Science Advances, (forthcoming)

ABSTRACT

We report a large-scale randomized controlled trial assessing whether counter-stereotypical messaging and partisan cues can induce people to get COVID-19 vaccines. We created a 27-second video compilation of Donald Trump’s comments about the vaccine from Fox News interviews and presented the video to millions of U.S. YouTube users through a $100,000 advertising campaign in October 2021. Results indicate that the number of vaccines increased in the average treated county by 103 (with a one-tailed p-value of 0.097). Based on this average treatment effect and totaling across our 1,014 treated counties, the total estimated effect was 104,036 vaccines.

American Economic Journal: Macroeconomics, 15(2):129-60 (2023)

ABSTRACT

This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, daily transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) is approximately one, a higher estimate than estimates found in less comprehensive or well-measured data. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects. JEL classifications: D12, D91, E21, H31

American Economic Journal: Microeconomics, 15(2):599–626 (2023)

ABSTRACT

Certification of sellers by trusted third parties helps alleviate information asymmetries in markets, yet little is known about the impact of a certification's threshold on market outcomes. Exploiting a policy change on eBay, we study how a more selective certification threshold affects entry, exit, and incumbent behavior. We develop a stylized model that shows how changes in selectivity impact the distribution of quality and prices in markets. Using rich data from hundreds of online categories on eBay.com, we find support for the model's hypotheses. Our results help inform the design of certification selectivity in electronic and other markets. JEL classifications: D47, D82, L15, L86

The Journal of the European Economic Association, 20(1):116-149 (2022)

ABSTRACT

We study expectation-based reference point formation using data from ascending auctions in an online marketplace. Our model formalizes the hypothesis that a disappointment-averse bidder who spends more time in the lead prior to a sudden loss will suffer a higher degree of disappointment. We find that for every additional day in the lead, bidders who lose abruptly are 6 percentage points more likely to exit the marketplace. In contrast, for losing bidders whose expectations are informed by higher competing bids, there is no effect. Also consistent with our model of platform exit, more experienced bidders show less sensitivity to disappointment. JEL classifications: D03, D47, D83

The Journal of Political Economy, 129(1):243-285 (2021)

ABSTRACT

How much do a manager's interpersonal skills with subordinates, which we call people management skills, affect employee outcomes? Are managers rewarded for having such skills? Using personnel data from a large, high-tech firm, we show that survey-measured people management skills have a strong negative relation to employee turnover. A causal interpretation is reinforced by several research designs, including those exploiting new workers joining the firm and workers switching managers. However, people management skills do not consistently improve most observed non-attrition outcomes. Better people managers themselves receive higher subjective performance ratings, higher promotion rates, and larger salary increases. JEL classifications: M50, J24, J33, L23, D23

ABSTRACT

Online vendors often employ drip-pricing strategies, where mandatory fees are displayed at a later stage in the purchase process than base prices. We analyze a large-scale field experiment on StubHub.com and show that disclosing fees upfront reduces both the quantity and quality of purchases. The effect of salience on quality accounts for at least 28% of the overall revenue decline. Detailed click-stream data shows that price shrouding makes price comparisons difficult and results in consumers spending more than they would otherwise. We also find that sellers respond to increased price obfuscation by listing higher quality tickets. JEL classifications: C93, D12, D83, L11

Rand Journal of Economics, 51(4):965-988 (2020)

ABSTRACT

Seller reputation, generated by buyer feedback, is critical to fostering trust in online marketplaces. We argue that signaling theory predicts that only sellers of high-quality products will reward buyers for truthful feedback. Furthermore, this form of signaling is most valuable when a product lacks any feedback and when the seller is not well established. We confirm these hypotheses using Taobao's "reward-for-feedback" mechanism. High-quality products, especially without established feedback, are chosen for feedback rewards, which cause sales to increase by 36%. Marketplaces and consumers can therefore benefit from allowing sellers to buy feedback and signal their high-quality products in the process. JEL classifications: D47, D82, L15, L86

