Research
Publications
Bounded Memory and Incomplete Information. Games and Economic Behavior, vol. 109, 382-400 (2018)
Published version, Working paper version
(previously circulated as "Bounded Memory, Reputation, and Impatience")
This paper studies incomplete information games where players observe only a summary statistic of the history, including reputation games as a special case. A recursive characterization of the equilibrium payoff set is derived for the case where time is observable, relating it to a self-generating set of tuples that capture equilibrium behavior and payoffs. With unobservable time, equilibria have particularly simple interpretation as self-generating points. The tools are applied to a product choice game where the firm may be an “honest” commitment type and consumers have 1-period memory with imperfect monitoring, solving for the worst equilibrium payoff. The recursive algorithm shows that the observable-time game allows lower equilibrium payoffs due to non-stationary behavior.
Bad Reputation under Bounded and Fading Memory. Economic Inquiry, vol. 56, issue 1, 138-157 (2018)
Published version, Working paper version
I relax the full memory assumption in Ely and Välimäki's (2003) mechanic game, where reputation is bad. Under bounded memory (only recent periods are observed), long memory still yields bad reputation due to an “echo” where bad signals cause future motorists to not hire, causing further lack of hiring, and so on. Short memory avoids bad reputation by making it “useless,” since consumers never learn enough information to change their decisions. No “happy middle” exists under bounded memory where consumers learn valuable information without tempting the mechanic into harmful signalling and thereby unraveling the market. By contrast, “fading memory” (past periods are randomly sampled with “fading” probabilities) achieves this happy middle by offering valuable information in a way that bounds the probabilities of these reputational echoes. Possible fading memory implementations (e.g. for review websites) are described and generalized to a broader class of games.
Too Good to Fire: Non-Assortative Matching to Play a Dynamic Game, with Thomas Wiseman. Games and Economic Behavior vol. 124, 491-511 (2020)
Published version, Working paper version
We model stable, non-assortative labor-market matchings. We endogenize how transferable utility is: a matched firm and worker play an infinite-horizon game with one-sided moral hazard. Becker’s (1973) result that complementarity yields positively assortative matching fails, because increasing match quality harms dynamic incentives: a firm cannot credibly threaten to fire a worker who is productive even with low effort. Thus, firms may prefer lower-type workers who will exert more effort. Market asymmetries arise endogenously, and we offer a new interpretation of efficiency wages: committing to a high wage improves effort incentives indirectly by increasing the firm's willingness to walk away.
Work in Progress
Drug Wars and Government Policy
Why do drug trafficking organizations inflict violence on each other, and why does violence break out under some government crackdowns and not others? Violence between Mexican drug cartels soared following the government's anti-cartel offensive starting in 2006, but not under previous crackdowns. We construct a theoretical explanation for these observations and previous empirical research. We develop a duopoly model where the firms have the capacity to make costly attacks on each other. The firms use the threat of violence to incentivize inter-cartel cooperation, and under imperfect monitoring, violence occurs on the equilibrium path of a high payoff equilibrium. When a “corrupt” government uses the threat of law enforcement as a punishment for uncooperative behavior, violence is no longer necessary to obtain high payoffs. When government cracks down indiscriminately or in a way that fails to provide cooperative incentives, the firms may turn to violence as a way of ensuring cooperation and high payoffs, even if the crackdown makes drug trafficking otherwise less profitable.
Physics Publication