1. Susanna Esteban and Eiichi Miyagawa Optimal Menu of Menus with Self-Control Preferences
In the standard model of monopoly pricing with incomplete information, the firm offers a menu of price-quantity pairs. On the other hand, many real-world tariff schedules consist of a menu of *non-linear* prices. For example, most cell-phone service plans provide initial minutes at a low marginal price (usually zero) and further quantity at a high price. This paper shows how this is necessarily part of an optimal tariff schedule for consumers who have self-control preferences. By adding a steep price for extra minutes to plans targeted for low value consumers, the monopoly relaxes the incentive constraint for high-value consumers. This is because high-value consumers forsee that if they select the low plan they will be tempted to use extra minutes and pay the high price.
2. Christopher Chambers and Takashi Hayashi Bayesian Consistent Prior Selection
The paper is about rules for selecting priors from sets. Suppose you are given some information which implies that the probability belongs to some (compact, convex) subset. Assume you have a rule that selects from any such set a prior. (The paper extends to rules that select subsets.) Consider two thought experiments. First, suppose you are given a subset F and your rule selects a prior p from it. Next, suppose there is some additional piece of data d, and suppose you are given the subset F* where F* is obtained by updating, prior by prior, the elements of F based on d. It seems natural to ask that the prior selected from F* is equal to the posterior derived from p based on d. Essentially this would be assuming that your rule for selecting priors is invariant to the order in which you receive information. There is no rule satisfying this condition.
3. Ignacio Palacios-Huerta and Oscar Volij Experientia Docet: Professionals Play Minimax in Laboratory Experiments
This is a provacative experimental paper, that contrasts the play of professional soccer players with college students in zero-sum games. The paper is interesting not only because of the finding that the professionals play much closer to equilibrium than the college students in a game that replicates a soccer penalty kick; but also because it shows that the the professionals play closer to equilibrium than the college students when they play a zero-sum game that none of the subjects is likely to be familiar with. This not only tells us how important it is to carefully define ``experience'' in experimental settings, and also provides some insight into the transfer of knowledge across strategic settings.
4. Nageeb Ali and Navin Kartik A Theory of Momentum in Sequential Voting
What explains the intense competition for small early states like New Hampshire and Iowa in US Presidential primary elections? Presumably, other things equal, winning an early contest increases the chance of winning bigger, later states. This paper explains how such momentum effects can arise in a strict equilibrium of a sequential common-value election. Voters update their beliefs about the value of candidates based on the preceding history. Momentum is similar to an informational cascade.
5. James Bessen and Eric Maskin Sequential Innovation, Patents, and Innovation
Based on standard theory there should be little or no innovation without patents. Surprisingly, there is little if any empirical evidence that there is more innovation when patenting is possible than when it is not. This paper provides a theory of why this may be the case. It starts with the common observation that patents may inhibit innovation by raising the cost of downstream innovations that build on existing ideas. This is captured in an elegant model of sequential innovation that directs our attention to the features of the market and technology that make patent systems more or less desirable. Of particular importance is the interplay between two forces. On the one hand, private information about the value of a patent prevents existing patent holders from engaging in efficient licensing. On the other hand, if little profit is dissipated through competition then patents provide little additional incentive for innovation.