Matching Markets with Taxation of Transfers
[with Scott Duke Kominers] (2014).
We analyze the effects of taxation on outcomes in matching markets. Taxes can make inefficient outcomes stable by causing workers to prefer firms from which they receive high idiosyncratic match utility, but at which they are less productive. In general, efficiency can be non-monotonic in the tax. However, when agents on one side of the market refuse to match without a positive wage, increasing taxes always decreases efficiency. In addition to providing a continuous link between canonical models of matching with and without transfers, our model highlights a cost of taxation that does not appear to have been examined previously.
Price-Linked Subsidies and Health Insurance Markups
Mark Shepard] (2014).
Subsidies in the Affordable Care Act exchanges and other health insurance programs depend on prices set by insurers - as prices rise, so do subsidies. We show that these "price-linked" subsidies incentivize higher prices, with a magnitude that depends on to the growth in insurance demand when the price of the outside option (the mandate penalty) rises. To estimate this effect, we use two natural experiments in the Massachusetts subsidized insurance exchange. In both cases, we find that a $1 increase in the relative monthly mandate penalty increases plan demand by about 1%. Using this estimate, our model implies a sizable distortion of $48 per month (about 12%). This distortion has implications for the tradeoffs between price-linked and exogenous subsidies in many public insurance programs. We discuss an alternate policy that would eliminate the distortion while maintaining many of the benefits of price-linked subsidies.
How Facebook Can Deepen our Understanding of Behavior in Strategic Settings: Evidence
from a Million Rock-Paper-Scissors Games
John A. List,
Jeff Picel] (2014).
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.
The Effect of Taxes on Matching Market Equilibria: Evidence from Lab Experiments, (2014).
When is Equilibrium Agglomeration Efficient?
[with Scott Duke Kominers and
Stephen Morris] (2014).
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
Scott Duke Kominers], Forthcoming Marketing Letters.
We examine the profitability and implications of online discount vouchers, a relatively new marketing tool that offers consumers large discounts when they prepay for participating firmsí 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
E. Glen Weyl],
American Economics Journal: Microeconomics 5(4) (2013). (preprint)
Using 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
Scott Duke Kominers], Economics Letters 116(1) (2012). (preprint)
We show 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
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)
We show 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.