Susan Athey
Susan Athey is an applied theorist who has made important contributions to eco
nomic theory, empirical economics, and econometrics. She has built a research
program strongly focused on using theory to understand substantive economic is
sues, especially in industrial organization. She has developed tools and techn
iques that provide the basis for empirical work strongly grounded in sound eco
nomic theory. She has made particularly important advances in developing and a
pplying tools that replace strong functional form assumptions in models with m
ore plausible conditions such as monotonicity, thereby facilitating the develo
pment of more robust empirical results.
Monotone Informational Models
A great deal of economic theory is agnostic about functional form. For empiric
al work, however, functional form is crucial, but strong assumptions such as l
inearity are implausible and in many cases theoretically impossible. Weaker as
sumptions such as monotonicity are often quite plausible in applied settings.
Athey has played a major role in rewriting economic theory to exploit monotoni
city assumptions. Her 2002 Quarterly Journal of Economics and her 2001 Econome
trica papers are fundamental steps toward that goal. The first paper demonstra
tes how a monotonicity assumption can be used to derive “expected” comparati
ve statics results in a model with informational imperfections. The second pap
er uses a monotonicity-like condition, the single crossing property, to derive
strong results about equilibrium –– in this case the existence of a pure st
rategy equilibrium. The powerful techniques developed in these papers have bee
n profitably used in applied problems by Athey and others.
Industrial Organization: Auctions
Athey has also made important contributions to the economic analysis of auctio
ns. Her 2001 Journal of Political Economy paper with Levin examines the role o
f private information in timber auctions. Most work on auctions makes an assum
ption about whether there is private information, and whether this information
is private value or common value, and proceeds from those assumptions. Throug
h the use of innovative theory and by carefully analyzing the structure of bid
s, Athey and Levin are able to identify private information. This work draws o
n Athey’s earlier work on monotone existence and demonstrates the power of th
at work. It also develops techniques that are likely to be valuable in a varie
ty of economic problems.
Macroeconomics
In joint work with Kyle Bagwell and Chris Sanchirico (Review of Economic Studi
es 2004), Athey examined a setting in which a set of firms repeatedly interact
. Broadly speaking, she shows that the optimal collusive equilibrium requires
no price wars on the equilibrium path and rigid prices. With Andrew Atkeson an
d Patrick Kehoe (Econometrica 2005), she uses a similar insight to provide con
ditions under which optimal monetary policy is static and does not depend on s
hock reports that the government has made in previous periods. The basic trade
-off in monetary policy design is well-understood: allowing discretion leads t
o the temptation to inflate in the short-run. Absence of discretion means the
inability to respond to information that is private to the central bank. The s
olution is a legislated inflation cap to limit discretion. The greater the pro
blem of time-inconsistency, the tighter the constraint has to be.
Econometrics
Athey has made significant econometric contributions to nonparametric structur
al analysis and to the estimation of difference-in-differences models. Inferen
ce in the empirical literature on auctions has typically rested on a mix of no
nparametric and parametric assumptions on bidder information and behavior. The
nonparametric assumptions are suppositions about bidder information sets, pre
ferences, and strategic behavior drawn from the theory of auctions. In contras
t, the parametric assumptions are ad hoc functional form specifications made f
or “convenience.” In joint work with Phil Haile (Econometrica 2002), Athey s
trips away the parametric assumptions and examines the identification and test
ability of various auction models using only the nonparametric assumptions of
auction theory. The paper applies basic probabilistic properties of order stat
istics to show how the inferential possibilities depend on the institutional s
tructure of the auction and on the data available on participants’ bids. This
work is a valuable contribution to the growing body of econome
tric research on nonparametric structural analysis.
The standard linear difference-in-differences model for analysis of treatment
response supposes that an intervention is applied to a treatment group in the
second of two time periods. The outcome of interest is assumed to vary linearl
y with group membership, the time period, and a group-time interaction. In joi
nt work with Guido Imbens (Econometrica 2006), Athey addresses concern about t
he credibility of these linearity assumptions by developing a nonparametric ch
ange-in-changes model. This replaces the assumption of linearity with the assu
mption of monotonicity of outcomes in a person-specific scalar unobserved vari
able and with time-stationarity of the distribution of this variable within gr
oups. The paper is an important advance over the existing linear differences i
n differences approach.
Home Page:
http://kuznets.fas.harvard.edu/~athey/
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