Preferential Treatment in College Admissions and Student Incentives

This paper examines student incentives when faced with a college admissions policy which pursues student body diversity. The effect of a diversify-conscious admissions policy critically depends on the design of the policy. If the admissions policy fails to incentivize students from a disadvantaged socioeconomic background it may lead to a deterioration in the intergroup score gap while failing to improve student body diversity in equilibrium.Affirmative Action, College Admissions, All-Pay Auction, Contest, Tournament

Social Learning in Continuous Time - When are Informational Cascades More Likely to be Inefficient?

In an observational learning environment rational agents may mimic the actions of the predecessors even when their own signal suggests the opposite. In case early movers’ signals happen to be incorrect society may settle on a common inefficient action, resulting in an inefficient informational cascade. This paper models observational learning in continuous time with endogenous timing of moves. This permits the analysis of comparative statics results. The effect of an increase in signal quality on the likelihood of an inefficient cascade is shown to be nonmonotonic. If agents do not have strong priors, an increase in signal quality may lead to a higher probability of inefficient herding. The analysis also suggests that markets with quick response to investment decisions, such as financial markets, may be more prone to inefficient collapses.Comparative Statics, Herding, Herd Manipulation

Caps on Political Contributions, Monetary Penalties and Politician Preferences

With politician preferences over policy outcomes, the effect of a contribution cap with monetary penalties for exceeding the cap is starkly different from the case with an indifferent politician. In contrast to Kaplan and Wettstein (AER, 2006) and Gale and Che (AER, 2006), a cap is never neutral on the expected cost of contributions nor on the policy outcome. Furthermore more restrictive caps can lead to increased aggregate contributions. When the penalty for exceeding the cap is small enough that it is impossible to suppress all contributions, the influence of money on policy is minimized with a binding but non-zero cap and maximized with no cap.All-pay auction, campaign finance reform, soft money, explicit ceiling, BCRA.

Signal Accuracy and Informational Cascades

We extend the Bikhchandani, Hirshleifer and Welch (1992) informational cascade framework to allow for asymmetric signal accuracy. Simulations demonstrate that even small departures from symmetry may lead to non-monotonic effects of signal accuracy on the likelihood of an inefficient cascade.Learning, Herding, Signal Precision

Political Campaign Spending Limits

Political campaign spending ceilings are purported to limit the incumbent’s ability to exploit his fundraising advantage. If the challenger does not have superior campaign effectiveness, in contrast to conventional wisdom, we show that the incumbent always benefits from a limit as long as he has an initial voter disposition advantage, however small and regardless of the candidates’ relative fundraising ability. If the challenger has higher campaign spending effectiveness, the effect of limits may be non-monotonic. If the incumbent enjoys a mild initial voter disposition advantage, a moderate limit benefits the challenger. Further restricting the limit favours the incumbent. Stricter limits may lead to the unintended consequence of increased expected spending.Campaign Finance Legislation, Spending Cap, Expenditure Limit, Incumbency Advantage, Efficiency in Fundraising, Effectiveness of Campaign Spending, Initial Voter Disposition, All Pay Auction, Contest, Preferential Treatment Auction.

Politician Preferences and Caps on Political Lobbying

This paper extends Che and Gale (1998) by allowing the incumbent politician to have a preference for the policy position of one of the lobbyists. The effect of a contribution cap is analyzed where two lobbyists contest for a political prize. The cap always helps the lobbyist whose policy position is preferred by the politician no matter whether it is the high-valuation or the low-valuation contestant. In contrast to Che and Gale, once the cap is binding a more restrictive cap always reduces expected aggregate contributions. However, the politician might support the legislation of a barely binding cap. When politician policy preferences perfectly reflect the will of the people, a more restrictive cap is always welfare increasing. When lobbyist’s valuations completely internalize all social costs and benefits, a cap is welfare improving if and only if the politician favors the high-value policy. Even a barely binding cap can have significant welfare consequences.All-pay auction, campaign finance reform, explicit ceiling

Student Incentives and Diversity in College Admissions

This paper examines student incentives when faced with a college admissions policy which pursues student body diversity. The effect of a diversify-conscious admissions policy critically depends on the design of the policy. If the admissions policy fails to incentivize students from a disadvantaged socioeconomic background it may lead to a deterioration in the intergroup score gap while failing to improve student body diversity in equilibrium.Affirmative Action, College Admissions, All-Pay Auction, Contest, Tournament

Speculation and the Decision to Abandon a Fixed Exchange Rate Regime

This paper investigates the extent to which it is possible for speculative attacks to be predictable given information on economic fundamentals. A standard model of predictable attacks is extended to incorporate an optimizing monetary authority. It is shown that while incorporating a forward-looking monetary authority improves our understanding of many observed phenomena, it also implies that the branch of the literature that places emphasis on predictable movements in fundamentals cannot generate predictable speculative attacks. In addition, the model provides useful insights into the viability of temporary nominal anchor policies, and a theoretical foundation for an important empirical methodology.

Coordination in Markets with Consumption Externalities: Advertising and Product Quality

This paper studies advertising in markets with positive consumption externalities. In such markets, we show that firms may engage in advertising competition to coordinate consumer expectations on their own brand as long as they produce goods of similar quality. The firm with the lower quality product has a greater incentive to advertise. Hence in equilibrium, the lower quality product will often be more popular. We would like to thank James Albrecht and Curtis Taylor for their comments on a paper we presented at the North American Winter Meetings of the Econometric Society in Washington, D.C.. This paper is a direct result of the issues they raised. We would also like to acknowledge the assistance and advice of Neil Arnwine. All errors are of course our own

Preferential Treatment in College Admissions and Student Incentives

This paper examines student incentives when faced with a college admissions policy which pursues student body diversity. The effect of a diversify-conscious admissions policy critically depends on the design of the policy. If the admissions policy fails to incentivize students from a disadvantaged socioeconomic background it may lead to a deterioration in the intergroup score gap while failing to improve student body diversity in equilibrium