About

Luis Rayo is the Erwin P. Nemmers Professor of Strategy and former Chair of the Strategy Department at Northwestern University’s Kellogg School of Management. He is also a Research Fellow at the Centre for Economic Policy Research. His previous academic appointments include Professor of Finance at the University of Utah’s David Eccles School of Business, Professor of Management at the London School of Economics, Associate Professor of Economics at the University of Chicago Booth School of Business, Chair of ITAM’s economics department, and Visiting Professor at MIT Sloan School of Management. Luis Rayo is an applied economic theorist specializing in contract theory and information economics. His research covers a wide range of topics, including organizational economics, social economics, and the link between income and happiness.

Research topics

• Political Science
• Computer Science
• Microeconomics
• Economics
• Engineering
• Computer Security
• Law
• Operations research
• Mathematical economics
• Artificial Intelligence
• Mathematics
• Industrial organization
• Arithmetic
• Public relations
• Epistemology
• Business

Selected publications

• The Social Media Externality

  SSRN Electronic Journal · 2026-01-01

  preprintOpen accessSenior author
  PublisherDOI

• Feedback Design in Dynamic Moral Hazard

  Econometrica · 2025-01-01 · 2 citations

  articleSenior author

  We study the joint design of dynamic incentives and performance feedback for an environment with a coarse (all‐or‐nothing) measure of performance, and show that hiding information from the agent can be an optimal way to motivate effort. Using a novel approach to incentive compatibility, we derive a two‐phase solution that begins with a “silent phase” where the agent is given no feedback and is asked to work non‐stop, and ends with a “full‐transparency phase” where the agent stops working as soon as a performance threshold is met. Hiding information leads to greater effort, but an ignorant agent is also more expensive to motivate. The two‐phase solution—where the agent's ignorance is fully frontloaded—stems from a “backward compounding effect” that raises the cost of hiding information as time passes.

  PublisherDOI

• Feedback Design in Dynamic Moral Hazard

  2024-07-08 · 1 citations

  articleSenior author

  The early stages of many careers serve as a trial period where employees seek a high-value reward (e.g., a promotion) while working hard to demonstrate their productivity. A key design component of such jobs is the performance feedback offered to the employee, as it allows them to adjust their behaviors and learn what their future rewards might look like. While some experts argue that a policy of full transparency is best---that is, keeping employees fully apprised of their performance---such practice is far form uniform as employers may see a strategic gain from hiding information or postponing its release.

  PublisherDOI

• Network Externalities and Market Dominance

  Management Science · 2023 · 24 citations

  Senior authorCorresponding
  • Economics
  • Microeconomics
  • Industrial organization

  We propose a monopoly and Stackelberg duopoly model for “new economy” markets—with a Beckerian S-shaped demand curve at its center—that allows for intermediate degrees of firm focality and consumer heterogeneity. Because of network externalities, firms compete for the dominant market share, rather than the marginal consumer. This leads to a type of limit pricing—from within, rather than from outside the market—where the nondominant firm captures a positive market share that serves as a consolation prize. We characterize how firms’ technologies, “consumer impulses” (which might be influenced by past sales, defaults, or advertising), and network externalities affect competition, and derive implications for firm strategy. Broadly speaking, we find that the dominant firm should adopt an aggressive “top-dog” stance (akin to, but not identical to, that of a firm seeking to deter rival entry), whereas the nondominant firm should respond with an accommodating “puppy-dog” approach. This paper was accepted by Alfonso Gambardella, business strategy. Funding: R. Akerlof received financial support from the Institute for New Economic Thinking.

