Ilwoo Hwang
Interests: Applied Microeconomic Theory, Game Theory, Corporate Finance, Public Economics

 

 

 

 

 

Job Market Paper

Dynamic Trading with Increasing Asymmetric Information

I study a dynamic trading game where a seller and potential buyers start out symmetrically uninformed about the quality of a good, but the seller becomes informed about the quality, so that the asymmetric information between the agents increases over time. The introduction of a widening information gap results in several new phenomena. In particular, the interaction between screening and learning generates nonmonotonic price and trading patterns, contrary to the standard models in which asymmetric information is initially given. If the seller's effective learning speed is high, the equilibrium features “crash-and-recovery” behavior: Both the equilibrium price and the probability of a trade drop at a threshold time and then increase later. The seller’s payoff is nonmonotonic in his learning speed, as a slower learning speed can lead to higher payoff for the seller.

Research

A Theory of Bargaining Deadlock

PIER Working Paper 13-050 (under review)

I study a dynamic one-sided-offer bargaining model between a seller and a buyer under incomplete information. The seller knows the quality of his product while the buyer does not. During bargaining, the seller randomly receives an outside option, the value of which depends on the hidden quality. If the outside option is sufficiently important, there is an equilibrium in which the uninformed buyer fails to learn the quality and continues to make the same randomized offer throughout the bargaining process. As a result, the equilibrium behavior produces an outcome path that resembles the outcome of a bargaining deadlock and its resolution. The equilibrium with deadlock has inefficient outcomes such as a delay in reaching an agreement and a breakdown in negotiations. Bargaining inefficiencies do not vanish even with frequent offers, and they may exist when there is no static adverse selection problem. Under stronger parametric assumptions, the equilibrium with deadlock is the only one in which behavior is monotonic in the buyer’s belief, and all equilibria exhibit inefficient outcomes.

 

Coasian Bargaining with an Arriving Outside Option (with Fei Li)

PIER Working Paper 13-047

We consider Coasian bargaining problems where the buyer has an outside option arriving at a stochastic time. We study both observable outside option models and unobservable outside option models. In both models, we show that (1) the seller makes multiple rounds of offers, and (2) the Coase conjecture holds for an arbitrarily large arrival rate of the outside option. The result also applies to the time-varying outside option model. This exercise helps us to understand the sharp difference between Board and Pycia (2013), where the buyer’s outside option is always available, and the standard Coasian bargaining literature, where the buyer has no outside option.

 

Experimentation with Repeated Elections

(draft coming soon)

When does an incumbent party have an incentive to experiment with a risky reform policy under presence of future elections? To address this question, I study a continuous-time game between two political parties with heterogeneous preferences and a median voter. At each election, the voter chooses a party to which he gives power until the next election. Then the incumbent chooses a policy from among a safe alternative with known payoffs or two risky ones with initially unknown expected payoffs. I show that while infrequent elections are surely bad for the median voter, too frequent elections can also make him strictly worse off. When the election frequency is low, a standard agency problem arises and the incumbent party experiments with its preferred reform policy even if its outlook is not promising. On the other hand, when the election frequency is too high, in equilibrium the incumbent stops experimentation too early because imminent election increases the incumbent's potential loss of power if it undertakes risky reform. The degree of inefficiency is large that too frequent elections are worse for the median voter than a dictatorship. I also show that there is an optimal frequency of elections from the voter's perspective. Last, I show that one can approximately restore efficiency by giving an advantage to the incumbent party in the election.

 

Biding One's Time: The Effects of Delayed Purchases in Differentiated Networks (with Ilton Soares)

(work in progress)

What are the effects of offering consumers the option to delay their choices in a market with consumption externality? We address this question by considering a model of price competition with product differentiation and network effects in which consumers are allowed to delay their decisions of joining one of the competing networks. Delaying has the advantage of allowing consumers to learn more about the competing networks from the aggregate actions of others and comes at the cost of late consumption. We provide conditions for existence and uniqueness of equilibrium in the consumers’ coordination problem. We show that a positive mass of consumers will choose to delay their purchases. Moreover, with positive probability, the consumers who choose to delay their purchase decision will all choose the same network after observing the aggregate choices from previous period. This result illustrates the “landslide” effect observed in network choice.

Teaching Experience

Microeconomic Theory (graduate level), Teaching Assistant for Professors George Mailath and Qingmin Liu, Fall 2009/2010

Statistics for Economists, Lecturer, Summer 2011

Game Theory, Teaching Assistant for Professor David Dillenberger, Spring 2012

Introduction to Micro and Macroeconomics, Teaching Assistant for Lecturer Gizem Saka, Fall 2012

Social Choice, Teaching Assistant for Professor Sangmok Lee, Spring 2013

References

George Mailath (Chair)
215-898-7908
gmailath@econ.upenn.edu

Andrew Postlewaite
215-898-7350
apostlew@econ.upenn.edu

Itay Goldstein
215-746-0499
itayg@wharton.upenn.edu

Yuichi Yamamoto
215-898-8761
yyam@econ.upenn.edu

Status

I am on the job market and will be available for interviews during the ASSA meetings in Philadelphia, PA on January 3-5, 2014.