|
PUBLICATIONS:
|
|
|
|
WORKING PAPERS:
|
|
ABSTRACTS:
|
Optimal Disclosure Policy when Firms Offer Implicit Contracts [pdf]
|
|
Abstract: Firms often motivate their workers through implicit incentive contracts, that are sustained through the threat of future retaliation. The sustenance of implicit contracts hinges on the worker's observability of the game's history. When a long-lived firm hires a sequence of short-lived workers, the coexistence of old and young generation of workers facilitates the observability of history. The old communicates the history to the young. Turnover adversely affects the observability of history, because the old worker may leave the firm before communicating the history. But if workers are better matched with their prospective employers, efficient turnover can also enhance profit by maximizing the matching gains available for up front extraction. Disclosure of the workers' productivity information to outside labor market affects turnover by mitigating adverse selection in turnover. Thus, the optimal disclosure policy trades off matching efficiency in turnover with the sustainability of implicit contracts. I formalize this trade-off, and characterize the optimal disclosure policy. There are three main results: (i) opaqueness can be strictly optimal only for the firms with moderate reputation concerns, (ii) in equilibrium, an opaque firm's profit may decrease with its reputation concern, and (iii) opaqueness is less likely to be the optimal policy when the matching gains are high. |
|
Optimal Job Design in the Presence of Implicit Incentives (with Luis Vasconcelos) [pdf]
|
|
Abstract: We characterize the optimal job design in a multitasking environment when the firm relies on implicit incentive contracts (i.e., bonus payments). Two natural forms of job design are compared: (i) individual accountability, where each agent is assigned to a particular job and assumes full responsibility for its outcome; and (ii) team accountability, where a group of agents share responsibility for a job and are jointly accountable for its outcome. The key trade-o¤ is that team accountability mitigates multitasking problem but may weaken the implicit contracts. Optimal job design follows a cut-o¤ rule: firms with sufficiently high reputation concerns opt for team accountability. Team accountability is more likely the more acute is the multitasking problem. However, the cut-o¤ rule need not hold if the firm combines implicit incentives with explicit pay-per-performance contracts. |
|
Information Disclosure in Multistage Tournament (with Maria Goltsman) [pdf]
|
|
Abstract: We consider a framework where two agents are participating in a tournament that has two stages, intermediate and final. The results of the intermediate stage are observed by the principal who organizes the tournament, but not by the agents. This paper attempts to answer the question of how much information about the intermediate results the principal should disclose back to the agents in order to maximize their aggregate effort. We find that, when choosing the disclosure policy, the principal faces a tradeo. between intermediate and final effort. The disclosure policy that resolves this trade-off in the optimal way includes two public announcements: one is made if both agents do poorly, and the other one otherwise. Consequently, both the policy of full disclosure and the policy of no disclosure are suboptimal. |
|
Disclosure or Secrecy? The Economics of Open Science (with Scott Stern) [pdf]
|
|
Abstract: Open Science is a dynamic system of knowledge production that depends on the disclosure of knowledge by researchers as an input into knowledge production by future researchers. To analyze the conditions supporting Open Science, we develop an overlapping generations model that focuses on the trade-off between disclosure and secrecy. While secrecy yields private returns that are independent of the actions of future generations, the benefits of disclosure depend in part on the use of disclosed knowledge by subsequent researchers. We show that Open Science and Secrecy are both potential equilibria and that the feasibility of Open Science depends on factors such as the costs of accessing knowledge from prior generations and the relative benefits to private exploitation under secrecy versus disclosure. In parameter regions where both Open Science and Secrecy can be supported, Open Science is associated with a higher level of social welfare. The analysis has policy implications for a number of areas, including public support for research training, appropriate design of formal intellectual property, and the role of scientific norms and institutions (such as an effective peer review process) in maintaining Open Science over the long run. |
|
Skill
Acquisition Under Implicit Contracts [pdf]
|
|
Abstract: Firm specific skill acquisition involves dual moral hazard problem. Existing literature suggests that explicit incentive through promotion offer can solve this problem under some conditions. But these solutions necessarily yield inefficiency. In a repeated game framework we consider explicit incentives along with implicit incentive through relational contract. This paper models the interplay between the explicit and implicit incentive for firm specific skill acquisition. We find that here explicit and implicit incentive are substitutes. The more the firm relies on implicit incentive the less is the explicitly contracted wage differential across jobs. Implicit contract increases the total surplus when coupled with the explicit contract. It may induce skill acquisition even when the promotion rule by itself can't create enough incentives. Moreover, for a sufficiently patient firm the first best is attained. Compensation differential across jobs vanishes completely at the first best. |
|
Social Learning in Slavery Adoption in the United States (with Maria Goltsman)
|
|
Abstract: We test whether social learning had any impact on slavery adoption in the United States. An agent adopts a new technology only if he learns it to be more profitable than the technology he is currently using. Following Conley and Udry (2002), we hypothesize that in the presence of social learning, probability of adoption increases with the arrival of information on unexpected gains from new technology and unexpected loss from old technology. We define slave-land ratio as a farming technology. Using data from 1804-1809 tax lists for Franklin County, North Carolina, we find that the information of unexpected gains derived from a technology, different from the one currently adopted by an agent, increases the probability that he will adopt this technology in the next period. This is consistent with the hypothesis of social learning. In contrast, information of unexpected loss associated with a technology currently used by an agent decreases the probability that the agent will change his technology in the subsequent period. A few possible explanations of this phenomenon are suggested. |
|
Test for Asymmetric Information in Insurance Markets: A Semi-Parametric Model
|
|
Abstract: This paper presents a semi-parametric test of asymmetric information in contractual relationship. The proposed testing method is designed in the light of a parametric model suggested in Chiappori & Salanie (2000). I test whether controlling for the factors that the insurer can observe, the population of agents is exposed to a common risk factor or there is evidence for ‘type heterogeneity.’ I consider two binary choice equations: one for the choice of insurance coverage (full coverage or legal minimum) and the other for the record of filed claims. These equations are semi-parametric; I do not assume any specific distributions for the error terms. The correlation between the estimated error terms (also referred to as ‘generalized’ residuals) is asymptotically normal and serves as the test statistic. This test statistic is sensitive to unobserved heterogeneity in exposure to risk and takes a known value, namely zero, otherwise. Some Monte Carlo simulation results are presented. |