Unmediated Communication in Games with Complete and Incomplete Information

In this paper we study the effects of adding unmediated communication to static, finite games of complete and incomplete information. We characterize S^{U}(G), the set of outcomes of a game G, that are induced by sequential equilibria of cheap talk extensions. A cheap talk extension of G is an extensive-form game in which players communicate before playing G. A reliable mediator is not available and players exchange private or public messages that do not affect directly their payoffs. We first show that if G is a game of complete information with five or more players and rational parameters, then S^{U}(G) coincides with the set of correlated equilibria of G. Next, we demonstrate that if G is a game of incomplete information with at least five players, rational parameters and full support (i.e. all profiles of types have positive probability), then S^{U}(G) is equal to the set of communication equilibria of G.Communication, Correlated equilibrium, Communication equilibrium, Sequential equilibrium, Mechanism design, Revelation principle

Costly Expertise

In many environments, expertise is costly. Costs can manifest themselves in numerous ways, ranging from the time that is required for a financial consultant to study companies’ performances, to the resources necessary for academic referees to produce knowledgeable reports, to the attention and thought needed for jurors to construct informed convictions. The current paper asks a natural question germane to such contexts: how should a committee of potential experts be designed, in terms of the number of participants, their a priori preferences, as well as the rules by which their recommendations are aggregated into a collective policy? We consider a model in which a principal makes a binary decision (e.g., continue or abort a project), the value of which depends on the realization of some underlying state that is unknown (say, whether the project is great or inferior). The principal can hire a committee of experts from a pool varying in their preferences. All experts have access to an information technology providing (public) information regarding the underlying state. Information comes at a private cost to the experts, who care both about the final decision the principal takes, and about the amount they had personally spent on information acquisition

A Principal-Agent Model of Sequential Testing

This paper analyzes the optimal provision of incentives in a sequential testing context. In every period the agent can acquire costly information that is relevant to the principal's decision. Neither the agent's effort nor the realizations of his signals are observable. First, we assume that the principal and the agent are symmetrically informed at the time of contracting. We construct the optimal mechanism and show that the agent is indifferent in every period between performing the test and sending an uninformative message which continues the relationship. Furthermore, in the first period the agent is indifferent between carrying out his task and sending an uninformative message which ends the relationship immediately. We then characterize the optimal mechanisms when the agent has superior information at the outset of the relationship. The principal prefers to offer different contracts if and only if the agent types are sufficiently diverse. Finally, all agent types benefit from their initial private information.Dynamic Mechanism Design, Information Acquisition, Sequential Testing.

Information Acquisition in Committees

The goal of this paper is to illustrate the significance of information acquisition in mechanism design. We provide a stark example of a mechanism design problem in a collective choice environment with information acquisition. We concentrate on committees that are comprised of agents sharing a common goal and having a joint task. Members of the committee decide whether to acquire costly information or not at the outset and are then asked to report their private information. The designer can choose the size of the committee, as well as the procedure by which it selects the collective choice, i.e., the correspondence between agents’ reports and distributions over collective choices. We show that the ex-ante optimal device may be ex-post inefficient, i.e., lead to suboptimal aggregation of information from a statistical point of view. For particular classes of parameters, we describe the full structure of the optimal mechanisms.Collective choice, Mechanism design, Information acquisition

Mortgage foreclosure prevention efforts

In 2007, the United States began to experience its worst housing and foreclosure crisis since the Great Depression. In response, policymakers have been devising foreclosure prevention plans, most of which focus on loan modifications. ; This article begins with an overview of the different loss mitigation tools that mortgage lenders and policymakers have used in the past to combat foreclosure and then briefly summarizes the main U.S. programs of the past few years. By most analyses, the authors note, these recent programs have had poor results in terms of significantly reducing foreclosures, and borrowers who have received modifications are redefaulting at extremely high rates. ; The authors then review both the theoretical academic literature of the 1990s and early 2000s and the more recent empirical literature generated by the recent foreclosure crisis. Many of the recent studies have focused on loan modification as a loss mitigation tool. ; Given the limited success of government loan modification programs, the authors believe that policymakers will likely turn their attention to other alternatives. The authors point to signs that the focus is now shifting to programs that do not attempt to prevent foreclosures but rather try to help homeowners who have already experienced foreclosure.

The effect of social entitlement programs on private transfers: new evidence of crowding out

This paper exploits a natural policy experiment to directly identify the crowding out effects of public transfers on the incidence and level of private transfers. The introduction of a large social security program in Taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behavior of their adult children. Using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers, the empirical results show strong evidence of crowding out on the extensive margin (the probability of providing a positive transfer) and weaker evidence of crowding out on the intensive margin (the amount of the transfer conditional on it being positive).

Reconstruction of the Dark Energy equation of state from latest data: the impact of theoretical priors

We reconstruct the Equation of State of Dark Energy (EoS) from current data using a non-parametric approach where, rather than assuming a specific time evolution of this function, we bin it in time. We treat the transition between the bins with two different methods, i.e. a smoothed step function and a Gaussian Process reconstruction, investigating whether or not the two approaches lead to compatible results. Additionally, we include in the reconstruction procedure a correlation between the values of the EoS at different times in the form of a theoretical prior that takes into account a set of viability and stability requirements that one can impose on models alternative to $\Lambda$CDM. In such case, we necessarily specialize to broad, but specific classes of alternative models, i.e. Quintessence and Horndeski gravity. We use data coming from CMB, Supernovae and BAO surveys. We find an overall agreement between the different reconstruction methods used; with both approaches, we find a time dependence of the mean of the reconstruction, with different trends depending on the class of model studied. The constant EoS predicted by the $\Lambda$CDM model falls anyway within the $1\sigma$ bounds of our analysis.Comment: 17 pages, 5 figures. Prepared for submission to JCA

A Principal-Agent Model of Sequential Testing

This paper analyzes the optimal provision of incentives in a sequential testing context. In every period the agent can acquire costly information that is relevant to the principal's decision. Neither the agent's effort nor the realizations of his signals are observable. First, we assume that the principal and the agent are symmetrically informed at the time of contracting. We construct the optimal mechanism and show that the agent is indifferent in every period between performing the test and sending an uninformative message which continues the relationship. Furthermore, in the first period the agent is indifferent between carrying out his task and sending an uninformative message which ends the relationship immediately. We then characterize the optimal mechanisms when the agent has superior information at the outset of the relationship. The principal prefers to offer different contracts if and only if the agent types are sufficiently diverse. Finally, all agent types benefit from their initial private information.Dynamic mechanism design, Information acquisition, Sequential testing