Nemmers Prize Lecture

"Moving Up a Demand Curve: Dynamic Screening with Positive Selection"

Wednesday, April 29, 2015
4:30 pm - 6:00 pm
Free and Open to the Public
McCormick Auditorium, James L. Allen Center

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In many social interactions or markets, players who benefit most from the relationship or trade tend to reach agreement earlier. High willingness-to-pay buyers are impatient to consume and therefore willing to pay a high price to consume early. Owners of low-valued assets rush to dispose of them. Eager traders tend to concede quickly when buyer and sellers engage in bargaining.

If there are still goods and services left to sell after the most motivated individuals have traded with each other, the price declines and concessions are made. This is known as “negative selection.” This is a common feature of traditional models of the selling of durable goods, sequential bargaining between parties, and in the dynamic resolution of markets where buyers are unsure of the quality of the good being sold.

But there are also many interesting environments in which “positive selection” operates to select out over time the least motivated protagonists. This, in effect, means moving “up” rather than “down” the demand curve.

Firms or academic departments retain the most-eager-to-stay employees; societies keep only the most loyal or immobile members of ethnic, religious or occupational minorities that are discriminated against; software platforms when facing technological entry retain only the aficionados or high-switching-cost patrons; and only friends or partners who benefit most from a relationship maintain the relationship.

The lecture will explore the economics of positive selection and compares them with the more familiar ones obtained for negative selection.

Photo of Jean TiroleJean Tirole is chairman of the Foundation Jean-Jacques Laffont / Toulouse School of Economics and scientific director of the Institute for Industrial Economics, University of Toulouse Capitole in France.  Tirole has been influential in the theoretical and practical application of game theory and information theory to industrial organization and regulation. His research interests also include finance, macroeconomics, international finance, economics and psychology. He is the author of 11 books including “Inside and Outside Liquidity” with Bengt Holmström (2011); “The Theory of Industrial Organization” (1988); “Game Theory” with Drew Fudenberg (1991); “A Theory of Incentives in Regulation and Procurement” with Jean-Jacques Laffont (1993); and “The Theory of Corporate Finance” (2006).  He was the 2014 winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.

Free parking is available in most campus parking lots after 4pm.
There will be a reception immediately following the lecture.