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July 2007
Article

A Two-Person Game of Information Transmission

By: Jerry R. Green and Nancy L. Stokey

We consider a statistical decision problem faced by a two player organization whose members may not agree on outcome evaluations and prior probabilities. One player is specialized in gathering information and transmitting it to the other, who takes the decision. This... View Details

Keywords: Game Theory; Cheap Talk; Communication Games; Communication; Information

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July 2006
Article

Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows

By: Ramon Casadesus-Masanell and Pankaj Ghemawat

This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by... View Details

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Article

Market Integration in Developed and Emerging Markets: Evidence from the CAPM

By: Robert Bruner, Wei Li, Mark Kritzman, Simon Myrgren and Sebastien Page

Beta, as measured by the Capital Asset Pricing Model (CAPM), is widely used for pricing stocks, determining the cost of capital, and gauging the extent to which markets are integrated. The CAPM model assumes that equilibrium conditions prevail. The choice of which... View Details

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Article

An Exploration of Optimal Stabilization Policy

By: N. Gregory Mankiw and Matthew C. Weinzierl

This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short-run and flexible in the long-run. Policy is evaluated by... View Details

Keywords: Fiscal Policy; Monetary Policy; Economic Models; Aggregate Demand; Demand and Consumers; Money; Mathematical Methods; Taxation; Spending; Policy; Welfare; Household; Economic Slowdown and Stagnation

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November 2004
Tutorial

Principles of Microeconomics for Strategists

By: Felix Oberholzer-Gee, Pai-Ling Yin and Elizabeth Raabe

Reviews microeconomic principles from a business strategy perspective, using the digital music industry as context. Contains three modules: demand, supply, and equilibrium. The demand module discusses the willingness to pay, market demand, price elasticity, and... View Details

Keywords: Business Strategy; Supply and Industry; Demand and Consumers; Microeconomics; Balance and Stability; Price; Cost; Revenue; Music Industry

September 2007
Article

(Noisy) Communication

By: Bharat Anand and Ron Shachar

Communication is central to many settings in marketing and economics. A focal attribute of communication is miscommunication. We model this key characteristic as a noise in the messages communicated, so that the sender of a message is uncertain about its perception by... View Details

Keywords: Communication Intention and Meaning; Interpersonal Communication; Cost vs Benefits; Marketing Communications; Performance Improvement; Mathematical Methods

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2023
Working Paper

Polarizing Corporations: Does Talent Flow to "Good" Firms?

By: Emanuele Colonnelli, Tim McQuade, Gabriel Ramos, Thomas Rauter and Olivia Xiong

We conduct a field experiment in partnership with the largest job platform in Brazil to study how environmental, social, and governance (ESG) practices of firms affect talent allocation. We find both an average job-seeker’s preference for ESG and a large degree of... View Details

Keywords: Corporate Social Responsibility and Impact; Job Search; Talent and Talent Management; Wages; Attitudes

2015
Working Paper

Understanding Conformity: An Experimental Investigation

By: B. Douglas Bernheim and Christine L Exley

Some theories of conformity hold that social equilibrium either standardizes inferences or promotes a shared understanding of conventions and norms among individuals with fixed heterogeneous preferences (belief mechanisms). Others depict tastes as fluid and hence... View Details

Keywords: Conformity; Norms; Image Motivation; Prosocial Behavior; Motivation and Incentives; Behavior; Standards

2009
Working Paper

Patent Policy, Patent Pools, and the Accumulation of Claims in Sequential Innovation

By: Gaston Llanes and Stefano Trento

We present a dynamic model where the accumulation of patents generates an increasing number of claims on sequential innovation. We study the equilibrium innovation activity under three regimes: patents, no-patents and patent pools. Patent pools increase the probability... View Details

Keywords: Innovation and Invention; Patents; Rights; Mathematical Methods

August 2004
Article

Capital Controls, Risk and Liberalization Cycles

By: Laura Alfaro and Fabio Kanczuk

The paper presents an overlapping-generations model where agents vote on whether to open or close the economy to international capital flows. Political decisions are shaped by the risk over capital and labor returns. In an open economy, the capitalists (old) completely... View Details

