Buy-it-now or Take-a-chance: Price Discrimination through Randomized Auctions (with Elisa Celis, Markus Mobius and Hamid Nazerzadeh). Management Science. Forthcoming.
AbstractIncreasingly detailed consumer information makes sophisticated price discrimination possible. At fine levels of aggregation, demand may not obey standard regularity conditions. We propose a new randomized sales mechanism for such environments. Bidders can "buy-it-now" at a posted price, or "take-a-chance" in an auction where the top d > 1 bidders are equally likely to win. The randomized allocation incentivizes high valuation bidders to buy-it-now. We analyze equilibrium behavior, and apply our analysis to advertiser bidding data from Microsoft Advertising Exchange. In counterfactual simulations, our mechanism increases revenue by 4.4% and consumer surplus by 14.5% compared to an optimal second-price auction.
bintac_ms_final.pdf Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement (with Patrick Bajari) . Forthcoming in the The Review of Economic Studies. 2013.
AbstractDeadlines and late penalties are widely used to incentivize effort. Tighter dead-
lines and higher penalties induce higher effort, but increase the agent's risk. We model
how these contract terms affect the work rate and time-to-completion in a procurement
setting, characterizing the efficient contract design. Using new micro-level data on
Minnesota highway construction contracts that includes day-by-day information on work
plans, hours worked and delays, we find evidence of ex-post moral hazard: contractors
adjust their effort level during the course of the contract in response to unanticipated
productivity shocks, in a way that is consistent with our theoretical predictions. We
next build an econometric model that endogenizes the completion time as a function
of the contract terms and the productivity shocks, and simulate how commuter welfare
and contractor costs vary across different terms and shocks. Accounting for the traffic
delays caused by construction, switching to a more efficient contract design would in-
crease welfare by 22.5% of the contract value while increasing the standard deviation
of contractor costs | a measure of risk | by less than 1% of the contract value.
timeincentives_final.pdf supplementary-appendix_final.pdf