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Session 4: Dynamic Games, Contracts and Markets

August 7-9, 2019 | Patterson Building | 663 Serra St, Rm P102, Stanford

The idea of this session is to bring together microeconomic theorists working on dynamic games, mechanisms, and contracts with more applied theorists working in macro, finance, organizational economics, and other fields. First, this is a venue to discuss the latest questions and techniques facing researchers working in microeconomic dynamics. Second, we wish to foster interdisciplinary discussion between scholars working on parallel topics in different disciplines, in particular, helping raise awareness among theorists of the open questions in other fields.

Organizers: Simon Board (University of California, Los Angeles), Daniel Garrett (Toulouse School of Economics), Yingni Guo (Northwestern University), Andrzej Skrzypacz (Stanford Graduate School of Business), Takuo Sugaya (Stanford Graduate School of Business) and Felipe Varas (Duke) 

In this Session

Aug 7 | 8:30 am to 9:00 am

Check-in | Breakfast

Aug 7 | 9:00 am to 9:45 am

A Dynamic Theory of Learning and Relationship Lending

Presented by: Felipe Varas (Duke University)
Co-Author(s): Yunzhi Hu (UNC Chapel Hill)

We introduce private learning into a banking model to study the dynamics of relationship lending. In our model, an entrepreneur chooses between bank and market financing. Bank lending facilitates learning over time, but it subjects the borrower to the downside of information monopoly. We construct an equilibrium in which the entrepreneur starts with bank financing and subsequently refinances with the market, and we find conditions under which this equilibrium is unique. Our model generates several novel results. First, both information asymmetry and entrepreneur’s reputation are accumulated over time. As a result, the bank will roll over bad loans for entrepreneurs who have accumulated enough reputation for the prospect of future loan sales. Second, this incentive to extend and pretend gets mitigated when the entrepreneur faces financial constraint. We further endogenize learning as bank’s costly decision and show how it is affected by asymmetric information and financial constraint.

Aug 7 | 9:45 am to 10:15 am


Aug 7 | 10:15 am to 11:00 am

Delegating Learning

Presented by: Qiaoxi Zhang (University of Chile)
Co-Author(s): Juan F. Escobar (University of Chile)

Learning is crucial to organizational decision making but often needs be delegated. We examine a dynamic delegation problem where a principal decides on a project with uncertain protability. A biased agent, who is initially as uninformed as the principal, privately learns the profitability over time and communicates to the principal. We formulate learning delegation as a dynamic mechanism design problem and characterize the optimal delegation scheme. We show that private learning gives rise to the tradeo between how much information to acquire and how promptly it is reected in the decision. We discuss implications on learning delegation for distinct organizations.

Aug 7 | 11:00 am to 11:30 am


Aug 7 | 11:30 am to 12:15 pm

Contracting with Non-Exponential Discounting: Moral Hazard and Dynamic Inconsistency

Presented by: Can Urgun (Princeton University)
Co-Author(s): Doruk Cetemen (Collegio Carlo Alberto) and Felix Feng (University of Notre Dame)
Aug 7 | 12:15 pm to 2:00 pm


Aug 7 | 2:00 pm to 2:45 pm

Robust Opinion Aggregation and its Dynamics

Presented by: Giacomo Lanzani (MIT)
Aug 7 | 2:45 pm to 3:15 pm


Aug 7 | 3:15 pm to 4:00 pm

Endogenous Learning from Incremental Actions

Presented by: Julia Salmi (University College London)
Co-Author(s): Tuomas Laiho (University of Oslo) and Pauli Murto (Aalto University School of Business)

We study an experimentation problem where actions today have a long-lasting impact on information generation in the future. Actions are irreversible and generate information gradually over time. We solve for the optimal path of actions when the decision maker does not know the payoff-relevant state of the world. Because current choices have persistent effects, the problem has two state variables: a summary of past actions and the current belief on the state of the world. There is a novel informational trade-off as acting today speeds up information generation but postponing actions results in more informed choices. Our two leading examples cover the monopoly pricing of durable goods with social learning and capacity expansion in a market with uncertain optimal size. We show that since the monopolist can internalize future benefits from learning, the  monopolist’s optimal solution may result in a higher social surplus than the competitive market in both examples.

