I study the role of privacy in bargaining. A seller makes offers every instant, without commitment, to a privately informed buyer. Potential competing buyers (entrants) can choose to interrupt the negotiation by triggering a bidding war.
Entrants either observe the offers (public bargaining) or only observe the bargaining delay but not the offers (private bargaining).
%Suppose the incumbent buyer is revealed to have a low type.
If entrants prefer that the incumbent buyer's type be lower, then typically private bargaining benefits the seller, raises prives, and increases delay.
If entrants prefer that that type be higher, the effects are exactly reversed.
Many corporate negotiations involve contingent payments or
[securities], yet the bargaining literature overwhelmingly focuses on pure cash transactions.
We characterize equilibria in a continuous-time model of bargaining in securities.
A privately informed buyer and a seller negotiate the terms of a joint project.
The buyer's private information affects both his standalone value and the net returns from the project.
The seller makes offers in a one-dimensional family of securities (e.g., equity splits).
We show how outcomes change as the underlying security becomes more sensitive to the buyer's information, and
we apply the framework to entrepreneurial finance and mergers and acquisitions under financial constraints.
(Previously circulated as "When to Hold an Auction?")
A seller faces a pool of potential bidders that changes over
time. She can delay the auction at a cost, in the hopes of having a
thicker market later on. The seller imposes both
static distortions (through her choice of reserve prices) and dynamic distortions (through her choice of market thickness). We isolate the effects of partial regulations: regulations that restrict the seller's reserve price, but leave market thickness unconstrained, and regulations that restrict market thickness, but leave the choice of reserve price unconstrained. We show that regulating only the static distortion can harm efficiency.
We also show that dynamically responding to changes in the bidder pool is essential:
committing to delay until an optimal deadline can waste most of the achievable revenue.
I analyze a two-period model of a monopolist platform running a two-sided one-to-one matching market between workers and firms, where (i) agents can contract privately off the platform once they are matched (matches are irrevocable); (ii) they differ in how likely they are to want further business with a match (their durability); and (iii) firms have private information about their durability. I characterize the profit-maximizing matching and pricing policies. I show that the platform typically wants to impose a novel kind of distortion. In the first period, the platform wants to give firms either extremely high durability matches, or extremely low durability ones, but it would rather leave more firms unmatched than give any of them ''medium'' durability matches. This is in contrast to a seemingly related static model where a platform matches agents with privately known taste for quality to goods of different quality: in that case, the platform might price the bottom tier of agents out of the market, but it would never sell a low quality good before a medium quality one.
What determines the extent of electoral fraud? This paper constructs a model of the trade-off between fraud and policy concessions (public good provision) which also incorporates the strength of the state. In addition, we parameterize the extent to which economic elites (to whom fraud is costly) and political elites (to whom fraud is advantageous) ''overlap.'' The model predicts that fraud will be lower and public good provision higher when land inequality is higher, the overlap between elites lower, and the strength of the state higher. We test these predictions using a unique, municipal-level dataset from Colombia's 1922 Presidential elections. We find empirical support for all the predictions of the model.
With Daron Acemoglu, Philip Osafo-Kwaako, and James A. Robinson
In Sebastian Edwards, Simon Johnson, and David Weil (eds.), African Successes: Sustainable Growth, University of Chicago Press, 2016.
A fundamental problem for economic development is that most poor countries have 'weak states' which are incapable or unwilling to provide basic public goods such as law enforcement, order, education and infrastructure. In Africa this is often attributed to the persistence of 'indirect rule' from the colonial period. In this paper we discuss the ways in which a state constructed on the basis of indirect rule is weak and the mechanisms via which this has persisted since independence in Sierra Leone. We also present a hypothesis as to why the extent to which indirect rule has persisted varies greatly within Africa, linking it to the presence or the absence of large centralized pre-colonial polities within modern countries. Countries which had such a polity, such as Ghana and Uganda, tended to abolish indirect rule since it excessively empowered traditional rulers at the expense of post-colonial elites. Our argument provides a new mechanism which can explain the positive correlation between pre-colonial political centralization and modern public goods and development outcomes.
In Emmanuel Akyeampong, Robert Bates, Nathan Nunn and James A. Robinson (eds.), Africa's Development in Historical Perspective, Cambridge University Press, 2014.
One of the great puzzles of Sub-Saharan African economic history is that wheeled transportation was barely used prior to the colonial period. Instead, head porterage was the main method of transportation. The consensus among historians is that this was a rational adaption to the underlying conditions and factor endowments. In this paper we undertake the first systematic investigation of the relative costs of the different forms of wheeled transportation in Africa. We focus on calculating the social savings and social rate of return associated with the introduction of the railway into colonial British West Africa. We provide more speculative estimates of the social savings of other forms of wheeled transportation. We find that all forms of wheeled transportation were economically efficient in the sense that they increased national income, though the estimated social savings of railways were modest when compared to GDP. However, we also find that the social rate of return of railways was exceedingly high, with annual social returns being equivalent to the entire capital outlays in Nigeria, i.e., railways there had a social rate of return of around 100%. Contrary to the conventional wisdom, railways appear to have been a very good social investment in West Africa because they were cheap to build. We discuss some alternative hypotheses that may nevertheless account for why they were not adopted.