Economics

Economics
Leveraging the power of data and economic engineering to understand and advance e-commerce.
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Economists at eBay use the empirical and theoretical tools of economics to expand the frontiers of e-commerce research. Our work explores the interacting incentives of buyers and sellers, emphasizing causal relationships between actions and outcomes, and the potential sources of marketplace frictions. We aspire to address some of the most challenging questions about markets through rigorous and original research on the rich data from eBay’s robust marketplace, and to use these insights to shape its growth. This research spans a broad range of topics, including trust, reputation, marketing effectiveness, bargaining, consumer search, and international trade. The economics group works closely with other academics from Stanford, Columbia, the University of Chicago, UC Berkeley and other top universities on collaborative research projects. Our work also brings us across disciplinary lines and across different eBay teams in areas like search, machine learning, and natural language processing, because we are leveraging tools that push the envelope of economics.

Publications
Proceedings of the Sixteenth ACM Conference on Economics and Computation (EC '15). ACM, New York, NY, USA (2015)

Canary in the e-Commerce Coal Mine: Detecting and Predicting Poor Experiences Using Buyer-to-Seller Messages

Dimitriy Masterov, Uwe Mayer, Steve Tadelis

Reputation and feedback systems in online marketplaces are often biased, making it difficult to ascertain the quality of sellers. We use post-transaction, buyer-to-seller message traffic to detect signals of unsatisfactory transactions on eBay. We posit that a message sent after the item was paid for serves as a reliable indicator that the buyer may be unhappy with that purchase, particularly when the message included words associated with a negative experience. The fraction of a seller's message traffic that was negative predicts whether a buyer who transacts with this seller will stop purchasing on eBay, implying that platforms can use these messages as an additional signal of seller quality.

In proceedings of the Workshop on Log-based Personalization (the 4th WSCD workshop) at WSDM 2014

A Large Scale Query Logs Analysis for Assessing Personalization Opportunities in E-commerce Sites

Neel Sundaresan, Zitao Liu

Personalization offers the promise of improving online search and shopping experience. In this work, we perform a large scale analysis on the sample of eBay query logs, which involves 9.24 billion session data spanning 12 months (08/2012-07/2013) and address the following topics

(1) What user information is useful for personalization;

(2) Importance of per-query personalization

(3) Importance of recency in query prediction.

In this paper, we study these problems and provide some preliminary conclusions

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Physician Incentives and Treatment Choices in Heart Attack Management

Dominic Coey

We estimate how physicians’ financial incentives affect their treatment choices in heart Attack management, using a large dataset of private health insurance claims. Different insurance plans pay physicians different amounts for the same services, generating the required variation in financial incentives.

We begin by presenting evidence that, unconditionally, plans that pay physicians more for more invasive treatments are associated with a considerably larger fraction of such treatments. To interpret this correlation as causal, we continue by showing that it survives conditioning on a rich set of diagnosis and provider-specific variables.

We perform a host of additional checks verifying that differences in unobservable patient or provider characteristics across plans are unlikely to be driving our results. We find that physicians’ treatment choices respond positively to the payments they receive, and that the response is quite large.

If physicians received bundled payments instead of fee-for-service incentives, for example, heart attack management would become considerably more conservative. Our estimates imply that 20 percent of patients would receive different treatments, physician costs would decrease by 27 percent, and social welfare would increase.

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in IEEE Large-scale Data Analysis and Visualization (LDAV) 2012

Visual Analysis of Massive Web Session Data

Zeqian Shen, Jishang Wei, Neel Sundaresan, Kwan-Liu Ma, Zeqian Shen, Jishang Wei, Neel Sundaresan, Kwan-Liu Ma

Tracking and recording users’ browsing behaviors on the web down to individual mouse clicks can create massive web session logs.While such web session data contain valuable information about user behaviors, the ever-increasing data size has placed a big challenge to analyzing and visualizing the data.

An efficient data analysis framework requires both powerful computational analysis and interactive visualization. Following the visual analytics mantra "Analyze first, show the important, zoom, filter and analyze further, details on demand", we introduce a two-tier visual analysis system, TrailExplorer2, to discover knowledge from massive log data.

The system supports a visual analysis process iterating between two steps: querying web sessions and visually analyzing the retrieved data. The query happens at the lower tier where terabytes of web session data are processed in a cluster.

At the upper tier, the extracted web sessions with much smaller scale are visualized on a personal computer for interactive exploration. Our system visualizes a sorted list of web sessions’ temporal patterns and enables data exploration at different levels of details.

The query visualization exploration process iterates until a satisfactory conclusion is achieved. We present two case studies of TrailExplorer2 using real world session data from eBay to demonstrate the system's effectiveness.

