We develop a dynamic stochastic model of markets with an externality and multiple trading frictions, and cap-and-trade as the leading application. Slow participation, limited intermediation, and heterogeneous information interact in equilibrium: agents choose costly market access, access determines residual compliance demand, intermediary constraints translate residual demand into a surrender-month premium, and the premium feeds back into access incentives. These interactions shape how effectively the market corrects the externality. We characterize access choices in closed form, prove that the equilibrium premium is unique, and show that endogenous access dampens the response to each friction in isolation, while the interaction of multiple frictions is non-additive and can amplify the price response. We quantify the model using 2.7 million EU ETS registry transactions and compliance records from 2005-2021. About 40% of operators do not trade annually, purchases concentrate in April when returns are systematically high, and operator flow predicts future returns.

High-dimensional time series regressions are often regularized to produce sparse coefficients. We show that temporal aggregation provides a powerful alternative to reduce dimensionality in high-order autoregressions and mixed-frequency regressions. To this end, we propose StarTime (Sparse Tree-based Aggregation for Time Series), a convex penalization method that uses a temporal tree to arrange lags hierarchically from high to low frequency. StarTime then flexibly selects coefficients to be aggregated at possibly varying frequencies, sparse or a combination thereof. We provide new error bounds for StarTime, demonstrate improved estimation accuracy and recovery of aggregation and sparsity in simulations relative to benchmarks, and illustrate StarTime's relevance for financial and macroeconomic applications.

We study optimal auction design when the direction of bidders' deviations is restricted. We show that the optimal revenue when bidders can only underbid their true values cannot exceed the optimal revenue when bidders may freely underbid or overbid. Thus, unidirectional incentive compatibility is sufficient for full incentive compatibility for revenue maximization. We prove this equivalence through linear programming duality in a discrete model, which makes it possible to analyze the feasibility of allocation rules in multi-agent environments.

Hedonic price models are widely used to assess how environmental amenities affect property values, yet methodological guidance for estimating direct price effects remains sparse. We conduct an empirical Monte Carlo simulation to evaluate the performance of traditional and causal machine learning approaches for estimating the direct unmediated price effect of spatially delineated amenities on treated properties (DUET), a conservative lower-bound approximation for welfare changes with direct applications to benefit-cost analysis. Where previous simulations rely on parametric assumptions, we retain the actual data-generating process underlying over 1 million property transactions from upstate New York (1990--2024). By randomly assigning "treatment locations" across iterations we establish a "ground truth" that allows us to precisely measure estimation error. Our results demonstrate that generalized difference-in-differences (DID) regression consistently outperforms baseline DID and two-way fixed effects models across all scenarios. Causal Machine Learning (CML) methods, particularly causal forest DID, achieve comparable performance to generalized DID in most scenarios. In larger samples (above 3,000 treated) increasingly common in contemporary hedonic studies, CML approaches offer substantial advantages when properly specified. Based on empirical simulation results, we provide a set of method-specific best practice recommendations for both traditional regression and causal machine learning approaches.

A principal who offers a contract may renege when her default option is sufficiently attractive. The size of this temptation, which measures her commitment power, is often her private information. This paper asks how contracting outcomes change under this information asymmetry. Disciplining off-path beliefs with the Intuitive Criterion, I find that every type of principal behaves and earns payoffs exactly as if she were commonly known to have the least commitment power. Hidden commitment power is therefore powerless. The result delivers an unambiguous policy lesson on how to mitigate this information asymmetry prior to contracting: only measures that improve the worst case have value. Applied to credit rating, it rationalizes the monotone-partitional structure widely used in practice.

Modern Machine Learning (ML) and Artificial Intelligence (AI) models, especially large language models (LLMs), are increasingly used to generate scientific hypotheses and mechanistic explanations from observational data. This position paper argues that in the high-dimensional proxy regimes where modern ML excels, mechanistic learning is generically underdetermined: many incompatible mechanisms induce essentially the same observational relationships on the support of the data, so predictive success and coherent explanations are insufficient evidence of mechanism discovery. This underdetermination becomes uniquely hazardous with large language models (LLMs), which tend to collapse large equivalence classes of explanations into a single fluent narrative. This paper proposes concrete standards for ``mechanistic ML,'' and argues these norms are necessary if LLM-centered workflows are to support science rather than merely simulate it.

