Heski Bar-Isaac

Reputation and Survival: Learning in a Dynamic Signalling Model

We consider the impact of reputation on the survival of a monopolist selling single units in discrete time periods, whose quality is learned slowly. If the seller learns her own quality at the same rate as customers, a sufficiently bad run of luck could induce her to stop selling. When she knows her quality, a good seller never stops selling though at low reputations a bad seller does with some probability. Furthermore, a seller with positive, though imperfect, information sells for the same number of periods whether her information is private or public. We further consider the robustness of the central result when the sellers opportunities for strategic behaviour are limited. Copyright 2003, Wiley-Blackwell.

Search, Design and Market Structure

The Internet has made consumer search much easier with consequences for competition, industry structure and product offerings. We explore these consequences in a rich but tractable model that allows for strategic design choices. We find a polarized market structure, where some firms choose designs aiming for broad-based audiences, while others target narrow niches. Such an industry structure can arise even when all firms and consumers are ex-ante identical. We perform comparative statics and show the effect of a fall in search costs on the designs, market shares, prices, and profits of different firms. In particular, a fall in search costs, through the effect on product designs, can lead to higher industry prices and profits. In characterizing sales distributions, our analysis is related to discussions of how the Internet has led to the prevalence of niche goods and the long tail and superstar phenomena.

Information Gathering Externalities in Product Markets

Goods and services vary along a number of dimensions independently. Customers can choose to acquire information to assess the quality of some dimensions and not others. Their choices affect firms incentives to invest in quality and so lead to indirect externalities in consumers choices. We illustrate these ideas in a simple model with a monopolist selling a product with two characteristics, investment in quality with stochastic realizations, and heterogeneousconsumers. Consumers in choosing which information to acquire do not consider the effects on firm investment incentives and so there are indirect externalities in information gathering. Therefore, a fall in the cost of acquiring information, by changing the pattern of consumers information gathering and thereby firm investment, can paradoxically reduce consumer surplus, profits, and welfare. We briefly consider a number of potential extensions and in particular, highlight a benefit of diversity in tastes.

Interrogation Methods and Terror Networks

We examine how the structure of terror networks varies with legal limits on interrogation and the ability of authorities to extract information from detainees. We assume that terrorist networks are designed to respond optimally to a trade-off caused by information exchange: Diffusing information widely leads to greater internal efficiency,but it leaves the organization more vulnerable to law enforcement. The extent of this vulnerability depends on the law enforcement authority s resources, strategy and interrogation methods. Recognizing that the structure of a terrorist network respondsto the policies of law enforcement authorities allows us to begin to explore the most effective policies from the authorities point of view.

Transparency, Career Concerns, and Incentives for Acquiring Expertise

An agent, who cares about signaling his ability, chooses among different projects that generate observable outcomes. The agents information about which project delivers a good outcome depends on both his ability and his effort. This paper examines how the agents incentives for effort change depending on whether or not the agents project choice is observed. If this choice is publicly observed, the agents project choice is distorted towards particular types of projects. When the outcomes of these advantaged projects are particularly sensitive to the agents information, such transparency boosts the agents information-gathering incentives. However, when public observation of project choice leads the agent to choose information-insensitive projects, then such transparency dampens incentives. This provides a more nuanced view of the implications of action transparency in the literature on career concerns for experts.

Information and Human Capital Management

An increasingly important organisational design problem for many firms is to recoup general human capital rents while maintaining attractive career prospects for workers. We explore the role of information management in this context. In our model, an information management policy determines the statistic of worker performance that will be available to outside recruiters. Choosing different statistics affects the extent of regression to the mean which, we show, in turn affects the incidence of adverse selection among retained and released workers. Using this observation, we detail how optimal information management policies vary across firms with different human capital management priorities. This view of human capital management via information management has strong implications for labour market outcomes. We discuss the impact on average wages, wage inequality, wage skewness and labour turnover rates.

Brokers’ contractual arrangements in the Manhattan residential rental market☆

We bring new evidence to bear on the role of intermediaries in frictional matching markets and on how parties design contracts with them. Specifically, we examine two features of contracts between landlords and agents in the Manhattan residential rental market. In our data, 72 percent of listings involve exclusive relationships between landlords and agents (the remaining 28 percent are non-exclusive); and in 21 percent of listings, the landlord commits to pay the agent’s fee (in the other 79 percent, the tenant pays the agent’s the fee). Our analysis highlights that these contractual features reflect landlords’ concerns about providing agents with incentives to exert effort specific to their rental units and to screen among heterogeneous tenants.

Brokers’ contractual arrangements in the Manhattan residential rental market

We bring new evidence to bear on the role of intermediaries in frictional matching markets and on how parties design contracts with them. Specifically, we examine two features of contracts between landlords and agents in the Manhattan residential rental market. In our data, 72 percent of listings involve exclusive relationships between landlords and agents (the remaining 28 percent are non-exclusive); and in 21 percent of listings, the landlord commits to pay the agent’s fee (in the other 79 percent, the tenant pays the agent’s the fee). Our analysis highlights that these contractual features reflect landlords’ concerns about providing agents with incentives to exert effort specific to their rental units and to screen among heterogeneous tenants.

Specialized Careers: Specialized Careers

An agent has different abilities in two types of tasks. These tasks are revealed over time through his performance. The agent initially decides whether to engage in only one task (specialize) or to take on any task that arises (be a generalist). This decision trades off the cost of being idle against staying available for relatively lucrative tasks. We compare specializing with acting as a generalist in an infinite�?horizon model and provide complete characterizations of efforts. We show how specializing acts as a means of committing to exert more effort. In a two�?period version of the model, this implies that positive costs for switching strategies, through license fees, for example, may be socially desirable.

Vertical Practices Facilitating Exclusion

Resale price maintenance (RPM), slotting fees, loyalty rebates and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent’s profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.