Journal of Public Economics, 189 (2020) 103917

ABSTRACT

Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in liquidity due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40% for affected employees, which was recovered within 2 weeks. Because the shutdown affected only the timing of payments, it provides a distinctive experiment allowing estimates of the response to a liquidity shock holding income constant. Spending dropped sharply, implying a naïve estimate of 58 cents less spending for every dollar of lost liquidity. This estimate overstates the consumption response. While many individuals had low liquid assets, they used multiple sources of short-term liquidity to smooth consumption. Sources of short-term liquidity include delaying recurring payments such as for mortgages and credit card balances. JEL classifications: D12, D91, E21, H31

The Quarterly Journal of Economics, 135(3):1319-1361 (2020)

ABSTRACT

We study patterns of behavior in bilateral bargaining situations using a rich new data set describing back-and-forth sequential bargaining occurring in over 25 million listings from eBay's Best Offer platform. We compare observed behav- ior to predictions from the large theoretical bargaining literature. One-third of bargaining interactions end in immediate agreement, as predicted by complete- information models. The majority of sequences play out differently, ending in dis- agreement or delayed agreement, which have been rationalized by incomplete information models. We find that stronger bargaining power and better outside options improve agents' outcomes. Robust empirical findings that existing models cannot rationalize include reciprocal (and gradual) concession behavior and delayed disagreement. Another robust pattern at odds with existing theory is that players exhibit a preference for making and accepting offers that split the difference between the two most recent offers. These observations suggest that behavioral norms, which are neither incorporated nor explained by existing the- ories, play an important role in the success of bargaining outcomes. JEL classifications: C78, D82, D83, M21.

The Journal of Political Economy, 127(4):1599-1628 (2019)

ABSTRACT

We outline an empirical framework to guide the analyses of signaling games and focus on three key features: sorting of senders, incentive compatibility of senders, and belief updating of receivers. We apply the framework to answer the following question: Can sellers credibly signal their private information to reduce frictions in negotiations? We argue that some sellers use round numbers to signal their willingness to cut prices in order to sell faster. Using millions of online bargaining interactions we show that items listed at multiples of $100 receive offers that are 8%-12% lower but are 15%-25% more likely to sell, demonstrating an incentive-compatibility trade-off. We then show evidence consistent with sorting and belief updating inherent to cheap-talk models. Patterns in real estate transactions suggest that round-number signaling plays a role in negotiations more generally. JEL classifications: C78, D82, D83, M21

In The Economics of Artificial Intelligence: An Agenda, Edited by Ajay Agrawal, Joshua Gans, and Avi Goldfarb. University of Chicago Press (2019)

ABSTRACT

In complex environments, it is challenging to learn enough about the underlying characteristics of transactions so as to design the best institutions to efficiently generate gains from trade. In recent years, Artificial Intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets. This paper offers some recent examples of how Artificial Intelligence helps market designers improve the operations of markets, and outlines directions in which it will continue to shape and influence market design. JEL classifications: D12, D91, E21, H31

Annual Review of Economics, Vol. 8, September 2016, pp. 321-340.

ABSTRACT

Online marketplaces have become ubiquitous as sites like eBay, Taobao, Uber and AirBnB are frequented by billions of users regularly. The success of these marketplaces is attributed not only to the ease in which buyers can find sellers, but also because they provide reputation and feedback systems that help facilitate trust. I begin by briefly describing the basic ideas of how reputation helps facilitate trust and trade, and offer an overview of how feedback and reputation systems work in online marketplaces. I then describe the literature that explores the effects of reputation and feedback systems on online marketplaces, and highlight some of the problems of bias in feedback and reputation systems as they appear today. I discuss ways to address these problems in order to improve the practical design of online marketplaces and suggest some directions for future research.

17th ACM Conference on Electronic Commerce, (EC 2016), June 2016, pp. 531-545.

ABSTRACT

A growing body of empirical literature finds that consumers are relatively limited in how much they search over product characteristics. We assemble a dataset of search and purchase behavior from eBay to quantify the returns, and thus implied costs, to consumer search on the internet. The extensive nature of the eBay data allows us to examine a rich and detailed set of questions related to search in a way that previous structural models cannot. In contrast to the literature, we find that consumers search a lot: on average 36 times per purchase over 3 (distinct) days, with most sessions ending in no purchase. We find that search costs are relatively low, in the region of 25 cents per search page. We pursue the analysis further by, i) examining how users refine their search, ii) how search behavior spans multiple search sessions, and iii) how the amount of search relates to finding lower prices. JEL classifications: D43, D83, L13.

in E. Baskar (Ed.) Handbook on the Economics of Retail and Distribution, Edward Elgar Publishing, 2016, pp. 455-475.

