What outcomes can be implemented by the choice of an information structure in binary-action supermodular games? An outcome is partially implementable if it satisfies obedience (Bergemann and Morris (2016)). We characterize when an outcome is smallest equilibrium implementable (induced by the smallest equilibrium). Smallest equilibrium implementation requires a stronger sequential obedience condition: there is a stochastic ordering of players under which players are prepared to switch to the high action even if they think only those before them will switch. We then characterize the optimal outcome induced by an information designer who prefers the high action to be played, but anticipates that the worst (hence smallest) equilibrium will be played. In a potential game, under convexity assumptions on the potential and the designer's objective, it is optimal to choose an outcome where actions are perfectly coordinated (all players choose the same action), with the high action profile played on the largest event where that action profile maximizes the average potential.
{"title":"Implementation via Information Design in Binary-Action Supermodular Games","authors":"Stephen Morris, Daisuke Oyama, Satoru Takahashi","doi":"10.3982/ECTA19149","DOIUrl":"https://doi.org/10.3982/ECTA19149","url":null,"abstract":"<div>\u0000 <p>What outcomes can be implemented by the choice of an information structure in binary-action supermodular games? An outcome is partially implementable if it satisfies obedience (Bergemann and Morris (2016)). We characterize when an outcome is <i>smallest equilibrium implementable</i> (induced by the smallest equilibrium). Smallest equilibrium implementation requires a stronger <i>sequential obedience</i> condition: there is a stochastic ordering of players under which players are prepared to switch to the high action even if they think only those before them will switch. We then characterize the optimal outcome induced by an information designer who prefers the high action to be played, but anticipates that the worst (hence smallest) equilibrium will be played. In a potential game, under convexity assumptions on the potential and the designer's objective, it is optimal to choose an outcome where actions are perfectly coordinated (all players choose the same action), with the high action profile played on the largest event where that action profile maximizes the average potential.</p>\u0000 </div>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"775-813"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA19149","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251384","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A burgeoning literature in labor economics is focused on modeling employer labor market power, generally finding nontrivial estimates of monopsony power. A smaller literature also simultaneously incorporates product market power. Deb, Eeckhout, Patel, and Warren (2024) is an example of applying an oligopoly-oligopsony model to the U.S. labor market, arguing for important effects on wage levels and inequality from rising market power. I support combining IO and labor as a fruitful way of studying wages and business dynamism, but argue for looking more broadly at (i) differential degrees of employer power in labor and product markets; (ii) investigating the dynamic sources of markups (e.g., through innovation), and (iii) considering wage bargaining models, not just wage posting models, which have some starkly different implications for wage setting.
{"title":"A Comment on: “Walras–Bowley Lecture: Market Power and Wage Inequality” by Shubhdeep Deb, Jan Eeckhout, Aseem Patel, and Lawrence Warren","authors":"John Van Reenen","doi":"10.3982/ECTA22248","DOIUrl":"https://doi.org/10.3982/ECTA22248","url":null,"abstract":"<div>\u0000 <p>A burgeoning literature in labor economics is focused on modeling employer labor market power, generally finding nontrivial estimates of monopsony power. A smaller literature also simultaneously incorporates product market power. Deb, Eeckhout, Patel, and Warren (2024) is an example of applying an oligopoly-oligopsony model to the U.S. labor market, arguing for important effects on wage levels and inequality from rising market power. I support combining IO and labor as a fruitful way of studying wages and business dynamism, but argue for looking more broadly at (i) <i>differential</i> degrees of employer power in labor and product markets; (ii) investigating the <i>dynamic</i> sources of markups (e.g., through innovation), and (iii) considering wage <i>bargaining</i> models, not just wage posting models, which have some starkly different implications for wage setting.</p>\u0000 </div>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"643-646"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA22248","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251424","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
<p><span>One of the most exciting new trends</span> in macroeconomics is the development of general equilibrium models with oligopolistic product markets in which a discrete number of firms interact strategically and exploit their market power to set an endogenous wedge between price and marginal cost. This literature is largely motivated by a novel set of empirical findings establishing that market concentration has increased and/or price markups have risen at the aggregate level. Heightened market power has already proved to be helpful in explaining a number of major macroeconomic trends in the United States, such as the decline in the labor share (Autor, Dorn, Katz, Patterson, and Van Reenen (<span>2020</span>)), the fall in business dynamism and innovation rate (<span>Akcigit and Ates</span> (<span>2019</span>)), the investment slowdown (<span>Gutiérrez and Philippon</span> (<span>2017</span>)), and the deteriorating net foreign asset position (<span>Atkeson, Heathcote, and Perri</span> (<span>2022</span>)).