Faculty Profile: Javier Donna

Faculty Profile: Assistant Professor Javier Donna
Javier Donna
Javier Donna arrived to Ohio State in 2012 after completing his PhD from Northwestern University. In 2016 he was named the Howard P. Marvel Scholar by the Department of Economics.

Donna is a scholar in the field of empirical industrial organization (IO). IO is a field of economics studying the strategic behavior of firms, antitrust policy, price competition and demand estimation. Donna’s research focuses on investigating the efficiency of market and non-market institutions. He teaches IO at the undergraduate and Ph.D. levels.

“I typically investigate market efficiency using a two-step framework,” explained Donna.

“First, I estimate the parameters that characterize demand preferences and supply technology that rationalize the individual behavior of consumers, firms, and workers. Second, I use the estimated parameters to perform a counterfactual analysis to evaluate efficiency. In the counterfactual analysis he typically compares the outcome observed in the actual empirical setting to the one in alternative scenarios, such as the allocation through a non-market institution, a policy intervention, an environmental change, alternative pricing decisions, etc.”

Donna has applied this framework to many settings, including water markets, transportation markets, labor markets, online trading platforms, the supply of crime and demand for punishment, networked markets, and a variety of market and non-market mechanisms such as auctions, posted prices, quotas, and matching.

A common feature in Donna’s work is his collaboration with colleagues from other fields to bring together the methodologies of multiple disciplines and expand the frontiers of academic research. He has worked with economic historians, labor economists, microeconomic theorists, experimental economists and other IO economists.

Donna’s main lines of research are market frictions, price dispersion and vertical markets. Market frictions, such as liquidity constraints or costly search, prevent a market to operate efficiently.

“Economists agree that markets are efficient in the absence of frictions,” said Donna. “But the presence of liquidity constraints may generate a market failure. The reason is simple: if a poor bidder, who is liquidity constrained, has a higher valuation for a good than a wealthy one, a market will not allocate the good to highest valuation bidder, thus generating inefficiency. In such setting a non-market institution, such as a quota system, may perform more efficiently than a market institution, such as an auction system.”

This is one of the conclusions in the paper “The Illiquidity of Water Markets,” that Donna co-authored with economic historian, J. Espin-Sanchez, from Yale University.

In a second line of research, Donna investigates the role of price and wage dispersion on market efficiency.

According to Donna, there is vast empirical literature studying price determination and the allocation of goods and services. However, none of the empirical work has addressed the central question of how prices are determined in the presence of network effects due to the modeling assumptions used.

“Ignoring network effects has significant consequences on the theoretical predictions of price dispersion, wage inequality and wage growth in these models,” said Donna. “This could lead to ill-informed policy decisions on fundamental issues such as minimum wage, unemployment assistance programs and consumer welfare.”

Donna and co-authors aim to fill this gap in the literature in a series of papers that investigate the welfare implications of network effects. The paper “Networks, Frictions, and Price Dispersion” is co-authored with microeconomic theorist, P. Schenone, and labor economist, G. Veramendi, both from Arizona State University (ASU). This paper develops a theory and methodology for analyzing buyer-seller networks that is tractable for empirical work.

A second paper studies network effects in eBay and is co-authored with IO economists, J. Boehnke (Harvard University) and D. Masterov (eBay Research Labs), and labor economist, G. Veramendi (ASU). “One challenge of this paper is to reconstruct the network of buyers and sellers in eBay,” explained Donna. “The great advantage of eBay data is that it gives access to `click-stream’ data.

In a third line of research, Donna investigates the value of intermediation in vertical markets in a new paper co-authored with IO economists, P. Pereira (Autoridade da Concorrência and CEFAGE), T. Pires (University of North Carolina), and A. Trindade (Getulio Vargas Foundation). Donna and co-authors focus on the outdoor advertising industry (e.g. advertising on bus shelter panels, billboards, transit vehicles, etc.) and explore a unique circumstance whereby consumers can purchase either from manufacturers or retailers. Thus the counterfactual scenario without retailers is observed from the data. Then they evaluate the welfare impact of retailing services using the two-step framework described above.

Currently, Donna is working on a paper about gender differences in business travel demand with experimental economists, Katherine Baldiga Coffman and Lucas Coffman, both from Harvard University, and labor economist, G. Veramendi, from ASU.

Donna’s research has been featured in Harvard Business Review, The Economist, VOX EU, Fortune, Yahoo! Finance, and other news outlets.