MARCO M. OTTAVIANI

Model of nonmarket allocation of resources such as the awarding of grants to meritorious projects, honors to outstanding students, or journal slots to quality publications.

Key theoretical novelty: Lehmann (1988) information as a tractable tool for general comparative statics.

Main prediction of the model: Participation in a field increases as evaluation in that field becomes noisier & as evaluation in other fields becomes less noisy.

Key empirical result: Prediction confirmed in the data exploiting 2014 change in budget apportionment rule at the ERC.  

• Grantmaking, Grading on a Curve, and the Paradox of Relative Evaluation in Nonmarkets (1.194 Kb)

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In a number of markets, competing product providers compensate sales agents and advisors through nonlinear incentive schemes with bonuses. How should policy makers regulate nonlinear incentives in markets with advice? Is it enough to step up liability or should the shape of the compensation structure of advisors be regulated more directly?

The paper casts the tradeoff between ex-ante regulation (based on limited information about sign and magnitude of externality) and ex-post policy intervention (involving costly reversion) as a collective experimentation problem. (Winner of the 2009 Robert F. Lanzillotti Prize for best paper in antitrust economics at the International Industrial Organization Conference)  

• Approval Regulation and Learning, with Application to Timing of Merger Control (397 Kb)

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Do experts motivated by their reputation for being well informed have an incentive to misreport their information? As predicted by reputational cheap talk theory, experts are more likely to report truthfully when the state of the world is more uncertain and when evaluators conjecture that reporters always report truthfully. However, evaluators have difficulty learning experts' strategies and tend to overreact to message accuracy, exacerbating experts' incentives to misreport.

Tractable continuous-time model to study the optimal mix of the three instruments regulators employ to align the private incentives of firms: ex ante approval regulation, ex post withdrawal regulation, and liability. Results can rationalize the array of regulatory environments observed across applications ranging from product safety to competition policy.

• Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability (830 Kb)

Link to VIDEO presentation of core idea at Berkeley's Simons Institute (minutes 3-22)

Evaluates the welfare impact of sample selection, with applications to information aggregation in auctions, examinee choice in educational testing, manipulation of evidence in statistical inference, and peremptory challenge in juries.

• Strategic Sample Selection (431 Kb)

Systematic analysis of p-values reported to the ClinicalTrials.gov registry reveals:

(i) no cluster of results just above the significance threshold [good news about integrity of reported trials]

(ii) sponsors with more favorable phase II results are more likely to continue to phase III investigations [incentives matter], and

(iii) part of the excess amount of phase III significant results relative to phase II remain unexplained for small industry sponsors [this suspicious pattern is consistent with some selective reporting and suggests the need of tightening enforcement of registration regulation, especially for small industry sponsors].

• P-Hacking in Clinical Trials and How Incentives Shape the Distribution of Results across Phases (1.737 Kb)
• presentation (694 Kb)

Model of equilibrium persuasion through selective disclosure. Positive and normative implications depending on: the extent of competition among senders, whether receivers are wary of senders collecting personalized data, whether firms are able to personalize prices, and whether receivers make individual or collective decisions.

• Persuasion through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation (766 Kb)

Organizational deconstruction of Wald's model of sequential information acquisition, bridging experimentation with persuasion. The payoff and control rights of a statistician (planner) are split between an evaluator and an informer. The informer provides costly information with the aim of persuading the evaluator to approve. Welfare analyis + application to approval regulation, including FDA's supervision of clinical trials.

• Research and Approval Process: The Organization of Persuasion (1.531 Kb)

A researcher aims at persuading an evaluator that the causal effect of a treatment outweighs its cost, so as to justify acceptance. The researcher uses private information to (1) sample subjects based on their treatment effect (challenging external validity), (2) assign subjects to treatment based on their baseline outcome (challenging internal validity), or (3) selectively report experimental outcomes (challenging both external and internal validity).

Persuasion Bias in Science: Can Economics Help?

(supersedes previous paper titled: "Aggregation of Information and Beliefs: Asset Pricing Lessons from Prediction Markets")

When traders with heterogeneous prior beliefs can invest a limited amount of money (or their absolute risk aversion is decreasing in wealth), the equilibrium price under-reacts to information.

• Price Reaction to Information with Heterogeneous Beliefs and Wealth Effects: Underreaction, Momentum, and Reversal (299 Kb)

How should an informed principal decide based on the advice of an informed but biased party?

• Accept or reject? An organizational perspective (364 Kb)

Characterizes tradeoff between co-insurance and risk contamination with debt financing and default costs, depending on the bankruptcy recovery rate, the mean, the variability, the skewness, and the correlation of returns.

• The Flip Side of Financial Synergies: Coinsurance versus Risk Contamination (457 Kb)

Analysis of commitment role of contract cancellation and product return policies when sellers advise buyers about the suitability of the products sold. Effectiveness of competition and consumer protection policies depends on the rationality of customers.

• Sales Talk, Cancellation Terms, and the Role of Consumer Protection (186 Kb)

Motivated by recent policy changes across many countries, this review article discusses the rationale for various policies that target financial advice in the market for retail financial services.

• Regulating Financial Advice (638 Kb)

Why are brokers commonly compensated indirectly through contingent commissions paid by product providers rather than through advice fees paid by customers? The effectiveness of various policy interventions are analyzed depending on the rationality of customers.

