Is There Too Much Benchmarking in Asset Management?

By Anil K Kashyap, Natalia Kovrijnykh, Jian Li, and Anna Pavlova

American Economic Review, April 2023

We propose a tractable model of asset management in which benchmarking arises endogenously, and analyze its welfare consequences. Fund managers' portfolios are not contractible and they incur private costs in running them. Incentive contracts for fund man...

Collective Moral Hazard and the Interbank Market

By Levent Altinoglu and Joseph E. Stiglitz

American Economic Journal: Macroeconomics, April 2023

The concentration of risk within the financial system leads to systemic instability. We propose a theory to explain the structure of the financial system and show how it alters the risk-taking incentives of financial institutions when the government optim...

State-Dependent Attention and Pricing Decisions

By Javier Turen

American Economic Journal: Macroeconomics, April 2023

This paper studies price-setting decisions under rational inattention. Prices are set by tracking an unobserved target whose distribution is also unknown. Information acquisition is dynamic and fully flexible since, given information acquired previously, ...

Dynamic Privacy Choices

By Shota Ichihashi

American Economic Journal: Microeconomics, May 2023

I study a dynamic model of consumer privacy and platform data collection. In each period consumers choose their level of platform activity. Greater activity generates more information about the consumer, thereby increasing platform profits. When the platf...

Blind Disclosure

By Aaron Kolb, Marilyn Pease, Daniel W. Sacks, and Joshua Quick

American Economic Journal: Microeconomics, May 2023

We develop and test a theory of blind disclosure. A sender chooses whether to disclose information based on a preliminary, private signal. In the unique equilibrium, contrary to the literature's canonical unraveling result, senders disclose only if their ...

Optimal Nonlinear Pricing with Data-Sensitive Consumers

By Daniel Krähmer and Roland Strausz

American Economic Journal: Microeconomics, May 2023

We study monopolistic screening when some consumers are data sensitive and incur a privacy cost if their purchase reveals information to the monopolist. The monopolist discriminates between data-sensitive and classical consumers using privacy mechanisms t...

The Good, the Bad, and the Complex: Product Design with Imperfect Information

By Vladimir Asriyan, Dana Foarta, and Victoria Vanasco

American Economic Journal: Microeconomics, May 2023

We study the joint determination of product quality and complexity. In our model complexity affects how difficult it is for an agent to acquire information about product quality. An agent can accept or reject a product proposed by a designer, who can affe...

Too Good to Be True? Retention Rules for Noisy Agents

By Francisco Espinosa ⓡ Debraj Ray

American Economic Journal: Microeconomics, May 2023

An agent who privately knows his type seeks to be retained by a principal. Agents signal their type with some ambient noise, but can alter this noise, perhaps at some cost. Our main finding is that in equilibrium, the principal treats extreme signals in e...

Learning by Choosing: Career Concerns with Observable Actions

By T. Tony Ke, Christopher Li, and Mikhail Safronov

American Economic Journal: Microeconomics, May 2023

This paper explores potential inefficiencies of incomplete contracts in a dynamic career concerns context. In a firm-worker relationship, the worker performs public tasks that have trade-offs between productivity and informativeness. We show that the firs...

Relative Wealth Concerns, Executive Compensation, and Managerial Risk-Taking

By Qi Liu and Bo Sun

American Economic Journal: Microeconomics, May 2023

This paper theoretically examines how relative wealth concerns affect equilibrium contracting and systemic risk-taking. We find that such externalities can generate pay for luck as an equilibrium strategy. In expectation of pay for luck in other firms, ty...

Raising the Bar: Certification Thresholds and Market Outcomes

By Xiang Hui, Maryam Saeedi, Giancarlo Spagnolo, and Steven Tadelis

American Economic Journal: Microeconomics, May 2023

Certification of sellers by trusted third parties helps alleviate information asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a policy change on eBay, we study how a more selective...

Stable and Efficient Resource Allocation with Contracts

By Bobak Pakzad-Hurson

American Economic Journal: Microeconomics, May 2023

Consider indivisible-object allocation with contracts, such as college admissions, where contracts specify majors. Can a designer guarantee a stable and (student) efficient matching? I show that contracts put stability and efficiency at odds; a necessary ...

Optimal Task Scheduling under Adverse Selection and Hidden Actions

By Murali Agastya and Oleksii Birulin

American Economic Journal: Microeconomics, May 2023

A Principal owns a project consisting of several tasks. Tasks differ, both in their innate success probabilities and their incremental benefits. Moreover, only specialists can perform these tasks. Subject to moral hazard and adverse selection, in what ord...

Markets with Within-Type Adverse Selection

By Anh Nguyen and Teck Yong Tan

American Economic Journal: Microeconomics, May 2023

We study bilateral trade with a seller owning multiple units of a good, where each unit is of binary quality. The seller privately knows her "type"—defined by the number of lemons that she own—and which units in her endowments are the lemons ("within-...

Nobel Lecture: Banking, Credit, and Economic Fluctuations

By Ben S. Bernanke

American Economic Review, May 2023

Credit markets, including the market for bank loans, are characterized by imperfect and asymmetric information. These informational frictions can interact with other economic forces to produce periods of credit-market stress, in which intermediation is un...

Information, Mobile Communication, and Referral Effects

By Panle Jia Barwick, Yanyan Liu, Eleonora Patacchini, and Qi Wu

American Economic Review, May 2023

This paper uses the universe of cellphone records from a Chinese telecommunication provider for a northern Chinese city to examine the role of information exchange in urban labor markets. We provide the first direct evidence of increased communication amo...

Smart Contracts and the Coase Conjecture

By Thomas Brzustowski, Alkis Georgiadis-Harris, and Balázs Szentes

American Economic Review, May 2023

This paper reconsiders the problem of a durable-good monopolist who cannot make intertemporal commitments. The buyer's valuation is binary and his private information. The seller has access to dynamic contracts and, in each period, decides whether to depl...

The Cost of Information: The Case of Constant Marginal Costs

By Luciano Pomatto, Philipp Strack, and Omer Tamuz

American Economic Review, May 2023

We develop an axiomatic theory of information acquisition that captures the idea of constant marginal costs in information production: the cost of generating two independent signals is the sum of their costs, and generating a signal with probability half ...

Ask and You Shall Receive? Gender Differences in Regrades in College

By Cher Hsuehhsiang Li and Basit Zafar

American Economic Journal: Economic Policy, May 2023

Using administrative data from a large public university, we show that male students are 18.6 percent more likely than female students to receive favorable grade changes made by instructors. Surveys of students and instructors reveal that regrade requests...

A Solomonic Solution to Blockchain Front-Running

By Joshua S. Gans and Richard Holden

AEA Papers and Proceedings, May 2023

Blockchain front-running involves multiple agents, other than the legitimate agent, claiming a payment from performing a contract. It arises because of the public nature of blockchain transactions and potential network congestion. This paper notes that di...