RESEARCH
Dynamic Investigations - joint with Ephraim Shimko (JMP)
Investigations are an important feature of our legal system used to uncover wrongdoing and hold people accountable for their actions. We study an environment where an investigator uses a Poisson process to investigate a potentially guilty party who, in turn, can invest resources into obstructing the course of the investigation, slowing down the arrival of damning evidence. In equilibrium, obstruction occurs with positive probability, and increases as time progresses. We consider the model in the context of investigating a political candidate seeking office. Guilty candidates have incentives to obstruct the investigation, thereby reducing voter information during the election. This problem intensifies when legal penalties for wrongdoing increase, but is ambiguous in increases to voter's distaste for wrongdoing. When voters display stronger distaste for wrongdoing, relatively secure (but guilty) candidates obstruct more in an attempt to avoid confirmation of wrongdoing. On the other hand, less secure candidates may be so tainted by the accusation they are unlikely to win the election even if they successfully obstruct the investigation, and therefore obstruct less in equilibrium. We augment the model in two directions. First, we consider a legal environment that separately punishes wrongdoing and obstruction, and give voters a corresponding distaste for wrongdoing and dishonesty. We show that punishing obstruction can increase voter welfare under certain ranges of the parameter space and depends crucially on whether or not the election constraint is binding for the investigator. Second, we consider an opposition candidate with verifiable information that can choose when to level an accusation against their opponent. We show that in close elections, credible information is released as an `October surprise', whereas non-credible information is released early in the hopes that something comes of it, in spite of the accusation being ex-ante unlikely. This result differs from recent literature on the timing of accusations by focusing on uncertainty surrounding the median voter's preferences.
Presented at: Stony Brook Game Theory Conference - July 2022, Pennsylvania Economic Theory Conference - April 2022 (poster session), UPenn Microtheory Lunch - March 2022
A Multi-Agent Model of Misspecified Learning with Overconfidence - joint with Cuimin Ba (R&R at Games and Economic Behavior)
This paper studies the long-term interaction between two overconfident agents who choose how much effort to exert while learning about their environment. Overconfidence causes agents to underestimate either a common fundamental, such as the underlying quality of their project, or their counterpart's ability, to justify their worse-than-expected performance. We show that in many settings, agents create informational externalities for each other. When informational externalities are positive, the agents' learning processes are mutually-reinforcing: one agent best responding to his own overconfidence causes the other agent to reach a more distorted belief and take more extreme actions, generating a positive feedback loop. The opposite pattern, mutually-limiting learning, arises when informational externalities are negative. We also show that in our multi-agent environment overconfidence can lead to Pareto improvement in welfare. Finally, we prove that under certain conditions, agents' beliefs and effort choices converge to a steady state that is a Berk-Nash equilibrium.
Presented at: European Summer Meetings of the Econometric Society - August 2021, Asian Summer Meetings of the Econometric Society - June 2021
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Purchase Order Financing: A Signalling Approach
This paper proposes a model of purchase order financing, a technique for funding firms with low collateral via debt. Investors consider agreements with customers to purchase finished goods from the firm, called purchase order agreements, when deciding whether a firm's funding proposal is acceptable. I identify a unique Weak Perfect Bayesian Equilibrium that satisfies the Intuitive Criterion for this setting. This equilibrium is fully separating, meaning that the firm proposes a unique and increasing loan size and debt repayment quantity based on their level of demand from customers. Moreover firms with large amounts of customer demand write purchase order agreements which reflect the full extent of their demand in order to demonstrate to investors their potential profitability and commit themselves to higher levels of effort. On the other hand firms with less demand, `shade down' the level of demand written into their purchase order agreements in order to avoid larger penalties should they fail at production. I compare this setting to a setting where firms can only access debt to demonstrate how firms with little collateral turn to purchase order financing over more traditional debt financing because purchase order financing allows the firms to acquire larger loans. The terms for loans are more favorable with purchase order financing because purchase orders serve as better signals of the firm's demand and help alleviate moral hazard by committing firms to higher levels of effort.