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in IEEE Visual Analytics Science and Technology (VAST) 2012

Visual Cluster Exploration of Web Clickstream Data

Jishang Wei, Zeqian Shen, Neel Sundaresan, Kwan-Liu Ma, Jishang Wei, Zeqian Shen, Neel Sundaresan, Kwan-Liu Ma

Web clickstream data are routinely collected to study how users browse the web or use a service. It is clear that the ability to recognize and summarize user behavior patterns from such data is valuable to e-commerce companies. In this paper, we introduce a visual analytics system to explore the various user behavior patterns reflected by distinct clickstream clusters.

In a practical analysis scenario, the system first presents an overview of clickstream clusters using a Self-Organizing Map with Markov chain models.

Then the analyst can interactively explore the clusters through an intuitive user interface. He can either obtain summarization of a selected group of data or further refine the clustering result. We evaluated our system using two different datasets from eBay.

Analysts who were working on the same data have confirmed the system’s effectiveness in extracting user behavior patterns from complex datasets and enhancing their ability to reason.

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Journal of the American Society for Information Science and Technology (JASIST), 04/2010, Volume 61, Issue 7, p.1487-1501, 2010

Behaviors, adverse events, and dispositions: An empirical study of online discretion and information control

Coye Cheshire, Judd Antin, Elizabeth Churchill, Coye Cheshire, Judd Antin, Elizabeth Churchill

The authors develop hypotheses about three key correlates of attitudes about discretionary online behaviors and control over one’s own online information: frequency of engaging in risky online behaviors, experience of an online adverse event, and the disposition to be more or less trusting and cautious of others.

Through an analysis of survey results, they find that online adverse events do not necessarily relate to greater overall Web discretion, but they do significantly associate with users’ perceptions of Web information control.

However, the frequencies with which individuals engage in risky online activities and behaviors significantly associate with both online discretion and information control. In addition, general dispositions to trust and be cautious are strongly related to prudent Internet behavior and attitudes about managing personal online information.

The results of this study have clear consequences for our understanding of behaviors and attitudes that might lead to greater online social intelligence, or the ability to make prudent decisions in the presence of Internet uncertainties and risks. Implications for theory and practice are discussed.

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In IEEE VisWeek Discovery Exhibition, SALT LAKE CITY, UTAH, USA, 2010

Trail Explorer: Understanding User Experience in Webpage Flows

Zeqian Shen, Neel Sundaresan, Zeqian Shen, Neel Sundaresan

Trail Explorer is a visual analytics tool for better underst anding of user experiences in webpage flows. It enables exploration and discovery of user session data. This paper presents two case studies of Trail Explorer in use with real data.

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In 12th International Workshop on Agent Mediated Electronic Commerce (AMEC-10) Toronto, Canada, May 2010

Modeling Seller Listing Strategies

Quang Duong, Neel Sundaresan, Zeqian Shen

Online markets have enjoyed explosive growths and emerged as an important research topic in the field of electronic commerce. Researchers have mostly focused on studying consumer behavior and experience, while largely neglecting the seller side of these markets.

Our research addresses the problem of examining strategies sellers employ in listing their products on online market places. In particular, we introduce a Markov Chain model that captures and predicts seller listing behavior based on their present and past actions, their relative positions in the market, and market conditions. These features distinguish our approach from existing models that usually overlook the importance of historical information, as well as sellers’ interactions.

We choose to examine successful sellers on eBay, one of the most prominent online marketplaces, and empirically test our model framework using eBay’s data for fixed-priced items collected over a period of four and a half months.

This empirical study entails comparing our most complex history-dependent model’s predictive power against that of a semi-random behavior baseline model and our own history-independent model. The outcomes exhibit differences between different sellers in their listing strategies for different products, and validate our models’ capability in capturing seller behavior. Furthermore, the incorporation of historical information on seller actions in our model proves to improve its predictions of future behavior

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In Proceedings of Eurographics/IEEE VGTC Syposium on Visualization, May 2007, pp. 83-90

Path Visualization for Adjacency Matrices

Zeqian Shen, Kwan-Liu Ma, Zeqian Shen, Kwan-Liu Ma

For displaying a dense graph, an adjacency matrix is superior than a node-link diagram because it is more compact and free of visual clutter. A node-link diagram, however, is far better for the task of path finding because a path can be easily traced by following the corresponding links, provided that the links are not heavily crossed or tangled.

We augment adjacency matrices with path visualization and associated interaction techniques to facilitate path finding.

Our design is visually pleasing, and also effectively displays multiple paths based on the design commonly found in metro maps. We illustrate and assess the key aspects of our design with the results obtained from two case studies and an informal user study.

