Journal of Economic Behavior & Organization, January 2018, 145: 114-140.
Abstract. We study the stability on many-to-one matching markets in a dynamic framework with the following features: matching is irreversible, participants -exogenously- join market over time, and each agent on one side is restricted by a quota, and agents are perfectly patient. A form of strategic behavior in such markets emerges: the side with many slots can manipulate the subsequent matching market in their favor via earlier matchings. In such a setting, a natural question arises: can we analyze a dynamic many-to-one matching market as if it were either a static many-to-one or a dynamic one-to-one market? First, we provide sufficient conditions under which the answer is yes. Second, we show that if these conditions are not met, then the early matchings are inferior compared to the subsequent matchings. Lastly, we extend the model to allow agents on one side to endogenously decide when to join the market. Using this extension we provide a rationale for little unraveling observed in the US medical residency matching market compared to the US college admissions system.
Abstract. This paper studies group lending with joint-liability contracts offered by microfi- nance institutions (MFIs). We develop a model of group lending where heterogeneous agents form groups, obtain capital from the MFI, and share risks among themselves. We show that the composition of the groups is not always homogeneous once risk- sharing is introduced, rationalizing the empirical evidence of risk heterogeneity within groups. Moreover, we find that joint liability introduces inefficiency for risk-averse borrowers, which explains why MFIs are moving away from joint-liability contracts. Surprisingly, the first-best outcome can be achieved even in the presence of informa- tion asymmetry.
Work in Progress
Designing the Licenses for Foster Care with Diana E. MacDonald (draft coming soon)
Abstract. This paper studies the menu of licenses designed by the child welfare agency to screen foster parents. We develop a two-sided matching model with heterogeneous agents, search frictions, private information, and a designer who coordinates match formation through a menu of contracts. We focus on incentive-compatible contracts, examine optimal transfers, and analyze sorting patterns that arise in equilibrium as in Becker (1973). We show that an optimal menu of licenses must not only account for the child’s attribute, as it is in practice currently, but also for other characteristics of the market such as parents’ types, supply of parents, and supply of children.
Dynamic Pricing under Loss Aversion: To Match Own-Price, or Not? with Murat Yilmaz (draft coming soon)
Abstract. We consider a monopolist who is facing loss-averse buyers over two periods, with an uncertain demand in the second period. Monopolist cannot commit today to a future price, and posts the price for tomorrow only after the demand realization. We incorporate best-price provision policy into the monopolist’s problem, in the form of a most-favored-customer (MFC) clause, which is an own-price match guarantee. We solve for the dynamic pricing problem of such a monopolist under loss aversion both with and without an MFC clause. We show that for a wide range of discount factors, the monopolist optimally adopts MFC
if and only if the buyers are loss-averse. Also, the result holds for any discount factor when buyers are sufficiently loss-averse. We also make inferences on the residual demand, which reflects the set of buyers who choose to wait for tomorrow to purchase.