Steve Tadelis
Steve Tadelis
Director, Distinguished Economist
Steve Tadelis joined eBay in 2011 after taking a leave of absence from UC Berkeley, where he teaches economics at the Haas School of Business. He leads a group of Economists at eBay focusing on the economics of e-commerce, with particular attention to creating better matches of buyers and sellers, reducing market frictions by increasing trust and safety in eBay's marketplace, understanding the underlying value of different advertising and marketing strategies, and exploring the market benefits of different pricing structures.

Aside from the economics of e-commerce, Steve’s main fields of interest are the economics of incentives, industrial organization and microeconomics. His research aspires to advance our understanding of the roles played by two central institutions ---firms and contractual agreements---and how these institutions facilitate the creation of value. Within this broader framework, he has focused on a firm's reputation as a valuable, tradable asset; the effects of contract design and organizational form on firm behavior with applications to outsourcing and privatization; public and private sector procurement and award mechanisms; and the determinants of trust.
Profit Sharing and the Role of Professional Partnerships
Steve Tadelis, Jonathan Levin
Quarterly Journal of Economics 120, no. 1 (2005): 131-172
Abstract [+]
When it is hard to assess product quality, firms will sub-optimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems. Our theory explains the historical prevalence of profit sharing in professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting, and the relative scarcity of profit sharing in other industries. It also sheds light on features of partnerships such as up-or-out promotion systems, and on recent trends in professional service industries.( JEL codes: D20, D82, J33, J44, J54, L22.
Categories: Economics
Complexity, Flexibility and the Make-or-Buy Decision
American Economic Review Papers and Proceedings 92, no. 2 (2002): 433-437
Abstract [+]
65 years ago, Ronald Coase (1937) asked what determines whether production will be organized in a firm or through the market, later coined the "make-or-buy" decision. This question was put center stage by Oliver Williamson (1975, 1985) who further developed Transaction Costs Economics(TCE), arguing that incomplete contracts and specific relationships overshadowed by opportunism, asymmetric information and bounded rationality, will lead vertical processes to integrate. Benjamin Klein et al. (1978) enhanced TCE with the "hold-up" problem: in the face of incomplete contracts, specificity and opportunistic behavior, integration can help promote ex ante investment incentives. Sanford Grossman and Oliver Hart (1986) (followed by Hart and John Moore (1990)) developed the Property Rights Theory (PRT) of the firm (See Hart, 1995). PRT formally model the hold-up problem, offered a precise definition of integration via ownership and residual control rights, and analyzed the costs and benefits of integration in a unified manner. However, PRT narrowed the focus of the make-or-buy question on one type of transaction cost - the hold up problem. This paper focuses attention on a different kind of transaction cost: haggling and friction due to ex post changes and adaptations when contracts are incomplete. The level of a transaction's complexity, which is associated with contractual incompleteness, will be the shifting parameter that determines both incentive schemes and integration decisions. This focus is motivated by a careful examination of procurement decisions in industry, and has strong empirical content since the exogenous shifter (complexity) seems easier to measure than specificity.
Categories: Economics
The Market for Reputations as an Incentive Mechanism
Journal of Political Economy 110, no. 4 (2002): 854-882
Abstract [+]
Reputational career concern provide incentive for short lived agent to work hard, but it is well known that these incentive disappear as an agent reaches retirement. This paper investigates the effect of a market for firm reputation on the life-cycle incentives of firm owners to exert effort. A dynamic general equilibrium model with moral hazard and adverse selection generates two main results. First, incentives of young and old agents are quantitatively equal, implying that incentives are "ageless" with a market for reputations. Second, good reputations cannot act as effective sorting devices: in equilibrium, more able agent cannot outbid lesser ones in the market for good reputations. In addition, welfare analysis shows that social surplus can fall if clients observe trade in firm reputation. (JELC70, D82, L14, L15)
Categories: Economics
Incentives versus Transaction Costs: A Theory of Procurement Contracts
Steve Tadelis, Patrick Bajari
Rand Journal of Economics 32, no. 3 (Autumn 2001): 387-407
Abstract [+]
Inspired by facts from the private-sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design and is faced with a tradeoff between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost-plus contracts are preferred to fixed-price contracts when a project is more complex. We briefly discuss how fixed-price or cost-plus contracts might be preferred to other incentive contracts. Finally, our model provides some microfoundations for ideas from Transaction Cost Economics.
Categories: Economics
What’s in a Name? Reputation as a Tradeable Asset
American Economic Review 89, no. 3 (1999): 548-563
Categories: Economics
Contracting for Government Services: Theory and Evidence from U.S. Cities
Steve Tadelis, Jonathan Levin
Journal of Industrial Economics, forthcoming
Abstract [+]
Local governments can provide services with their own employees or by contracting with private or public sector providers. We develop a model of this “make-or-buy” choice that highlights the trade-off between productive efficiency and the costs of contract administration. We construct a dataset of service provision choices by U.S. cities and identify a range of service and city characteristics as significant determinants of contracting decisions. Our analysis suggests an important role for economic efficiency concerns, as well as politics, in contracting for government services. JEL codes: D23, D73, H11, L33
Categories: Economics
Auctions versus Negotiations in Procurement: An Empirical Analysis
Steve Tadelis, Patrick Bajari, Robert McMillan
Journal of Law, Economics and Organization
Abstract [+]
Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we consider several possible determinants that may influence the choice of auctions versus negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of possible limitations to the use of auctions. Auctions may perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions may stifle communication between buyers and sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed. JEL classifications: D23, D82, H57, L14, L22, L74.
Categories: Economics