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The Review of Agricultural Economics, 29(3):446-493. (2007)

The Productivity Argument for Investing in Young Children

James J.Heckman

This paper presents a productivity argument for investing in disadvantaged young children. For such investment, there is no equity-efficiency tradeoff.

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Proc. Of the Asia Pacific Symposium on Information Visualization (APVIS 06), 2006

BiblioViz: A System for Visualization Bibliography Information

Zeqian Shen, Michael Ogawa, Soon Tee Teoh, Kwan-Liu Ma, Zeqian Shen, Michael Ogawa, Soon Tee Teoh, Kwan-Liu Ma

The InfoVis 2004 contest led to the development of several bibliography visualization systems. Even though each of these systems o#ers some unique views of the bibliography data, there is no single best system o#ering all the desired views. We have thus studied how to consolidate the desirable functionalities of these systems into a cohesive design.

We have also designed a few novel visualization methods. This paper presents our findings and creation: BiblioViz, a bibliography visualization system that gives the maximum number of views of the data using a minimum number of visualization constructs in a unified fashion.

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IEEE Transactions on Visualization and Computer Graphics, 12, 6, (Nov 2006), pp. 1429-1439

Visual Analysis of Large Heterogeneous Social Networks by Semantic and Structural Abstraction

Zeqian Shen, Kwan-Liu Ma, Tina Eliassi-Rad, Zeqian Shen, Kwan-Liu Ma, Tina Eliassi-Rad

Social network analysis is an active area of study beyond sociology. It uncovers the invisible relationships between actors in a network and provides understanding of social processes and behaviors.

It has become an important technique in a variety of application areas such as the Web, organizational studies, and homeland security. This paper presents a visual analytics tool, OntoVis, for understanding large, heterogeneous social networks, in which nodes and links could represent different concepts and relations, respectively. These concepts and relations are related through an ontology (a.k.a. a schema).

OntoVis is named such because it uses information in the ontology associated with a social network to semantically prune a large, heterogeneous network. In addition to semantic abstraction, OntoVis also allows users to do structural abstraction and importance ltering to make large networks manageable and to facilitate analytic reasoning. All these unique capabilities of OntoVis are illustrated with several case studies.

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In Finis Welch and Eric Hanushek, eds., Handbook on the Economics of Education, Vol. 1, Amsterdam: Elsevier, pp. 697-812. (2006)

Interpreting the Evidence on Life Cycle Skill Formation

Flavio Cunha, James J.Heckman, Lance Lochner, Dimitriy Masterov

This paper presents economic models of child development that capture the essence of recent findings from the empirical literature on skill formation. The goal of this essay is to provide a theoretical framework for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical studies, and for formulating policy. Central to our analysis is the concept that childhood has more than one stage. We formalize the concepts of self-productivity and complementarity of human capital investments and use them to explain the evidence on skill formation. Together, they explain why skill begets skill through a multiplier process.

Skill formation is a life cycle process. It starts in the womb and goes on throughout life. Families play a role in this process that is far more important than the role of schools. There are multiple skills and multiple abilities that are important for adult success.

Abilities are both inherited and created, and the traditional debate about nature versus nurture is scientifically obsolete. Human capital investment exhibits both self-productivity and complementarity. Skill attainment at one stage of the life cycle raises skill attainment at later stages of the life cycle (self-productivity). Early investment facilitates the productivity of later investment (complementarity).

Early investments are not productive if they are not followed up by later investments (another aspect of complementarity). This complementarity explains why there is no equity-efficiency trade-off for early investment. The returns to investing early in the life cycle are high. Remediation of inadequate early investments is difficult and very costly as a consequence of both self-productivity and complementarity.

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In Diane Coyle, Wendy Alexander, and Brian Ashcroft, eds., New Wealth for Old Nations: Scotland’s Economic Prospects, Princeton: Princeton University Press, pp. 119-165. (2005)

Skill Policies for Scotland

James J.Heckman, Dimitriy Masterov

This paper argues that skill formation is a life-cycle process and develops the implications of this insight for Scottish social policy. Families are major producers of skills, and a successful policy needs to promote effective families and to supplement failing ones. We present evidence that early disadvantages produce severe later disadvantages that are hard to remedy.

We also show that cognitive ability is not the only determinant of education, labor market outcomes and pathological behavior like crime. Abilities differ in their malleability over the life-cycle, with noncognitive skills being more malleable at later ages. This has important implications for the design of policy. The gaps in skills and abilities open up early, and schooling merely widens them.

