Knowledge that Transforms

An informed seller designs a dynamic mechanism to sell an experience good. The seller has partial information about the product match, which affects the buyer's private consumption experience. We characterize equilibrium mechanisms of this dynamic informed principal problem. The belief gap between the informed seller and the uninformed buyer, coupled with the buyer's learning, gives rise to mechanisms that provide the skeptical buyer with limited access to the product and an option to upgrade if the buyer is swayed by a good experience. Depending on the seller's screening technology, this takes the form of free/discounted trials or tiered pricing, which are prevalent in digital markets. In contrast to static environments, having consumer data can reduce sellers' revenue in equilibrium, as they fine-tune the dynamic design with their data forecasting the buyer's learning process.

We study the macroeconomic implications of asymmetric information in capital markets.We build a quantitative capital-accumulation model in which capital is traded in illiquid markets, with sellers having more information about capital quality than buyers.Asymmetric information distorts the terms of trade for sellers of high-quality capital, who list higher prices and are willing to accept lower trading probabilities to signal their type.Led by the model's predictions, we measure the distortions from asymmetric information by studying the relationship between listed prices and trading probabilities in a unique dataset of individual capital units listed for trade.By combining the empirical measurement with the model, we show that information asymmetries can play a quantitatively large role during economic crises when the degree of asymmetric information deteriorates.

Recent years have seen tremendous advances in the theory and application of sequential experiments. While these experiments are not always designed with hypothesis testing in mind, researchers may still be interested in performing tests after the experiment is completed. The purpose of this paper is to aid in the development of optimal tests for sequential experiments by analyzing their asymptotic properties. Our key finding is that the asymptotic power function of any test can be matched by a test in a limit experiment where a Gaussian process is observed for each treatment, and inference is made for the drifts of these processes. This result has important implications, including a powerful sufficiency result: any candidate test only needs to rely on a fixed set of statistics, regardless of the type of sequential experiment. These statistics are the number of times each treatment has been sampled by the end of the experiment, along with final value of the score (for parametric models) or efficient influence function (for non-parametric models) process for each treatment. We then characterize asymptotically optimal tests under various restrictions such as unbiasedness, α-spending constraints etc. Finally, we apply our our results to three key classes of sequential experiments: costly sampling, group sequential trials, and bandit experiments, and show how optimal inference can be conducted in these scenarios.

Private signals model noisy information about an unknown state. Although these signals are called "private," they may still carry information about each other. Our paper introduces the concept of private private signals, which contain information about the state but not about other signals. To achieve privacy, signal quality may need to be sacrificed. We study the informativeness of private private signals and characterize those that are optimal in the sense that they cannot be made more informative without violating privacy. We discuss implications for privacy in recommendation systems, information design, causal inference, and mechanism design.

I derive a formula for the equilibrium distribution of markups in the search-theoretic model of imperfect competition of Butters (1977), Varian (1980), and Burdett andJudd (1983).The level of markups and the sign of the relationship between a seller's markup and its size depends on the extent of search frictions, as well as on other deep parameters.Markups are efficient.Markups are positive even though the varieties produced by sellers are perfect substitutes.Markups are heterogeneous even when all sellers operate the same production technology.Markups depend on size, even though the substitutability between a variety and the others does not depend on how much of that variety is consumed.Interpreting these markups through the lens of the monopolistic competition model of Dixit and Stiglitz (1977) would lead one to recover incorrect and unstable buyers' preferences.Interpreting these markups through the lens of the Dixit-Stiglitz model would also leads to incorrect policy recommendations.These results are a cautionary note on recent work in macroeconomics.

In this paper we provide new estimates of the impact of unions on nonunion wage setting. We allow the presence of unions to affect nonunion wages both through the typically discussed channel of nonunion firms emulating union wages in order to fend off the threat of unionisation and through a bargaining channel in which nonunion workers use the presence of union jobs as part of their outside option. We specify these channels in a search and bargaining model that includes union formation and, in our most complete model, the possibility of nonunion firm responses to the threat of unionisation. Our results indicate an important role played by union wage spillovers in lowering wages over the 1980-2010 period. We find de-unionisation can account for 38% of the decline in the mean hourly wage between 1980 and 2010, with two-thirds of that effect being due to spillovers. Both the traditional threat and bargaining channels are operational, with the bargaining channel being more important.

The U.S. shale boom has profoundly increased crude oil movements by both pipelines-the traditional mode of transportation-and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads' flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail's environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.

We state a sufficient condition under which choice data alone suffices to identify consumer preferences when choices are not fully informed. Suppose that: (i) the data generating process is a search model in which the attribute hidden to consumers is observed by the econometrician; (ii) if a consumer searches good j, she also searches goods which are better than j in terms of the non-hidden component of utility; and (iii) consumers choose the good that maximizes overall utility among searched goods. Canonical models will be biased: the value of the hidden attribute will be understated because consumers will be unresponsive to variation in the attribute for goods that they do not search. Under the conditions above and additional mild restrictions, an alternative method of recovering preferences using cross derivatives of choice probabilities succeeds regardless of the search protocol and is thus robust to whether consumers are informed. The approach nests several standard models, including full information. Our methods suggest natural tests for full information and can be used to forecast how consumers will respond to additional information. We verify in a lab experiment that our approach succeeds in recovering preferences when consumers engage in costly search.

This paper examines the impact of cultural diversity on innovation. Focusing on the United States from 1850 to 1940, we develop a novel surname-based measure of cultural diversity and combine this with patent data. Leveraging quasi-random variation in counties' surname compositions driven by historical immigration, we find that rising diversity increased both the quantity and quality of innovation within counties and for individual inventors. Examining mechanisms, we provide evidence suggesting that greater surname diversity accelerated innovation both by expanding the range of ideas, skills and perspectives available for recombination and by fostering the diverse social interactions that facilitate idea sharing.