Radical Markets with Eric Posner, under contract with the Princeton University Press. Manuscript due Fall 2017, publication expected Spring 2018.
A comprehensive policy agenda to radically expand the scope of markets by challenging private property, one person one vote and borders that aims address the present crisis of the liberal order.
Price Theory and its Mathematical Foundations
“Private-Public Parity,” under preparation for a special issue of Public Choice in honor of Kenneth J. Arrow.
Contrary to common belief, Arrow’s work does not indicate any fundamental asymmetry between how well private goods can be allocated v. collective decisions made.
“Lottery equilibrium” with Josh Mollner, in preparation. Email me for early notes.
In a continuum economy allowing each individual to engage in a single wager over two wealth levels allows any ex-ante Pareto efficient allocation to be implemented, in contrast to all existing mechanisms.
“Ownership of the Means of Production” with Anthony Lee Zhang, submitted January 2017. (SSRN)
Self-assessed asset taxes at 2.5% are robustly near optimal to combat the monopoly distortion from private property without excessively deterring investment.
“The Average-Marginal Relationship and Tractable Equilibrium Forms” with Michal Fabinger, submitted October 2016. (SSRN)
A formal definition of a hierarchy of levels of tractability for equilibrium models that can be summarized by a single equation and a characterization of all tractable systems at each level.
“Imperfect Competition in Selection Markets” with Neale Mahoney, forthcoming in the Review of Economics and Statistics as of July 2016. (SSRN)
Risk adjustment can be harmful in the presence of imperfect competition and competition policy harmful in the presence of advantageous selection.
Spence meets Rotschild-Stiglitz: a simple model of firm incentives to sort consumers through product design.
“An Efficient Competitive Economy with Public Good” with Aanund Hylland and Richard Zeckhauser, under preparation and solicited by the Quarterly Journal of Economics. Email me for early notes. (old version)
Quadratic pricing of influence on collective decisions is the correct analog of linear pricing of private goods.
We extend basic principles of incidence from perfet competition to general models of imperfect competition, showing how they unify the analysis of many applications in public finance, industrial organization and international trade.
“Walrasian Equilibrium in Large, Quasilinear Markets” with Eduardo Azevedo and Alexander White, Theoretical Economics, 2013, 8(2): 281-290. (published version)
Equilibrium exists in large, quasi-linear utility economies even when consumers view goods as complements.
We give a simple proof that the linear demand system has no discrete choice representation.
Incorporating in static models dynamic pricing strategies to coordinate users simplifies the analysis of platform competition, allowing us to calibrate realistic models of competition.
Dynamic pricing helps avoid a bad equilibrium in ride-hailing that would devastate system capacity.
“Multidimensional Platform Design” with André Veiga and Alexander White, forthcoming in the American Economic Review Papers and Proceedings, 2017, 107(3). (SSRN)
A characterization of optimal design and development of platforms when type and not just number of users matter using Bonacich centrality.
Existing literature in platform economics suggests there is usually too much fragmentation not too much consolidation in platform industries.
A reasonable degree of market power may be healthy in markets, such as insurance and finance, where selection is important.
We formalize, generalize, and clarify the sense in which the effect of a merger on prices and welfare is approximated by the pass-through of cannibalized profits, the foundation of the new UK and US horizontal merger guidelines.
“Retos para un Mercado de Libre Competencia: El Control de Fusiones y Carteles” in ¿Competidores o Monopolistas? edited by Jaime Delgado and published by the Instituto de Consumo at the Universidad de San Martín de Porres in Lima, Perú, 2011. (link to pre-pubilcation version)
Perú should introduce merger control to stop the increasing monopolization of its markets.
A general theory of monopoly pricing by multi-sided platforms, emphasizing the importance of the source of user heterogeneity, with applications to regulation, measurement of market power and merger analysis.
The relationship between social and private pricing in RT2003.
“Biasing Auctions,” Princeton University, April 2006 (inactive). (SSRN)
Different explanations of equilibrium winner’s curse have different implications for auction design and are testable.
Law and Economics
“Property is Only Another Name for Monopoly” with Eric A. Posner, forthcoming in the Journal of Legal Analysis as of January 2017. (SSRN)
Replacing private property with a system of self-assessed asset taxation with compulsory sales could solve many classic problems in property law.
No investor owning multiple firms in an oligopoly should be able to hold more than 1% of each firm or participate in corporate governance, to avoid harmful accumulation of market power.
