- Assistant professor, Collegio Carlo Alberto, 2012-present.
- PhD in Economics, Northwestern University, 2012.

On the impossibility of protecting risk-takers

(Online Appendix),
the Economic Journal, forthcoming.
[pdf]

Media brief by EJ.

Risk-neutral sellers can extract high profits from risk-loving buyers by selling them lotteries. To limit risk-taking, gambling is heavily regulated in most countries. I show that protecting risk-loving buyers is essentially impossible.

Even if buyers are risk-loving only asymptotically, the seller can construct a non-random winner-pays auction that ensures unbounded profits. Buyers are asymptotically risk-loving, for example, when their preferences satisfy Savage's axioms or they have cumulative prospect theory preferences. The profits are unbounded even if the seller cannot use any mechanism that resembles a lottery. Asymptotically risk-loving preferences are both sufficient and necessary for unbounded profits.

Risk-neutral sellers can extract high profits from risk-loving buyers by selling them lotteries. To limit risk-taking, gambling is heavily regulated in most countries. I show that protecting risk-loving buyers is essentially impossible.

Even if buyers are risk-loving only asymptotically, the seller can construct a non-random winner-pays auction that ensures unbounded profits. Buyers are asymptotically risk-loving, for example, when their preferences satisfy Savage's axioms or they have cumulative prospect theory preferences. The profits are unbounded even if the seller cannot use any mechanism that resembles a lottery. Asymptotically risk-loving preferences are both sufficient and necessary for unbounded profits.

Overbooking

(with Jeff Ely and
Dan Garrett),
Journal of the European Economic Association, 2017, 15-6: 1258-1301.
[pdf]

We consider optimal pricing policies for airlines when passengers are
uncertain at the time of ticketing of their eventual willingness to pay for
air travel. Auctions at the time of departure efficiently allocate space and a
profit maximizing airline can capitalize on these gains by overbooking flights
and repurchasing excess tickets from those passengers whose realized value is
low. Nevertheless profit maximization entails distortions away from the
efficient allocation. Under standard regularity conditions we show that the
optimal mechanism can be implemented by a modified double auction.
In order to encourage early booking, passengers who
purchase late are disadvantaged. In order to capture the information rents of
passengers with high expected values, ticket repurchases at the time of
departure are at a subsidized price, sometimes leading to unused capacity.

Calendar mechanisms,

Games and Economic Behavior, 2017, 104: 252-270. [pdf]

I study a repeated mechanism design problem where a revenue-maximizing monopolist sells a fixed number of service slots to randomly arriving buyers with private values and increasing exit rates.
In addition to characterizing the fully optimal mechanism, I study the optimal mechanisms in two restricted classes. First, the pure calendar mechanism, where the seller allocates future service dates instead of general promises. The unique optimal pure calendar mechanism is characterized in terms of the opportunity costs of allocating additional service slots. Second, I analyze the waiting list mechanism, where promises of delayed service can depend on future arrivals, but the seller cannot discriminate among buyers who are offered the same position in the waiting list. Both the waiting list and the fully optimal mechanism are implemented by non-standard auctions with a scoring rule where the distance between buyers' bids affects the allocation. A novel property of these auctions is that for buyers it is better to win by a close margin and it is worse to lose by a close margin. Finally, I model partial commitment power as a penalty that the seller has to pay when forfeiting a promise. All the results are given for general partial commitment and therefore include full commitment and no commitment as special cases.

Penny auctions,

International Journal of Industrial Organization, 2016, 48: 59-87.
[pdf]

First version: May 2009.

From 2012-2014 was circulated under the title "Penny Auctions are Unpredictable".

This paper studies penny auctions, a novel auction format in which every bid increases the price by a small amount, but placing a bid is costly. Outcomes of real-life penny auctions are often surprising. Even when selling cash, the seller may obtain revenue that is much higher or lower than its nominal value, and losers in an auction sometimes pay much more than the winner. This paper characterizes all symmetric Markov-perfect equilibria of penny auctions and studies penny auctions' properties. The results show that a high variance of outcomes is a natural property of the penny auction format and high revenues are inconsistent with rational risk-neutral participants.

From 2012-2014 was circulated under the title "Penny Auctions are Unpredictable".

This paper studies penny auctions, a novel auction format in which every bid increases the price by a small amount, but placing a bid is costly. Outcomes of real-life penny auctions are often surprising. Even when selling cash, the seller may obtain revenue that is much higher or lower than its nominal value, and losers in an auction sometimes pay much more than the winner. This paper characterizes all symmetric Markov-perfect equilibria of penny auctions and studies penny auctions' properties. The results show that a high variance of outcomes is a natural property of the penny auction format and high revenues are inconsistent with rational risk-neutral participants.

In 2016-2017 the paper was circulated under the title "Dynamic common-value contests".

I study sequential contests where the efforts of earlier players may be disclosed to later players by nature or by design. The model has a range of applications, including rent seeking, R&D, oligopoly, public goods provision, and tragedy of the commons. I show that information about other players' efforts increases the total effort. Thus, the total effort is maximized with full transparency and minimized with no transparency. I also study the advantages of moving earlier and the limits of large contests.

I study sequential contests where the efforts of earlier players may be disclosed to later players by nature or by design. The model has a range of applications, including rent seeking, R&D, oligopoly, public goods provision, and tragedy of the commons. I show that information about other players' efforts increases the total effort. Thus, the total effort is maximized with full transparency and minimized with no transparency. I also study the advantages of moving earlier and the limits of large contests.

We document a causal influence of online user-generated information on real-world economic outcomes. In particular, we conduct a randomized field experiment to test whether additional information on Wikipedia about cities affects tourists' choices of overnight visits. Our treatment of adding information to Wikipedia increases overnight visits by 9% during the tourist season. The impact comes mostly from improving the shorter and incomplete pages in Wikipedia.

Robust pricing with refunds

(with Keiichi Kawai) [pdf]

We analyze a bilateral trade model where the seller has to make a take-it-or-leave-it offer to the buyer without knowing what the buyer has learned or will learn about the product fit. We show that a generous return policy reduces the significance of this type of uncertainty and helps the seller to regain market power. A simple mechanism that utilizes a generous return policy achieves the best guaranteed profit among all possible mechanisms. Our result provides a novel rationale for generous return policies.

Most products are produced and sold by supply chains, where an interconnected network of producers and intermediaries choose prices to maximize their profits. In this paper, I study equilibrium price-setting on a network where players observe upstream prices.
I derive unique equilibrium and study its properties.
The characterization allows studying multiple-marginalization, market power, mergers, and acquisitions in a unified framework.
The results emphasize the importance of considering the information flows in regulatory policies.
For example, the impact of a merger or acquisition crucially depends on the impact on the underlying information network and may either decrease or increase the welfare loss. Moving production from monopolistic to a competitive supplier does not necessarily increase welfare if it reallocates market power through changing the information flows.

Contest architecture by public disclosures

Optimal mechanisms with risk-loving agents

(with Nenad Kos)