Takuma Habu

Link: JET
Abstract: We revisit the canonical model of repeated games with two patient players, observable actions, and one-sided incomplete information, and make the substantive assumption that the informed player’s preference is state independent. We show the informed player can attain a payoff in equilibrium if and only if she can attain it in the simple class of equilibria first studied by Aumann, Maschler, and Stearns (1968), in which the initial stages are used only for revealing information, and no further information is revealed after the initial stages. This sufficiency result does not extend to the uninformed player’s equilibrium payoff set.

Link: PDF
Abstract: How should an employer design its retention and promotion policy when there is competition for its employees? In an environment where the incumbent employer learns more about its workers than other potential employers, we show that the incumbent’s optimal policy always over-retains workers—retaining workers that it would have let go if all employers had learnt about workers symmetrically—to dampen the positive signalling effect of retention. In contrast, the optimal policy may over- or under-promote workers. The incumbent’s incentive to distort its policy is driven by the technologies of competing firms in the labour market. We demonstrate the extent to which the firm can implement the optimal policy without the ability to commit and study the incentive for the firm to manipulate the signalling effect via designing jobs. Our results shed light on the role of (possibly vacuous) job titles and provide a novel rationale for the Peter Principle.

Link: PDF, Online Appendix
Abstract: Should a decision-maker learn whether an information source is reliable? I consider a persuasion game in which the sender is sometimes unreliable—i.e., can covertly manipulate the signal used to persuade the receiver—and the receiver can costlessly investigate the sender’s reliability. I show that the receiver benefits from committing to investigations that do not always reveal reliability. Even without the ability to commit to ignorance, I demonstrate that the receiver benefits from delegating investigations to someone partially adversarial to the sender and partially aligned with the receiver. My results shed light on the efficacy of cross-examination, audits, and ad hominem arguments.

Link: PDF
Abstract: Does a sender benefit from communicating with an audience in groups rather than publicly or privately? In a cheap-talk game, I show that the sender can gain credibility by ensuring diversity of opinions in a group so that her incentive to lie to a subset of the group is offset by her incentive to be truthful to the rest. The sender’s optimal grouping, or partition, of the audience maximises her benefit from gaining credibility from each group. Public or private communications are not necessarily optimal when the sender can benefit from differently diverse groups of receivers. When the sender values each receiver equally and can gain credibility only by ensuring diversity of opinions in her audience, I show that it is optimal for the sender to separate those who need to be persuaded from those who do not. I also derive further properties of optimal communication when receivers are “single-minded,” and demonstrate the role of diversity in shaping optimal communication.

Preliminary draft available upon request
Abstract: In many applications of Bayesian persuasion, the state space represents agent types so that the choice of experiment by the designer can be expected to have a selection effect. For example, the choice of grading policy for a class is likely to affect the type of students who choose to take the class. Similarly, a seller may not participate on a platform because the platform has a tough rating system. We study how accounting for selection effects in Bayesian persuasion problems affects the optimal payoffs and communication strategy by explicitly modelling the agent’s participation decision.

Link: PDF
Abstract: I study how introducing a boundedly rational agent to an otherwise standard optimal contracting problem alters the characteristics of the optimal contract. Specifically, I assume that the agent’s response function follows the Luce model such that he is more likely to undertake an action that gives him a higher (expected) utility. When there is moral hazard, optimal contracts exhibit the usual monotone contract property “in reverse”; i.e., the principal does not find it optimal to pay the agent always less when she observes a better outcome. This finding is similar to that from the standard model with a fully rational agent.

Link: Undergraduate Economic Review
Abstract: The paper discusses the implication of money illusion on persistent unemployment. A particular form of money illusion is assumed and this is modeled into the efficiency wage theory while separating the analysis into nominal and real frames. The model shows that the level of unemployment in the nominal and the real frame are likely to be different and that the government has an incentive to provide a signaling mechanism to the workers to reduce unemployment levels. Additionally, the government is shown to have an incentive to announce unemployment rates.