Publications

“Organizing Data Analytics”, (Online Appendix), with Odilon Câmara, Management Science, 2023.

ABSTRACT

We develop a theory of credible skepticism in organizations to explain the main tradeoffs in organizing data generation, analysis, and reporting. In our designer-agent-principal game, the designer selects the information privately observed by the agent who can misreport it at a cost, whereas the principal can audit the report. We study three organizational levers: tampering prevention, tampering detection, and the allocation of the experimental-design task. We show that motivating informative experimentation while discouraging misreporting are often conflicting organizational goals. To incentivize experimentation, the principal foregoes a flawless tampering detection/prevention system and separates the tasks of experimental design and analysis.

“The Art of Brevity”, with Heikki Rantakari, Journal of Economic Behavior & Organization, Vol. 195, pp. 257-271, 2022.

ABSTRACT

We analyze a class of sender-receiver games with quadratic payoffs, which includes the communication games in Alonso et al. (2008) and Rantakari (2008) as special cases, for which the sender’s or the receiver’s maximum expected payoff when players have access to arbitrary, mediated communication protocols is attained in one round of face-to-face, unmediated cheap talk. This result is based on the existence for these games of a communication equilibrium with an infinite number of partitions of the state space. We provide explicit expressions for the maximum expected payoff of the sender and the receiver, and illustrate its use by deriving new comparative statics of the quality of optimal communication. For instance, a shift in the underlying uncertainty that reduces expected conflict can worsen the quality of communication.

“On the Value of Persuasion by Experts”, with Odilon Câmara, Journal of Economic Theory, Vol. 174, pp. 103-123, 2018.

ABSTRACT

We consider a persuasion model in which a sender influences the actions of a receiver by selecting an experiment (public signal) from a set of feasible experiments. We ask: does the sender benefit from becoming an expert-observing a private signal prior to her selection? We provide necessary and sufficient conditions for a sender to never gain by becoming informed. Our key condition (sequential redundancy) shows that the informativeness of public experiments can substitute for the sender's expertise. We then provide conditions for private information to strictly benefit or strictly hurt the sender. Expertise is beneficial when the sender values the ability to change her experimental choice according to her private information. When the sender does not gain from expertise, she is strictly hurt when different types cannot pool on an optimal experiment.

“Political Disagreement and Information in Elections” (Online Appendix), with Odilon Câmara, Games and Economic Behavior, Vol. 100, pp. 390-412, November 2016.

ABSTRACT

We study the role of re-election concerns in incumbent parties' incentives to shape the information that reaches voters. In a probabilistic voting model, candidates representing two groups of voters compete for office. In equilibrium, the candidate representing the majority group wins with a probability that increases in the degree of political disagreement - the difference in expected payoffs from the candidates' policies. Prior to the election, the office-motivated incumbent party (IP) can influence the degree of political disagreement through policy experimentation - a public signal about a payoff-relevant state. We show that if the IP supports the majority candidate, then it strategically designs this experiment to increase disagreement and, hence, the candidate's victory probability. We define conditions such that the IP chooses an upper-censoring experiment and the experiment's informativeness decreases with the majority candidate's competence. The IP uses the experiment to increase disagreement even when political disagreement is due solely to belief disagreement.

“Persuading Voters” (Online Appendix), with Odilon Câmara. American Economic Review, Vol. 165(11), pp. 3590-3605, November 2016.

ABSTRACT

In a symmetric information voting model, an individual (information controller) can influence voters’ choices by designing the information content of a public signal. We characterize the controller’s optimal signal. With a non-unanimous voting rule, she exploits voters’ heterogeneity by designing a signal with realizations targeting different winning-coalitions. Consequently, under simple-majority voting rule, a majority of voters might be strictly worse off due to the controller’s influence. We characterize voters’ preferences over electoral rules, and provide conditions for a majority of voters to prefer a supermajority (or unanimity) voting rule, in order to induce the controller to supply a more informative signal.

“Bayesian Persuasion with Heterogeneous Priors” (Online Appendix), with Odilon Câmara. Journal of Economic Theory, Vol. 165, pp. 672-706, September 2016.

ABSTRACT

In a world in which rational individuals may hold different prior beliefs, a sender can influence the behavior of a receiver by controlling the informativeness of an experiment (public signal). We characterize the set of distributions of posterior beliefs that can be induced by an experiment, and provide necessary and sufficient conditions for a sender to benefit from persuasion. We then provide sufficient conditions for the sender to benefit from persuasion for almost every pair of prior beliefs, even when there is no value of persuasion under a common prior. Our main condition is that the receiver's action depends on his beliefs only through his expectation of some random variable.

“Organizing to Adapt and Compete” (Online Appendix), with Wouter Dessein and Niko Matouschek. American Economic Journal: Microeconomics, Vol. 7, No. 2, pp. 158-187, May 2015.

ABSTRACT

We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization.

“Resource Allocation in the Brain”, with Isabelle Brocas and Juan Carrillo. The Review of Economic Studies, Vol. 81, No. 2, pp. 501-534, April 2014.

