“Economics of Incentives”

Winter 2018-2019

Takeshi Murooka

The purpose of this course is to learn incentive theory and to apply it to empirical/experimental studies. To acquire skills for applying incentive theory to economic problems, all participants are supposed to read 6 academic articles which empirically/experimentally apply incentive theory to real-world environments and to give one in-class presentation for a selected article.

The class starts on Wednesday, December 5th. The final class is on Wednesday, February 6th. If you cannot attend the first class, please contact the instructor before the second class; otherwise, you may not be able to get credit for this course.

Grade Evaluation 25% for one in-class presentation and 15*5=75% for 5 (out of 6) summaries. There are bonuses for an optional research proposal (at most 5%) and active participation (at most 5%).

Course Plan The instructor will cover theory parts based on the following textbook: JeanJacques Laffont and David Martimort, The Theory of Incentives: The PrincipalAgent Model, Princeton University Press, 2002.

1. Moral Hazard 1) Theory: linear utility with limited liability and continuous action space i. Presentation by the instructor: Karlan & Zinman (2009 ECTA) ii. [Pres-**] Lazear (2000 AER) iii. [Pres-*] Shearer (2004 RES) 2) Theory: concave utility and risk-incentive tradeoff

i. [Pres-***] Sydnor (2010 AEJ). 3) Theory: multitasking i. [Pres-*] Hong, Hossain, List, and Tanaka (forthcoming IER) 2. Adverse Selection 1) Theory: markets with selection i. [Pres-*] Karlan & Zinman (2009 ECTA) ii. [Pres-**] Ashraf, Berry, and Shapiro (2010 AER) 2) Theory: two-type screening i. Anecdotes on deteriorated versions of software and train roofs. 3) (if time permits) Theory: continuous-type screening and mechanismdesign approach

References  Ashraf, Nava, James Berry, and Jesse M. Shapiro, “Can higher prices stimulate product use? Evidence from a field experiment in Zambia,” American Economic Review, 2010, 100 (5), 2383--2413.  Hong, Fuhai, Tanjim Hossain, John A. List, and Migiwa Tanaka, “Testing the theory of multitasking: Evidence from a natural field experiment in Chinese factories,” International Economic Review. forthcoming.  Karlan, Dean and Jonathan Zinman, “Observing unobservables: Identifying information asymmetries with a consumer credit field experiment,” Econometrica, 2009, 77 (6), 1993--2008.  Lazear, Edward P., “Performance pay and productivity,” American Economic Review, 2000, 90 (5), 1346--1361.  Shearer, Bruce, “Piece rates, fixed wages and incentives: Evidence from a field experiment,” Review of Economic Studies, 2004, 71 (2), 513--534.  Sydnor, Justin, “(Over)insuring Modest Risks,” American Economic Journal: Applied Economics, 2010, 2 (4), 177--199.