Research

2024

1. Hierarchies

   Incentives in Information Hierarchy: Why Middle Managers Suffer

   Peter Shum

   Duke University. Job Market Paper , 2024

   Abs PDF

   This paper endogenizes the provision of incentives in a hierarchical information network. Leaders in the hierarchy directly observe the state of common productivity and exert effort accordingly. Followers in subsequent tiers must infer the state by observing the effort of a member one tier above them. This generates a network game in which all members, except those without followers, have signaling obligations. The question I address is how the division of output influences incentives within this game. I show that the socially optimal division implies that signaling obligations reduce compensation and payoffs. In contrast, when a leader chooses the division of output to maximize his own payoff, members in the middle of the hierarchy suffer the lowest payoffs. This result is consistent with numerous studies that find middle managers suffer the highest burnout rate in large firms and organizations. In the context of my model, this occurs because middle managers have relatively large signaling obligations and low compensation.

2. Polarization

   The Polarizing Effect of Monopsony

   Peter Shum

   Duke University. Work in Progress , 2024

   Abs Slides

   In contrast to the predictions of the Median Voter Theorem, polarization of politicians has been prevalent throughout political history, and even more so in recent times. I develop a model that connects lobbying incentives and the extreme platforms of politicians. The model explains how polarization, defined as more politicians choosing extreme platforms than centrist ones, may emerge from non-polarized primitives. The model is also applied to explain the suburbanization of the manufacturing industry by the rise of monopsony power. The two applications of the model differ in the decisions of the benefactors: the lobbyist has an exogenously determined political alignment, while the monopsonist endogenously decides the factory location after observing workers’ distribution.

2022

1. Networked Market

   Underinvestment in Buyer‑Seller Network

   Peter Shum

   Duke University. Work in Progress , 2022

   Abs

   I construct a network formation model for the buyer‑seller networked market from Kranton and Minehart (2001). Agents anticipate resulting network structures and demand a transfer along with the costly link formation. My results predict that with moderate link formation cost, the potential deviation of the trading partners deters the formation of networked markets. The whole market may vanish under specific conditions. I also suggest some remedies for this under‑investment.