arXiv subjects

Andrea Galeotti

Publications and source records attributed to Andrea Galeotti.

4 recordsLinked to original sources

arXiv2024

Robust Market Interventions

When can interventions in markets be designed to increase surplus robustly -- i.e., with high probability -- accounting for uncertainty due to imprecise information about economic primitives? In a setting with many strategic firms, each possessing some market power, we present conditions for such interventions to exist. The key condition, recoverable structure, requires large-scale complementarities among families of products. The analysis works by decomposing the incidence of interventions in terms of principal components of a Slutsky matrix. Under recoverable structure, a noisy signal of this matrix reveals enough about these principal components to design robust interventions. Our results demonstrate the usefulness of spectral methods for analyzing imperfectly observed strategic interactions with many agents.

econ.TH↗

arXiv2022

Taxes and Market Power: A Principal Components Approach

Suppliers of differentiated goods make simultaneous pricing decisions, which are strategically linked. Because of market power, the equilibrium is inefficient. We study how a policymaker should target a budget-balanced tax-and-subsidy policy to increase welfare. A key tool is a certain basis for the goods space, determined by the network of interactions among suppliers. It consists of eigenbundles -- orthogonal in the sense that a tax on any eigenbundle passes through only to its own price -- with pass-through coefficients determined by associated eigenvalues. Our basis permits a simple characterization of optimal interventions. A planner maximizing consumer surplus should tax eigenbundles with low pass-through and subsidize ones with high pass-through. The Pigouvian leverage of the system -- the gain in consumer surplus achievable by an optimal tax scheme -- depends only on the dispersion of the eigenvalues of the matrix of strategic interactions. We interpret these results in terms of the network structure of the market.

econ.TH↗

arXiv2021

Discord and Harmony in Networks

Consider a coordination game played on a network, where agents prefer taking actions closer to those of their neighbors and to their own ideal points in action space. We explore how the welfare outcomes of a coordination game depend on network structure and the distribution of ideal points throughout the network. To this end, we imagine a benevolent or adversarial planner who intervenes, at a cost, to change ideal points in order to maximize or minimize utilitarian welfare subject to a constraint. A complete characterization of optimal interventions is obtained by decomposing interventions into principal components of the network's adjacency matrix. Welfare is most sensitive to interventions proportional to the last principal component, which focus on local disagreement. A welfare-maximizing planner optimally works to reduce local disagreement, bringing the ideal points of neighbors closer together, whereas a malevolent adversary optimally drives neighbors' ideal points apart to decrease welfare. Such welfare-maximizing/minimizing interventions are very different from ones that would be done to change some traditional measures of discord, such as the cross-sectional variation of equilibrium actions. In fact, an adversary sowing disagreement to maximize her impact on welfare will minimize her impact on global variation in equilibrium actions, underscoring a tension between improving welfare and increasing global cohesion of equilibrium behavior.

econ.TH↗

arXiv2020

Targeting Interventions in Networks

We study games in which a network mediates strategic spillovers and externalities among the players. How does a planner optimally target interventions that change individuals' private returns to investment? We analyze this question by decomposing any intervention into orthogonal principal components, which are determined by the network and are ordered according to their associated eigenvalues. There is a close connection between the nature of spillovers and the representation of various principal components in the optimal intervention. In games of strategic complements (substitutes), interventions place more weight on the top (bottom) principal components, which reflect more global (local) network structure. For large budgets, optimal interventions are simple -- they involve a single principal component.

cs.GT↗