ABSTRACT

This chapter describes the growth and proliferation of online two-sided marketplaces starting with their emergence in the mid 1990s. I begin with a brief history of online marketplaces, followed by some of the key strategic and economic considerations of online marketplaces. Special emphasis is placed on price discovery and sales mechanisms, as well as on the importance of reputation and feedback mechanisms in the success of online marketplaces. I also discuss how online marketplaces have emerged as a laboratory to test a variety of theories about buyer and seller behavior in the field.

16th ACM Conference on Electronic Commerce, (EC 2015), June 2015, pp. xxx-yyy.

ABSTRACT

Reputation and feedback systems in online marketplaces are often biased, making it difficult to ascertain the quality of sellers. We use post-transaction, buyer-to-seller message traffic to detect signals of unsatisfactory transactions on eBay. We posit that a message sent after the item was paid for serves as a reliable indicator that the buyer may be unhappy with that purchase, particularly when the message included words associated with a negative experience. The fraction of a seller's message traffic that was negative predicts whether a buyer who transacts with this seller will stop purchasing on eBay, implying that platforms can use these messages as an additional signal of seller quality.

Proceedings of the 24th ACM International World Wide Web Conference (WWW24), May 2015, pp. 88-96.

ABSTRACT

A common complaint about online auctions for consumer goods is the presence of "snipers," who place bids in the final seconds of sequential ascending auctions with predetermined ending times. Roth and Ockenfels (2002) and Bajari and Hortacsu (2003) conjecture that snipers are best-responding to the existence of "incremental" bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond. As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer's propensity to participate in future auctions. We also consider an alternative explanation, rooted in the behavioral literature on the endowment effect. Bidders may gradually develop an attachment to the object while they are the high bidder, implying that the regret should increase with time spent in the lead. We show that the two narratives are econometrically separable, and estimate them using a carefully selected subset of auctions from eBay.com.

American Economic Review 2015, 105(2):886-905

ABSTRACT

Market outcomes depend on the quality of information available to the market's participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses information about quality in wholesale automobile auctions. We argue that buyers in this market are horizontally differentiated across cars that are vertically ranked by quality. This implies that information disclosure helps match heterogeneous buyers to cars of varying quality, causing both good and bad news to increase competition and revenues. Our empirical analysis confirms these hypotheses. These findings have implications for the design of other markets, including e-commerce, procurement auctions, and labor markets. JEL classications C93, D44, D82, L15 

Econometrica 2015, 83(1):155-174

ABSTRACT

Internet advertising has been the fastest growing advertising channel in recent years with paid search ads comprising the bulk of this revenue. We present results from a series of large-scale eld experiments done at eBay that were designed to measure the causal eectiveness of paid search ads. Because search clicks and purchase intent are correlated, we show that returns from paid search are a fraction of non-experimental estimates. As an extreme case, we show that brand-keyword ads have no measurable short-term benets. For non-brand keywords we nd that new and infrequent users are positively in uenced by ads but that more frequent users whose purchasing behavior is not in uenced by ads account for most of the advertising expenses, resulting in average returns that are negative. JEL classications C93, D44, D82, L15 

Science 2014, 345(6193):212-215

ABSTRACT

This paper presents a new data infrastructure for measuring economic activity. The infrastructure records transactions and account balances yielding measurements with scope and accuracy that have little precedent in economics. The data are drawn from a diverse population that overrepresents males and younger adults, but contains large numbers of underrepresented groups. The data infrastructure permits evaluation of a benchmark theory in economics that predicts that individuals should use a combination of cash management, saving, and borrowing to make the timing of income irrelevant for the timing of spending. As with previous studies and in contrast with the predictions of the theory, there is a response of spending to the arrival of anticipated income. The data also show, however, that this apparent excess sensitivity of spending results largely from the coincident timing of regular income and regular spending. The remaining excess sensitivity is concentrated among individuals with less liquidity.

