Working papers
- Eye-opening products: Uncertainty and surprise in cataract surgery outcomes, with Emilio Gutierrez and Adrian Rubli
Abstract: For experience goods, benefits from consumption are ex-ante unknown but revealed after repeated interactions. This uncertainty might lead to under-consumption. We use data from a large cataract surgery provider in Mexico City to estimate demand, given uncertainty in surgical outcomes. We consider forward-looking consumers with a surgery demand per eye and information revealed after the first surgery. We exploit data from sales agents to identify structural demand parameters; namely, price elasticities and the value of the uncertain shock. We simulate counterfactual policies, showing that budget-neutral price changes are more effective at increasing welfare than persuasive advertising. Replication files. - A Memo on the Proof-of-Stake Mechanism with George Gui and Ali Hortaçsu
Abstract: We analyze the economic incentives generated by the proof-of-stake mechanism discussed in the Ethereum Casper upgrade proposal. Compared with proof-of-work, proof-of-stake has a different cost structure for attackers. In Budish (2018), three equations characterize the limits of Bitcoin, which has a proof-of-work mechanism. We investigate their counterparts and evaluate the risk of double-spending attack and sabotage attack. We argue that PoS is safer than PoW agaisnt double-spending attack because of the tractability of attackers, which implies a large «stock» cost for the attacker. Compared to a PoW system whose mining equipments are repurposable, PoS is also safer against a sabotage attack.
Published papers
- Distilling network effects from Steam, forthcoming at Quantitative Marketing and Economics.
Abstract: This paper develops a method to estimate the demand of network goods, using minimal network data, but leveraging within-consumer variation. I estimate demand for video games as a function of individuals’ social networks, prices, and qualities, using data from Steam, the largest video game digital distributor in the world. I separately identify price elasticities on individuals with and without friends with the same game, conditional on individual fixed effects and games’ characteristics. I then use the discrepancies between estimated price elasticities to identify the impact of social networks. I compare my method to “traditional-IV” strategies in the literature, which require detailed network data, and find similar results. A 1% increase in friends’ demands, increases demand by .3%. These results suggest firms have incentives to employ “influencers,” and to merge their gaming networks. I evaluate counterfactual game mergers, and find network effects must be considered to sign consumer welfare changes. Replication files. - Prioritization vs. Neutrality on Platforms: Evidence from Amazon’s Twitch.tv, forthcoming at The RAND Journal of Economics.
In the media: bloomberg.com.
Abstract: This paper studies the trade-off between entry and congestion in Amazon’s Twitch.tv, which prioritizes popular content using a fast lane. I specify and estimate supply and demand models for live video, and a congestion model. Using technological shocks, I identify congestion costs for content providers and their consumers. Using shocks in prioritization, I identify its benefits. With estimated preferences and technological parameters, I construct counterfactuals. Without congestion, demand potentially doubles. A supply-side Pigouvian tax is preferred to a demand-side one. Without prioritization, consumer welfare drops up to 10%. I consider a rent-extractive platform, and discuss parallels with net-neutrality policy. - Can Price Dispersion be supported solely by Information Frictions? in Economic Theory Bulletin, Volume 9, 75-90, 2021.
Abstract: Even with identical consumers and identical firms, if firms set prices in a first stage, and if consumers search sequentially in a second stage, price dispersion arises in the form of a mixed-strategy Nash equilibrium. One only needs to assume consumers know the realized price distribution and that they do not know which firm has what price. In contrast to Burdett and Judd (1983), price quotes are not required to be “noisy.” Moreover, actual search is predicted to be nontrivial.
Matlab codes - Perception, Utility and Evolution, in Economic Theory Bulletin 7, 191–208, 2019.
Abstract: This paper presents a model of the evolution of the hedonic utility function in which perception is imperfect. Netzer (2009) considers a model with perfect perception and finds that the optimal utility function allocates marginal utility where decisions are made frequently. This paper shows that it is also beneficial to allocate marginal utility away from more perceptible events. The introduction of perceptual errors can lead to qualitatively different utility functions, such as discontinuous functions with flat regions rather than continuous and strictly increasing functions.
Matlab codes - Pay-what-you-want because I do not know how much to charge you, in Economics Letters, Volume 137, 41-44, 2015.
Abstract: With any positive fraction of altruistic consumers in the population who give away any positive fraction of their gains from trade, there exists a high enough level of uncertainty about demand such that the monopolist prefers pay-what-you-want over the traditional monopoly or any other pricing mechanism. Low marginal costs facilitate the adoption of pay-what-you-want. Consumer welfare always increases with pay-what-you-want. - The profitability and performance of U.S. regional banks using the predictive focus of the «fundamental analysis research», with Glenn Growe, Marinus DeBruine and John Y. Lee in Advances in Management Accounting, Volume 24, 191-239, 2014.
More coming soon!