Steve Tadelis - Working Papers


The Response of Consumer Spending to Changes in Gasoline Prices

(with Michael Gelman, Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew D. Shapiro and Dan Silverman), September 2016

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

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Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace

(with Lingfang (Ivy) Li and Xiaolan Zhou), August 2016

ABSTRACT

Reputation is critical to foster trust in online marketplaces, yet leaving feedback is a public good that can be under-provided unless buyers are rewarded for it. Signaling theory implies that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao's \reward-for-feedback" mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process. JEL classifications: D47, D82, L15, L86 

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On the Empirical Content of Cheap-Talk Signaling: An Application to Bargaining

(with Matt Backus and Tom Blake), May 2016

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

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How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data

(with Michael Gelman, Shachar Kariv, Matthew D. Shapiro and Dan Silverman), October 2015

ABSTRACT

Using comprehensive account records, this paper examines how individuals respond to a temporary drop in income following the 2013 U.S. Federal Government shutdown. Affected employees saw their income decline by 40% on average, which was recovered within two weeks. Despite having no effect on lifetime earnings, spending dropped sharply, implying a na´ve estimate of the marginal propensity to spend of 0.57. This estimate overstates how consumption responded. To smooth consumption, individuals adjusted by delaying recurring payments such as mortgages and credit card balances. Those with the least liquidity struggled most to smooth spending and were left holding more debt months after the shutdown. JEL classifications: D12, D91, E21, H31

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The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment

(with Chris Nosko), January 2015

ABSTRACT

Reputation mechanisms used by platform markets suffer from two problems. First, buyers may draw conclusions about the quality of the platform from single transactions, causing a reputational externality. Second, reputation measures may be coarse or biased, preventing buyers from making proper inferences. We document these problems using eBay data and claim that platforms can benefit from identifying and promoting higher quality sellers. Using an unobservable measure of seller quality we demonstrate the benefits of our approach through a large-scale controlled experiment. Highlighting the importance of reputational externalities, we chart an agenda that aims to create more realistic models of platform markets. JEL classifications: D47, D82, L15, L21, L86 

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The Power of Shame and the Rationality of Trust

March 2011

ABSTRACT

A mounting number of studies suggest that individuals are not selfish, which perhaps explains the prevalence of trust among strangers. Models of players who care about their opponents' payoffs have been used to rationalize these facts. An alternative motive is that players care directly about how they are perceived by others. I propose and implement an experimental design that distinguishes perception motives from payoff motives. Participants not only exhibit concerns for perception, but they seem strategically rational by anticipating the change in behavior of their opponents. The approach can explain previously documented behaviors, both in the lab and in the field, and can shed light on some determinants of trust. JEL classifications C72, C91, D03, D82

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