Decision Making & Negotiations

We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off.

The paper explores the conditions that determine the effect of rule enforcement policies that imply an attempt to punish all the visible violations of the rule. We start with a simple game theoretic analysis that highlights the value of gentle COntinuous Punishment (Gentle COP) policies. If the subjects of the rule are rational, Gentle COP can eliminate violations even when the rule enforcer has limited resources. The second part of the paper uses simulations to examine the robustness of Gentle COP policies when the subjects of the rule are adaptive learners.

We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation.

We examine how cheap talk communication between managers within the same firm depends on the type of decisions that the firm makes. A firm consists of a headquarters and two operating divisions. Headquarters is unbiased but does not know the demand conditions in the divisions’ markets. Each division manager knows the demand conditions in his market but is also biased towards his division. The division managers communicate with headquarters, which then sets either the prices or quantities for each division.

If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with general preferences and information cost functions.

Social commerce is an emerging trend in which sellers are connected in online social networks, and where sellers are individuals instead of firms. This paper examines the economic value implications of a social network between sellers in a large online social commerce marketplace. In this marketplace each seller creates his or her own shop, and network ties between sellers are directed hyperlinks between their shops.