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The history of transition in Russia is analyzed in this paper. Issues ranging from managerial incentives to the changing structure of trade are considered in an attempt to present a comprehensive sketch of the state of the Russian... more
The history of transition in Russia is analyzed in this paper. Issues ranging from managerial incentives to the changing structure of trade are considered in an attempt to present a comprehensive sketch of the state of the Russian economy. The transition in Russia can be compared with demobilization. Demobilization process is often accompanied by large output declines. For instance, during the post World War II demobilization the US GNP declined by 25%. In light of this, the great contraction of the Russian economy does not appear to be a major outlier when the militaristic nature of the Soviet economy is taken into account. We point out a previously unexplored factor detrimental for incentives of Russian managers, which we call soft taxation. Soft taxation is a free market analog of soft-budget constraints. Due to the inefficiency of institutions, managers have an incentive to take costly actions in order to signal that the profitability of the firm is low. Also, we suggest a few indices of aggregate economic shocks including one based on the structure of foreign trade. The values of the indices of aggregate shocks for the Russian economy are compared to those of several other countries. The data seem to indicate that the changes in the structure of Russian trade have been far greater than in non-transition economies. However, other indices of economic adjustment do not paint a picture of a rapid transition.
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The process of match formation in matching markets can be divided into three parts: information sharing, investments in information acquisition, and the formation of matches based on available information. The last stage where agents are... more
The process of match formation in matching markets can be divided into three parts: information sharing, investments in information acquisition, and the formation of matches based on available information. The last stage where agents are assumed to know their preferences has been studied in seminal work of Gale and Shapley (1962), and a model of second stage costly information acquisition is introduced and studied in Lee and Schwarz (2007). This paper focuses on the first stage – information sharing – and examines mechanisms which allow workers to signal their preferences over matching partners prior to the assignment of interviews. The incentives of firms and workers vis-a-vis information revelation are partially aligned – all other things being equal, a worker prefers to have an interview with a firm that is high in his preference ranking and a firm prefers to invest in interviewing a worker who ranks a firm highly because such worker is more likely to accept a job if offered. How...
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In this paper, we consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and... more
In this paper, we consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers. This in turn induces the seller to bargain at length with buyers, even if doing so is costly. When the seller’s cost of soliciting another round of offers is either very large or very small, the seller credibly commits to an auction and experiences negligible bargaining costs. Otherwise, there may be several rounds of increasing offers and significant seller losses. In these situations, an intermediary with a sufficiently valuable reputation and/or weak marginal incentives regarding price can create value by credibly committing to help sell the object without delay.
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We study the dynamics of multiround position auctions, considering both the case of exogenous click-through rates and the case in which click-through rates are determined by an endogenous consumer search process. In both contexts, we... more
We study the dynamics of multiround position auctions, considering both the case of exogenous click-through rates and the case in which click-through rates are determined by an endogenous consumer search process. In both contexts, we demonstrate that dynamic position auctions converge to their associated static, envy-free equilibria. Furthermore, convergence is efficient, and the entry of low-quality advertisers does not slow convergence. Because our approach predominantly relies on assumptions common in the sponsored search literature, our results suggest that dynamic position auctions converge more generally.
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We consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers.... more
We consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers. This in turn induces the seller to bargain at length with buyers, even if doing so is costly. When the seller's cost of soliciting another round of offers is either very large or very small, the seller credibly commits to an auction and experiences negligible bargaining costs. Otherwise, there may be several rounds of increasing offers and significant seller losses. In these situations, an intermediary with a sufficiently valuable reputation and/or weak marginal incentives regarding price can create value by credibly committing to help sell the object without delay. (JEL C78, D44)
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This paper analyzes some of the perverse incentives that may arise under the current Medicare prescription drug benefit design. In particular, risk adjustment for a standalone prescription drug benefit creates perverse incentives for... more
This paper analyzes some of the perverse incentives that may arise under the current Medicare prescription drug benefit design. In particular, risk adjustment for a standalone prescription drug benefit creates perverse incentives for prescription drug plans when making coverage decisions and/or for pharmaceutical companies when setting prices. This problem is new in that it does not arise with risk adjustment for other types of health care coverage. For this and other reasons, Medicare's drug benefit requires especially close regulatory oversight, now and in the future. We also consider a relatively minor change in financing the benefit that could lead to significant changes in how the benefit functions. In particular, if all plans were required to charge the same premium, there would be less diversity in quality, but also less need to regulate formulary composition, less budgetary uncertainty, and less upward pressure on drug prices.
Research Interests: Business, Actuarial Science, Health Care, Medicine, Drug, and 15 moreInformation, Humans, Developing Country, Inquiry, Incentive, Medicare, Prescription drugs, Economic Competition, Drug Costs, Insurance Coverage, Costs and Cost Analysis, Prescription Drug, Formulary, Drug prescriptions, and Medical prescription
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This paper explores information disclosure in matching markets. A school may suppress some information about students in order to improve their average job placement. We consider a setting with many schools, students, and jobs, and show... more
This paper explores information disclosure in matching markets. A school may suppress some information about students in order to improve their average job placement. We consider a setting with many schools, students, and jobs, and show that if early contracting is impossible, the same, “balanced” amount of information is disclosed in essentially all equilibria. When early contracting is allowed and information arrives gradually, if schools disclose the balanced amount of information, students and employers will not find it profitable to contract early. If they disclose more, some students and employers will prefer to sign contracts before all information is revealed. (JEL C78, D82, D83)
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Summer Institute and Stanford GSB for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for... more
Summer Institute and Stanford GSB for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
We would like to thank Jeremy Bulow, Robin Lee, Preston McAfee, Michael Ostrovsky, Andy Skrzypacz, Joel Sobel and seminar participants at Chicago GSB, Columbia Department of Economics, NBER Summer Institute and Stanford GSB for helpful... more
We would like to thank Jeremy Bulow, Robin Lee, Preston McAfee, Michael Ostrovsky, Andy Skrzypacz, Joel Sobel and seminar participants at Chicago GSB, Columbia Department of Economics, NBER Summer Institute and Stanford GSB for helpful comments. The views ...
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In many negotiations, rules are soft in the sense that the seller and/or buyers may break them at some cost. When buyers have private values, we show that the cost of such opportunistic behavior (whether by the buyers or the seller) is... more
In many negotiations, rules are soft in the sense that the seller and/or buyers may break them at some cost. When buyers have private values, we show that the cost of such opportunistic behavior (whether by the buyers or the seller) is borne entirely by the seller in equilibrium, in the ...