Does scientific publishing reward the quality of ideas or the advantage of connections? The question is universal to prestige-driven science, yet it has resisted decades of study because a paper's quality could not be gauged ahead of its publication fate without using that fate as the yardstick. We break this constraint by measuring a paper's idea quality directly from its text, before publication, using a discipline-trained LLM evaluator that scores the idea without seeing author names or outcomes. Using economics as a case study, we combine this text-legible idea-quality score with an execution-quality rubric, a connection index, an author-ability index, and an off-the-shelf language-model text score to estimate a five-input production function for journal placement across 6,208 economics working papers. The inputs are not rivals but a sequence along the ladder of prestige. Execution sets a meritocratic floor and is the largest input overall. Text-legible idea quality grades the rungs in between. Connections set a favoritism ceiling that bites mainly near the apex, the most selective journals. Connections work through two additive channels: connected authors write papers that score higher, and at equal scores their papers are still more likely to place better. Yet this advantage is bounded. Connections raise the odds of every rung without making the apex the typical outcome for ordinary ideas, and even the highest-scoring papers face real friction reaching the visible journal ladder. The result nests, rather than chooses between, the meritocracy and network accounts of how science is published.

We study how economy-wide reputational shocks reshape corporate governance by examining board and executive turnover following the MeToo movement. We conceptualize the October 2017 revelations surrounding Harvey Weinstein as a common information shock that increased the expected cost of misconduct and intensified scrutiny across firms. Identification exploits cross-sectional variation in pre-shock exposure, measured by the frequency of Item 5.02 Form 8-K filings, which proxy for firms' sensitivity to governance-related disclosure and reputational risk. We develop a model of organizational exit in which directors respond to changes in reputational pressure through dynamic, belief-driven resignation hazards, generating heterogeneous and potentially nonlinear responses across firms. Empirically, we implement a continuous-treatment difference-in-differences design and complement it with dynamic event-study and matrix-completion estimators. We find that firms with greater pre-shock exposure experience significantly larger increases in resignation activity following the shock. The effects are concentrated in the immediate aftermath of the Weinstein revelations and are amplified through board-level interactions. The findings provide causal evidence that reputational shocks can induce rapid and systematic governance turnover, highlighting the central role of information, exposure, and organizational adaptation in shaping corporate responses to changes in the reputational environment.

Many proof-of-stake protocols finance validator rewards from two sources: transaction fees and a finite reserve of tokens. This creates a dynamic hand-off problem. Early in the life of the system, fees may be too small to fund the target level of security; later, fees may become sufficient. The central question is whether the reserve provides enough runway for the protocol to remain secure until this fee-only region is reached. We study this problem in a discrete-time stochastic model of validator participation. Token price and transaction demand fluctuate over time, while validators choose participation strategically. We solve the validator entry game and derive an exact state-dependent reserve threshold, i.e., the minimal reserve stock necessary and sufficient to sustain a target security level. This threshold separates three regions: infeasibility, reserve-dependent security, and fee-only security. Security fails if the reserve first falls below the state-dependent threshold, and a successful hand-off occurs exactly if the fee-only region is reached before that failure time. We derive stress-test guarantees that convert lower confidence bands for token price and demand into reserve requirements, and obtain explicit failure-probability and expected hand-off-time bounds. Finally, we extend the model to forward-looking validators and derive the Markov participation condition that captures how current participation affects future reserve-funded rewards. The main implication is that reserve policy should not be evaluated by nominal depletion dates or steady-state reward ratios alone. A protocol can have a large nominal reserve and still be close to security failure after adverse price or demand shocks. Conversely, once demand crosses the fee-only threshold, the reserve becomes redundant for security. This paper provides a tractable equilibrium framework for stress-testing this transition.

We study the robustness of AMM-based on-chain price oracles to strategic manipulation. An attacker trades against constant product automated market makers (CPMMs) to distort an on-chain oracle, arbitrageurs restore cross-pool and cross-venue consistency, and an oracle designer chooses how to aggregate pool quotes. Taking an efficient-market-hypothesis (EMH) view of the off-chain "true" price, we define the \emph{cost of manipulation} as the minimal mark-to-market loss that an attacker must incur to move the oracle by a given multiplicative factor. For independent CPMMs, we derive closed-form single-pool manipulation formulas and solve the attacker-designer game for weighted means and weighted medians, showing that liquidity weights maximize the minimum cost of manipulation within these classes for weighted medians (for any distortion level) and, for weighted means, locally as the distortion tends to zero. For larger distortions, weighted means become more fragile: optimal weights can depend on the target distortion and no single choice is uniformly optimal across distortion levels. In a frictionless CPMM model with cross-pool arbitrage, the manipulation cost depends only on the total quote depth and coincides across symmetric aggregators. We extend this framework to multi-asset star architectures, confirming that liquidity weights remain optimal in the same sense. Finally, we bridge theory and practice by incorporating dwell times and rate limits, providing a quantitative yardstick to size oracles against the explicit economic costs of attack.

