Suren Basov

Prohibition and the Market for Illegal Drugs

Suren Basov — Thu, 29 Nov 2007 16:07:21 PST

Hamiltonian Approach to Multi-dimensional Screening

Suren Basov — Thu, 29 Nov 2007 16:03:15 PST

In this paper, I consider a problem of multi-dimensional screening in the case when the number of consumer's characteristics, m, differs from n, the number of goods produced by a monopolist. I show that, in the case whenn > m, the qualitative features of solution are similar to those obtained by Rochet and Chone (1998) for the case n = m. When the monopolist has too few instruments (n < m), new qualitative features arise. In particular, there are distortions in the outward direction at the top, discontinuity in the bundle of goods consumed on the lower boundary of participation region, and full separation of types is impossible over any open subset of type space.

Auctions with Opportunistic Experts

Suren Basov — Thu, 29 Nov 2007 15:53:45 PST

In this paper we revisit the first price and the second price sealed-bid auctions. However, unlike the standard model we assume that bidding is conducted by an expert on behalf of the client, and that the client does not completely trust the expert's qualifications. In particular, if the client did not win the auction, but could have won it by submitting a bid below her valuation or won but feels she could had paid less for the object, the client asks the expert to justify the strategy. The objective of this paper is to incorporate the concern for the justifiability into the expert's objective function. We show that under some assumptions about the justification process the requirement of justifiability increases the optimal bid in the first price sealed-bid auction, while bidding the client's true value remains the optimal strategy in the second price auction. Hence, the first price auction may raise more revenue than the second price auction and then it will be preferred by the seller. Both auctions allocate the good to the client with the highest valuation. However, the second price sealed-bid auction is more efficient, since the experts do not incur costs due to the failure to justify their strategy.

Partial Differential Equations in Economics and Finance

Suren Basov — Tue, 27 Feb 2007 19:57:54 PST

This book reviews the basic theory of partial differential equations of the first and second order and discusses their applications in economics and finance. It starts with well-known applications to consumer and producer theory, and to the theory of option pricing and then introduces new applications that emerge from current research (some of which is the author's own) in bounded rationality, game theory, and multi-dimensional screening.

A generalized optimal control problem

Suren Basov — Tue, 13 Feb 2007 19:27:50 PST

In this paper we generalize the Pontryagin maximum principle for the case of an optimal control problem in which the objective function is represented by an integral with respect to an arbitrary probability measure. Such problems arize in screening models with general type spaces. They can also arise in the optimal growth theory if the psychological measure of time is different from the physical time.

A Note on Risk Aversion and Evolution to Equilibrium in 2x2 Coordination Games

Suren Basov — Sun, 14 Jan 2007 17:39:36 PST

In this note we point out the effect of risk-aversion on both the speed of deterministic convergence and the waiting times involved in equilibrium selection in 2 X 2 coordination games. Risk-aversion destabilizes the Pareto optimal equilibrium in two different ways: it decreases the size of its basin of attraction and slows the rate of deterministic convergence within its basin of attraction. It turns out that the first effect is quite significant: moderate levels of risk aversion are enough even in large populations to lead the system from the Pareto Optimal equilibrium to a risk-dominant equilibrium after just one mutation.

Equilibrium selection in coordination games: Why do dominated strategies matter?

Suren Basov — Sun, 14 Jan 2007 17:27:50 PST

In this paper I illustrate by an example that strictly dominated strategies may affect the process of the equilibrium selection in coordination games. The strategy profile that gets selected may be both Pareto and risk dominated. This distinguishes it from the examples provided in Ellison (2000) and Maruta (1997).

Market Niche, Flexibility and Commitment

Suren Basov — Sun, 14 Jan 2007 17:19:30 PST

We study a market-entry game in which the potential entrants coordinate their actions (i.e. enter different market segments rather than compete directly). If (i) the firms have an option to wait, and (ii) each firm has a different reaction time after they had decided to wait, the unique outcome that survives the iterated elimination of weakly dominated strategies favors the less flexible firm.

Non-monotone incentives in a model of coexisting hidden action and hidden information

Suren Basov — Thu, 14 Dec 2006 15:17:18 PST

In this paper I consider a model of coexisting moral hazard and adverse selection, similar to one considered by Guesnerie, Picard, and Rey (1989). I provide an explicit solution for the optimal incentive scheme in the case, when the effort is observed with a normally distributed error. The main observation is that in this case the optimal incentive scheme often fails to be monotone. If the monotonicity constraint is imposed on the solution for economic reasons there would exist a region of profit realizations, such that the optimal compensation will be independent of on performance.

Multidimensional Screening

Suren Basov — Thu, 14 Dec 2006 15:10:57 PST

The book brings into a focus all necessary mathematical knowledge to understand the economics of multidimensional screening. Part one is devoted to the exposition of the main mathematical techniques, while in part two the economic applications are discussed. It starts from a unified approach to the unidimensional models and contains some important novel insights in the multidimensional case.