The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

The deferred acceptance algorithm proposed by Gale and Shapley (1962) has had a profound influence on market design, both directly, by being adapted into practical matching mechanisms, and, indirectly, by raising new theoretical questions. Deferred acceptance algorithms are at the basis of a number of labor market clearinghouses around the world, and have recently been implemented in school choice systems in Boston and New York City. In addition, the study of markets that have failed in ways that can be fixed with centralized mechanisms has led to a deeper understanding of some of the tasks a marketplace needs to accomplish to perform well. In particular, marketplaces work well when they provide thickness to the market, help it deal with the congestion that thickness can bring, and make it safe for participants to act effectively on their preferences. Centralized clearinghouses organized around the deferred acceptance algorithm can have these properties, and this has sometimes allowed failed markets to be reorganized.

Deferred Acceptance Algorithms: History, Theory, Practice, and Open Questions

Amodern economy is an intricately linked web of specialized production units, each relying on the flow of inputs from their suppliers to produce their own output, which in turn is routed towards other downstream units. In this essay, I argue that the structure of this production network is key in determining whether and how microeconomic shocks—affecting only a particular firm or technology along the chain—propagate throughout the economy and shape aggregate outcomes. Therefore, understanding the structure of this production network can better inform both academics on the origins of aggregate fluctuations and policy makers on how to prepare for and recover from adverse shocks that disrupt these production chains. Two recent events have brought to the forefront the importance of interconnections between firms and sectors in aggregate economic performance. Consider first the 2011 earthquake in Japan. While the triple tragedy of the earthquake, the ensuing tsunami, and the near nuclear meltdown at Fukushima surely resulted in a significant destruction of human and physical capital, its effects would have been largely restricted to the affected areas were it not for the disruption of national

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.28.4.23

From micro to macro via production networks

https://revistas-colaboracion.juridicas.unam.mx/index.php/rev-facultad-derecho-mx/article/download/26243/23625

Newcomb Hohfeld, Wesley: Fundamental Legal Conceptions as Applied in Judicial Reasoning

The relationship between de jure and de facto judicial independence is much debated in the literature on judicial politics. Some studies find no relationship between the formal rules governing the structure of the judiciary and de facto judicial independence, while others find a tight correlation. This article sets out to reassess the relationship between de jure and de facto judicial independence using a new theory and an expanded data set. De jure institutional protections, we argue, do not work in isolation but work conjunctively, so that particular combinations of protections are more likely to be effective than others. We find that rules governing the selection and removal of judges are the only de jure protections that actually enhance judicial independence in practice and that they work conjunctively. This effect is strongest in authoritarian regimes and in contexts with checks on executive authority.

/pdf/does-de-jure-judicial-independence-really-matter-25bg3vtcp1.pdf

Does De Jure Judicial Independence Really Matter

We examine a dynamic, two&#8208;sided, one&#8208;to&#8208;one matching market where agents on both sides interact over a period of time. We define and identify sufficient conditions for the existence of a dynamically stable matching, which may require revisions to initial assignments. A generalization of the deferred acceptance algorithm can identify dynamically stable outcomes in a large class of economies, including cases with intertemporal preference complementarities. We relate our analysis to market unraveling and to common market design applications, including the medical residency match.

Multiperiod matching: multiperiod matching

We examine a multi-period, bilateral matching market. Sufficient conditions for the existence of a dynamically-stable matching are proposed. These conditions accommodate common forms of inter-temporal preference complementarities. In a multi-period market with transfers, expanded access to financial services, such as savings and credit, may lead to Pareto-inferior outcomes. We further extend our analysis to incorporate imperfect information and path-dependent learning. Re-matching after the revelation of new information is often not Pareto improving, suggesting a fundamental fragility of interim markets. We relate our analysis to market unraveling, to the exposure problem, and to the importance of commitment, or lack thereof, in dynamic markets.

/pdf/multi-period-matching-1gqk8qigli.pdf

Multi-period Matching ∗

We consider a network of intermediaries facilitating exchange between buyers and a seller. Intermediary traders face a private trading cost, a network characterizes the set of feasible transactions, and an auction mechanism sets prices. We examine stable and equilibrium networks. Stable networks, which are robust to agents’ collusive actions, exist when cost uncertainty is acute and multiple, independent trading relationships are valuable. A free-entry process governs the formation of equilibrium networks. Such networks feature too few intermediaries relative to the optimal market organization and they exhibit an asymmetric structure amplifying the shocks experienced by key intermediaries. Welfare and empirical implications of stable and equilibrium networks are investigated.

/pdf/trading-networks-and-equilibrium-intermediation-2sgnawgrlr.pdf

Trading Networks and Equilibrium Intermediation

A broad array of law enforcement strategies, from income tax to bank regulation, involve self-reporting by regulated agents and auditing of some fraction of the reports by the regulating bureau. Standard models of self-reporting strategies assume that although bureaus only have estimates of the of an agentâs type, agents know the ability of bureaus to detect their misreports. We relax this assumption, and posit that agents only have an estimate of the auditing capabilities of bureaus. Enriching the model to allow two-sided private information changes the behavior of bureaus. A bureau that is weak at auditing, may wish to mimic a bureau that is strong. Strong bureaus may be able to signal their capabilities, but at a cost. We explore the pooling, separating, and semi-separating equilibria that result, and the policy implications. Important possible outcomes are that a cap on penalties increases compliance, audit hit rates are not informative of the quality of bureau behavior, and by mimicking strong bureaus even weak bureaus can induce compliance.

Audits as Signals

https://www.scholar.harvard.edu/files/kadam/files/1403-tperiod-wpweb.pdf

Maciej H. Kotowski

Papers

Multiperiod matching: multiperiod matching

Multi-period Matching ∗

Trading Networks and Equilibrium Intermediation

Audits as Signals

Time horizons, lattice structures, and welfare in multi-period matching markets