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Work in Progress


Working Papers (see also at SSRN):

  • Competing with Big Data” (with Christoph Schottmüller); TILEC Discussion Paper No. 2017-006, CentER Discussion Paper No. 2017-007.
    • Paper_image This paper studies competition in data-driven markets, that is, markets where the cost of quality production is decreasing in the amount of machine-generated data about user preferences or characteristics, which is an inseparable byproduct of using services offered in such markets. This gives rise to data-driven indirect network effects. We construct a dynamic model of R&D competition, where duopolists repeatedly determine their innovation investments, and show that such markets tip under very mild conditions, moving towards monopoly. In a tipped market, innovation incentives both for the dominant firm and for competitors are small. We also show under which conditions a dominant firm in one market can leverage its position to a connected market, thereby initiating a domino effect. We show that market tipping can be avoided if competitors share their user information.
  • Consumers’ Privacy Choices in the Era of Big Data” (with Sebastian Dengler); TILEC Discussion Paper No. 2018-014, CentER Discussion Paper No. 2018-012.
    •  Paper_image Recent progress in information technologies provides sellers with detailed knowledge about consumers’ preferences, approaching perfect price discrimination in the limit. We construct a model where consumers with less strategic sophistication than the seller’s pricing algorithm face a trade-off when buying. They choose between a direct, transaction cost-free sales channel and a privacy-protecting, but costly, anonymous channel. We show that the anonymous channel is used even in the absence of an explicit taste for privacy if consumers are not too strategically sophisticated. This provides a micro-foundation for consumers’ privacy choices. Some consumers benefit but others suffer from their anonymization.
  • Trusting Privacy in the Cloud;” (updated: 10 April 2018); TILEC Discussion Paper No. 2014-047, CentER Discussion Paper No. 2014-073.
    • Paper_image Cloud computing technologies can increase innovation and economic growth considerably. Because of privacy concerns, however, many users underutilize cloud technologies. This paper designs an institution attenuating the problem: a two-layered certification scheme built around a private, nonprofit organization called cloud association. This association is governed by representatives of both users and cloud service providers and sources auditing and certification of providers out to independent for-profit certifiers. It is shown how this institution incentivizes providers to produce high data security, and users with strong privacy preferences to trust them and pay a premium for their services..
  • Innovation Contests

    An earlier version was formerly distributed under the title “Semi-Public Competitions”; CentER Discussion Paper, No. 2009-33; TILEC Discussion Paper, No. 2008-023.

    • Paper_image The process of innovation is driven by two main factors: new inventions and institutions supporting the transformation of inventions into marketable innovations. This paper studies such an institution, called an innovation contest, and shows that it can mitigate a dilemma on the market for ideas. The sponsor of an innovation contest publicizes the ranking of winners, which motivates entrepreneurs to participate in the contest. But information about losers remains private with the sponsor. This allows him to place better informed bids on valuable losers’ projects. Efficiency increases because both entrepreneurs and investors have better incentives to enter the market.

Work in Progress:

  • Believing in Making a Difference” (with Xu YiLong)
    • Nonprofit firms active in the production of public goods – mission-driven organizations – face higher labor turnover than firms producing private goods for a profit. Simultaneously, they pay lower wages and often use low-powered incentive schemes, which has been explained by binding financial constraints and the threat to attract wrong worker types if wages are increased. We construct a model that reproduces these stylized facts, explains the high labor turnover of mission-driven organizations, and suggests a way out of this nonprofit’s dilemma, based on insights from the economic psychology literature. Workers who seek employment in the nonprofit sector learn the true philanthropic impact of their work on the job only, which can lead to disappointment. Some of the disappointed workers leave the firm but others costly manipulate their own recollection of the facts and keep believing in making a difference. We construct testable empirical hypotheses and offer managerial and policy implications.
  • Clash of Classification Institutions” (with Gillian Hadfield and Vatsalya Srivastava)
    • Classification institutions – such as social norms, cultural or religious traditions, laws, or regulations – assign a normative label, acceptable or wrongful, to human behavior. Thereby they shape the expectations about other people’s behavior, reduce uncertainty, and create trust in other’s actions. What if two classification institutions do not conform, for instance, because a country with established norms is colonized and new laws are imposed? We construct a dynamic model where social norms clash with legal order. We show when and how norms decay gradually, where more and more players first stop enforcing and then stop complying with the norm as time proceeds. We also show that the existence of legal order can undermine norms, even if legal order cannot enforce its own laws very effectively. The existence of multiple classifications leads players to rationally ignore both norms and laws and engage in novel behavior, implying the breakdown of both governance mechanisms.
  • “Thick Norms and Thin Laws” (with Gillian Hadfield and Vatsalya Srivastava)
  • “Membership in Standard Setting Organizations” (with Maria Larraín Aylwin)
  • “Democracy and Big Data” (with Freek van Gils and Wieland Müller)
  • “General and Specialized Courts: Objectivity vs. Expertise in Adjudication” (with Scott Masten)
  • “Public Hospitals are More Effective but Private Hospitals are More Efficient” (with Lapo Filistrucchi)