Publications
"Equilibria in Second Price Auctions with Participation Costs" (with Xiayong Cao, Guofu Tan and Guoqiang Tian), Economic Theory, 2018
We study equilibria in second-price auctions where bidders are independently and privately informed about both their values and participation costs, and where the joint distributions of these values and costs across bidders are not necessarily identical. We show that there always exists an equilibrium in this general setting with two dimensional types of ex ante heterogeneous bidders. When bidders are ex ante homogenous, there is a unique symmetric equilibrium, but asymmetric equilibria may also exist. We provide conditions under which the equilibrium is unique (not only among symmetric ones). We find that themarginal density of participation costs and the concentration of values matter for the uniqueness. The presence of private information on participation costs tends to reduce multiplicity of participation equilibria, although multiplicity still persists.
"Resale in Second-Price Auctions with Costly Participation" (with Gorkem Celik), International Journal of Industrial Organization, 2017
We study sealed-bid second-price auctions with costly participation and resale. Each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff. If resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function, the symmetric equilibrium (where all bidders use the same cutoff) is less efficient than a class of two-cutoff asymmetric equilibria. Existence of these equilibria without resale is sufficient for existence of similarly constructed two-cutoff equilibria with resale. Moreover, these equilibria with resale are "more asymmetric" and (under a sufficient condition) more efficient than the corresponding equilibria without resale.
"Optimal Auctions with Simultaneous and Costly Participation" (with Gorkem Celik), The B.E. Journal of Theoretical Economics (Advances), 2009
We study the optimal auction problem with participation costs in the symmetric independent private values setting, where bidders know their valuations when they make independent participation decisions. After characterizing the optimal auction in terms of participation cutoffs, we provide an example where it is asymmetric. We then investigate when the optimal auction will be symmetric/asymmetric and the nature of possible asymmetries. We also show that, under some conditions, the seller obtains her maximal profit in an (asymmetric) equilibrium of an anonymous second price auction. In general, the seller can also use non-anonymous auctions that resemble the ones that are actually observed in practice.
"Evolution of Preferences" (with Eddie Dekel and Jeffrey Ely), The Review of Economic Studies, 2007
We study which preferences are stable using the "indirect evolutionary approach." Individuals are randomly matched to play a two-person game. Individual (subjective) preferences determine their behavior, and may differ from the actual (objective) payoffs that determine fitness. Matched individuals may observe the opponents' preferences perfectly, not at all, or with some in-between probability. When preferences are observable, a stable outcome must be efficient. When they are not observable, a stable outcome must be a Nash equilibrium and all strict equilibria are stable. We show that, for pure strategy outcomes, these conclusions are robust to allowing almost perfect, and almost no, observability, with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability (despite being stable with no observability).
"Ratifiability of Efficient Collusive Mechanisms in Second Price Auctions with Participation Costs" (with Guofu Tan), Games and Economic Behavior, 2007
We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders' decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey (1995) and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as preauction knockouts analyzed in the literature will not be ratified by cartel members. A high-value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller's auction.
"Equilibria in Second Price Auctions with Participation Costs" (with Guofu Tan), Journal of Economic Theory, 2006
We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in cutoff strategies (participate and bid the valuation iff it is greater than the cutoff), since if a bidder finds it optimal to participate, she cannot do better than bidding her valuation. When bidders are symmetric, concavity (strict convexity) of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness (multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role.
"A Model of Evidence Production and Optimal Standard of Proof and Penalty in Criminal Trials," Canadian Journal of Economics, 2002
A model of evidence production by the litigating parties is developed in a criminal context. The defendant can be of two types, innocent or guilty. The defendant knows her type, but neither the court nor the prosecutor possesses this information. The court convicts the defendant if and only if its posterior probability of the guilt of the defendant is greater than a certain threshold value, the standard of proof. The posterior depends on the evidence presented by the parties to the court. Evidence production is a stochastic process which is costly. This model of evidence production is then used to analyze optimal choice of standard of proof and penalties for criminal cases in the second part of the paper. As one would expect, it can be shown that the optimal standard of proof is increasing in the cost of convicting an innocent defendant and decreasing in the cost of acquitting a guilty defendant. More surprisingly, it is also shown that an increase in the penalty imposed on the defendant in the case of her conviction may increase the probabilities of both false conviction and false acquittal.
"Nash Equilibrium and the Evolution of Preferences" (with Jeffrey Ely), Journal of Economic Theory, 2001
A population of players is randomly matched to play a normal form game G. The payoffs in this game represent the fitness associated with the various outcomes. Each individual has preferences over the outcomes of the game and chooses an optimal action with respect to those preferences. However, these preferences need not coincide with the fitness payoffs. When evolution selects individuals on the basis of the fitness of the actions they take, the distribution of aggregate play must be a Nash equilibrium of G. Weak additional assumptions on the evolutionary process imply perfect equilibrium.
"Cooperation, Secret Handshakes, and Imitation in the Prisoners’ Dilemma" (with Thomas Wiseman), Games and Economic Behavior, 2001
Building on Robson (1990), we introduce into the repeated prisoners’ dilemma mutants who have the ability to send a (costly) signal, i.e., the “secret handshake,” before each round of the game and to condition their actions on whether or not they observe the same signal from their opponent. We show that as mutation probabilities approach zero in the limit, cooperation occurs a positive fraction of the time. Using simulations to study the behavior of the system with non-zero mutation probabilities, we obtain similar results. Surprisingly, in some cases an increased payoff to unilateral defection actually raises the level of cooperation.
"A Note on the Seller’s Optimal Mechanism in Bilateral Trade with Two-Sided Incomplete Information," Journal of Economic Theory, 1999
It is shown with an example that, in bilateral trade problems with two-sided incomplete information, some seller types may obtain higher expected payoffs in mechanisms other than the one where they make a take-it-or-leave-it offer, contrary to popular belief. If one looks at the mechanism selection problem of the (informed) seller, then the optimality of a take-it-or-leave-it offer for the seller is restored.