Joana Pais

Incentives in decentralized random matching markets

Decentralized markets are modeled by means of a sequential game where, starting from any matching situation, firms are randomly given the opportunity to make job offers. In this random context, we prove the existence of ordinal subgame perfect equilibria where firms act according to a list of preferences. Moreover, every such equilibrium preserves stability for a particular profile of preferences. In particular, when firms best reply by acting truthfully, every equilibrium outcome is stable for the true preferences. Conversely, when the initial matching is the empty matching, every stable matching can be reached as the outcome of an ordinal equilibrium play of the game.

College Admissions and the Role of Information: An Experimental Study

We analyze two well-known matching mechanisms—the Gale-Shapley, and the Top Trading Cycles (TTC) mechanisms—in the experimental lab in three different informational settings, and study the role of information in individual decision making. Our results suggest that—in line with the theory—in the college admissions model the Gale-Shapley mechanism outperforms the TTC mechanisms in terms of efficiency and stability, and it is as successful as the TTC mechanism regarding the proportion of truthful preference revelation. In addition, we find that information has an important effect on truthful behavior and stability. Nevertheless, regarding efficiency, the Gale-Shapley mechanism is less sensitive to the amount of information participants hold.

R&D AS A PRISONER'S DILEMMA AND R&D‐AVOIDING CARTELS

Duopoly firms engaged in a standard two-stage game of R&D and Cournot competition are caught in a prisoners dilemma for their R&D decisions whenever spillover effects are low. This effect works to the advantage of consumers and society. This result provides an interesting perspective on the well-known wedge between private and social incentives for R&D. The prisoners dilemma is the key effect behind this wedge under low spillovers. The latter take over when sufficiently high, as is widely recognized. This mutually exclusive nature of the prisoners dilemma and significant spillovers also serves to explain the incentives to form R&D cartels.

Fragmentation and Clustering in Vertically Linked Industries

This paper models the location of two vertically related firms in a low labor cost country and in a country with a large market. The upstream industry is more labor intensive than the downstream industry. We find that spatial fragmentation occurs for low values of the input-output coefficient and intermediate values of the transport rate, particularly if the countries are very asymmetric in size. Otherwise, we obtain agglomeration either in the low cost country (when the transport rate is low) or in the large market (when the transport rate is high). Multiple agglomerated equilibria arise when the transport cost of the intermediate good is significant.

Static versus Dynamic Deferred Acceptance in School Choice: Theory and Experiment

In the context of school choice, we experimentally study how behavior and outcomes are affected when, instead of submitting rankings in the student proposing or receiving deferred acceptance (DA) mechanism, participants make decisions dynamically, going through the steps of the underlying algorithms. Our main results show that, contrary to theory, (a) in the dynamic student proposing DA mechanism, participants propose to schools respecting the order of their true preferences slightly more often than in its static version while, (b) in the dynamic student receiving DA mechanism, participants react to proposals by always respecting the order and not accepting schools in the tail of their true preferences more often than in the corresponding static version. As a consequence, for most problems we test, no significant differences exist between the two versions of the student proposing DA mechanisms in what stability and average payoffs are concerned, but the dynamic version of the student receiving DA mechanism delivers a clear improvement over its static counterpart in both dimensions. In fact, in the aggregate, the dynamic school proposing DA mechanism is the best performing mechanism.

Modes of infrastructure financing and the ‘Big Push’ in development economics

In an economy where different agents undertake simultaneous and interdependent investments, this paper models the possibility that the outcome where some players invest and others do not invest is sustained in Nash equilibrium. It is well known that in models where all goods are financed through prices charged by the suppliers (“tolls” in the case of transport infrastructures), there are only two coordination equilibria: the “Big push” equilibrium, where every agent involved invests; and the “Poverty trap”, whenever none invests. We consider a two person simultaneous game, where the Government decides whether to build a highway and a firm producing a composite good decides whether to use it. Instead of resorting to tolls, the infrastructure is funded through an income tax that falls on wages. Having the Government supplying the highway and the firm not using it is a Nash equilibrium if the employment generated by the construction of the highway is intermediate and the rate of the wage income tax is high. The proliferation of unused transport infrastructures in Southern Europe seems to be related with low effects of public works upon the demand for labor and with demanddepressing “austerity” macroeconomic policies.