ABSTRACT

When an individual performs several tasks simultaneously, resources must be allocated to different brain systems to produce energy for neurons to fire. Following the evidence from neuroscience, we model the brain as an organization in which a coordinator allocates limited resources to the brain systems responsible for the different tasks. Systems are privately informed about the amount of resources necessary to perform their task and compete to obtain the resources. The coordinator arbitrates the demands while satisfying the resource constraint. We show that the optimal mechanism is to impose to each system with privately known needs a cap in resources that depends negatively on the amount of resources requested by the other system. This allocation can be implemented using a physiologically plausible mechanism. Finally, we provide some implications of our theory: (i) performance is inversely related to the difficulty of the task and can be flawless for sufficiently simple tasks, (ii) the dynamic allocation rule exhibits inertia (current allocations are increasing in past needs), and (iii) different cognitive tasks are performed by different systems only if the tasks are sufficiently important.

“Strategic Communication: Prices versus Quantities”, with Wouter Dessein and Niko Matouschek. Journal of the European Economic Association, Vol. 8, No. 2-3, pp. 365-376, April-May 2010.

ABSTRACT

We examine how cheap talk communication between managers within the same firm depends on the type of decisions that the firm makes. A firm consists of a headquarters and two operating divisions. Headquarters is unbiased but does not know the demand conditions in the divisions' markets. Each division manager knows the demand conditions in his market but is also biased towards his division. The division managers communicate with headquarters which then sets either the prices or quantities for each division. The quality of communication depends on whether headquarters sets prices or quantities. This is the case even though, once communication has taken place, expected profits are the same whether headquarters sets prices or quantities.

“Centralization versus Decentralization: An Application to Pricing by a Multi-Market Firm”, with Wouter Dessein and Niko Matouschek. Journal of the European Economic Association, Vol. 6, No. 2-3, pages 457–467, April-May 2008.

ABSTRACT

This paper compares centralized and decentralized price setting by a firm that sells a single product in two markets, but is constrained to set one price (e.g. due to arbitrage). Each market is characterized by a different linear demand function, and demand conditions are privately observed by a local manager. This manager only cares about profits in his own market and, as a result, communicates his information strategically. Our main results link organizational design to market demand. First, if pricing is decentralized, it is always delegated to the manager who faces the flattest inverse demand function, regardless of the size of market demand. Second, even when pricing can be allocated to an unbiased headquarters, decentralization is optimal when markets differ sufficiently in how flat the inverse demand functions are. Finally, decentralization is more likely when, in expectations, local managers disagree more about prices.

“When Does Coordination Require Centralization?” (Online Appendix), with Wouter Dessein and Niko Matouschek. American Economic Review, 98(1), pp. 145-79, March 2008.

ABSTRACT

We consider a multi-divisional organization in which decisions must be responsive to local circumstances but also coordinated with each other. Divisional managers are privately informed and communicate their information strategically. The only available formal mechanism is the allocation of control over decisions. We show that a higher need for coordination improves communication under decentralization but worsens communication under centralization. As a result, a decentralized organization can be optimal even when coordination is extremely important. Centralizing decision making in an independent headquarter is optimal when division managers are sufficiently biased towards their own divisions' profits and the need for coordination is sufficiently big. Centralizing decision making in one of the operating divisions is optimal if this division has more private information than the other divisions, the own division bias of division managers is sufficiently small and the need for coordination is sufficiently big. Finally, division managers communicate more information to an independent headquarter than they do to each other. As a result, a headquarter can be better informed about local circumstances than the division managers, in spite of the fact that the headquarter does not directly observe any information itself.

“Optimal Delegation” (Online Appendix), with Niko Matouschek. The Review of Economic Studies, Vol. 75, No. 1, pp. 259-293, January 2008.

ABSTRACT

We analyze the optimal delegation of authority by an uninformed principal to an informed but biased agent. When the principal cannot use message-contingent transfers, she offers the agent a set of decisions from which he can choose his preferred one. We fully characterize the optimal delegation set for general distributions of the state space and preferences with arbitrary continuous state dependent biases. We also provide necessary and sufficient conditions for commonly observed organizational arrangements to be optimal. Finally, we investigate how changes in the economic environment affect the agent's discretion.

“Relational Delegation”, with Niko Matouschek. The RAND Journal of Economics, Vol. 38, No. 4 (Winter, 2007), pp. 1070-1089.

ABSTRACT

We explore the optimal delegation of decision rights by a principal to a better informed but biased agent. In an infinitely repeated game a long lived principal faces a series of short lived agents. Every period they play a cheap talk game ala Crawford and Sobel (1982) with constant bias, quadratic loss functions and general distributions of the state of the world. We characterize the optimal delegation schemes for all discount rates and show that they resemble organizational arrangements that are commonly observed, including centralization and threshold delegation. For small biases threshold delegation is optimal for almost all distributions. Outsourcing can only be optimal if the principal is sufficiently impatient.