The discourse around pay transparency has focused on partial equilibrium effects: how workers rectify pay inequities through informed renegotiation. We investigate how employers respond in ...equilibrium. We study a model of bargaining under two‐sided incomplete information. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others. When workers have low individual bargaining power, pay transparency has a muted effect. We test our model with an event‐study analysis of U.S. state‐level laws protecting the right of private sector workers to communicate salary information with their coworkers. Consistent with our theoretical predictions, transparency laws empirically lead wages to decline by approximately 2%, and wage declines are smallest in magnitude when workers have low individual bargaining power.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SBCE, SBMB, UL, UM, UPUK
Consider indivisible-object allocation with contracts, such as college admissions, where contracts specify majors. Can a designer guarantee a stable and (student) efficient matching? I show that ...contracts put stability and efficiency at odds; a necessary condition to ensure these properties is student-lexicographic priorities—schools must rank contracts from “second-tier” students consecutively. I present the weakest restriction guaranteeing stability and efficiency, and characterize necessary and sufficient conditions for any mechanism within a general class to deliver a stable and efficient matching in an incentive compatible manner. I apply this result to two well-known mechanisms: deferred acceptance and top trading cycles. (JEL C78, D82, D86, I23)
Decisions agents make before and after matching can be strategically linked through the match. We demonstrate this linkage in a game where universities either require students to commit to majors ...before matriculating or allow students to pick majors during their studies. The interaction between “matching forces” (competition for higher quality students) and “principal-agent forces” (moral hazard and adverse selection) leads to two equilibria that mirror the admissions systems in the US and England. With monetary transfers, our model provides insights into athletic scholarships. Payment caps that restrict transfers to potential athletes who decide not to play sports can maximize welfare.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
4.
Crowdsourcing and Optimal Market Design Pakzad-Hurson, Bobak
Proceedings of the 23rd ACM Conference on Economics and Computation,
07/2022
Conference Proceeding
Mechanisms used to derive optimal allocations are generally designed under the premise that agents fully know their preferences. It is often impossible to duplicate these optimal allocations when ...agents imperfectly observe object characteristics. I present a crowdsourcing mechanism to approximate optimal allocations under imperfect observations. To ensure truth-telling, agents are punished when their reports differ from the "wisdom of the crowd." Under mild conditions, this crowdsourcing-with-punishment mechanism replicates the full-information optimal allocation with probability exponentially converging to one in the size of the market, with aggregate worst-case waste (punishment) converging exponentially to zero. I show that no other mechanism can meaningfully improve upon the proposed mechanism. The approach I take is general, and can be applied in many settings, including two-sided matching markets.
Link to full version of paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2618837
This dissertation consists of three essays in market design, all of which study how best to reveal disclose private information. The first chapter is entitled Equilibrium Effects of Pay Transparency ...and is coauthored with Zoe Cullen. The public conversation about increasing pay transparency largely ignores equilibrium effects, namely how it leads firms to change hiring and wage-setting policies and workers to adjust bargaining strategies. We study these effects with a methodologically diverse approach. Our analysis combines longitudinal study of thousands of workers and employers facing different levels of pay transparency on TaskRabbit, an online labor market, with a parsimonious equilibrium model of dynamic wage setting and negotiation. We find, theoretically and empirically, that increasing pay transparency can increase employment, decrease inequality in earnings, and shift surplus away from workers and toward their employer. Intermediate levels of pay transparency, achieved through a permissive environment to discuss relative pay, can exacerbate the gender pay gap by virtue of network effects. There may be a direct need for government intervention in order to maintain a desirable level of transparency. Any scheme in which employers vary transparency based on private characteristics is unsustainable, as the signal sent to prospective workers is sufficiently strong to cause unraveling toward full transparency. We observe this unraveling on TaskRabbit. We also conduct a field experiment on internet workers to investigate an alternative model in which wage compression is driven by social aversion to observed wage inequality. Our findings are consistent with our bargaining model but not with this alternative. The second chapter is entitled Strategic Disaggregation in Matching Markets and is coauthored with Stephen Nei. Decisions agents make before and after matching can be strategically linked through the match. We demonstrate this linkage by introducing a game in which universities can force students to commit to majors before matriculating or to allow students to pick their majors during their studies. The interaction between "matching forces'' (competition for higher quality partners) and "principal-agent forces'' (moral hazard and adverse selection) leads to two different equilibria mirroring the US and English admissions systems. With monetary transfers, our model provides new insight regarding athletic scholarships. Price competition removes the surplus to enrolling top student athletes, making it impossible to sustain