Economic Network

American Economic Journal: Microeconomics
Vol. 7, Issue 2
May 2015

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Front Matter (#1)
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Quality Disclosure Programs and Internal Organizational Practices: Evidence from Airline Flight Delays (#2)
Silke J. Forbes, Mara Lederman and Trevor Tombe
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Formal versus Informal Monitoring in Teams (#3)
Alex Gershkov and Eyal Winter
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Becoming the Neighbor Bidder: Endogenous Winner’s Curse in Dynamic Mechanisms (#4)
Alejandro Francetich
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Testing Ambiguity Models through the Measurement of Probabilities for Gains and Losses (#5)
Aurélien Baillon and Han Bleichrodt
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Loss Aversion and Consumption Choice: Theory and Experimental Evidence (#6)
Heiko Karle, Georg Kirchsteiger and Martin Peitz
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Innovation, Trade, and Finance (#7)
Peter Egger and Christian Keuschnigg
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Organizing to Adapt and Compete (#8)
Ricardo Alonso, Wouter Dessein and Niko Matouschek
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Affiliation and Entry in First-Price Auctions with Heterogeneous Bidders: An Analysis of Merger Effects (#9)
Tong Li and Bingyu Zhang
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Assessing Sale Strategies in Online Markets Using Matched Listings (#10)
Liran Einav, Theresa Kuchler, Jonathan Levin and Neel Sundaresan
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Grading Standards and Education Quality (#11)
Raphael Boleslavsky and Christopher Cotton
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State Censorship (#12)
Mehdi Shadmehr and Dan Bernhardt
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Preferences over Equality in the Presence of Costly Income Sorting (#13)
Gilat Levy and Ronny Razin
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(1) Front Matter
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(2) Quality Disclosure Programs and Internal Organizational Practices: Evidence from Airline Flight Delays
Silke J. Forbes, Mara Lederman and Trevor Tombe
Disclosure programs exist in many industries in which consumers are poorly informed about product quality. We study a disclosure program for airline on-time performance, which ranks airlines based on the fraction of their flights that arrive less than 15 minutes late. The program creates incentives for airlines to focus their efforts on flights close to this threshold. We find that firms in this industry are heterogeneous in how they respond to these incentives. Moreover, this heterogeneity correlates with internal firm characteristics. Our findings highlight the importance of interactions between incentives created by a disclosure program and firms‘ internal organizational practices. (JEL D22, L15, L25, L93)
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(3) Formal versus Informal Monitoring in Teams
Alex Gershkov and Eyal Winter
In this paper we analyze a principal’s optimal monitoring strategies in a team environment. In doing so we study the interaction between formal monitoring and informal (peer) monitoring. We show that if the technology satisfies complementarity, peer monitoring substitutes for the principal’s monitoring. However, if the technology satisfies substitution, the principal’s optimal monitoring is independent of the peer monitoring. We also show that if the technology satisfies complementarity, then the principal in the optimal contracts will monitor more closely than in the case of substitution. (JEL D23, D82, M54)
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(4) Becoming the Neighbor Bidder: Endogenous Winner’s Curse in Dynamic Mechanisms
Alejandro Francetich
This paper addresses the problem of sequentially allocating time sensitive goods, or one-period leases on a durable good, among agents who compete through time and learn about the common component of their valuation privately through experience. I show that efficiency is unattainable, and I identify simple variations of sequential second price or English auctions that implement the second best and the revenue-maximizing auctions. When the units are divisible, I identify the corresponding auctions that allow for double sourcing. (JEL D44, D82)
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(5) Testing Ambiguity Models through the Measurement of Probabilities for Gains and Losses
Aurélien Baillon and Han Bleichrodt
This paper reports on two experiments that test the descriptive validity of ambiguity models using a natural source of uncertainty (the evolution of stock indices) and both gains and losses. We observed violations of probabilistic sophistication, violations that imply a fourfold pattern of ambiguity attitudes: ambiguity aversion for likely gains and unlikely losses and ambiguity seeking for unlikely gains and likely losses. Our data are most consistent with prospect theory and, to a lesser extent, α-maxmin expected utility and Choquet expected utility. Models with uniform ambiguity attitudes are inconsistent with most of the observed behavioral patterns. (JEL D81, D83, G11, G12, G14)
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(6) Loss Aversion and Consumption Choice: Theory and Experimental Evidence
Heiko Karle, Georg Kirchsteiger and Martin Peitz
