Job Market Paper
With Yoram Barzel. Working paper.
Abstract. We study the organization of markets when goods are heterogeneous and contracting is not viable. Buyers 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 seller: it is dissipating. Sellers can avoid it by selecting the units for the buyers, but this requires trust: clearly sellers would benefit by getting rid of the worst units and improving the remaining selection, so buyers who receive a low quality specimen do not know whether they have been cheated or unlucky. In the absence of trust, sellers can induce random choosing by making inspection costs high enough. However, in many cases, preventing individual inspection will make the whole batch harder to evaluate, and ends up preventing trade. When allowed to inspect, buyers with lower costs of inspection will drive the ones with higher costs away, which reduces the surplus.
We develop a model for this situation and obtain several theoretical results which are then contrasted with common practices in retail trade. We prove that 1. If the buyers are allowed to inspect, the good must be sold at a price above average value. 2. As a result, the quality distribution will decay over time, and 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 costly, but 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 other, the ones with lower cost of inspecting could drive away the ones with higher inspection cost. When this problem is serious enough, the 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.
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)