a sender and a receiver. We prove that the information that can be transmitted from the sender to the receiver is exactly the same as with direct (non-mediated) communication, provided there are (at least) two intermediators who do not communicate with each other. In that sense, the sender is not harmed by not being able to communicate with the receiver directly. This is the case even if the sender does not know the agents' biases and regardless of the rules of communication (cheap talk, bayesian persuasion, etc.). We discuss the implications of our results to a related information design problem, where a decision maker designs the statistical experiment to be performed by a possibly biased agent. We show that, if the decision maker is able to manipulate the data without causing any statistical loss, she can implement her preferred statistical experiment despite the agent being biased. If, however, manipulating the data has a statistical cost, then strategies that reduce the overall informativeness of the experiment (like reducing the sample) might actually be (second-best) optimal for the decision maker, because they may require less costly manipulation in order to dissuade biased agents from misreporting. We discuss these ideas in the context of medical research.

"Screening with Securities", with  Nicolás Inostroza. Submitted.

Abstract: A liquidity-constrained asset owner designs an asset-backed security to raise funds from an informed liquidity supplier. Information-insensitive securities reduce the liquidity supplier's information rents. The optimal screening mechanism with financial securities consists of a debt menu with face values monotonically ordered in the liquidity supplier's valuation. We leverage this characterization to show that when the liquidity supplier's private information becomes more accurate (Lehmann (1988)), the issuer optimally offers debt contracts with smaller face values. Surprisingly, the concavity of debt on the asset's future cashflows implies that the issuer may benefit from trading with a more informed liquidity supplier. Our results challenge the conventional notion that, when trading securities, the informed party should obtain an information-sensitive security and suggest a novel rationale for the emergence of venture debt and the prevalence of collateralized lending.

"Do you like me enough? The impact of restricting preferences ranking in a university matching process", with  Jeanne Lafortune and Alejando Saenz. Submitted.

Abstract: This paper studies, theoretically and empirically, the impact of imposing preferences-on-preferences (POP) within the context of a deferred-acceptance university matching process. We show, theoretically, that this type of rules renders invalid the property of strategy-proofness that normally exists in Gale-Shapley algorithm as students will misrepresent their preferences in order to secure a spot in the university that implements POP. We then explore how applicants to Chilean universities responded to a 2003 policy shock where one of the main university, UChile, imposed POP and then to a shock in 2004 when the entrance exam was transformed, increasing uncertainty. Our results indicate that the response of participants matched those predicted by our model. Finally, we show that POP-type of policies generated substantial welfare losses to students within the system, particularly when faced with higher uncertainty.

"Signaling in Dynamic Contests with Heterogenous Rivals" , with Jorge Catepillán and Jorge Lemus. Submitted.

Abstract: Should a challenger face rivals simultaneously or sequentially? If sequentially, should he face weak or strong rivals first? To address these questions, we study signaling in dynamic contests, where a privately-informed challenger faces a sequence of rivals. Against heterogenous opponents, the challenger plays simultaneously rather than sequentially, avoiding information revelation. However, he may prefer sequential battles when rivals are homogeneous. Why? Because the strength of future opponents drives the incentive to signal, whereas the strength of current opponents drives the extent and cost of signaling. We explicitly find the equilibrium for settings where the challenger must play sequentially after choosing the order of his rivals. We show that only pooling and partial-pooling equilibria exist.

"The role of information in collective decisions" , with José-Alberto Guerra and Francisco Silva

Abstract: In this paper, we study collective information acquisition in groups that make decisions using majority rule. We argue both theoretically and experimentally that the median voter theorem does not apply; the level of information acquired by the group can be bigger or smaller than the level of information a median voter would like to acquire individually, despite agents having single peaked preferences over information. We find that groups overacquire or underacquire information relative to the median voter depending on the levels of disagreement among the group members both before and after information is acquired. We also discuss the impact of the failure of the median voter theorem on efficiency.

"Fare Evasion and Monopoly Regulation",  with Martín Besfamille and León Guzmán

Abstract: We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard.