Taxation in Matching Markets
[with Scott Duke Kominers] (2014).
What is the impact of taxation in matching markets? In matching
markets, because agents have heterogeneous preferences over
potential partners, welfare depends on which agents are matched
to each other in equilibrium. Taxes in matching markets can
generate inefficiency by changing who is matched to whom, even
if the number of workers at each firm is unaffected. For markets
in which workers refuse to match without a positive wage, higher
taxes decrease match efficiency. However, in marriage markets or
student--college matching markets, where transfers may flow in
either direction, raising taxes may increase match efficiency.
Simulations show that, in matching markets, calculations of
deadweight loss based on the change in taxable income can be
substantially biased in either direction.
Price-Linked Subsidies and Health Insurance Markups
Mark Shepard] (2016).
Subsidies in the Affordable Care Act and other health insurance programs depend on prices set by competing insurers – as prices rise, so do subsidies. We study the economics of these “price-linked” subsidies compared to “fixed” subsidies set independently of market prices. We show that price-linked subsidies weaken price competition, leading to higher markups and subsidy costs for the government. We argue that price-linked subsidies make sense only if (1) there is uncertainty about costs/prices, and (2) optimal subsidies increase as prices rise. We propose two reasons why optimal health insurance subsidies may rise with prices: doing so insures consumers against cost risk and indirectly links subsidies to market-wide shocks affecting the cost of “charity care” used by the uninsured. We evaluate these tradeoffs empirically using a structural model estimated with data from Massachusetts’ health insurance exchange. Relative to fixed subsidies, price-linking increase prices by up to 5%, and by 5-10% when we simulate markets with fewer insurers. For levels of cost uncertainty that are reasonable in a mature market, we find that the losses from higher prices outweigh the benefits of price-linking.
How Facebook Can Deepen our Understanding of Behavior in Strategic Settings: Evidence
from a Million Rock-Paper-Scissors Games
John A. List,
Jeff Picel] (2016).
We use a large dataset to explore whether, and to what extent,
existing theories of strategic play describe actual behavior in
the field. In a simultaneous move, zero-sum
game--rock-paper-scissors--with varying information, we find
that many people employ strategies consistent with Nash
equilibrium. We also find that players respond predictably to
incentives of the game: they use information effectively and are
more strategic when the expected payoffs to acting strategically
increase. Deviations from Nash are somewhat consistent with
non-equilibrium models: we find that some people employ
strategies resembling k1 of the level-k framework, and others
use strategies resembling quantal response.
How Does Technological Change Affect Quality-Adjusted Prices in Health Care? Evidence from Thousands of Innovations
[with Kris Hult and
Tomas Philipson] (2016).
Medical innovations have improved survival and treatment for
many diseases but at the same time raised spending on health
care. Whether the increased spending can be attributed to a rise
in quality is a central question for both positive and normative
analysis. This is an issue of the impact of new innovations on
quality-adjusted prices in health care. We study the impact of
technological change on quality-adjusted prices, with over six
thousand comparisons of innovations to incumbent technologies,
thereby allowing for a more systematic analysis than past
individual case studied focusing on a given disease class or
treatment category. Our data contains the price and quality of
new innovations and an incumbent technology treating the same
disease. Our main finding is that for 68% of innovations
quality-adjusted prices are higher than the incumbents. Despite
this finding, we argue prices over time may fall or rise
dependent on how fast prices decline for a given treatment over
time. We calibrate that price declines of 4% between one
innovation and the next would be sufficient to offset the
observed price difference between innovators and incumbents in a
majority of cases. Using standard duopoly models of price
competition for differentiated products, we analyze the
conditions under which quality-adjusted priced will be higher
for innovators than incumbents and assess them empirically. We
conclude by discussing the conditions present in health care
compared to other industries that may result in less rapid
declines, or even increases, in quality-adjusted prices over
Matching with Limited Choice Sets
[with Simon Weber ] (2016).
When is Equilibrium Agglomeration Efficient?
[with Scott Duke Kominers and
Stephen Morris] (2016).
Both firms and individuals cluster in order to benefit from colocation
-- but when deciding where to locate, they typically do not consider the
spillovers they generate for others. We characterize when spillovers
will lead to agglomeration that is socially optimal. Equilibrium
agglomeration is fully efficient only when spillovers are logarithmic;
more concave spillovers generate over-agglomeration, less concave
spillovers lead to under-agglomeration. Our results show that local
policy cannot achieve first-best clustering.
Cost-saving Technology for Public Good Provision: Strategic Investment Incentives, (2013).
When public goods, such as C02 abatement, are provided
non-cooperatively, the equilibrium provision is affected by the
provision costs of different agents. Agents anticipate these
equilibrium effects and take them into account when deciding how
much to investment in cost saving technology. I analyze the
strategic investment incentives agents face both when investment
is simultaneous and prior to public good provision and in the
absence and presence of technological spillovers. Agents have
incentives to underinvest relative to the private optimum, when
investment is ex-ante; these negative incentives are partially
mitigated by technology spillovers.
A Segregation Metric for a World with Peer Effects, (2013).
A major motivation for investigating segregation is the belief
that peer or neighborhood effects are important for outcomes.
Whether through transmission of information, norms or disease,
people are influenced by their friends and their friends'
friends. I propose a segregation metric that is aligned with
this motivation - it attempts to capture to what extent
individuals are disproportionately exposed to and therefore
influenced by members of a certain group. The influence can be
direct - what fraction of their friends belong to that group -
and indirect - to what extent are their friends influenced by
that group. The metric I propose says that one's exposure to,
for example, black people depends on both the fraction of one's
friends that are black and the exposure to black people of one's
friends: the "social blackness" of a person is a weighted
average of his friends' physical blackness and his friends'
social blackness. The weights depend on how much peer influence
decays with each person that it passes through. It may vary with
the type of information or influence.
To Groupon or Not to Groupon: The Profitability
of Deep Discounts [with Benjamin Edelman and Scott Duke Kominers], Forthcoming
Marketing Letters. 27(39) (2016) (preprint) ▸ Abstract
examine the profitability and implications of online discount
vouchers, a relatively new marketing tool that offers consumers
large discounts when they prepay for participating firms’ goods
and services. Within a model of repeat experience good purchase,
we examine two mechanisms by which a discount voucher service
can benefit affiliated firms: price discrimination and
advertising. For vouchers to provide successful price
discrimination, the valuations of consumers who have access to
vouchers must generally be lower than those of consumers who do
not have access to vouchers. Offering vouchers tends to be more
profitable for firms which are patient or relatively unknown,
and for firms with low marginal costs. Extensions to our model
accommodate the possibilities of multiple voucher purchases and
firm price re-optimization. Despite the potential benefits of
online discount vouchers to certain firms in certain
circumstances, our analysis reveals the narrow conditions in
which vouchers are likely to increase firm profits.
The First Order Approach to Merger Analysis
[with E. Glen Weyl], American
Economics Journal: Microeconomics 5(4) (2013). (preprint) ▸
information local to the premerger equilibrium, we derive
approximations of the expected changes in prices and welfare
generated by a merger. We extend the pricing pressure approach
of recent work to allow for non-Bertrand conduct, adjusting the
diversion ratio and incorporating the change in anticipated
accommodation. To convert pricing pressures into quantitative
estimates of price changes, we multiply them by the merger
pass-through matrix, which (under conditions we specify) is
approximated by the premerger rate at which cost increases are
passed through to prices. Weighting the price changes by
quantities gives the change in consumer surplus.
Discrete Choice Cannot Generate
Demand that is Additively Separable in Own Price [with Scott Duke Kominers], Economics
Letters 116(1) (2012). (preprint) ▸
that in a unit demand discrete choice framework with at least
three goods, demand cannot be additively separable in own price.
This result sharpens the analogous result of Jaffe and Weyl
(2010) in the case of linear demand and has implications for
testing of the discrete choice assumption, out-of-sample
prediction, and welfare analysis.
Price Theory and Merger Guidelines [with
E. Glen Weyl], CPI Antitrust
Chronicle 3(1) (2011). (preprint)
Linear Demand Systems are Inconsistent
with Discrete Choice
E. Glen Weyl],
B. E. Journal of Theoretical Economics 10(1) (Advances) Article
52 (2010). (preprint)
that with more than two options, a discrete choice model cannot
generate linear demand.
Benjamin G. Edelman, Sonia Jaffe, and Scott Duke Kominers. To Groupon or Not To Groupon: New Research on
Voucher Profitability. Harvard Business Review [Blog],
January 12, 2011.