Adam G. Szeidl | University of California, Berkeley (original) (raw)

Papers by Adam G. Szeidl

We study a model of network formation where the bene…ts from connections exhibit decreasing retur... more We study a model of network formation where the bene…ts from connections exhibit decreasing returns and decay with network distance. We show that the unique equilibrium network is a periphery-sponsored star, where one player, the center, maintains no links and earns a high payo¤, while all other players maintain a single link to the center and earn lower payo¤s. Both the star architecture and payo¤ inequality are preserved in an extension of the model where agents can make transfers and bargain over the formation of links, under the condition that the surplus of connections increases in the size of agents' neighborhoods. Our model thus generates two common features of social and economic networks: (1) a core-periphery structure; (2) positive correlation between network centrality and payo¤s.

Many households devote a large fraction of their budgets to "consumption commitments" -goods that... more Many households devote a large fraction of their budgets to "consumption commitments" -goods that involve transaction costs and are infrequently adjusted. This paper characterizes risk preferences in an expected utility model with commitments. We show that commitments a¤ect risk preferences in two ways: (1) they amplify risk aversion with respect to moderate-stake shocks and (2) they create a motive to take large-payo¤ gambles. The model thus helps resolve two basic puzzles in expected utility theory: the discrepancy between moderate-stake and large-stake risk aversion and lottery playing by insurance buyers. We discuss applications of the model such as the optimal design of social insurance and tax policies, added worker e¤ects in labor supply, and portfolio choice. Using event studies of unemployment shocks, we document evidence consistent with the consumption adjustment patterns implied by the model. two anonymous referees, and numerous seminar participants for helpful comments. James Sly provided outstanding research assistance. We are grateful for …nancial support from National Science Foundation grant SES 0522073.

Community size is often found to be negatively correlated with prosocial behaviors such as formal... more Community size is often found to be negatively correlated with prosocial behaviors such as formal volunteering, working on public projects and informal help to friends and strangers (Putnam 2000, p. 119, 206). This may be because people who reside in large communities simply spend less time socializing with each other. As a result, people living in large cities have on average fewer friends, and hence their social networks support less cooperation. 1 A complementary channel, which has received less attention in the literature, is that community size may affect outcomes by changing other aspects of the network structure.

We show the existence of a pure strategy, symmetric, increasing equilibrium in double auction mar... more We show the existence of a pure strategy, symmetric, increasing equilibrium in double auction markets with correlated, conditionally independent private values and many participants. The equilibrium we find is arbitrarily close to fully revealing as the market size grows. Our results provide strategic foundations for price-taking behavior in large markets.

We examine integration strategies of multinational …rms that face a rich array of choices of inte... more We examine integration strategies of multinational …rms that face a rich array of choices of international organization. Each …rm in an industry must provide headquarter services from its home country, but can produce its intermediate inputs and conduct assembly operations in one or more of three locations. We study the equilibrium choices of …rms that di¤er in productivity levels, focusing on the role that industry characteristics such as the …xed costs of foreign subsidiaries, the cost of transporting intermediate and …nal goods, and the regional composition of the consumer market play in determining the optimal integration strategies. In the process, we identify three distinct "complementarities" that link …rms'foreign investment decisions for di¤erent stages of production.

This paper studies a social game where agents choose their partners as well as their actions.

We examine the strategies of …rms that face an array of organizational choices. Each …rm must acq... more We examine the strategies of …rms that face an array of organizational choices. Each …rm must acquire intermediate inputs and assemble …nal products. It can perform these activities internally or externally, and at home or abroad. We study the relative prevalence of various organizational structures in industries that di¤er in …xed organizational costs when …rms in each industry di¤er in their productivity levels. We identify conditions under which outsourcing and foreign sourcing are positively correlated across industries. This correlation results from two sources of complementarity between outsourcing and foreign sourcing.

This paper builds a theory of trust based on informal contract enforcement in social networks. In... more This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We de…ne network-based trust as the highest amount one agent can borrow from another agent, and derive a reduced-form expression for this quantity which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, while loose networks create bridging social capital that improves access to cheap favors like information.

We develop a model of informal risk-sharing in social networks, where relationships between indiv... more We develop a model of informal risk-sharing in social networks, where relationships between individuals can be used as social collateral to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements and obtain two results. The degree of informal insurance is governed by the expansiveness of the network, measured by the number of connections that groups of agents have with the rest of the community, relative to group size. Two-dimensional networks, where people have connections in multiple directions, are su¢ ciently expansive to allow very good risk-sharing. Social networks in Peruvian villages are shown to satisfy this condition, suggesting that real-world village networks should generate good informal insurance. (2) In second-best arrangements, agents organize in endogenous "risk-sharing islands" in the network, where shocks are shared fully within, but imperfectly across islands. As a result, network based risk-sharing is local: socially closer agents insure each other more. These results can be used to study the spillover e¤ects of development aid. seminar participants for helpful comments and suggestions, and the National Science Foundation for …nancial support. Additional material to the paper is contained in a supplementary appendix available at http://risksharing.surveyor.nber.org/paper/supplementary_appendix.pdf (Ambrus, Mobius, and Szeidl 2008).

