Workshop Schedule for Spring 2013:

The workshop organizers for the Spring 2013 quarter are Lars Stole and Emir Kamenica.

The Workshop on Applied Theory meets on Mondays, 1:30-3:00 PM, in Harper Center, Room 3B.

April 1

Philippe Aghion, Harvard University

Paper Title: Optimal Capital versus Labor Taxation with Innovation-Led Growth

 

Abstract:

Chamley (1986) and Judd (1985) showed, analyzing optimal taxation in a standard neoclassical
growth model with capital accumulation and infinitely-lived agents, that taxing capital cannot be
optimal in the steady state (i.e. in the long run). In this paper, we introduce innovation-led growth
into the Chamley-Judd framework, using a Schumpeterian growth model where productivity-
enhancing innovations result from profit-motivated R&D investment, final good is produced with
capital and labor, and capital accumulates over time exactly as in Chamley and Judd. Our main
result is that, for a given required trend of public expenditure, a zero tax on capital becomes sub-
optimal, due to a market size effect. In particular, for sufficiently high level of public expenditure,
not taxing capital implies that labor must be taxed at a high rate. This in turn has a detrimental
effect on labor supply, and therefore the market size for innovation. Simultaneously, taxing capital
also reduces innovation incentives and, for some parameter values, it is optimal to subsidize it.
However, the former effect dominates when the required level of public expenditure and the income
elasticity of labor supply are both sufficiently high.

Here's a link to the paper

April 8

Eduardo Perez Richet, Ecole Polytechnic

Paper Title: Certifiable Pre-Play Communication: Full Disclosure

 

Abstract:

This article asks when communication with certiable information leads to complete
information sharing. We consider Bayesian games augmented by a pre-play communica-
tion phase in which announcements are made publicly. We characterize the augmented
games in which there exists a full disclosure sequential equilibrium with extremal beliefs
(i.e., any deviation is attributed to a single type of the deviator). This characterization
enables us to provide dierent sets of sucient conditions for full information disclosure
that encompass and extend all known results in the literature, and are easily applicable.
We use these conditions to obtain new insights in senders-receiver games, games with
strategic complementarities, and voting with deliberation.

Here's a link to the paper.

April 15

Robert Gibbons, MIT

Paper Title: What Do Managers Do? Exploring Persistent Performance Differences among Seemingly Similar Enterprises

 

Abstract:

This paper is a 52-page chapter in the Handbook of Organizational Economics.  The seminar will focus on the second half of the chapter.  Specifically, after very brief reviews of the evidence that (a) there are persistent performance differences among seemingly similar enterprises (see, e.g., Syverson (2011)) and (b) these performance differences are correlated with reported differences in management practices (see, e.g., Bloom and Van Reenen (2007)), the seminar will focus on three points.  First, many competitively significant management practices rely on relational contracts (i.e., informal agreements so rooted in the parties' relationship that they cannot be enforced by a court).  Second, theoretical models of relational contracts of the difficulties in building and changing relational contracts have started to appear.  Third, case studies suggest that building and changing relational contracts can be more difficult than theory has so far described.

Here's a link to the paper

April 22

Wouter Dessein

Paper Title: Rational Inattention and Organizational Focus

 

Abstract:

We examine the allocation of scarce attention in team production. Each team member
is in charge of a specialized task, which must be adapted to a privately observed
shock and coordinated with other tasks. Coordination requires that agents pay attention
to each other, but attention is in limited supply. We show that when attention is
scarce, organizational focus and leadership naturally arise as a response to organizational
trade-offs between coordination and adaptation. At the optimum, all attention
is evenly allocated to a select number of “leaders.” The organization then excels in
a small number of focal tasks at the expense of all others. Our results shed light on
the importance of leadership, strategy and “core competences,” as well as new trends
in organization design. We also derive implications for the optimal size or “scope” of
organizations. Surprisingly, improvements in communication technology may result in
smaller but more adaptive organizations.

Here's a link to the paper

April 29

Attila Ambrus, Duke University

Paper Title: Asynchronous-Move Games

 

Abstract:

This paper shows that in online auctions like eBay, if bidders are not continuously
participating in the auction but can only place bids at random times,
then many different equilibria arise besides truthful bidding, despite the option
to leave proxy bids. These equilibria can involve gradual bidding, periods of
inactivity, and waiting to start bidding towards the end of the auction - bidding
behaviors common on eBay. In a common value environment, we characterize
a class of equilibria that include the best and worst equilibria for the seller.
The revenue of the seller in the latter can be a small fraction of what could be
obtained at a sealed-bid second-price auction. For large number of bidders, we
show that the worst equilibrium has the feature that bidders are passive until
near the end of the auction, and then they start bidding incrementally.

