Ultimatum Bargaining with Rational Inattention

By Doron Ravid

American Economic Review, September 2020

A seller bargains with a rationally inattentive buyer (Sims 2003) over a good of random quality. After observing quality, the seller makes a take-it-or-leave-it offer. The buyer pays attention to the seller's product and offer at a cost proportional to ex...

Bitcoin: An Axiomatic Approach and an Impossibility Theorem

By Jacob D. Leshno and Philipp Strack

American Economic Review: Insights, September 2020

Bitcoin's main innovation lies in allowing a decentralized system that relies on anonymous, profit-driven miners who can freely join the system. We formalize these properties in three axioms: anonymity of miners, no incentives for miners to consolidate, a...

Optimal Collateralized Contracts

By Dan Cao and Roger Lagunoff

American Economic Journal: Microeconomics, November 2020

We examine the role of collateral in a dynamic model of optimal credit contracts in which a borrower values both housing and nonhousing consumption. The borrower's private information about his income is the only friction. An optimal contract is collatera...

The Importance of Commitment Power in Games with Imperfect Evidence

By Francisco Silva

American Economic Journal: Microeconomics, November 2020

The literature initiated by Green and Laffont (1986) studies principal-agent models with hard evidence. Evidence is modeled by assuming that the message set of the agent is type dependent. In this setup, Glazer and Rubinstein (2004, 2006) and Sher (2011) ...

Hybrid All-Pay and Winner-Pay Contests

By Johan N. M. Lagerlöf

American Economic Journal: Microeconomics, November 2020

In many contests in economic and political life, both all-pay and winner-pay expenditures matter for winning. This paper studies such hybrid contests under symmetry and asymmetry. The symmetric model assumes very little structure but yields a simple close...

Informational Cycles in Search Markets

By Eeva Mauring

American Economic Journal: Microeconomics, November 2020

I show that market participants' equilibrium beliefs can create fluctuations in the volume of trading, even in a stationary environment. I study a sequential search model where buyers face an unknown distribution of offers. Each buyer learns about the dis...

Designing Dynamic Research Contests

By Jean-Michel Benkert and Igor Letina

American Economic Journal: Microeconomics, November 2020

This paper studies the optimal design of dynamic research contests. We introduce interim transfers, which are paid in every period while the contest is ongoing, to an otherwise standard setting. We show that a contest where (i) the principal can stop the ...

Using Models to Persuade

By Joshua Schwartzstein and Adi Sunderam

American Economic Review, January 2021

We present a framework where "model persuaders" influence receivers' beliefs by proposing models that organize past data to make predictions. Receivers are assumed to find models more compelling when they better explain the data, fixing receivers' prior b...

Liability Insurance: Equilibrium Contracts under Monopoly and Competition

By Jorge Lemus, Emil Temnyalov, and John L. Turner

American Economic Journal: Microeconomics, February 2021

In liability lawsuits (e.g., patent infringement), a plaintiff demands compensation from a defendant, and the parties often negotiate a settlement to avoid a costly trial. Liability insurance creates bargaining leverage for the defendant in this settlemen...

Sequential Preference Revelation in Incomplete Information Settings

By James Schummer and Rodrigo A. Velez

American Economic Journal: Microeconomics, February 2021

Strategy-proof allocation rules incentivize truthfulness in simultaneous move games, but real world mechanisms sometimes elicit preferences sequentially. Surprisingly, even when the underlying rule is strategy-proof and nonbossy, sequential elicitation ca...

Full Implementation under Ambiguity

By Huiyi Guo and Nicholas C. Yannelis

American Economic Journal: Microeconomics, February 2021

This paper introduces the maxmin expected utility framework into the problem of fully implementing a social choice set as ambiguous equilibria. Our model incorporates the Bayesian framework and the Wald-type maxmin preferences as special cases and provide...

Dynamic Persuasion with Outside Information

By Jacopo Bizzotto, Jesper Rüdiger, and Adrien Vigier

American Economic Journal: Microeconomics, February 2021

A principal seeks to persuade an agent to accept an offer of uncertain value before a deadline expires. The principal can generate information, but exerts no control over exogenous outside information. The combined effect of the deadline and outside infor...

Organizing Time Exchanges: Lessons from Matching Markets

By Tommy Andersson, Ágnes Cseh, Lars Ehlers, and Albin Erlanson

American Economic Journal: Microeconomics, February 2021

This paper considers time exchanges via a common platform (e.g., markets for exchanging time units, positions at education institutions, and tuition waivers). There are several problems associated with such markets, e.g., imbalanced outcomes, coordination...

Wait-and-See or Step In? Dynamics of Interventions

By Dana Foarta and Takuo Sugaya

American Economic Journal: Microeconomics, February 2021

We study the optimal intervention policy to stop projects in a relational contract between a principal and a policymaker. The policymaker is privately informed about his ability and privately chooses how much effort to exert. Before a project is completed...

Is Housing Unaffordable? Why Isn't It More Affordable?

By John M. Quigley and Steven Raphael

Journal of Economic Perspectives, Winter 2004

This paper reviews trends in housing affordability in the U.S. over the past four decades. There is little evidence that owner-occupied housing has become less affordable. In contrast, there have been modest increases in the fraction of income that the me...

Information Design and Strategic Communication

By Daniel Krähmer

American Economic Review: Insights, March 2021

I study sender-receiver games where the receiver can disclose information to the sender by designing an information structure. I show that by secretly randomizing over information structures, the receiver can virtually attain her complete information payo...

Rank Uncertainty in Organizations

By Marina Halac, Elliot Lipnowski, and Daniel Rappoport

American Economic Review, March 2021

A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal's optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to addr...

Latin America's Growth and Equity Frustrations During Structural Reforms

[Symposium: Latin America's Growth Record]

By José Antonio Ocampo

Journal of Economic Perspectives, Spring 2004

This paper argues that Latin America's market-oriented reforms, together with increased monetary and fiscal discipline, were successful in bringing down inflation, inducing export growth and diversification, and attracting foreign direct investment. Nonet...

Prediction Markets

[Symposium: Event Markets]

By Justin Wolfers and Eric Zitzewitz

Journal of Economic Perspectives, Spring 2004

We analyze the extent to which simple markets can be used to aggregate disperse information into efficient forecasts of uncertain future events. Drawing together data from a range of prediction contexts, we show that market-generated forecasts are typical...

Behavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms

By Ernst Fehr, Michael Powell, and Tom Wilkening

American Economic Review, April 2021

We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms, which are based on off-equilibrium arbitration clauses that impose large fines for lying and ...