We analyze a consumer-choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. Participants differ in their reported taste for the two sandwiches and in their degree of loss aversion, which we measure separately. We find that more-loss-averse participants are more likely to opt for the cheaper sandwich, in line with theoretical predictions. The estimates in the model with rational expectations are slightly more significant than those with naïve expectations. (JEL D11, D12, D84, M31)
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(7) Innovation, Trade, and Finance
Peter Egger and Christian Keuschnigg
Heterogeneous firms invest in R&D and expansion investment. Venture capital specializes in R&D financing where problems are largest. Marginal firms get funded by venture capital, while firms with larger debt capacity obtain cheaper bank financing. In the latestage, cash-rich firms invest at an optimal scale, while cash-poor firms are restricted. A country’s financial and institutional development determines entry and expansion of firms and their comparative advantage in producing innovative goods. We illustrate how tariffs, R&D subsidies, institutional reform and venture capital improve access to capital, expand innovative industries, boost national welfare and may result in ambiguous international welfare spillovers. (JEL D21, F11, F13, G24, G32, O32)
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(8) Organizing to Adapt and Compete
Ricardo Alonso, Wouter Dessein and Niko Matouschek
We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level managers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization. (JEL D21, D23, F23, L22)
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(9) Affiliation and Entry in First-Price Auctions with Heterogeneous Bidders: An Analysis of Merger Effects
Tong Li and Bingyu Zhang
We study the effects of mergers in timber sale auctions in Oregon. We propose an entry and bidding model within the affiliated private value (APV) framework and with heterogeneous bidders, and establish existence of the entry equilibrium and existence and uniqueness of the bidding equilibrium when the joint distribution of private values belongs to the class of Archimedean copulas. We estimate the resulting structural model, and study merger effects through counterfactual analyses using the structural estimates. We evaluate how merger effects depend on affiliation, entry, and the auction mechanism and find that the seller may benefit from some mergers. (JEL C57, D44, G34, L11, L73)
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(10) Assessing Sale Strategies in Online Markets Using Matched Listings
Liran Einav, Theresa Kuchler, Jonathan Levin and Neel Sundaresan
We use data from eBay to identify hundreds of thousands of instances in which retailers posted otherwise identical product listings with targeted variation in pricing and auction design. We use these matched listings to measure the dispersion in auction prices for identical goods sold by the same seller, to estimate nonparametric auction demand curves, to analyze the effect of buy it now options, and to assess consumer sensitivity to shipping fees. The scale of the data allows us to show that the estimates are robust to narrower criteria for matching listings, thereby addressing plausible concerns about endogeneity and selection biases. (JEL D44, L11, L81)
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(11) Grading Standards and Education Quality
Raphael Boleslavsky and Christopher Cotton
We consider school competition in a Bayesian persuasion framework. Schools compete to place graduates by investing in education quality and by choosing grading policies. In equilibrium, schools strategically adopt grading policies that do not perfectly reveal graduate ability to evaluators. We compare outcomes when schools grade strategically to outcomes when evaluators perfectly observe graduate ability. With strategic grading, grades are less informative, and evaluators rely less on grades and more on a school’s quality when assessing graduates. Consequently, under strategic grading, schools have greater incentive to invest in quality, and this can improve evaluator welfare. (JEL D82, I21, I23)
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(12) State Censorship
Mehdi Shadmehr and Dan Bernhardt
We characterize a ruler’s decision of whether to censor media reports that convey information to citizens who decide whether to revolt. We find: (i) a ruler gains (his ex ante expected payoff increases) by committing to censoring slightly less than he does in equilibrium: his equilibrium calculations ignore that censoring less causes citizens to update more positively following no news; (ii) a ruler gains from higher censorship costs if and only if censorship costs exceed a critical threshold; (iii) a bad ruler prefers a very strong media to a very weak one, but a good ruler prefers the opposite. (JEL D72, D74, D83)
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(13) Preferences over Equality in the Presence of Costly Income Sorting
Gilat Levy and Ronny Razin
We analyze preferences over redistribution in societies with costly (positive) sorting according to income. We identify a new motivation for redistribution, where individuals support taxation in order to reduce the incentives to sort. We characterize a simple condition over income distributions which implies that even relatively rich voters�with income above the mean�will prefer full equality (and thus no sorting) to societies with costly sorting. We show that the condition is satisfied for relatively equal income distributions. We also relate the condition to several statistical properties which are satisfied by a large family of distribution functions. (JEL D31, D63, H23)
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