Economic Theory

With uncertainty about persistence, we show that forecasts necessarily become more persistent and over-react at long horizons. For these reasons, correctly specified and Bayesian forecasts may under-react at short horizons and over-react at long horizons. These results provide a unified explanation for several asset pricing and forecasting puzzles, including: (i) the excess responsiveness of long-horizon rates to short rates, (ii) the dominance of apparent term premia for long-term rates, (iii) the ex post predictability of bond yields, (iv) the excess volatility of long-horizon forward prices, (v) the excess persistence of long-horizon forecasts, and (vi) the over-reaction of long-horizon forecasts.

We analyze a multidimensional screening model in which a principal offers a menu of quality-price pairs to a consumer with multiple dimensions of private information and a quasilinear utility function. We derive necessary conditions for optimality, and use them to provide insight into optimal exclusion, positive trade, and screening. We then recast the problem in terms of incremental quality levels and prices, the so-called demand-profile approach (DPA). Under DPA, the problem decouples across increments and can be solved one at a time. We provide novel conditions under which DPA recovers the solution to the full problem exactly or approximately, and which make the necessary conditions sufficient for optimality: essentially, valuations must be sufficiently correlated across quality increments. Applied to empirical estimates of demand for health insurance, we show that DPA is approximately valid, and we apply it to understand equilibrium outcomes in a monopoly insurance market.

We analyze consumer surplus when a monopolist can adjust both prices and prod-uct qualities across segments, engaging in second- and third-degree price discrimination simultaneously. We characterize the consumer-optimal segmentation and show that it has a striking structure: consumers with the same value receive the same quality in every segment, though prices differ. Under mild conditions, any segmentation harms consumers if and only if demand is sufficiently more elastic than supply. Hence, po-tential benefits for consumers depend critically on demand and supply elasticities. These findings have implications for regulatory policy regarding price discrimination and market segmentation.

A monopolist offers personalized prices to consumers with unit demand. Consumers differ in their values, costs, and \emph{protected characteristics}---such as race or gender. The seller is subject to a non-discrimination constraint: consumers with the same cost, but different protected characteristics must face identical price distributions. Such regulations are present in markets like credit or insurance. We characterize the optimal pricing rule. Under this rule, surplus accrues to both protected groups, but only to those with intermediate values. Strengthening the constraint to cover transaction prices redistributes surplus, harming the low-value group and benefiting the high-value group. Meanwhile, prohibiting the use of protected characteristics as pricing inputs instead of regulating outputs harms the low-value group.

We build a general equilibrium model in which firms endogenously choose whether to target prices or quantities. We characterize how these choices of organizational targets depend on firms' uncertainty about microeconomic and macroeconomic factors. In equilibrium, the transmission of both nominal and real shocks hinges on firms' organizational targets. For example, under otherwise identical microfoundations, money is neutral under quantity targets and non-neutral under price targets. We further characterize how targets shape firms' strategic interactions and prove that the macroeconomic uncertainty that arises from each choice of targets reinforces incentives to choose that target. That is, choices of organizational targets are strategic complements. For this reason, monetary policy aimed at stabilization can backfire by inducing a regime shift that renders it ineffective. A simple quantification suggests that incentives over organizational targets can vary markedly at business-cycle frequencies and help explain the state-dependent pass-through of monetary shocks to prices and output.

We study optimization problems in which a linear functional is maximized over probability measures that are dominated by a given measure according to an integral stochastic order in an arbitrary dimension. We show that the following four properties are equivalent for any such order: (i) the test function cone is closed under pointwise minimum, (ii) the value function is affine, (iii) the solution correspondence has a convex graph with decomposable extreme points, and (iv) every ordered pair of measures admits an order-preserving coupling. As corollaries, we derive the extreme and exposed point properties involving integral stochastic orders such as multidimensional mean-preserving spreads and stochastic dominance. Applying these results, we generalize Blackwell's theorem by completely characterizing the comparisons of experiments that admit two equivalent descriptions—through instrumental values and through information technologies. We also show that these results immediately yield new insights into information design, mechanism design, and decision theory.