Job Market Paper
Selling Signals [PDF][Slides], revision requested at RAND Journal of Economics
This paper studies a signaling model in which a strategic player can manipulate the signaling cost. A seller chooses a price schedule for a product, and a buyer with a hidden type chooses how much to purchase as a signal to receivers. When receivers
observe the price schedule, the seller charges monopoly prices, and the buyer purchases less than the first-best. In contrast, when receivers do not observe the price schedule, the demand for signals is more elastic. Thus, the seller charges lower prices, and the buyer purchases more than in the observed case; those of the highest types purchase more than the first-best. The model suggests that price transparency benefits the seller but harms the buyer. The model can be applied to schools choosing tuition, retailers selling luxury goods and media companies selling advertising messages.
Working Papers
Competitive Nonlinear Pricing for Signals [PDF][Slides]
This paper studies nonlinear pricing for horizontally differentiated products that create signaling value for consumers, who choose how much to purchase as a signal to receivers. We characterize the optimal symmetric price schedules under different market structures. Under monopoly, when receivers observe the price schedule, the market is partially covered, and quantity is downward distorted if there is slight horizontal differentiation. As the degree of horizontal differentiation rises, the market coverage rises, and the downward distortion decreases. When the degree is sufficiently high, at a certain level of signaling intensity, the monopolistic allocation may even achieve the first-best. In contrast, when receivers do not observe the price schedule, the market is always partially covered, and the allocation is more dispersed than that in the observed case. Specifically, higher types purchase more than in the observed case, with the highest types purchasing more than the first-best, whereas lower types purchase less than in the observed case, with more types excluded from the market. When the market structure changes from monopoly to duopoly, market competition results in a higher market coverage and larger quantities for both the observed and unobserved case.
Optimal Sequence for Teamwork (with Yangbo Song) [PDF][Slides]
This paper analyzes a principal-agent model to study how the architecture of peer monitoring affects the optimal sequence of task assignment in teamwork. The agents work on a joint project, each responsible for an individual task. The principal determines the sequence of executing tasks as well as the rewards upon success of the project, the probability of which depends on each agent's effort and ability, with the objective of inducing full effort with minimum rewards. Agents may observe one another's effort based on an exogenous network as well as the endogenous sequence. We focus on networks composed of stars, and find a simple algorithm to characterize the optimal sequence of task assignment. The optimal sequence reflects the trade-off between the magnitude and the coverage of reward reduction in incentive design. In a single star, less capable periphery agents precede their center while more capable ones succeed their center. In complex networks consisting of multiple stars, periphery agents precede their center early in the sequence but succeed their center late in the sequence. When the number of peripheries differ across stars, a "V-shape" emerges: agents in large stars are allocated towards both ends of the sequence, while those in small ones towards the middle.
WORK IN PROGRESS
Relational Knowledge Transfer with Persistant Private Information (with Zhiyong Yao)