Essays in Dynamic Information Economics
2023-06
Loading...
View/Download File
Persistent link to this item
Statistics
View StatisticsJournal Title
Journal ISSN
Volume Title
Title
Essays in Dynamic Information Economics
Authors
Published Date
2023-06
Publisher
Type
Thesis or Dissertation
Abstract
Dynamic and strategic choices are often made by imperfectly-informed agents observing a groups' past decisions. In such context, past choices inform the tradeoffs that individual agents currently face via two channels. The first channel is strategic in nature i.e., an individual's payoffs from a given action often depend on their peers' choices. For instance, a currency without widespread adoption is worthless and voting for a fringe candidate is mostly futile. Agents, furthermore, learn from their peers actions. Buyers estimate a painting's resale value from past bids; investors impute a firm's long-run profitability from its stock price; et cetera. Although it is well-known that learning over time plays a key role in decision-making, past research ascertained few insights of note. This thesis presents two papers with results in dynamic information economics pertaining auctions and bargaining. I discuss each paper in turn. In chapter 2, I study the role of learning in sequential auctions under limited commitment. The set up consists of a seller running a sequence of second-price auctions. In each period, the seller first announces a reserve price (the smallest acceptable bid) and then accepts bids. If he receives a bid, he transacts and the game ends; otherwise, he can set a different price in the subsequent auctions. A seller who can pre-determine all reserve prices from the outset is better off fixing all prices equal to a price that maximizes static revenues. This nets the seller the highest possible (expected) revenues. Sellers, however, are seldom capable of credibly fixing prices after learning that their good failed to sell. Instead, sellers often find it optimal to attract bids by sequentially lowering prices. Doing so, however, forces the seller to (implicitly) compete with his past self. The Coase conjecture posits that the seller's revenues should converge to running an efficient auction from the outset as market participants (i.e., the seller and buyers) interact increasingly frequently. Note that in an efficient auction, the seller post a reserve price that elicits bids from all buyers who value the good more than the seller. Such auctions are also known to not maximize revenues. Liu et al (2019) proves that the Coase conjecture holds (at least) when there are 3 or more buyers who value independent private (IP) valuations. Buyers are said to have IP valuations if and only if each buyer’s willingness to pay for the auctioned good is independent of any information held by his peers. This assumption is strong and rarely holds in real-world auctions. Does the Coase conjecture hold when one relaxes the assumption of IP valuations? In general, each buyer's valuations can depend on the private information held by their peers and valuations are said to be interdependent. I find that the Coase conjecture can fail when valuations are interdependent. The intuition is straightforward. As the item fails to sell, buyers deduce that their peers hold adverse information regarding the auctioned good and hence lower their valuations. The seller then learns that there may be fewer buyers with whom to trade. I find that, in all equilibria, the market unravels after a finite number of re-offerings. In each equilibrium, the seller expects the market to unravel and posts prices that informs when the market unraveling occurs. As a result, initial revenues are bounded above immediately running an efficient and may equal to the maximum revenue attained by fixing prices from the outset. Next, chapter 3 studies bargaining. Rubinstein (1982) introduced modern, micro-foundations of bargaining.Two impatient players take turns proposing the split of a common "surplus" and deciding whether or not to accept said proposals. The game ends once a proposal is accepted. The paper's unique prediction is that players reach an agreement immediately. This contrasts empirical evidence showing that negotiations concluding with immediate agreement are rare. Backus et al (2020), for instance, finds that only a 32 percent of E-bay buyer-seller transactions concluded with immediate agreement. To address this discrepancy, Abreu and Gul (2000) extended the model by introducing reputational types. This means that players may only be able to make large, pre-determined demands. In the unique equilibrium, players who are free to make flexible demands and concessions to their opponent find it optimal to behave "as if" they are unable to do so and a war of attrition ensues. This equilibrium rationalizes that negotiations can end with an agreement after multiple rounds of proposals. I extend the model above by incorporating hidden effort. Such extension allows me to consider bargaining scenarios where players take actions, as they bargain, that can affect the payoff from the negotiation. I particularly focus on wartime, peace negotiations. In such bargaining scenario, combatants negotiate the terms of a peace agreement while they privately manage a war effort. The United Nations and other intergovernmental organizations have observed the destructiveness of war and the fact that most negotiations end without an agreement and have long proposed that combatants pause fighting as they negotiate the terms of a lasting peace. However, the implementation of said policy coincided with an increase in the share of negotiations ending in disagreement from 60 to 87 percent. The chapter shows that combatants negotiating a peace while they continue to fight. Indeed, it may never be optimal to pause the fighting at any point during the negotiation. This is because learning from the observed military outcomes enables players to quickly deduce their opponent's capacity to make concessions. In general, I find that brief ceasefires (especially at the beginning of the negotiation) may be optimal under some parametric cases. The insights derived from this model, although applied in the context of wartime negotiations, are relevant to other bargaining scenarios such as mergers and wage re-negotiations. By studying the dynamics of hidden actions and the role of ceasefires, the chapter provides valuable insights into the conditions under which such policies are optimal or detrimental in various bargaining contexts.
Keywords
Description
University of Minnesota Ph.D. dissertation. June 2023. Major: Economics. Advisors: David Rahman, Jan Werner. 1 computer file (PDF); x, 120 pages.
Related to
Replaces
License
Collections
Series/Report Number
Funding information
Isbn identifier
Doi identifier
Previously Published Citation
Suggested citation
Ramos-Mercado, Jorge. (2023). Essays in Dynamic Information Economics. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/259638.
Content distributed via the University Digital Conservancy may be subject to additional license and use restrictions applied by the depositor. By using these files, users agree to the Terms of Use. Materials in the UDC may contain content that is disturbing and/or harmful. For more information, please see our statement on harmful content in digital repositories.