Published Papers:
Working Papers: Simultaneous Search and Adverse Selection (with Piero Gottardi and Ronald Wolthoff), R&R Review of Economic Studies We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents' types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier. Online Appendix Sequential Trade and Coarse Contingencies (with Jeremy Kettering and Asen Kochov), Conditionally Accepted, Journal of Economic Theory We consider a dynamic pure exchange economy in which agents have a coarse perception of the future and, in particular, may be unaware of some risks. As awareness of these risks emerges, markets have to re-open to allow the agents to re-optimize and purchase insurance. An inefficiency may nonetheless arise as the cost of insurance is borne at once rather than spread over time. This "savings mistake" is not an issue in two special but important benchmark cases. In those, the ability to re-trade fully negates the ex-ante coarseness of the agents' perceptions. In addition, we discuss the possibility of unexpected default. This arises when agents borrow "too much" and once perceptions change, there is no equilibrium price at which they are able to refinance their debt. Sorting Versus Screening in Markets with Adverse Selection (with Piero Gottardi), Conditionally Accepted, Journal of Economic Theory We study the role of traders' meeting capacities in decentralized markets with adverse selection. Uninformed customers choose trading mechanisms in order to find a provider for a service. Providers are privately informed about their quality and aim to match with one of the customers. We consider a rich set of meeting technologies and characterize the properties of the equilibrium allocations for each of them. In equilibrium, different provider types can be separated either via sorting---they self-select into different submarkets---or screening within the trading mechanism, or a combination of the two. We show that, as the meeting technology improves, the equilibrium features more screening and less sorting. Interestingly, this reduces both the average quality of trade as well as the total level of trade in the economy. The trading losses are, however, compensated by savings in entry costs, so that welfare increases. Persuasion with Limited Data: A Case-Based Approach (with Shiri Alon, Gabi Gayer and Stefania Minardi) A strategic sender collects data with the goal of persuading a receiver to adopt a new action. The receiver assesses the profitability of adopting the action by following a classical statistics approach: she forms an estimate via the similarity-weighted empirical frequencies of outcomes in past cases, sharing some attributes with the problem at hand. The sender has control over the characteristics of the sampled cases and discloses the outcomes of his study truthfully. We characterize the sender's optimal sampling strategy as the outcome of a greedy algorithm. The sender provides more relevant data---consisting of observations sharing relatively more characteristics with the current problem---when the sampling capacity is low, when a large amount of initial public data is available, and when the estimated benefit of adoption according to this public data is low. Competition between senders curbs incentives for biasing the receiver's estimate and leads to more balanced datasets. Timing Decisions Under Model Uncertainty (with Christian Kellner) We study the effect of ambiguity on timing decisions. An agent faces a stopping problem with an uncertain stopping payoff and a stochastic time limit. The agent is unsure about the correct model quantifying the uncertainty and seeks to maximize her payoff guarantee over a set of plausible models. As time passes and the agent updates, the worst-case model used to evaluate a given strategy can change, creating a problem of dynamic inconsistency. We characterize the stopping behavior in this environment and show that, while the agent’s myopic incentives are fragile to small changes in the set of considered models, the best consistent plan from which no future self has incentives to deviate is robust. Limited Awareness and Financial Intermediation (with Nicola Pavoni) We study the market interaction between financial intermediaries and retail investors, who not only face uncertainty about the performance of the different investments but also have limited awareness of the available investment opportunities. Investors differ in their initial awareness and intermediaries compete for them via the investment options they offer. We show that, provided competition is not too intense, intermediaries propose investment opportunities at the extremes, e.g. very risky and very safe projects. Markets tend to be polarised, with some intermediaries revealing all and others revealing few investment options, and cross-subsidization from unaware investors to more sophisticated ones may obtain. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model: the menus offered to less knowledgable investors contain few products, most of them are nevertheless perceived to be at the extremes. Online Appendix |