Advertisements often strategically disclose information to consumers who make decisions on further information acquisition and eventual purchase. Anderson and Renault (2006) model this problem using an information design framework, where the advertiser acts as a sender and the consumer as a receiver. We extend this model to a competitive setting with horizontally differentiated senders competing for a unit-demand receiver. Under costly inspection, the receiver's optimal sequential search action is given by Weitzman's Index Algorithm. We give a method, based on duality arguments, to verify whether a sender's given information strategy constitutes a best response against his competitors (other senders). We establish the existence of an equilibrium in the game among senders when the prior distributions have no mass; we also illustrate that such equilibria may exhibit intricate behaviors. Finally, we meticulously characterize symmetric equilibria played by the senders for cases when the prior distributions have monotone increasing densities, while offering economic intuitions behind the insightful equilibrium structure.

This study examines whether standard matching mechanisms function as intended in LLM-agent markets, where LLM agents make allocation-related decisions as delegated decision-makers. We compare decentralized free-negotiation markets with centralized mechanism-based markets including several representative mechanisms. Across controlled one-to-one matching environments, mechanism-based markets generally outperform free negotiation in terms of stability and efficiency. We also find that LLM agents report preferences truthfully at substantially higher rates than human subjects in comparable DA and EADA environments. However, truth-telling is not uniformly aligned with formal strategy-proofness across all mechanisms: TTC, despite being strategy-proof, does not always elicit higher truth-telling than EADA. These results suggest that matching theory provides a useful but incomplete guide for designing institutions in LLM-agent markets.

We study whether simple algorithmic pricing systems can systematically produce collusive-like prices in multi-firm markets. We consider firms that price using a myopic estimate-then-optimize rule: each repeatedly fits a demand model to its own price and sales history and sets the price that maximizes estimated profit. This demand model is misspecified, omitting competitors' prices. We analyze the dynamics of this rule when it is initialized by an exploration phase of independent random prices. We characterize when this pipeline converges to supra-competitive prices above the Nash equilibrium, via a fluid-limit ordinary differential equation analysis. We show that supra-competitive prices arise when firms initially explore within similar price ranges on the same side of the Nash price. Moreover, prices can be substantially above the Nash price; we show that prices can reach monopoly levels under symmetric exploration. Simulations calibrated to a real multifamily rental market confirm that supra-competitive outcomes arise robustly beyond our theoretical assumptions, including under finite horizons, heterogeneous products, and nonlinear logit demand.

We study the equilibria of uniform price auctions where many asymmetric bidders have flat demands up to their respective quantity constraints. We present an iterative procedure that systematically finds an equilibrium outcome as well as an ascending auction that has this outcome as a dominant strategy equilibrium outcome. Demand reduction and low price equilibrium may occur since it is advantageous for a bidder to give up some of his/her demand and get the remaining demand at a low price rather than to get his/her entire demand at a higher price. We show that a low price equilibrium is the only possible equilibrium when no bidder's quantity constraint is large enough to cover the supply.

Small influential data subsets can dramatically impact model conclusions, with a few data points overturning key findings. While recent work identifies these most influential sets, there is no formal way to tell when maximum influence is excessive rather than expected under natural random sampling variation. We address this gap by developing a principled framework for most influential sets. Focusing on linear least-squares, we derive a convenient exact influence formula and identify the extreme value distributions of maximal influence - the heavy-tailed Fréchet for constant-size sets and heavy-tailed data, and the well-behaved Gumbel for growing sets or light tails. This allows us to conduct rigorous hypothesis tests for excessive influence. We demonstrate through applications across economics, biology, and machine learning benchmarks, resolving contested findings and replacing ad-hoc heuristics with rigorous inference.

This paper studies whether interruptions to organized breast cancer screening lead to greater later use of emergency hospital care. It focuses on the first wave of COVID-19, when routine mammography was widely reduced across Europe, disrupting the usual screening pathway of early detection, follow-up testing, referral, and planned treatment. Using SHARE data from eight countries, the authors examine women aged 50 to 69, the main target group for organized screening programs. They estimate how mammography uptake affects all-cause overnight emergency hospitalization, interpreted as a broad measure of downstream strain on the health system after preventive care disruption. To address selection into screening, they use an instrumental variables strategy based on interview timing in Wave 9 interacted with cross-country differences in first-wave restrictions. The results suggest that pandemic-related declines in mammography increased later emergency hospitalization for screening-eligible women, while no such effect appears for women aged 70 and older.

