Delegation in Veto Bargaining

By Navin Kartik, Andreas Kleiner, and Richard Van Weelden

American Economic Review, December 2021

A proposer requires a veto player's approval to change a status quo. Proposer is uncertain about Vetoer's preferences. We show that Vetoer is typically given a non-singleton menu, or delegation set, of options to pick from. The optimal set balances the ex...

Allocation Mechanisms without Reduction

By David Dillenberger and Uzi Segal

American Economic Review: Insights, December 2021

We study a simple variant of the house allocation problem (one-sided matching). We demonstrate that agents with recursive preferences may systematically prefer one allocation mechanism to the other, even among mechanisms that are considered to be the same...

Measuring the Welfare Effects of Shame and Pride

By Luigi Butera, Robert Metcalfe, William Morrison, and Dmitry Taubinsky

American Economic Review, January 2022

Public recognition is frequently used to motivate desirable behavior, yet its welfare effects—such as costs of shame or gains from pride—are rarely measured. We develop a portable empirical methodology for measuring and monetizing social image utility...

A/B Contracts

By George Georgiadis and Michael Powell

American Economic Review, January 2022

This paper aims to improve the practical applicability of the classic theory of incentive contracts under moral hazard. We establish conditions under which the information provided by an A/B test of incentive contracts is sufficient for answering the ques...

When Should There Be Vertical Choice in Health Insurance Markets?

By Victoria R. Marone and Adrienne Sabety

American Economic Review, January 2022

We study the welfare effects of offering choice over coverage levels—"vertical choice"—in regulated health insurance markets. We emphasize that heterogeneity in efficient coverage level is not sufficient to motivate choice. When premiums cannot reflec...

Counterfactuals with Latent Information

By Dirk Bergemann, Benjamin Brooks, and Stephen Morris

American Economic Review, January 2022

We describe a methodology for making counterfactual predictions in settings where the information held by strategic agents and the distribution of payoff-relevant states of the world are unknown. The analyst observes behavior assumed to be rationalized by...

The Original Management Incentive Schemes

[Symposium: Stock Options Now and Then]

By Richard T. Holden

Journal of Economic Perspectives, Fall 2005

During the 1990s, the structure of pay for top corporate executives shifted markedly as the use of stock options greatly expanded. By the early 2000s, as the dot-com boom ended and the Nasdaq stock index melted down, these modern executive incentive schem...

Consumer Information and the Limits to Competition

By Mark Armstrong and Jidong Zhou

American Economic Review, February 2022

This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures that induce pure-strategy pricing equilibria, we derive signal structures that are optimal for f...

Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

By Mark Shepard

American Economic Review, February 2022

Health insurers increasingly compete on their networks of medical providers. Using data from Massachusetts's insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive "star" hospitals. I highlight a...

Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration

By Simon Loertscher and Leslie M. Marx

American Economic Review, February 2022

We provide an incomplete information bargaining framework that captures the effects of differential bargaining power in markets with multiple buyers and multiple suppliers. The market is modeled as a mechanism that maximizes the expected weighted welfare ...

A Natural Experiment in Monetary Policy Covering Three Episodes of Growth and Decline in the Economy and the Stock Market

By Milton Friedman

Journal of Economic Perspectives, Fall 2005

The third of three episodes in a major natural experiment in monetary policy that started more than 80 years ago is just now coming to an end. The experiment consists in observing the effect on the economy and the stock market of the monetary policies fol...

Which Findings Should Be Published?

By Alexander Frankel and Maximilian Kasy

American Economic Journal: Microeconomics, February 2022

Given a scarcity of journal space, what is the optimal rule for whether an empirical finding should be published? Suppose publications inform the public about a policy-relevant state. Then journals should publish extreme results, meaning ones that move be...

Trust Building in Credence Goods Markets

By Yuk-Fai Fong, Ting Liu, and Xiaoxuan Meng

American Economic Journal: Microeconomics, February 2022

We study trust building in credence-goods markets in a dynamic setting. When consumers' expected loss is low and it is efficient to fix only the more severe problem, there is no trade in the one-shot game. In the repeated game, an expert's honesty is moni...

Showing Off or Laying Low? The Economics of Psych-outs

By Philipp Denter, John Morgan, and Dana Sisak

American Economic Journal: Microeconomics, February 2022

We analyze the incentives for showing off, which we model as a costly signaling game, and study the consequences of norms against such behavior. Prior to competing in a contest, a newcomer can signal his talent to an incumbent. In equilibrium, costly sign...

Oil for What?-Illicit Iraqi Oil Contracts and the U.N. Security Council

By Paul Heaton

Journal of Economic Perspectives, Fall 2005

The Oil-For-Food program was established by United Nations Security Council Resolution 986 in 1995 as a means of providing humanitarian relief to Iraq, which had been under U.N. economic sanctions since the Persian Gulf War in 1991. After the invasion of ...

Can Technology Solve the Principal-Agent Problem? Evidence from China's War on Air Pollution

By Michael Greenstone, Guojun He, Ruixue Jia, and Tong Liu

American Economic Review: Insights, March 2022

We examine the introduction of automatic air pollution monitoring to counter suspected tampering at the local level, a central feature of China's "war on pollution." Exploiting 654 regression discontinuity designs based on city-level variation in the day ...

Persuasion with Correlation Neglect: A Full Manipulation Result

By Gilat Levy, Inés Moreno de Barreda, and Ronny Razin

American Economic Review: Insights, March 2022

We consider an information design problem in which a sender tries to persuade a receiver that has "correlation neglect," i.e., fails to understand that signals might be correlated. We show that a sender with unlimited number of signals can fully manipulat...

Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field

By Reshmaan Hussam, Natalia Rigol, and Benjamin N. Roth

American Economic Review, March 2022

Identifying high-growth microentrepreneurs in low-income countries remains a challenge due to a scarcity of verifiable information. With a cash grant experiment in India we demonstrate that community knowledge can help target high-growth microentrepreneur...

Designing Deadlines

By Erik Madsen

American Economic Review, March 2022

I study how an organization should manage a project of uncertain scope, when it is advised by a privately informed expert who prefers to prolong his employment. The optimal long-term contract combines a deadline for project completion and incentive paymen...

Poor People in Rich Nations: The United States in Comparative Perspective

[Symposium: Poverty]

By Timothy Smeeding

Journal of Economic Perspectives, Winter 2006

Cross-national comparisons can teach lessons about antipoverty policy. While all nations value low poverty, high levels of economic self-reliance and equality of opportunity for younger persons, they differ dramatically in the extent to which they reach t...