Theory and Design
of Divisible Good Auctions
- “Price Inference in
Small Markets” (with M. Weretka), Econometrica 80, 2 (2012), 687-711. PDF
literature on information aggregation suggests that larger markets unambiguously
improve price inference. These results have been developed for markets
where the values of all traders for the exchanged good are determined by
a fundamental (common) shock. Heterogeneity in (income, endowment,
liquidity, or preference) shocks underlying trader values changes the
predictions of the classical model: Smaller markets may offer
opportunities to learn from prices that are not available in large
- “Demand Reduction and Inefficiency in
Multi-Unit Auctions” (with with
L. Ausubel, P. Cramton,
M. Pycia, and M. Weretka),
submission, The Review of Economic Studies, available by e-mail.
and pay-as-bid auctions are the most common formats for selling divisible
goods. Most Treasury departments use one of the two designs to auction
securities on a weekly basis. This paper establishes inefficiency of the
uniform-price auction, ambiguity of revenue rankings in general
environments, and for the linear Bayesian Nash Equilibrium, revenue
rankings for the uniform-price, the pay-as-bid and Vickrey
- “Welfare Trade-offs and
Private Information” (with M. Weretka),
available by e-mail.
encouraging trader participation enhance market competitiveness? When
trader preferences are interdependent, for natural information
structures, larger markets may be less efficient, less liquid and be
characterized by lower per capita welfare.
- “Decentralized Exchange” (with S.
Malamud), available by e-mail.
and goods are increasingly traded away from public exchanges. This paper
develops an equilibrium model of decentralized trading that accommodates
any networked markets with coexisting exchanges represented by hypergraphs. We identify
economic effects that do not have centralized-market counterparts.
Financial Innovation and Bundling:
Many economic problems involve sellers choosing collections of “bundles” in
order to maximize the bundles’ market value. Instances of optimization over
bundles include issuance of asset-backed securities by real asset holders,
choosing a portfolio of risky assets to offer by central banks and Treasury
Departments, and selection of product variety by multiproduct sellers with a
bundle interpreted as a product with multiple continuous characteristics or
attributes. To study these economic problems, the following two papers
introduce and analyze a class of games in which players’ strategies are
in Financial Innovation” (with A. Carvajal and
M. Weretka), Econometrica 80, 5 (2012), 1895-1936. PDF
piece on endogenous (in)completeness of market structures. When does
competition in financial innovation among asset owners provide sufficient
incentives to create and complete markets? In economies with convex marginal
utility, any financial structure with an incomplete set of securities
brings higher market value of the assets than a complete financial
structure, even if innovation is costless. Thus, if market efficiency is
to be improved through asset innovation, incentives other than
maximization of asset value are necessary. This paper introduces games
over spans, which can be useful in modeling competition beyond the
- “Bundling without Price
Discrimination” (with A. Carvajal
and M. Weretka), available by e-mail.
the literature, the central motivation for bundling is that it allows
sellers to price discriminate buyers. The ability to price discriminate
requires that the seller can monitor individual purchases and resale
markets be limited or absent—in essence, some form of limits to
arbitrage. In some markets, including financial, there are significant
arbitrage opportunities and thus non-linear pricing is not available.
This paper demonstrates a new mechanism that gives rise to bundling
profitability, even in markets with arbitrary arbitrage possibilities.
Thus, as a tool to increase profits, bundling need not rely on price
Maximization in Decision Theory,” The Review
of Economic Studies 77 (2010), 339-371. PDF
paper introduces a model of preferences in which an individual compares
uncertain alternatives through a quantile of
the induced utility distributions. The choice rule of Quantile Maximization nests maxmin
and maxmax but also captures less extreme scenario-based
or order-statistics analysis. Quantile
Maximization, unlike Expected Utility or any cardinal model, can provide
a decision theory for environments in which the alternatives involve
categorical variables (e.g., quality ratings, professions, grades); as
well as a more general way of expressing a preference for robustness to
own utility’s assessments. It can also be used in policy implementation
for populations with heterogeneous preferences in which a decision
maker’s only knowledge about preferences is that people prefer more to
- “Dynamic Thin Markets” (with M. Weretka), available by e-mail.
Many markets, including financial, are thin in that trade is dominated
by a group of large agents who have price impact. The assumption of
price-taking behavior underlies many central results in asset pricing,
in particular the no-arbitrage principle and full diversification of
risk. This paper develops an equilibrium foundation for the illiquidity
that arises from price impact. Dynamic bilateral price impact changes
both the efficiency and arbitrage properties of equilibrium in ways not
anticipated either by static models with bilateral price impact or
dynamic models with one-sided market power.
- “Thin Markets” (with M. Weretka), The New Palgrave
Dictionary of Economics Online (2008), Steven N. Durlauf
and Lawrence E. Blume, Eds. Palgrave Macmillan. PDF
Discrimination and Resale” (with A. Basuchoudhary, C. Metcalf, K.
Pommerenke, D. H. Reiley,
C. Rojas, and J. Stodder), The Journal of Economic Education (2008), 39