Huanxing Yang

Efficiency Wages and Subjective Performance Pay

This paper studies optimal relational contracts in motivating workers in a market setting. We find that labor markets with higher turnover costs will use more subjective performance pay and less efficiency wages and that in those markets, the total wage payment is lower and the equilibrium employment level is higher. Surprisingly, under certain conditions, an increase in turnover costs leads to higher social welfare. Incorporating workers’ search costs, we show that wages are procyclical in booms and are either rigid or countercyclical during recessions. The predictions of the model are consistent with some empirical evidence. (JEL D82, J33, J41, J63)

Nonstationary Relational Contracts with Adverse Selection

I develop a model of nonstationary relational contracts in order to study internal wage dynamics. Workers are heterogeneous, and each worker’s ability is both private information and fixed for all time. Learning therefore occurs within employment relationships. The inferences, however, are confounded by moral hazard. Incentive provision is restricted by an inability to commit to long-term contracts. Relational contracts, which must be self-enforcing, must therefore be used. The wage dynamics in the optimal contract, which are pinned down by the tension between incentive provision and contractual enforcement, are intimately related to the learning effect.

Cheap Talk with Two Senders and Complementary Information

This paper studies a cheap talk model in which two senders having partial and non-overlapping private information simultaneously communicate with an uninformed receiver. The sensitivity of the receiverʼs ideal action to one senderʼs private information depends on the other senderʼs private information. We show that the sendersʼ information transmissions exhibit strategic complementarity: more information transmitted by one sender leads to more information being transmitted by the other sender.

Competitive cheap talk

We study a competitive cheap talk model with two senders. Each sender is responsible for a single project and observes its return. Exactly one project will be implemented. Both senders share some common interests with the principal, but have own-project biases. Under simultaneous communication, all equilibria are shown to be partition equilibria, but all the equilibria can no longer be ranked ex ante in terms of Pareto efficiency. The payoff of the principal depends on both the total conflict between the agents and the asymmetry in the own-project biases. In the equilibrium preferred by the principal, the agent with a smaller bias always has veto power to determine which alternative is implemented and weakly more messages. In any given equilibrium, decreasing the own-project bias of one agent improves the precision of communication by both agents. Finally, sequential communication and simple delegation are shown to be essentially outcome-equivalent to simultaneous communication.

Investment Cycles, Strategic Delay, And Self‐Reversing Cascades

We study investment cycles in a social learning model, where investment returns fluctuate according to a Markov process. In our Waiting Game, agents observe the investment history and a private signal correlated with the current periods investment return. Agents then decide whether to invest immediately or to delay their decision to later in the period. Cascades in which everyone invests or no one invests eventually reverse themselves. As compared to the No-Waiting Game with no opportunity for delay, the Waiting Game has shorter investment cascades, longer recessions, shorter booms, more under-investment, and less over-investment.

Competitive Nonlinear Pricing and Contract Variety

We analyze markets with both horizontally and vertically differentiated products under both monopoly and duopoly. In the base model with two consumer types, we identify conditions under which entry prompts an incumbent to expand or contract its low end of the product line. Our analysis offers a novel explanation for the widespread use of ‘fighting brands’ and ‘product line pruning.’ We also extend our analysis to asymmetric firms and three types of consumers and show that depending on the specific environment, entry may lead the incumbent to expand or contract the middle range of its product line (middle contracts). Our results are mainly driven by interactions between horizontal differentiation (competition) and vertical screening of consumers.