Information, Social Learning, Microeconomic Theory, Macroeconomic Theory.
Job Market Paper:
“Social Learning with Payoff Externality: Why Some Learn While Others Do Not”(PDF link)
This paper studies a model of social learning with externalities and possibly with limited observability of past actions. Bayesian agents sequentially choose an action each, after observing the actions of a subset of preceding agents. These actions and a private signal, conditionally independent across agents, supply information about the common state of the world. Each agent’s payoff depends on the state and the actions of the subset of preceding agents (neighbors).
With complete observability of past actions, I show that social learning occurs even in the presence of externality. Social learning also occurs with limited observability but in the absence of externality. However with both limited observability of the history of actions and action externalities, social learning is bounded away from full information. When different agents have randomly determined observability, even a small chance of having limited observability can hamper social learning. These results stand in contrast to the existing literature on herding and social learning. I also show that when agents know the extent of observability of previous agents, agents with better observability learn while the rest do not.
Work in Progress:
“Competition and Herding” (joint with Jacopo Bizzotto).
This paper studies the pricing strategies of two competing firms. The market is characterized by buyers with heterogeneous preferences and private information about the quality of the products. Buyers purchase sequentially and observe the history of purchasing decisions and prices. The literature on markets with dispersed information, pioneered by Bikhchandani et al. (1992) and Banerjee (1992), has almost exclusively focused on the learning process of buyers, keeping product prices fixed over time. We allow our firms to readjust their prices in every period, as we are interested in the interaction between social learning and competitive pricing strategies. In particular, we study the conditions under which price competition prevents herding among buyers.
“Price Rigidity and Quality Signaling in Customer Markets”.
I consider a simple dynamic customer market model where price is a signal for the quality of the product. I show that such a signaling process can lead to price rigidity. A relatively high price charged by the firm can lead to loss of customers while a relatively low price can indicate inferior quality of the product. This process makes firms reluctant to change prices as a response to cost changes.