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Working Papers
A Network Centrality Approach to Coalitional Stability (with Ben Golub)
We study games in which each player simultaneously exerts costly effort that provides different benefits to some of the other players. The goal is to find and describe effort profiles that are immune to coordinated coalitional deviations when such a game is played repeatedly. Formally, these effort profiles are the ones that can be sustained in a strong Nash equilibrium of the repeated game.
We introduce a class of effort profiles that are called centrality-stable. These are characterized by a network centrality condition: the amount of effort agent i contributes (thereby helping other agents) is equal to a weighted sum of the contributions of the agents who help him. Under certain assumptions (mainly concavity of utility functions), centrality-stable profiles exist, are Pareto-efficient, and any such profile is sustainable in a coalitionally robust equilibrium of the repeated game. Centrality-stable profiles also have an alternative definition: they are those at which all agents are first-order indifferent to scaling all efforts by a factor near 1. This single condition rules out all profitable coalitional deviations. The results are obtained without parametric assumptions, using the theory of general equilibrium and its relation to the core, along with the Perron-Frobenius spectral theory of nonnegative matrices.
When agents are uncertain about each other's utility functions but can verify marginal costs and marginal benefits at an implemented effort profile, then the centrality-stable profiles are the only ones that are immune to manipulation through misreporting of preferences.
Inefficiencies in networked markets (Job Market Paper)
(supplementary appendix)
In many markets relationship specific investments are necessary to enable trade. Typically there are multiple buyers, multiple sellers and heterogeneous gains from trade. In some markets a buyer and seller must make different and separate investments to trade, in others investments are jointly made and negotiated. These investments are subject to inefficiencies: under-investment, due to potential hold-up, and over-investment to generate "outside options". When investments are separate over-investment is limited. In contrast, inefficiency from under-investment cannot be bounded. This result reverses when investments are negotiated. In this case there is no under-investment. However, inefficiency from over-investment cannot now be bounded.
Search with multilateral bargaining (Job Market Paper)
In labor markets workers and firms often accumulate multiple match opportunities before bargaining. Alternative opportunities, that are not ultimately used to match over, can then provide "outside options" that influence wages. To investigate how the possibility of finding these outside options affects equilibrium search decisions, I build a model rich enough to include an outside option motivation for search and the congestion externalities traditionally studied. Two important ingredients for modeling an outside option search motivation are heterogenous match specific surpluses and multilateral wage negotiations. However, heterogeneous surpluses can help coordinate application and interview decisions overcoming potential congestion externalities. Without congestion externalities, and in contrast to the existing search literature, the inefficiency of entry decisions can be signed; There is never too much entry but there can be too little. An orthogonal result suggests under entry is likely; No non-cooperative bargaining game, independent of sunk costs, can align private and social entry incentives.
Trafficking illegal goods and ancient commerce (with Clayton Featherstone)
(supplementary appendix)
Illegal goods are trafficked through couriers with whom legal contracts cannot be enforced. We model the problem of these couriers absconding and focus on a finite horizon problem in which trade cannot be sustained through reputational effects. Nonetheless, trade remains possible if there are sufficient gains. Optimal schemes have one courier making numerous, but a finite number of, return trips, being entrusted with bundles of increasing value, and keeping the last. Our model is robust to (i) punishment, (ii) bonding and (iii) a competitive market for couriers. We discuss implications for interdiction and how the model fits some ancient trade as well.
How better information can reduce the credibility of experts' advice (with Ben Golub and Andrei Kirilenko)
We model two experts who must make "bottom line" (yes/no) predictions about whether an event will occur or not. The experts receive private signals about the possibility of the bad event occurring -- private signals that are much more informative than the coarse recommendations they can ultimately communicate. The experts like to make correct predictions, and otherwise we restrict their payoffs only to ensure they play cutoff strategies -- strategies such that an expert predicts the bad event will occur when he thinks the bad event is more likely to occur. The experts may care about both absolute and relative performance. We show that when either or both experts receive uniformly more informative signals, their collective unanimous predictions can become less informative, so that the event is more likely to occur when they both predict it will not and the event is less likely to occur when they predict it will occur. There are information improvements that result in this perverse outcome for any payoffs the experts might have, including when the experts' interests are exactly aligned with those of society. The ubiquity of the unintuitive phenomenon of perversity raises the question of how the principal should optimally incentivize the experts subject to the constraint of coarse (yes/no) advice, especially when their interests are not aligned with those of society. We find that, without the possibility of huge transfers, the principal's ability to extract good advice or even to interpret imperfect advice correctly is severely limited.
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