</p><p>Jan Eeckhout is a coauthor of one of the earliest and most influential papers on this topic (<span>De Loecker, Eeckhout, and Unger</span> (<span>2020</span>)), and a leader of this literature. In this Walras–Bowley lecture, Eeckhout and coauthors (DEPW, thereafter) ask whether stronger product market power can also quantitatively account for three salient shifts in the U.S. wage structure over the last two decades: growing skill premium, stagnant average wages, and the between-firm component explaining most of the rise in wage inequality.</p><p>For this purpose, DEPW develop a structural model in the spirit of <span>Atkeson and Burstein</span> (<span>2008</span>) and <span>Berger, Herkenhoff, and Mongey</span> (<span>2022</span>), two other seminal contributions in this literature. This approach has been especially successful because it obtains a rich market structure with endogenous markups that nests perfect competition, monopolistic competition, and monopoly, while retaining analytical tractability thanks to the within- and between-sector CES aggregators, and the continuum of sectors assumption implying that no individual firm can affect the aggregate price and wage indexes. The specific contribution of DEPW is to simultaneously apply this elegant framework to both product and labor markets, while also allowing for heterogeneity in the degree of skill-biased technical change (SBTC, thereafter) at the establishment level. As a result, the model incorporates three potential sources of changes in the wage structure: shifts in technology, rising monopsony power, and rising monopoly power.</p><p>The impact of skill-biased technical change on the wage structure is well understood. Market power affects the wage structure via two channels. First, individual firms have monopsony power in both the skilled and unskilled labor markets, that is, they face an upward sloping labor supply curve (e.g., because of frictions in labor mobility or id
{"title":"A Comment on: “Walras–Bowley Lecture: Market Power and Wage Inequality” by Shubhdeep Deb, Jan Eeckhout, Aseem Patel, and Lawrence Warren","authors":"Giovanni L. Violante","doi":"10.3982/ECTA22163","DOIUrl":"https://doi.org/10.3982/ECTA22163","url":null,"abstract":"<p><span>One of the most exciting new trends</span> in macroeconomics is the development of general equilibrium models with oligopolistic product markets in which a discrete number of firms interact strategically and exploit their market power to set an endogenous wedge between price and marginal cost. This literature is largely motivated by a novel set of empirical findings establishing that market concentration has increased and/or price markups have risen at the aggregate level. Heightened market power has already proved to be helpful in explaining a number of major macroeconomic trends in the United States, such as the decline in the labor share (Autor, Dorn, Katz, Patterson, and Van Reenen (<span>2020</span>)), the fall in business dynamism and innovation rate (<span>Akcigit and Ates</span> (<span>2019</span>)), the investment slowdown (<span>Gutiérrez and Philippon</span> (<span>2017</span>)), and the deteriorating net foreign asset position (<span>Atkeson, Heathcote, and Perri</span> (<span>2022</span>)).</p><p>Jan Eeckhout is a coauthor of one of the earliest and most influential papers on this topic (<span>De Loecker, Eeckhout, and Unger</span> (<span>2020</span>)), and a leader of this literature. In this Walras–Bowley lecture, Eeckhout and coauthors (DEPW, thereafter) ask whether stronger product market power can also quantitatively account for three salient shifts in the U.S. wage structure over the last two decades: growing skill premium, stagnant average wages, and the between-firm component explaining most of the rise in wage inequality.</p><p>For this purpose, DEPW develop a structural model in the spirit of <span>Atkeson and Burstein</span> (<span>2008</span>) and <span>Berger, Herkenhoff, and Mongey</span> (<span>2022</span>), two other seminal contributions in this literature. This approach has been especially successful because it obtains a rich market structure with endogenous markups that nests perfect competition, monopolistic competition, and monopoly, while retaining analytical tractability thanks to the within- and between-sector CES aggregators, and the continuum of sectors assumption implying that no individual firm can affect the aggregate price and wage indexes. The specific contribution of DEPW is to simultaneously apply this elegant framework to both product and labor markets, while also allowing for heterogeneity in the degree of skill-biased technical change (SBTC, thereafter) at the establishment level. As a result, the model incorporates three potential sources of changes in the wage structure: shifts in technology, rising monopsony power, and rising monopoly power.</p><p>The impact of skill-biased technical change on the wage structure is well understood. Market power affects the wage structure via two channels. First, individual firms have monopsony power in both the skilled and unskilled labor markets, that is, they face an upward sloping labor supply curve (e.g., because of frictions in labor mobility or id","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"637-641"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA22163","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a setting of many-to-one two-sided matching with nontransferable utilities, for example, college admissions, we study conditions under which preferences of both sides are identified with data on one single market. Regardless of whether the market is centralized or decentralized, assuming that the observed matching is stable, we show nonparametric identification of preferences of both sides under certain exclusion restrictions. To take our results to the data, we use Monte Carlo simulations to evaluate different estimators, including the ones that are directly constructed from the identification. We find that a parametric Bayesian approach with a Gibbs sampler works well in realistically sized problems. Finally, we illustrate our methodology in decentralized admissions to public and private schools in Chile and conduct a counterfactual analysis of an affirmative action policy.
