Terence R. Johnson
Development Economics and Market Design:
Mentors or Teachers: Microenterprise Training in Kenya - with Wyatt Brooks, Kevin Donovan (AEJ: Applied):
We use a randomized controlled trial to demonstrate that inexperienced female microenterprise owners in a Kenyan slum benefit from mentorship by an experienced entrepreneur in the same community. Using seven rounds of surveys, we find that mentorship increased profits by 20% relative to control. We conduct a formal business education intervention, which has no effect on profits despite changes in business practice. Our results demonstrate that missing information is a salient barrier to profitability, but the type of information matters: localized, specific information (like finding local suppliers) increases profit while abstract, general information (like how to do bookkeeping) does not.
Pricing People into the Market: Targeting through Mechanism Design - with Molly Lipscomb:
Subsidy programs are typically accompanied by large costs due to the difficulty of screen-
ing those who should receive the program from those who would have purchased the good
anyway. We design and implement a platform intended to increase the take-up of improved
sanitation services by targeting the poorest households for subsidies. The project proceeds in two stages: we first create a demand model based on market data and a demand elicitation
experiment, and use the model to predict prices that will maximize take-up subject to an
expected budget constraint. We then test the modeled prices on a new sample of households.
A main feature of the platform is that prices are designed to exclude or raise revenue from
households that would likely have otherwise purchased the improved service, while channelling subsidies to households that might otherwise be unable to pay. We provide evidence that the targeting strategy successfully identified households who would otherwise have failed to purchase improved services. Households in the treatment group were 1.7 percentage points more likely to purchase a mechanical desludging, leading to an increase of market share of mechanical desludging of 5.1 percentage points. The increased probability of purchasing a mechanical desludging among those with the largest subsidies was 3 percentage points. The health impacts among the poorest were large: high subsidy households saw a decrease in the probability that one of their children had diarrhea of 7.1 percentage points.
Using Market Mechanisms to Increase the Take-up of Improved
Sanitation in Senegal - with JF Houde, Molly Lipscomb, and Laura Schechter:
Many markets in developing countries, particularly those focused on public services, are
marked by inefficiencies stemming from mismatches between demand and supply and market
power. We institute just-in-time procurement auctions over three years and test the effect
increased competition on prices and take-up of the services. We supplement the auctions data with survey data from 5,991 households around Dakar and compare prices between the auctions and the general market: prices decrease in the auctions by 7% relative to the general market. The auctions for desludging services in Dakar, Senegal ran from June 2013 through July 2016 and led to 4,674 procurement auctions with 104 desludging operators. We show that auctions in which more desludgers are invited are more competitive and that much of the cost of distance is priced into the bids. We estimate that the expected profit of participating
Can the Job Market for Economists be Improved? - with Bandyopadhyay, Iskakov, Lee, McArthur, Rust, Watson and Watson (Oxford Handbook of Market Design):
In this chapter we describe the operation of the job market for PhD economists and an effort to improve the market's operation via the creation of the non-profit organization EconJobMarket.org (EJM), an online intermediary that serves as an "information clearinghouse" to facilitate the exchange of information between applicants, recommenders, and recruiters. EJM does not attempt to alter the decentralized search and matching process by which the economics job market currently operates. Since there is unrestricted entry of intermediaries similar to EJM and a number of for-profit and non-profit organizations are currently competing in this market in addition to recruiters with their own application systems, we discuss the problem of market fragmentation that can occur when too many organizations attempt to intermediate trade in the market. Contrary to conventional wisdom in industrial organization theory, we show that unrestricted entry and competition of intermediaries can result in sub-optimal outcomes. We discuss conditions under which the market might be improved if there is sufficient coordination to promote information sharing, such as establishing a dominant information clearinghouse that operates as a non-profit public service - a role EJM is trying to fulfill. We also consider the benefits and impediments to establishing more ambitious centralized job matching mechanisms, including guided search or price-based alternatives to the current system.
Matching Through Position Auctions (JET):
This paper studies how an intermediary should design two-sided matching markets when agents are privately informed about their quality as a partner and can make payments to the intermediary. Using a mechanism design approach, I derive sufficient conditions for assortative matching to be profit- or welfare-maximizing, and then show how to implement the optimal match and payments through two-sided position auctions. This sharpens our understanding of intermediated matching markets by clarifying when assortative matching is a solution, and the nature of optimal price discrimination when there are cross-market externalities. An extension considers the case when the matchmaker cannot keep the reports or bids of the agents secret ex post, partially undermining his ability to block unprofitable matches.
Synchronized Matching with Incomplete Information (Economic Theory):
This paper considers two-sided matching in continuous time without transferable utility or costly effort signaling. Two continua of impatient agents signal their types by delaying before proposing or accepting a match. I use a mechanism design approach to study what schedules of matchings and match times are implementable when there is private information on one or both sides. When only one side has private information, a sufficient condition to implement assortative matching is for the uninformed side to value the log gain in partner quality from waiting more than the informed side, so that it pays to wait. When information is incomplete on both sides, the sufficient conditions to implement assortative matching are much more restrictive, requiring the schedules on both sides to sychronize. Even in the case of coarse matching, these conditions can be so restrictive that only simple random matching is available.
Quality Exchanges (R&R):
Consider a market in which an intermediary arranges trade of quality-dierentiated goods between buyers and sellers who privately know their marginal value for quality. I provide axioms for the intermediary's preference ordering over types, qualities, and allocations which yield a utility function for which ex post maximization is also ex post implementable. This characterizes a set of mechanisms that are a hybrid of generalized second price auctions and double auctions. I show how the intermediary's utility function plays the role of a global potential function which the buyers and sellers indirectly maximize, generalizing the Vickrey-Clarke-Groves mechanism.
Agents own goods of varying quality and have privately known types that determine their marginal values for quality. An exchange arranges trade among the agents, endogenously determining which are net buyers or net sellers. The exchange's preferences over allocations is axiomatized, and the resulting utility function is consistent with welfare- or profit-maximization and generates ex post implementable allocations. The exchange's utility function is analogous to welfare in the Vickrey-Clarke-Groves mechanism, yielding similar intuition and budget-balance results. An open format exploits revealed preference inequalities to infer the agents' types, and implements the same allocation and tranfsers as the closed format.
Estimation of Dynamic Network Formation Games:
I characterize the Markov perfect equilibria of a dynamic network formation game and show that payoffs and costs can be consistently estimated from data about changes in the network's structure over time. Network activity varies systematically in equilibrium, with calm periods where there are few changes to the network as well as periods of frantic activity where agents scramble for scarce opportunities. Both parametric and non-parametric approaches to estimating payoffs and costs provided, and can be used to fit theory-driven payoff functions or flexible functions of network characteristics such as vertex degree, eigenvector centrality, or the presence of cut vertexes. Additional results characterize efficiency, stability, and allow for strategic entry.
Robust Contracting with Financially Constrained Firms:
A principal seeks to contract with one of many firms to undertake a project subject to financial constraints, adverse selection, and unobserved effort choice. I focus on ex post Nash implementation. If the total cost of the project is non-decreasing in marginal cost and all types borrow from the principal, the same allocation can be implemented as if effort were observable. I provide an auction design that robustly implements any effort schedule with non-decreasing total costs that satisfies the financial constraints. An additional condition ensures a positive expected payoff for the principal for any incentive feasible effort schedule, even if the principal's beliefs are incorrect.