Michael Rauh
Associate Professor of Business Economics | Indiana University, Kelley School of Business
Bloomington, IN, UNITED STATES
Michael Rauh's research interests are contract theory, the theory of the firm, economics and culture and economic sociology.
Industry Expertise (3)
Research
Education/Learning
Capital Markets
Areas of Expertise (3)
Industrial Organization
Microeconomics
Game Theory
Education (3)
The Johns Hopkins University,: Ph.D., Economics 1997
University of Chicago: M.A., Economics 1992
University of Missouri-Columbia: B.S., Business Administration 1990
Articles (5)
Incentives, Wages, Employment, and the Division of Labor in Teams
The RAND Journal of Economics
2014 We develop a theory of incentives, wages, and employment in the context of team production. A central insight is that specialization and division of labor not only improve productivity but also increase effort and the sensitivity of effort to incentives under moral hazard. We show that employment and incentives are complements for the principal when the positive effects of specialization and division of labor outweigh the increase in risk associated with additional employment and are substitutes otherwise. We provide new characterizations of the partnership, the firm, and the role of the budget-breaker that are quite different from the classical literature.
The Firm as a Socialization Device
Management Science
2010 Why do firms exist? What is their function? What do managers do? What is the role, if any, of social motivation in the market? In this paper, we address these questions with a new theory of the firm, which unites some major themes in management, principal-agent theory, and economic sociology. We show that although the market is a superior incentive mechanism, the firm has a comparative advantage with respect to social motivation. We then show that the market is efficient in environments that favor the provision of incentives, such as when subjective risk is low and ...
Agency and Anxiety
Journal of Economics & Management Strategy
2010 In this paper, we introduce the psychological concept of anxiety into agency theory. An important benchmark in the anxiety literature is the inverted-U hypothesis, which states that an increase in anxiety improves performance when anxiety is low, but reduces it when anxiety is high. We show that the inverted-U hypothesis is consistent with evidence that high-powered incentives can reduce the agent's optimal effort and expected performance. In equilibrium, however, a profit-maximizing principal never offers such counterproductive incentives. We also show that the ...
Strategic Complementarities and Search Market Equilibrium
Games and Economic Behavior
2009 In this paper, we apply supermodular game theory to the equilibrium search literature with sequential search. We identify necessary and sufficient conditions for the pricing game to exhibit strategic complementarities and prove existence of equilibrium. We then show that price dispersion is inherently incompatible with strategic complementarities in the sense that the Diamond Paradox obtains when firms are identical and is robust within the class of search cost densities that are small near zero and support strategic complementarities. We also show that a ...
Inflation, Price Dispersion, and Market Structure
European Economic Review
2008 In this paper, we use a novel data set containing prices from bazaars, convenience stores, and supermarkets in Istanbul to re-examine the relationship between price dispersion and inflation. Although existing evidence is mixed, we find positive and significant relationships between dispersion, on the one hand, and lagged dispersion and unexpected product-specific inflation on the other. We also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing. Finally, average price duration and dispersion are lowest in the bazaar. This is intuitive, since menu and search costs should be minimal in that market structure.