Strategy Seminar 2023-2024

Consider an economy with equal amounts of N types of goods, to be allocated to agents with strict quasi-convex preferences over lotteries. We show that all feasible and Pareto efficient allocations give almost all agents a binary lottery.
Even if all preferences are the same, some identical agents  necessarily receive different lotteries. In a  continuum economy, a feasible and efficient allocation satisfying No-Envy exists. Such allocations yield all agents binary lotteries. Assuming the reduction of compound lotteries axiom, social welfare deteriorates by first randomizing over these binary lotteries. Full ex-ante equality can be achieved if agents satisfy the compound independence axiom.

In the interwar period, some American firms began  to invest in basic scientific research.
Using newly assembled firm-level data from the 1920s and 1930s, we find that companies invested in research because inventions increasingly relied on science, but American universities lagged behind both Europe and the scientific frontier.
Firms close to the frontier, relying on disciplines which were underdeveloped in American academia, were likely to invest in research, especially if they were large and operated in concentrated industries (could internalize the benefits). Corporate science seems to have paid off, resulting in novel patents and high market valuations for those engaged in research.

Managers’ use of remote monitoring software increased following the transition to working from home during the Covid-19 pandemic to compensate for reduced observability. Higher observability entails quantitative measures not directly related to productivity, potentially incentivizing workers to prioritize quantity over quality. For example, office workers may increase observable work hours by directing effort inefficiently. Observing the number of completed tasks incentivizes workers to perform many meaningless tasks rather than prioritize productive ones. We design an experiment where workers can allocate effort based on perceived task difficulty and manipulate the structure of the signal to the manager. We show theoretically that quantitative information in the signal distorts incentives. In equilibrium, workers prioritize productive tasks less, reducing overall productivity. Our results confirm that removing quantitative information from the signal increases productivity by shifting workers’ strategies. Enriching the signal with quantitative information, however, does not have the opposite effect.

We study social learning, conformity, and differentiation within and across groups (Right and Left political blocs; Indians and Pakistanis; Scots and English). Our experiments cross-randomize observed ingroup and outgroup norms in several domains, including public opinion, investments in stocks, social values, and factual assessments. Results show that, overall, individuals follow their ingroup much more than they follow their outgroup. Behavior varies systematically across individuals: those who strongly identify with their group not only follow ingroup norms more, but may choose the opposite of observed outgroup norms. Such counteracting seems to rest on intergroup animosity and on ingroup-biased perceptions of others' knowledge. Thus, when identities diverge, the same information can have contradictory effects.

Can campaign finance regulation curb the political influence of economic actors? In this article, we identify a new factor that may hinder its effectiveness—the social structure of organizations. We argue that such regulation creates cooperation dilemmas in firms’ leadership and propose that a specific feature of organizations—family ties—help solve such problems. We evaluate this argument by studying a Supreme Court ban on corporate contributions in Brazil. Using a difference-in-differences design and data on family ties in Brazilian public companies, we show that, following the ban, members of firms’ controlling families substitute individual for corporate contributions. Furthermore, we document the presence of peer effects in the contribution behavior of family members, suggesting that family ties transmit influence. These bifurcated effects illustrate how organizational structure can be a source of de facto power by limiting the effectiveness of programmatic reforms, and thus contain a cautionary tale for policymakers.

This paper investigates the impact of an emergency department (ED) reform on congestion levels in a hospital with multiple interchangeable internal medicine departments. The reform switched patient routing from a “first-available-bed”  approach to equally distributing patients across departments. Comparing outcomes before and after the reform with baseline trends from the previous year, we find that equal-load routing results in a 25% lower average ED wait times and a 20% lower admission length of stays without increases in readmission or mortality rates. Using a queuing theory model in which departments choose effort levels, we show that these findings are consistent with a strategic response of hospital departments to free-ride incentives induced by first-available-bed routing. Our results imply that a balanced routing improves resource allocation and overall hospital efficiency.

Large and persistent disparities in labor market conditions across regions are well-documented even within small geographic areas. While various place-based policies have been implemented to address these disparities, little attention has been given to policies incentivizing commuting from disadvantaged areas to adjacent, tighter labor markets. This paper studies a unique policy implemented as a Randomized Controlled Trial (RCT) in Israel, providing a short-term employment subsidy to residents of disadvantaged localities conditional on working outside their locality of residence. Using rich administrative and survey data, we find positive effects on employment and earnings, with the most substantial effects observed among individuals with the weakest initial labor market attachment. For this group, the program increased employment by 9% even after 24 months, well beyond subsidy exhaustion. We show that this persistence is related to the workplace location condition by comparing the policy to a standard, unconditional employment subsidy. Overall, our findings indicate that the policy alleviated barriers to participation in labor markets outside the locality of residence.

Tipping is a complex phenomenon driven by social pressure, and cutting across various stakeholders – firms, customers, and workers. Analyzing the long-run impact of policies related to tipping is therefore challenging. To facilitate such analysis, we develop a modeling framework, in which a tipping norm is formed endogenously in a market comprised of a price-setting firm offering service to potential customers. Customers choose whether to consume the service or not, and if yes, how much to tip the server afterwards. With tipping, customers show reciprocity to the server by sharing a fraction of their surplus, but also undergo social pressure to comply with the prevailing norm of tipping. This tipping norm is shown to evolve endogenously through a dynamic process of sequential market adjustments over time: the average tip determines in each time period the tipping norm for the next period, causing the firm to adapt its price and customers to adapt their tips accordingly. We show that, in the short run (in between time periods), the average tip-to-price ratio increases, converging in the long run to a stable market-equilibrium outcome. Characterization of this equilibrium outcome allows us to derive qualitative results about the long-run impact of different exogenous factors on tipping: We find that the equilibrium tip-to-price ratio increases when customers are more sensitive to social pressure, when their feelings of eciprocity grow stronger, when their range of service valuations spreads out, or when they consider the service more valuable. Building on this framework, we further investigate several economic implications of tipping pertaining social welfare, labor cost, and service quality, thus, uncovering incentives and trade-offs to which the tipping mechanism give rise, from the firm’s, the worker’s, and the customer’s perspectives.

We examine friendships and study partnerships among university students over several years. At the aggregate level, connections increase over time, but homophily on gender and ethnicity is relatively constant across time, university residences, and different network layers. At the individual level, homophilous tendencies are persistent across time and network layers. Furthermore, we see assortativity in homophilous tendencies. There is weaker, albeit significant, homophily over malleable characteristics—risk preferences, altruism, study habits, and so on. We find little evidence of assimilation over those characteristics. We also document the nuanced impact of network connections on changes in Grade Point Average.