(with Rajiv Vohra), Journal of Political Economy 128, 1789-1825 (2020).
Dedicated to Tapan Mitra — advisor, colleague and dear friend, whose sense of aesthetics, minimalism and rigor has been an inspiration to us. Tapan Mitra died on February 3, 2019.
Summary. A strategic situation with payoff-based externalities is one in which a player’s payoff is a function of her own action and the payoffs of other players. Every action profile therefore induces an interdependent utility system. A strategic situation is continuous if each such utility system is continuous. If each utility system is bounded, with a unique payoff solution for every action profile, we call the strategic situation coherent, and if the same condition also applies to every subset of players, we call the situation sub-coherent. A coherent, sub-coherent and continuous situation generates a standard normal form, referred to as a game of love and hate. Our central theorem states that every equilibrium of a game of love and hate is Pareto optimal, in sharp contrast to the general prevalence of inefficient equilibria in the presence of externalities. While externalities are restricted to flow only through payoffs there are no other constraints: they could be positive or negative, or of varying sign. We further show that our coherence, sub-coherence and continuity requirements are tight.
This paper reviews the literature on aspirations in economics, with a particular focus on socially determined aspirations. The core theory builds on two fundamental principles: (a) aspirations can serve to inspire, but still higher aspirations can lead to frustration and resentment; and (b) aspirations are largely determined by an individual’s social environment. We discuss the implications of this framework for the study of interpersonal inequality, social conflict, fertility choices, risk taking and goal-setting.
(with Dilip Mookherjee), Journal of Economic Theory54, 124-147, 1991.
Summary. We consider the decision of a dominant firm to adopt a sequence of potential cost-reducing innovations, where the latest technology adopted diffuses to a competitive fringe at an exogenous rate. With price competition on the product market, the leader optimally spaces apart the adoption dates of successive innovations, so the industry is characterized by cycles of alternating innovation and diffusion. These results may, however, be reversed in the case of quantity competition.
