Gul and Pesendorfer (2001)
Favorite theory papers and why?
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Three very different papers I loved reading again and again:
Crawford, Vincent P., and Joel Sobel. "Strategic information transmission." Econometrica: Journal of the Econometric Society (1982): 1431-1451.
Laffont, Jean-Jacques, and Jean Tirole. "The politics of government decision-making: A theory of regulatory capture." The quarterly journal of economics 106.4 (1991): 1089-1127.
Varian, Hal R. "A model of sales." The American Economic Review 70.4 (1980): 651-659.
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Grossman-Stiglitz
Only geniuses truly understand this paper and its ramifications.That's a sign of terrible writing..
You may be right.
It’s also possible that the majority of academic economists are self-inflated, mediocre intellectual bubbles who fail to grasp moderately complex ideas even with decent exposition.
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I forgot the "why" part. These papers represent three of the ways I think a theory paper can contribute to knowledge.
Crawford Sobel asks a simple question: how do we transmit information when we have different yet not completely opposite objectives. The answer is both extremely simple and non-trivial. We create "partitions" and voluntarily blurry the information in order to be credible. It's a first way to do theory: provide a rigorous framework to discuss big, general, questions.
Varian is an extremely simple model. The starting point is "how come prices are not identical". The technical part of the answer - mixed strategies - is not the most important. What I find great is the idea that a share of the consumers choose to compare options while another one buys without comparing, and that this share is endogenous to the benefits of comparing options. It is something a lot of people in behavioral I/O have forgotten: being naive is not just an exogenous characteristic, and the presence of informed consumers "protects" everyone. It's a second way to do useful theory: to try to explain a real-world puzzle.
Laffont-Tirole is a wonderful - also very simple - political economy paper. It explains why the most successful lobbies are also the ones that are the worse for the economy as a whole. A third way of doing useful theory: to show a counter-intuitive result by using simple hypothesis everyone agrees on.
Three very different papers I loved reading again and again:
Crawford, Vincent P., and Joel Sobel. "Strategic information transmission." Econometrica: Journal of the Econometric Society (1982): 1431-1451.Varian, Hal R. "A model of sales." The American Economic Review 70.4 (1980): 651-659.
Laffont, Jean-Jacques, and Jean Tirole. "The politics of government decision-making: A theory of regulatory capture." The quarterly journal of economics 106.4 (1991): 1089-1127.