18 research outputs found
Job Insecurity
We examine the relationship between job security and productivity in a fixed wage workerÂfirm relationship facing match quality uncertainty. The worker’s action affects both learning and current productivity. The firm, seeing worker behavior and outcomes, makes a firing decision. As bad news accrues, the firm cannot commit to retain the worker. This creates perverse incentives: the worker strat egically slows learning, harming productivity. We fully characterize the unique equilibrium in our continuous time game. Consistent with some evidence in organizational psychology, the relationship between job insecurity and productivity is U shaped: a worker is least productive when his job is moderately secure
Disclosure to a Psychological Audience
Abstract Should a well-intentioned advisor always tell the whole truth? In standard economics, the answer is ye
Buying from a Group
A buyer procures a good owned by a group of sellers whose heterogeneous cost of trade is private information. The buyer must either buy the whole good or nothing, and sellers share the transfer in proportion to their share of the good. We characterize the optimal mechanism: trade occurs if and only if the buyer’s benefit of trade exceeds a weighted average of sellers’ virtual costs. These weights are endogenous, with sellers who are ex ante less inclined to trade receiving higher weight. This mechanism always outperforms posted-price mechanisms. An extension characterizes the entire Pareto frontier
Predicting Choice from Information Costs
An agent acquires a costly flexible signal before making a decision. We
explore the degree to which knowledge of the agent's information costs helps
predict her behavior. We establish an impossibility result: learning costs
alone generate no testable restrictions on choice without also imposing
constraints on actions' state-dependent utilities. By contrast, for most
utility functions, knowing both the utility and information costs enables a
unique behavioral prediction. Finally, we show that for smooth costs, most
choices from a menu uniquely pin down the agent's decisions in all submenus
Goodwill in communication
An expert advises a decision maker over time. With both the quality of advice and the extent to which it is followed remaining private, the players have limited information with which to discipline each other. Even so, communication in and of itself facilitates cooperation, the relationship evolving based on the expert's advice. We show a formal equivalence between our setting and one of cheap talk with capped money burning, enabling an exact characterization (at fixed discounting) of the expert's attainable payoffs. While an ongoing relationship often helps, our characterization implies that, absent feedback, relational incentives can never restore commitment