Research

Working Papers

Unobservable Investments and Search Frictions  [PDF] 
Abstract: This paper studies investment incentives in a dynamic random search environment, where a seller entrant can make unobservable investments to decrease the production cost. In the unique steady state equilibrium, sellers play a mixed strategy over investments and buyers play a mixed strategy over prices. When buyers make take-it-or-leave-it offers, the equilibrium payoffs and social welfare are constant given any search friction and equal to the equilibrium values when investments are observable (indicating no investment). This novel property remains true even when the investment strategy becomes socially optimal as search frictions diminish.
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Search with Private Information: Sorting and Convergence to Perfect Competition (with Kenneth Mirkin)   [PDF]
Abstract: Consider a dynamic market where heterogeneous buyers and sellers are randomly paired in each period.  Within each match, seller types become observable while buyer types remain private information, and  sellers make take-it-or-leave-it offers. We first establish the existence of steady state equilibrium and then characterize properties of sorting given two extreme search frictions.  When agents completely disregard for future payoffs, a stronger condition of log-supermodularity (log-submodularity) of the production function is necessary and sufficient for positive (negative) assortative matching.  When search frictions vanish, the condition for positive (negative) sorting returns to supermodularity (submodularity). In this setting with interdependent valuations, we demonstrate that as search frictions diminish to zero, search equilibria converge to perfect competition.


Inter-Dealer Trades in OTC Markets — Who Buys and Who Sells?  (with Chung-Yi Tse) [PDF]
Abstract: Oftentimes, dealers in an OTC market may not be able to trade with one another whenever they desire to do so, just as investors find it necessary to incur time and effort to buy and sell assets not traded in a centralized exchange. Moreover, an individual dealer can obviously only carry limited quantities of the asset over time and the inventory capacities may certainly differ among dealers. In this environment, dealers trade among themselves, whenever the opportunities arise, to rebalance inventories for facilitating the sale and purchase of the asset to and from investors. The inter-dealer trades naturally resemble a core-periphery trading network documented empirically. Dealers with a smaller capacity occupy peripheral positions in the network and provide inventory for large dealers in the core when inventory is in shortest supply but liquidity when the asset supply is most abundant. The equilibrium is constrained efficient with a competitive inter-dealer market that serves to allocate inventory and spare inventory capacity to dealers who value them the most. The model yields a host of testable implications about how investors' and dealers' trading probabilities, the inter-dealer trading price and its volume depend on the asset supply and the diversity of dealers.


Targeted Search with Horizontal Differentiation in the Marriage Market (with Huangxing Yang) [PDF]
Abstract: We develop a search/matching model in the marriage market with heterogeneous men (a continuum of types) and heterogeneous women (a finite number of types). The model has two distinguishing features. First, search is targeted: each type of women constitutes a distinctive submarket, and men are able to choose beforehand in which submarkets to participate, but search is random within each submarket. Second, men and women are also horizontally differentiated. We show that there is always a unique equilibrium in which men are endogenously segmented into different submarkets, and the equilibrium matching pattern is weakly positive assortative. We then explore how the equilibrium segmentation/marriage pattern changes as some exogenous shocks occur. In particular, we show that an Internet-induced increase in search efficiency would make the marriage pattern overall more assortatitve, while an increase in the dispersion of the horizontal match fitness could make the\ marriage pattern overall less assortative.

Patents and Allocation of Resources over Innovation Projects [coming soon]

Work in Progress

Dinosaur Judges: Conservative Experts in a Changing Society (with Kim-Sau Chung)
Dating and Divorce (with Hao Li and Sergei Severinov)
Non-Linear Pricing with Limited Commitment (with Menghan Xu)

Teaching

Current Teaching

Econ 2101/2210, "Intermediate Microeconomics", HKU
Econ 1001/1210, "Introductory Microeconomics", HKU

Instructor

Econ 106G, "Introduction to Game Theory", UCLA