Seeking Harmony Amidst Diversity: Consensus Building with Network Externalities

A group of individuals, with a potential conflict of interest, face a choice among alternatives. There is a network externality such that the chosen alternative yields value only if sufficiently many individuals get on board. Their preferences for each alternative and the benefit derived from a successfully formed network are known only privately and might vary between the players who determine whether to make their choices early or late. We characterize the equilibrium timing of adoption as well as the efficient timing which maximizes the total expected payoff. We also show that the efficient timing of adoption can be implemented by a simple fee scheme. The analysis gives an insight into why consensus is often hard-won in some societies and suggests a potential role of social norms in improving the efficiency.

Asymmetric Information and Global Sourcing

This paper aims to study the choice of offshoring modes made by multinationals in the presence of asymmetric information. We focus on two types of asymmetric information, namely hidden characteristics and hidden action. The former creates adverse selection problem, and the later leads to moral hazard problem, both of which incur non-trivial costs to multinationals. We show that different offshoring modes, including greenfield foreign direct investment, joint venture, and outsourcing, can serve as a means to overcome or mitigate the problem of information asymmetry. We study the conditions under which one particular type of offshore modes dominates the others. The model generates implications consistent with the patterns of the prevalence of various offshoring models over time, and across industries and countries.Asymmetric Information, Global Sourcing, Foreign Direct Investment, Joint Venture, Outsourcing

Asymmetric Information and Global Sourcing

This paper aims to study the choice of offshoring modes made by multinationals in the presence of asymmetric information. We focus on two types of asymmetric information, namely hidden characteristics and hidden action. The former creates adverse selection problem, and the later leads to moral hazard problem, both of which incur non-trivial costs to multinationals. We show that different offshoring modes, including greenfield foreign direct investment, joint venture, and outsourcing, can serve as a means to overcome or mitigate the problem of information asymmetry. We study the conditions under which one particular type of offshore modes dominates the others. The model generates implications consistent with the patterns of the prevalence of various offshoring models over time, and across industries and countries.Asymmetric Information, Global Sourcing, Foreign Direct Investment, Joint Venture, Outsourcing

Smoothed Boundary Method for Solving Partial Differential Equations with General Boundary Conditions on Complex Boundaries

In this article, we describe an approach for solving partial differential equations with general boundary conditions imposed on arbitrarily shaped boundaries. A function that has a prescribed value on the domain in which a differential equation is valid and smoothly but rapidly varying values on the boundary where boundary conditions are imposed is used to modify the original differential equations. The mathematical derivations are straight forward, and generically applicable to a wide variety of partial differential equations. To demonstrate the general applicability of the approach, we provide four examples: (1) the diffusion equation with both Neumann and Dirichlet boundary conditions, (2) the diffusion equation with surface diffusion, (3) the mechanical equilibrium equation, and (4) the equation for phase transformation with additional boundaries. The solutions for a few of these cases are validated against corresponding analytical and semi-analytical solutions. The potential of the approach is demonstrated with five applications: surface-reaction diffusion kinetics with a complex geometry, Kirkendall-effect-induced deformation, thermal stress in a complex geometry, phase transformations affected by substrate surfaces, and a self-propelling droplet.Comment: A better smooth algorithm has been developed and tested, will soon replace Eq. 58 in page 16. We have also developed a level-set moving boundary SBM method, and it will replace the Navier-Stokes-Cahn-Hilliard type domain parameter tracking method in Section 5.

Status and Multiple Growth Regimes

In order to explain multiple growth regimes, one of the working hypotheses is based on initial conditions. Using a standard optimal growth with the status effect represented by wealth a la Friedman (1953), this paper obtains multiple growth regimes based on initial conditions without reliance on other assumptions such as nonlinearities of production or consumption functions and heterogeneous agents/savings behavior. With the status effect, the resulting equilibrium distribution is characterized by a group with a lower level of income and another group with a higher level of income. Globally, a sufficiently strong monetary policy may be an instrument in order for an economy in poverty traps to take off and become wealthy in the long run. Locally, our model sheds light on the relationship between money/inflation and capital in the long run that, given general cash-in-advance constraints on investment relative to consumption, is determined by the curvature of the utilities of wealth and consumption.one-sector growth model, wealth effect, CIA constraint, takeoff

Inflation and Growth: Impatience and a Qualitative Equivalence

This paper studies the role of an endogenous time preference on the relationship between inflation and growth in the long run in both the money-in-utility-function (MIUF) and transaction costs (TC) models. We establish a qualitative equivalence between the two models in a setup without a labor-leisure tradeoff. When the time preference is decreasing (or increasing) in consumption and real balances, both the MIUF and TC models are qualitatively equivalent in terms of predicting a negative (or positive) relationship between inflation and growth in a steady state. Both a decreasing and an increasing time preference in consumption are consistent with the arguments in the literature. While a decreasing time preference in real balances corroborates with empirical evidence, there is no evidence in support of an increasing time preference in real balances.endogenous time preferences, superneutrality, qualitative equivalence

A tenure-clock problem

We consider a "tenure-clock problem" in which a principal may set a deadline by which she needs to evaluate an agent's ability and decides whether to promote him or not. We embed this problem in a continuous-time model with both hidden action and hidden information, where the principal must induce the agent to exert effort to facilitate her learning process. The value of committing to a deadline is examined in this environment, and factors that make the deadline more profitable are identified. Our simple framework allows us to obtain a complete characterization of the equilibrium, both with and without commitment, and provides insight into why up-or-out contracts are prevalent in some industries while they are almost non-existent in others

Auctions versus negotiations: The role of price discrimination

Auctions are a popular and prevalent form of trading mechanism, despite the restriction that the seller cannot price-discriminate among potential buyers. To understand why this is the case, we consider an auction-like environment in which a seller with an indivisible object negotiates with two asymmetric buyers to determine who obtains the object and at what price. The trading process resembles the Dutch auction, except that the seller is allowed to offer different prices to different buyers. We show that when the seller can commit to a price path in advance, the optimal outcome can generally be implemented. When the seller lacks such commitment power, however, there instead exists an equilibrium in which the seller's expected payoff is driven down to the second-price auction level. Our analysis suggests that having the discretion to price discriminate is not necessarily beneficial for the seller, and even harmful under plausible conditions, which could explain the pervasive use of auctions in practice

Hierarchical experimentation

We consider a bandit problem faced by a team of two heterogeneous players. The team is hierarchical in that one (the principal) retains the exclusive right to terminate the project while the other (the agent) focuses strictly on implementing the project assigned to him. As a key departure, we assume that the principal may be privately informed about the project quality. In contrast to the existing literature, the belief in our model is generally non-monotonic: while each failure makes the agent less confident in the project, the uninformed principal drops out gradually over time, which partially restores his confidence. We derive explicit solutions for the agent's effort and the principal's exit decisions, which allow us to obtain a full characterization of the equilibrium. We also discuss the role of effort monitoring in this context and suggest a new rationale for delegation

Careerist experts and political incorrectness

While political correctness is a dominant norm in many public situations, we also observe behaviors that are apparently "politically incorrect", often from professionals and experts. This paper examines the flip side of political correctness as analyzed in Morris (2001) to shed some light on the elusive notion of political incorrectness and elucidate its equilibrium and welfare properties. We show that there are circumstances in which unbiased experts deliberately take a politically incorrect stance out of reputational concerns and identify key elements which give rise to this perverse reputational incentive. The results suggest that political incorrectness cannot necessarily be viewed as a sign of blunt honesty when informed experts have long-term reputational concerns. We also examine the welfare consequences of political incorrectness and argue that this form of information manipulation can be beneficial under some conditions