Vertical Foreclosure and Risk Aversion, from Hansen and Motta

I swear it is the last time for me to go to the seminars and write posts before the final exams. Eh... But I cannot stop myself from going to this talk: first, it is from my dear micro teacher Hansen; second, it is somehow related to behavioral economics... So how can I keep on staying in my room?

As before, here is the basic information:

Vertical Foreclosure and Risk Aversion
Massimo Motta and Stephen Hansen (UPF and Barcelona GSE)
UPF Micro and Behavior Economics Seminar

Apparently, the topic was related to vertical foreclosure and risk aversion.  In his model the influence of risk aversion behaviors on principal's optimal contract choice has been considered. Although he only used typical P-A model and profit-max, the results turn to be really beautiful, especially when he generalizes the number of firms to a bigger size, and infinite.

The only thing I can think of is that if there is additional management/transaction cost when N goes lager, will there be an optimal size N? Although it is not the main point that he wants to stress, it is still somehow valuable to take in to account, since in the real world no body can ignore the transaction costs. But, anyway, his beautiful results are enough for me to enjoy~

Fine, I need to keep things short and efficient. After the exam, I will begin to work on my master project and read more papers. Hopefully it is possible to finish what I want to do in the final project in the next spring. Time always goes too fast...

Natural experiment on public good and social behaviors

Today, suddenly I saw the latest issue of AER (SEP, 2010. How late I was!). I failed to stop myself from having a look at it, although it is already in the exam weeks. After a balance, I chose to have a brief look at this issue. It is a kind of evidence that my life has become worse - I used to at least read the content of every issue of AER, JPE, QJE every season... Now it has been such a long time that I have no access to these journals. I cannot stop myself, and I was so excited when I saw the red face of AER again. (I was also overexcited when I heard the news that LYX 2.0 is going to be released. Fantastic new features: Advanced Search, Spell-checking on the fly, Multilingual Thesaurus, Table features, Progress view and debugging pane, Instant preview inset, etc!!! Awesome! For details, just jump to

OK. Go back to AER. Two articles attracted my interests:

First one first. The first reason why I was attracted because of the words "social" "contribution" "online communities" and "field experiment". Without doubt, it reminded me of Michael Zhang's paper immediately (also, here is a brief intro in Chinese I wrote before).

Then the author. The world is so small. I just met Sherry Xin Li this spring when I was spending a month auditing courses and seminars in Tsinghua and Peking U. Her topic was "虚拟世界实验中的社会距离问题", or "Social Distance in a Virtual World Experiment". It was an interesting paper about experiments they did in the virtual world game "Second Life". Thus, it is interesting for me to see her work again, since the online market is always a market I'm paying attention to.

In this paper, she/they designed several experiments to study how the social comparison increases contributions to an online community. Here are some main results:

  • After receiving behavioral information about the median user’s total number of movie ratings, users below the median demonstrate a 530% increase in the number of monthly movie ratings, while those above the median do not necessarily decrease their ratings.
  • When given outcome information about the average user’s net benefit score, above-average users mainly engage in activities that help others.
  • Effective personalized social information can increase the level of public goods provision.

Public good is always an interesting topic for economists, perhaps due to the fact that market inefficiency/failure has always been concerned by economists.  Now I'm interested in the social behaviors. Can we actually design a mechanism to improve the supply of public goods? What are the necessary conditions for those mechanisms to function well?

Moreover, another interesting point is that how to utilize the data from the Internet. Frank has a good comment on it. I'm learning from more and more published papers to see where are the pitfalls.

OK, go to the second paper. The law of the few stresses an empirical phenomenon: in social groups a very small subset of individuals invests in collecting information while the rest of the group invests in forming connections with this select few. The interesting thing here is that someone prefer to invest in information while the rest invest in forming connections (Which type I am? Both???Haha~)

It is a kind of traditional social network application, and a little old (the working paper version I found was written in 2007, now it is 2010! what a long publishing cycle!). The authors talked about the structure of social network, and of course, network game. The meaningful suggestion for policy makers (either government or advertisement makers) is that

by collecting information about the communication network, for example by asking a subset of the community members to report “with whom they talk to” about a particular matter, the government can identify an opinion leader, the individual who receives most nominations. Each dollar spent on this opinion leader will then spill over to all community members.

