Raphael Boleslavsky

Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process

We examine a model of long-term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves. In addition, the realized values are also private information. We characterize a class of environments in which the profit-maximizing long-term contract offered by a monopolist takes an especially simple structure: we derive sufficient conditions on primitives under which the optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher realized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time, eventually leading to inefficiently early termination of the relationship. Moreover, the menu choices differ by future generosity, with more costly (up front) plans guaranteeing greater quantity provision in the future. Thus, the seller screens process information in the initial period, and then progressively screens across realized values so as to reduce the information rents paid in future periods.

Information and Extremism in Elections

We model an election in which parties nominate candidates with observable policy preferences prior to a campaign that produces information about candidate quality, a characteristic independent of policy. Informative campaigns lead to greater differentiation in expected candidate quality, which undermines policy competition. In equilibrium, as campaigns become more informative, candidates become more extreme. We identify conditions under which the costs associated with extremism dominate the benefits of campaign information. Informative political campaigns increase political extremism and can decrease voter welfare. Our results have implications for media coverage, the number of debates, and campaign finance reform.

Grading Standards and Education Quality

We consider a game in which schools compete to place graduates in two distinct ways: by investing in the quality of education, and by strategically designing grading policies. In equilibrium, schools issue grades that do not perfectly reveal graduate abilities. This leads evaluators to have less-accurate information when hiring or admitting graduates. However, compared to fully-revealing grading, strategic grading motivates greater investment in educating students, increasing average graduate ability. Allowing grade inflation and related grading strategies can increase the probability evaluators select high-ability graduates.We consider a game in which schools compete to place graduates by investing in education quality and by choosing grading policies. In equilibrium, schools strategically adopt grading policies that do not perfectly reveal graduate ability to evaluators (including employers and graduate schools). We compare equilibrium outcomes when schools grade strategically to equilibrium outcomes when evaluators perfectly observe graduate ability. With strategic grading, grades are less informative, and evaluators rely less on grades and more on a school’s quality when assessing graduates. Consequently, under strategic grading, schools have greater incentive to invest in quality, and this can improve evaluator welfare.

Demonstrations and Price Competition in New Product Release

We incorporate product demonstrations into a game theoretic model of price competition. Demonstrations may include product samples, trials, return policies, online review platforms, or any other means by which a firm allows consumers to learn about their value for a new product. In our model, demonstrations help individual consumers to learn whether they prefer an innovative product over an established alternative. The innovative firm controls demonstration informativeness. When the innovative firm commits to demonstration policies and there is flexibility in prices, the firm is best off offering fully informative demonstrations that divide the market and dampen price competition. In contrast, when a firm can adjust its demonstration strategy in response to prices, the firm prefers only partially informative demonstrations, designed to maximize its market share. Such a strategy can generate the monopoly profit for the innovative firm. We contrast the strategic role of demonstrations in our framework with ...

Selloffs, Bailouts, and Feedback: Can Asset Markets Inform Policy

We introduce a new market microstructure model to study a setting in which an authority (e.g. a firm manager or government policymaker) learns about the likelihood of a bad state by observing activity in the asset market, before deciding whether to undertake a costly intervention to improve the state. Intervention erodes the value of an investors private information by weakening the link between the initial state and the asset payoff. Informed investors are reluctant to make large, informative trades in the bad state, undermining the markets informativeness and the welfare gains generated by the possibility of a corrective intervention. Fundamentally, the authority faces a tradeoff between eliciting information from the asset market and using the information so obtained. The authority can generate a Pareto improvement if she commits to intervene less often when the market suggests that intervention is most beneficial and more often when the market suggests that intervention is unwarranted. She thus may benefit from imperfections in the intervention process or from delegating the decision to intervene to a biased agent.

Evolving influence: Mitigating extreme conflicts of interest in advisory relationships

An advocate for a special interest provides advice to a planner, who subsequently makes a sequence of decisions. The advocate is interested only in advancing his cause and will distort his advice to manipulate the planners choices. Each time she acts the planner observes the result, providing a signal that corroborates or contradicts the advocates recommendation. Without commitment, no influential communication takes place. With commitment, the planner can exploit the information that is revealed over time to mitigate the advocates incentive to lie. We derive the optimal mechanism for eliciting advice, characterizing the evolution of the advocates influence. We also consider costly information acquisition, the use of transfers, and a noisy private signal.

Learning More by Doing Less: Capacity and Competition in Bayesian Persuasion

Self-interested agents produce information in an attempt to convince a principal to act on their behalf. Agents provide less informative evidence than the principal prefers since doing so maximizes the probability the principal acts in their favor. If the principal faces constraints that limit the number of agents whose proposals she can support, then agents produce more-accurate evidence as they compete for priority. Under reasonable conditions, the principal is better off when her capacity to act is limited.

Markets vs. Mechanisms

We demonstrate constraints on usage of direct revelation mechanisms (DRMs) by corporations inhabiting economies with securities markets. We consider a corporation seeking to acquire decision relevant information. Posting a standard DRM in an environment with a securities market endogenously increases the outside option of the informed agent. If the informed agent rejects said DRM, then she convinces the market that she is uninformed, and she can trade aggressively sans price impact, generating large (off-equilibrium) trading gains. Due to this endogenous outside option effect, using a DRM to screen out uninformed agents may be impossible. Even when screening is possible, refraining from posting a mechanism and instead relying on markets for information is optimal if the endogenous change in outside option value is sufficiently large. Finally, even if posting a DRM dominates relying on markets, outcomes are improved by introducing a search friction, which randomly limits the agents ability to observe the DRM, forcing the firm to sometimes rely on markets for information.

Bayesian Persuasion and Moral Hazard

We consider a three-player Bayesian persuasion game in which the sender designs a signal about an unknown state of the world, the agent exerts a private effort that determines the distribution of the underlying state, and the receiver takes an action after observing the signal and its realization. The sender must not only persuade the receiver to select a desirable action, but also incentivize the agent’s effort. We develop a general method of characterizing an optimal signal in this environment. We apply our method to derive concrete results in several natural examples and discuss their economic implications

Institutions, Repression and the Spread of Protest

We analyze the strategic interactions between a state that decides whether to repress a group of activists and the general public that decides whether to protest following repression. Strategic complementarities between the strategies of the public and the state generate multiple equilibria, suggesting a role for social norms. These results shed light on conflicting empirical findings regarding the determinants of repression. We investigate the effects of exogenous restrictions, imposed by international institutions, showing that weak restrictions can paradoxically increase repression. This result provides a rationale for the puzzling empirical finding that international pressure can increase repression. Finally, we study the effects of endogenous restrictions, imposed by domestic institutions set up by the state to restrict its own subsequent repression. We characterize when the state can benefit from introducing such institutions, offering an explanation for the presence of partially independent judiciaries in authoritarian regimes.