Better-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for high quality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as “leaders” whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning.
Strategic Firms and Endogenous Consumer Emulation
Quarterly Journal of Economics, 2008/123(2), pp. 621-661. With A. Postlewaite.
In a model of social learning, the better informed (wealthier) consumers get preferential service because their consumption signals high quality to others.
International Economic Review, 2011, 52(1), pp 85-104. With M. Galenianos and G. Virag. [technical appendix] In directed search with a finite population, minimum wages improve employment but reduce output and efficiency, and reverse for unemployment benefits. Go to paper
Econometrica, 2019 87(4): 1081-1113. With J. Greenwood, C. Santos and M. Tertilt A calibrated equilibrium search model of an HIV/AIDS epidemic is developed to analyze the direct impact and the behavioral adjustment to policies. Go to paper
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B.E. Journals of Theoretical Economics, 2013, Vol 13 (1). With S. Ludwig and A. Sandroni. We document a revealed preference for randomization for “social goods”, while such non-standard behavior is not present for private consumption goods. Go to paper
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