Optimal News Consumption and Policy Polarization (with Lin Hu)

We develop a theory of how optimal news consumption can lead to policy polarization. Our analysis builds on an otherwise standard median voter model where candidates with different ideologies propose policies, whereas voters incur a cost from news consumption, which we model as a process that converts news about policy proposals into voting decisions. We analyze equilibria of the voting game where policy proposals and voting decisions are jointly determined by the cost of news consumption and properties of the news technology. Two salient patterns emerge as the cost of news consumption increases due to, e.g., greater media choice, or as news becomes more noisy due to, e.g., the rise of faked news. First, more ideology-based outcomes can be sustained in equilibrium. Second, any equilibrium that involves news consumption exhibits an increasing degree of policy polarization, as candidates deliberately exaggerate their intrinsic differences in order to capture voters' limited attention.

Optimal Incentive Contract with Endogenous Monitoring Technology (with Ming Yang)

Recent technology advances give firms more flexibility to utilize employee performance data at a reduced and yet significant cost. This paper develops a theory of optimal incentive contracting where the monitoring technology that governs the above described procedure is a subject of the contract designer's strategic choice. In otherwise standard agency models with moral hazard, we allow the principal to partition the agent's raw performance data into any finite categories and to pay for the quantity of information that the output signal carries. Through analyzing the trade-off between giving incentives to the agent and saving the cost of data processing and analysis, we obtain characterizations of the optimal incentive contract such as information aggregation, strict MLRP, likelihood ratio-convex performance classification, group monitoring as a best response to high monitoring cost, and matching the intensities of monitoring different tasks to the agent's endogenous tendencies to shirk. We examine the implications of these results for firms' internal organization in the information age. 

 Intermediated Implementation (with Yiqing Xing)

Many real-world problems like sales, taxation and health care regulation, feature the interactions between a principal, one or more intermediaries and agents with hidden characteristics. In these problems, intermediaries can specify the full menu of the multi-faceted consumption bundles that they offer to agents, whereas the principal is limited to regulating some but not all aspects of the bundles that agents consume, due to legal, information and administrative barriers. We develop a theory of how the principal can implement in these situations any target social choice rule that is incentive compatible, individually rational and feasible among agents. We show that when intermediaries have private values and are perfectly competitive, the principal's goal can be achieved by imposing a per-unit fee schedule that allows intermediaries to break even under the target social choice rule. When intermediaries have interdependent values or market power, per-unit fee schedule cannot generally be used to achieve the principal's goal, whereas regulating the distribution of limited aspects of sold bundles can.  We examine the applicability of our results to the regulation of real-world intermediaries. 

Efficiency in Dynamic Moral Hazard Problems

This paper analyzes a dynamic principal-agent model with moral hazard where the agent's hidden actions can affect the probability distributions of both the current and future signals. The main result shows that near-efficiency can be attained when players interact for a large number of instances if the monitoring technology satisfies two basic properties called measure concentration and informativeness, and if the agent can be effectively penalized by reductions in the instantaneous consumption or the payoff from future interactions. This result is used to establish a Folk Theorem for discrete-time agency models with high discount factors, and to distinguish signal processes that can and cannot yield asymptotic efficiency in discretized continuous-time agency models with frequent actions. The analysis establishes a direct mapping between basic properties of the monitoring technology and the efficiency properties of dynamic agency models where the effect of the agent's actions may take time to materialize.

Robust Incentive Contract with Disagreement about Performance Evaluation and Compensation 

Online Appendix

I examine a principal-agent model with moral hazard, where the agent can disagree with the principal about how he should be evaluated and paid, and creates organizational frictions when the actual outcome falls short of what he thinks he deserves. The main result shows that seemingly rigid policies, such as long-term performance evaluation, compressed compensation scheme and seniority-based promotion, are robust tools for achieving incentive provision and disagreement management simultaneously, especially when the exact cause of the disagreement is not commonly known between contracting parties.

A Folk Theorem with Virtually Enforceable Actions

This paper proves a Folk Theorem for infinitely repeated private monitoring games with virtually enforceable actions. In these monitoring situations with scarce signals, players depart from the efficient outcome occasionally to acquire the information that detects the profitable deviations of their opponents. In a finite horizon setting with monetary transfers and public communication, I devise a novel Budget Mechanism with Cross-Checking (BMCC) which---through linking the players' action choices over time---virtually implements the efficient outcome at a vanishing incentive cost as the horizon grows and the players become patient. As the building block of my equilibrium construction for the infinitely repeated game, BMCC outperforms public-strategy mechanisms in scarce signal environments and carries important policy applications for labor contract design with costly subjective performance evaluation.

Work In Progress

Optimal Pricing Through Strategic Menu Complexity

Political Accountability in the Media Age (with Davin Raiha)