{"title":"Identification and Estimation in Many-to-One Two-Sided Matching Without Transfers","authors":"YingHua He, Shruti Sinha, Xiaoting Sun","doi":"10.3982/ECTA19636","DOIUrl":"https://doi.org/10.3982/ECTA19636","url":null,"abstract":"<div>\u0000 <p>In a setting of many-to-one two-sided matching with nontransferable utilities, for example, college admissions, we study conditions under which preferences of both sides are identified with data on one single market. Regardless of whether the market is centralized or decentralized, assuming that the observed matching is stable, we show nonparametric identification of preferences of both sides under certain exclusion restrictions. To take our results to the data, we use Monte Carlo simulations to evaluate different estimators, including the ones that are directly constructed from the identification. We find that a parametric Bayesian approach with a Gibbs sampler works well in realistically sized problems. Finally, we illustrate our methodology in decentralized admissions to public and private schools in Chile and conduct a counterfactual analysis of an affirmative action policy.</p>\u0000 </div>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"749-774"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA19636","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251388","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies certification design and its implications for information disclosure. Our model features a profit-maximizing certifier and the seller of a good of unknown quality. We allow for common values as the seller's opportunity cost may depend on the quality of the good. We compare certifier-optimal with transparency-maximizing certification design. Certifier-optimal certification design implements the evidence structure of Dye (1985)—a fraction of sellers acquire information while the remaining sellers are uninformed—and results in partial disclosure to the market. A transparency-maximizing regulator prefers a less precise signal, which conveys more information to the market through a higher rate of certification and unraveling (Grossman (1981), Milgrom (1981)) at the disclosure stage.
{"title":"Certification Design With Common Values","authors":"Andreas Asseyer, Ran Weksler","doi":"10.3982/ECTA21653","DOIUrl":"https://doi.org/10.3982/ECTA21653","url":null,"abstract":"<div>\u0000 <p>This paper studies certification design and its implications for information disclosure. Our model features a profit-maximizing certifier and the seller of a good of unknown quality. We allow for common values as the seller's opportunity cost may depend on the quality of the good. We compare certifier-optimal with transparency-maximizing certification design. Certifier-optimal certification design implements the evidence structure of Dye (1985)—a fraction of sellers acquire information while the remaining sellers are uninformed—and results in partial disclosure to the market. A transparency-maximizing regulator prefers a less precise signal, which conveys more information to the market through a higher rate of certification and unraveling (Grossman (1981), Milgrom (1981)) at the disclosure stage.</p>\u0000 </div>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"651-686"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA21653","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251380","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Tom Ahn, Peter Arcidiacono, Amy Hopson, James Thomas
We show that stricter grading policies in STEM courses reduce STEM enrollment, especially for women. We estimate a model of student demand for courses and optimal effort choices given professor grading policies. Grading policies are treated as equilibrium objects that in part depend on student demand for courses. Differences in demand for STEM and non-STEM courses explain much of why STEM classes give lower grades. Restrictions on grading policies that equalize average grades across classes reduce the STEM gender gap and increase overall enrollment in STEM classes.
{"title":"Equilibrium Grading Policies With Implications for Female Interest in STEM Courses","authors":"Tom Ahn, Peter Arcidiacono, Amy Hopson, James Thomas","doi":"10.3982/ECTA17876","DOIUrl":"https://doi.org/10.3982/ECTA17876","url":null,"abstract":"<p>We show that stricter grading policies in STEM courses reduce STEM enrollment, especially for women. We estimate a model of student demand for courses and optimal effort choices given professor grading policies. Grading policies are treated as equilibrium objects that in part depend on student demand for courses. Differences in demand for STEM and non-STEM courses explain much of why STEM classes give lower grades. Restrictions on grading policies that equalize average grades across classes reduce the STEM gender gap and increase overall enrollment in STEM classes.</p>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"849-880"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251389","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Econometric Society 2023 Annual Report of the President","authors":"","doi":"10.3982/ECTA923PRES","DOIUrl":"https://doi.org/10.3982/ECTA923PRES","url":null,"abstract":"","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"931-945"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251392","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This note makes a brief response to Portnoy (2022) and Pötscher and Preinerstorfer (2024), and discusses what instructors should teach about best unbiased estimation.
{"title":"Reply to: Comment on “A Modern Gauss–Markov Theorem”","authors":"Bruce E. Hansen","doi":"10.3982/ECTA22362","DOIUrl":"https://doi.org/10.3982/ECTA22362","url":null,"abstract":"<div>\u0000 <p>This note makes a brief response to Portnoy (2022) and Pötscher and Preinerstorfer (2024), and discusses what instructors should teach about best unbiased estimation.</p>\u0000 </div>","PeriodicalId":50556,"journal":{"name":"Econometrica","volume":"92 3","pages":"925-928"},"PeriodicalIF":6.1,"publicationDate":"2024-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA22362","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141251387","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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