Knowledge that Transforms

This paper considers nonparametric identification of a two-stage entry and bidding game we call the Affiliated-Signal (AS) model. This model assumes that potential bidders have private values, observe signals of their values prior to entry, and then choose whether to undertake a costly entry process, but imposes only minimal structure on the relationship between signals and values. It thereby nests a wide range of entry processes, including in particular the Samuelson (1985) and Levin and Smith (1994) models as special cases. Working within the AS model, we map variation in factors affecting entry behavior (potential competition or entry costs) into identified bounds on model fundamentals. These bounds are constructive, collapse to point identification when available entry variation is continuous, and can readily be refined to produce the pointwise sharp identified set. We then extend our core results to accommodate nonseparable unobserved auction-level heterogeneity and potential endogeneity of entry shifters, thereby establishing a formal identification framework for structural analysis of auctions with selective entry.

This study documents two empirical facts using matched employer-employee data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm. Second, workers' wages rise with seniority (= a worker's tenure relative to the tenure of her colleagues). The identification problems for the wage return to tenure are shown not to apply to the return to seniority because seniority is not a deterministic function of time. Controlling for tenure, the probability of leaving the firm decreases with seniority. The increase in expected seniority with tenure explains a large part of the negative duration dependence of the hazard. Using a variety of estimation methods, we show that a 10% increase in seniority raises your wage by 0.1-0.2%, depending on the country and the method applied. Conditional on ten years of tenure, one standard deviation of seniority raises your wage by 0.5 to 1.6 percent. Forthcoming in Econometrica.

We model a boundedly rational agent who suffers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximizes a preference relation within the set of considered alternatives. We show that this random choice rule is the only one for which the impact of removing an alternative on the choice probability of any other alternative is asymmetric and menu independent. Both the preference relation and the attention parameters are identified uniquely by stochastic choice data.

This paper examines the efficient estimation of partially identified models defined by moment inequalities that are convex in the parameter of interest. In such a setting, the identified set is itself convex and hence fully characterized by its support function. We provide conditions under which, despite being an infinite dimensional parameter, the support function admits √n-consistent regular estimators. A semiparametric efficiency bound is then derived for its estimation, and it is shown that any regular estimator attaining it must also minimize a wide class of asymptotic loss functions. In addition, we show that the “plug-in” estimator is efficient, and devise a consistent bootstrap procedure for estimating its limiting distribution. The setting we examine is related to an incomplete linear model studied in Beresteanu and Molinari (2008) and Bontemps, Magnac, and Maurin (2012), which further enables us to establish the semiparametric efficiency of their proposed estimators for that problem.

We formulate a notion of stable outcomes in matching problems with one-sided asymmetric information. The key conceptual problem is to formulate a notion of a blocking pair that takes account of the inferences that the uninformed agent might make. We show that the set of stable outcomes is nonempty in incomplete-information environments, and is a superset of the set of complete-information stable outcomes. We then provide sufficient conditions for incomplete-information stable matchings to be efficient. Lastly, we define a notion of price-sustainable allocations and show that the set of incomplete-information stable matchings is a subset of the set of such allocations.

Parents gauge school quality in part by the level of student achievement and a school's racial and socioeconomic mix. The importance of school characteristics in the housing market can be seen in the jump in house prices at school district boundaries where peer characteristics change. The question of whether schools with more attractive peers are really better in a value-added sense remains open, however. This paper uses a fuzzy regression-discontinuity design to evaluate the causal effects of peer characteristics. Our design exploits admissions cutoffs at Boston and New York City's heavily over-subscribed exam schools. Successful applicants near admissions cutoffs for the least selective of these schools move from schools with scores near the bottom of the state SAT score distribution to schools with scores near the median. Successful applicants near admissions cutoffs for the most selective of these schools move from above-average schools to schools with students whose scores fall in the extreme upper tail. Exam school students can also expect to study with fewer nonwhite classmates than unsuccessful applicants. Our estimates suggest that the marked changes in peer characteristics at exam school admissions cutoffs have little causal effect on test scores or college quality.

Peer Reviewed

This paper examines the role of local attitudes toward gambling on corporate innovative activity. Using a county’s Catholics-to-Protestants ratio as a proxy for local gambling preferences, we find that firms located in gambling-prone areas tend to undertake riskier projects, spend more on innovation, and experience greater innovative output. We contrast the local gambling effect with chief executive officer (CEO) overconfidence, another behavioral effect reported to influence innovation. We find that local gambling preferences are a stronger determinant of innovative activity, with CEO overconfidence being more relevant to innovation in areas where gambling attitudes are strong.

Short-run subsidies for health products are common in poor countries. How do they affect long-run adoption? A common fear among development practitioners is that one-off subsidies may negatively affect long-run adoption through reference-dependence: People might anchor around the subsidized price and be unwilling to pay more for the product later. But for experience goods, one-off subsidies could also boost long-run adoption through learning. This paper uses data from a two-stage randomized pricing experiment in Kenya to estimate the relative importance of these effects for a new, improved antimalarial bed net. Reduced form estimates show that a one-time subsidy has a positive impact on willingness to pay a year later inherit. To separately identify the learning and anchoring effects, we estimate a parsimonious experience-good model. Estimation results show a large, positive learning effect but no anchoring. We black then discuss the types of products and the contexts inherit for which these results may apply.

In many real-life house allocation problems, rents are bounded from above by price ceilings imposed by a government or a local administration. This is known as rent control. Because some price equilibria may be disqualified given such restrictions, this paper proposes an alternative equilibrium concept, called rationing price equilibrium, tailored to capture the specific features of housing markets with rent control. An allocation rule that always selects a rationing price equilibrium is defined, and it is demonstrated to be constrained efficient and (group) non-manipulable for “almost all” preference profiles. In its bounding cases, the rule reduces to a number of well-known mechanisms from the matching literature. In this sense, the housing market with rent control investigated in this paper integrates several of the predominant matching models into a more general framework.