Fields of Interest

Microeconomic Theory, Economics of Organizations, Political Economics, Economics of Information

Curriculum Vitae

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Favoritism, Social Stratification, and Internal Conflicts (joint with Michael Porcellacchia)

Motivated by both contemporary and historical evidence, we develop a model for studying optimal taxation, ruler selection, and internal conflicts in (ethnically-)divided societies. We show that the political environment generates social stratification, reinforces inequality, and fuels internal conflicts. First, we show that the ruler optimally creates a ranking among social groups and demands lower taxes from higher ranks. This divide-and-conquer strategy (political favoritism) creates social stratification even among identical social groups and reinforces inequality by assigning higher ranks (thus lower taxes) to wealthier/stronger groups. Second, we show that the ruler's extractive capacity increases in society's fractionalization and the ruler's power. Nevertheless, social groups select the strongest group as the ruler to minimize their tax burden. Finally, we show that these political considerations generate a novel class of conflicts, status conflicts, where resource appropriation/destruction aims at climbing society's ranking, thus obtaining a more favorable fiscal treatment or even the rulership.

Spheres of influence (joint with Michael Porcellacchia)

The rise of China's foreign influence is raising concerns about the potential return to a world shaped by geopolitical considerations. But what would such a world look like? This paper proposes and tests a theory where countries make optimal foreign policy decisions to manage the foreign influence of the great powers (say the US and China). First, we show that countries will optimally self-organize into spheres of influence (SOI), choosing foreign policies that are either biased in favor of the US or China. Second, we show that the extent of such biases depends on the balance of power between GPs. In particular, such biases increase when there is a rising power catching up with an established one, implying that SOI should become more visible in times of geopolitical competition. Finally, we demonstrate the empirical relevance of the analysis by introducing a new measure for the extent of bilateral cooperation between 1979 and 2013. The model correctly predicts how countries adjusted their foreign policies in response to the fall of the Soviet Union and China's rise.

How Power Becomes Influence: the Weaker Powers Index (joint with Michael Porcellacchia)

There is a clear link between a country’s material capabilities and its international relevance, but there is no consensus on the nature of this relation. While realists scholars usually focus on relative power; another view suggests that countries care about their power rank. This paper argues for a third option: the payoff that a country obtains from its international interactions is increasing in its Weaker Powers Index (WPI), i.e. the relative power of all weaker countries. We test the theory using data on trade, diplomatic exchanges, aid, alignment, and more. In all dimensions, we show that a country benefits from a higher WPI, but not a higher relative power or power rank. The results suggest that the WPI is the fundamental link between material capabilities and a country’s international relevance. Finally, we discuss how our WPI-theory offers new insights on several patterns in international relations, including status-consciousness, and patterns underpinning power transition theory and hegemonic stability theory.

Signaling Design (with Mingzi Niu, Mallesh Pai, and Rakesh Vohra) (draft coming soon)

We revisit the classic job-market signaling model of Spence (1973), introducing profit-seeking schools as intermediaries that design the mapping from candidates’ efforts to job-market signals. Each school commits to an attendance fee and a signal structure. A monopolistic school captures the entire social surplus by committing to low information signals and charging fees that extract students' surplus from being hired. In contrast, competition shifts surplus to students, with schools vying to attract high-ability students, enabling them to distinguish themselves from their lower-ability peers. However, this increased signal informativeness leads to more wasteful effort in equilibrium, challenging the prevailing argument that competition should be promoted to enhance social efficiency. To further understand the nature of inefficiency, we distinguish two signaling purposes: sorting --- firms want to hire all ability types but at different wages; and screening --- firms only want to hire high-types. We argue that competition may be more efficient than monopoly if the social value of screening is not captured in wages.

Under Pressure: Comparative Statics for Optimal Stopping Problems in Non-stationary Environments (joint with Theo Durandard)

We present a general optimal stopping problem accommodating a broad spectrum of non-stationary environments. These include scenarios where the decision maker's patience (i.e., discount rate), time pressure (i.e., arrival rate of a stochastic deadline), learning speed (i.e., volatility of the diffusion process) can change over time both gradually and abruptly. Our paper offers three main contributions.  First, we prove this general problem has a well-defined solution under mild regularity conditions. Second, we develop comprehensive comparative statics results that are crucial to characterize the shape of the stopping region in the broad class of monotone environments. Finally, we leverage these comparative statics to examine the speed-accuracy tradeoffs in various information acquisition problems, revealing how decision accuracy varies over time in response to changes in the discount rate, learning speed, or deadline-induced time pressure. Notably, our main comparative static results hold locally and thus can also capture non-monotone relations.

Endogenous Monitoring Intermediaries
(extended abstract)

This paper analyses a classical signaling model à la Spence where agents’ efforts are not perfectly observable, and the monitoring structure is endogenous. We focus on the incentives for an intermediary (a school) to provide a finer or coarser monitoring structure. We show that a monopolistic school typically benefits from providing no information, inducing the pooling equilibrium as the unique equilibrium of the game. On the other hand, we show that when multiple schools compete to attract students, they will typically select the monitoring structure preferred by the high types. Furthermore, we show that such optimal monitoring structure frequently pools together higher levels of effort with zero effort. In this way, the intermediary is able to induce an equilibrium in which all low types exert no effort and are pooled with positive probability with the high types who, on the other hand, exert an effort lower than the one required by the classical separating equilibrium. From the agents’ perspective, such equilibrium Pareto dominates the separating equilibrium without being dominated by the pooling equilibrium. Finally, we show that this equilibrium is also consistent with a natural extension of the Intuitive Criterion. 

Work in Progress

Escaping Thucydides’ Trap: The Geography of Hot and Cold Wars (joint with Michael Porcellacchia)

Great powers with similar levels of power often fight each other (Thucydides’ Trap). This historical regularity is often used to argue that a war between the United States and China is likely to happen in the near future. We consider a model of geopolitical competition, where foreign powers compete to obtain rents from other countries, and we introduce geography by assuming that every foreign power’s ability to project power in a particular region decays with their geographic distance. This extension enables us to define a foreign power’s sphere of influence as the geographic region where it is the strongest foreign power. Such definition is crucial to understand the critical trade-off determining the incentive to fight. Attacking another foreign power (destroying its resources) affects payoffs via two conflicting channels: a relaxation channel and a status channel. By weakening its rival, we show that the foreign power reduces its own payoff by reducing the rent that it is able to extract from its own sphere of influence (relaxation channel). However, weakening the rival could increase the equilibrium payoff by increasing the foreign power’s sphere of influence (status channel). We show that the probability of war increases when two great powers have similar levels of power (as in Thucydides’ Trap). But we also show that geographic distance mitigates this problem, as it hampers the status channel and accentuates the relaxation channel. This finding can explain why the Rise of Germany was disruptive, whereas the rise of the United States or the Soviet Union was not. Moreover, it suggests that the probability of an all-out war between China and the United States might have been exaggerated.

The Political Determinants of Social Unrest: Theory and Evidence from Early Modern France” (joint with Michael Porcellacchia and Cédric Chambru)

References

Prof. Jeff Ely (Committee Co-Chair)

Prof. Alessandro Pavan (Committee Co-Chair)

Prof. Bruno Strulovici

Prof Georgy Egorov

Prof Asher Wolinsky