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Results 2 resources
Behaviors and information often spread via person-to-person diffusion. This paper highlights how diffusion processes can facilitate coordination. I study contagion in a discrete network with Bayesian players. In addition to characterizing the extent and rate of adoption, we uncover a new effect: when large cascades are possible in equilibrium, exposure conveys information about a player's network position. This effect underscores a novel trade-off in the design of marketing campaigns, suggesting conditions under which word-of-mouth is relatively more effective. A generalization of the model to multi-type networks suggests a new approach to targeted seeding.
Bhaskar, D., McClellan, A., & Sadler, E. (2023). Regulation Design in Insurance Markets. American Economic Review, 113, 2546–2580.
Regulators often impose rules that constrain the behavior of market participants. We study the design of regulatory policy in an insurance market as a delegation problem. A regulator restricts the menus of contracts an informed firm is permitted to offer, the firm offers a permitted menu to each consumer, and consumers choose contracts from offered menus. If consumer types and firm signals are ordered in a way that reflects coverage need, the regulator can leverage the firm's information by forcing the firm to offer specified additional options on each menu. Several extensions illustrate the practical application of our results.