We quantify the short-term impact of Generative Artificial Intelligence (GenAI) on sales performance through a series of large-scale randomized field experiments involving millions of users and products at a leading cross-border online retail platform. Over 2023-2024, the platform integrated GenAI into seven consumer-facing business workflows spanning customer service, consumer-product matching, advertising, and seller services. We find that GenAI adoption increases sales in most workflows, with effects ranging from no detectable impact to $16.3\%$, depending on GenAI's marginal contribution relative to baseline firm practices. Across the four GenAI applications with positive sales effects, the implied annual incremental value is roughly $\$5-$an economically meaningful impact given the retailer's scale and the early stage of GenAI adoption. The gains operate primarily through higher conversion rates rather than larger cart values, consistent with GenAI improving the shopping experience by reducing search, information, communication, and personalization frictions. Importantly, these effects are not associated with worse post-purchase outcomes, as product return rates and customer ratings do not deteriorate. Finally, we document substantial demand-side heterogeneity, with larger gains for less experienced consumers. Our findings provide novel, large-scale causal evidence on how GenAI shapes sales productivity in online retail, highlighting both its immediate value and broader potential.

We study the maximum regret (MR) of binary treatment choice in a population with observed covariates x, when welfare varies with an uncertain binary event. We study decision making with plug-in probabilistic predictions of the event and pre-specified decision thresholds, which we term the prediction-threshold problem. In this setting, the optimal treatment for persons with covariate value x is B if the conditional probability P(y = 1|x) of a binary outcome y exceeds a particular x-specific threshold and is A otherwise. This structure is common in medical decision making and also arises in non-medical contexts such as criminal justice. Plug-in prediction uses data to estimate P(y|x) and acts as if the estimate is accurate. However, plug-in prediction is often performed with misspecified prediction models and conventional x-invariant thresholds. We aim to shed new light on MR when treatment choice is performed this way. We use a combination of algebraic and computational analysis of limit and sample MR, demonstrating how MR depends on the prediction model, the state space, and the thresholds used to choose treatments.

Incarceration-diversion treatment programs aim to improve societal reintegration and reduce recidivism, but limited capacity forces policymakers to make prioritization decisions that often rely on risk assessment tools. While predictive, these tools typically treat risk as a static, individual attribute, which overlooks how risk evolves over time and how treatment decisions shape outcomes through social interactions. In this paper, we develop a new framework that models reoffending risk as a human-system interaction, linking individual behavior with system-level dynamics and endogenous community feedback. Using an agent-based simulation calibrated to U.S. probation data, we evaluate treatment allocation policies under different capacity constraints and incarceration settings. Our results show that no single prioritization policy dominates. Instead, policy effectiveness depends on temporal windows and system parameters: prioritizing low-risk individuals performs better when long-term trajectories matter, while prioritizing high-risk individuals becomes more effective in the short term or when incarceration leads to shorter monitoring periods. These findings highlight the need to evaluate risk-based decision systems as sociotechnical systems with long-term accountability, rather than as isolated predictive tools.

The usual definitions of algorithmic fairness focus on population-level statistics, such as demographic parity or equal opportunity. However, in many social or economic contexts, fairness is not perceived globally, but locally, through an individual's peer network and comparisons. We propose a theoretical model of perceived fairness networks, in which each individual's sense of discrimination depends on the local topology of interactions. We show that even if a decision rule satisfies standard criteria of fairness, perceived discrimination can persist or even increase in the presence of homophily or assortative mixing. We propose a formalism for the concept of fairness perception, linking network structure, local observation, and social perception. Analytical and simulation results highlight how network topology affects the divergence between objective fairness and perceived fairness, with implications for algorithmic governance and applications in finance and collaborative insurance.

We study the typical structure of games in terms of their connectivity properties. A game is `connected' if it has a pure Nash equilibrium and there is a best-response path from every action profile which is not a pure Nash equilibrium to every pure Nash equilibrium; a game is generic if it has no indifferences. In previous work we showed that, among all $n$-player $k$-action generic games that admit a pure Nash equilibrium, the fraction that are connected tends to $1$ as $n$ gets sufficiently large relative to $k$. Here, we consider the large-$k$ regime, which behaves differently: we show that the connected fraction tends to $1-ζ_n$ as $k$ gets large, where $ζ_n>0$ is an explicit constant. Thus, a constant fraction of many-action games are \emph{not} connected. However, for $n\geq3$, $ζ_n$ is small and tends to $0$ rapidly with $n$, so as $n$ increases all but a vanishingly small fraction of many-player-many-action games are connected. Since connectedness is conducive to equilibrium convergence, we find a simple adaptive dynamic that is guaranteed to converge to a pure Nash equilibrium in all but a vanishingly small fraction of generic games that have one. We rely on new probabilistic and combinatorial arguments to tackle the large-$k$ regime.

