Retrospectives: Friedrich Hayek and the Market Algorithm

By Samuel Bowles, Alan Kirman, and Rajiv Sethi

Journal of Economic Perspectives, Summer 2017

Friedrich A. Hayek (1899-1992) is known for his vision of the market economy as an information processing system characterized by spontaneous order: the emergence of coherence through the independent actions of large numbers of individuals, each with limi...

Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations

By Omar A. Nayeem

American Economic Journal: Microeconomics, August 2017

This paper explores the useful but delicate role of managerial skepticism in hierarchical knowledge-based organizations. In these settings, the decision-maker principal seeks advice from managers, who instruct expert frontline workers to acquire informati...

More Haste, Less Speed? Signaling through Investment Timing

By Catherine Bobtcheff and Raphaël Levy

American Economic Journal: Microeconomics, August 2017

We consider a cash-constrained firm learning on the value of an irreversible project at a privately known speed. Under perfect information, the optimal date of investment may be non-monotonic in the learning speed: better learning increases the value of e...

Full Implementation and Belief Restrictions

By Mariann Ollár and Antonio Penta

American Economic Review, August 2017

Multiplicity of equilibria and the dependence on strong common knowledge assumptions are well-known problems in mechanism design. We address them by studying full implementation via transfer schemes, under general restrictions on agents' beliefs. We show ...

Optimal Allocation with Ex Post Verification and Limited Penalties

By Tymofiy Mylovanov and Andriy Zapechelnyuk

American Economic Review, September 2017

Several agents with privately known social values compete for a prize. The prize is allocated based on the claims of the agents, and the winner is subject to a limited penalty if he makes a false claim. If the number of agents is large, the optimal mechan...

Relational Knowledge Transfers

By Luis Garicano and Luis Rayo

American Economic Review, September 2017

We study how relational contracts mitigate Becker's classic problem of providing general human capital when training contracts are incomplete. The firm's profit-maximizing agreement is a multiperiod apprenticeship in which the novice is trained gradually ...

The Political Economy of Dynamic Elections: Accountability, Commitment, and Responsiveness

By John Duggan and César Martinelli

Journal of Economic Literature, September 2017

We survey the literature on dynamic elections in the traditional settings of spatial preferences and rent seeking under perfect and imperfect monitoring of politicians. We define stationary electoral equilibrium, which encompasses notions used by Barro (1...

The Intellectual Legacy of Progressive Economics: A Review Essay of Thomas C. Leonard's Illiberal Reformers

By Marshall I. Steinbaum and Bernard A. Weisberger

Journal of Economic Literature, September 2017

Thomas Leonard's 2016 book Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era argues that exclusionary views on eugenics, race, immigration, and gender taint the intellectual legacy of progressive economics and eco...

In a Small Moment: Class Size and Moral Hazard in the Italian Mezzogiorno

By Joshua D. Angrist, Erich Battistin, and Daniela Vuri

American Economic Journal: Applied Economics, October 2017

Instrumental variables (IV) estimates show strong class-size effects in Southern Italy. But Italy's Mezzogiorno is distinguished by manipulation of standardized test scores as well as by economic disadvantage. IV estimates suggest small classes increase m...

Competing for Loyalty: The Dynamics of Rallying Support

By Matias Iaryczower and Santiago Oliveros

American Economic Review, October 2017

We consider a class of dynamic collective action problems in which either a single principal or two competing principals vie for the support of members of a group. We focus on the dynamic problem that emerges when agents negotiate and commit their support...

If Many Seek, Ye Shall Find: Search Externalities and New Goods

By Maciej H. Kotowski and Richard J. Zeckhauser

American Economic Journal: Microeconomics, November 2017

Consumer search serves productive roles in an economy with multiple goods. In equilibrium, search promotes the sorting of consumers among producers, thereby enabling the market for new goods, and potentially increasing welfare and profits above the benchm...

Welfare Consequences of Information Aggregation and Optimal Market Size

By Kei Kawakami

American Economic Journal: Microeconomics, November 2017

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing rol...

Centralized Decision Making and Informed Lobbying

By Rafael Costa Lima, Humberto Moreira, and Thierry Verdier

American Economic Journal: Microeconomics, November 2017

We address the trade-off between centralized and decentralized decision making subject to influence from privately informed lobbies. We focus on informative equilibria with separating differentiable contribution schedules and identify an information trans...

Obviously Strategy-Proof Mechanisms

By Shengwu Li

American Economic Review, November 2017

A strategy is obviously dominant if, for any deviation, at any information set where both strategies first diverge, the best outcome under the deviation is no better than the worst outcome under the dominant strategy. A mechanism is obviously strategy-p...

'Acting Wife': Marriage Market Incentives and Labor Market Investments

By Leonardo Bursztyn, Thomas Fujiwara, and Amanda Pallais

American Economic Review, November 2017

Do single women avoid career-enhancing actions because these actions signal undesirable traits, like ambition, to the marriage market? While married and unmarried female MBA students perform similarly when their performance is unobserved by classmates (...

Discriminatory Information Disclosure

By Hao Li and Xianwen Shi

American Economic Review, November 2017

A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realiza...

Selection in Health Insurance Markets and Its Policy Remedies

[Symposium: Health Insurance and Choice]

By Michael Geruso and Timothy J. Layton

Journal of Economic Perspectives, Fall 2017

Selection (adverse or advantageous) is the central problem that inhibits the smooth, efficient functioning of competitive health insurance markets. Even—and perhaps especially—when consumers are well-informed decision makers and insurance mark...

How Food Banks Use Markets to Feed the Poor

By Canice Prendergast

Journal of Economic Perspectives, Fall 2017

A difficult issue for organizations is how to assign valuable resources across competing opportunities. This work describes how Feeding America allocates about 300 million pounds of food a year to over two hundred food banks across the United States. It d...

The Welfare Effects of Coordinated Assignment: Evidence from the New York City High School Match

By Atila Abdulkadiroğlu, Nikhil Agarwal, and Parag A. Pathak

American Economic Review, December 2017

Coordinated single-offer school assignment systems are a popular education reform. We show that uncoordinated offers in NYC's school assignment mechanism generated mismatches. One-third of applicants were unassigned after the main round and later administ...

Assessing the Energy-Efficiency Gap

By Todd D. Gerarden, Richard G. Newell, and Robert N. Stavins

Journal of Economic Literature, December 2017

Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but it has long been observed that these technologies may not be adopted by individuals and firms to the degr...