Ariel Zetlin-Jones’s research while affiliated with Carnegie Mellon University and other places

In the past few years, "metaverse" and "non-fungible tokens (NFT)" have become buzzwords, and the prices of related assets have shown speculative bubble-like behavior. In this paper, we attempt to better understand the underlying economic dynamics. To do so, we look at Decentraland, a virtual world platform where land parcels are sold as NFT collections. We find that initially, land prices followed traditional real estate pricing models -- in particular, value decreased with distance from the most desirable areas -- suggesting Decentraland behaved much like a virtual city. However, these real estate pricing models stopped applying when both the metaverse and NFTs gained increased popular attention and enthusiasm in 2021, suggesting a new driving force for the underlying asset prices. At that time, following a substantial rise in NFT market values, short-term holders of multiple parcels began to take major selling positions in the Decentraland market, which hints that, rather than building a metaverse community, early Decentraland investors preferred to cash out when land valuations became overly inflated. Our analysis also shows that while the majority of buyers are new entrants to the market (many of whom joined during the bubble), liquidity (i.e., parcels) was mostly provided by early adopters selling, which caused stark differences in monetary gains. Early adopters made money -- more than 10,000 USD on average per parcel sold -- but users who joined later typically made no profit or even incurred losses in the order of 1,000 USD per parcel. Unlike established markets such as financial and real estate markets, newly emergent digital marketplaces are mostly self-regulated. As a result, the significant financial risks we identify indicate a strong need for establishing appropriate standards of business conduct and improving user awareness.

We re‐examine the ability of teams to credibly self‐impose group punishments and prevent free‐riding when individual inputs are unobservable. We formulate self‐imposed group punishments as performance under‐reporting by the team. While under‐reporting is not credible in a static game, we show that simple strategies can sustain under‐reporting in a repeated game, and that the threat of under‐reporting improves welfare only if team members' preferences between shirking and team output consumption are non‐separable. Our results suggest that self‐assessments can replace increased managerial monitoring in remote work environments. This article is protected by copyright. All rights reserved

To date, cryptocurrency prices are volatile and many cryptocurrency developers have adopted ad hoc approaches to stabilize their cryptocurrency price. When these currencies are not 100% backed by other valued assets, part of their price volatility may arise from self-fulfilling expectations of a speculative attack (as in Obstfeld (1996)). We show that an exchange rate policy, which is less than 100% backed and dynamically adjusts in response to traders’ conversion demand eliminates speculative attacks while, under some conditions, preserving much of the desired exchange rate stability. This dynamic exchange rate policy admits a great deal of discretion to and requires commitment by the party implementing the policy. We demonstrate how to implement this policy using the Ethereum network—a smart contract blockchain environment—and how this implementation yields commitment to the policy.

We show that an increase in banks׳ holdings of domestic Sovereign debt decreases the ability of domestic Sovereigns to successfully enact bailouts. When Sovereigns finance bailouts with newly issued debt and the price of Sovereign debt is sensitive to unanticipated debt issues, then bailouts dilute the value of banks׳ Sovereign debt holdings rendering bailouts less effective. We explore this feedback mechanism in a model of financial intermediation in which banks are subject to managerial moral hazard and ex ante optimality requires lenders to commit to ex post inefficient bank liquidations. A benevolent Sovereign may desire to enact bailouts to prevent such liquidations thereby neutralizing lenders׳ commitment. In this context, home bias for Sovereign debt may arise as a mechanism to deter bailouts and restore lenders׳ commitment.

We develop a tractable framework for analyzing adverse selection economies with imperfect competition. Applications include markets for insurance, loans and financial assets. In our environment, uninformed buyers offer a general menu of screening contracts to trade with a privately informed seller. Imperfect competition is captured by allowing some sellers to trade with multiple buyers while others can only trade with one buyer (as in Burdett and Judd (1983)). Thus, the framework allows us to consider variations to the degree of competition in the market where one extreme is perfect competition a la Rothschild and Stiglitz (1976) while the other extreme is the standard non-linear pricing problem of a monopolist. We show that the unique symmetric mixed strategy equilibrium can be summarized by a probability distribution of indirect utilities offered by each buyer to each type of seller. Furthermore, we prove that the equilibrium exhibits a strict rank-preserving property, in that different types of sellers have an identical ranking of different menus offered in equilibrium. The equilibrium features menus that are all separating, all pooling or a mixture of both. When both types of menus are offered in equilibrium, those which offer higher utility to the seller are more likely to be separating. Ex-ante welfare is maximized when competition is imperfect. Finally, we study the effects of various policies - such as mandates, non-discrimination requirements and other restrictions on contracts - on welfare and the extent of competition.