We study auctions of k identical objects to n bidders, each of whom wants at most one. The objects have a common but unknown value and the bidders receive private signals about this value. The discriminatory price auction and the uniform-price auction are compared in terms of how informative the resulting auction prices (not bids) are in conveying the true value to an outside observer/investor. Since both auctions have symmetric, monotone equilibria, the problem reduces to comparing the informativeness of the highest order statistic of a sample to the (k+1)st highest. We find sufficient conditions under which the highest order statistic is superior—in the sense of Lehmann—in this regard. The sufficient conditions involve the informativeness of high versus low signals and the ratio k/n of objects to bidders. These conditions are also qualitatively necessary.

A group of agents with a common prior receive informative signals about an unknown state repeatedly over time. If these signals were public, agents' beliefs would be identical and commonly known. This suggests that if signals were private, then the more correlated they are, the greater is the commonality of beliefs. We show that, in fact, the opposite may be true. In the long run, conditionally independent signals may achieve greater commonality of beliefs than correlated signals.

Rumors of a shortage may create higher-order uncertainty and cause panic buying even when there is no real shortage and most consumers are aware of this fact. We study the role of prices in alleviating, or even preventing, panic buying caused by such rumors. Under some circumstances, flexible prices fail to do so and panic buying is the unique equilibrium outcome. In our model consumers do not know their future tastes perfectly and panic buying reduces welfare because consumers now buy with only imperfect information about tastes. In these circumstances, a minimum support price—a price floor—prevents panic buying and leads to higher consumer surplus. Producer surplus may be higher as well.

An informed planner wishes to spread information among a group of agents in order to induce efficient coordination -- say the adoption of a new technology with positive externalities. The agents are connected via a social network. The planner informs a seed and then the information spreads via the network. While the structure of the network affects the rate of diffusion, we show that the rate of adoption is the same for all acyclic networks.

This paper revisits Williams’ (2011) continuous-time model of optimal dynamic insurance with persistent private information and corrects several errors in that paper’s analysis. We introduce and study the class of self-insurance contracts that are implementable as consumption-saving problems for the agent with constant taxes on savings chosen by the principal. We show that the contract asserted to be optimal in Williams (2011) is the special self-insurance contract with zero taxes. When the agent’s private endowment is mean-reverting, that contract is strictly dominated by the optimal self-insurance contract, which imposes a strictly positive tax, induces immiseration when the rate of mean-reversion is high, and sends the agent to bliss when the rate of mean-reversion is low. When the agent’s endowment is not mean-reverting, the contract derived in that paper is, in fact, optimal among all incentive compatible contracts; we provide a new explanation for its properties in terms of the agent’s indifference among all reporting strategies. These results extend to the natural discrete-time analogue of the model. Separately, Williams’ (2011) first-order approach to incentive compatibility relies on an erroneous and unjustified assumption on the space of feasible reporting strategies; our analysis does not. (∗) Subsections 3.3 and 4.2 of this paper build on Strulovici (2011) (the working paper version of Strulovici 2020) and subsume its analysis of the long-run properties of state-consistent contracts. Subsection 5.2 of this paper expands on and subsumes Section 6.2 of Bloedel, Krishna, and Leukhina (2018) (the working paper version of Bloedel, Krishna, and Leukhina 2020). We thank Arash Fahim and Ilya Segal for several helpful conversations. (†) Stanford University. Email: abloedel@stanford.edu (‡) Florida State University. Email: rvk3570@gmail.com (§) Northwestern University. Email: b-strulovici@northwestern.edu

We propose a class of dynamic models that capture subjective (and, hence, unobservable) constraints on the amount of information a decision maker can acquire, pay attention to, or absorb via an information choice process (ICP). An ICP specifies the information that can be acquired about the payoff‐relevant state in the current period and how this choice affects what can be learned in the future. In spite of their generality, wherein ICPs can accommodate any dependence of the information constraint on the history of information choices and state realizations, we show that the constraints imposed by them are identified up to a dynamic extension of Blackwell dominance. All the other parameters of the model are also uniquely identified.

We investigate intertemporal planning problems as a way of gaining understanding of the characteristics of individual decision-makers and the choice options presented to them. A frequent simplifying assumption that is made in studies of this sort is that choice of options that yield lower monetary payments than other available options is suboptimal, but consideration of subjective uncertainty in fulfilling requirements to obtain future payments easily disposes of this notion. For example, if one chooses an option in which one pays zero interest for a year on a purchase but then fails to pay the item off before high interest charges kick in, this would be considered suboptimal, compared with paying the item off up front, or in some other fashion. The important point is that what makes an action optimal or suboptimal is often contingent on information that is essentially unobservable, specifically, the probability that one will fail to pay the item off in time. In the experiment, we make inferences about subjective uncertainty based on the choices one makes.

We study a model of dynamic adverse selection in which a large group of sellers sell an asset of uncertain quality to a larger group of buyers. The quality is known to the sellers but unknown to the buyers. There is, however, the possibility that if the asset is of low quality, this will be revealed via public news at a random time. We show that there is a unique equilibrium satisfying forward induction. In this equilibrium a bubble develops. Even a worthless asset is traded at rapidly increasing prices. This is because in the absence of bad news, buyers become more and more optimisticó they exhibit rational exuberance.

