January 28, 2021, 15:30–17:00
Job Market Seminar
This paper studies the general problem of a principal who conditions their actions on aggregate market outcomes in order to target an unobserved payoff-relevant state. Agents in the market have private information about the state, and their choices reflect both their beliefs about the state and their expectations of the principal’s actions. We fully characterize the set of joint distributions of market outcomes, principal actions, and states that can be implemented in equilibrium. We focus in particular on implementation under constraints imposed by concerns about manipulation and equilibrium multiplicity. This characterization of the feasible set admits a tractable representation, and significantly simplifies the principal’s design problem. A simple graphical technique allows us to identify qualitative features of optimal policies. We apply our results to study corporate bailouts and monetary policy.