Claudio Mezzetti

Domestic unionization and import competition

We develop a Cournot duopoly model of a domestic unionized firm and a foreign firm. The negotiated wage and employment levels are simultaneously determined through efficient Nash bargaining. A union is employment (wage) oriented if the employment elasticity of its utility is higher (lower) than the corresponding excess wage elasticity. An increase in the bargaining power of an employment oriented union increases domestic output and welfare. If the union is wage oriented, then protection may decrease output and welfare. A credible threat to shift production abroad increases domestic profits and lowers the negotiated wage.

Learning in Games by Random Sampling

Abstract We study repeated interactions among a fixed set of “low rationality” players who have status quo actions, randomly sample other actions, and change their status quo if the sampled action yields a higher payoff. This behavior generates a random process, the better-reply dynamics. Long run behavior leads to Nash equilibrium in games with the weak finite improvement property, including finite, supermodular games and generic, continuous, two-player, quasi-concave games. If players make mistakes and if several players can sample at the same time, the resulting better-reply dynamics with simultaneous sampling converges to the Pareto optimal Nash equilibrium in common interest games. Journal of Economic Literature Classification Numbers: C70, C72, C73.

Trust-based mechanisms for robust and efficient task allocation in the presence of execution uncertainty

Vickrey-Clarke-Groves (VCG) mechanisms are often used to allocate tasks to selfish and rational agents. VCG mechanisms are incentive compatible, direct mechanisms that are efficient (i.e., maximise social utility) and individually rational (i.e., agents prefer to join rather than opt out). However, an important assumption of these mechanisms is that the agents will always successfully complete their allocated tasks. Clearly, this assumption is unrealistic in many real-world applications, where agents can, and often do, fail in their endeavours. Moreover, whether an agent is deemed to have failed may be perceived differently by different agents. Such subjective perceptions about an agents probability of succeeding at a given task are often captured and reasoned about using the notion of trust. Given this background, in this paper we investigate the design of novel mechanisms that take into account the trust between agents when allocating tasks. Specifically, we develop a new class of mechanisms, called trust-based mechanisms, that can take into account multiple subjective measures of the probability of an agent succeeding at a given task and produce allocations that maximise social utility, whilst ensuring that no agent obtains a negative utility. We then show that such mechanisms pose a challenging new combinatorial optimisation problem (that is NP-complete), devise a novel representation for solving the problem, and develop an effective integer programming solution (that can solve instances with about 2×105 possible allocations in 40 seconds).

Equilibrium reserve prices in sequential ascending auctions

Abstract We study a model where bidders have perfectly correlated valuations for two goods sold sequentially in two ascending-price auctions. The seller sets a reserve price before the beginning of each auction. Despite the lack of commitment by the seller, we characterize an equilibrium and study its properties. Strategic non-disclosure of information takes the form of non-participation in the early auction by low-valuation bidders, while high-valuation bidders bid up to their true valuations. Some buyers who would profitably buy at the reserve price refrain from participating in order to decrease the second-auction reserve price.

Bounded rationality, dynamic oligopoly, and conjectural variations

Abstract We propose a dynamic model of n-firm oligopoly that provides a logically consistent reinterpretation of conjectural variations. Each firm solves a dynamic optimization problem believing that the other firms will alter their future choices in proportion to its own current change. These beliefs adapt in light of observed behavior. We show that steady state equilibria can range from complete cooperation to predatory play and provide conditions under which the firms’ behavior and beliefs converge to a steady state. The sufficient conditions for stability are more easily satisfied the smaller the cross-effects among firms through demand or belief parameters. They are also more easily satisfied in a price setting than in a quantity setting, differentiated products model.

Disclosure as a Strategy in the Patent Race

Research firms disclose a surprisingly large amount of information to the patent office through “targeted” disclosures, that is, disclosures intended to make the patent office aware of potentially patentable information. Conventional wisdom holds that these disclosures are made for defensive purposes; the disclosing firm does not itself plan to pursue patents related to the disclosed information, so the firm discloses to create prior art that might stop rivals from patenting. But firms have an incentive to disclose even if they intend to pursue patent protection. The reason is that, by making it more difficult to patent, disclosure extends the patent race. If an invention of a certain quality would have been sufficient to qualify for patent protection before the disclosure, after the disclosure any invention must be that much better before it will represent a sufficient advance over the now‐expanded prior art. This paper models disclosure strategies of this sort.

Common Agency with Horizontally Differentiated Principals

I analyze a common agency relationship where the agent has private information about the difference in his value for two principals. When the principals independently offer incentive contracts, the agent specializes less than is socially efficient, but more than when they cooperate and choose the contract that maximizes their joint payoff. Under both arrangements the agent faces countervailing incentives. The pooling region of types receiving a flat fee is larger and the incentive pay of the remaining types is lower powered under cooperation than under independent contracting. The principals prefer independent contracting with a common agent to exclusive dealing.

A Theory of Rational Jurisprudence

We examine a dynamic model of up-or-down problem solving. A decision maker can either spend resources investigating a new problem before deciding what to do or decide on the basis of similarity with precedent problems. Over time, a decision-making framework, or jurisprudence, develops. We focus on the model’s application to judge-made law. We show that judges summarily apply precedent in some cases. The law may converge to efficient or inefficient rules. With positive probability, identical cases are treated differently. As the court learns over time, inconsistencies become less likely. We discuss the existing empirical evidence and the model’s testable implications.

Sequential vs. Single-Round Uniform-Price Auctions

We study sequential and single-round uniform-price auctions with affiliated values. We derive symmetric equilibrium for the auction in which k1 objects are sold in the first round and k2 in the second round, with and without revelation of the first-round winning bids. We demonstrate that auctioning objects in sequence generates a lowballing effect that reduces the first-round price. Total revenue is greater in a single-round, uniform auction for k=k1+k2 objects than in a sequential uniform auction with no bid announcement. When the first-round winning bids are announced, we also identify a positive informational effect on the second-round price. Total expected revenue in a sequential uniform auction with winning-bids announcement may be greater or smaller than in a single-round uniform auction, depending on the models parameters.

Incentive Auctions and Information Revelation

We study an incentive auction in which multiple principals bid for the exclusive services, or effort, of a single agent. Each principal has private information about her valuation for these services, and the agent has private information about his disutility of providing them. We characterize the equilibrium of this auction and examine the agents incentives to reveal information about his type. We show that the effort level taken by the agent is smaller than in the standard auction for a known agent type and greater than in the single-principal, single-agent model. Additionally, inexperienced analysts are less likely to issue timely forecasts, and they revise their forecasts more frequently. These findings are broadly consistent with existing career concern motivated herding theories.