This fall I'll be presenting seminars at the following universities near you:

• September 25: Princeton University
• September 29: Columbia University
• October 6: University of Western Ontario
• October 7: University of Toronto
• October 17: Marshall School of Business, USC
• October 30: Georgetown University
• November 6: Harvard University (joint MIT seminar)
• November 18: Stern School of Business, NYU
• December 3: Yale UniversityPermalink

For the 2008-2009 school year, I will be visiting Yale University, specifically the Cowles Foundation and the Economics Department. I look forward to living in New England again after spending a decade in California!Permalink

With Nageeb Ali

Abstract: We endogenize social network formation and collective enforcement using a model in which players interact bilaterally and repeatedly along costly links. Cooperation is supported by the threat of collective punishments that spread through the network. Optimal networks are attainable in equilibrium. When the society is homogeneous, the optimal network consists of many separate cliques. Introducing heterogeneous match quality gives rise to more realistic "small worlds" networks, with connectedness, small distances, and high clustering.

Working paper coming very soon

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Tags: Repeated games, Social Networks, Network Formation, Cooperation, Contagion, Small Worlds, Cliques

With Joel Watson

Abstract: We model repeated games with transferable utility and endogenous renegotiation, in which at the beginning of each period the players negotiate over their continuation play. Bargaining is cooperative, and depends on the endogenously generated outside options. We define the concept of negotiation equilibrium, in which the players' agreements are optimal subject to consistency and incentive compatibility constraints. A particular feature of negotiation equilibrium is that it allows for the players to disagree (which we view as a joint deviation), in which case they make no transfers in that period but still take actions that may depend on the history, and then anticipate agreeing again in the next period. This contrasts with renegotiation proofness, which does not allow for disagreement. We identify conditions under which all negotiation equilibria are efficient, as well as conditions under which optimal negotiation equilibria are inefficient. The actions that the players would choose under disagreement are key to supporting high payoffs under agreement.

Working paper coming soon

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Tags: Repeated games, Bargaining, Negotiation, Renegotiation proofness

Published in the European Economic Review, 52(3):387–412, April 2008 (lead article)

Abstract: This paper proposes a theoretical framework for studying the invention of new products when demand is uncertain. In this framework, under general conditions, the threat of ex post entry by a competitor can deter invention ex ante. Asymmetric market power in the ex post market exacerbates the problem. The implications of these general results are examined in a series of examples that represent important markets in the computer industry. The first is a model that shows how an operating system monopolist, by its mere presence, can deter the invention of complements, to its own detriment as well as that of society. The implications of policies such as patent protection, price regulation, and mandatory divestiture are considered. Three additional examples consider the ability of a monopolist in one market to commit to bundling an unrelated product, a pair of horizontally differentiated firms that can add a new feature to their products, and a platform leader that can be challenged in its base market by the supplier of a complementary product.

Working paper 8/24/2006 (older version but freely distributable)

Link to published version (ScienceDirect subscribers only)

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Tags: Invention, Innovation, Demand uncertainty, Ex post entry, Intel, Microsoft, Netscape, Publications

Abstract: An ex post perfect public equilibrium (EPPPE) is a perfect public equilibrium that is robust to the possibility that players might observe unmodeled, payoff-irrelevant signals that are correlated with each others' contemporaneous private information. However, robustness comes at a cost to the players: in many games, efficient payoffs in the corresponding static mechanism design problem cannot be supported as average payoffs in an EPPPE, even when players are patient. In two-player repeated allocation games, an optimal EPPPE never employs a (static) efficient outcome function in any stage game. Instead, the players always prefer to give up some static efficiency by sometimes allocating to the player with the lower valuation. Under independent valuations, optimal equilibria are often stationary, but when valuations are globally interdependent, optimal equilibria are never stationary. Applied to the problem of collusion with hidden costs, these results yield new insights into the phenomenon of price wars in collusive equilibria.

Working paper 11/16/2007

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Tags: Repeated games, Private information, Mechanism design, Ex post incentive compatibility, Folk theorem, Collusion, Price wars

Note: I recently learned of an error in this paper. I am working on figuring out how to correct it, and will post an updated version once I've corrected it. In the meantime, please do not cite older working versions of the paper.Permalink

Tags: Repeated games, Private information, Mechanism design, Folk theorem

With Brent Goldfarb and David Kirsch

Published in the Journal of Financial Economics, 86(1):100-144, October 2007

Abstract: We present four stylized facts about the Dot Com Era: (1) there was a widespread belief in a "Get Big Fast" business strategy; (2) the increase and decrease in public and private equity investment was most prominent in the internet and information technology sectors; (3) the survival rate of dot com firms is on par or higher than other emerging industries; and (4) firm survival is independent of private equity funding. To connect these findings we offer a herding model that accommodates a divergence between the information and incentives of venture capitalists and their investors. A Get Big Fast belief cascade may have led to overly focused investment in too few internet startups and, as a result, too little entry.

Covered by The Wall Street Journal (Lee Gomes, "The Dot-Com Bubble is reconsidered—and maybe relived," p. B1, 11/8/2006)

Covered by Inc.com (Leslie Taylor, "The dot-com bust? Not as bad as you think," 12/4/2006)

Working paper 12/13/2005

Link to published version (ScienceDirect subscribers only)

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Tags: Venture capital, Herding, Bubbles, Publications

With Susan Athey

Published in Theoretical Economics, 2(3):299-354, September 2007

Abstract: We analyze the extent to which efficient trade is possible in an ongoing relationship between impatient agents with hidden valuations (i.i.d. over time), restricting attention to equilibria that satisfy ex post incentive constraints in each period. With ex ante budget balance, efficient trade can be supported in each period if the discount factor is at least one half. In contrast, when the budget must balance ex post, efficiency is not attainable, and furthermore for a wide range of probability distributions over their valuations, the traders can do no better than employing a posted price mechanism in each period. Between these extremes, we consider a "bank" that allows the traders to accumulate budget imbalances over time, but only within a bounded range. We construct non-stationary equilibria that allow traders to receive payoffs that approach efficiency as their discount factor approaches one, while the bank earns exactly zero expected profits. For some probability distributions there exist equilibria that yield exactly efficient payoffs for the players and zero profits for the bank, but such equilibria require high discount factors.

Published paper

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Tags: Private information, Mechanism design, Budget balance, Repeated games, Ex post incentive compatibility, Trade, Publications

With Sameer Tilak and Tony Fountain

Published in the Proceedings of the Workshop on Stochasticity in Distributed Systems (StoDiS'05), San Jose, CA, December 19, 2005

Abstract: When two sponsoring organizations, working towards separate goals, employ wireless sensor networks for a finite period of time, it can be efficiency-enhancing for the sponsors to program their sensors to cooperate. But if each sensor privately knows whether it can provide a favor in any particular period, and the sponsors cannot contract on ex post payments, then no favors are performed in any Nash equilibrium. Allowing the sponsors to contract on ex post payments, we construct equilibria based on the exchange of "tokens" that yield significant cooperation and increase expected sponsor payoffs. Increasing the sponsors' liability is beneficial because it enables them to use more tokens.

Working paper 5/22/2006 (newer and better than the StoDiS version)

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Tags: Private information, Repeated games, Cooperation, Sensor networks, Publications