Junichiro Ishida

Optimal Promotion Policies with the Looking‐Glass Effect

This article considers a model where the agent is uncertain about his innate ability and instead makes an inference from others’ (namely, the principal’s) perception, as often emphasized in the psychology literature. When the principal has superior knowledge about the agent’s productivity than the agent himself, the principal has an incentive to use promotions strategically to boost the agent’s self‐confidence. Within this framework the optimal promotion policy depends not only on the agent’s current expected ability type but also on the history of his previous job assignments. We use this fact to explain why we rarely observe demotions in organizations.

The role of social norms in a model of marriage and divorce

In the US, the rate of divorce has increased at an alarming rate since the 1960s. This paper presents a mechanism which gives rise to the emergence of multiple equilibria and a discrete jump in the rate of divorce in a simple search environment. We attempt to show that social norms influence the way each agent searches for a matching partner and hence the probability of divorce. In a low-divorce equilibrium, agents are willing to spend more cost in the search process. As a result, the act of divorce becomes a more accurate signal of unobservable characteristics of a divorced agent. This type of social norms is self-consistent in equilibrium as social stigma attached to divorce is relatively high and this forces agents to be more discreet in the search process. For exactly the opposite reason, a high-divorce equilibrium can also be supported where agents are willing to spend little cost in the search process. In the light of this logic, the rapid increase in the rate of divorce can be seen as a movement from a low-divorce to a high-divorce equilibrium, possibly triggered by a temporary shock.

Cheap Talk with an Informed Receiver

This paper considers a model of strategic information transmission with an imperfectly informed receiver and provides a simple logic by which the receivers prior knowledge becomes an impediment to efficient communication. We show that the extent of communication is severely limited as the receiver becomes more informed. Moreover, in a simple example with two signals, we show that no information can be conveyed via cheap talk for an arbitrarily small degree of preference incongruence. This result draws sharp contrast to the case with an uninformed receiver which always yields a fully separating equilibrium as long as the preferences are sufficiently congruent.

Team Incentives under Relative Performance Evaluation

This paper examines the optimal provision of incentives in the repeated setting with many agents under the restriction that only relative performance evaluation is feasible for contracting. We show that the optimal contract in the repeated setting may take a different form than that in the static setting. In the repeated setting, it may be optimal for the principal to arbitrarily divide the agents into teams and compensate them based on team ranking, as it allows the principal to motivate the agents through peer sanctions. The situation draws a clear contrast to the static setting where such a strategy is never optimal. The result indicates that the concept of team plays an important role in the repeated setting even when performances can only be evaluated in relative terms.

Contracting with Self-Esteem Concerns

It is widely accepted in social psychology that the need to maintain and enhance self-esteem is a fundamental human motive. We incorporate this factor into an otherwise ordinary principal–agent framework and examine its impact on the optimal incentive scheme and the agents behavior, especially focusing on the form of intrapersonal strategy known as self-handicapping. Incorporating self-esteem concerns into a contracting situation yields an implication that runs counter to conventional wisdom; that is, the standard tradeoff between risk and incentives may break down (i.e., more uncertainty reduces agency cost and hence results in stronger incentives) in the presence of self-esteem concerns. This is because uncertainty mitigates the need for self-handicapping. This result provides a possible reason for why we do not empirically observe this tradeoff in a robust manner. We present an intuitive condition for this anomaly to arise and provide a set of testable implications. The present framework also reveals why and how team production can be made more profitable, which provides an explanation for the increasing popularity of team production. Finally, this simple logic is applied to identify additional implications for the hidden costs of external enforcers, such as evaluation and monitoring, which are discussed extensively in social psychology.

The Role of Intrahousehold Bargaining in Gender Discrimination

Two alternative intrahousehold resource allocation rules are considered and the role of intrahousehold bargaining in gender discrimination is explained. A model is constructed in which male and female agents interact at the household level in the form of marriage. It is shown that an asymmetric equilibrium in which male and female agents behave differently exists under either rule, but that welfare implications of the model depend critically on the nature of intrahousehold resource allocation. The asymmetric equilibrium is strictly welfare-reducing for female agents when total output is divided through Nash bargaining, but not when each household acts as one utility-maximizing unit. The model indicates that the nature of intrahousehold resource allocation has critical policy implications.

Nominal Wage Adjustment, Demand Shortage and Economic Policy

We formulate nominal wage adjustment by incorporating various concepts of fairness. By applying it into a continuous-time money-in-utility model we examine macroeconomic dynamics with and without a liquidity trap and obtain the condition for persistent unemployment, and that for temporary unemployment, to occur. These conditions turn out to be critical, since policy implications significantly differ between the two cases. A monetary expansion raises private consumption under temporary unemployment but does not under persistent unemployment. A fiscal expansion may or may not increase short-run private consumption but crowds out long-run consumption under temporary unemployment. Under persistent unemployment, however, it always increases private consumption.

Vision and Flexibility in a Model of Cognitive Dissonance

This paper explores the consequences of cognitive dissonance, coupled with time-inconsistent preferences, in an intertemporal decision problem with two distinct goals: acting decisively on early information (vision) and adjusting flexibly to late information (flexibility). The decision maker considered here is capable of manipulating information to serve her self-interests, but a tradeoff between distorted beliefs and distorted actions constrains the extent of information manipulation. Building on this tradeoff, the present model provides a unified framework to account for the conformity bias (excessive reliance on precedents) and the confirmatory bias (excessive attachment to initial perceptions).

Gender Specialization of Skill Acquisition

Abstract This paper presents a model that can account for the gender specialization of skill acquisition in the presence of competitive matching. In particular we show that when the comparative advantage in nonmarket domestic activities belongs to women, an incentive arises for them to intentionally degrade the market value of acquired skills in order to secure gains from the marriage market. We then show that this incentive can be excessively strong and gives rise to the emergence of an inefficient asymmetric equilibrium where women concentrate excessively on acquiring skills that do not lead to higher wages in the labor market. The analysis reveals why policy interventions such as affirmative action programs or equal employment opportunity laws that directly subsidize the acquisition of skills for women would not be effective in closing the gender earnings gap in the long run, and instead suggests that extensive family policies are generally more effective in this regard.

Asking One Too Many? Why Leaders Need to be Decisive

It is often touted that decisiveness is one of the most important qualities to be possessed by leaders, broadly defined. To see how and why decisiveness can be a valuable asset in organizations, we construct a model of strategic information transmission where: (i) a decision maker solicits opinions sequentially from experts; (ii) how many experts to solicit opinions from is the decision makers endogenous choice. We show that communication is less efficient when the decision maker is indecisive and cannot resist the temptation to ask for a second opinion. This result suggests that the optimal diversity of information sources depends critically on the strategic nature of communication: when communication is strategic, it is optimal to delegate information acquisition to a single party and rely exclusively on it; when it is not, it is optimal to diversify information sources and aggregate them via communication.