American Economic Review 2014, 104(4):1288-1319

ABSTRACT

Procurement contracts are often renegotiated because of changes that are required after their execution. Using highway paving contracts we show that renegotiation imposes significant adaptation costs. Reduced form regressions suggest that bidders respond strategically to contractual incompleteness and that adaptation costs are an important determinant of their bids. A structural empirical model compares adaptation costs to bidder markups and shows that adaptation costs account for 8-14 percent of the winning bid. Markups from private information and market power, the focus of much of the auctions literature, are much smaller by comparison. Implications for government procurement are discussed. JEL classifications: D23, D82, H57, L14, L22, L74.

ABSTRACT

Public procurement regulations put constraints on the contracts and award mechanisms that public procurement agencies can use. These constraints are not present in the private sector, and recent studies suggest that the added flexibility in private sector procurement offers efficiency advantages. This paper offers a short progress report of these recent studies, and argues for the need to enhance the tools that are currently at the disposal of public sector procurement offices.

Journal of Comparative Economics 2010, 38(3):229-244 ,

ABSTRACT

Why, how, and under what conditions do moral beliefs persist despite institutional pressure for change? Why do the powerful often fail to promote the morality of their authority? This paper addresses these questions by presenting the role of crypto-morality in moral persistence. Crypto-morality is the secret adherence to one morality while practicing another in public. A simple overlapping generations model is developed to examine the conditions under which crypto-morality is practiced, decays and influences the direction of moral change. We demonstrate the empirical relevance of crypto-morality by discussing the moral foundations of political legitimacy in various historical episodes.

Journal of Industrial Economics, 2010, 58(3):507-541

ABSTRACT

Local governments can provide services with their own employees or by contracting with private or public sector providers. We develop a model of this “make-or-buy” choice that highlights the trade-off between productive efficiency and the costs of contract administration. We construct a dataset of service provision choices by U.S. cities and identify a range of service and city characteristics as significant determinants of contracting decisions. Our analysis suggests an important role for economic efficiency concerns, as well as politics, in contracting for government services. JEL codes: D23, D73, H11, L33.

Journal of Law, Economics and Organization, 2009, 25(2):372-399

ABSTRACT

Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we consider several possible determinants that may influence the choice of auctions versus negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of possible limitations to the use of auctions. Auctions may perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions may stifle communication between buyers and sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed. JEL classifications: D23, D82, H57, L14, L22, L74.

Foundations and Trends in Microeconomics, 2008, 4(4):273-351

ABSTRACT

Seller reputation is an important asset because buyers often chooses sellers on the basis of their reputation. This is particularly true when the quality of the good or service transacted are hard to measure and the parties cannot perfectly contract on the outcome of the transaction. As a consequence, the seller will be mindful of building and maintaining a good reputation through the information that buyers have about the seller, including previous transactions and the reports of other buyers. We introduce a unifying framework that embeds a number of different approaches to seller reputation, incorporating both hidden information and hidden action. We use this framework to stress that the way in which consumers learn affects both behavior and outcomes. In particular, the extent to which information is generated and socially aggregated determines the efficiency of markets. After reviewing these theoretical building blocks we discuss several applications and empirical concerns. We highlight that the environment in which a transaction is embedded can help determine whether the transaction will occur and how parties will behave. Institutions, ranging from the design of online markets to norms in a community, can be understood as ensuring that concerns for reputation lead to more efficient outcomes. Similarly, the desire to affect consumer beliefs regarding the firm’s incentives can help us understand strategic firm decisions that seem unrelated to the particular transactions they wish to promote. We conclude by considering slightly different models of reputation that lie beyond the scope our framework, briefly reviewing the somewhat sparse empirical literature and highlighting and suggesting future directions for research.

ABSTRACT

Few recent business trends have received as much attention as the practices of outsourcing and offshoring. Many cases of failed outsourcing contracts suggest that the strategic use of outsourcing may not be as beneficial as some believed, and hidden costs are often cited as a main source of failure. A business leader can successfully innovate the sourcing practices of his organization by employing strategic frameworks that will anticipate the hidden costs of outsourcing. This article offers such a framework, and argues for its wide use.

Quarterly Journal of Economics 2005, 120(1):132-172

ABSTRACT

When it is hard to assess product quality, firms will sub-optimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems. Our theory explains the historical prevalence of profit sharing in professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting, and the relative scarcity of profit sharing in other industries. It also sheds light on features of partnerships such as up-or-out promotion systems, and on recent trends in professional service industries.( JEL codes: D20, D82, J33, J44, J54, L22.

