Security-bid Auctions with Information Acquisition (with Zongbo Huang) (new draft coming soon)
Abstract We study security-bid auctions in which bidders compete for an asset by bidding with securities whose payments are contingent on the asset’s realized value and can covertly acquire information at some cost before participating in an auction. We first consider auctions with ordered securities in which the seller restricts the security design to an ordered set and uses a first- or second-price auction. We show that steeper securities give agents lower marginal return to information and may yield lower revenues. We then study linear mechanisms in which payments linearly depend on the asset’s realized value. We show that the revenue-maximizing linear mechanism assigns the asset efficiently, and the winner pays in cash if their expected values are high and pays in stock if their expected values are low. This result implies that the use of cash payment is positively correlated to synergies in merges and acquisitions. We empirically test this implication and find consistent results.
Mechanism Design with Financially Constrained Agents and Costly Verification (Sept. 2020), Conditionally accepted at Theoretical Economics
Abstract A principal distributes an indivisible good to budget-constrained agents when both valuation and budget are agents’ private information. The principal can verify an agent’s budget at a cost. The welfare-maximizing mechanism can be implemented via a two-stage scheme. First, agents report their budgets, receive cash transfers, and decide whether to enter a lottery over the good. Second, recipients of the good can sell it on a resale market but must pay a sales tax. Low-budget agents receive a higher cash transfer, pay a lower price to enter the lottery, and face a higher sales tax. They are also randomly inspected.
An Efficient Ascending Auction (Oct. 2016)
Abstract This paper proposes an ascending auction that yields an efficient outcome when the seller is restricted to sell bundles whose elements form a basis of a matroid and agents have interdependent values. This ascending auction generalizes Bikhchandani et al. (2011) who assume agents have independent private values; and Perry and Reny (2005) who study multi-unit good auctions. The key feature of the auction is that agents are permitted to express different demands against different elements.
Endogenous Labor Market Cycles (with Cheng Wang) (Mar. 2019), R&R at International Economic Review
Abstract This paper shows that in a perfectly stationary physical environment of the labor market, moral hazard and competition in long-term contracts can generate cycles in the tightness of the market, which in turn may induce job creation and destruction, and two periods or much longer cycles in employment and output. We claim that the model may shed light on the unemployment volatility puzzle, which has inspired many discussions in the literature.
Mechanism Design with Costly Verification and Limited Punishments, Accepted at Journal of Economic Theory
Efficient Mechanisms with Information Acquisition, Journal of Economic Theory, 182 (2019): 279-328.
Approximation in Mechanism Design with Interdependent Values, Games and Economic Behavior, 103 (2017): 225-253. (A one-page abstract of an earlier version of this paper appeared in Proceedings of the 14th ACM Conference on Electronic Commerce. ACM, pp. 675-676.)