“Voting Squared: Quadratic Voting in Democratic Politics” with Eric A. Posner, Vanderbilt Law Review, 2015, 68(2): 441-499. (SSRN) (Chronicle of Higher Education coverage) (Wall Street Cheat Sheet coverage) (interview)
Quadratic voting would be a more just and equitable method of public decisions than standard democratic institutions are.
“Cost-Benefit Analysis of Financial Regulations: Criticisms and Responses” with Eric A. Posner, Yale Law Journal Forum, 2015, 124: January 22. (published version)
A response to John Coates’s critique of cost-benefit analysis for financial regulation.
“Benefit-Cost Paradigms in Financial Regulation” with Eric A. Posner, Journal of Legal Studies, 2014, 43(S2): S1-34. (SSRN) (policy piece) (op-ed) (blog post) (Bloomberg View editorial endorsing our argument)
Why and how benefit-cost analysis of financial regulations should be conducted.
“Quadratic Voting as Efficient Corporate Governance” with Eric Posner, University of Chicago Law Review, 2014, 81(1): 251-272. (SSRN) (policy piece with Sang-Seung Yi) (op-ed in New York Times) (op-ed in Financial Times) (blog post)
Quadratic Voting is a simple, efficient and robust mechanims for protecting minority shareholders.
In contrast to previous bankruptcy reforms, a system we propose based on Quadratic Voting allows collective action, which is needed for efficiency.
“An FDA for Financial Innovation: Applying the Insurable Interest Doctrine to 21st Century Financial Markets” with Eric Posner, Northwestern University Law Review, 2013, 107(3): 1307-1358. (SSRN) (NYTimes piece by Simon Johnson endorsing the idea) (Wired piece by Dan Ariely enorsing the idea) (NYTimes coverage) (Washington Post coverage) (The Atlantic coverage) (Huffington Post coverage) (Chicago Tonight television appearance) (Russia Today television appearance) (Fox television appearance) (Bloomberg View piece) (Slate piece) (blog coverage) (original op-ed that proposed the idea in 2008)
A pre-approval regulatory process for new financial derivatives is a practical means to help avoid the proliferation of harmful products.
“Raffles” with Nicole Immorlica, Brendan Lucier and Josh Mollner, submitted February 2017. (SSRN)
A simple variant on the familiar “trick-tray” raffle implements approximate cardinal efficiency in the allocation of indivisible goods without transfers in a large population.
“Descending Price Optimally Coordinates Search” with Bobby Kleinberg and Bo Waggoner, extended abstract in the Proceedings of the 17th ACM Conference on Electronic Commerce (EC ’16) in 2016, submitted December 2016. (extended abstract) (SSRN) (online appendix) (simulation code)
Descending price auctions, unlike all other standard formats, allow for efficient information acquisition.
“Quadratic Voting and the Public Good: Introduction” with Eric Posner, forthcoming in Public Choice as part of a special issue on Quadratic Voting and the Public Good in 2017. (SSRN)
An opinionated survey of the literature on Quadratic Voting, with a focus on the contributions to this special issue from several disciplines.
“The Robustness of Quadratic Voting,” forthcoming in Public Choice as part of a special issue on Quadratic Voting and the Public Good in 2017. (SSRN)
Quadratic Voting is quite robust to collusion, fraud, aggregate uncertainty and “irrational” voter behavior.
How interdisciplinary academic-industry collaborations can improve matching markets.
“Quadratic Voting” with Steven P. Lalley, submitted June 2016. (SSRN) (appendix) (op-ed) (Financial Times coverage) (Hacker News discussion) (Wall Street Journal coverage) (Slate coverage) (Freakonomics blog post) (Overcoming Bias blog post) (Marginal Revolution blog post)
In a large but finite population with private information, Quadratic Voting leads to approximate efficiency, with inefficiency decaying as 1/N.
“The Efficiency of Quadratic Voting in Finite Populations,” February 2015. (SSRN)
In simulations, Quadratic Voting never has more than a few percent inefficiency even in very small populations.
“Concordance among Holdouts” with Scott Duke Kominers, extended abstract in the Proceedings of the 12th ACM Conference on Electronic Commerce (EC ’11) in 2011, September 2012. Under active revision with also Jerry Green and Steven Lalley. Email me for updates. (SSRN) (published abstract) (presentation video)
A compromise on property rights that allows a reasonable degree of efficiency through simple, incentive compatible mechanisms in land assembly.
Competition within, but not between, complementary clusters solve the holdout problem; resettlement does so partially.
“Pricing Institutions and the Welfare Cost of Adverse Selection” with André Veiga, forthcoming in the American Economic Journal: Microeconomics, 2017, 9(2). (SSRN)
An apparently subtle change in pricing institutions can reduce the welfare cost of adverse selection by an order of magnitude.
