Incentives and Organizations in Markets

PhDBA279B                                                                                                    Spring 2012

C132 Haas                                                                                                       Tues 2-5

Instructor

John Morgan

            F665, Haas School

            642-2669

            morgan@haas.berkeley.edu

 

Requirements

Students are expected to carefully read the paper assigned for each class session, present two papers, and to write an original short research paper based on concepts learned in class. 50% of the course grade is based on class participation with the remaining 50% determined by the research paper.

Office Hours

By appointment

Course Materials

Updates, links to certain course materials, and other items will be posted on the course webpage.

The syllabus groups items by (approximately) weekly topic.

Structure of the Course

Each week, a student or group of students will present based on the readings. Following this, I will present an overview of the types of research to come out of this class of models as well as highlight any open questions. The goal of the class is to transition students from reading about research to producing it. Each of the units is designed to familiarize you with a set of models that are widely used in applied settings. You should think of these as "Lego blocks" for constructing research papers. They are basic models that you can build upon in your own original research.

 

0.         The two principles: Revelation and Revenue Equivalence (1/17/12)

Main ideas: The revelation principle forms the cornerstone for the theory of contracts and incentives in organizations. This topic reviews the revelation principle, the principal families of contract theory models, and the mechanism design paradigm.


 

Readings:         

Chapters 8.E and 13 of Microeconomic Theory by Andreu Mas-Colell, Michael Whinston, and Jerry Green. Oxford University Press, 1995.

 

Why Every Economist Should Learn Some Auction Theory
Advances in Economics and Econometrics: Invited Lectures to 8th World Congress of the Econometric Society, M. Dewatripont, L. Hansen and S. Turnovsky (eds.)
Cambridge University Press, 2003.

“...Plus Shipping and Handling: Revenue (Non)Equivalence in Field Experiments on eBay”
John Morgan and Tanjim Hossain, Advances in Economic Analysis & Policy, 2006, Vol. 6: No. 2, Article 3.

Class # 0 Lecture Notes

1.         Search (1/24/12)

Main idea: This topic surveys a variety of consumer search models. The two principles play an important role in generalizing some of the findings. These models are cornerstones for modeling price competition.

Reading:            

"Information, Search, and Price Dispersion,"
Michael R. Baye, John Morgan, and Patrick Scholten in Handbook of Economics and Information Systems (T. Hendershott, ed.), Elsevier Press, Amsterdam, 2006

 

“Price Dispersion in the Large and in the Small: Evidence from an Internet Price Comparison Site,”
Michael R. Baye, John Morgan, and Patrick Scholten, Journal of Industrial Economics, December 2004; 52(4): 463-96.

Moshe Barach Presents: Slides, Write-up

 

2.         Contests (1/31/12)

Main idea: This topic surveys the contest/all-pay auction literature. Again, the two principles prove extremely useful. This literature is the cornerstone for modeling political competition, patent and R&D races, and so on.

Reading:          

Strategy in Contests-An Introduction
Kai Konrad, WZB-Markets and Politics Working Paper No. SP II 2007-01
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=960458

 

Modeling Rent Seeking Contests
Shmuel Nitzan, European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May. http://www.sciencedirect.com/science/article/B6V97-46383PF-6/2/10b70895e020e1f895293f949e951dbd

 

The Generalized War of Attrition
Jeremy Bulow; Paul Klemperer
The American Economic Review, Vol. 89, No. 1. (Mar., 1999), pp. 175-189.
Stable URL: http://links.jstor.org/sici?sici=0002-8282%28199903%2989%3A1%3C175%3ATGWOA%3E2.0.CO%3B2-Z

 

Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars
Jennifer Brown
UC Berkeley Working Paper, 2007
http://are.berkeley.edu/~brown/JenBrown--SuperstarEffect%20Oct2007%20(job%20market%20paper).pdf

 

3.         Platform Competition (2/7/12)

Main idea: This topic highlights the emerging literarture on platform competition and two-sided markets. The revenue equivalence principle sees a little sue here as well. These are the leading modeling approaches for markets that are increasingly prominent.

Reading:          

Competing Auctions
 Ellison, Glenn, Fudenberg, Drew, and Möbius, Markus
Journal of the European Economic Association; Mar2004, Vol. 2 Issue 1, p30-66
http://www.mitpressjournals.org/doi/abs/10.1162/154247604323015472

 

Chicken & Egg: Competition among Intermediation Service Providers
Bernard Caillaud; Bruno Jullien
The RAND Journal of Economics, Vol. 34, No. 2. (Summer, 2003), pp. 309-328.
Stable URL: http://links.jstor.org/sici?sici=0741-6261%28200322%2934%3A2%3C309%3AC%26ECAI%3E2.0.CO%3B2-F

 

"How much is a Dollar Worth? Tipping versus Equilibrium Coexistence on Competing Online Auction Sites"
Jennifer Brown and John Morgan, Journal of Political Economy, 2009, Vol. 117, No. 4, pp. 668-700.

4.         Cheap talk (2/14/12)

Main idea: This topic covers information flows in organizations by examining an archetypal class of signaling games in business and public policy---corporate lobbying as cheap talk.

Reading:          

Special Interest Politics, Chapters 4 and 5
            Gene Grossman, Elhanan Helpman
            MIT Press: 2001

 

5.         Contracting under imperfect commitment (2/21/12)

Main idea: This topic ties together the two principles with the previous unit on cheap talk signaling. The role of delegation in organizations is stressed.

Reading:          

 

Authority and Communication in Organizations
Wouter Dessein
The Review of Economic Studies, Vol. 69, No. 4. (Oct., 2002), pp. 811-838.
Stable URL: http://links.jstor.org/sici?sici=0034-6527%28200210%2969%3A4%3C811%3AAACIO%3E2.0.CO%3B2-E

 

                        Contracting for information under imperfect commitment.
                        Vijay Krishna and John Morgan, RAND Journal of Economics, 2008, Winter, Vol. 39, No. 4, pp. 905-925.

                        http://faculty.haas.berkeley.edu/rjmorgan/Contracts.pdf

 

6.         Incomplete Contracts (2/28/12)

Main idea: To tie together the classic incomplete contracting works with mechanism design.

Readings:

Incomplete Contracts and Renegotiation
Oliver Hart; John Moore
Econometrica, Vol. 56, No. 4. (Jul., 1988), pp. 755-785.
Stable URL: http://links.jstor.org/sici?sici=0012-9682%28198807%2956%3A4%3C755%3AICAR%3E2.0.CO%3B2-I

           

Renegotiation Design with Unverifiable Information
Philippe Aghion; Mathias Dewatripont; Patrick Rey
Econometrica, Vol. 62, No. 2. (Mar., 1994), pp. 257-282.
Stable URL: http://links.jstor.org/sici?sici=0012-9682%28199403%2962%3A2%3C257%3ARDWUI%3E2.0.CO%3B2-G