**Research**

## This page contains information about Paan Jindapon's published articles and working papers indifferent areas.

**Decision Theory**

**Higher-Order Generalizations of Arrow-Pratt and Ross Risk Aversion: A Comparative Statics Approach. (Coauthor: William S. Neilson)**

*Journal of Economic Theory*, September 2007.We analyze comparative risk aversion in a new way, through a comparative statics problem in which, for a cost, agents can shift from an initial probability distribution toward a preferred distribution. The Ross characterization arises when the original distribution is riskier than the preferred distribution and the cost is monetary, and the Arrow-Pratt characterization arises when the original distribution differs from the preferred distribution by a simple mean-preserving spread and the cost is a utility cost. Higher-order increases in risk lead to higher-order generalizations, and the comparative statics method yields a unified approach to the problem of comparative risk attitudes.

**Option Price without Expected Utility. (Coauthor: W. Douglass Shaw) **

*Economics Letters*, September 2008.We consider the meaning of the option price, commonly acknowledged as the preferred ex ante welfare measure, in the rank-dependent expected utility (RDEU) framework. The importance of this pertains to performing benefit-cost analysis when RDEU maximizers are prevalent in society.

**Prudence Probability Premium.**

*Economics Letters*, October 2010.Prudence probability premium is defined in the risk apportionment model (Eeckhoudt and Schlesinger, 2006). For an increase in downside risk, we show sufficient conditions for comparing the probability premiums between two individuals when the apportioned risk is small and large.

**Do Risk Lovers Invest in Self Protection?**

*Economics Letters*, November 2013.We show that there is a class of risk lovers who optimally choose a positive level of self-protection investment. In most cases, a risk lover increases his self- protection investment as he becomes less downside risk averse.

**Comparative Risk Apportionment.**

**(Coauthor: Liqun Liu and William S. Neilson)**Working Paper.A decision maker who would rather apportion an independent risk in a state with a good lottery than in a state with a bad lottery is said to have a preference for risk apportionment (Eeckhoudt and Schlesinger 2006). In this paper, we propose a measure for the strength of $n$th-degree risk apportionment preference based on Pratt's probability premium (Pratt 1964). Under expected utility theory, we analyze the relationship between a greater preference for risk apportionment and both the Ross and Arrow-Pratt versions of comparative risk aversion.

**Game Theory**

**Persuasive Communication when the Sender's Incentives are Uncertain. (Coauthor: Carlos Oyarzun)**

**Journal of Economic Behavior &****Organization****,**

**November 2013.**

We study persuasion in a modified Crawford-Sobel sender-receiver game in which the receiver makes a binary decision to accept or reject a good recommended bythesender. The good’s quality and the sender’s type (neutral or biased) are not observable to the receiver. These alterations yield a simple model and a unique truth-telling equilibrium in which neutral senders who observe different qualities fully separate but can only communicate low quality levels accurately. Biased senders adopt a mixed strategy that can successfully persuade the receiver to acceptthegoodmostofthetime. When the sender’s degree of bias is continuously distributed, a truth-telling equilibrium does not exist. Nonetheless, a partition equilibrium exists for any given number of partitions on the message space.

**Risk Lovers and the Rent Over-Investment Puzzle. (Coauthor: Christopher Whaley)**

*Public Choice*, July 2015.In this paper, we prove existence and uniqueness of equilibrium in a rent-seeking contest given a class of heterogeneous risk-loving players. We explore the role third-order risk attitude plays in equilibrium and find that imprudence is sufficient for risk lovers to increase rent-seeking investment above the risk-neutral outcome. Moreover, we show that rent can be fully dissipated in a standard Tullock contest when there is a large number of risk-loving players.

**Risk Attitudes and Heterogeneity in Simultaneous and Sequential Contests. (Coauthor: Zhe Yang)**

*Journal of Economic Behavior & Organization*, June 2017.We prove existence and uniqueness of equilibrium in rent-seeking contests in which players are heterogeneous in both risk preferences and production technology. Given identical linear production technology, if the number of risk-loving players is large enough, the aggregate investment in equilibrium will exceed the rent and all risk-neutral and risk-averse players will exit the contest. In simultaneous and sequential contests with two players, we can identify the favorite and underdog based on both players’ preference parameters. Our theoretical results suggest that subjects in some recent contest experiments behaved as if they were risk-loving.

**Political Business Cycles in a Dynamic Bipartisan Voting Model**

**.**(Coauthor: Matt Van Essen)*Mathematical Social Sciences*, November 2019.We provide a microfoundation for the existence of political business cycles generalizing and extending the classic Nordhaus model. Using a differential games approach, we model the strategic interaction of legislators in an election period and show that

cycles can exist in equilibrium. The existence and shape of cycles depend on the parameters of the model and the initial level of unemployment. In addition, we offer an extension of the model to incorporate presidential veto behavior.

**Free Riders and the Optimal Prize in Public-Good Funding Lotteries. (Coauthor: Zhe Yang)**

*Journal of Public Economic Theory*, July 2020.

We prove the existence and uniqueness of an equilibrium in a game where players, whose preferences exhibit constant absolute risk aversion or constant relative risk aversion, contribute to a public good via lottery-ticket purchases. Contrasting models with risk neutrality, we show that an equilibrium with a strictly positive amount of the public good may not exist without a sufficient number of participants who are not too risk-averse. We show that players who are more risk-averse purchase fewer lotteries tickets and are more likely to free ride in equilibrium. In fact, it is possible for free riders to place a larger value on the public good than do those who contribute. In a symmetric equilibrium, we show that an upper bound exists for the amount of the public good, even though there are infinitely many participants. Furthermore, we derive a lottery prize that maximizes the amount of the public good in a symmetric equilibrium and find that such a prize always results in an over-provision of the public good.