We develop a continuous time discrete choice model of peer effects. The distinctive feature of the model is that agents might not consider all peers at the moment of making a decision. Instead, they select some of them on the basis of a mechanism that depends on recent choices. We characterize the equilibrium behavior and study the empirical content of the limited attention peer effect model. We allow changes in the choices of peers to affect both the set of peers to which the agent pays attention and her preferences over the alternatives. We exploit variation in choices together with variation in the size of the set of potential peers (or reference groups) to recover the preferences of the agents and the peer selection mechanisms. We apply our results to model expansion and contraction decisions by fast-food restaurants and find evidence of limited attention to actions of competitors.

This paper considers identification and estimation of distributional effect parameters that depend on the joint distribution of an outcome and another variable of interest ("treatment") in a setting with "two-sided" measurement error -- that is, where both variables are possibly measured with error. Examples of these parameters in the context of intergenerational income mobility include transition matrices, rank-rank correlations, and the poverty rate of children as a function of their parents' income, among others. Building on recent work on quantile regression (QR) with measurement error in the outcome (particularly, Hausman, Liu, Luo, and Palmer (2021)), we show that, given (i) two linear QR models separately for the outcome and treatment conditional on other observed covariates and (ii) assumptions about the measurement error for each variable, one can recover the joint distribution of the outcome and the treatment. Besides these conditions, our approach does not require an instrument, repeated measurements, or distributional assumptions about the measurement error. Using recent data from the 1997 National Longitudinal Study of Youth, we find that accounting for measurement error notably reduces several estimates of intergenerational mobility parameters.

We analyse the typical structure of games in terms of the connectivity properties of their best-response graphs. Our central result shows that, among games that are `generic' (without indifferences) and that have a pure Nash equilibrium, all but a small fraction are \emph{connected}, meaning that every action profile that is not a pure Nash equilibrium can reach every pure Nash equilibrium via best-response paths. This has important implications for dynamics in games. In particular, we show that there are simple, uncoupled, adaptive dynamics for which period-by-period play converges almost surely to a pure Nash equilibrium in all but a small fraction of generic games that have one (which contrasts with the known fact that there is no such dynamic that leads almost surely to a pure Nash equilibrium in \emph{every} generic game that has one). We build on recent results in probabilistic combinatorics for our characterisation of game connectivity.

Recent literature highlights the advantages of implementing social rules via dynamic game forms. We characterize when truth-telling remains a dominant strategy in gradual mechanisms implementing strategy-proof social rules, where agents gradually reveal their private information while acquiring information about others in the process. Our first characterization hinges on the incentive-preservation of a basic transformation on gradual mechanisms called illuminating that partitions information sets. The second relies on a single reaction-proofness condition. We demonstrate the usefulness of both characterizations through applications to second-price auctions and the top-trading cycles algorithm.

We derive a novel canonical decomposition of factor models encompassing both the static factor model - where factors are loaded only contemporaneously - and the Generalised Dynamic Factor Model - where factors are loaded with lags. This decomposition features a new term: the weak common component, defined as the difference between the dynamic and static common components. It is driven by (possibly infinitely many) non-pervasive weak factors which belong to the dynamically common space. Through theoretical and empirical examples - both on U.S. macroeconomic indicators and global financial volatilities - we show that, in general, the weak common component shall not be neglected. Furthermore, we show that, by accounting for the presence of weak common components, we are likely to obtain Impulse Response Functions with more plausible shapes than those obtained from purely static approaches. In addition, we provide consistent estimators for all terms of the canonical decomposition and for the weak factors.

We consider difference-in-differences identification and estimation strategies when the parallel trends assumption holds conditional on covariates, which can be time-varying, time-invariant, or both. We uncover several weaknesses of two-way fixed effects (TWFE) regressions in this context. The most important, which we call \textit{hidden linearity bias}, arises because transformations that eliminate unit fixed effects also transform the covariates, either implicitly changing the identification strategy or relying on correct model specification. We provide diagnostics for assessing a TWFE regression's susceptibility to hidden linearity bias and propose alternative estimation strategies that circumvent these issues.