  PublisherDOI

• Optimal Feedback in Contests

  The Review of Economic Studies · 2022 · 18 citations

  Senior authorCorresponding
  • Computer Science
  • Computer Science
  • Operations research

  Abstract We obtain optimal dynamic contests for environments where the designer monitors effort through coarse, binary signals—Poisson successes—and aims to elicit maximum effort, ideally in the least amount of time possible, given a fixed prize. The designer has a vast set of contests to choose from, featuring termination and prize-allocation rules together with real-time feedback for the contestants. Every effort-maximizing contest (which also maximizes total expected successes) has a history-dependent termination rule, a feedback policy that keeps agents fully apprised of their own success, and a prize-allocation rule that grants them, in expectation, a time-invariant share of the prize if they succeed. Any contest that achieves this effort in the shortest possible time must in addition be what we call second chance: once a pre-specified number of successes arrive, the contest enters a countdown phase where contestants are given one last chance to succeed.

  PublisherDOI

• Optimal Feedback in Contests

  2021 · 12 citations

  Senior authorCorresponding
  • Computer Science
  • Computer Security
  • Computer Science

  We derive an optimal dynamic contest for environments where effort can be monitored only through a coarse, binary performance measure and the principal chooses prize-allocation and termination rules together with a real-time feedback policy for the contestants. The optimal contest takes a stark cyclical form: contestants are kept fully apprised of their own successes, and at the end of each fixed-length cycle, if at least one agent has succeeded, the contest ends and the prize is shared equally among all successful agents irrespective of when they succeeded; otherwise, the designer informs all contestants that nobody has yet succeeded and the contest resets. Applications include promotions, innovation contests, and proof-of-work protocols.

  PublisherDOI

• Working to learn

  Journal of Economic Theory · 2021-08-25 · 4 citations

  articleOpen accessSenior author
  PublisherOA PDFDOI

• Narratives and the Economics of the Family

  SSRN Electronic Journal · 2020-01-01

  preprintOpen accessSenior author
  PublisherDOI

• Stories at Work

  AEA Papers and Proceedings · 2020 · 11 citations

  Senior authorCorresponding
  • Computer Science
  • Political Science
  • Public relations

  Organizational stories are commonplace and a crucial force shaping employee behavior. We show how an organization's choice of story can be formally incorporated into its design problem. In our simple model, the organization optimally becomes either “purpose driven,” which involves pairing flat money incentives with a story that emphasizes the importance of generating output (e.g., saving lives, putting a person on the moon), or “incentive driven,” which involves pairing steep money incentives with a narrower story that emphasizes the importance of maintaining ethical standards (e.g., maintaining quality, helping peers). We illustrate the applicability of these results using a variety of examples.

  PublisherDOI

• Training and Effort Dynamics in Apprenticeship

  American Economic Review · 2019-10-29 · 38 citations

  articleOpen accessSenior author

  A principal specifies time paths of effort provision, task allocation, and knowledge transfer for a cash-constrained apprentice, who is free to walk away at any time. In the optimal contract the apprentice pays for training by working for low or no wages and by working inefficiently hard. The apprentice can work on both knowledge-complementary and knowledge-independent tasks. We study the optimal time path of effort distortions and their impact on the knowledge transfer, and analyze the effect of regulatory limits on the length of apprenticeships and on how much effort apprentices are allowed to provide. (JEL D82, D86, J24, J41, M53)

  PublisherOA PDFDOI

Frequent coauthors

• Luis Garicano

  New York University

  13 shared

• Gary S. Becker

  12 shared

• Robert Akerlof

  University of Warwick

  6 shared

• George Georgiadis

  Northwestern University

  4 shared

• Drew Fudenberg

  4 shared

• Antonio Rangel

  3 shared

• B. Douglas Bernheim

  National Bureau of Economic Research

  3 shared

• Jeffrey C. Ely

  Northwestern University

  3 shared

Awards & honors

• Sidney J. Levy Teaching Award (2024)
• Ned Smith Research Mentorship Award at Kellogg (2021)
• Brady Teaching Award at the University of Utah (2015)
• Executive MBA Teaching Award at the University of Utah (2015…
• Professional MBA Teaching Award at the University of Utah (2…