Paul Romer on Charter Cities. It's not a theory paper, but it's certainly an idea theorists should think about.
Steven Callander, ``Searching for Good Policies''. A nice model where voters faces a continuum of policies and try to find which is best. One contribution of the paper is that payoffs are determined by the realisation of a Brownian motion with drift, and try to find the where it crosses the x-axis.
Preston McAfee and Simon Wilkie, ``The Simple Economics of Price Floors''. Do you teach Economics 101? Be careful what you teach students about price floors...
Alessandro Bonatti, Johannes Horner, ``Collaborating''. An elegant model where agents privately exert effort into a project and update about the probability that can solve it. rather than working hard until the posterior hits a cutoff (as in a perfect information model), the agents exert less and less effort as the posterior decline, never quite stopping.
Andy Atkeson, Christian Hellwig and Guillermo Ordonez, ``Optimal Regulation in the Presence of Reputation Concerns''. This paper presents a reputational model with monopolistic competition. I'm not sure how interesting the regulation question is, but the model could become a workhorse in applications.
Noah Williams, ``Persistent Private Information''. Provides a method to analyse dynamic mechanism design problems with persistent information in continuous time. I'm not sure how much I understand, but it seems very impressive. See also ``Dynamic Mechanism Design: Revenue Equivalence, Profit Maximization, and Information Disclosure'' by Alessandro Pavan, Ilya Segal and Juuso Toikka.
Jonathan Thomas and Tim Worrall, ``Dynamic Relational contracts with Consumption Constraints''. This model considers a repeated two-sided holdup problem. Each period consists of two phases: (1) both agents choose actions; (2) the agents split the output, or can quit and get some outside option. When only one party invests, payments are back-loaded and the action converges to the efficient one. When both choose actions, only one agent can have his consumptions back-loaded. Moreover, this agent may overinvest to increase the amount of back-loading. This may help explain why young lawyers work 90 hours a week...
Willie Fuchs and Vinicius Carrasco, ``Dividing and Discarding: A Procedure for Taking Decisions with Non-transferable Utility''. Two agents wish to take a common decision. The agents have private values distributed U[0,1], and quadratic loss functions. The paper shows the utilitarian-welfare maximising decision is remarkably simple. The initial state space is [0,1]. The agents then say if they are above/below the midpoint. If they disagree, the planner implements the midpoint; if they agree, the planner reduces the effective state space to [0,1/2] or [1/2,1]. Then repeat.
Charles Roddie, ``Repeated Signalling and Reputation''. This paper considers a repeated signalling model where both the receiver and the sender move simultaneously. Each period, the sender's type may change (with probability &epsilon), leading to an equilibrium where the agent continuously signals. In the limit, as &epsilon &rarr 0, the equilibrium converges to the Stackelberg equilibrium of the static game. In many ways this is more attractive than the Fudenberg-Levine argument using commitment types. The one problem is that it relies on high types signalling when there is a small probability of them being low. This is not realistic if output is a noisy function of the chosen action: see Brendan Daley and Brett Green, ``Market Signaling with Grades''.
Mike Peters, ``Unobservable Heterogeneity in Directed Search''. Not the sexiest title, but a very interesting equilibrium. Workers of different qualities apply to different jobs. Surprisingly, mediocre workers apply to the best jobs, even as the number of firms and workers grows large. This can be contrasted to a deterministic version of the model, where assortative matching is the unique equilibrium, even as the market becomes large. In the limit, the stochastic and deterministic models look alike (they both have a continuum of firms and workers), but the outcomes are very different.
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Papers will be removed when published.
Date: Aug 2009