the US equilibrium with competitive wages. We show that a properly designed transfer cap that places additional restrictions on the way universities can pay their athletes achieves the first-best welfare outcome, and can lead to Pareto improvements over the status quo. The third chapter is entitled Crowdsourcing and Optimal Market Design. The theory of optimal mechanism design often relies on the assumption that agents fully know their preferences. More realistically, preferences may be based on characteristics of goods which are observed via noisy, informative signals. Can markets aggregate this information while still delivering a full-information "optimal'' outcome? I show that it is possible to achieve these goals by first aggregating the information of all agents and then running an optimal full-information mechanism. To ensure proper incentives, agents are punished when their reports do not match up with the "wisdom of the crowd.'' The punishment scheme is independent of the desired allocation, and can be enacted with or without monetary transfers. Even when the number of objects being assessed is much larger than the number of assessors, the proposed mechanism asymptotically correctly identifies every object's quality, while imposing a worst-case total punishment that converges exponentially to zero. Therefore, I am able to generate nearly optimal allocations in two-sided matching markets with
Can a school-choice clearinghouse generate a stable matching if it does not allow students to express preferences over peers? Theoretically, we show stable matchings exist with peer preferences under ...mild conditions but finding one via canonical mechanisms is unlikely. Increasing transparency about the previous cohort's matching induces a tâtonnement process wherein prior matchings function as prices. We develop a test for stability and implement it empirically in the college admissions market in New South Wales, Australia. We find evidence of preferences over relative peer ability, but no convergence to stability. We propose a mechanism improving upon the current assignment process.
Link to full version of paper: https://tinyurl.com/25kdz22e
We consider sequential search when the searching agent cannot observe the quality of goods but can buy signals from a profit-maximizing principal who lacks long-term commitment power. The agent is ...willing to pay more for more informative signals today, but high prices in the future lower the agent's continuation value, reducing the duration of search and thereby the principal's future profits. There is a unique stationary equilibrium outcome in which the principal \((i)\) induces the socially efficient stopping rule, \((ii)\) extracts the full surplus, and \((iii)\) persuades the agent against settling for marginal goods, extending the duration of rent extraction.
Equal Pay for Similar Work Diego Gentile Passaro; Kojima, Fuhito; Pakzad-Hurson, Bobak
arXiv.org,
06/2023
Paper, Journal Article
Open access
Equal pay laws increasingly require that workers doing "similar" work are paid equal wages within firm. We study such "equal pay for similar work" (EPSW) policies theoretically and test our model's ...predictions empirically using evidence from a 2009 Chilean EPSW. When EPSW only binds across protected class (e.g., no woman can be paid less than any similar man, and vice versa), firms segregate their workforce by gender. When there are more men than women in a labor market, EPSW increases the gender wage gap. By contrast, EPSW that is not based on protected class can decrease the gender wage gap.
The public discourse around pay transparency has focused on the direct effect: how workers seek to rectify newly-disclosed pay inequities through renegotiations. The question of how wage-setting and ...hiring practices of the firm respond in equilibrium has received less attention. To study these outcomes, we build a model of bargaining under incomplete information and test our predictions in the context of the U.S. private sector. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others under transparency. In situations where workers do not have individual bargaining power, such as under a collective bargaining agreement or in markets with posted wages, greater transparency has a muted impact on average wages. We test these predictions by evaluating the roll-out of U.S. state legislation protecting the right of workers to inquire about the salaries of their coworkers. Consistent with our prediction, the laws lead wages to decline by approximately 2% overall, but declines are progressively smaller in occupations with higher unionization rates. Our model provides a unified framework to analyze a wide range of transparency policies, and reconciles effects of transparency mandates documented in a variety of countries and contexts.
The public discourse around pay transparency has focused on the direct effect: how workers seek to rectify newly-disclosed pay inequities through renegotiations. The question of how wage-setting and ...hiring practices of the firm respond in equilibrium has received less attention. To study these outcomes, we build a model of bargaining under incomplete information and test our predictions in the context of the U.S. private sector. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others under transparency. In situations where workers do not have individual bargaining power, such as under a collective bargaining agreement or in markets with posted wages, greater transparency has a muted impact on average wages. We test these predictions by evaluating the roll-out of U.S. state legislation protecting the right of workers to inquire about the salaries of their coworkers. Consistent with our prediction, the laws lead wages to decline by approximately 2% overall, but declines are progressively smaller in occupations with higher unionization rates. Our model provides a unified framework to analyze a wide range of transparency policies, and reconciles effects of transparency mandates documented in a variety of countries and contexts.
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