RESEARCH

Job Market Paper​

With Yoram Barzel. Working paper.
Abstract.
We study the organization of markets when goods are heterogeneous and contracting is not  viableBuyers  presented  with  a  batch  of  non-uniform  goods  sold  at  the  same  price  will spend  resources  inspecting  in  order  to  get  the  best  ones  (i.e.  cherry-picking).  This  cost  to the  buyer  does  not  result  in  a  transfer  to  the  sellerit  is  dissipatingSellers  can  avoid  it by  selecting  the  units  for  the  buyersbut  this  requires  trustclearly  sellers  would  benefit  by getting  rid  of  the  worst  units  and  improving  the  remaining  selectionso  buyers  who  receivelow  quality  specimen  do  not  know  whether  they  have  been  cheated  or  unluckyIn  the absence  of  trustsellers  can  induce  random  choosing  by  making  inspection  costs  high  enough. However,  in  many  casespreventing  individual  inspection  will  make  the  whole  batch  harder to  evaluateand  ends  up  preventing  tradeWhen  allowed  to  inspectbuyers  with  lower  costs of  inspection  will  drive  the  ones  with  higher  costs  awaywhich  reduces  the  surplus.

We  develop  a  model  for  this  situation  and  obtain  several  theoretical  results  which  are  then contrasted  with  common  practices  in  retail  tradeWe  prove  that  1.  If  the  buyers  are  allowed to  inspectthe  good  must  be  sold  at  a  price  above  average  value.  2.  As  a  result,  the  quality distribution  will  decay  over  timeand  the  seller  will  be  forced  to  lower  the  price.  3.  The problem  is  more  acute  when  there  is  greater  dispersion  in  quality.  4.  The  seller  is  induced  to make  individual  inspection  costlybut  he  must  keep  the  inspection  cost  of  the  whole  batch low.  5.  There  are  large  gains  to  be  made  by  increasing  uniformity.  6.  When  buyers  differ from  each  otherthe  ones  with  lower  cost  of  inspecting  could  drive  away  the  ones  with  higher inspection  costWhen  this  problem  is  serious  enoughthe  market  for  the  commodity  may not  exist.

The  results  in  this  paper  help  explain  a  wide  variety  of  observed  phenomena  in  various markets.  Among  them:  why  are  oranges  displayed  in  a  pyramid,  why  pre-selected  (pre-packaged)  fruit  is  cheaper,  why  supermarkets  with  a  heterogeneous  customer  base  tend  to  sell either  very  uniform  produce  or  pre-bagged  produce,  why  there  is  a  ”second  hand”  vegetable market,  and  why  so  much  effort  is  made  to  make  produce  homogeneous.

Working On 
A Rationale for Marriage and Its Infidelity Implications (2016)

With Yoram Barzel and Qing Zhang.
Abstract. 
We propose and test a rationale for marriage as a contract. The reason a marriage contract has been so prevalent throughout history (as opposed to simple cohabitation, reproduction without cohabitation, or short-term contracts) is to solve property rights issues arising in the exchange: men cannot commit to support children in advance, and women cannot commit to fidelity in advance. Women would like the fittest man possible to father their children, but a man will only support children if he believes them to be his. The marriage contract allows this transaction by introducing external enforcement (by the State, the Church, or social norm). A clear implication of this theory is that women who plan to be single mothers will seek fitter males than women who plan to marry in order to obtain male support. Our test uses data from the Youth Longitudinal Survey, which follows youths for several years. We look at two groups of youths according to their mother’s status: the ones who planned to be single mothers (were not married at the time of birth) and women who expected to obtain male support but became single mothers (were married at the time of birth but lost their husbands shortly after). We then compare each individual to their own mother when she was their age. We find significant differences in the school and income outcomes between the two groups of offspring. Children of intentional single women outperform their mothers more than children of unintentional single women.

A Framework for The Modeling of Information Costs in Economic Transactions (2017)

With Yoram Barzel. Working paper Abstract coming soon.

Measurement Costs and Customer Heterogeneity as Determinant of Packaging Choice: An Empirical Approach Using Supermarket Data (2017)

Abstract coming soon.

A Property Rights Study of Intermediation.

With Yoram Barzel. Project under development.

Inspection Costs: How Guarantees Can Lower Quality.

Project under development.

Inefficiencies in a three-sided matching model with an intermediate agency (2014)

Working paper.

Contact information

Address: Department of Economics · University of Washington · 305 Savery Hall, Box 353330 · Seattle, WA 98195-3330

Email: asteb@uw.edu

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