Zi Yang Kang
Zi Yang Kang
- Microeconomic theory
- Market design
- Industrial organization
- Algorithmic game theory
Job Market Paper
This paper examines how the equilibrium effects of a public option on the private market impact its optimal design. I develop a model in which a policymaker can choose the quality and allocation of the public option, which affect the prices of private goods (and vice versa) in equilibrium. I demonstrate how these equilibrium effects change both the optimal quality and optimal allocation: they create new incentives to distort quality in either direction depending on the policymaker’s redistributive objective and provide a new justification for rationing the public option rather than using market-clearing prices. Finally, I show how my results can accommodate additional frictions in the private market and additional policy instruments.
(with Shosh Vasserman, revision requested at the American Economic Review) Economists routinely make functional form assumptions about consumer demand to obtain welfare estimates. How sensitive are welfare estimates to these assumptions? We answer this question by providing bounds on welfare that hold for families of demand curves commonly considered in different literatures. We show that commonly chosen functional forms, such as linear, exponential, and constant elasticity of substitution (CES) demand, are extremal in different families: they yield either the highest or lowest welfare estimate among all demand curves in those families. To illustrate our approach, we apply our results to the welfare analysis of energy subsidies, trade tariffs, pensions, and income taxation.
In many markets ranging from gasoline to alcohol and vaccines, individuals generate different amounts of externalities that cannot be directly taxed. I study how such externalities should be optimally regulated. I characterize the optimal policy and show that it generally requires quantity surcharges and discounts. I evaluate the gain from using the optimal indirect policy rather than a uniform tax and show that it can be significant. I apply my results to gasoline taxes to demonstrate their policy implications. Finally, I incorporate distributional concerns and show how "non-market" solutions such as quantity floors and ceilings might be required.
(with Ellen V. Muir) We study a platform that sells productive inputs (such as e-commerce and distribution services) to a fringe of producers in an upstream market, while also selling its own output in the corresponding downstream market. The platform faces a tradeoff: any output that it sells downstream increases competition with the fringe of producers and lowers the downstream price, which in turn reduces demand for the platform's productive inputs and decreases upstream revenue. Adopting a mechanism design approach, we characterize the optimal menu of contracts the platform offers in the upstream market. These contracts involve price discrimination in the form of nonlinear pricing and quantity discounts. If the platform is a monopoly in the upstream market, then we show that the tradeoff always resolves in favor of consumers and at the expense of producers. However, if the platform faces competition in the upstream market, then it has an incentive to undermine this competition by engaging in activities, such as "killer" acquisitions and exclusive dealing, that harm both consumers and producers.
(with Jan Vondrák) This paper studies fixed-price mechanisms in bilateral trade with ex ante symmetric agents. We show that the optimal price is particularly simple: it is exactly equal to the mean of the agents’ distribution. The optimal price guarantees a worst-case performance of at least 1/2 of the first-best gains from trade, regardless of the agents’ distribution. We also show that the worst-case performance improves as the number of agents increases, and is robust to various extensions. Our results offer an explanation for the widespread use of fixed-price mechanisms for size discovery, such as in workup mechanisms and dark pools.