ABSTRACT

An adverse selection model of firm reputation is developed in which short-lived clients purchase services from firms operated by overlapping generations of agents. A firm's only asset is its name, or reputation, and trade of names is not observed by clients. As a result, names are traded in all equilibria regardless of the economy's horizon, and the general equilibrium analysis links the value of a name to the market for services. This link causes a non-monotonicity that precludes higher types from sorting themselves through the market for names and leads to "sensible" dynamics: reputations, and name prices, increase after a success and decrease after a failure. (JEL C70, D80, L14)

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ABSTRACT

Reputational career concern provide incentive for short lived agent to work hard, but it is well known that these incentive disappear as an agent reaches retirement. This paper investigates the effect of a market for firm reputation on the life-cycle incentives of firm owners to exert effort. A dynamic general equilibrium model with moral hazard and adverse selection generates two main results. First, incentives of young and old agents are quantitatively equal, implying that incentives are "ageless" with a market for reputations. Second, good reputations cannot act as effective sorting devices: in equilibrium, more able agent cannot outbid lesser ones in the market for good reputations. In addition, welfare analysis shows that social surplus can fall if clients observe trade in firm reputation. (JELC70, D82, L14, L15)

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ABSTRACT

65 years ago, Ronald Coase (1937) asked what determines whether production will be organized in a firm or through the market, later coined the "make-or-buy" decision. This question was put center stage by Oliver Williamson (1975, 1985) who further developed Transaction Costs Economics(TCE), arguing that incomplete contracts and specific relationships overshadowed by opportunism, asymmetric information and bounded rationality, will lead vertical processes to integrate. Benjamin Klein et al. (1978) enhanced TCE with the "hold-up" problem: in the face of incomplete contracts, specificity and opportunistic behavior, integration can help promote ex ante investment incentives. Sanford Grossman and Oliver Hart (1986) (followed by Hart and John Moore (1990)) developed the Property Rights Theory (PRT) of the firm (See Hart, 1995). PRT formally model the hold-up problem, offered a precise definition of integration via ownership and residual control rights, and analyzed the costs and benefits of integration in a unified manner. However, PRT narrowed the focus of the make-or-buy question on one type of transaction cost - the hold up problem. This paper focuses attention on a different kind of transaction cost: haggling and friction due to ex post changes and adaptations when contracts are incomplete. The level of a transaction's complexity, which is associated with contractual incompleteness, will be the shifting parameter that determines both incentive schemes and integration decisions. This focus is motivated by a careful examination of procurement decisions in industry, and has strong empirical content since the exogenous shifter (complexity) seems easier to measure than specificity.

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RAND Journal of Economics Autumn 2001, 32(3):287-307

ABSTRACT

Inspired by facts from the private-sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design and is faced with a tradeoff between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost-plus contracts are preferred to fixed-price contracts when a project is more complex. We briefly discuss how fixed-price or cost-plus contracts might be preferred to other incentive contracts. Finally, our model provides some microfoundations for ideas from Transaction Cost Economics.

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What's in a Name? Reputation as a Tradeable Asset

American Economic Review June 1999, 89(3):548-563

ABSTRACT

I develop a model in which a firm's only asset is its name, which summarizes its reputation, and study the economic forces that cause names to be valuable, tradeable assets. An adverse selection model in which shifts of ownership are not observable guarantees an active market for names with either finite or infinite horizons. No equilibrium exists in which only good types buy good names. The reputational dynamics that emerge from the model are more relistic than those in standard game-theoretic reputation models, and suggest that adverse selection plays a crutial role in understanding firm reputation.

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Journal of Economic Theory 1996, 69(2):270-289

ABSTRACT

This paper extends the applications of the theory of social situations. In particular, we investigate characteristics of optimistic stable standards of behavior (OSSBs) in repeated extensive form games. The OSSB is interesting for two reasons: First, it refines subgame perfect equilibrium. Second, it strongly relates to von Neumann-Morgenstern abstract stable sets. We characterize the nondiscriminating OSSB, and derive a sufficient condition for the existence of a unique nondiscriminating OSSB - a condition that is independent of the discount factor, ë. Our main result shows that the nondiscriminating OSSB selects Pareto optimal subgame perfect equilibrium paths in a class of repeated games.