Theory and Design
of Divisible Good Markets
- “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),
Accepted, The Review of Economic Studies, available by e-mail.
often involve the sale of multiple units of goods or assets.
Uniform-price and pay-as-bid auctions are the most common formats used in
practice in multi-unit auctions. Most Treasury departments use one of
the two designs to auction securities on a weekly basis. This paper
establishes general inefficiency of both auction formats, 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 auctions.
- “Welfare Trade-offs and
Private Information” (with M. Weretka),
and Resubmit, The Journal of Economic Theory, 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.
Market Design” (with M. Ollar
and J. H. Yoon).
- “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.
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