We study an R&D race between an established firm and a startup under asymmetric information. R&D investment brings success stochastically, but only if the innovation is feasible. The only asymmetry is that the established firm has better information about the feasibility of the innovation. We show that there is an equilibrium in which the poorly informed startup wins more often, and has higher expected profits, than the better-informed incumbent. When the informational asymmetry is large, this is the unique equilibrium outcome. The channel by which better information becomes a competitive disadvantage appears to be new and stems from the fact that better information dulls the incentive to learn from one's rival.

We consider a decision maker with randomly evolving tastes who faces dynamic decision situations that involve intertemporal tradeoffs, such as those in consumption savings problems. We axiomatize a recursive representation of choice that features uncertain consumption utilities, which evolve according to a subjective Markov process. The parameters of the representation, which are the subjective Markov process governing the evolution of utilities, and the discount factor, are uniquely identified from behavior. We relate the correlation of tastes over time and the desire to delay commitment to future consumption.

In global games in which one player has better information than his rival, it may be that in the unique equilibrium, the better informed player has a lower payoff than the poorly informed player. The reason is that while the better informed player faces less (or even no) uncertainty about economic fundamentals, he may face greater strategic uncertainty.

Antitrust authorities view the exchange of information among firms regarding costs, prices, or sales as anticompetitive. Such exchanges allow competitors to closely monitor each other, thereby facilitating collusion. But the exchange of aggregate information, perhaps via a third party, is legal. The logic is that collusion is difficult if the identity of a price‐cutting firm cannot be ascertained. Here, we examine this logic using Stigler's model of secret price cuts. We first identify circumstances such that when no information exchange is possible, collusion is difficult. We then show that if firms' aggregate sales are made public, nearly perfect collusion is possible.

We axiomatize a model of preferences over menus of acts in which not only beliefs but also state-dependent utilities depend on the individual’s choice of information. Our most general model features both contemplation about the appropriate way to evaluate alternatives as well as acquisition of information about the payoff relevant state of the world, before a choice is made. We then focus on the special case where the value of alternatives depends directly and exclusively on the state of the world and on the choice of information about that state.

If price volatility is caused in some part by taste shocks, then it should be positively correlated with the liquidity premium. Our argument is based on Krishna and Sadowski (2014), who provide foundations for a representation of dynamic choice with taste shocks, and show that volatility in tastes corresponds to a desire to maintain flexibility. To formally connect volatile tastes to price volatility and preference for flexibility to the liquidity premium, we analyze a modified simple Lucas tree economy, where the representative agent is uncertain about his degree of future risk aversion, and where the productive asset cannot be traded in every period, while rights to output can. We show that a representative agent with a higher degree of uncertainty about his future risk aversion implies a higher liquidity premium (i.e., a lower price for the illiquid asset) and more price volatility.

Money allows agents to achieve allocations that are not possible without it. However, currency in most economies is a uniform object, and there may be incentive compatible allocations that cannot be implemented with a uniform currency. We show that currency reform, i.e., changing the monetary base by replacing one currency with another, is a powerful tool that can enable a monetary authority to achieve a desired allocation. Our monetary mechanism with currency reform is anonymous and features a nonlinear exchange rate between currencies and a monotone value of money. These results help interpret the characteristics of currency reforms observed in practice.

We study the role of communication in repeated games with private monitoring. We first show that without communication, the set of Nash equilibrium payoffs in such games is a subset of the set of ε ‐coarse correlated equilibrium payoffs ( ε ‐CCE) of the underlying one‐shot game. The value of ε depends on the discount factor and the quality of monitoring. We then identify conditions under which there are equilibria with “cheap talk” that result in nearly efficient payoffs outside the set ε ‐CCE. Thus, in our model, communication is necessary for cooperation.

We study a dynamic agency model where the agent privately observes the firm's cash flows that are subject to persistent shocks. We characterize the policy dynamics and implement the optimal contract by financial securities. Because bad performance distorts investors' beliefs downward, the agent has less incentive to misrepresent information. The agent's compensation is less than what he can divert and is convex in performance. As private information becomes more persistent, (i) the agent is compensated more by stock options; (ii) firm credit limits vary more with history, dropping after bad performance; (iii) the firm is financially constrained for longer time.

We study a continuous-time R&D race between an established firm and a startup under asymmetric information. R&D investment brings success stochastically but only if the innovation is feasible. The only asymmetry between the firms is that the established firm has better information about the feasibility of the innovation. We show that there is an equilibrium in which the poorly-informed startup wins more often, and has higher expected profits, than the better-informed incumbent. When the informational asymmetry is large, this is the unique equilibrium outcome. Even though better information is a competitive disadvantage, the value of information is positive.

We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent’s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and “pathwise welfare inequality” grows without bound. These results extend and substantially generalize the hallmark findings from the classic literature with iid types, suggesting that the underlying forces are robust to a broad class of private information processes. The proofs rely on novel recursive techniques and martingale arguments. When the agent has CARA utility, we also analytically and numerically characterize the short-run properties of the optimal contract. Persistence gives rise to qualitatively novel short-run dynamics and allocative distortions (or “wedges”) and, quantitatively, induces less efficient risk-sharing. We compare properties of the wedges to their counterparts in the dynamic taxation literature.