Essays in information market design [electronic resource]

This dissertation consists of three essays in market design, all of which study how best to reveal disclose private information. The first chapter is entitled Equilibrium Effects of Pay Transparency and is coauthored with Zoe Cullen. The public conversation about increasing pay transparency largely ignores equilibrium effects, namely how it leads firms to change hiring and wage-setting policies and workers to adjust bargaining strategies. We study these effects with a methodologically diverse approach. Our analysis combines longitudinal study of thousands of workers and employers facing different levels of pay transparency on TaskRabbit, an online labor market, with a parsimonious equilibrium model of dynamic wage setting and negotiation. We find, theoretically and empirically, that increasing pay transparency can increase employment, decrease inequality in earnings, and shift surplus away from workers and toward their employer. Intermediate levels of pay transparency, achieved through a permissive environment to discuss relative pay, can exacerbate the gender pay gap by virtue of network effects. There may be a direct need for government intervention in order to maintain a desirable level of transparency. Any scheme in which employers vary transparency based on private characteristics is unsustainable, as the signal sent to prospective workers is sufficiently strong to cause unraveling toward full transparency. We observe this unraveling on TaskRabbit. We also conduct a field experiment on internet workers to investigate an alternative model in which wage compression is driven by social aversion to observed wage inequality. Our findings are consistent with our bargaining model but not with this alternative. The second chapter is entitled Strategic Disaggregation in Matching Markets and is coauthored with Stephen Nei. Decisions agents make before and after matching can be strategically linked through the match. We demonstrate this linkage by introducing a game in which universities can force students to commit to majors before matriculating or to allow students to pick their majors during their studies. The interaction between "matching forces'' (competition for higher quality partners) and "principal-agent forces'' (moral hazard and adverse selection) leads to two different equilibria mirroring the US and English admissions systems. With monetary transfers, our model provides new insight regarding athletic scholarships. Price competition removes the surplus to enrolling top student athletes, making it impossible to sustain the US equilibrium with competitive wages. We show that a properly designed transfer cap that places additional restrictions on the way universities can pay their athletes achieves the first-best welfare outcome, and can lead to Pareto improvements over the status quo. The third chapter is entitled Crowdsourcing and Optimal Market Design. The theory of optimal mechanism design often relies on the assumption that agents fully know their preferences. More realistically, preferences may be based on characteristics of goods which are observed via noisy, informative signals. Can markets aggregate this information while still delivering a full-information "optimal'' outcome? I show that it is possible to achieve these goals by first aggregating the information of all agents and then running an optimal full-information mechanism. To ensure proper incentives, agents are punished when their reports do not match up with the "wisdom of the crowd.'' The punishment scheme is independent of the desired allocation, and can be enacted with or without monetary transfers. Even when the number of objects being assessed is much larger than the number of assessors, the proposed mechanism asymptotically correctly identifies every object's quality, while imposing a worst-case total punishment that converges exponentially to zero. Therefore, I am able to generate nearly optimal allocations in two-sided matching markets with interdependent preferences, a setting for which impossibility results exist. I give necessary and sufficient conditions for recovering desirable properties when information acquisition is endogenous and costly.

Keywords: Economics.
Advisor: Kojima Fuhito primary advisor. Thesis advisor
Roth Alvin E.
Bloom Nick
Jackson Matthew O. advisor. Thesis advisor