This material supplements the paper "Consumption Risk-sharing in Social Networks" with the analys... more This material supplements the paper "Consumption Risk-sharing in Social Networks" with the analysis of four issues. First, we develop game theoretic micro-foundations for our model of community enforcement. Second, we provide background about the mathematical theory of network ‡ows used in the proofs of the paper. Third, we formally develop the extensions of our main results to the case where goods and friendship consumption are imperfect substitutes. Fourth, we explain the numerical methods used to simulate the model and to construct the geographic network representation of the real world Huaraz network.

How big is the e¤ect of a few fools on market outcomes? We argue that in auctions, even a small s... more How big is the e¤ect of a few fools on market outcomes? We argue that in auctions, even a small share of overbidding behavioral agents have a large e¤ect, because the auction format "…shes"for the highest-bidding behavioral buyers. Through this …shing mechanism, behavioral agents disproportionately increase auction pro…ts. They also generate a large welfare loss by crowding out the demand of rational agents, who obtain the good with delay or not at all. The welfare e¤ect of a few fools can be further ampli…ed when the market mechanism is endogenous: even with a small share of behavioral agents, sellers may prefer ine¢ cient auctions over e¢ cient …xed-price markets. Evidence from eBay supports the existence of overbidding and con…rms its ampli…ed e¤ect on allocation and pro…ts. Sellers who adjust the details of auctions to exploit buyer inattention earn higher revenue. Our predictions about sellers'market choice match stylized facts on the use of auctions versus …xed-price markets.

I derive a simple condition for the existence of a stable invariant distribution of an increasing... more I derive a simple condition for the existence of a stable invariant distribution of an increasing Markov process on a non-compact state space. I use this condition in two workhorse models in macroeconomics. First, I settle a conjecture of Carroll by characterizing the conditions under which the canonical bu¤er stock saving model has a stable invariant distribution. Second, I show that in the Brock-Mirman one-sector growth model, a stable invariant distribution exists for a large class of production functions, even if the shocks and capital stock can be unbounded. These results help characterize long term behavior in dynamic economies, and have implications for the validity of numerical solutions.

How do imports affect firm productivity? To answer this question, we estimate a structural model ... more How do imports affect firm productivity? To answer this question, we estimate a structural model of importers using a panel of Hungarian firms. In our model with heterogenous goods, imported inputs improve productivity because (1) they are imperfect substitutes of domestic inputs; and (2) they have higher quality. This model yields a production function where output depends both on conventional factors and the number of product varieties imported. We estimate this import-augmented production function with the Olley and Pakes (1996) procedure, and find that increasing the fraction of product varieties imported from 0 to 100 percent leads to a productivity gain of 14 percent. About two thirds of this gain can be attributed to imperfect substitution, while the remainder is due to the higher quality of imports. We also compute the effects of a hypothetical tariff cut, and find that for small firms, it improves productivity through importing more product varieties, while for large firms it improves productivity through increasing existing imports.

The Grossman and Laroque (1990) theory of adjustment costs in consumption has been widely applied... more The Grossman and Laroque (1990) theory of adjustment costs in consumption has been widely applied to analyze consumption and …nancial market behavior. An important prediction of such adjustment cost models is that individuals who have recently purchased a house are more risk averse than those who have lived in their homes for a long time. In this paper, we test this prediction using an instrumental variables strategy. We use a set of control groups to show that the timing of changes in marital status generates exogenous variation in home tenure conditional on age and wealth. Using these marital shocks as instruments, we …nd that the average investor reallocates $1,500 (1.3%) from safe assets to stocks per year spent in a house, holding …xed wealth. Auxiliary tests indicate that this reallocation e¤ect is not driven by home equity accumulation or changes in risk exposure. We conclude that adjustment costs in consumption have substantial e¤ects on risk preferences and portfolio choice.

This paper studies a model where consumption has two components, one that is costlessly adjustabl... more This paper studies a model where consumption has two components, one that is costlessly adjustable and one that involves an adjustment cost. Agents have time-separable neoclassical preferences over the two components of consumption. We show that aggregating over a heterogeneous population of such agents implies dynamics identical to those of a representative consumer economy with habit formation utility. In particular, aggregate consumption is a slow-moving average of past consumption levels, and risk aversion is ampli…ed because the marginal utility of wealth is determined by excess consumption over the prior commitment level. In certain cases, the representative consumer's preferences and consumption dynamics coincide exactly with the exponential form of habit proposed by . Hence, consumption commitments provide simple, non-psychological micro-foundations for "habit."

This paper studies a social game where agents choose their partners as well as their actions.