Additional university tuition subsidies or improvements in school quality are not warranted by Scottish evidence. Company sponsored job training yields a higher return for the most able and so this form of investment will exacerbate the gaps it is intended to close.

For the same reason, public job training is not likely to help adult workers whose skills are rendered obsolete by skill-biased technological change. Targeted early interventions, however, have proven to be very effective in compensating for the effect of neglect.

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Quarterly Journal of Economics 120, no. 1 (2005): 131-172

Profit Sharing and the Role of Professional Partnerships

Steve Tadelis, Jonathan Levin

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.

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The Journal of Law and Economics, 48(1):1-39. (2005).

Labor Market Discrimination and Racial Differences in Premarket Factors

Pedro Carneiro, James J.Heckman, Dimitriy Masterov

We investigate the relative significance of differences in cognitive skills and discrimination in explaining racial/ethnic wage gaps. We show that cognitive test scores taken prior to entering the labor market are influenced by schooling. Adjusting the scores for racial/ethnic differences in education at the time the test is taken reduces their role in accounting for the wage gaps.

We also consider evidence on parental and child expectations about education and on stereotype-threat effects. We find both factors to be implausible alternative explanations for the gaps we observe. We argue that policies need to address the sources of early skill gaps and to seek to influence the more malleable behavioral abilities in addition to their cognitive counterparts.

Such policies are far more likely to be effective in promoting racial and ethnic equality for most groups than are additional civil rights and affirmative action policies targeted at the workplace.

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in Laura B. Nielsen and Robert L. Nelson, eds., Handbook of Research on Employment Discrimination: Rights and Realities, New York: Springer. (2005)

Understanding the Sources of Ethnic and Racial Wage Gaps and Their Implications for Policy

Pedro Carneiro, James J.Heckman, Dimitriy Masterov

Previous studies show that controlling for ability measured in the teenage years eliminates young adult wage gaps for all groups except black males, for whom the gap is reduced by approximately three-fourths. This suggests that disparity in skills, rather than the differential treatment of such skills in the market, produces racial and ethnic wage differentials.

However, minority children and their parents may have pessimistic expectations about receiving fair rewards for their skills in the labor market and so they may invest less in skill formation. Poor schools may also depress cognitive achievement, even in the absence of any discrimination.

We find that the evidence on expectations is mixed. Although all groups are quite optimistic about the future schooling outcomes of their children, minority parents and children have more pessimistic expectations about child schooling relative to white children and their parents when the children are young.

At later ages, expectations are more uniform across racial and ethnic groups. Gaps in ability across racial and ethnic groups also open up before the start of formal schooling, and the different trajectories of Hispanic and black students indicate that differences in schooling cannot be the source of cognitive disparities. Finally, test scores depend on schooling attained at the time of the test.

Adjusting for differences in schooling attainment at the age the test is taken reduces the power of measured ability to shrink wage gaps for blacks, but not for other minorities.

We also document the presence of disparities in noncognitive traits across racial and ethnic groups. These characteristics have been shown elsewhere to be important for explaining the labor market outcomes of adults. This evidence points to the importance of early (preschool) family factors and environments in explaining both cognitive and noncognitive ability differentials by ethnicity and race.

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American Economic Review Papers and Proceedings 92, no. 2 (2002): 433-437

Complexity, Flexibility and the Make-or-Buy Decision

Steve Tadelis

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.

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Journal of Political Economy 110, no. 4 (2002): 854-882

The Market for Reputations as an Incentive Mechanism

Steve Tadelis

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)

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Rand Journal of Economics 32, no. 3 (Autumn 2001): 387-407

Incentives versus Transaction Costs: A Theory of Procurement Contracts

Patrick Bajari

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.

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Proceedings of the 24th International Conference on World Wide Web, 88-96 (2015)

Is Sniping A Problem For Online Auction Markets?

A common complaint about online auctions for consumer goods is the presence of ``snipers,'' who place bids in the final seconds of sequential ascending auctions with predetermined ending times. The literature conjectures that snipers are best-responding to the existence of ``incremental" bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond. As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer's propensity to participate in future auctions. We show the effect to be causal using a carefully selected subset of auctions from eBay.com and instrumental variables estimation strategy. Bidders respond to sniping quite strongly and are between 4 and 18 percent less likely to return to the platform.

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Journal of Law, Economics and Organization

Auctions versus Negotiations in Procurement: An Empirical Analysis

Patrick Bajari, Robert McMillan

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.

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Journal of Industrial Economics, forthcoming

Contracting for Government Services: Theory and Evidence from U.S. Cities

Jonathan Levin

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

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The Effect of Medicaid on Health Care Consumption of Young Adults

Dominic Coey

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