This paper studies a model where student effort and talent interact with parental and teachers' investments, as well as with school system resources. The model is rich, yet sufficiently stylized to provide novel implications. It can show, for example, that an improvement in parental outside options will reduce parental and school effort, which are partially compensated through school resources. In this way, by incorporating the behavioral responses of parents, teachers and policymakers, the paper provides a rationale for the existing ambiguous empirical evidence on the effect of school resources. The paper also provides a novel microfoundation for peer effects, with empirical implications for welfare and different education policies.

This note documents trends of socialization and intergenerational mobility across research networks (fields) in economics. Using data on advisor-advisee pairs, we find that intergenerational field similarity is more prevalent in larger and successful fields. We then show that researchers who do choose different fields than those of their advisors are more likely to switch to highly demanded fields in the job market. These results are consistent with the equilibrium of a model in which advisors' have concerns for their advisees' socialization and production outcomes. We also document a positive relation between field productivity and the median level of co-authorship at the field level, which is consistent with complementaries between socialization and productive efforts.

We show that, in a range of market conditions, an ever stricter environmental policy does not always lead to ever cleaner production methods and ever lower production of polluting goods. We consider an integrated technology, where firms can reduce their emission intensities in a continuous fashion. Analogous to the previous literature we find that firms' emission intensities can be U-shaped in the strictness of policy, but we show that this applies only under low profitability conditions. Under high profitability conditions, output levels are U-shaped in the strictness of the policy. The latter result is new in the literature. In the case where the U-shape arises in emission intensities, the minimum is reached where the marginal abatement cost curves intersect.

We consider the incentives of a single firm to invest in a cleaner technology under emission quotas and emission taxation. We assume asymmetric information about the firm's cost of employing the new technology. Policy is set either before the firm invests (commitment) or after (time consistency). Contrary to conventional wisdom, we find that with commitment (time consistency), quotas give higher (lower) investment incentives than taxes. With quotas (taxes), commitment generally leads to higher (lower) welfare than time consistency. Under commitment with quadratic abatement costs and environmental damages, a modified Weitzman rule applies and quotas usually lead to higher welfare than taxes.

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.

Buyers typically do not read the …ne print in contracts, providing an incentive for a monopolist to draft terms which are unfavorable to buyers. We model this problem, proving that trade must then be inefficient. We show that regulation which mandates efficient terms raises welfare. More interestingly, regulations which prohibit the least efficient terms may reduce welfare by inducing the monopolist not to other favorable terms. We extend these results to markets in which some buyers are naive, showing that prohibiting the least efficient terms may also harm the naive buyers.

Guilt aversion has been shown to play an important role in economic decision-making. In this paper, we take an axiomatic approach to guilt by deducing a utility representation from a list of easily interpretable assumptions on an agent's preferences. It turns out that our logarithmic representation can mitigate the problem of multiplicity of equilibria to which psychological games are prone. We apply the model in three well-known games and show that its predictions are consistent with experimental observations.

We investigate a version of the classic Colonel Blotto game in which individual battlefields may have different values. Two players allocate a fixed discrete budget across battlefields. Each battlefield is won by the player who allocates the most to that battlefield. The player who wins the battlefields with highest total value receives a constant winner payoff, while the other player receives a constant loser payoff. We focus on apex games, in which there is one large and several small battlefields. A player wins if he wins the large and any one small battlefield, or all the small battlefields. For each of the games we study, we compute an equilibrium and we show that certain properties of equilibrium play are the same in any equilibrium. In particular, the expected share of the budget allocated to the large battlefield exceeds its value relative to the total value of all battlefields, and with a high probability (exceeding 90\% in our treatments) resources are spread over more battlefields than are needed to win the game. In a laboratory experiment, we find that strategies that spread resources widely are played frequently, consistent with equilibrium predictions. In the treatment where the asymmetry between battlefields is strongest, we also find that the large battlefield receives on average more than a proportional share of resources. In a control treatment, all battlefields have the same value and our findings are consistent with previous experimental findings on Colonel Blotto games.