Sergei Severinov

Bequests as Signals: An Explanation for the Equal Division Puzzle

In the United States, more than two‐thirds of decedents with multichild families divide their estates exactly equally among their children. In contrast, gifts given before death are usually unequal. These findings challenge the validity of existing theories regarding the determination of intergenerational transfers. In this paper, we develop a theory that accounts for this puzzle based on the notion that the division of bequests provides a signal about a parent’s altruistic preferences. The theory can also explain the norm of unigeniture, which prevails in other societies.

Mechanism Design and Communication Costs

This paper focuses on implementation issues in environments where it may be costly for the players to send certain messages. We develop an approach allowing to characterize the set of implementable outcomes in such environments, and then apply it to derive optimal mechanisms. The key elements of our approach are the absence of any restrictions on the communication structure in a mechanism and the ability of the principal to screen the agents not only on the basis of their preferences over the outcomes, but also on the basis of their communication abilities. A number of interesting implications for the monopoly regulation, signaling and screening is derived. In particular, we show that a monopoly may not want to exclude low-valuation consumers if some consumers in the population are not able to misrepresent their valuations, and why the employers may prefer to screen applicants via multiple rounds of interviews rather than via menus of contracts. Our findings also provide a justification for privacy laws.

Individually Rational, Balanced-Budget Bayesian Mechanisms and the Informed Principal Problem

We investigate the issue of implementation via individually rational ex-post budget-balanced Bayesian mechanisms. We demonstrate that all social choice rules that generate a nonnegative ex-ante surplus, including ex-post efficient ones, can generically be implemented via such mechanisms for any profile of the utility functions. The aggregate expected surplus in these mechanisms can be distributed in an arbitrary way. Also generically, any ex-post efficient social choice rule can be implemented in an informed principal framework, i.e. when the mechanism is offered by one of the informed parties. Only ex-post efficient social choice rules that allocate all surplus to the party designing the mechanism are both sequential equilibrium outcomes and neutral optima, i.e. outcomes that can never be blocked. This result implies that even an informed principal can extract all surplus from players in a Bayesian mechanism

Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?

We study “investment tournaments,” a class of decision problems involving gradual allocation of investment among several alternatives whose values are subject to shocks. The decision maker’s payoff is determined by the final values of the alternatives. An important example of such tournaments is the career choice problem, since a person typically starts by investing in learning several professions. We show that in many cases it is optimal for the decision maker to allocate all resources to the most promising alternative in each time period. We also show that in promotion tournaments the workers optimally exert higher efforts at an early stage in order to capture a larger share of employer’s investment, such as mentoring.

On the value of legal representation

In this paper we investigate how the advice that lawyers provide to their clients affects the disclosure of evidence and the outcome of adjudication, and how the adjudicator should allocate the burden of proof in light of the effect. Despite lawyers’ expertise in assessing the evidence, their advice is found to have no effect on adjudication in a broad set of circumstances, if legal advice is costless and the lawyers follow undominated strategies in disclosure. A lawyer’s advice can influence the outcome to his client’s favor, either if he can credibly advise his client to suppress some favorable evidence or if there is a cost associated with legal advice. The effect is socially undesirable in the former case, but it is desirable in the latter case although the benefit rests on its purely dissipative role as a “money burning” device rather than on his expertise.