Organizations & Markets

We study a dynamic learning model in which heterogeneously connected Bayesian players choose between two activities: learning from one's own experience (work) or learning from the experience of others (search). Players who work produce an inflow of information which is local and dispersed around the society. Players who search, instead, aggregate the information produced by others and facilitate its diffusion, thereby transforming what inherently is a private good into information that everyone can access more easily.

We introduce a tractable dynamic monitoring technology into a continuous-time moral hazard problem and study the optimal long-term contract between principal and agent. Monitoring adds value by allowing the principal to reduce the intensity of performance-based incentives, reducing the likelihood of costly termination. We present a novel characterization of optimal dynamic incentive provision when performance-based incentives may decline continuously to zero. Termination happens in equilibrium only if its costs are relatively low.

We develop a tractable general equilibrium framework of housing and mortgage markets with aggregate and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important role in shaping the form of an equilibrium contract. If borrowers' homeownership values are known, aggregate wages and house prices determine the optimal state-contingent mortgage payments, which efficiently reduces the costs of liquidity default.

This paper studies technology adoption in a cluster of soccer-ball producers in Sialkot, Pakistan. We invented a new cutting technology that reduces waste of the primary raw material and gave the technology to a random subset of producers. Despite the clear net benefits for nearly all firms, after 15 months take-up remained puzzlingly low.

In a single commodity setting with changing tastes, an individual's consumption plan can be obtained using naive or sophisticated choice. We provide two sufficient conditions for when (i) the solutions are unique and agree and (ii) the common plan is representable by a non-changing tastes utility. Because the solution is not revised over time, the plan and associated preferences are referred to as being effectively consistent. Afriat-style revealed preference tests are derived.

Assessments of how governments and international organiza­tions have dealt with global challenges often feature a familiar refrain: when it comes to funding, there was too little, too late. The costs of economic, social, and environmental problems compound over time, whether it's an Ebola outbreak that escalates to an epidemic, a flood of refugees that tests the strength of the EU, or the rise of social inequalities that reinforce poverty.

This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization.

Building on intuition from the dynamic asset pricing literature, we uncover unobserved risk aversion and fundamental uncertainty from the observed time series of the variance premium and the credit spread while controlling for the conditional variance, expectations about the macroeconomic outlook, and interest rates. We apply this methodology to monthly data from both Germany and the US. We find that the variance premium contains a substantial amount of information about risk aversion whereas the credit spread has a lot to say about uncertainty.

We propose a model where investors can choose to acquire costly information that allows them to identify good assets and purchase them in opaque over the counter (OTC) markets. Uninformed investors trade on an organized exchange and only have access to an asset pool that has been (partially) cream-skimmed by informed dealers. We show that when the quality composition of assets for sale is fixed there is always too much information acquisition and cream skimming by dealers in equilibrium.