Public Communication with Externalities (with K. Shamruk, T. Su and A. Wakrim), Games and Economic Behavior 136:177–196, 2022

This paper develops a model in which a sender strategically communicates with a group of receivers whose payoffs depend on the sender's information. It is shown that aggregate payoff externalities create an endogenous conflict of interests between the sender and the receivers, rendering full information revelation, in general infeasible. We demonstrate that an exogenous bias in the sender's preferences can improve public information provision and raise welfare. Two applications of the setup are discussed.

This paper explores a specific parametric example of a regime change game, which describes aggregate phenomena such as bank runs, currency attacks, and social unrest. The game involves a major player (policymaker) defending the status quo regime, and a collection of atomistic agents, each possessing independent private information, seeking to topple it. Of interest is the scenario where the policymaker can initiate a policy intervention at the start of the game, rendering an attack less appealing. The central finding reveals that a comprehensive understanding of economic conditions can be disadvantageous to the policymaker, provided that the agents are cognizant of his informed state and logically infer the fundamentals based on observed policy. The paper demonstrates that when agents' information is imprecise, aggressive signalling benefits the policymaker when the economy is strong but proves detrimental when the economy is weak. These implications extend the knowledge base of the global games' literature.

We develop a multi-period career concerns framework, in which the worker's talent remains his private information. At each period, the risk-averse worker chooses between self-employment or firm employment. While the latter guarantees a stable income, the former offers the worker an opportunity to signal his talent to the market. We show that (i) the decision for firm employment exhibits an "absorbing" feature, (ii) more talented workers tend to stay self-employed for extended periods, and (iii) when firms recognise that the most talented workers are unattainable, the worker's earnings profile increases with age, regardless of the past performance.

This paper focuses on the interplay between social learning and reputation dynamics. Taking the herding model of Bikhchandani et al (1992), we endogenize the state of nature as a choice of quality made by the long-run player. We construct a Markov perfect equilibrium in which both cascade regions still exist, and once the beliefs are stuck there, incentives to build reputation vanish. Investment in quality follows an inverse U-shaped pattern: depending on whether the public belief is tilted in favor or against the long-run player, current trust may either destroy or boost up subsequent reputation building. Randomization on behalf of the long-run player tends to slow down social learning, but the public belief eventually reaches one of the two cascade regions. Unlike in the canonical information cascades' setup, greater private signal precision may reduce the players' responsiveness to their information.

This paper builds a model connecting labour force composition to the firms' credit constraints, arising from limited commitment and explains the difference in labour market responses among countries to financial crises. The firm has to choose between permanent and temporary/casual labour contracts, the difference being advance prepayment for permanent workers financed by credit and more permanent workers make survival of the firm more likely. Lack of credit distorts optimal composition of labour away from the first best, limiting economic activity, decreasing total employment and inflating the proportion of the temporary/casual workers. Lower levels of credit market frictions facilitate credit; however, the presence of the permanent workforce itself makes borrowing problematic. The paper proceeds by comparative statics exercise with respect to the market frictions parameter. 

This note explores conditions that admit recursive representation for a class of dynamic mechanism design problems. We derive a tight sufficient condition, called the common state property (CSP), which ensures that temporary incentive constraints guarantee implementability, and so allows to characterize the principal's problem recursively. The condition imposes no restrictions on agent's preferences and only concerns the properties of the evolution of private information.

We develop a framework that links banking panics to asset price movements. If asset-price drops worsen the bank's balance sheet, a run might be triggered by depositors' concern of its potential insolvency. When massive withdrawals force the bank to liquidate its assets, this is likely to upset investor sentiments and exacerbate asset price declines even further.