Since 1967, all French firms with more than 100 employees have been required to share a fraction of their excess profits with their employees. Through this scheme, firms with excess profits distribute, on average, 10.5% of their pre-tax income to workers. In 1990, the eligibility threshold was reduced to 50 employees. We exploit this regulatory change to identify the effects of mandated profit-sharing on firms and their employees. The cost of mandated profit-sharing for firms is evident in the significant bunching at the 100-employee threshold observed prior to the reform, which completely disappears post-reform. Using a difference-in-differences strategy, we find that, at the firm level, mandated profit-sharing (a) increases the labor share by 1.8 percentage points, (b) reduces the profit share by 1.4 percentage points, and (c) has small to non-existent effects on investment and productivity. At the employee level, mandated profit-sharing increases lower-skilled workers’ total compensation and leaves high-skilled workers’ total compensation unchanged. Overall, mandated profit-sharing redistributes excess profits to lower-skilled workers in the firm without generating significant distortions or productivity effects.

A group of agents with ex ante independent and identically uncertain quality compete for a prize, awarded by a principal. Agents may possess evidence about the quality of those they share a social connection with (neighbors), and themselves. In one equilibrium, adversarial disclosure of evidence leads the principal to statistically discriminate between agents based on their number of neighbors (degree). We identify parameter values for which an agent’s ex ante winning probability is monotone in degree. All equilibria that satisfy some robustness criteria lie between this adversarial disclosure equilibrium and a less informative one that features no snitching and no discrimination. (JEL D82, D83, D85, Z13)

Does more information benefit voters? I examine this question in a novel setting of distributive politics and electoral accountability. Homogeneously informed electorates can benefit from less information through improvements in the control or screening of politicians. For heterogeneously informed electorates, I show that the distribution of resources and voter welfare is affected by the nature of informational heterogeneity and by voters’ ability to communicate with each other, making less-informed voters better off than their more-informed counterparts in some cases. (JEL D72, D82, D83, H50)

This paper studies the pricing implications of wholesale and agency contracts when input terms are determined through bargaining. We develop a structural Nash-in-Nash bargaining model and show that the distribution of bargaining power determines whether agency contracts raise or lower retail prices relative to wholesale contracts. We apply the model to the e-book market, which transitioned from wholesale to agency contracts after the expiration of a ban on agency contracting. Estimates indicate that the retailers have most of the bargaining power. Counterfactual simulations show that most-favored-nation clauses raise prices but would lower the profits of the publishers and Amazon. (JEL C78, D86, K21, L14, L42, L81, L82)

We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: It may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes. (JEL D21, D83, G34, O31)

Penny-picking refers to the often-observed phenomenon of repeatedly taking negatively skewed risks and seems directly at odds with evidence on (positive-)skewness-seeking as observed in static settings. We show that penny-picking may not only occur despite skewness-seeking, but—seemingly paradoxically—because of skewness-seeking. With sufficient time available, risks with arbitrary negative skewness can be gambled in such a way that, overall, skewness is positive. Therefore, classical behavioral theories like prospect theory straightforwardly explain penny-picking. More generally, we show that the versatile dynamics of skewness reconcile apparent preference reversals concerning the avoidance and acceptance of (skewed and non-skewed) risks. (JEL D81, D91, G11, G41)

We study quality distortions when firms hold market power. We develop a model allowing for flexible functional forms of demand in order to extend Spence’s (1975) monopoly analysis to imperfect competition. We show that quality distortions are determined by a competition effect that captures the externality a firm exerts on its competitors when raising both its price and its quality, in addition to Spence’s (1975) effect related to the shape of total market demand. Our approach also allows us to analyze the effects of commodity taxation and technology shocks on the equilibrium allocation when firms compete in prices and qualities. (JEL D43, D62, H22, L13, L15, O31)

We introduce a new type of games, called “opportunity-hunting games,” in which two players compete to discover an uncertain event (“opportunity”) that occurs at an unobserved and random point in time. Players can inspect whether the event has already occurred again and again, but each inspection is costly. Varying the parameters of the model spans the range from games where competition between the players to be the first to identify the opportunity is the dominant force, to games in which free riding on the other player’s effort is the dominant force. We characterize the game’s unique symmetric Markov perfect equilibrium. (JEL C72, C73)

Why do firms outsource research and development (R&D) for some products while conducting R&D in-house for similar ones? An innovating firm risks cannibalizing its existing products. The more profitable these products, the more the firm wants to limit cannibalization. We apply this logic to the organization of R&D by introducing a novel theoretical model in which developing in-house provides the firm more control over the new product’s location in product space. An empirical analysis of our testable predictions using pharmaceutical data concerning patents, patent expiration, and outsourcing at various stages of the R&D process supports our theoretical approach. (JEL D21, D22, L22, L24, L65, O31, O34)

In this paper, we propose a novel way to measure behavioral heterogeneity in a population of stochastic individuals. Our measure is choice-based; it evaluates the probability that, over a randomly selected menu, the sampled choices of two sampled individuals differ. We provide axiomatic foundations for this measure and a decomposition result that separates heterogeneity into its intrapersonal and interpersonal components. (JEL D01, D11, D91)

We study the possibility of identifying time-inconsistent preferences in empirical designs where preferences are elicited in advance at time 0 and then again at time 1, after the agent receives additional information. For single-peaked preferences, time consistency is rejected only when the time-1 ranking between a pair of alternatives is always the reverse of the time-0 ranking. We establish variations and generalizations of this result. Since such stark reversals are rarely observed, choice-revision designs require stronger identification assumptions than perhaps previously appreciated. But we show that time inconsistency is identifiable in environments where preferences over alternatives can be “priced out.” (JEL D11, D15, D83, D86)

This paper examines efficient allocations in economies where consumers exhibit heterogeneous smooth ambiguity preferences and face model uncertainty with a common set of identifiable models. Aggregate endowment is ambiguous. We characterize economies where the representative consumer is of the smooth ambiguity type and derive efficient sharing rules. Heterogeneous ambiguity aversion leads to sharing rules that systematically differ from those in vNM economies. The representative consumer’s ambiguity aversion differs from that of the typical consumer; this leads to more compelling asset-pricing predictions. We focus on point-identified models but show that our insights extend to partially identified models. (JEL D11, D61, D81, E32, G12)

This paper measures concentration in narrowly defined product markets for a broad range of consumer goods and services in the United States from 1994 to 2019. We document two main empirical facts. First, concentration levels are high. Of the markets in our sample, 44.4 percent are “highly concentrated” as defined by US regulators. Second, market concentration has been decreasing since 1994. The median HHI falls from 2,362 to 2,045. These findings stand in stark contrast to the prior literature, which uses market definitions that are aggregated to a level that is typically too broad to accurately reflect competition in consumer markets. (JEL D43, L13, M37, R32)

Complementarities and peer effects are common in matching markets, yet incorporating them often leads to nonexistence of stable matchings. We observe that matching is often an ongoing process rather than a static allocation, where long-lived firms interact over time with short-lived workers. We show that when wages are flexible and firms are sufficiently patient, a dynamically stable solution always exists in many-to-one matching markets — even with complementarities and peer effects. Flexible wages are crucial to our result, as they not only facilitate surplus extraction when firms cooperate in no-poaching agreements but also enhance the threat of punishment through bidding wars. (JEL C72, C73, C78, D21, D62, J31, J41)