Working Papers 2016

Working Paper #1-16

Competition for the attention of a "problem solver"

Jacob Glazer  and Ariel Rubinstein

Abstract

We introduce a new type of agent whom we refer to as a "problem solver" (PS). The PS interacts with conventional players and wishes to respond optimally to their moves. The PS has only partial information about the moves of the other players. Unlike a regular player, the PS does not "put himself in the shoes" of other players and does not form beliefs about their moves. Rather, he treats the data as a logic puzzle: he calculates the set of possible configurations of moves that are consistent with the data he observes and responds to it. We insert such a problem solver into a simple model of competition for attention and analyze its equilibria. We demonstrate a novel feature of equilibrium in the model, whereby even though the PS always succeeds in his task, he may be uncertain that he will do so.

PAPER in PDF
 
forthcoming in Management Science

Working Paper #3-16  Incentive-Compatible Advertising on a Social NetworkKfir Eliaz and Ran Spiegler

Abstract

Abstract
A platform that operates a social network allows …rms to post display ads
to network members. Each member is interested in exactly one type of product.
The network structure is correlated with the pro…le of members’privately known
preferences over product types. The platform’s policy consists of a display rule
(which speci…es the stationary probability with which each product is shown to
each network member, as a function of the network structure) and an advertis-
ing fee (which the platform charges from …rms as a function of their reported
type). We provide conditions for the existence of an incentive-compatible policy
that maximizes and fully extracts …rms’surplus. This objective is easier to at-
tain when the network is more informative of members’preferences, consumers
are more attentive to advertising and their frequency of repeated purchases is
higher, and advertisers are less informed of the network structure. We provide
a more detailed characterization when the network is generated according to the
“stochastic block model”, thus linking our model to the “community detection”
problem in Network Science.

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Working Paper # 5-16 Aggregate Hiring and the Value of Jobs Along the Business Cycle

Eran Yashiv

Abstract

U.S. CPS gross flows data indicate that in recessions firms actually
increase their hiring rates from the pools of the unemployed and out
of the labor force. Why so? The paper provides an explanation by
studying the optimal recruiting behavior of the representative firm.
The model combines labor frictions, of the search and matching type,
with capital frictions, of the q-model type.
Optimal firm behavior is a function of the value of jobs, i.e., the
expected present value of the marginal worker to the firm. Job values
are estimated to be counter-cyclical in U.S. data, the underlying
reason being the dynamic behavior of the labor share of GDP.
The counter-cyclicality of hiring rates and job values, which may
appear counter-intuitive, is shown to be consistent with well-known
business cycle facts, such as pro-cyclical employment and pro-cyclical
vacancy and job-finding rates (as well as job to job flows). The analysis
emphasizes the difference between current labor productivity and
the wider, forward-looking concept of job values.
The paper explains the high volatility of firm recruiting behavior,
which has drawn an enormous amount of attention in the literature,
as well as the reduction over time in labor market fluidity in the U.S.,
using the same estimated model. Part of the explanation has to do
with job values and another part with the interaction of hiring and investment
costs, both determinants having been typically overlooked.
Key words: business cycles, aggregate hiring, job values, vacancies,
labor market frictions, capital market frictions, volatility, labor
market fluidity.
JEL codes: E24, E32

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Working Paper # 7-2016 Police Presence, Rapid Response Rates, and Crime Prevention
Sarit Weisburd

Abstract

This paper estimates the impact of police presence on crime using a unique database
that tracks the exact location of Dallas Police Department patrol cars throughout 2009.
To address the concern that o¢ cer location is often driven by crime, my instrument
exploits police responses to calls outside of their allocated coverage beat. This variable
provides a plausible shift in police presence within the abandoned beat that is driven by
the police goal of minimizing response times. I …nd that a 10 percent decrease in police
presence at that location results in a 1.2 to 2.9 percent increase in crime. These results
shed light on the black box of policing and crime and suggest that routine changes in
police patrol can signi…cantly impact criminal behavior. 

JEL Codes: D29, K42.

