Essays in Information Economics and Welfare Economics

Leal Vizcaíno, René

doi:https://doi.org/10.21985/n2-xr1r-1372

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Essays in Information Economics and Welfare Economics

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Conceptually, we can divide this dissertation into Chapter 1 which is in the tradition of information economics and comparative statics, and Chapters 2 to 4 which had all its genesis in the same project concerning identifying the value of product differentiation to consumers with minimal assumptions, and is therefore related to the sufficient statistics approach to identification popularized by Raj Chetty (2009). The first Chapter is based on the paper titled ``Bayesian Comparative Statics'' which is joint work with Teddy Mekonnen and extends some of the tools of axiomatic comparative statics, in particular the work of Paul Milgrom, Chris Shannon, Susan Athey and Bruno Strulovici which has a heavily influenced by the Nicolas Bourbaki collective and that was brought into Economics by Gérard Debreu. The question we want to answer is how in Bayesian games or Bayesian decision problems optimal actions change with the quality of information agents posses. Optimal actions are state dependent and therefore random variables, we give necessary and sufficient conditions to order optimal actions as a function of information quality. In particular: We study how changes to the informativeness of signals in Bayesian games and single-agent decision problems affect the distribution of equilibrium actions. A more precise private signal about an unknown state of the world leads to an mean-preserving spread of an agent's beliefs. Focusing on supermodular environments, we provide conditions under which a more precise private signal for one agent leads to an increasing-mean spread or a decreasing-mean spread of equilibrium actions for all agents. We apply our comparative statics to sender-receiver persuasion games and derive sufficient conditions on the primitive payoffs that lead to extremal disclosure of information. Additionally, we study the incentives to acquire information in oligopolies when information acquisition is covert versus overt. Chapter 2 is concerned with characterizing the property of parallel demand curves in discrete choice, a previously-unnoticed property of commonly-used discrete choice models. This Chapter is based on the paper ``Parallel Inverse Aggregate Demand Curves in Discrete Choice Models'' joint with Kory Kroft, Matthew Notowidigdo and Ting Wang. Specifically, we show that in random utility models, inverse aggregate demand curves shift in parallel with respect to variety if and only if the random utility shocks follow the Gumbel distribution. Using results from Extreme Value Theory, we provide conditions for other distributions to generate parallel demand asymptotically, as the number of varieties increase. We establish these results in the benchmark case of symmetric products, illustrate them using numerical simulations and show that they hold in extended versions of the model with correlated tastes and asymmetric products. Lastly, we provide a ``proof of concept'' of parallel demands as an economic tool by showing how to use parallel demands to identify the change in consumer surplus from an exogenous change in product variety. Chapter 3 studies commodity taxation in a general model featuring imperfect competition and tax salience and is based on the paper ``Salience and Taxation with Imperfect Competition'' joint with Kory Kroft, Jean William Laliberté and Matthew Notowidigdo. We derive new formulas for the incidence and marginal excess burden of commodity taxation, and we estimate the necessary inputs to the formulas by combining Nielsen Retail Scanner data from grocery stores in the US with detailed sales tax data. We calibrate our new formulas and conclude that the incidence of sales taxes on consumers is increasing in tax salience, and the marginal excess burden of taxation is larger than standard formulas that ignore imperfect competition and tax salience. The final Chapter, based on the paper ``Identifying and Estimating the Value of Product Variety Using Instrumental Variables'' (joint with Kory Kroft, Jean William Laliberté and Matthew Notowidigdo) develops and implements a new empirical method for estimating the value of product variety to consumers, which we call the ``variety effect''. We define the variety effect to be the causal effect of product variety on market demand, holding prices constant. We show how to identify the variety effect in a structural model of demand with generalized CES preferences using a two-stage least squares (2SLS) regression with two instruments, one for prices and another for variety. We apply our method to retail scanner data covering consumer goods sold in grocery stores in the US, and we use instruments that build on the recent work studying uniform pricing within retail chains. Across a range of specifications, we consistently find that consumers place a large value on product variety.

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