Which have been confirmed by some of my friends who are using similar strategies in their broadcastings.

Fine... I'm thinking about my master project now so everything I'm caring about is how to apply social network to a certain field. Hopefully I can find some interesting points a few days later. But anyway, I need to pay attention to the exams. Go back to books and problems.

Labor Market Dynamics, Persuasion

As the final exams coming, the time-budget has been more and more tight for me. I really want to go to the seminars, but there is not enough time for me to do that -- I always feel so tired....

Anyway, last Friday there was a workshop I cannot miss:

CREI-CEPR Workshop "Changes in Labor Market Dynamics"

Because Jordi Galí and Thijs van Rens, CREI and CEPR organized it.....And I'm really interested in labor market.

I listened to the first three speeches,

Demand Shocks Trigger Productivity Increases
Yan Bai, Arizona State University | W.P. Carey S. of Business, *José Víctor Ríos Rull, University of Minnesota, Kjetil Storesletten, Federal Reserve Bank of Minneapolis

The Vanishing Procyclicality of Labor Productivity
Jordi Galí, CREI, UPF & Barcelona GSE, Thijs van Rens, CREI & UPF

The Demise of Okun’s Law and of Procyclical Fluctuations in Conventional and Unconventional Measures of Productivity
Robert Gordon, Northwestern University

Eh..... Maybe due to the limit of time, they only introduced their works briefly. The problem for me is that I learned more labor related topics in a microeconomic view, not the macro one. Therefore, although the presentations were talking about labor, I still felt unfamiliar. Anyway, listening is a kind of learning and enjoying. Why not?
This afternoon was the regular microeconomics seminar, and it was

Bayesian Persuasion and Competition and Persuasion
[click here to download PDF]
Emir Kamenica (Chicago Booth School of Business)
CREI-CEPR Workshop "Changes in Labor Market Dynamics"

UPF Microeconomics Seminar

Again, I failed to catch up with all of his content. I was enjoying the first 1/3 part of his presentation, and then suddenly I realized that I cannot understand him any more. Haha... The interesting thing was not only me, but also most of the audience in the room kept silent. Nearly no questions, no discussions and answer when the speaker asked something. Haha~ Anyway, perhaps the difference between economics and business are still big, so we don't really understand what's their aim. Or the models are quite different.... I cannot find any more possible explanations. Forgive me!

Ok, this post has successfully become a normal record of my day. I don't really want to lost my feeling for economics, but the problem sets....are still there. No choice.

Social learning and dynamic pricing

Ohhhhhhh, this week I was too busy to listen to the seminars. Fortunately, on Thursday I finally got a little time to audit a speech by a Chinese guy from Upenn. Haha~ It is not common to see any other Chinese here.

However, I came there because of the topic, not his name or something else. I was attracted by his title at the first glance, since I really would like to know something about social learning. That's a pretty interesting issue to talk, and requires enough mathematical skills. So....the related information first, as usual:

Dynamic Pricing in the Presence of Social Learning
Xi Weng (University of Pennsylvania)

UPF Internal Micro and Behavioral Economics Seminar

and here is the abstract attached:

This paper considers a monopolist selling a new experience good over time to many buyers.
Buyers learn from their own private experiences (individual learning) as well as by observing other buyers' experiences (social learning). Individual learning generates ex post heterogeneity, which affects the buyers' purchasing decisions and the firm's pricing strategy. When learning is through good news signals, the incentive to exploit the known buyers for the monopolist causes experimentation to be terminated too early. After the arrival of a good news signal, the price could instantaneously go down in order induce the remaining unknown buyer to experiment. When learning is through bad news signals, experimentation is effcient, since only the homogeneous unknown buyers purchase the experience good.

Enough background. I am interested in social learning because it considers a dynamic process of the production delivering process. Such as Ipod and some other fashion products sold in the market, there must be some "loyal" fans who would like to try and share their experience firstly, and then more and more potential consumers will do the purchase in turn.

Eh.... Nothing more to say? Maybe there are too many math formulas which makes me confused......Anyway, good luck, Xi!