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Working paper # 9-2016 When to Learn What in Bilateral Trade

Kfir Eliaz  and Alexander Frug

Abstract

We propose and analyze a model of bilateral trade in which private infor-
mation about the quality of an asset can be acquired only gradually over time.
An asset is characterized by a vector of binary i.i.d. attributes. The value of
this asset to the seller and buyer is a weighted sum of the attributes, where the
buyer’s weights differ from the seller’s. Initially, the seller is uninformed about
the quality of the asset. In each period he decides whether to make a price o¤er
(based on his current information) or to inspect the asset (postponing the sales
o¤er). In the latter case, he chooses an attribute and (costlessly) learns its re-
alization. The buyer does not observe the realized attributes before purchasing
the good, however, he may or may not observe which inspections were performed
by the seller (we consider both cases). We study the seller’s strategic scheduling
of inspections in this environment and its e¤ect on the realized gains from trade
in equilibrium. We identify the necessary and sufficient conditions under which
the players can realize some gains from trade, and all gains from trade.

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Working paper #11-2016  A Simple Model of Competition Between Teams

Kfir Eliaz and Qinggong Wu

Abstract

We model a competition between two teams (that may di er in size) as
an all-pay auction with incomplete information. Individuals exert e ort
to increase the performance of one's own team via an additively separable
aggregation function. The team with a higher performance wins, and its
members enjoy the prize as a public good. The value of the prize is iden-
tical to members of the same team but is unknown to the other team. We
show that in any monotone equilibrium in which everyone actively partic-
ipates, the bigger team is more likely to win if the aggregation function is
concave, less likely if convex, or equally likely if linear. We also show that
if the aggregation function is concave or linear then the expected payo
for a player in the bigger team is higher than that in the smaller team.
Finally, we investigate how teams may form endogenously.

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Working paper #13-2016 Lexicographic Beliefs and Assumption

Eddie Dekel, Amanda Friedenberg and Marciano Siniscalchi

Abstract

Foundations for iterated admissibility (i.e., the iterated removal of weakly dominated strategies) need to confront a fundamental challenge. On the one hand, admissibility requires that a player consider every strategy of their opponents possible. On the other hand, reasoning that the opponents are rational requires ruling out certain strategies. Brandenburger, Friedenberg and Keisler’s (BFK, Econometrica, 2008) foundations for iterated admissibility address this challenge with two ingredients: lexicographic beliefs and the concept of “assumption.” However, BFK restrict attention to lexicographic beliefs whose supports are essentially disjoint. This restriction does not have a compelling behavioral rationale, or a clear intuitive interpretation. At the same time, it plays a crucial role in BFK’s foundations for iterated admissibility—specifically, in their analysis of assumption. We provide an alternate characterization of assumption, which applies to all lexicographic beliefs. We also characterize two variants of assumption, based on two extensions of ‘weak dominance’ to infinite state spaces. These notions of assumption coincide with BFK’s notion when the state space is finite and lexicographic beliefs have disjoint support; but they are different in more general settings. Leveraging these characterization results, we show that disjoint supports do not play a role in the foundations for iterated admissibility. 

JEL classification: C72; D81; D83

Keywords: Weak dominance, Weak dominance in infinite games, Iterated admissibility, Lexicographic probability systems, Assumption, Epistemic game theory

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Working paper #15-2016 Women’s Liberation as a Financial Innovation

Moshe Hazan, David Weiss and Hosny Zoabi

Abstract

Property rights are at the heart of capitalism’s ability to efficiently allocate
resources. Historically, married women have been one of the groups with
the greatest legal disabilities in this regard, to the benefit of their husbands.
Starting in the second half of the 19th century, common law countries, which
were entirely dominated by men, gave married women property rights. Before
this “women’s liberation,” married women were subject to the laws of
coverture. Coverture had detailed laws as to which spouse had ownership
and control over various aspects of property both before and after marriage.
These laws created a strong disincentive for women to invest in financial assets,
such as stocks, bonds, and even bank deposits. This paper develops
a general equilibrium model with endogenous determination of women’s
rights in which these laws affect portfolio choices, leading to inefficient allocations.
We show how technological advancement eventually leads to men
granting rights, and in turn how these rights affect development. Exploiting
cross-state variation in the timing of rights, we show that increases in
non-agricultural TFP predict the granting of rights. The granting of rights in
turn leads to a dynamic labor reallocation towards the non-agricultural sector,
representing further development. Finally, we show that women’s rights
are associated with lower interest rates and greater financial intermediation,
consistent with an increase in the supply of credit.

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