• How (Not) to Pay for Advice: A Framework for Consumer Financial Protection (321 Kb)

Overviews the pros and cons of various policy interventions in the area of financial advice, such as imposing mandatory disclosure, banning commissions, and regulating contract cancellation terms.

• Financial Advice (195 Kb)

Embeds provision of product advice by an information intermediary into Hotelling model of competition; characterizes when caps on commissions, mandatory disclosure, and other policy interventions aimed at subduing the use of commissions have unintended consequences for the efficiency of advice

• Competition through Commissions and Kickbacks (295 Kb)

Accessible introduction prepared for a Symposium on Behavioral Economics

• Consumer Protection in Markets with Advice (541 Kb)

In the context of merger policy we analyze the choice between ex post control (which is based on the more accurate information that becomes available in the intervening period) and ex ante control (which entails temporary losses to social welfare and reversal costs incurred to unscramble the eggs).

• Ex Ante or Ex Post Competition Policy? A Progress Report (167 Kb)

Testable implications for the sign and extent of favorite-longshot bias depending on the information to noise ratio present in the market, as affected by the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes.

• Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions (370 Kb)

The favorite-longshot bias observed in parimutuel markets is consistent with the use of private information by bettors taking simultaneous positions. The ex post realization of a high market probability indicates favorable information about the occurrence of an outcome---and the opposite for longshots.

• Surprised by the Parimutuel Odds? (112 Kb)

How to incentivize sales agents to sell, but not to missell to customers for whom the product is unsuitable? Analysis of the internal organization of the sales process, the commitment effect of transparency of commissions, and the role for self regulation and policy intervention.

• Misselling through Agents (254 Kb)

When should principals dealing with a common agent share their individual performance measures about the agent's unobservable effort?

• Information Sharing in Common Agency: When is Transparency Good? (292 Kb)

Full characterization of monopoly prices and learning dynamics when buyers have binary signals about the quality of the good sold and observe the history of past purchases.

• Monopoly Pricing in the Binary Herding Model (474 Kb)

The ability of groups of people to make predictions is a potent research tool that should be freed of unnecessary government restrictions.

• The Promise of Prediction Markets (127 Kb)

Risk-averse banks first merge and then compete in the markets for loans and deposits, in the presence of interest rate risk and default risk for individual loans. If depositors have more correlated shocks than borrowers, bank mergers are relatively worse for depositors than for borrowers.     

• Bank Mergers and Diversification: Implications for Competition Policy (95 Kb)

Language inflation and deception result when either the receiver is credulous or the sender finds it costly to misrepresent information (due to legal, technological, or moral constraints)subsumes the first part of working paper Non-Fully Strategic Information Transmission.

• Credulity, Lies, and Costly Talk (259 Kb)

Analysis of the amount of outcome manipulation (and impact on prices) resulting in a simple model of a corporate prediction market.

• Outcome Manipulation in Corporate Prediction Markets (80 Kb)

The amount of information that is revealed to strategic receivers increases in the fraction of naive receivers and in the informational advantage of the sender, whereas it decreases in level of the conflict of interestsupersedes the second part of working paper Non-Fully Strategic Information Transmission.

• Naive Audience and Communication Bias (254 Kb)

Dynamic pricing by a monopolist selling to buyers who learn from each other’s purchases, with implications for herd behavior and welfare.

• Dynamic Monopoly Pricing and Herding (474 Kb)

• Mergers with Product Market Risk (255 Kb)

Framework for modeling strategic behavior of professional forecasters: (1) Concern for perceived talent leads to excessive conformity if the market is naive and loss of information if the market is rational. (2) Competition for best accuracy leads to excessive forecast differentiation.

• The Strategy of Professional Forecasting (316 Kb)

Communication by an expert concerned about appearing to be well informed, part IIgeneral analysis with focus on incentives to deviate from truthtelling, effect of self-knowledge of information quality, and multiple experts speaking simultaneously.

• Reputational Cheap Talk (209 Kb)

Communication by an expert concerned about appearing to be well informed, part Ianalysis of tractable example with focus on characterization of equilibrium, comparative statics, and multiple experts speaking sequentially.

• Professional Advice (272 Kb)

Conceptual and empirical framework for evaluating policies for the transition from analogue to digital television.

• The Transition to Digital Television (619 Kb)

Analysis of competition for a buyer with private information on the relative quality of the sellers, with a Hotelling reinterpretation and comparative statics with respect to buyer’s private information and public information.

• Price Competition for an Informed Buyer (263 Kb)

When does a price-discriminating monopolist want to reveal public information to its buyers? The linkage principle meets mechanism design by an informed principal.

• The Value of Public Information in Monopoly (264 Kb)

Dynamics of group think in a committee with members concerned about their reputation for expertise, with implications for the organization of debate.

• Information Aggregation in Debate: Who Should Speak First? (174 Kb)

Paper (i) uncovers the close connection between reputational and statistical herding and (ii) shows that reputational cascades also result when better informed agents do not have access to signals that are more positively correlated conditional on the state.

• Herd Behavior and Investment: Comment (130 Kb)

Only temporary informational cascades can arise if the state of the world is changing stochastically over time during the learning process.

• Social Learning in a Changing World (182 Kb)