Keywords: Business Cycles; Development Economics; Voting; Risk and Uncertainty; Cash Flow; Saving; Investment; Economy; Wages

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2003
Working Paper

Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows

By: Ramon Casadesus-Masanell and Pankaj Ghemawat

This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by... View Details

Keywords: Business Model; Competition; Open Source Distribution; Balance and Stability; Applications and Software; Network Effects; Duopoly and Oligopoly

July 2019
Article

Optimal Capital Structure and Bankruptcy Choice: Dynamic Bargaining vs Liquidation

By: Samuel Antill and Steven R. Grenadier

We model a firm’s optimal capital structure decision in a framework in which it may later choose to enter either Chapter 11 reorganization or Chapter 7 liquidation. Creditors anticipate equityholders’ ex-post reorganization incentives and price them into the ex-ante... View Details

Keywords: Default; Dynamic Bargaining; Capital Structure; Insolvency and Bankruptcy; Mathematical Methods

July 2015
Article

A Behavioral Model of the Popularity and Regulation of Demandable Liabilities

By: Julio J. Rotemberg

Overoptimism regarding one's ability to arrive early in a queue is shown to rationalize deposit contracts in which people can withdraw their funds on demand even if consumption takes place later. Capitalized institutions serving overoptimistic depositors emerge in... View Details

Keywords: Consumer Behavior; Banks and Banking

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winter 1989
Article

Split-Awards Procurement and Innovation

By: James J. Anton and Dennis A. Yao

In many procurement settings, it is possible for a buyer to split a production award between suppliers. In this article, we develop a model of split-award procurement auctions in which the split choice is endogenous. We characterize the set of equilibrium bids and... View Details

Keywords: Innovation and Invention; Auctions; Bids and Bidding; Cost; Supply Chain; Investment; Balance and Stability

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January 2019
Article

Making Moves Matter: Experimental Evidence on Incentivizing Bureaucrats Through Performance-Based Postings

By: Adnan Q. Khan, Asim Ijaz Khwaja and Benjamin A. Olken

Bureaucracies often post staff to better or worse locations, ostensibly to provide incentives. Yet we know little about whether this works, with heterogeneity in preferences over postings impacting effectiveness. We propose a performance-ranked serial dictatorship... View Details

Keywords: Serial Dictatorship Mechanism; Employment; Geographic Location; Motivation and Incentives; Performance

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2018
Working Paper

Bundling Incentives in (Many-to-Many) Matching with Contracts

By: Jonathan Ma and Scott Duke Kominers

In many-to-many matching with contracts, the way in which contracts are specified can affect the set of stable equilibrium outcomes. Consequently, agents may be incentivized to modify the set of contracts upfront. We consider one simple way in which agents may do so:... View Details

Keywords: Matching With Contracts; Contract Design; Bundling-proofness; Substitutability; Mathematical Methods

Research Summary

Prudence in Bargaining

We investigate the outcome of Rubinstein’s (1982) alternating-offer bargaining game when noise is added to a player’s pay-off. We find that a risk-averse player typically increases his equilibrium receipts when his pay-off is made risky. This is because... View Details

Research Summary

Debt Maturity: Is Long-Term Debt Optimal? (with Fabio Kanczuk)

By: Laura Alfaro

We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity-term premium, tax smoothing, rolling over risk and the cost from defaulting. We use a dynamic equilibrium model with tax distortion,... View Details

December 2010
Article

Nominal versus Indexed Debt: A Quantitative Horse Race

By: Laura Alfaro and Fabio Kanczuk

The main arguments in favor of and against nominal and indexed debt are the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium... View Details

Keywords: Borrowing and Debt; Motivation and Incentives; Inflation and Deflation; System Shocks; Taxation; Risk and Uncertainty; Framework; Problems and Challenges; Interest Rates; Cost; Developing Countries and Economies; Service Operations

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Research Summary

The Chopstick Auction - An Experimental Study of the Exposure Problem in Auctions (with P. Guillen, L. Llorente, S. Onderstal, R. Sausgruber), 2002

Multi-unit auctions are sometimes plagued by the so-called exposure problem. In this paper, we analyze a simple game called the "chopstick auction" in which bidders are confronted with the exposure problem. We analyze the chopstick auction with incomplete information... View Details

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