Aug 7 | 4:00 pm to 4:30 pm


Aug 7 | 4:30 pm to 5:15 pm

Macroeconomics with Learning and Misspecification: A General Theory and Applications

Presented by: Pooya Molavi (MIT)
Aug 7 | 6:00 pm

Dinner (Off Site)

Aug 8 | 8:30 am to 9:00 am


Aug 8 | 9:00 am to 9:45 am

The Folk Theorem in Repeated Games with Anonymous Random Matching

Presented by: Joyee Deb (Yale University)
Co-Author(s): Takuo Sugaya (Stanford University) and Alexander Wolitzky (MIT)
Aug 8 | 9:45 am to 10:15 am


Aug 8 | 10:15 am to 11:00 am

Steady-State Equilibria in Anonymous Repeated Games

Presented by: Alexander Wolitzky (MIT)
Co-Author(s): Drew Fudenberg (MIT) and Daniel Clark (MIT)
Aug 8 | 11:00 am to 11:30 am


Aug 8 | 11:30 am to 12:15 pm

The Use and Misuse of Coordinated Punishments

Presented by: Yingni Guo (Northwestern University)
Co-Author(s): Daniel Barron (Northwestern University)
Aug 8 | 12:15 pm to 2:00 pm


Aug 8 | 2:00 pm to 2:45 pm

Our Distrust is Very Expensive

Presented by: Mallesh Pai (Rice University)
Co-Author(s): Rahul Deb (University of Toronto) and Matthew Mitchell (University of Toronto)
Aug 8 | 2:45 pm to 3:15 pm


Aug 8 | 3:15 pm to 4:00 pm

Family Knows Best: Fund Advisors as Talent Rating Agencies

Presented by: Dmitry Orlov (University of Rochester)
Co-Author(s): Ron Kaniel (University of Rochester)
Aug 8 | 4:00 pm to 4:30 pm


Aug 8 | 4:30 pm to 5:15 pm

Ratings Design and Barriers to Entry

Presented by: Nikhil Vellodi (Princeton)
Aug 9 | 8:30 am to 9:00 am


Aug 9 | 9:00 am to 9:45 am

Information Acquisition and Strategic Investment Timing

Presented by: Erik Madsen (New York University)
Co-Author(s): Rishabh Kirpalani (University of Wisconsin-Madison)
Aug 9 | 9:45 am to 10:15 am


Aug 9 | 10:15 am to 11:00 am

Signaling with Private Monitoring

Presented by: Gonzalo Cisternas (Massachussetts Institute of Technology)
Co-Author(s): Aaron Kolb (Indiana University)
Aug 9 | 11:00 am to 11:30 am


Aug 9 | 11:30 am to 12:15 pm

Startups and Upstarts

Presented by: Yu Awaya (University of Rochester)
Co-Author(s): Vijay Krishna (Penn State University)
Aug 9 | 12:15 pm to 2:00 pm


Aug 9 | 2:00 pm to 2:45 pm

Optimal Mechanism for the Sale of a Durable Good

Presented by: Laura Doval (California Institute of Technology)
Co-Author(s): Vasiliki Skreta (University of Texas at Austin, University College London, and CEPR)
Aug 9 | 2:45 pm to 3:15 pm


Aug 9 | 3:15 pm to 4:00 pm

Repeated Games with Observable Actions in Continuous Time: Costly Transfers in Repeated Cooperation

Presented by: Mikhail Panov (NYU)

I propose a way to formulate and solve for subgame perfect equilibria of continuous-time repeated games with both observable and unobservable actions. The main idea is that instead of first defining an extensive-form game in continuous time, one can look directly for self-enforcing agreements corresponding to the strategic interaction at hand. To discipline players’ observable deviations, I impose an inertia restriction that makes the deviator stuck with his observable action for a small amount of time. This restriction simultaneously preserves the tractability of the model, and ensures that agreements and deviating strategies are well defined.

To illustrate this idea, I consider an example of two cartel members colluding in a continuoustime repeated setting with imperfectly observable productive actions and observable money transfers. Money transfers are costly: only a fraction k < 1 of the money sent is received by the recipient (with the case k = 0 corresponding to pure money burning). I introduce the notion of a self-enforcing public agreement which mimics the notion of a pure-strategy public perfect equilibrium from discrete time. For a fixed interest rate r > 0, I characterize the set of payoffs attainable in self-enforcing public agreements, as well as the dynamics in optimal ones. Adding the possibility of costly transfers increases the set of attainable payoffs because it allows the promised continuation values to reflect away from the players’ individual rationality constraints. In optimal agreements, costly transfers are used rarely and only after extreme histories when the individual rationality constraint of one of the players binds.

Aug 9 | 4:00 pm to 4:30 pm


Aug 9 | 4:30 pm to 5:15 pm

Bargaining Over Heterogeneous Good With Structural Uncertainty

Presented by: Marcin Peski (University of Toronto)