Here's a link to the paper

May 6

Tom Palfrey, California Institute of Technology

Paper Title: Equilibrium Tax Rates and Income Redistribution:
A Laboratory Study

 

Abstract:

This paper reports results from a laboratory experiment that investigates the Meltzer-
Richard model of equilibrium tax rates, income redistribution, and the growth of
government.

 

Here's a link to the paper

May 13

Roger Myerson, University of Chicago, Department of Economics

Paper Title: Moral Hazard Credit Cycles With Risk-Averse Agents

 

Abstract:

We consider a simple overlapping-generations model with risk-averse financial agents
subject to moral hazard. Efficient contracts for such financial intermediaries involve backloaded
late-career rewards. Compared to the analogous model with risk-neutral agents, risk
aversion tends to reduce the growth of agents' responsibilities over their careers. This
moderation of career growth rates can reduce the amplitude of the widest credit cycles, but it also
can cause small deviations from steady state to amplify over time in rational-expectations
equilibria. We find equilibria in which fluctuations increase until the economy enters a
boom/bust cycle where no financial agents are hired in booms.

Here's a link to the paper

May 20

Marina Halac, Columbia University

Paper Title: Optimal Contracts for Experimentation

 

Abstract:

This paper studies long-term contracts for experimentation in a principal-agent setting
with adverse selection about the agent’s ability (pre-contractual hidden information), dynamic
moral hazard, and private learning about project quality. We show that profit maximization
by the principal generally leads to under-experimentation by an agent of low ability,
even though there would be no distortion in the absence of either adverse selection or moral
hazard. The structure of optimal contracts is shaped by a variety of considerations including
dynamic agency costs and the possibility of post-contractual hidden information about project
quality. We derive two explicit menus of contracts that can be used to implement the second-best
solution: “bonus contracts” and “clawback contracts”. Both feature history-contingent
dynamic streams of transfers.

Here's a link to the paper

June 3

Matt Elliot, California Institute of Technology

Paper Title: Financial Networks and Contagion

 

Abstract:

We model contagions and cascades of failures among organizations linked through
a network of financial interdependencies. We identify how the network propagates dis-
continuous changes in asset values triggered by failures (e.g., bankruptcies, defaults,
and other insolvencies) and use that to study the consequences of integration (each
organization becoming more dependent on its counterparties) and diversification (each
organization interacting with a larger number of counterparties). Integration and di-
versification have different, nonmonotonic effects on the extent of cascades. Initial
increases in diversification connect the network which permits cascades to propagate
further, but eventually, more diversification makes contagion between any pair of
organizations less likely as they become less dependent on each other. Integration also
faces tradeoffs: increased dependence on other organizations versus less sensitivity to
own investments. We explore some strategic implications: failing organizations can
only be saved by unfair trades, and moral hazard issues arise from incentives to seek
such bailouts. Finally, we illustrate some aspects of the model with data on European
debt cross-holdings.

Here's a link to the paper

June 10

Glen Weyl, University of Chicago, Deparment of Economics

Paper Title: Taxation and the Allocation of Talent

 

Abstract:

Taxation affects the allocation of talented individuals across industries by blunting material
incentives and thus relatively magnifying the non-pecuniary benefits of pursuing a "calling". If
higher-paying industries (e.g. finance and management) generate less positive net externalities
than lower-paying professions (e.g. public service and education) this may enhance efficiency.
We develop a theory of income taxation as implicit Pigouvian taxation of these externalities
and calibrate it using data on the distribution of income and talent across industries. Even
without any redistributive motive, tax rates are highly sensitive to the externalities assumed
within a spectrum many would consider reasonable: they range from extremely regressive to
highly progressive at high incomes. Our theory thus offers an alternative, pure efficiency rationale
for non-linear income taxation, challenging the connection between high long-run labor
supply elasticities and low optimal tax rates and motivating further study of the externalities
generated by professions.

 

Here's a link to the paper

 

 

Archives of Past Workshops:

Looking for information about previous workshops? We maintain a partial archive of schedules and papers beginning in the fall of 2005. Please note that in most cases the archived papers have been significantly revised or published.

Go to archives.