Gregory Lewis

Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction web page. This defines a precise contract -- to deliver the car shown for the closing price -- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants, and that disclosure costs impact both the level of disclosure and prices. (JEL D44, D82, L81)

Buy-It-Now or Take-a-Chance: Price Discrimination through Randomized Auctions

Increasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can “buy-it-now” at a posted price, or “take-a-chance” in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high-valuation bidders to buy-it-now. We analyze equilibrium behavior and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction. This paper was accepted by Assaf Zeevi, stochastic models and simulation.

Moral Hazard, Incentive Contracts, and Risk: Evidence from Procurement

Deadlines and late penalties are widely used to incentivize effort. Tighter deadlines and higher penalties induce higher effort, but increase the agents risk. We model how these contract terms affect the work rate and time-to-completion in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes day-by-day information on work plans, hours worked and delays, we find evidence of ex post moral hazard: contractors adjust their effort level during the course of the contract in response to unanticipated productivity shocks, in a way that is consistent with our theoretical predictions. We next build an econometric model that endogenizes the completion time as a function of the contract terms and the productivity shocks, and simulate how commuter welfare and contractor costs vary across different terms and shocks. Accounting for the traffic delays caused by construction, switching to a more efficient contract design would increase welfare by 22.5% of the contract value while increasing the standard deviation of contractor costs—a measure of risk—by less than 1% of the contract value.

A Demand System for a Dynamic Auction Market with Directed Search

Economists have developed a range of empirically tractable demand systems for fixed price markets. But auction mechanisms also play an important part in allocating goods, and yet existing empirical auction techniques treat each auction in isolation, obscuring market interactions. Here we provide a framework for estimating a demand system in a large auction platform market with a dynamic population of buyers, heterogeneous objects and unit demand. We construct a model of repeated second-price auctions in which bidders have multidimensional private valuations, developing an equilibrium concept under which strategies reflect option values. We prove existence of this equilibrium and characterize the ergodic distribution of types. Having developed a demand system, we show that it is non-parametrically identified from panel data. Relatively simple nonparametric and semiparametric estimation procedures are proposed and tested by Monte Carlo simulation. Our analysis highlights the importance of both dynamic bidding strategies and panel data sample selection issues when analyzing these markets.