“The Openness-Equality Trade-Off in Global Redistribution,” forthcoming in the Economic Journal for a feature on Normative Ethics and Welfare Economics as of August 2016. (SSRN) (online appendix) (Huffington Post coverage) (op-ed)
Because they allow so much more immigration, the oppressive GCC countries do much more per capita to reduce global inequality than do “liberal” OECD countries.
“Taxation and the Allocation of Talent,” with Benjamin B. Lockwood and Charles G. Nathanson, forthcoming in the Journal of Political Economy as of March 2016. (SSRN) (online appendix) (media coverage) (video blog appearance) (blog coverage)
Designing taxes to sorting talented efficiently across professions can rationalize the basic structure of US taxes without any redistributive motive.
Economics of Innovation
“Optimal Experimentation: Theory and Evidence from Bing” with Eduardo Azevedo, Alex Deng, Pepe Montiel Olea and Justin Rao. In preparation, email me for early notes.
When innovations are of unpredictable quality (fat tails, as we find is the case in the Bing EXP platform), run many small experiments; when innovation quality is predictable (thin tails), run a few large experiments.
“Market Power Screens Willingness-to-Pay” with Jean Tirole, Quarterly Journal of Economics, 2012, 127(4): 1971-2003. (published version) (SSRN) (online appendix) (simulation code) (media coverage) (blog coverage)
A multi-dimensional screening framework for trading off the sorting benefits of IP against its distorting effects on consumption ex-post.
History of Economics
“Price Theory” means economic analysis that reduces rich and often incompletely-specified models to a small collection of “prices” (approximately) sufficient to characterize solutions to simple allocative problems.
“Finance and the Common Good” in After the Flood: How the Crisis Changed Economic Thought (see below). (SSRN)
Finance mostly focuses on predicting asset prices, while IO focuses on prescribing industrial policies, possibly because of the consulting opportunities in each field.
“Jewish Economies: Development and Migration in America and Beyond,” two volumes of Simon Kuznets’s unpublished or unavailable-in-English papers on the economic history of the Jews, edited jointly with Stephanie Lo with introductory, original research chapter by myself entitled “Simon Kuznets: Cautious Empiricist of the Eastern European Jewish Diaspora”. The first volume of the book, “The Economic Life of American Jewry” was published in November 2011. The second volume, “Comparative Perspectives on Jewish Migration”, was published in January 2012. (Amazon volume 1) (Amazon volume 2) (publisher’s page) (SSRN) (Usury paper) (data) (NPR appearance)
Much of Simon Kuznets’s economic thinking was closely tied to his Russian Jewish heritage.
After the Flood: How the Crisis Changed Economic Thought, edited jointly with Ed Glaeser and Tano Santos. In addition to co-authoring the introduction, my contribution, “Finance and the Common Good”, is the conclusion. Published by the University of Chicago Press, March 2017. (University of Chicago Press site) (Amazon)
Leading economists reflect on the causes, consequences for economics and appropriate policy responses to the financial crisis.
Principles that should be applied in the growing industry of benefit-cost analyses of financial regulations
“Is Arbitrage Socially Beneficial?” Princeton University, October 2007 (inactive). (SSRN)
Arbitrage and financial innovation are harmful when arbitrage opportunities are created by irrational investors.
“Universal Speculation,” Princeton University, May 2006 (inactive). (request a copy)
The “Universal Portfolios” algorithm of Cover (1991) conflicts would not be used by a Bayesian investor.
Other interdisciplinary work (philosophy and biology)
“Economic Contract Theory Tests Models of Mutualism” with Megan Frederickson, Doug W. Yu and Naomi Pierce, Proceedings of the National Academy of Sciences, 2010, 107(36): 15712-6. (published version) (media coverage from University of Toronto) (media coverage from Harvard)
A general, economics-based methodology for testing theories of mutualism supports Partner Fidelity Feedback over Host Sanctions.
If you think groups should not have rights because they are not agents, then you shouldn’t believe in individual rights either.
“Overconfidence in Neural Networks,” Princeton University, May 2006 (inactive). (request a copy)
Overconfidence arises naturally in a classical neural network model.
Methodology and Econometrics
“Optimal Statistical Reporting” with Isaiah Andrew and Jesse Shapiro. In preparation, email me for early notes.
“Transparent” and “objective” procedures are often superior to “optimal” Bayesian reporting when communicating parsimoniously to a diverse audience.
The econometric identification approach corresponding to Chetty’s “sufficient statistics approach,” solved for multi-product producers.
A model for testing theories with precise predictions against theories with vague predictions.