Working Papers

• Consumer Information in a Market for Expert Services  (joint with Kyle Hyndman)  click for paper

  Abstract: We analyze the implications of heterogeneously informed consumers in a market for expert services. Our main question is to investigate whether uninformed consumers are the most likely victims of expert cheating. We show that when consumers are heterogeneously informed on their true benefit from an expensive treatment, there is no equilibrium where the expert only cheats uninformed consumers. In fact, informed high-value consumers are the most frequent victims of cheating. Surprisingly, more information on the consumer side increases the inefficiency of the market outcome in terms of the foregone, but required, treatments. When some consumers receive noisy information signals on whether their problem is serious or minor, while others remain uninformed, in the unique equilibrium the expert is truthful to all types of consumers, regardless of their information status.

• Acquisition of Information to Diversify Contractual Risk  (joint with Bogachan Celen)   click for paper  (Revise and Resubmit at International Economic Review)          

  Abstract: This paper analyzes a principal-agent problem whereby the agent can search for and trade financial assets in order to diversify his compensation risk. Prior to making the portfolio decision, the agent acquires information on how the financial assets available in the market will fit his diversification purposes. We model this information-acquisition activity as a costly search process. The amount of risk that the agent diversifies is decreasing in information-acquisition cost and increasing in the asset market's sophistication, as measured by the variety of financial assets available. As the agent gains access to an asset market with lower information acquisition costs and higher sophistication, the optimal compensation contract involves more performance-sensitive pay and elicits a higher level of effort.