**Risk Preference Heterogeneity in Group Contests**

**We analyze the first model of a group contest with players that are heterogeneous in their risk preferences. In our model, individuals' preferences are represented by a utility function exhibiting a generalized form of constant absolute risk aversion, allowing us to consider any combination of risk-averse, risk-neutral, and risk-loving players. We begin by proving equilibrium existence and uniqueness under both linear and convex investment costs. Then, we explore how the sorting of a compatible set of players by their risk attitudes into competing groups affects aggregate investment. With linear costs, a balanced sorting (i.e., minimizing the variance in risk attitudes across groups) always produces an aggregate investment level that is at least as high as an unbalanced sorting (i.e., maximizing the variance in risk attitudes across groups). Under convex costs, however, identifying which sorting is optimal is more nuanced and depends on preference and cost parameters.**

**.**(Coauthor: Phil Brookins)*Journal of Mathematical Economics*, August 2021.

**Prize-Linked Savings Games: Theory and Experiment. (Coauthors: Pacharasut Sujarittanonta & Ajalavat Viriyavipart)**

*Games and Economic Behavior*, May 2022We introduce a game in which each player can allocate her endowment in a prize-linked savings (PLS) account, which awards a fixed prize only to a randomly chosen winner. Like Tullock’s contest, the probability of winning the prize for each player is the ratio of her PLS deposit to all participating players’. We derive the unique equilibrium and further examine the effects of introducing PLS as an alternative savings option to traditional savings (TS), which yields a fixed rate of return. Our theory predicts that, while inducing the group with low TS deposits to save more, PLS will cannibalize TS and reduce total savings in the group with high TS deposits. In contrast to the theory, our experimental results show that PLS significantly increases total savings in both groups.

**In this paper, we ask a fundamental design question in the theory of contests: Should contestants and reward money be pooled into a single grand contest, or should they be divided into parallel subcontests? We theoretically explore optimal divisioning using Tullock’s lottery contest framework and compare the performance, i.e., total effort generated, of the grand contest to the performance of contest divisioning based on players’ ability or risk attitude. When all players are risk neutral, contest divisioning is never optimal. However, given that players are heterogeneous in either ability or risk attitude, we find that contest divisioning is optimal when the degrees of absolute risk aversion are sufficiently large. Importantly, our results support the widespread use of divisioning seen in practice.**

**Contest Divisioning.**(Coauthor: Phil Brookins)*Review of Economic Design*, Forthcoming.**Industrial Organization**

**Price Discrimination through Refund Contracts in Airlines (Coauthor: Diego Escobari)**

*International Journal of Industrial Organization*, May 2014.This paper shows how an airline monopoly uses refundable and non-refundable tickets to screen consumers who are uncertain about their travel. Our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved. Using an original data set from U.S. airline markets, we find strong evidence supporting our model. Price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand.

**Market Making with Convex Quotes (Coauthor: Haeshin Hwang)**

*Finance Research Letters*, November 2020.We investigate equilibrium properties of a quote-driven market where price is convex in order size. As the degree of convexity increases, the distribution of incoming order contracts and becomes bimodal. Nonetheless, all of these equilibria tolerate the same level of information asymmetry between traders and market makers, and also induce the same distribution of equilibrium price.

**Economics of Terrorism**

**The Impact of Societal Risk Attitudes on Terrorism and Counterterrorism. (Coauthor: William S. Neilson)**

*Economics & Politics*, August 2009.We analyze decisions made by a group of terrorists and a target government in a zero-sum game in which the terrorists minimize, and the government maximizes, the expected utility of the median voter in the target country. The terrorists' strategy balances the probability and the severity of the attack while the government chooses the level of investment reducing the probability and/or mitigating the severity of attacks. We find that risk aversion affects the strategies of both the government and the terrorists, leading to more severe, less frequent attacks but not necessarily more counterterrorism expenditures.

**Network Externalities and the Structure of Terror Networks (Coauthor: Walter Enders)**

*Journal of Conflict Resolution*, April 2010.We analyze the optimal network structure of two types of terrorist organizations. In the centralized network, the leadership selects the level of individual effort and the level of group connectivity so as to maximize the expected net welfare of the organization’s membership. Leaders in loosely connected networks will also seek to balance the trade-off between security and communications. However, with decentralized decision making, the individual nodes may not make optimal decisions from the group’s perspective. As a consequence, the decentralized decision-making process is suboptimal from the overall perspective of the network. In particular, the leadership in a centralized network is able to coordinate the activities of all network members and to take advantage of important network externalities.

**On the Economics of Interrogation: The Big 4 Versus the Little Fish Game (Coauthor: Walter Enders) **

*Journal of Peace Research*, May 2011.While military protocol requires that POWs provide only name, rank, serial number, and date of birth (the so-called Big 4), it is naive to think that all detainees, including terrorists, behave in this fashion. Instead, there is evidence that detainees partially cooperate with their captors by revealing a limited amount of valuable information during the interrogation process. Such a strategy makes it appear that the detainee is cooperative and, since interrogations can be costly, serves as a disincentive for further interrogation. In order to capture the essential differences between the two strategies, we model two different types of games between the interrogator and the detainee. Specifically, we compare the Big 4 game to a two-stage game (the Little Fish game) in which the detainee is permitted to reveal low-level information to the interrogator. We formalize both games, derive the optimal rules for each player, and show that the Big 4 game may not be optimal for either player or for the overall well‐being of the interrogating nation. As such, the Little Fish game can Pareto‐dominate the Big 4 game. Hence, it is possible that the al-Qaeda strategy of partial cooperation is superior to that used by most standing armies. We also show that the level of intensity selected by the interrogator must be balanced by such factors as the moral values of the society and recruiting potential of the terrorists versus the likelihood of obtaining important information.